Timber Industry Economic Profile

Topics: Federal Reserve System, Monetary policy, Inflation Pages: 7 (1805 words) Published: September 1, 2010
Timber Industry Economic Profile

Following is a discussion of the timber industry including how several economic factors affect it, including: price elasticity of supply and demand; positive and negative externalities; wage inequality; and monetary and fiscal policies.

Price Elasticity

Important to note is that the timber industry and the lumber industry are not one in the same and experience differences price elasticity. The price elasticity of demand for the timber industry is inelastic. Often landowners will hold inventory to sell at a later date if demand is low. The timber will not lose value in storage so price does not need to change. The price elasticity of supply for the timber industry is elastic, as prices typically increase in the spring due to low volume of timber as a result of winter weather.

Possible Negative Externalities

Recreational and Commercial Fishing: Corporations may elect not to harvest timber and lose earnings if timber harvesting damages the fish habitat.

Water Pollution: If timber harvesting pollutes the public water system, costs may be incurred in the remunerations effort.

Risk of Flooding: Increased runoff my decrease sewer capacity costing taxpayers additional money to repair the damage.

Water-Quality Reduction: If timber harvesting decreases the quality of water, other companies that use the water to cool or clean their equipment or products may suffer damages.

Possible Positive Externalities

Recreational Opportunities: Forests provide many recreational opportunities such as hunting, fishing, camping, and hiking.

Essential Habitats: Forests provide essential habitats for endangered plant and animal species.

Wage Inequality

Wage inequality is virtually nonexistent in the timber industry. However, false accusations of wage inequality are sometimes floated by anti-forestry groups such as Greenpeace. One example of this happened to a Papua New Guinea (PNG) forestry company called Saban Enterprises Limited. Throughout Saban’s efforts towards legal certification of its timber products, they were met with false claims and harassment. Green non-governmental organizations (NGOs) wanted to stop commercial forestry in PNG, despite the fact that less than 20% of the country had been set aside as forest production areas and the industry employed 10,000 workers. It could easily be concluded that they did not care about the welfare of Papua New Guinea's people (Stutz, 2008).

Monetary and Fiscal Policy

The United States government can influence various industries through the powers of the Federal Reserve. The Federal Reserve created Federal Reserve notes (dollars) which are used as the standard form of paper money in the United States. The Federal Reserve manages the integrity of the United States’ financial system by controlling the quantity of money in the system. The Federal Reserve is responsible for regulating and overseeing all other United States banks, thereby protecting consumers’ rights. The Federal Reserve also supplies loans and other financial services to the United States public, government entities, and banks, as well as foreign banks.

The Federal Reserve System is run by a Board of Governors which manages the Federal Reserve Banks, advisory committees, and member banks. The seven Federal Reserve Governors, including a chairman, are appointed by the United States President and are then confirmed by members of the Senate. The Federal Reserve chairman is an extremely influential person who’s decisions directly affect the United States economy (Mankiw, 2004 pp.634, 635).

In his 1997 article The Impact of Inflation, Hellerstein explains how distortions in economic activity may occur due to the effects of inflation. For example, the timber industry must forecast its future sales to determine how much logging is necessary to meet demand. This is accomplished chiefly by monitoring new housing starts in the housing market. The Federal Reserve...
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