What Even Google Can’t Tell You

How far is it from Seattle to Vancouver? About 142 miles, according to Google maps. But a classic paper from about 15 years ago estimates the distance as 75,000 “economic miles”, meaning that the cost of transporting goods across the border is equivalent to the cost of adding an extra 75,000 miles to the trip. A subsequent paper estimates the economic distance from the United States to Japan as roughly 7 light years, raising the question of why we trade with Japan when it would be so much cheaper to trade with Alpha Centauri, a mere 4 light years down the road.

Now a new paper (well, new to me anyway; it’s a couple years old, but I’ve only just stumbled on it) by Yuri Gorodnichenko and Linda Tesar rains on the whole parade by arguing that all of these estimates are based on statistical illusions that arise when prices are more variable within one country than another—and there’s no clear way to correct for those illusions. The best Gorodnichenko and Tesar can conclude is that the border crossing between Seattle and Vancouver increases the economic distance by somewhere between 28 miles and 65,000,000 miles—and that we need a better way to approach this problem.

11 Responses to “What Even Google Can’t Tell You”

1. 1 1 dave

ill bet alpha centaurians make a sweet car.

what can googlezon tell you, though? a much better guesstimate would be my guess.

2. 2 2 Doctor Memory

“Now a new paper [...] rains on the whole parade by arguing [interesting economics stuff].”

That’s nice, but surely someone previously had noticed that NASA had been unable to transport any goods to Alpha Centauri despite apparently having the budget for a few tickets to Tokyo?

3. 3 3 Harold

The original thing seems to be based on the “law of one price” within countries; that countries are homogeneous, so price differentials will have low dispersion within one country. If you then compare with dispersions between countries, you will reveal the “border effect”. The fact that the differentials within the USA are much greater than within Canada seems to undermine the whole basis of the original idea, and therefore leads to erroneous and meaningless estimates of the border effect.

I am not sure that the 75,000 miles is actually the “cost of transporting goods”, but rather a “proxy” measure for the increased differentials – i.e. this is how far away it would have to be for prices to vary by this much. Arriving at figures of 7 light years is clearly absurd, and should indicate that something is wrong. This paper seems to explain what it is that is wrong.

4. 4 4 Scott F

As evidence:
Google fell well within Gorodnichenko & Tesar’s estimates.

5. 5 5 Jonathan Kariv

A bit off topic but this reminded me that google maps used to have an easter egg. If you asked for directions from new york to paris then step 24 was “Swim across the atlantic ocean”.

6. 6 6 dave

you must know the recent google ‘im feeling lucky’ trick – if not, here it is:
type ‘french military victories’ into the search field. click ‘feeling lucky’.
enjoy.

7. 7 7 Cos

Dr_Memory: Behind your comment lies the rather silly assumption that economists consider reality to trump theory :)

8. 8 8 Bob

“the border crossing between Seattle and Vancouver increases the economic distance by somewhere between 28 miles and 65,000,000 miles”

Depending on whether you’re standing still or jogging when calculating.

9. 9 9 Meristem

“the border crossing…increases the economic distance by somewhere between 28 miles and 65,000,000 miles”

If the crossing into Canada is similar to my last one, all goods would be removed from containers for inspection. Bet that adds another round trip to Alpha Centauri to the equation.

10. 10 10 Corey Allan Hawkins

My step father owns a transportation company. I’ve also been in the business 13 + years. From Vancouver to Seattle, your info on it does not surprise me. What does is the increasingly lower costs of drivers wages to make a load from A to B happen. A lot of company’s are undercutting by a huge margin, creating very little room for wages never mind the gas. There is an old slogan in the transportation industry. “NO CHEAP FREIGHT”, but with companies undercutting other owner operators by a long shot, no wonder the trip seems like 65,000 km’s.

Perhaps this paper could shed some light on the issue.

11. 11 11 Seth

I wonder how much FedEx charges?