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Among all the problems that one can be concerned with, the divergence in price among non-tradeables which exists across the US is not something which threatens to tear the union apart.

However, the US

  1. Has greater internal mobility of labour than the EU will ever have in the foreseeable future, due to the relative lack of language barriers.

  2. Lacks a group of politically dominant states whose growth strategy explicitly involves pillaging the industrial plant of other states. The closest thing the US has is New York, but NY's growth strategy is based on pillaging the entire US industrial plant, including NY's own. Which creates an external imbalance, but not an internal one.

  3. Has an institutional setup that privileges poor states in terms of political power (not because they are poor but because they happen to be thinly populated). That has its own problems, but it does make easier to sustain interstate fiscal transfers in the correct direction.

What reason is there to think that price differentials will diverge at an accelerating rate in the US, rather than arriving at reasonably stable differentials?

#1&2 above.

This would, I take it, be involved in the fight against an explicit industrial policy in service of a tacit industrial policy which would be unlikely to be explicitly adopted?

Yes and no. It's a way to curb the incentive for a member state to obstruct industrial policy in other member states.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 19th, 2010 at 11:47:54 AM EST
[ Parent ]
The closest thing the US has is New York, but NY's growth strategy is based on pillaging the entire US industrial plant, including NY's own. Which creates an external imbalance, but not an internal one.

True, though New York State only gets back about eighty percent of what it pays in federal taxes. And that is misleading since what we're talking about here is the NYC metro area, not New York State.  I can't find the Metro area federal numbers, but as an indicator, NJ and CT get on the order of two thirds back.  Furthermore there are net intrastate transfers as well.  This dwarfs anything in the EU.  Of course if the institutional set up were like that of the EU I rather doubt the wealthy parts of the US would be behaving any differently.  But as you write, not only do poorer states have an equal say, they're effectively more equal than others courtesy of the Senate.

by MarekNYC on Fri Nov 19th, 2010 at 12:07:01 PM EST
[ Parent ]
... why would the differentials spiral? I don't see the cause and effect positive feedback where a larger size of differential causes an increase in the differential.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Fri Nov 19th, 2010 at 05:45:39 PM EST
[ Parent ]
Well, my question is why price levels would converge on a steady ratio. Assuming that all states are permitted to engage in fiscal policy sufficient to ensure full employment, I don't have a theory of inflation that permits me to state with any degree of confidence that price levels - rather than, say, inflation rates - will converge on a more or less fixed ratio.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Nov 19th, 2010 at 06:00:57 PM EST
[ Parent ]

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