Wednesday, December 31, 2008

Globalization and Food Prices

There were some very good articles in yesterday's edition of The Wall Street Journal that connect agricultural prices to other markets, domestically and in the global economy.

The first piece explains the up-and-down of agricultural prices and how the roller coaster market for commodities (specifically corn and soy beans) makes for a volatile environment for one Iowa farming family. It also accesses some photos, as well as videos and an interactive graphic that is connected to the second piece.

In the second piece, we see how increased globalization is affecting commodity prices with good and not-so-good outcomes. In the comparison piece, a Chinese family prospers while an Ethiopian family struggles on the edge of starvation.

Both of these articles are worth the time and could be the foundation for discussion that connects microeconomics (markets and prices) to macroeconomics (international trade).

Please share any ideas you have on using these articles.

Tuesday, December 30, 2008

Some Recent Economic History

Over the past weekend, The Wall Street Journal did an excellent piece on the events of mid-September, 2008. Thanks to the folks at The Cleveland Plain Dealer, you can now read about The Weekend Wall Street Died.

It is compelling reading, if you're into the current recession or financial or economic history in general. And it has some important truths in it. One that struck home to me is quote from the head of Goldman on Sunday, September 14. One of his aides, referring to the stress of recent days said "I don't think I can take another day of this." The Goldman chief responded, "You're getting out of a Mercedes to go to the New York Federal Reserve -- you're not getting out of a Higgins boat on Omaha Beach. So keep things in perspective."

Good advice - for all of us.

Friday, December 26, 2008

More Holiday Inspired Economics

I know it's the day after Christmas, but you might find this amusing...and sobering. (HT to Greg Mankiw.)

Wednesday, December 24, 2008

What Is Economics?

This may seem like an odd question to pose in this blog. Suffice it to say, it's a way to draw your attention to a couple of interesting articles.

Back when I first taught economics, one of my objectives was to familiarize my students with some of the major names from economics that had or could have an impact on their lives. Thus, they were introduced to Smith, Malthus, Ricardo, Marx, Marshall, Keynes, Friedman and others.

However, a key point I made was that the all the theories were attempts to explain behavior. And this was to either solve a problem or answer a pressing question. The major theoretical shifts seem to happen at times of great change or crisis. And that sets the stage for the two articles mentioned earlier.

The first article was in Sunday's edition of The Boston Globe. The author, Drake Bennett, speaks to the idea that most economists missed the current downturn, but all are now scrambling to explain it. Yes, there were a few who, at the time were seen as "doom-and-gloom", but are now reaping good fortune as a result of their pessimism. But the profession is still trying to sort out all the events that led to this point in time, both to explain it and to try to formulate a way out. For that reason, I suspect the next "great economist" is out there. It may be a seasoned academic with years of research and publishing under his or her belt, combined with an exemplary ability to speak simply. It may also be a young, freshly-minted PhD with a new sense of how all the myriad pieces fit together. Either way, times such as this seem to regularly produce sea-changes in economic understanding.

This brings us to the second article, from the January 2009 issue of Prospect magazine. Robert Skidelsky wrote an excellent biography of John Maynard Keynes a number of years ago. And I would be hard-pressed to identify anyone who understands Keynes better. There may be some who can quote The General Theory and other works chapter and verse. But Skidelsky speaks to the person as well as the economist that was Keynes.

In his piece for Prospect, Skidelsky is calling for a new Keynes. Some may read the piece and say it's a call for a new Keynesianism. They may be right. But as I read it, he is looking for the next great economist. The idea is that there needs to be major shift in theory - perhaps more closely aligned with what Keynes said - but certainly internalizing the recent wave of globalization and what it can do, as well as what it possibly can't. Skidelsky would have us remember Keynes was not just an economist but a moralist. His view of the world was one that didn't put a dollar sign (or more correctly, a pound sign) in front of everything.

I would add that Keynes was, perhaps in a better position to moralize than many, being financially comfortable and ensconced at one of the world's great universities. However, I mention that only because someone else will. It should not detract from the message.

The articles are both good and both thought-provoking. And perhaps there are thoughts you can provoke among your students in the next semester. I look forward to your thoughts. Happy holidays.

Tuesday, December 23, 2008

If You're Checking in During the Holidays...

Here's a great piece of newsreel film from the 1930s (HT to Mark at Northwestern). As was pointed out to me, it's very Keynesian for a work that seems to predate The General Theory by three years.

The quick message? Inflation is our friend.

Have a happy holiday.

Friday, December 19, 2008

A Busy Week + The Holidays = Lotsa Stuff

I know your week has been busy, and if you're not already on break, chances are pretty good that this is your last day before break. Mine has been hectic as well, which partially explains the lack of posting. Consequently, I want to get this out before you leave - but even then you may not check blogs.

It may seem pointless to give you lesson plans and ideas when you're just having trouble keeping the students in their seats or in the room. I can appreciate that view. I spend and have spent enough time in classrooms to know the environment - especially during the last few days before break. Nevertheless, there are some ideas here that you may want to use later in the semester - or put them in your file for next year at this time.

The first link is holiday-related. For their last lesson before their break, the web site IZZIT put together an activity based on O. Henry's The Gift of the Magi. The story contains some basic economics - decision-making, etc; but it also shows that economic thinking is not necessarily miserly-thinking. It's about making choices based on what you value and coming out ahead - in this case feeling good about giving to others. I recommend the site and the activity.

Second, I must link to the classic essay, I, Pencil. This is the 50th anniversary of the essay. (I can't even do a proper HT to all the other bloggers who picked this up yesterday, but thanks to all of them.) For those of you unfamiliar with the essay, it's a great way to introduce the ideas of trade and interdependence. The basic premise is that no one person in the world can produce one of the cheapest and simplest tools - a pencil. It takes the resources and cooperation of many people around the world to produce this basic item that we all find in our classroom.

The third resource is the last serious one. (HT to Arts & Letter Daily here.) There is an interesting article in The Atlantic which summarizes an interview with Gao Ziqing, president of the China Investment Corporation which manages about $200 b of that nation's foreign assets. The article predates the election in the U.S., but is still timely for the insight offered about how other parts of the world are viewing the U.S. economy. I particularly appreciated his imaginative way of describing the derivative market that has been such significant part of the financial unwinding we are experiencing. I expect you could use his example in the classroom with few problems and the students would get the picture fairly quickly.

Now we can start drifting into the less serious. This cartoon (HT to Greg Mankiw) goes back to the fundamental concept of opportunity costs. We all face trade-offs, as Greg's headline says. But here at the Powell Center, our take on the concept provides a better fit for the cartoon - TANSTAFFL - There Ain't No Such Thing As A Free Lunch.

And finally, a bit of humor. The first ones come from the comic strip Arlo & Janis and are here and here. The third is from The Washington Post editorial cartoonist, Tom Toles. I think they all speak to the confusion some of us face when trying to explain the choice between saving and spending at times like this (there's that opportunity cost, again). I think you'll enjoy them and you should be able to use these in a variety of situations in the New Year.

I hope to blogging sporadically over the next couple of weeks. I hope you keep checking in, but if you don't I hope you'll pick us up again in the New Year. Happy Holidays.

As always, I look forward to your comments

And for those of you looking for new games to play over the holidays, you might want to check out the Credit Crunch board game, courtesy of The Economist magazine. You will need to download the board, the pieces, etc. but it looks like it could be good for a giggle. Enjoy.

Wednesday, December 17, 2008

Something for American History (and Economics) Teachers

There is a very good discussion here featuring some outstanding academics discussing the economics of The New Deal. What I especially like is that it's a Canadian program and offers a bit of an outside view.

It runs about 35 minutes and offers views that are a bit outside what we see in many high school textbooks.

By the way, HT to Bryan Caplan at EconLog.

Please share your views of the program.

Friday, December 12, 2008

Economics & A Christmas Carol

Charles Dickens’s Holiday Classic as a Study in Choice and Incentives

There are a number of holiday traditions at our house. Some of them showed up when I married and acquired a family, but some are older. One of the longer personal traditions is watching A Christmas Carol. My favorite version features George C. Scott as Scrooge and was originally aired in early 1980s, sponsored by IBM. (I also admit a certain fondness for the versions that featured Mr. Magoo, the Muppets and Patrick Stewart, but for vastly different reasons.) I have always been drawn to story of Scrooge’s redemption; and Scott’s excitement and happiness when he awakes on Christmas morning is impressive given his age at the time and his penchant for gruff characters.

However, the current state of the economy has me thinking about different aspects of many things. And I suspect it was the reason I began thinking about the economic aspects of my favorite holiday video. Given the extensive reach of the slowdown, many people seem to be economizing (although the data on “Black Friday” was better than expected – up 3% over last year). This may foreshadow a more inward focus for many us as we approach the holiday season. However, Scrooge’s single-minded attention to the financial and commercial success is too easy a target for a post on economics and A Christmas Carol. To focus exclusively on that as the economics in the story is to miss a larger opportunity. As I see it, it is the appreciation for values other than monetary as incentive that makes the story a classic. Nevertheless, using economic thinking helps us understand the choices that Scrooge and other characters make and the incentives that motivate their choices. And those insights can help us understand ourselves. And that, in my mind, is one of the hallmarks of good literature.

As hinted above, Scrooge’s incentives are clearly seen early on. He is concerned with material things. Garments, the cost of coal, and the price of corn are his concern. He begrudges every outlay and looks for ways to make money at every turn. The fact that others are adversely affected is not part of his view, except to the extent that he pays taxes to support others – something in his view that should exempt him from further concern or involvement. He has a superficial incentive – to make more – but that is the extent of his interest.

But Scrooge is not the way he is because of a lack of opportunity; nor do other characters lack incentives that may engage him. His nephew, Fred, invites him to dine on Christmas, but Scrooge decries the holiday as commercial and a waste of time and money. He even measures Fred’s wife, whom he’s never met, in terms of money – a girl who “brought very little to the marriage.” But when challenged by his uncle, Fred speaks of Christmas as a good and charitable time that makes him better and makes him feel better.

Bob Cratchit also speaks to feelings as a motivator when he asks for the day off, while Scrooge talks of having his pocket picked – a way of decrying a paid holiday. The views are different, reflecting different motivations.

Scrooge also has interactions on a number of levels at the exchange. He increases the asking price from a previous corn deal as compensation for the delay in making a deal; and he refuses to contribute to a charity to provide food for the poor. His defense is that he pays taxes for prisons and workhouses to provide for the poor. These insights into Scrooge’s incentive system are easy and almost cartoonish.

To dig deeper, we need to start with Marley’s visit to Scrooge’s bedchamber. Marley explains that his penance is due to his money-oriented incentives for life. The consequence of his material short-sightedness is that he is now required to make up for a lifetime of avarice. He has no choice and incentives no longer matter in his state. But he does offer hope to his friend, Ebenezer. If Scrooge can but realize that mankind is his business, he may avoid the fate of an endlessly-wandering soul. There is incentive – but with it a true empathy for others needs to develop. And we find out this is not an impossible task.

With the ghost of Christmas past, we see that young Scrooge once had a different incentive as a youth. His desire for Belle, to be worthy of her and to deserve her, helped direct his early career. But his success in the world of commerce shifts his attention – from Belle to bounty. This is in contrast with the life of his master, Old Fezziwig, who taught him the ins and outs of commerce, and sought to teach him more. But he was unable to impress a more important lesson on the young apprentice – the lesson of what constitutes a full life. For Fezziwig, family and friends sharing food, drink, dance and good times constituted real wealth. And while Scrooge seems to appreciate the lesson in retrospect, his behavior indicates the lesson was not truly learned. He started out with an emotional goal, but his drive make a secure life for Belle would eventually replace her.

The next step in Scrooge’s reclamation is at the hands of the Ghost of Christmas Present. And in Scott’s portrayal, we begin to see some indication that the miser’s values may be shifting. As I recall from reading Dickens, there are some hints that Scrooge may be rethinking his views, but they are not strong and clear cut.

With the visit of the second Ghost of Christmas, we are invited to see three Christmas celebrations of the time. We see Christmas at the Cratchit home; Christmas with Scrooge’s nephew, Fred; and the Christmas of a destitute family somewhere in England. The common theme for each of these is the importance of family. The incentive is to keep family and friends close; and to celebrate – or in the case of the final family, to value – being together. Initially Scrooge, as portrayed by Scott, is impressed by the sheer volume of market transactions on Christmas morning as he and the spirit make their way to the first visit. As he spends time at each visitation, he seems to begin to grasp the importance of family, friends, and goodwill to others. He sees his dead sister in his nephew. He voices concern about Tiny Tim. And he appears shocked that people are destitute rather than in the institutions he is taxed to support. One senses he is beginning to realize there is something else, something more than money and finance. Slowly his incentive is shifting. He sees the value in charity and in sharing good fortune.

The final spirit provides some negative incentive for Scrooge. He is shown that if he continues his materialistic view, he will die alone. We see that he loses his things, and his business contacts will only attend his funeral if they will be fed – an ironic and materialistic view - although Scrooge does not fully accept that the events are about his passing. He is also shown that others will die. But unlike Scrooge, Tiny Tim’s passing is mourned and his life valued. Essentially the second and third spirits have played “good cop/bad cop” with Ebenezer. He has been shown the some positive consequences of his current decisions, and some negative consequences. This provides the final change in his incentives. He asks the third spirit whether a change in behavior will change the future. And while he receives no definite answer, his actions upon awakening Christmas morning indicate that he is a changed man. He has different priorities owing to a change in incentives. He realizes he wants to care and be cared about; and he does not want to pass on with the only incentive to others being what they can get out of the dead man – whether it be his things or a “free lunch.” And these incentives alter his behavior - the choices he makes about using his resources.

In retrospect, there are a couple points that I find relevant. The first is our incentives say much about us, and in turn about how we view and treat others. When our focus is just on the material, we run the risk of emulating the old Scrooge. And given the current state of the economy, that view may actually be detrimental. This brings me my second point. We can care about others and in doing so we ultimately enrich our own lives. That is emulating the new Scrooge. We need to consider the incentives that should be on our minds during this season and this time. This is no call to be foolish about our resources – it would seem we’ve done that. But we need to remember others. For it is through others that we gain the most valuable part of our lives – our humanity.

Final thought: There was a great piece on the site last week.

Everyone can benefit from our resources. Let us try to use our resources to benefit everyone. The sooner we participate in the economy, the sooner the economy will allow others to participate. Whether it’s international, national, or local; whether it’s the Powell Center for Economic Literacy (a 501(c)3 charitable organization) or your local food bank; we all need to try to help others.

Institutional Aspects of a Bailing Out Santa

One of yesterday's posts on this blog referred to a humorous piece about bailing out Santa. But the piece got me thinking about some interesting segues to discuss some the role of institutions (rules) in economic decision-making. And, to be fair, I was further spurred by this morning's news about the failure of the auto bailout. The Santa Bailout is an opening to discuss at least three things that relate to institutions and bailouts.

Moral Hazard: The idea here is that we make different choices if our losses are covered - specifically we take more risk if we know our downside is limited or eliminated. The moral hazard argument against bailout is that firms that have their losses covered do not learn the harsh lessons of the market. However, restructuring is a big risk with no guarantee of success. When backs are against the wall, maybe it's time to take a risk.

Precedent: This concept refers to the fact that something that was done before provides a reason to do it again. While the idea is not generally considered part of the economic lexicon as I know it; it is an idea that is firmly entrenched in American society. Our legal system (rules?) has strong foundations in precedent. And it is not just in the formal rules, but it is a strong informal belief. Our students and we often fall back on precedent when making a case for a decision. "Last time it was done...," or "That's not the way we've handled this before..."The argument that raises precedent against bailouts is that if you bail out this industry, you may need to consider bailing out other industries because the precedent is set. The precedent argument for bailouts is...well, the precedent was already set - see banks (earlier this year), Chrysler & Boeing (for those of us with longer memories).

Expectations: Expectations does have a place in the economic lexicon. It usually refers to how our decisions about future action are shaped, based on past experience. We talk about inflationary expectations, as well as deflationary expectation leading to price spirals. It is the damping of expectations (one way or another) that is often cited as the role of monetary policy in maintaining price stability. But expectations can have other institutional effects. When referring to bailouts, one group sees another group receiving aid and then may make choices based on an expectation that they may be next in line. The anti-bailout argument based on expectations is similar to the precedent argument. Group A received a benefit; my group should get one, too. There have been reports (anecdotes are not data, I know) about people wondering whether to go into default on their mortgages based on stories about programs for delinquent homeowners. The pro-bailout argument is that positive expectations may restore some level of confidence to borrowers/consumers, and to the financial system.

I do not think any of these arguments are definitive. The situation is complex. But as a method to help students understand the complexity of developing institutions, the Santa bailout piece could be valuable.

I look forward to your comments.

Thursday, December 11, 2008

Follow-Up to "Some Holiday Economics"

Back on December 2, I posted on one of my favorite holiday economic resources, the PNC Bank Christmas Price Index. Now it seems they are going to be doing a Live Chat for teachers on the Index. This is exciting. Jim Dunigan from PNC Wealth Management will be talking about the index.

The Live Chat will take place on Tuesday, December 16 at 10:30 a.m. (EST I'm presuming). You can register here, and more information will be sent to you. From the looks of the registration, you can even register your entire class if that is convenient.

I'm registered. I hope some of you can participate.

Christmas Bailout! Is Santa "Too Big to Fail"?

While I'm not sure I'd share this with younger students, I always appreciate humor that is both seasonal and topical. This article from today's edition of The Wall Street Journal is both. And you should definitely click on the video tab.

I look forward to your comments.

Wednesday, December 10, 2008

Nobel Prize Economist in Your Classroom

For those of you about to enter the portion of your textbook on international trade, there's a way to get Paul Krugman, the winner of this year's Nobel Prize in economics in your classroom. Go to the Nobel web site to access two video presentations, as well as the slides used in the lecture.

And as an additional bonus, there's an educational game on trade (not based on Krugman's work) you can have your students play.

I look forward to your comments. Also, if you're taking part in the "book" club on the Marginal Revolution blog, don't forget to check it out tomorrow for chapters 3 & 4 of Keynes' The General Theory.

Monday, December 8, 2008

The General Theory

Last week I mentioned that Tyler Cowen over at Marginal Revolution was doing one of his "book clubs" on The General Theory of Employment, Interest and Money by John Maynard Keynes. I suspect the reason he's doing this book is because so many people are comparing the current economy to the Great Depression (GD); and it's hard to discuss the economics of that time without mentioning the GD. He has his post on Chapters 1 & 2 up. Chapters 3 & 4 will come on Thursday.

I had forgotten much of the first two chapters. I was actually embarrassed at how much. But there were two things I took out of these chapters. One was Keynes’s discussion of real and nominal wages. I think he describes the problem of the "money illusion" quite well in this early chapter. The idea of workers being reluctant to reduce money wages when real wages are rising is important. It could have been even more difficult when most people were not aware of the connection of the true impact of changes in price level. And they were probably also less aware of price behavior outside their local community. Certainly those in larger cities may have better understood the extent of price changes, but those in less populated areas could have seen it as a less pervasive phenomenon. I expect that would affect their expectations.

For me, the second thing was the sense that this was more a general theory about special circumstances.

What did you get from the first two chapters? Feel free to respond here as well as at MR. (The comments on Tyler's book clubs are often as interesting as the posts.

And here's an interesting op-ed about deflation that appeared in Forbes magazine. It mentions Keynes prominently and discusses his views.

Two from The Post about Institutions

When we teach about economic institutions, we stress that rules influence the choices individuals make - that's the purpose of the rules. Usually we also provide simple examples of rules and how they impact our decisions. We can talk about minimum standards, property rights, even blue laws. However, at that point it's not uncommon for us to drop the discussion and move on. We may not even use the term institutions when we discuss fiscal policy, monetary policy or international trade. Or we may use it differently, causing some confusion for our students or providing an unwitting incentive to forget the concept altogether. In defense of that behavior, it may be because we don't have good examples.

This past Sunday's edition of The Washington Post provided a couple of them. The first article, by Dan Morgan, explains how conflicting policies can create problems. Specifically, he looks at how agricultural subsidies (a formal rule) are in conflict with voluntary and commercial efforts to maintain prairie in the Western United States. The efforts to maintain the virgin prairie are examples of private beliefs (informal rule) about conservation of resources. This is particularly interesting given the desire to maintain the natural habitat without having it declared a national park or preserve.

The second piece, by Paul Blustein, talks about the potential for rising protectionism to extend the economic downturn by isolating national economies from world trade, similar to what happened in the 1930s after the passage of Smoot-Hawley. Blustein also calls for a resumption of the Doha Round of World Trade Organization (WTO) talks that ended abruptly this past summer. Treaties can provide the framework for laws and legislation (formal rules) that encourage or discourage certain decisions - decisions about international trade in this case.

You might find both of these articles good discussion starters as you enter the last week of the semester. I look forward to your comments.

Saturday, December 6, 2008

Forward Thinking

An interesting article on provides an interesting example of forward-thinking. China is upping its fuel taxes substantially - at a time when the economy is slowing down. Why? China is taking advantage of falling fuel prices to offset the increase that the tax would represent, making it easier for consumers to adjust both now and later should fuel prices rebound. (Everyone who thinks fuel prices won't rebound within the next twelve to twenty-four months, raise your hand.) And rather than depend on falling fuel prices to mitigate the tax bump, China is dropping some transportation fees.

According to the article, the goal is to encourage conservation and assist in restructuring (of the fuel market and energy use, one presumes).

This is an excellent example of how different governments can use fiscal policy to influence behavior for the long-run. It also shows how world market conditions offer opportunities to price commodities in such a way as to begin the move toward substitutes and alternative energy, and hopefully reduce waste - to "internalize the externalities" as one of my old professors used to say.

I look forward to your comments.

Friday, December 5, 2008

Economics in Financial Literacy (and Geography)

I've run across several interesting resources over the past couple of days. And I expect they could be used in a number of different settings. However, I'll go with the most obvious.

First, Neal Templin is a regular contributor to The Wall Street Journal, writing a regular column under the byline "Cheapskate." This week he did an interesting piece that lends itself nicely to the personal economics category. He related how the financial responsibilities have evolved since he and his wife got married. They appear to have had different views about money management, and this led to a couple of "surprises." Things have worked themselves out but the lesson is clear - We make better decisions when we have complete information. In short, communication is important for families when it comes to financial management. The resources are scarce (no matter how much you make) and money that gets used in one category is not available for another (opportunity cost is operable, it seems).

There's also been an interesting series of articles in the online edition of The Economist. The series is about an economist who is doing volunteer work providing financial literacy training to young mothers. I was drawn to the series because I believe the economic way of thinking (understanding) is important to teaching basic financial skills. This series only served to strengthen that belief. And while the author didn't appear to spend time developing liquidity preference and other aspects of money management - it is clear that her understanding of the financial world was a benefit in explaining that world to the young mothers who showed up in her class. But the basic advice she gave out was particularly valuable - not just for her specific audience, but for all young people starting out. It's worth a look.

My third and fourth resources were on the blog of National Public Radio (NPR).

The third source popped up because NPR is doing a series on how the economic crisis is affecting different parts of the country. The first installment dates back to July. And the insight of the place and the time is engaging, all the more so because the economy has changed so drastically. For those of us interested in getting our students to understand how economic circumstances can differ across distance and time - or for those trying to give students an understanding of different parts of the U.S. economy, this is gold.

The fourth resource offers a chance for you and your students to be on the radio. NPR is soliciting personal stories about how the current economy is affecting choices and decisions. They are putting together a podcast and they want people to send them an email describing what's going on in their economic lives. My guess is those that NPR finds interesting have a chance of being included in the podcast. Even if you don't get chosen, you might want to consider doing a podcast about different folks in your town and how the economy is affecting their decision-making.

I hope these sites are useful.

Thursday, December 4, 2008

Books for Economics in the Elementary Grades: The Tale of Despereaux

Those of you with children in upper elementary school and those of you who teach at that level are probably aware of the Newberry Award winning book, The Tale of Despereaux, by Kate DiCamillo. My hunch is you are probably also aware that the book has been made into a movie and that The Tale of Despereaux movie will premier later this month.

While I have no privileged information regarding the film, I can now report that there are now three lessons tied to the book on the web site of the Powell Center for Economic Literacy. The three lessons examine the concepts of choices, Institutions, and Wants & Resources in the book, and can be used to help students gain a different and valuable appreciation for the book, as well as how the basic idea of economics - decision-making - is all around us; and how we use the various resources at our disposal to satisfy wants of all kinds.

I hope you'll look at these lessons, and please share your thoughts and experiences with us.

Wednesday, December 3, 2008

A Little Macro

Greg Mankiw poses a question about aggregate supply (AS) and aggregate demand (AD) on his blog today. He is responding to a note (he links to it) by Paul Krugman on New Deal wage policies. (The note is very well done and should be useful in the classroom - for personal benefit if not for direct student use.)

Mankiw's counter is that while policies implemented in extraordinary circumstances may have different (positive) effects on AD than they would have in "normal times." The changes in rules (tax policy, etc.) changes expectations and may actually have a negative impact on investment, which is a more volatile part of AD.

I have to admit it's an interesting argument that appears to have some merit.

What do you think? Can/Do policy changes have significant impact on expectations and change that important investment portion of AD?

I look forward to your comments.

Tuesday, December 2, 2008

Some Holiday Economics

The annual PNC Christmas Price Index was released yesterday. For those of you unfamiliar with this "important" statistic, it tracks the cost of the gifts mentioned in the holiday song, The Twelve Days of Christmas. As such, it is an important inflation indicator - just kidding. And despite the recession (yes, it's official now so I'll start referring to it as a recession) that started last December, the cost is up. And while you may think you know what caused the index to rise, you may be surprised.

The site also includes an interactive graphic as well as suggested ways to tie the index into the classroom, including a webinar that was hosted by PNC Bank and The Stock Market Game. Math teachers can use the index to help students interpret graphs and charts. History teachers can use the index to discuss wages for skilled and unskilled workers.

I hope you and your students enjoy this annual offering. I will be post at least once more linking economics to the holiday season.

I look forward to your comments and I welcome suggestions.

Monday, December 1, 2008

Learning about Keynesian Economics at the Source

Tyler Cowen is starting a new "book club" on the Marginal Revolution blog. He's going to discuss John Maynard Keynes' General Theory of Employment, Interest and Money one chapter at a time, beginning next Monday, December 8.

Given the renewed interest in Keynesian policies, as well as the overworked comparisons to the Great Depression, this is an opportune time to learn and understand one of the most important and frequently misunderstood works in economics. I'm going to break out my old copy and try to keep up with him. You can find copies in public libraries (I hope), and according to Tyler, the Kindle version is only about $4.00. If you can't or don't want to follow along, (time is a resource and scarcity is an operative concept) I would recommend you consider reading the blog and posts as he proceeds through the book.

(HT to the Arnold Kling.)

Here's a link to a free version of The General Theory.