Wednesday, February 22, 2006

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)

Thursday, February 16, 2006

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

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

Friday, February 10, 2006

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)