Wednesday, May 31, 2006


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

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

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

Tuesday, May 23, 2006

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)

Monday, May 22, 2006

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

There was a great Barron's article a few years ago on the same subject (see this link:

"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

Friday, May 19, 2006

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

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

Thursday, May 18, 2006

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)

Thursday, May 11, 2006

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)

Monday, May 8, 2006

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)

Wednesday, May 3, 2006

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)