Barro Podcast

by Russ Roberts on July 17, 2006

Here’s a podcast with Robert Barro. We talk about growth, poverty, the US current account deficit and a few other things along the way. These EconTalk podcasts now have a "comments" section so feel free to discuss the Barro podcast there and any of the others.

At the end of the podcast is an economics riddle. Please use the "comments" section over there at EconTalk to try and answer it if you can. After a while, I’ll give my take on the problem.

This podcast with Barro is a little longer than the others—about 47 minutes. It would be very helpful to me to know if you like that length or prefer shorter ones in the 20-30 minute range. Just drop me a personal email and let me know.

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Craig

Please don't assume that we're all so enamored of podcasts that you can just skip posting.

I'd really have enjoyed reading a synopsis of the podcast tonight and might -- or might not -- have gotten around to listening to it. As it turns out, it's late and I have to work tomorrow.

Podcast won't happen. Sure would have liked to know what was said. Oh well.

Ryan Fuller

I really enjoyed the riddle. Hopefully we'll see more of these in the future. :)

The riddle is this:

An American tourist goes to a remote island, where the natives live by a barter system. When the tourist decides to pay for lodging by check, the hotel owner laughs but decides to take the check because he likes the picture on it. The tourist purchases other things on the island with other checks. The locals never cash the checks, but eventually begin to circulate as money. If the checks are never cashed, who, if anyone, paid for the vacation?

At first, I thought that the current holders of the checks were the ones who paid for the vacation, as they exchanged actual goods for the paper with people who made a similar exchange with others down the line until you get back to the tourist. Thus, the person holding the check is the one who has lost goods and gained a piece of paper instead. They paid the price.

Upon further consideration, I decided that the tourist actually paid for the vacation by offering an actual good: a piece of paper with a picture on it. The checks are a commodity that ends up serving as a medium of exchange, but the natives value them apart from their use as currency, otherwise nobody would have accepted them as payment in the first place. The tourist paid for his own vacation, but because he values a check (just a piece of paper with a picture) so much less than the natives do, it seems practically free to him.

The riddle is tricky because as Americans (or Europeans, or whatever) we tend to think of checks as being worthless outside of their use as a financial instrument, but a primitive islander might not view them that way. The tourist exchanged value for value, and while the tourist and the natives might have wildly different personal valuations of the checks, that doesn't change the nature of the transaction.

Gabriel M.

The longer the better! I can always pause and go do something else. But getting a chance of hearing relevant people talk is not that easy. So if you catch them, get the most out of them!