Gift Suggestions for Economics Teachers

If you're looking for an interesting last minute gift for the economics student or economics teacher on your list, even if that student or teacher is you, you could do worse than to pick up David Warsh's book, Knowledge and the Wealth of Nations. It is a worthwhile read about the profession, and one of the most interesting topics within the study of economics, economic growth. And it presents the history of the debate. Within An Inquiry into the Nature and Causes of the Wealth of Nations (or here for free access), Adam Smith presented two ideas, the invisible hand of competition, and the question of returns in the pin factory, that often appeared at odds with each other. These topics were alternatively addressed and ignored through much of the evolution of economics.

Warsh does a good job of following that evolution, showing how each new view evolved. The evolution culminates with the presentation of a paper by Paul Romer which begins to really explain how knowledge spillovers impact on productivity, competition and growth. And throughout the book, Warsh maintains his ability to engage the reader with a good story, much as he does in his blog, Economic Principals.

This book can be an excellent resource for the classroom teacher. And students can get a sense of what makes economics an exciting, relevant field of study. To quote from the last lines of the book, "Economics has never been more exciting. Its greatest challenges lie ahead, to discover the deeper secrets of the wealth of nations, the faculties that Adam Smith called our moral sentiments -- what it is about human nature that we call humane."

I welcome your comments and thoughts about this book.

Posted by TSchilling at December 19, 2006 8:14 AM


Comments
Thank you Tim for the excellent reading suggestions. I find that my students often need something other than the textbook, and yes even Fed Challenge, to keep their interest in economics growing. Your reading suggestions are excellent, and have the added benefit of "refreshing" the teacher too. I am headed to the bookstore to obtain my "Christmas break" reading.

Posted by: Julie at January 2, 2007 8:50 AM

Economics and Sci-Fi

Back in May of 2006, in a post on productivity, I mentioned a couple of readings that might be used in explaining economic systems and productivity. One was Player Piano by Kurt Vonnegut, and the other was as a short story titled The Little Black Bag by C.M. Korbluth.

The stories differ in their vision of the future, (indeed, in Kornbluth's story, the vision is seen only through occasional glimpses). But in both cases, the future is essentially controlled by technocrats. These technocrats basically control economic production.

In the case of Vonnegut's story, the technocrats are identified early in their lives and trained to become managers of large-scale production facilities. Those not so identified are relegated to "lesser" rungs in the economy, essentially restricted to government/public service, or small scale entrepreneurial undertakings. The basic needs (food, clothing, shelter) are provided by central planning at low/minimal cost.

In Kornbluth's story, technocrats have designed a world where anyone can be any profession they want. This is because the technology they need to do the job is "smart" technology. Essentially it has all been programmed to do the problem-solving for the worker. (In the story, it's a doctor's bag that allows anyone to be a physician because all of the tools in the bag have the ability to diagnose, prescribe and treat virtually any disease or injury.)

The interesting question for both of these readings is whether or not centrally planned economic production can provide a comfortable standard of living (through increased application of technology/capital and productivity), or whether something is lost in choices and the ability to undertake risk. I think one could even talk about psychic income (happiness?) from pursuing a career/job that one truly enjoys.

The question for you is, are you familiar with either/both of these stories? If so, do you think they have applicability in the classroom within the context I've outlined. I look forward to your comments.

Posted by TSchilling at December 15, 2006 10:01 AM


Comments
I think the stories can be used within the context you identified and other ways. I am more familiar with Player Piano, and I think it is useful in demonstrating how psychic income can be derived from selecting a product and being a consumer, in addition to selecting a career as you pointed out. The same satisfaction cannot exist with a centrally planned production system that spits out products to "consumers" who have no choices in what they receive.

Posted by: Josh Lipman at December 22, 2006 10:26 AM

Markets Work (But Apparently Not Everyone Understands Why)

My average commute involves getting on a train to travel about 35 minutes to downtown. The train station I use has a small coffee wagon where I usually get an eye-opener to help me get through the morning paper. For the past week or so, the owner of the coffee wagon has had a display of pins for sale. These pins flash small lights to draw attention. This morning he had his usual display of about a dozen seasonal pins, and one Chicago Bears "C" pin. The season pins were priced at $5, the Bears pin was priced at $10.

One of the customers was quick to point out that there was only one Bears pin, and he wanted to know "why is that one $10?" I said, "probably supply and demand." He acknowledged my comment but I had a sense from the tone and the look on his face that he may not have understood it.

Now, given this probably wouldn't have happened with the same circumstances outside of most of Illinois, but I would think the explanation would have been easy, unless his coffee hadn't kicked in yet.

Not sure this warrants any comments, but as always, they are welcome.

Posted by TSchilling at December 15, 2006 8:41 AM


Comments
Interesting to hear, even if there is no comment to be given.

Posted by: Bill at February 7, 2007 8:32 PM

Food and Unintended Consequences

I've been on the road for a while and yesterday I was playing "catch up" on e-mails, phone messages, etc. Consequently I've been away from blogging. But something I heard (and read about to some extent) last week caught my attention and I made a note to blog.

I believe the trans-fat ban that passed in New York City is an interesting example of "unintended consequences". My thinking is that this action is not surprising given that we have pushed health care costs to third party systems (whether private or public sector). It has long been a dictum in many circles that power follows the money. I believe even Milton Friedman talked about abdicating payment responsibility for various things (including health care) because it could ultimately result in the third party having some say over other choices that impinge on their responsibility to pay.

In the case of the trans-fat ban, we are looking at government imposing a life-style choice on individuals. Part of the logic rests on the fact that government provides (pays for) health care services. The thinking then follows the "golden rule": they who have the gold make the rules. I suspect that was not an intended consequence of the movement toward third-party payment systems for health care.

On a secondary note, a colleague of mine also pointed out an interesting and somewhat parallel article in the December 7 issue of The Economist. The article deals with the power of the consumer to affect global change, particularly by buying organically produced food. But part of the article questions whether or not the choice really has a positive effect. Specifically, since organically produced foods may be less productive than foods produced with the help of "technology", we could see lower crop yields. These lower crop yields may require that we turn more untilled land to food production in order to feed the same number of people. It could also require the expenditure of more energy to plant, till, harvest, etc. Again, my guess is that this is not a consequence that is intended by those who would have us eat healthy.

While I'm not an expert in these areas, I thought the whole discussion of food choice would be an interesting discussion starter for unintended consequences in policy making. What do you think?

Posted by TSchilling at December 12, 2006 3:52 PM


Comments
Considering unintended consequences is a particularly interesting aspect of the economic way of thinking. The trans-fat ban and buying organic are good examples of institutions and/or consumers making choices which they believe to be in the best interest of individuals or of the planet without regard to long-term consequences of those decisions.

Posted by: Dawn Conner at December 12, 2006 4:19 PM


It is interesting that although many decisions are made with good intentions, unintended consequences are not always anticipated. This may be due in part because decisions are made from a social science perspective of what is good for the planet without regard for the economic way of thinking. The examples of potential unintended and negative consequences of organic farming or buying fair trade coffee point out the need to incorporate the economic way of thinking in our decision-making process.

Posted by: Dawn Conner at December 14, 2006 12:29 PM

TV Worth Watching, Part II

Back in August, I put up a post that listed a site where one could download all of the episodes of the Milton Friedman TV series, Free to Choose. I mentioned that the 1970s era series was still an excellent resource, but the series was no longer available after a few days. The series is again available at a new site. Go to The Idea Channel site and enjoy.

If you've not ever seen this series before, let me know what you think. And thanks to Greg Mankiw for the pointer.

Posted by TSchilling at 4:38 PM Comments (0)

A Seasonal Entry

One of my favorite season web sites has been updated. PNC Bank's Christmas Price Index is up for 2006, showing an overall rise of 3% in the cost of the goods mentioned in The Twelve Days of Christmas. This is the 22nd year for this index and, like last year, PNC has provided a number of interesting things on the web site, including downloadable b-roll footage for newscasts, and a number of educator resources.

I think the site is worth investigating when discussing inflation, but also when discussing economic statistics and data. One of the questions students often face in economic competitions like The Fed Challenge is why some people would prefer one measure of inflation over another. The answer is in how the index is constructed. Different baselines and data can yield different results.

How would you use this information in the classroom?

Posted by TSchilling at 4:30 PM Comments (0)

Trade and Peace

Don Boudreaux over at Cafe Hayek has an interesting post referring to a commentary he did for Christian Science Monitor. He cites some recent research that indicates that trading countries are less likely to develop into warring countries. I found this an interesting parallel to Thomas Friedman's idea in The World is Flat that countries with McDonald's have not gone to war against each other. Friedman's explanation is that the investment flows from outside have a way of exerting pressures to reduce geopolitical risk. Put simply, markets don't like risk. I found the comments at Boudreaux's post interesting, as well.

What are your thoughts?

Posted by TSchilling at 4:19 PM Comments (0)

A Story of Comparative Advantage

Of all the ideas in economics, comparative advantage may be the one that is most likely to bring forth the old line that "economics explains things that are good in theory, but don't work in practice." I won't bother to point out that if something doesn't work in practice, the theory usually doesn't last long.

But if you are looking for an interesting story to explain comparative advantage to your students, please look at this post at the Library of Economics and Liberty. It's written by Dr. Russell Roberts, a professor at George Mason University and titled Treasure Island: The Hidden Elegance of Comparative Advantage. It does a nice job putting the idea into a simple, easy to understand story.

Let me know how this works. I think it beats heck out of the wool/wine story that many of us use to explain the concept.

Posted by TSchilling at 4:15 PM Comments (0)

Milton Friedman, 1912 - 2006

Milton Friedman, winner of the 1976 Nobel Prize in Economics, died earlier today at the age of 94. Dr. Friedman's efforts to popularize (and some would say politicize, although I would disagree with that) economics were many. Few people had his intellectual capacity to debate, nor thought as deeply and widely as he did. He was responsible for turning many on to the subject of economics through his TV series Free to Choose, as well as a vast number of books and articles.

In my experience, few Nobel Prize winners in any category had the ability to get students attention to the extent that he did. The world of economics and economic education is better for his contributions. Thank you Dr. Friedman.

Other comments are welcome.

Posted by TSchilling at November 16, 2006 6:56 PM


Comments
I like using fables to show how abstraction can be used to show complex ideas. Do you think a faster approach would be to show how people use comparative advantage in their own lives? For example, like making a meal where everyone has a task. Thanks for working in education...flad

Posted by: mike fladlien at November 18, 2006 6:11 PM


Bless...

Posted by: lia at November 20, 2006 4:38 AM

How Do You Teach "Rich?" (Part III)

There's an interesting web site that can help your students understand how our nation compares to most of the world. The site, How Rich Are You? allows students to enter an income in one of five major currencies, then shows where that income ranks relative to a world scale. For example, plugging the median U.S. income of $46,242 shows that to be in the richest 1.36% of world population. It also shows some interesting choices one can make regarding donating part of one's salary.

Now, it does not discuss issues of income disparity aside from making a statement about how much better off people are in wealthy countries vs. those where the poorest 20% live. Nor does it discuss economic institutions. That is important because in many of the "richer" countries, institutions exist that allow people some income mobility throughout their life cycle. While the institutions in many poor countries would limit the impact of the donations through corruption, etc. Nevertheless, the site is an interesting place to start.

Thanks to Greg Mankiw for the pointer, and Marginal Revolution before that.

Your thoughts on how to use this in the classroom are encouraged.

Posted by TSchilling at 3:09 PM Comments (0)

Opportunity Cost, Choice and Alzheimer's Disease

I must apologize for not posting in a while. The past few weeks have seen me tied up with the College Fed Challenge program . Last week we had 13 teams in the Bank from universities around the Chicago Fed's district. In front of panels of Fed economists, they provided analysis, forecasts and monetary policy recommendations. Northwestern University emerged from a strong field to represent the Seventh District against teams from the Boston, New York and Richmond Districts later this month.

One of the highlights was meeting fellow blogger William Polley who teaches at Western Illinois University and who brought a first-time team to the competition. I always enjoy his posts, and I find I learn a lot as well.

Now down to the topic at hand. Yesterday morning, as I was driving to the train station, I was listening to Morning Edition on NPR and heard this interesting piece on Alzheimer's Disease. The article pointed out that Alzheimer's was first described in the medical literature 100 years ago. It was received with little fanfare as the symptoms were thought of as basic to the aging process.

I was particularly struck when one of the folks being interviewed talked about the opportunity cost we face with the disease. He thought that the funds spent on research looking for a cure may better be put to use in providing support for families and victims. I don't know enough about Alzheimer's to comment on whether or not it is curable, but I think the case for making healthy lifestyle choices to slow or prevent its onslaught, and the idea of support for those who already have the disease, could make for interesting discussion in the classroom. I have no doubt that the emotional price paid by those who suffer from Alzheimer's is high. This goes for those diagnosed as well as for family and friends.

What do you think about using this as a discussion starter when talking about opportunity cost?

Posted by TSchilling at 3:00 PM Comments (0)

Money and Barter (yet again)

Back in April, 2006 I posted about "one red paper clip." It was an interesting exercise that had someone trying, through a series of trades, to barter a red paper clip for a house. I used it as an example about inefficiencies of barter, etc. I followed up in July when the last trade was made.

Now I draw your attention to an article by Tyler Cowen in National Post that examines the real cost of bartering. It's worth a read.

Do you think this would be a usable example for your students on the inefficiencies of barter, and why we use money?

Posted by TSchilling at October 20, 2006 5:12 PM


Comments
That is a great, timely story illustrating barter. In the classroom, it might be nice to find numbers and estimate time to compare bartering for a house to buying a house with money. I think the costs might be close to equal. In this case I think the publicity generated by barter, probably made bartering a better deal - score one for rational economic decision making!

Posted by: Jennifer at October 20, 2006 9:25 PM

Mathematics and High School Economics

I believe that one of the objectives for high school economics classes should be for students to learn how to apply some mathematics skills to economic situations. That can range from calculation to data interpretation. It is the latter area this entry is addressed.

I was recently talking with an economics teacher who was explaining how he helped students analyze economic information and data. He told me taught a very traditional one-semester course with a wide variety of students in the class. He said he wanted to give the students a simple way to distinguish between coincidence, correlation, and causation when looking at economic data. The teacher told me he used three explanations with his students.
Coincidence - Two things happen at or about the same time.
Correlation - Two things happen at or about the same time with some frequency or regularity.
Causation - Two things happen at or about the same time frequently with consistent and observable sequence and connection.

I was impressed with the simplicity but expressed some reservation, largely because of time issues. I know how hard it is to get the average economics students to realize that just because two things happen at the same time, it doesn't mean the events are connected.

I found this interesting because back at the end of September, Greg Mankiw posted a rather heated entry about people who confuse correlation with causation.

I have two things to ask you as a reader of this blog. What changes (if any) would you make to the explanations above? (Keep in mind, we don't want to get too complicated, given the audience.) And what are some of the activities you use to teach students how to analyze data?
I look forward to your comments.

Posted by TSchilling at October 17, 2006 3:03 PM


Comments
Logic should be the objective of economics and math. Economists use math to check the consistency of their logic. Math scares students. The trick is to teach them logical thinking first and connect that slowly to the math. We should teach students the following: math is a tool to analyze the world around you not a scary thing which they are not good at!

Posted by: Mike Javanmard at November 5, 2006 11:09 PM

Just in Case You Were Wondering

Greg Mankiw, on Wednesday of this week, had an interesting blog on the history of supply and demand curves. The discussion and follow-up was interesting (although I'm sure many would find it a bit esoteric). But it generated a couple of responses on other blogs. Many of which were interesting in different ways. Among the more interesting was Don Boudreaux's post on Thursday about Smith and Marshall and wealth and poverty. In both Mankiw's and Boudreaux's posts, the comments are also worth perusing.

Now having said this, I suspect there may not be many high school economics teachers who are interested in this sort of thing. I always have been. But I suspect it's partially the result of my interest in history.

As always your views and comments are encouraged.

Posted by TSchilling at 7:17 PM Comments (0)

Unlimited Wants and Economic Growth

Robert Frank has an excellent article in the New York Times titled The More We Make, the Better We Want. The article really explains the how our unlimited wants or our never-ending sense of not being satisfied acts as an engine of economic growth. This is a great article to have around to have students read and discuss. There are numerous directions to take this.

Should we be satisfied at some point? If so, where? How does standard of living figure into choices we make? Are my wants the same as yours, and subject to the same elasticities? Should they be?

As always, I'd be interested to hear your thoughts and suggestions.

Posted by TSchilling at September 29, 2006 7:44 PM


Comments
Economists Are destroying America. Economists, politicians, and executives from both parties have promised American families that “free” trade policies like NAFTA, CAFTA, and WTO/CHINA would accomplish three things:
• Increase wages
• Create trade surpluses (for the US)
• Reduce illegal immigration

Well, their trade policies have been in effect for about 15 years. Let’s review the results:
• Declining real wages for 80% of working Americans (while healthcare, education, and childcare costs skyrocket)
• A record-high 46 million Americans who don’t have health insurance (due in part to declining wages and benefits)
• Illegal immigration out of control
• Soaring trade deficits, much with countries that use slave and child labor
• Personal and national debt both out-of-control
• Global environments threatened by lax trade deal enforcement

Economists keep advocating policies that aren’t working. Upon seeing incontrovertible evidence of these negative trade agreement results, economists continue with Pollyannish blather. Some say, “Cheer up! GDP is up and the stock market’s doing fine.” Others say, “Be patient. Stay the course. Free trade will raise all ships.” Even those economists who acknowledge problems with trade agreements offer us only half-measures—adjusting exchange rates, improving safety nets, and providing better job retraining. None of these will close the wage gap in America—and economists know it.

Why aren’t American economists shouting from street corners? America needs trade deals that support American families and businesses in terms of wage, environmental, and intellectual property abuses. Why aren’t economists demanding renegotiation of our trade deals? There are three primary reasons:
• Economists are too beholden to corporations and special interests that provide them with research grants.
• Economists believe—but refuse to admit—that sacrificing the American middle class is necessary and appropriate to generate gains in third world economies.
• Economists refuse to admit they make mistakes.

Economic ambulance chasers: Now more than ever, Americans need their economists to speak truth and stand up to their big business clients. Instead, economists sound like lawyers caught chasing ambulances: they claim they’re “doing it for our benefit”.

Posted by: John Konop at November 8, 2006 3:58 PM

Economic Aphorisms and Ivan Denisovich, Part III

This is my final post (planned post, that is) regarding economic thoughts in Solzhenitsyn's A Day in the Life of Ivan Denisovich. And it involves a comment that comes about halfway through the book. The character Shukov is wandering over the worksite when he comes upon a piece of scrap metal. He can't think of an immediate use for it, but decides to place it in a pocket. "It's better to be thrifty than wealthy."

Those of us who teach economics or personal finance can certainly expound on this statement. Ultimately, being thrifty creates wealth. Unfortunately wealth doesn't always create thrift. In a personal finance context, budgeting, planning, investing, all of these are connected with thrift. In budgeting we teach "pay yourself first." We encourage students to have a plan for their savings (short-term, medium-term, long-term goals), and to examine how they want to invest. In a larger economic context, it is thrift (saving) that ultimately creates capital. How often when we hear people bemoan the trade deficit, is it followed by a connection to our nation's poor job of saving? ("If we can't provide the capital for our own growth, we should be glad that someone can.") All of this, in my mind, speaks to thrift's role in creating wealth.

As far as wealth creating thrift, it would seem on the surface that accumulated wealth does not create an incentive for thrift. While it is possible that habits built in the accumulation of thrift may carry on for a while, one need not look far to see examples of individuals who were not responsible for creating wealth, or who seem to have little regard for maintaining it. In some respects, this takes us back to the statement that was the subject of the first of the posts sparked by this novel.

It would seem that "It's better to be thrifty than wealthy." has the potential to generate discussion in a number of classes and on a number of levels. Your thoughts and experiences are welcome. Please share them.

Posted by TSchilling at September 20, 2006 3:03 PM


Comments
Economics are not only in the marketing of their goods. Economics are in the manufacturing and in the marketing of our goods and making more of the money is not only profit making. You are selling what you have produced.

Posted by: Gem Hudson at September 20, 2006 4:24 PM

Economic Aphorisms and Ivan Denisovich, Part II

As I indicated in my previous post, a rereading of Solzhenitsyn's A Day in the Life of Ivan Denisovich brought things to my attention that I missed in the first reading many years ago as an undergrad--an undergrad that had yet to learn to appreciate the many fine lessons to be gained through the lens of economics, I might add.

This second aphorism comes not quite halfway through the book. Solzhenitsyn’s character is describing the work-site kitchen where the prisoners have lunch, and how the site cook got the necessaries (food, fuel, water) from the main camp to the work site without having to carry everything himself. Not so surprisingly he hired transport using the easiest "currency" at hand--food. Those workers who carried the supplies got extra--deducted from the ration of the other workers. As Denisovich puts it, "It's easy to give away things that don't belong to you."

Apply that statement to other circumstances. How much more difficult is it to apply one's own resources to a need/want, than to apply someone else's. Our children frequently ask for this or that. Younger children often do not understand the link between production and consumption, i.e. if you work and get paid, that provides resources that can be exchanged for goods and services. But older children often subconsciously (or consciously) are aware that it's not their resources that will fill the need. We ourselves ask friends and family for resources that are not ours and may not even be theirs. But do we use those resources as if they were ours? Many of us do, but I suspect more of us do not. When we use the resources of others for our own purposes, we may not always use them most effectively, or as well as we would if they were our own. Some people take this a step further and even say this applies to how tax funds are used by various levels of government. But others may counter, "if we are responsible, we use the resources of others as if they were our own. That's just good stewardship." I personally subscribe to the idea that ownership can provide a stronger motive for efficient use.

Either way, the quote above is a good discussion starter for your classroom. Your thoughts and comments are welcome.

Posted by TSchilling at 2:44 PM Comments (0)

Economics Aphorisms and Ivan Denisovich, Part I

Earlier this year, the One Book program in Chicago chose A Day in the Life of Ivan Denisovich for their spring selection.

While I did not read it in the spring, I did manage to get to it over the summer. I had first read the book many years ago as an undergraduate. I remembered then thinking that, while interesting, it was tedious -- I mean it really was about "one day in the life of Ivan Denisovich," a political prisoner in a Soviet labor camp. How exciting could it be?

Having reread it, I can predict "you won’t see this become a summer blockbuster at your local theater--no car chases and explosions." But with the passage of time has come an appreciation for different aspects. The book is now not just interesting, it is very interesting. It is interesting on different levels, some of them growing out of my occupation and preoccupation with economic and financial education.

I was particularly struck by a number of short ruminations by the main character that described his economic environment and choices. The first that struck me came early in the book when Denisovich describes a fellow prisoner, Shukov, who had not caught on to the value of bribes within the prison. Shukov, it seems, was honest. Solzhenitsyn writes, "Easy money doesn't weigh anything and it doesn't give you that good feeling you get when you really earn it. The old saying was true -- what you don't pay for honestly, you don't get good value for."

One thing I took away from that passage was an appreciation of how some people value things, or don't value them. Many of us have seen how little things mean to people for whom things come too easily. There's often a sense of entitlement rather than a pride of ownership; and feeling that anything is easily replaced. This may be so if it comes easily. It is less so if one has to or chooses to work hard and long for it.

I have one or two more of these short observations from the book. I hope to get them posted this week. In the interim, your thoughts are welcome and appreciated.

Posted by TSchilling at 3:55 PM Comments (0)

How Do You Teach "Rich?" (Part II)

Back in November 2005, I put up a post that discussed the term "rich" and how we get students to understand the difference between income and wealth.

The recent kerfuffle surrounding the release of the Census Bureau's findings on 2005 income has stirred up a lot of discussion in the blogosphere along similar lines regarding what the data means. I won't list all the blogs I've read that commented, good or bad, about the information, but suffice it to say that there's been a lot of use, abuse and misuse of the information, for all kinds of purposes.

I will however point to a post on TCS Daily by David Henderson that I read today that speaks to the practice/mistake of comparing income and wealth. It also raises the point that households in different quintiles have different compositions and work patterns. I will also throw in one further observation. People in one income quintile don’t necessarily stay in that quintile.

On that last point I will refer you to an article that appeared in the Federal Reserve Bank of Dallas 1995 Annual Report. I remember that the article was greeted with much debate and some disagreement when it first appeared. And you can feel free to disagree with the data and methods. But I suspect the premise, that income changes as we move through our careers, is probably sound. After all, there is a "life-cycle hypothesis" in economics that is based on the observation that income changes (as well as spending) over time. Now, I suspect that whether income changes significantly enough within a household to move one through one or more quintiles over time depends on the composition and work patterns.

Is this an issue worth discussing with your students? Your thoughts are welcome.

Posted by TSchilling at 5:22 PM Comments (0)

Discussion Starter

Here's an interesting item to use to kick-start discussion about trade. The Adam Smith Institute has a bracelet supporting free trade. (Item no longer available on web site.) It touts "I buy goods from poorer countries."

I suspect it would create an interesting back and forth with many students. (Are the people in those countries better/worse off producing goods for the world market? What is the impact on people in this country who could produce the goods? What do we learn from comparative advantage?)

Your comments and experiences are welcome.

Posted by TSchilling at 5:49 PM Comments (0)

Economics and Mainland China

On my way to the train station this morning, I was listening to Morning Edition on NPR and heard an interesting tidbit from a series they've been doing on China. This specific story was about China's Hot Real Estate Market. It seems real estate prices in some trendy parts of Shanghai have gone up 300% in three years. To counter this, the Chinese government has forbidden the release of more land for the development of luxury villas.

Now it seems to me that this may have the opposite results. By my thinking, putting a cap on the land available for development of luxury housing is the same as placing an artificial cap on supply (vertical supply curve?). This means that demand for this housing will shift to the existing stock of luxury homes, causing a further acceleration in property values. This becomes even more interesting when combined with a comment I heard earlier in the series (sorry, I don't remember which one). That story mentioned that at the time of the Tiananmen Square uprising, the central government essentially made a Faustian bargain..."stop agitating for political reform, and we'll allow you to get rich." Essentially, the communist party allowed a number of people with skill and access to get rich, in return for being allowed to be kept in power. To the extent that it has worked, it has created a significant upwardly mobile group in China. However, many of those in the countryside still remain very poor. The observation was made that the "workers' and peasants' revolution" may soon be at risk from those same workers and peasants who have not shared in the growing economy.

Overall, I find this issue worthy of discussion, especially within a context of teaching about economic systems, economic institutions, incentives, and of course modern world history.

I welcome your thoughts and comments.

Posted by TSchilling at 5:18 PM Comments (0)

Using Oil in Your Classroom (as an Example)

Just in case you haven't already been inundated with ideas for using oil in teaching economics, there are a couple of blog postings you might want to consider.

For a micro-economic view that focuses on BP oil, check out this post on Aplia Econ Blog. Good fundamental analysis of how a supply shock impacts a market.

For a macro-economic view, see this post on the same site. It examines the repercussions of the price change on the larger economy. Again, good sound fundamentals.

I do wonder if the lack of comments indicates that we (as educators) are overusing this example. Your comments are welcome.

Posted by TSchilling at 5:22 PM Comments (0)

The Invisible Hand and the Golden Rule

One of the books I read this summer is The Great Transformation: The Beginning of Our Religious Traditions by Karen Armstrong. If you're not familiar with the book, it examines the development of several great philosophical/religious traditions through a period beginning about 900 B.C.E. and ending, roughly with the rise of Rome. Specifically it looks at the rise of Daoism and Confucianism in China, Hinduism and Buddhism in India, monotheism (specifically Judaism) in the Middle East, and philosophical rationalism in Greece.

Of particular interest was common evolution toward an "other" based view that occurred in each of these areas. In each case, the philosophy evolved toward the idea of concern for others as a part of living a good life. Armstrong makes mention of the "Golden Rule" (doing unto others, etc...) evolving in each region. As this was repeated, I found myself thinking of the similarity between the Golden Rule and some of Adam Smith's ideas. I found some interesting parallels between them.

Indeed, I see Smith's philosophy (as put forth in The Theory of Moral Sentiments) and his political economy (An Inquiry into the Nature and Causes of the Wealth of Nations) as longer discussions along the same lines. Smith's focus on others and their perceptions as motivators and beneficiaries of moral and economic actions speaks to the heart of the Golden Rule. We benefit when we act in a way that benefits others; and others, in turn, can benefit as we benefit. What parallels, if any, do you see between Smith and the idea of the Golden Rule? Is this an idea that can be used to raise student interest when we teach?

I look forward to your response.

Posted by TSchilling at 8:24 PM Comments (0)

TV Worth Watching...

One of my fortuitous "finds" when I was teaching high school economics was a video series shown on my local PBS station featuring Nobel winning economist, Milton Friedman. Now the series, titled Free to Choose can be found on the web. The pointers for the ten programs (each running about an hour) are also on the web site. The programs each have two parts. The first is a brief "documentary" meant to illustrate and explain a concept. The second part is a discussion with Dr. Friedman and other luminaries.

The programs were well done, and I was always surprised by my students who were usually as interested in the discussion as in the first part of each program. Anyway, it's nice to see them available again.

Your thoughts, as always are welcome.

***Update 12-4-2006***
You can now view the series at The Idea Channel web site. Thanks to Greg Mankiw for the pointer.

Posted by TSchilling at 3:15 PM | Comments (0)

Money and Barter (continued)

Back in April, I posted on the topic of Money vs. Barter .

I referenced a site where someone was trying to trade up from a red paper clip to a house. It seems he's succeeded. If you want to look at the details on the 14 trades over a period of one year, go to the One Red Paper Clip web site.

To what extent would you (or wouldn't you) use this as an example with your students?

Posted by TSchilling at 4:50 PM Comments (0)

Economics and Music

Joshua Hall, one of the crew over at Division of Labour has an interesting post on Using Music to Teach Introductory Economics. Click on the link at the end of the first paragraph to see a very interesting paper.

I've used popular music to illustrate concepts and points over the years. Some of the songs and the concepts I've used them with can be had for the asking. Contact me at the e-mail address at the top of this site.

I welcome your thoughts and any recommendations you may have.


Posted by TSchilling at June 28, 2006 7:23 PM

Teaching about Money and Payments

Whether you teach personal finance, consumer economics, or a more traditional economics course, here is an article that I found quite interesting.

Loretta Mester of the Federal Reserve Bank of Philadelphia has an article in the Business Review about Changes in the Use of Electronic Payments.

I think you will find this interesting (although I doubt you'll find it surprising) because of the tables that show who uses which forms of electronic payments. The data is sorted by age, income, and education. It looks at ATM usage, debit and smart card usage, direct deposit and bill payment, and other aspects of banking. The patterns are about what one would expect. Younger people use ATM and debit cards more than their elders. Older people use direct deposit and bill pay more than younger people. And the relationship of use to income and education are pretty direct. The higher income and more education one is, the more likely to use these methods of payment.

I hope all teachers would find something of interest here when they discuss the concept of money. The definition of money as "medium of exchange" is changing to something very abstract. This data would seem to indicate that we depend on more tactile forms of money, e.g. currency, coin, checks (especially checks) less and less. It would seem that it is more and more important for our students to understand the importance of keeping track of their spending and how they handle their finances in a world where the idea of money may be more and more abstract.

Let me know what you think, both of this post and the data.

Posted by TSchilling at June 26, 2006 5:34 PM


Comments
I wonder if people distinguish between debit and credit cards. Considering the only time I ever used a debit card was when I mistook it for a credit card, they probably distinguish them, but not necessarily as banks do.

Posted by: Lord at June 26, 2006 7:11 PM


I think you raise an interesting point. I know I definitely distinguish between them. There are certain transactions that are always debit, others that are always credit. There are very, very few that I will use either at different times.

I wonder what other people do. Any feedback here?

Posted by: Tim at June 26, 2006 7:18 PM

Teaching and Learning with Headlines

It started yesterday as I was looking at a financial market web site. I noticed that oil prices were hovering around $70 a barrel, slightly up for the day (nothing new there), and gasoline prices were somewhat higher. I then noticed a bulletin about oil and gasoline stockpiles both growing. In fact oil stockpiles were at a multi-year high. (The last time we had this much oil on hand the price was about $15 a barrel.)

I wondered, if oil and gasoline were in plentiful supply, why were spot and futures prices remaining stubbornly near $70, and why had my local station recently pushed the per gallon price up by more than a nickel in the past 24 hours? Didn't economics say that increased availability would push prices down? I dug further, found my answer, and the economics lesson was revealed.

1. Price is not determined solely by supply but by supply and demand. Two news headlines provided the link to demand. From Iran: a statement saying that the U.N. offer of concessions for giving up the nuclear program in that country would likely not be answered until August (read further uncertainty and fear in the marketplace), helping to drive demand by countries/firms seeking to secure supplies now. From Saudi Arabia: a statement speculating that an assault on Iran could triple the price of oil (same effect).

2. Prices tend to be sticky, especially on the downside. To what extent do oil producers (any particular countries come to mind) have a disincentive to let prices drop, and how could providing "information" impact the current price structure?

Your thoughts and observations are welcome.

Posted by TSchilling at June 22, 2006 5:36 PM


Comments
It's the expectations game. Gas supplies were up, but only a fraction (20-25%) of what was expected. That was noticed.

Posted by: Lord at June 22, 2006 6:40 PM

Chicago and Utility

Bill Testa of the Chicago Fed Research Department has an excellent post on his blog about the importance of transportation of goods to the Chicago economy. Whether you're teaching economics, geography, or American History, take a look.

Posted by TSchilling at June 21, 2006 3:46 PM

Explaining the Yield Curve

Part of my daily routine is to briefly look at CNBC in the morning and get a sense of such things as foreign markets, domestic market futures, commodities pricing and Treasury yields. This last item, over the past week, has been interesting (pardon the pun) to watch and has me thinking about the yield curve.

Back in January, I posted on using the yield curve in high school econ classes. Today, Greg Mankiw has a good post explaining the inverted yield curve. What I found most appealing was the Q&A format he used. He also referenced and linked to a well-written article from the Cleveland Fed. IMHO, it's worth a look.

Let me know what you think.

Posted by TSchilling at June 13, 2006 5:31 PM

Economic (Over)Confidence

Arnold Kling at EconLog has an interesting post about overconfidence in economists. He links to an article by Erik Angner at University of Alabama - Birmingham (UAB). I found it interesting that the author found "overconfidence is endemic among economists who are called upon by public policy makers for their expertise." He further pointed out that this can have "dramatic effects on both public policy and investors."

I don't find anything really surprising about this. I remember a saying that went something like "people are least interested in the things economists agree on the most, and are most interested in the parts with the greatest disagreement", or something to that effect.

While this seems obvious to me, maybe it really isn't. I would think the fundamentals are just that, fundamental and probably not worth debating. It would be the application and forecasting that offer opportunities and the hitherto unknown. If one can bring clarity, one can make a name for oneself. And a person is more likely to get buy-in for their view if they're confident it's the right one. I suspect you can sell more if you actually believe in the product.

Maybe I'm making too big a leap. Am I missing something here?

Posted by TSchilling at June 12, 2006 8:00 PM

The Cul-de-Sac: Experts vs. Markets

Let me start by stating that I do not, nor have I ever lived in a home located on a cul-de-sac. But I've noticed recently a smattering of news articles regarding cul-de-sacs -- that quintessential landmark of suburban living; the bulbous dead end street that seems to be the highlight of so many residential developments. A recent article in The Wall Street Journal and a piece on National Public Radio seem to indicate that community planners, and other experts are trying to write the obituary for the cul-de-sac. Many seem to feel that this piece of American suburbia has outlived its usefulness, if it actually ever had any.

Some argue that, from the standpoint of making things easier for emergency and other vehicles, cul-de-sacs create problems. Fire trucks, school buses and even moving vans have trouble negotiating the tight spaces created by the layout of the homes. And according to some, the lack of sidewalks creates an undo incentive to hop in the car for almost any errand. One report even pointed out that "driving was the only way to get from a typical cul-de-sac to a restaurant, a store or your office." I suspect this may be as much a function of distance as it is one of the street layouts. (Here I feel obligated to note that while I have not lived on a cul-de-sac, some of my acquaintances did, and I never noticed an inordinate lack of sidewalks, certainly no more or less than the various other developments that had streets laid out in something resembling a grid pattern. But I digress. As I’m sometimes reminded, "anecdotes are not data.") Were sidewalks a major concern, I suspect they could be placed in the developments. However, it may be that there is no desire for them, or that sidewalks don't add sufficient value to the homeowner in relation to the cost of installing them.

However, both of the stories here mentioned point out that despite what the experts think, home-buyers (read "the market") think otherwise. Could it be that the "market" understands, or at the very least values, something that "experts" do not? What creates value? What form(s) of utility can be obtained by someone purchasing a home on a cul-de-sac? Is this an example of why "planning" does not do as good a job in providing those factors that the "market" reveals to be of value?

Conversely, given the issues of safety and convenience that are cited in the articles, are the costs of living adequately reflected in things like additional taxes, insurance, and resources spent? And if they are, and if buyers recognize these things, is there a problem with them seeking these homes?

Your comments are welcome.

Posted by TSchilling at June 8, 2006 2:49 PM


Comments
Cul-de-sacs are frequently preferred by those with children to reduce hazards and noise due to through traffic. Pie shaped lots are also in demand, minimizing public front yards and maximizing private rear yards, though my preference is for the outer bend of a right angle. Parking is a drawback for those on one, and the lots leading up to one can be more desirable than those directly on one.

Posted by: Lord at June 8, 2006 8:44 PM


I agree on all counts. I think both of the pieces I cited tended to overlook the place the utility offered by quiet, difficult to access property that provides a bit of privacy and yet a sense of community, even though it may not have all the commercial ammenities of a small town.

Posted by: Tim at June 8, 2006 9:37 PM


Why not build more of the cul-de-sac style corners in roads? The kind where you have a right angle in the road and create a sort of bulbous corner. This seems like it would be a good compromise between the home-owners' desires for cul-de-sac and the planners' desires for traffic flow etc.

Posted by: Rick at June 19, 2006 9:22 PM


First a disclaimer - I am a transportation planner. The argument that the market chooses more cul de sacs does not incorporate that homes on cul de sacs result in higher transportation costs to the community. Rather than providing a system with multiple paths of getting from point A to point B, long cul de sacs often force all traffic onto collector roadways. This means those major roads will fill up and have to be widened earlier. At $10-20 million a mile, that's no small amount. While the homeowner may be willing to pay several thousand more for the home in a closed subdivision, that home is generating additional thousands of dollars of impacts on the road network versus a home in an interconnected network. In a true free market system, the additional money people pay for that cul de sac home would go directly to mitigate its traffic impacts and not to the developer of the subdivision. And while people do undeniably get quieter streets with cul de sacs, is it worth fighting the six lanes of gridlock to get there, or risk your life making a left turn across six lanes of traffic every morning? Small courts of cul de sacs (4-5 homes) within a larger interconnected system might serve both interests. There is almost always a way to reach a consensus, but first we have to truly understand the problem.

Posted by: Cherie at February 22, 2007 11:11 AM


Cherie's comments raise an interesting point. This could be an example of an "uninternalized externality." That is the true costs are being born by parties outside the transaction (i.e. not the developer and home buyer). This then becomes an example of "market failure." How could the costs of cul-de-sac ownership then be more accurately moved to the market, and away from the public sector? I don't recall that either of the original articles really addressed that. (And maybe that's why some experts were calling for the end of the cul-de-sac.) Thanks for the comment, Cherie.

Posted by: Tim at February 22, 2007 11:30 AM

Economics of Place

In several previous posts, I've mentioned books that touch on both economics and geography. Among these are works by Jane Jacobs and, Nature's Metropolis by William Cronon. As mentioned before, Cronon's book reminded me of the concepts of time utility and place utility and the addition of value. Now Chicago Fed economist Bill Testa has put up an interesting post about the transformation of the Chicago economy.

In Hog Butchers No Longer, Testa talks about what has changed about the Chicago economy; what makes it different from the rest of the Midwest; and why it will remain important to the region, despite these differences.

There are some important points connecting Testa's post with Cronon’s book (as well as others). Testa references the capital concentration (both private and public) that made and continues to make Chicago a desired location, both for business and for the new workers that staff the city's changing economy. In a sense, the workers are going where the jobs are, but they are also consumers of services once they arrive. Those services are one reason they seek to work in Chicago. The services go beyond basic needs. They include cultural and recreational opportunities. Those opportunities are due in part to where Chicago is (thus place utility), but they also are a result of the concentration of capital that came about because of Chicago’s economic evolution. Chicago's evolution was marked by building transportation infrastructure and by developing certain financial markets. These developments both were facilitated by accumulated capital and, in turn, allowed more capital (including human capital) to be accumulated and reinvested in such a way as to make the city more desirable. By first servicing the agricultural region and then the manufacturing region that was the Midwest, Chicago grew into the service center it is today.

How is this usable for the classroom? Again, as we know, students learn a subject better if they are given context. In this case, by looking at Chicago (or other cities for that matter), students can see how economic change can lead to growth and new opportunity. Or by contrast, they can see how failing to adapt can stifle growth. Students can also discover how resources can shape the opportunities of a society, a country or a region. These resources can take the form of natural resources, human resources, or capital resources, but they all can build on one another if properly developed.

Your views are welcome and appreciated.

Posted by TSchilling at 8:13 PM Comments (0)

Hyperinflation

When I taught inflation some (mumble, mumble) years ago, I used to tell stories about the German hyperinflation in the 1920s. My maternal grandparents came to the U.S. largely as a result of the economic collapse that followed. Years later, my grandfather even gave me an assortment of large denomination bills (that had literally been used to stuff a mattress).

Now we can use stories from Zimbabwe. See Greg Mankiw's blog here and here.

My favorite German stories were about my grandmother coming to the factory where my grandfather worked twice a day to collect his pay in a large basket. Each time she went, the nominal wage was larger, and had to be spent quickly before it lost value.

Any stories about hyperinflation in your family histories are welcome.

Posted by TSchilling at May 31, 2006 7:24 PM

Comments
This article by Ludwig von Mises on German hyperinflation is very interesting.

http://www.mises.org/mmmp/mmmp7.asp

Posted by: Tom at June 1, 2006 9:14 PM

Worthwhile Reading, Part II

I just finished The World is Flat by Thomas Friedman. I can't really say whether or not I recommend the book. I suspect much depends on what you hope to find when you read it.

If you are expecting a thorough explanation of the changes in the world economy, or a deeper understanding of economic concepts that relate to trade, productivity, growth, etc., look elsewhere. Teachers who know the basic ideas of Smith, Ricardo, and Schumpeter will likely find parts of the book familiar. Sections illustrating the "invisible hand" and "creative destruction" can be found. Likewise, if you've been following the news, particularly economic news, over the past 15 years or so, this book should not take you by surprise.

If, however, you are looking for little anecdotes or even catchy quotes to stimulate classroom discussion, Friedman's book can be very attractive. A teacher looking to keep references and anecdotes current and relevant will find this book valuable. If anything, the book could use more data to back up the various anecdotes. And because I'm someone who enjoys narrative more than statistics, that's hard for me to say.

Friedman definitely leans toward a pro-growth, pro-trade point-of-view. One should note that the book was written before the current kerfuffle about immigration. Friedman's chapter on policy recommendations may lead to discussions of immigration issues. If this creates problems in your school, you will want to consider how you will address the topic.

The book is a quick and easy read. (Given the topic, I hesitate to call it beach reading, but it moves quickly and is interesting.) The book should easily be found in most book stores.

I welcome your comments and thoughts on the book.

Posted by TSchilling at 3:57 PM Comments (0)

The Dismal Science...Just Thought You'd Like to Know

I think everyone who teaches economics has heard the story about Thomas Carlisle dubbing the field as the "dismal science" in response to Thomas Malthus's work on population. And I suspect more than a few of us use it in introducing the study to our students.

However, Alex Tabarrok at Marginal Revolution has a pointer to another link at The Library of Economics and Liberty that provides a different story.

Posted by TSchilling at May 22, 2006 3:38 PM


Comments
There was a great Barron's article a few years ago on the same subject (see this link: http://bigpicture.typepad.com/comments/2003/11/dismal_science_.html)


"Thomas Carlyle did originate the phrase, and he did direct it at economists. But the "scientists" he had in mind were not Ricardo and Malthus, but economists like John Stuart Mill and Harriet Martineau. And their "dismal" offence was to advocate the abolition of slavery.

In a fierce and ongoing debate, the celebrated author of The French Revolution referred to "the Social Science [sic]...which finds the secret of this universe in 'supply-and-demand,' and reduces the duty of human governors to that of letting men alone."

The above is from Carlyle's 1849 essay, "An Occasional discourse on the Negro Question," in which he goes on to use the D-S phrase for the first time. Compared to the "gay science" -- meaning poetry -- he calls economics the "quite abject and distressing...dismal science...led by sacred cause of Black Emancipation."

Posted by: Barry Ritholtz at May 31, 2006 3:14 PM


Thanks for your addition. The more information we have, the more interesting we can make it for the students.

Posted by: Tim at May 31, 2006 4:03 PM

Wants...or Needs...or?

There was a time in economic education when we took time to explain to our students the difference between wants and needs. One usually tended to get hung up on a variety of goods that the students considered needs, and that most adults would clearly identify wants. I used to try to minimize the confusion by telling students (and teachers) that needs were usually general, wants tended to be more specific, as in "I need food, but I want steak." "I need shoes, but I want Nike."

In reading a copy of Thomas Malthus' Essay on the Principle of Population along with commentaries, I ran across an extract from Two Lectures on Population by Nassau W. Senior. He does a good job of differentiating between what he termed necessary, decency and luxury.

"By necessaries then, I express those things the use of which is requisite to keep a given individual in the health and strength essential to his going through his habitual occupations. By decencies, those things which a given individual must use in order to preserve his existing rank in society. Everything else of which a given individual makes use; or, in other words, all that portion of his consumption which is not essential to his health and strength, or to the preservation of his existing rank in society, I term luxury."

While it isn't exactly "wants and needs", I think it does a pretty good job of explaining the difference. In my mind needs is the equivalent of necessity, while decency and luxury seem to embrace the old idea of wants fairly well. Do you differentiate? Does Senior's description help?

Posted by TSchilling at May 19, 2006 4:30 PM

Comments
I usually take after Hume. Needs are intrinsic to the mind, body, and spirit, while wants are extrinsic that we decide are capable of fulfilling these needs. Need is sustenance, wants are the foods selected to provide it. Need is companionship, wants are the friends and lovers we choose to provide it. Need is connection, wants are religion and social organizations we deign to produce it.

Posted by: Lord at May 22, 2006 9:32 AM


Hume's version has the advantage of simplicity (two categories as opposed to Senior's three, and the categories are the same as we usually teach--wants and needs).

Either way (Hume or Senior), I think there is value in helping students learn to differentiate. It helps them carry the economic underpinnings to their personal economic experience. IMHO, if one can see that the object being purchased is "merely" a want, and recognize that it probably isn't a need, it sometimes makes it easier to do without, or at least postpone purchase.

Posted by: Tim at May 22, 2006 3:05 PM

Explaining Comparative Advantage

Comparative advantage is one of the fundamental economic concepts when it comes to understanding international trade. At the same time, it seems counterintuitive to many.

For those of you looking for information to use with your students when addressing this concepts, please take a look at Greg Mankiw's recent post. It contains links to two depressing descriptions of sweatshops that ultimately show that while conditions are less than what they would be in the U.S., they are usually better than what existed before in the country described.

It also links to a good discussion of comparative advantage by Paul Krugman. The comments are also worth taking a look at (for the most part, anyway). My questions to you are: Would/could you use this with your students? Why or why not?

Posted by TSchilling at 7:16 PM | Comments (0)

A Challenge on Productivity

One of my entries early this year was on productivity. It seems to have drawn some comments, one in particular from one of my co-bloggers at the Chicago Fed, Bill Testa. Subsequently, we were discussing the idea over breakfast recently and he suggested that we try to come up with some activities for the economics classroom to go with the stories we suggested in our posts.

We would like to encourage input from you, as well. If you've read either Kornbluth's Little Black Bag or the first few chapters of Vonnegut's Player Piano and have some ideas for lessons, classroom activities, or even discussion starters for use in your economics classroom, please share them. And you need not restrict your ideas to "productivity". The stories have possibilities for other concepts including incentives, growth, and unemployment. While we can't guarantee we'll include everything, we welcome any help we can get.

Our plan is to put together a "packet" of activities and post them. Our goal is to have our work completed sometime in August of 2006. We look forward to your input.

Posted by TSchilling at 4:53 PM Comments (0)

Digging Deeper

One of the things I used to exhort my students to do was to try and figure out what wasn't being said when they read media coverage of economic events. I told them that if they could determine the spin, they might uncover additional information.

Jane Galt has an interesting take on this issue in Asymmetrical Information. While she uses examples about tax cuts, I used to use one about oil companies from back in the 1970s.

In that instance, one of the network nightly news stories at the time led a story with a headline about oil company profits rising 50%. The way the story was reported, one could easily be led to believe that the companies were making 50 cents on the dollar (this at a time when gasoline was selling for almost $1.25 a gallon). However, the next day, one of the companies (I think it might have been Mobil) published a simplified version (yes, I know that means altered) of their income statement. It showed that the profit margin on operations had risen from 4% to 6%, a 50% increase in profitability. However, this was when inflation had already passed 6% and was nearer to 10%.

This told a different story. Were both of the stories true? Yes. Did both "hide" something? Undoubtedly. But by digging deeper and asking questions, the students understood more.

Your thoughts and comments are appreciated.

UPDATE: First, here's the original post by Greg Mankiw that was referenced in Jane Galt's post. My apologies for not referencing it in the first place.

Second, here's an excellent follow-up by Mankiw. And the comments are interesting, as well.

Posted by TSchilling at 3:42 PM | Comments (0)

Passing Thoughts

I've not been posting for a while, largely due to business travel. But over the past week, two important icons in economics have died, and I would like to comment on both.

First, Jane Jacobs passed away on April 25.

While I came to her work rather late (only in the past dozen years), I was impressed by it. My interest in her works on cities was, I'm sure, spurred by a seminar class I took as an undergraduate on the "City in History." I was struck then by the role of cities in economic development and the role of economic forces in history. Jacobs' work resonated with me because of this, particularly her work Cities and the Wealth of Nations. While some critics felt that her calls for planning sounded a statist note, she also understood that poorly planned urban centers can decline under their own weight if they fail to allow for growth and development.

But, perhaps more interesting for me was The Nature of Economies. Written as a discussion between friends, it contained a statement that helped me form a philosophy about economic education. One of the characters in the book stated "I'm convinced that economic life is ruled by processes and principles we didn't invent and can't transcend, whether we like that or not, and that the more we learn of these processes and the better we respect them, the better our economies will get along." I thank her for that.

Second, John Kenneth Galbraith passed away on April 29.

My sole contact with Galbraith was in reading his recent biography by Richard Parker. I came to appreciate Galbraith as a popularizer of economics. His book The Affluent Society did much to explain his view of the economy in the late 1950s in a language that many could understand. Unfortunately, it may be because his view was so rigid and some would say political, that his work as an economist is not appreciated. Had he been more profound and little less opinionated in his views, it is possible that he would have gained more recognition within the profession of economics. Nevertheless, his impact was significant and he is recognized for that. One of the quotes in Parker’s biography perhaps summarizes Galbraith’s lifelong view. "Ideas are inherently conservative. They yield not to the attack of other ideas, but to the massive onslaught of circumstances with which they cannot contend…like the Old Guard, the conventional wisdom [a phrase coined by Galbraith] dies, but does not surrender."

All of the books mentioned here are available through most book outlets.

Your response is encouraged.

Posted by TSchilling at 4:16 PM Comments (0)

Teaching about Price: Using Oil (Part II)

In one of my first entries last September, I reflected on gasoline prices and how educators use them to teach about price. My focus at that time was on how prices bring us information for choosing. How prices identify what is important to us by applying opportunity cost ("what do I have to give up?") to our lives in a clear way, particularly when the price of something is rising.

In lunchtime discussion today, I was reminded of the tendency among many people to transfer the choice (read cost) to someone else. The recent calls for investigations as to why some groups are benefiting at our "collective expense" reminded me that many of us don’t like making hard choices. My observation of this being a "holdover from childhood" was actually brought home to me as I listened to numerous talk and news shows over the weekend. The constant cacophony seeking to blame someone else was both amusing and pitiful. Amusing because everyone was to blame except the person speaking…pitiful because no one seemed to understand the simple economic truth…markets work. It was, at times, like listening to the very young.

Those of us who seek "energy independence" could see that happen sooner if we let gasoline prices rise. Those of us who seek "energy conservation and responsibility" would see the same dream come true. Those who wish for a more fuel-efficient method of travel would likely see the same thing.

Higher gasoline prices could ultimately force us to make better use of our own resources, oil or otherwise. Those same prices encourage us to be more careful about how we drive, how often we drive, and when and where we drive. And higher gasoline prices are already altering the shape of vehicle sales in the U.S. with demand for smaller, more fuel-efficient cars strengthening, and resale price of larger used gas-guzzlers falling.

Our efforts to mitigate these costs, while attractive to us as individuals in the short-run, just postpone the ultimate cost that we need to address in the longer term. I am reminded of a quote by Charles Woodruff Yost, one time writer for the Christian Science Monitor, in his book The Age of Triumph and Frustrations, "Any system that doesn't take the long run into account will burn itself out in the short run."

The ultimate point of this post is that those students that wish to see us conserve energy, energy independent, or whatever, may need to ask themselves whether or not higher gasoline prices may actually give them what they want sooner. The market imposes choice. Those choices are reflected in our search for substitutes (for oil and for current transportation technology), and the income effect (increases costs of one good or service will reduce the funds available for other goods and services).

Here's another interesting entry on TCS Daily in a similar vein.

Your responses and thoughts are welcome.

Posted by TSchilling at 8:16 PM | Comments (0)

Money vs. Barter

An interesting experiment in extended barter is going on at One Red Paper Clip.

WARNING: You might want to read through the list of trades to make sure you/your students/their parents don't get offended by this. One offer is for a lap dance.

Questions for your students: Is money more efficient than barter? Does the current technology change your view or assumption? What functions of money/ characteristics of money are being demonstrated by the "inability" to make instant transactions?

A hat tip to Tyler Cowen at Marginal Revolution .

Let us know if you get any discussion out of your students with this, and where the discussion leads.

Posted by TSchilling at 8:12 PM Comments (0)

The OC

No, not the Fox network television show. I'm talking the real, the important, the big OC--opportunity cost.

I firmly believe this is one of the most fundamental and important concepts in teaching economics. Students can generally grasp it and parrot back an answer. But do they understand it? Do they internalize it? Do they think it? Evidently the answer may be "no".

Take a look at this entry by Michael Munger at the Library of Economics and Liberty blog. His example from an old exam is good, but his discussion on how people think is particularly interesting, particularly how we seem to differentiate between gains and losses.

This seems to match my experience. What about your students?

Posted by TSchilling at April 11, 2006 7:40 PM


Comments
Opportunity cost is a useful idea but it is appallingly ill-defined, so much so that even graduate students don't get it, as Marginal Revolution discussed last year. Why is it so badly taught? We would do a much better job if we used decision-tree analysis. We should show there is an explicit list of options, from which we choose the best one. Then it is easy to see what the OC is. For an excellent take on this, I highly recommend www.smallparty.org which teaches intro micro in a way that is superior to any of the textbooks such as Mankiw.

Posted by: PEmberton at May 1, 2006 1:14 AM


I agree. In fact, when introducing the concept of opportunity cost to teachers at the early elementary level, a decision-tree is the best way for the very young students to understand the concept. The "tree" has only two branches and this makes it easy for the very young to identify what was given up. It's a fine way to introduce the concept at that age. And the tree is always helpful at any age, imho.

Posted by: Tim at May 2, 2006 5:44 PM

What to Teach

I was reading an interesting blog the other day. The author of "The Big Picture" is teaching Econ 101 and was looking for ideas. The article and the comments for the post are very interesting, and got me thinking.

Given the insight to what people think should be in Econ 101 at the college level, what do you think should be covered at the high school level? What is your approach?

1. "Cover as much as possible because much of this is important and my students might not go to college."
2. "Cover as much of the 101 course content to help my students have a better understanding."
3. "Cover only practical applications and personal economics because the 101 course seems to miss that."
4. "Something else entirely."

I understand that many of you are in states where the curriculum is governed by benchmarks and testing. But given the insights, what would you do?

Posted by TSchilling at 4:42 PM | Comments (0)

Nations Don't Trade

I've been on the road a lot lately. That means I haven't had the ability to post easily, and I have a lot of e-mail and blog-reading to get caught up on. It also means I end up with time to think. It doesn't necessarily mean I've thought things all the way through, just that I've thought about them.

During this road trip, I had occasion to hear students speak about the state of the economy. I've been amazed at the frequency with which trade issues have come up. Generally students don't speak about international trade. The frequency with which it has been mentioned made this all the more interesting.

What caught my attention is the belief among many students that the "government" or "big business" needs to do something to change the flow of trade. What has been totally absent is an understanding that the flow of trade will change only when individuals change their trading habits. Ultimately, it is individuals who trade, not nations or firms. Nations and firms are, as many economists will point out, convenient amalgamations, generalized combinations of individuals. And when these groups trade, it is the result of an individual's choice. And that individual usually makes the decision based on a belief that the goods or services bargained for will be resold to yet other individuals.

Trade balances are the net of all the purchasing information made by individuals (for themselves, their firms or their agencies) in the global marketplace. When your students choose to buy something, they influence that total. And they are the lynchpin for any continuity or change in the flow. For whatever they choose to do will impact on their real income, the basket of goods and services that they consume. That is the true measure of their wealth.

The classic classroom activity for this is the "inventory." Students can go home and inventory their room, their closet, or whatever. They can list the items, the nations of origin, and with a little research, the price of those items. They can then try to find substitute goods/services, the sources of those items, and the prices. They should then see if they can construct a totally domestic basket of goods/services, and whether or not they can get the same items, for the same price.

If the global market is working, chances are they will find that a totally domestic basket of goods will cost more than the international basket of goods. The choice is now theirs. Are they willing to pay more for certain products, and reduce the total goods in their basket, or not? They trade because, ultimately, they consume. It’s their money. It’s their basket of goods. It’s their choice.

As always, I welcome your comments.

Posted by TSchilling at 8:49 PM | Comments (0)

Land, Labor, Capital and ....?

There seems to be a resurging discussion about whether or not entrepreneurship should be included as a "Factor of Production." Mark Thoma discusses the issue at The Economist's View. It is an interesting post. In it he excerpts from an article in The Economist which reviews a paper by William Baumol, who advocates studying the role of the entrepreneur in the productive process.

I must admit that I was originally taught only the "big three". At the time, my instructors saw entrepreneurship as one more part of labor, similar to management. Yet that always left "profit" as a return that was, in my mind unassigned. (Rent was return on land, interest was return on capital, wage was return on labor, profit was...?)

In my mind, the case for entrepreneurship being a factor hinged on the extent to which you viewed the "entrepreneur" as an innovator. What did they do that was new or different? Ostensibly, they combined land, labor and capital in innovative ways. But what if they "merely" brought an existing concept to a new place? This then led to thinking about whether innovation took place in great leaps or was incremental (or both.) As is pointed out in the article The Economist, Baumol's work hearkens back to the work of Joseph Schumpeter.

I eventually came around to view entrepreneurship as one of the factors, and was interested to see it fall off in importance in recent years. It is heartening to see the study of entrepreneurship reviving. How do you address the factors of production? Is it only those of us of a certain age who can remember "three factors." Or is there a younger group that was taught the same way, discounting entrepreneurship.

Your comments are welcome.

Posted by TSchilling at March 10, 2006 3:28 PM


Comments
Entrepreneurship is small, profits typically being only 10% of the economy, but they are really the most important, as they drive the economy forward. Without it, stagnation sets in quickly.

Posted by: Lord at March 10, 2006 8:33 PM

Everyone Else is Asking

so I might as well go along with it. Will you buy Alan Greenspan's memoirs? I probably will, but I also suspect I'm different from many economic educators in that I find more value in biographies/memoirs than many of my colleagues. I find the historical context important to my understanding, and I find the application of economics (when well explained) enlightening. The personal view just "personalizes" the whole experience.

I really have two questions, I guess.
1. Will you buy (and read) Mr. Greenspan's book?
2. Do you generally buy (and read) biographies or memoirs of economists?

Posted by TSchilling at March 8, 2006 4:21 PM


Comments
Hi Tim!
1. No, but I might check it out at the library.
2. Not usually.

And I have a question for you. What affect do you think the Kalamazoo Promise program will have on the quality of the Kalamazoo school system?

"Civics Lesson: Kalamazoo, Mich., Pegs Revitalization On a Tuition Plan --- Promise of College Funding Stokes Housing Demand, But Will Jobs Come, Too?"
By Neal E. Boudette
03/10/2006
The Wall Street Journal

I have been meaning to comment for a while!

Posted by: Amanda Gibson at March 10, 2006 9:37 PM

Signs of a "Well Regulated" Economy

This is an old joke, but a good one. I just wish I could remember which blog I saw it on so I could give credit. Help me out.

There were three prisoners in a jail cell. They started talking and comparing what they were in for.

The first one said, "I'm a gas station owner and I set my prices above market, so I'm in for price-gouging."

The second one said, "I'm a gas station owner too, and I set my prices below market, so I'm in for predatory pricing."

The third one said, "I'm a gas station owner as well, and I set my prices at market. I'm in for collusion and price-fixing."


Posted by TSchilling at March 3, 2006 8:03 PM

Comments
Let's hope they learned their lessons and change them daily (or hourly) like the local ones, ;-). One has to wonder whether price instability is a sign of efficiency or inefficiency. Note that price-gouging only occurs when prices are high, predatory pricing when they are low, and price fixing when they are level.

Posted by: Lord at March 7, 2006 6:19 PM

Interdependence and Trade

I've been traveling a bit recently. This usually means I spend the first part of my morning back in the office getting caught up on phone calls, e-mails, etc. Once that's done, I find some time to check out the handful of blog sites I try to read regularly.

Don Boudreaux at Cafe Hayek had an interesting post on Jane Jacobs. The post and subsequent comments are interesting in their own right and definitely worth your time. But the post made me think about a different selection. In the same book cited by Boudreaux, Jacobs pulls a quote from Henry Grady, wherein Grady is describing funeral. I was struck by the great example of trade and interdependence this made and how it could be used to highlight those concepts in the classroom. See if you agree.

"The grave was dug through solid marble, but the marble headstone came from Vermont. It was in a pine wilderness but the pine coffin came from Cincinnati. An iron mountain over-shadowed it but the coffin nail and the screws and the shovel came from Pittsburgh. With hard wood and metal abounding, the corpse was hauled on a wagon from South Bend, Indiana. A hickory grove grew near by, but the pick and shovel handles came from New York. The cotton shirt on the dead man came from Cincinnati, the coat and breeches from Chicago, the shoes from Boston; the folded hands were encased in white gloves from New York, and round the poor neck, which had worn all its living days the bondage of lost opportunity, was twisted a cheap cravat from Philadelphia. That country, so rich in undeveloped resources, furnished nothing for the funeral except the corpse and the hole in the ground and would probably have imported both of those if it could have done so. And as the poor fellow was lowered to his rest, on coffin bands from Lowell, he carried nothing into the next world as a reminder of his home in this, save the halted blood in his veins, the chilled marrow in his bones, and the echo of the dull clods that fell on his coffin lid." (From The New South: Writings and Speeches of Henry Grady, Beehive Press, 1971)

Your response is encouraged.

Posted by TSchilling at 10:05 AM | Comments (0)

Economics in History, Part II

While the link I'm going to suggest may be a bit much for your students, it is certainly good background if you're teaching trade in economics, or if you teach a course in European or World History that includes the 19th Century.

The Economist is a well-respected periodical. Some people think of it as the British predecessor to U. S. News & World Report. I won't get into whether it is or isn't. Suffice it to say that the British magazine has been around longer and is a good review of news and economic events from outside the U.S.

On the website of The Economist, there is a link that will take you to the text from the Preliminary Number, dated August 5, 1843. The text, while lengthy, provides a contemporary view of English trade, and lays out the case for the magazine. It discusses trade in coffee, sugar, wool and wheat, and the impact of trade barriers on these basic items.

You might well want to take a look. But do so when you have the time to examine it. I think you'll find it useful and interesting in providing background for your classes.

Posted by TSchilling at March 1, 2006 4:40 PM


Comments
The date of the article is, as you note, August 5, 1843. Right below it says it is from the print edition. I am glad The Economist clarified that because I thought it might have been from The Economist's 1843 World Wide Web edition.

Posted by: Tom at March 1, 2006 7:33 PM

A Little Fiscal Policy

When you're covering fiscal policy in your survey course, nothing seems to generate a lively debate than discussion about "tax fairness." Whether discussing on a theoretical level, or as an adjunct to a "prepare your return exercise," the topic generally will get some reaction. I certainly don't claim to have the answers, but a couple of sources for information to include in your classroom are worth looking at.

First, the United States Treasury Department release of March 2, 2005 has some interesting information. While dated, it does provide some fodder for discussion.

Second, the Tax Foundation released some information back in October of 2005. If you're not familiar with this group, they publish the "Tax Freedom Day" information each year, stating on which day the average American taxpayer "stops working to pay taxes."

Thanks to The Amateur Economist and Curmudgeon blog for pointing these out.


Posted by TSchilling at 4:03 PM | Comments (0)

Introduction to Economics

One thing I always tried to do with my high school students was to explain to them, early on, what economics was and was not. This was harder to do in my early career, but it was always interesting.

I always found it a challenge to get them to abandon preconceived notions about the subject. Convincing them that economics was not just about dollars, but about a wide range of choices often took some doing. Many times, these notions were based on "what I saw on television, heard on the radio, read in the newspaper." (Yes, my students actually read the paper occasionally in those pre-internet days.)

Discussions such as the one by Russell Roberts on the Cafe Hayek blog would have done much to help students see the wider picture. And the comments submitted would have helped the discussion, I'm sure. I recommend you look at this post before you start your next course. I think it will help your students see where economics can take them intellectually.

Posted by TSchilling at 3:15 PM | Comments (0)

Productivity and Economic Growth

This post is a stretch, but stay with me. Hopefully you'll see where I'm going.

Yesterday I received a recent copy of the Federal Reserve Bank of Cleveland's Economic Commentary. The article, Are We Engineering Ourselves out of Manufacturing Jobs? was an interesting discussion about productivity and job growth.

However, it got me thinking about an old (1963) science fiction short story by C. M. Kornbluth titled Little Black Bag. (For a synopsis of the story check here.) In that story, future technocrats had developed technology to the point that anyone could "do" anything. The technology held the skill. The little black bag was a doctor's bag that could be operated by anyone, because all the instruments did the diagnosis, the prescribing, even the surgery. This represents one view of a pinnacle in economic growth--an era where even complex professions can be mastered by anyone given the proper technology. Of course, the true decision-making lies with the handful of experts at the top of the futuristic society.

When studying productivity and technology's contribution to economic growth, it might be interesting to use this story as a discussion starter. Has anyone done this, or is anyone even familiar with this story?

Posted by TSchilling at February 16, 2006 7:39 PM

Comments
Not with that one, but there was another where aliens provided a duplicating machine that could duplicate anything including itself in an attempt to destroy the economy. The world changed overnight from one of mass markets to one where only unique innovative design held any value.

Posted by: Lord at February 18, 2006 5:23 PM


Do you remember the title and author of that story? It sounds interesting. Kind of an evil application of replicator technology from Star Trek.

Posted by: Tim at February 21, 2006 4:49 PM

Are We Saving Enough?

Way back in my early years at the Federal Reserve Bank of Chicago, I wrote an article for our economic education newsletter that had the same title as does this post. Back when I wrote the article (1993), many economists were concerned about a personal savings rate that hovered between four and five percent. With recent headlines touting numbers that have gone negative, things would appear to be worse than they were a dozen years ago.

My interest was further peaked upon reading the Cleveland Fed's Economic Commentary for December, 2005. One of the charts showed saving as something just under seven percent of GDP. And while accurate, it certainly didn't agree with everything grabbing the headlines in the media.

Now one of the good things about working at the Fed is that there's always an economist around when you need one. I went to one of our research staff and asked for his take on the seemingly contradictory information. The short version of his explanation was in "what's in the data."

Finally, Don Bodreaux at Cafe Hayek discussed essentially the same issue in his February 8 post titled On American's Consumption and Saving. Bodreaux pointed out that many things the average person would consider "investment" gets counted as savings. My colleague pointed out that because Personal Savings is arrived at by subtracting spending from income, it's easily possible to run negative because of things that probably come out of savings (like a down payment on a new car).

But ultimately, the question for educators is "how do we explain this to the students?" The answer is that we have to get them to think about what data does and does not say. The issue of spending beyond income is important--both on a personal and national level. But one has to be careful not to overreact as to the immediacy, nor to underplay the importance of savings in providing capital for future investment. There's one side of the issue, and there's the other. There are no simple answers.

(Maybe there's a reason President Truman wished for a one-armed economist.)

Your comments are welcome.

Posted by TSchilling at 5:32 PM Comments (0)