Creative Destruction

 This short piece of video has some good possibilities for explaining "creative destruction" (HT to Mark Perry), but it also opens the door to discussions of division of labor, structural unemployment, complements and substitutes, and economic growth.



Give it a look. I think you might enjoy it. And please share your thoughts.

Teaching Economics in Light of the Financial Crisis

John Taylor (of "the Taylor Rule") poses a very intriguing question in this post on Economics One from last Saturday. And while the formal implication for many of us (especially at the high school level) is probably some time off, his argument is sound.

He proposes dropping the traditional micro/macro division when teaching introductory economics courses. His case rests on the assertion (and I agree) that for students to really understand the current crisis takes a mixture of some micro and some macro principles. I believe the best way to help students understand economics is to put in context. But very few real life examples are strictly micro issues or strictly macro issues. They can be stripped down to one or the other, but doing so often forces us to omit something.

To what extent do you "mix" micro and macro, especially if you're teaching an AP or IB econ course and your students' focus is "the test"? I would welcome your thoughts on this. I think Taylor's case is very good.

A Trio of Visuals

First of all, thanks to Chart Porn for all three of the charts in today’s posts. They're great mind-munching material, something to chew on as the holiday comes to an end and the return of school beckons/looms (depending on your personal view) around the corner.

The first is this one from AwesomeGood. The data is old, but the presentation is interesting. I would really like to see the information for 2008 and 2009. Regardless of the age of the data, we can see why retailers are always so interested in holiday sales.

The second is a series of graphs from USA Today. The index they've compiled would seem to indicate a turn in the economy. By my judgment, it is too early to tell whether the recovery has "legs". The components of the index are mixed, but they "pop up" if you select from the table to the right of the second graph.

After looking at both of those, it is always good to remember the difference between coincidence, correlation and causation.  Hence, take a look at this.

The last graph reminds me of this comic.

What Assumptions Are Present?

There are some usable observations in this edition of Frazz.



What functions of money are assumed?  And what role does the central bank have in making those assumptions correct?

Just something light to keep the brain cells churning during the holiday.

Did You Know...

this? (HT to Division of Labor.) Captain Renault, for one, is shocked.

Headline

First, for those of you observing a holiday today, best wishes.  We're recovering from "big breakfast" and "present pandamonium" at our house.

As for the headline, does anyone else feel uncomfortable about this?  And does the timing bother you?  Given everything that happened, and all the many contributing factors, I keep thinking "one step forward, two steps back."

Changing Economy => Changing Economics

In today's edition of The New York Times, columnist David Brooks offers an intriguing view of the current state of the field of economics and why it is what it is.  His key insight is that when the economy was about "making things", economics  most closely resembled physics.  But now that we exist in an information economy, the nature of economics has and needs to change.  This can provide a partial explanation for the rise in interest in behavioral and institutional economics.

It's short, but thought-provoking.  You may want to give it a look.  Please share your reactions.

Santa vs. WTO

Thanks to folks at the Real Time Economics blog of The Wall Street Journal for this.  I hope you enjoy it, and that it provides some food for thought, or at least reflection on the holidays.

As always, your thoughts are welcome.

Following Up on Some Previous Posts

First, here is more on the late Paul Samuelson courtesy of David Warsh at Economic Principals. Warsh sees Samuelson's Foundations of Economic Analysis and Economics: An Introductory Analysis as part of the pantheon of great economics texts, and lists only four others: Adam Smith's An Inquiry into the Nature and Causes of the Wealth of Nations, David Ricardo's Principles of Political Economy and Taxation, John Stuart Mill's Principles of Political Economy, and Alfred Marshall's Principles of Economics. That's some powerful company.

The second follow-up relates to the post about Russ Roberts and Lord Robert Skidelsky discussing John Maynard Keynes on PBS's NewsHour last week. The original broadcast used only a short amount of the discussion between Roberts and Skidelsky, now you can see the entire conversation which went on for about an hour and a half.

For history of economics geeks, this is about as good as it gets.

Some Good Economic News “for the Holidays”

Actually it's a bit after the fact, as is the case with most economic data. Still, the Chicago Fed's National Activity Index posts a strong improvement (although still negative) in the month of November.

Some might think be tempted to combine this with the opinion piece by Blinder I highlighted recently. And while I think the data might contribute to the foundation, it is "old data". I'd make sure there are other reinforcing arguments.  But still, it's a "ray of light", another "green shoot" reflecting actual activity.

Opportunity Cost as Demonstrated by Spiderman

Eco-Comics gives us this innovative way to explain opportunity cost using Spiderman's never-ending dilemma of balancing crime-fighting with family quality time. I think it has some potential for classroom use, don't you?

Substitution Principle and Revealed Preference

And here's a holiday-oriented comic strip that helps illustrate revealed preference (she'd rather leave trees in their natural state), substitution and inferior goods (I'm sorry, this is a normative statement but Grog just doesn't make it as a "tree"), and maybe a flair for innovation.

Films and Prices

An old colleague of mine back in Illinois used to do an activity with his students where they converted movie box office gross to current dollars and then listed the most popular films by adjusted gross.  Needless to say there were some surprises. 

The new issue of The Economist has a chart that does the work for you. Have a pleasant weekend.  Don't forget to check back from time to time over the holiday.  I'll be here.

An Optimistic but Convincing Scenario by Alan Blinder

I didn't post yesterday, but here are some items (the first three from The Wall Street Journal) that I hope will make up for it.

First, this opinion piece was in yesterday's edition of The Wall Street Journal (free content at this writing). Princeton economist and former Federal Reserve Vice-chairman Alan Blinder makes an interesting case for an improving economy. He does say that he's purposely looking for a rosy scenario, and reasons for concern remain. The outlook is plausible and worth dissecting with your classes. I think this could be used to help students analyze positive vs. normative economics in analysis.

What do you think? Too rosy? Possible but not probable? Or possible enough to keep looking for further hints?

Spendthrift to Penny Pincher

From today's edition of WSJ, an article that examines how the current economy has impacted some basic psychology about spending vs. saving. It is subscriber content at this writing, but if you use your browser to search for the title of this post, you should be able to find an ungated version.

If you can't find the article, the main point of the article that I took away is that the recession has had an impact on Americans' financial behavior. We are spending less and saving more. That may be, but I'm not sure it represents a long-term change. The institutional structure has not changed significantly. Our tax structure and our financial system does not reward saving, and investment is treated only marginally better. We still have mechanisms in place to give favored tax status for certain borrowing. And I haven't noticed a reduction in the commercials encouraging us to "buy, buy, buy." I suspect that once the economy gets back on firmer footing, we will see the American consumer rise with a list of back-ordered wants. It may take a while, but I don't see this recession turning us into our grandparents or great-grandparents who survived the recession while raising a family.

One further point related to Blinder's piece (see post above), his scenario doesn't see us turning into massive savers either.

What do you think? Has this recession significantly changed the way you look at spending/saving? Or will you return to your previous habits when the economy recovers?

Debtors Dilemma

The third article from The Wall Street Journal (free content at this writing) continues a series that I've referenced recently. The article is about people who choose to walk away from their mortgages, even when they can still make the payments. What I found helpful was a side-bar about the big questions people face when making the decision. I was pleased to see a couple of questions that were about ethics/morals of debt. The interactive graphic which shows the percentage of foreclosures that were deemed "strategic" in each state, is also worth looking at.

Do you think it's worth using the article and the "Big Questions" with your students in economics class? How about in personal finance?

Debate about John Maynard Keynes

Finally, on yesterday's PBS Newshour, George Mason University economist Russ Roberts, host of the EconTalk podcasts, and Lord Robert Skidelsky, author of the three-volume biography of John Maynard Keynes, debated the relevance of Keynes in today's economy. Russ is also working on a rap about Keynes, apparently. The Newshour piece is worth the time (about 10 minutes).


As always, I welcome your thoughts.

A One-Armed Economist

This is why President Truman asked for a one-armed economist. And while this isn't a circumstance of one economist espousing both positions, it's still an example of why many people don't trust economics or economists.

On the one hand...


and on the other...


The message depends on what you hope to promote, I suspect. For what it’s worth, I think the second statement is correct. The recession is over, but the end date of the recession just hasn’t been called yet. The first statement is also correct, but only because the economy can not reach its potential as long as unemployment (a lagging indicator) is at current levels.

Which side do you and your students come down on? I look forward to your comments.

R.I.P. Paul Samuelson

Paul Samuelson has passed away.  I'm one of the few who never used the Samuelson text as an undergrad or grad.  But I heard him speak on a couple of occasions.  Economics has lost a great thinker and teacher. He was the second economist to win what would become known as the Nobel Prize for Economics.

Information and Decision-making

Anyone who teaches about markets also makes it clear that properly functioning markets depend on full information.  When all parties have full information, they make better decisions.  As in this case...



Once the kids know it's the king, the decision is clear.

Economics in "My Fair Lady"

People sometimes don't believe me when I tell them I think about economics day and night. But here is an example even I think is unusual. I literally woke out of sound sleep the other night thinking “Economics in My Fair Lady." I had been flipping through channels the other night thinking and noticed the movie was playing. I thought my one son (who generally loves old musicals) might enjoy it, but I couldn't cajole him into watching with me. Consequently, I didn't watch any of it, but that is what planted the seed.

I think my mind was running through the various numbers and must have gotten stuck on Eliza's song, "All I Want...". It's a cute little ditty about Eliza's simplicity, but it deals with wants and prioritizing them. Those of us of a certain age can remember "wants and needs." But we don't separate them like that anymore. We focus instead on prioritizing wants – what is needed to survive, etc.

The song works because Eliza talks about the things she wants and they can be prioritized quite easily. Just a final bit of fun for the weekend.

Cartoon...

A good friend and regular reader sent a link to an interesting cartoon that appeared on The Big Picture.

I think the difference depnds on who they're talking to as much as who is talking.
Thanks Mark

Walk Away

Yesterday's edition of The Wall Street Journal had a front page story below the fold that was titled "American Dream 2". The article was about how some people have walked away from home ownership when mortgage balances exceeded home values. Some are now renting, sometimes larger houses with rent lower than their previous mortgage payment. This is understandable and, in itself, not that surprising.

One part of the story was particularly troubling. It mentioned people who just stop paying their mortgage, putting their money into vacations, etc. Is that ethical? The availability of funds that otherwise would be paid for housing is allowing them to spend on other things. But the losses to the banks may have to be picked up by the taxpayer. Is there an institutional basis for what they are doing? Do the existing rules in our society (both formal laws and informal beliefs) provide a basis for understanding this behavior?

Some may argue that the banks, mortgage brokers, and others were not ethical in placing them in homes they may not have been able to afford. But does one justify the other? This story has some excellent possibilities for use in economic analysis and maybe even an exam question. Give it a look.

The Role of the Young in the Health Care Plan

The Chicago Tribune has an excellent story on the vital role the young play in the proposed reforms of the health care system. (HT to Izzit.org).

It's basically the same role they play in the Social Security system. That may seem cynical, but from what I can see, it's true. Current funds are used to support current spending. The article raises a question in my mind. If young people use marginal analysis with a short time horizon, how might that affect their decision to participate?

Izzit has a lesson plan to accompany the article here.

The Falling Dollar

When we teach our students about exchange rates, it's easy to draw scenarios showing how a falling currency helps exporters and hurts importers and a rising currency helps importers and hurts exporters.  But here is a very nicely done graphic courtesy of The New York Times. (HT to the folks at ChartPorn.)

By the way, I'll be on the road until Friday.  I probably won't be posting (but one never knows).  I'm hoping to have something unusual for Friday's post.  Until then, keep checking and commenting.  (And don't be afraid to check out the books on my carousel.)

Economic Forecasts

One of my favorite ways to fill time when travelling is listening to podcasts. And my favorite source is EconTalk with George Mason University professor Russ Roberts. Russ was a recent guest on NPR's Money Planet talking about the folly of trying to forecast the economy. He puts things into perspective. It's less than 15 minutes long. Enjoy and share your thoughts.

There’s No Such Thing as Free…

With many of us looking to Copenhagen (swell to "Wonderful Wonderful Copenhagen" in Hans Christian Anderson, starring Danny Kaye), it's fitting that we provide some links to a pair of climate-related stories. Both focus on the cost of a likely plan to reduce green-house gas emissions.

The first is from The Economist. And while the online article is short, the chart is good. The second story is from a special section that ran in yesterday's edition of The Wall Street Journal. Again, the graphics are pretty good. And I found the story - indeed the whole section - thought-provoking.

Information Asymmetries and Exchange

I believe that "economic thinking" can be used to explain a lot of "non-economic" phenomena. This came to mind while I was listening to an episode of This American Life on my public radio station this past weekend. The episode was about mind games, and I only listened to the first two segments. What struck me was that there were social exchanges going on that were caused by deliberate information asymmetries. If this kind of deception were going on in "the marketplace", many of us would cry "fraud." We might even demand retribution, compensation, or "justice." My question for you and your students, what is our reaction in the social arena?

I would welcome your comments.

Marginal Analysis in a Holiday Classic

During the weekend, I watched one my holiday traditions, Irving Berlin's White Christmas. About 37 minutes into the film, Bing Crosby and Danny Kaye find themselves on a train from Florida to New York. Danny gave away the tickets and now is trying to get Bing to go to Vermont to meet up with "the Haynes Sisters." What popped in to my mind was "marginal cost/benefit analysis." If you get a chance, watch it and see if you agree.

World without Wal-Mart

The students in my global economics course have a class blog to contribute to as part of the course expectations. One of them posted this interesting piece about "Life without Wal-Mart" over the weekend.

Compare the list of innovations to Schumpeter's definition of entrepreneurial activity (briefly explained in this previous post) and see how they match up. Let me know what you and your students think.

Economics and Somali Pirates

I think this story from The Financial Post about Somali pirates setting up a "stock exchange" has a lot of possibilities. (HT to Arts & Letters Daily.)

It provides a platform to launch discussions on a variety of concepts. The author examines risk and reward, providing an opportunity to discuss incentives. The story can also be used to discuss markets and other economic organizations (or lack thereof), as well as the rules (institutions) used in the market (from participation to cash to barter). There are even aspects of marginal analysis (cost vs. benefit) that can be brought out with a little discussion of "everyday life" in Somalia. As you're approaching the end of the semester and looking for something to prime their brains for exams, this could be a fun and educational diversion.

I welcome your thoughts and comments.

The Federal Reserve

I was at the Board of Governors yesterday watching the College Fed Challenge final.  (Congratulations to Lafayette College for winning and for the other finalists Harvard, Northwestern, and Rutgers.) I was reminded that the Senate begins confirmation hearings for Fed Chairman Ben Bernanke. Here is a relevant link from Economic Principals.

One of My Holiday Traditions

Many of you are already aware of this, I'm sure. But it is a tradition on this blog.  PNC Wealth Management has released its annual Christmas Price Index, tracking the cost of Christmas as set forth in the classic 12 Days of Christmas.

It has games and lesson plans to use with the index. Just something to keep in mind as you get closer to the holidays and the students have a little more trouble focusing.

Micro Choices Can Have Macro Implications

And speaking of the cost of Christmas, check out this link. Someone is all for helping the economy.

Follow-up

Rather than update existing posts, I'm going to follow-up on two items from yesterday.

The first relates to yesterday's post about the "Agent-Principal Problem." In addition to the clip from The Office linked in yesterday's post, you might want to look at this piece from yesterday's edition of The Wall Street Journal (free content at this writing). I should have posted it yesterday, but I didn't get to finish the paper until last night.

The second follow-up is on holiday shopping courtesy of FoxNews. It is the preliminary data on Cyber Monday. It appears that total spending was up by a healthy amount. The interesting thing is that individual sales were smaller. We shopped at more places, spending less at any one.

Options, Choice and Exchange

This strip would seem to indicate that too many options can create problems when making choices.



It also illustrates that some don't see voluntary exchange as a "win-win".  One suspects some information asymmetries here.

Real Income

Steve Horwitz at The Austrian Economists blog has some enlightening information culled from Census Bureau data, and he's spread it out over three posts.

In the first, he looks at the percentage of U.S. households below the poverty line that have certain appliances. His thinking is that these represent real gains in income as they represent a better standard of living.

In his second post, Horwitz examines the gap between the percentage of households in the lowest quintile that have the same appliances and compares them to the percentage of households in the highest quintile. He then compares the finding from two different years to see if there is a change in the gap. While he admits that the rich have relatively little room to rise, the important thing is that the gaps on almost all items narrowed over the two years covered in the comparison. More information would seem to be in order.

For the third post, Horwitz uses a table generated by Mark Perry at Carpe Diem to compare the cost of the items in terms of hours worked at the average hourly wage for all industries. This is reminiscent of some work that appeared in annual reports of the Federal Reserve Bank of Dallas back in the mid-1990s. The conclusion there was similar, as I recall. And while opponents might note that the structure of the economy and available jobs is changing, I will note that has been the case for as long as I remember. And yet the trend seems to continue.

Finally, I thank Mark Perry at Carpe Diem for linking to the original post. I look forward to comments.

Expanding Our "Who's Who"

The current economy has given teachers ample opportunity to reference the "big names" in economic theory - Smith, Keynes, Friedman, Samuelson. It has even provided some renewed interest in less-known although not less-important thinkers like Fisher and Schumpeter.

But what has made this recession truly remarkable has been the increased public notice given to those whose names are generally known only to students of economic thought or referenced in articles read only by other economists. Two of the names in this latter category are Hyman Minsky and Arthur Cecil Pigou. (I admit to knowing nothing about Minsky until a few months ago, and only a little about Pigou.)  The fact that these names have come in to the public light means that you, being an interested economic educator, may have seen them referenced. You may have done some research on them. You may even have seen the two articles I am about to discuss.

The first is on Hyman Minsky and appeared back in September in The Boston Globe. Minsky was a Keynesian, and wrote about poverty and financial systems. It is his focus on the latter that many are citing in the current wave of Minsky popularity. He believed that financial instability was inherent to the capitalist system, and he saw debt as a significant factor in financial instability. The over-issuance of products like mortgage-backed securities and collaterlized-debt obligations (MBS and CDO) would certainly seem to fit the bill.

The second was in The Wall Street Journal (free content at this writing) this past weekend, and is about Arthur Cecil Pigou. Pigou was a contemporary of Keynes but not a Keynesian. He was the designated successor to Alfred Marshall and, as such, is considered a member of the neo-classical school. However, what is bringing him to the spotlight now is his work on social costs or externalities, as they are now called. His focus on that aspect of markets and market decisions makes him particularly relevant for discussions about health care, global warming, and even the financial crisis. And I’m sure many of you are already aware of Greg Mankiw’s Pigou Club.

I would welcome any leads to other articles of note on either of these economists.

The Agent-Principal Problem

As you know, the "agent-principal problem" arises from a misalignment of incentives.  One of our readers has identified a clip from the television show, The Office that illustrates the agent-principal problem quite nicely.
The relevant section is 9:25 to about 15:05.

While I don't watch the show, I looked at the clip and it does the job.  Thanks for the "heads up," Mr. B.

Shopping - More Is Less

According to stories from The Washington Post and The Wall Street Journal (subscriber content at time of writing), more of you were out there on Friday, but you spent less. Let's see how Cyber Monday goes, as well as the rest of the shopping season.

Interdependence Can Mean Independence

As dad to a young man with a disability, I am often drawn to stories about people with disabilities who find or are given ways to succeed and achieve a level of independence. And when I don't find them on my own, others bring them to my attention. This story I found on my own. It's from today's edition of The Wall Street Journal (free content at this writing). The story chronicles the ups and downs of a Toledo concern that hires and provides jobs for the disabled. Far from the normal "sheltered" work environment, this firm has managed to secure some nice contracts from auto manufacturers, even securing the "Q1" designation from Ford as a supplier.

But, as we know, the recession has hit the auto industry particularly hard. That has rippled through to Lott Industries, and to its employees. The result is that the firm is struggling and the workers, who sometimes don't understand how the larger world impacts their world, have to adjust.

I think the article's value lies in its ability to show us how economic activities and choices ripple through to places we don't expect. I highly recommend it, and I welcome your thoughts.

"Opportunity Cost" at Notre Dame

My friends know I'm a college football fan. And one of the top stories this weekend is the fate of Notre Dame head-coach, Charlie Weis. The Wall Street Journal included this piece in today's edition. It basically shows what else could have been purchased with the compensation Coach Weis is expected to take with him, should today's game prove to be his last.

I would modify it. One presumes that another coach would have been hired, and that coach would have had a salary. But it still is interesting to put a coach's salary in "equivalent" values. Undoubtedly, having a good program ripples through in terms of additional revenues and contributions. Nevertheless, it helps to understand the choices we make, and the priorities we appear to have in making those choices.

For the Day After...

Macro impacts of micro decisions



and "no, I'm not shopping today."  (However, the rest of my family is doing their part to shorten the recession.)

Something about Money

When we teach money, either in a personal finance or an economics class, we frequently give little time to the whys and hows - why we use money and how it has evolved to its current state. And we often ignore some of the interesting paradoxes that it engenders. This would appear to be a book (review courtesy of The Economist) that could provide some background for that type of discussion. I know, you're thinking, "it's not tested, so I don't have time." But if the diversion can get your students to think more deeply about what money really is, the understanding might have some positive spillovers.

If anyone is familiar with it, I would welcome comments.

Happy Thanksgiving

By way of Ezra Klein at The Washington Post.

Enjoy your holiday.

Just in Time for Black Friday...

there is a series on Big Think on The Science of Savings. I will have to admit, I just found it and I've not had time to do more than peruse it.  But the subjects and the people being interviewed are both enough to draw my attention. 

If it's half as good as I think it will be, it should offer some useable bits and pieces, particularly for personal finance courses.  I'll try to comment here once I've gone through it.  Please share your thoughts, as well.

Decision-Tree for Fast Food

Here is an interesting "decision-tree" matrix on fast food (HT to Chartporn). Some of the questions might make it inappropriate for some classes. But you may get a chuckle out of it. And if you do find it usable, all the better.

I welcome your thoughts on its usability.

Market Skills: Technology vs. People

As economies change, the need for skills can change. This cartoon might be an example of a chicken-or-egg situation, but there's a clear message.



What do you think?

A Bit of Macro over the Weekend

I ran across two items that might be of interest to you. The first is a paper from a pair of Harvard professors. (HT to Greg Mankiw.) Their research is noteworthy for its conclusion: "Fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increases." Their results on fiscal adjustments to reduce deficit and debt to GDP ratios are also counter to what is happening. On the surface this seems to have some intriguing implications.

I wouldn't change my AP course section on fiscal policy just yet. The test is, after all, the test. Nevertheless, this might be food for discussion. And it's certainly worth following. It's a short paper and very readable. 

The second item I ran across is a human-interest story from The Washington Post. It is largely an anecdotal account of how the recession forced a promising student to re-evaluate her goals and training. We often teach that the business cycle helps an economy reallocate resources to their "best use." (I can certainly identify with that.) And while you might have a hard time making a case that this situation is the best use of well-educated young woman's talent; you might be able to make the case that the road she was on might not have been the best use, either.

I know anecdotes are not data. But as someone told me recently, the plural of anecdote is data. I welcome your comments.

Gift Idea for the Holidays

For those of you looking for an unusual gift for that hard-to-buy for economics fan, give this a look.  Check this out.

HT to the Austrian Economists by way of Marginal Revolution.

Top-down Versus Bottom-up

There was a very interesting post on Voxeu.org the other day. The upshot was that bottom-up economics is better than top-down. When I first read the title, I was expecting a discussion of trickle-down vs. trickle-up. But that was not the case. Based on some research from other sciences, the author makes a case for the way we develop and use simple rules (institutions?) to help us make sense of the economic environment, and to help us make decisions. But more intriguing was the author's contention that expectations-based models (thought of as anti-central planning by many) are actually more closely related to top-down models that depend a relative few to make decisions. I think it's worth your time. I'd be interested your responses.

Globalization's Effects?

The Globalization 101 website has what I consider to be a very good and useful definition of globalization. What I like about it, and why I use it with my students, is that it takes in "non-economic" factors - culture, technology, and politics - when examining the impact of Globalization.

Once you've examined it, I invite you to check out this article from yesterday's edition of The Wall Street Journal.

On reading it, I remembered the violent and sad past of unionization in the U.S., and was wondering whether India will face a similar pattern, or whether it can be avoided with a turnaround in the global economy? The graphics are also gripping. I welcome your thoughts.

Religion as an Economic Institution

Regular readers of this blog know one of my interests is the impact of economic institutions (the rules and organizations of a system) on our decision-making. Among the effects I find most interesting are those that are rooted in what I call "informal rules." These include beliefs and personal codes of conduct that we are exposed to by family, friends and other affiliations, including any religious upbringing. They are not "formal" in the sense that they are mandated by an authoritarian organization (government) with the power to provide and enforce incentives.

Not only do these beliefs affect our decision-making, but they can impact how we view the larger world around us. To this end, they are important. And they are often slow to change.

This brings us to two articles (HT to Arts & Letters Daily) that caught my eye this morning. The first is from The American, the online journal of the American Enterprise Institute - an ideologically conservative think-tank. The other is from an ideologically more liberal newspaper, The Boston Globe.

As I read them, they both seem to conclude that societies that tend towards religious freedom (including freedom from religion) tend to be more economically successful. This reinforces one of the themes in my Global Economics class: that trade can have a positive effect on and is positively affected by the open exchange of ideas.

The studies cited in both do not imply a causal relationship, merely a correlation that indicates a need for further study. Take this excerpt from the end of The Boston Globe piece.

McCleary (a researcher at Harvard) says the lesson of their results isn't that governments should boost religion, but simply that they should recognize that it has some value, and avoid regulating it too heavily.

I would welcome your observations on these articles.

Money Velocity

For those of you who teach money and monetary policy, the equation M*V=P*Q is probably part of your discussion. But if you have trouble with a clear explanation for "V", Bryan Caplan at EconLog has something you might want to use. It helped me.

What do you think?  Is this explanation helpful?

Cash 4 Clunkers

National Public Radio's Planet Money blog has an interesting podcast assessing the effectiveness of the "Cash for Clunkers" program. It's about 15 minutes long, so you can download it to your mp3 player, and get through it relatively quickly. Do you think it was effective? Did it increase sales or just shift them in time? I look forward to your comments.

Old Time Recession

Finally, a bit of video satire to start the week off.

HT Greg Mankiw.

Something Light

First, it's important to remember that our wants are endless.

Second, opportunity cost differs from person to person and is relative.

Econ in Music for Early Elementary

Here are three songs for young children that can be used to introduce economic ideas. And all can be downloaded for under a dollar.

The first is Iko, Iko by Parachute Express. You may also know it as the "Jambalaya" song. The song is about making jambalaya. Students should be able to identify human resources, natural resources and capital resources in this song.

The second is When I Build My House, also by Parachute Express. The lyrics talk about a number of tasks involved in building a house (hammering nails, laying bricks, painting the walls). The refrain is "When I build my house there's so much to do. It's fun when you come along and help me too." The concepts that can be integrated with this song are division of labor (splitting up the work) and specialization (the person who is best at each task).

The final song is Sittin' Down to Eat by Bill Harley. It's a fun song about a meal interrupted by all kinds of large animals. Each is invited to join the meal. But when a caterpillar finally joins, the house explodes. It offers an insight into the concept of marginal cost/benefit. One by one, the house gets crowded until the addition of one more imposes a significant cost.

I hope these are useful for you. I welcome comments.

Downwardly Sticky

We often tell students that one of the reasons markets don't adjust quickly is that prices are sticky. We emphasize that they are especially sticky to the down side. By that, we mean that while most suppliers (whether of products, resources, or labor) or more than happy to see their price move to the upside, they are reluctant to adjust in the other direction.

A corresponding aspect of this is downwardly sticky consumption. Once we get used to consuming certain levels of goods or services - a certain standard of living, we are reluctant to give it up.

Here's an article from today's issue of The Wall Street Journal (free content at this writing) that examines this behavior. (Note: it includes a good video, an interesting slide show, and links to some thought-provoking parallel articles.)

I think it has some possibilities for discussing decisions in the marketplace; and I think it has some real uses in personal finance courses. Students could read the article and easily make lists of behaviors that were self-defeating when faced with no income and limited resources. And the list doesn't have to just deal with what the individuals "could have done." In some cases, there are behaviors that are still going on that could be changed.

This discussion gives you a chance to revisit concepts such as choice, value received, marginal cost/benefit, and opportunity cost. You can even ask students what they have given up or would be willing to give up to help their family “make ends meet.”

I look forward to your comments.

The Structure Has Changed

Over the weekend, I ran across a short article at American.com, the site of The American Enterprise Institute. It was relevant, because my class had only recently discussed the types of unemployment and we're about to delve into policy impact on economic problems.

The piece, by Arnold Kling of George Mason University, contends that the fiscal policy approaches advocated by John Maynard Keynes may not be appropriate for the current economy - largely because the current system is structured differently.

That relates to what we've been talking about and what we will be talking about in class. Policies to address cyclical unemployment should be different from policies that affect structural unemployment. And most economists would agree that frictional unemployment is a good thing.  The Great Depression was mostly a cyclical downturn but very large. There were some structural aspects. The current recession is what? Cyclical? Structural? How much of each? And even if we contend that it is largely cyclical, the structure of the current economy is different. The institutional aspects that set up various incentives are vastly different after 70 years. Consequently, stimulating manufacturing and agriculture will not have the effect it did in the 1930s, while stimulating services of various kinds will also be different.

What are your thoughts?

Correlation and Causation

Economists Do It with Models had an excellent post on correlation and causation containing this great cartoon. I highly recommend the post and the cartoon.

Globalization in Reverse?

Finally, one of the topics of my Global Economics class is how trade can allow cultures to share. McDonald's is an oft-cited example. Just consider the fact that the Big Mac is considered a "universal commodity" as the basis for the Big Mac Index.

But how many of these McDonald's products have made it to the U.S.? (HT Marginal Revolution.)

Granted, it is an example of a multi-national adapting to local markets, but still... One would expect some reverse flows, wouldn't one?

I look forward to your comments.

Something on the Light Side...to Make Us Think

Here's something light to start off the weekend.



That's one way to reform Social Security, although it sounds like the old idea of "we have children to secure our old age." I posted on some research about that recently.

Subsidized Risk

I ran across this opinion piece in today's issue of The Wall Street Journal.

I think it does a very good job of explaining how institutions introduce moral hazard to the larger system. (And I love the image.) The changes that result from policy are sometimes subtle, but they eventually get to be assumed. And we know how to spell assume.

Unintended Consequences and Negative Externalities

Finally, here's a very thought-provoking opinion piece from yesterday's edition of The Boston Globe (***UPDATE*** HT to Greg Mankiw.) on how incentives set up to promote one policy can have a negative effect on another, creating negative externalities that have to be accounted for in the process.

Unintended consequences are a result of any decision because we can't foresee everything. That doesn't mean we shouldn't do a good job in trying to find as many as we can.

I welcome any comments. Have a good weekend.

Supply, Demand, Price, Markets, Yadda-yadda

If you’re looking for some current issues to help illustrate your discussions about prices (how they are set, how they influence behavior, how they are influenced by behavior, how they act as a rationing mechanism, etc.) you could do worse than a couple of stories that have popped up over the past few weeks. You probably are already using them, but just in case they’ve slipped under your radar, here they are.

The first was in The New York Times about three weeks ago. The story is about how chicken wings, that finger-food favorite and former loss-leader for sports bars, have now become more expensive than boneless chicken breasts, the former gold standard of the poultry market. The story offers opportunities to move supply and demand curves, discuss cost/price issues, and even talk about substitutes, elasticity and inferior goods.

The second story was in The Wall Street Journal about a week ago. (I wish I could tell you with certainty that it’s free content. Sometimes it is. Sometimes it isn’t. If you run into a “subscriber content notice”, insert “Amid Price War, Three Retailers Begin Rationing Books” into your browser. You should be able to find the whole story. If that doesn’t work, the basic story has been covered by other news outlets like this segment from CBS News.)



It seems that traditional book-sellers are up in arms because Wal-Mart, Amazon and Target have started a price war, and newly released and soon-to-be-released popular books are the ammunition. That’s to be expected. However, the three sides in the war are discovering that “price acts as a rationing mechanism” and have had to decide how to distribute the goods when price is “below market.”

Let me know how these stories work. Or if you are already using them, please share your experience with other readers.

People Respond to Incentives...

but it also depends on whether they think short-term or long-term.

It Takes a Certain Kind of Nerd...

and I'm the right kind.

If you were frustrated that the contestants in the Jeopardy clip below did so poorly, try this quiz.
(HT to Marginal Revolution.)

Follow-up to Job Counting

This is a humorous follow-up to my post of a couple days ago on jobs created and saved. It is from one of The Wall Street Journal blogs and explains why counting jobs saved/created is very difficult and may even be impossible. This can also be filed under "an anecdote is not data, but the plural of anecdote is data."

Some Classroom Resources

First is this item from National Public Radio's Planet Money blog. It's about a teacher in New York who is using Planet Money podcasts in the classroom. It includes some lesson ideas. I found some interesting, some not so. But I got some ideas out of it. You may get some as well.

Second, is an item from the Federal Reserve Bank of St. Louis's Liber8 newsletter. It's a three-page article on how modern macroeconomic schools of thought view the current financial crisis. With all the discussion about why the crisis wasn't foreseen, and what certain schools of thought lack, it is still interesting to look at the underlying assumptions when discussing policy responses. It's in .pdf format, but is full of interesting active links.

Finally, is this video from the Federal Reserve Bank of Cleveland. It is part of the Cleveland Fed's interesting and engaging Drawing Board series looks at how inflation is measured.



While it may spend more time than necessary on one specific (new) way to measure inflation, it does a good job of explaining why accurate measurement is important, as well as how the Consumer Price Index (CPI) is put together, and even a short discussion about "core" inflation. It is a little more than eight minutes long and could be used to set up the discussion about price stability and measurement.

I welcome your thoughts on any of these resources.

Depression Diary - A Resource for History Teachers

Yesterday's edition of The Washington Post contained some excerpts from a recently published book, The Great Depression: A Diary. On the strength of the excerpts alone, I'm adding it to my carousel at left.

If you teach American History and you want to integrate a little economics, this looks to be a wonderful resource. One of its strengths is its apparent focus on middle-America, rather than the financial centers.

I'd welcome any comments. I'll try to add it to my reading list and review it when I'm done.

Amidst the Euphoria: Thoughts about Jobs and GDP

There are a number of items I want to bring to your attention today. One is in a separate post above, but these two deserve to be grouped together.

The first is an opinion piece from today's edition of The Wall Street Journal. The author points out that claims from or about any administration, and I underscore any administration about its ability to create, save, destroy is optimistic at best. Unless everyone is employed by government and in a very small economy, there is just no way to work through the details of every job to verify the claim. The best one can do in a very large, dynamic economy is look at net gains/losses in jobs. And even then, to claim success or blame failure on a specific program is questionable.

The second item is a post from John Taylor's blog. He does a good, short analysis of the recently released third quarter GDP numbers.

He attributes much of the improvement to changes in business inventories. He credits little to government stimulus, although I'm not sure about the stimulus package's impact on production of final goods and services. Using the C+I+G+(x-m) formula, the clear leader appears to be "C". If consumer spending is increasing, and business inventories are getting leaner. I would think that might lead to a turnaround in hiring, depending on productivity gains from existing labor. I agree with his overall analysis.  But as stated above, I'm not sure that means that any government program can be credited or faulted with economic performance in an economy as large and diverse as ours. For an administration to take credit, or for critics to find fault is to fail to grasp the complexity of the U.S. economy.

However, this will bear further watching, and should make for a lot of good examples for classroom use.



I welcome your thoughts.

Job Security?

Finally, the video clip below doesn't say much for the average (or some may say above average) TV contestant. Do you think it can translate into job security for economic educators?



HT to Marginal Revolution.

Buy Local & Gains from Trade

First, if you haven't heard, Steven Landsburg, the author of The Armchair Economist has a new book out, The Big Questions. (Once I get a chance to read it, I'll review it and maybe add it to the carousel.  In the interim, don't wait on me.) He also has an entertaining blog to go with it.

That being said, check out his take on "buy local." At the very least, it should generate some discussion when discussing comparative advantage and gains from trade.

I welcome your thoughts.

Almost Forgot....

On this date in 1929...

The crash was a series of bad days beginning on October 24 (Black Thursday) and proceeding until
October 29 (Black Tuesday), somehow Mondays always are worse. Doubtless this was the scariest Halloween season for the adults, particularly those in the market.

A Visit from Captain Renault

This story from today's edition of The Wall Street Journal (free content as of this writing) would undoubtedly shock Captain Renault. It seems that a politician, who previously was against the bailout of General Motors because, among other things, it would invite political interference, is now interfering. As I said...

Big Macs in Iceland...Not!

When teaching my course on the economics of globalization, McDonalds is frequently cited as an example of a global corporation. And one of the books the students use, The World is Flat, mentions even mentions McDonalds.

Earlier this week, it was reported that the golden arches would no longer be found in Iceland. Today's edition of The Wall Street Journal has a short opinion piece (free content as of this writing) on the event which can provide some explanation of foreign exchange values. It seems that when the global financial crisis sunk the krona (Iceland's currency), it made all kinds of imports more expensive. (To quote from the piece "beef to special sauce, lettuce, cheese, pickles, onions and, we assume, sesame seed buns.")

Feel free to comment.  I just thought it was interesting.

Audio and Visual

I've been busy the past couple days and haven't had time to get to the computer to blog. But I'll try to make up for it.

First, many of you regularly read Greg Mankiw's blog. That's where I found links to two sites that use rap music to explain economic concepts.  I have been aware of the first one for a while.

But the second one is new to me. It uses shorter pieces to cover a multitude of concepts.

And here is a history of the Federal Reserve (HT to ChartPorn). You can purchase a copy for your classroom, or download a very big pdf file. Either way, it offers some possibilities. I'll try to get another post up later today.

On a Chart Jag

(I may be due for a graph intervention.) But I recently ran across a site that is full of charts, graphs, tables and other visual stimuli to assault our understanding, and just asking to be debated. I find the examples most useful as opportunities to ask "so what?"

The first is actually a whole series of bar graphs comparing the United States to Russia. It is is on Mint.com. (But HT to Chartporn.) The Mint.com site also has similar comparisons with China and India at the bottom of the page.

The second has some real value for teaching personal finance. Specifically, if you teach about credit cards, this is a great illustration of all the steps involved in a credit transaction. (Note: I didn't say the sequence was correct. I would have made step 8 the first step and then proceeded. But we can debate another time.) Again, I found it on Chartporn.

While I don't endorse all the content on Chartporn, these examples are pretty good. Used judiciously by teachers who like want their students to dig a bit deeper, these charts can offer a good place to start.  What is your take on the site? I have temporarily added it to my link list. Should I keep it?

If Institutions Create Incentives...

where is the problem? There are a number of articles from various sources that pose an interesting question for your students.

First the question: "If institutions (the rules and regulations of an economic system) create incentives to guide decision-making, what incentives are being given to banks, and how do they align? Are they contradictory or reinforcing?"

Now, take a look at the articles. I will admit to being somewhat selective; but only to the extent that all of these came to my attention over the past few days.

First is this article (free at this writing) in today's edition of The Wall Street Journal. If, for some reason, it becomes subscriber content, search for the title "Fed Hits Banks with Pay Limits". Otherwise, I'm sure you can find other media coverage on the story. Of particular interest to me is the angle that the caps are being instituted to reduce the risky behavior of those targetted. 

Second is this article in City Journal (HT to Mark Perry). It raises a question about the role of legislation in promoting lending to certain borrowers. I wish it did a better job of answering the question. But it still raises some important points.

This brings us to a third article. This is research from the conservative Heritage Foundation. It does an adequate job of pointing out how programs and incentives put in place by administrations both Republican and Democratic, MAY have contributed to the crisis.

Our fourth item for consideration is this story from The Business Insider (HT to Mark Perry, again). It tells the story of a 20-year old with little income buying a home worth $155,000 with 3.5%. She also received an additional loan to help make improvements, boosting the total loan to $183,000. Consequently, she's underwater at the start. While you can make the case that this is anecdotal and anecdotes are not data; others can counter that the plural of anecdote is data.

Finally, we come to this opinion piece by Allan Meltzer. It comes from today's edition of The Wall Street Journal. Meltzer calls for a tighter monetary policy to reduce the risks of future inflation. But the monetary regime he sees currently is one in which banks (those same institutions that are under pay caps for reasons described in the first article) are borrowing at a zero interest rate and lending back to the Treasury.

As someone who is interested in the role the rules and regulations have in our choices, I find the whole thing very curious. I'd be interested in your thoughts and those of your students, as well.

Have a nice weekend.

Spenders, Savers and the Global Financial Crisis

Today's edition of The Washington Post contains an article worth your notice. Fed Chairman Ben Bernanke spoke at a conference on Asian and the global financial crisis, sponsored by the Federal Reserve Bank of San Francisco.

Within the speech, he noted that the basic imbalances that led to the crisis were still in place. Specifically, he warned that the U.S. spends too much and save too little; while Asian nations save too much and spend too little. This creates a situation where Asian nations, amid the proverbial "savings glut", seek "safe" havens for their excess funds, driving down interest rates here. The U.S. uses these "cheap" funds to finance demand, rather than financing it through our own saving. (And, please note, he referred to personal and government borrowing.)

One of the basic ideas in economics is that people respond to incentives. He seems to suggest that it's time the U.S. encouraged saving and discouraged spending, on both the personal and governmental level. (This can apply to the corporate level, as well. Maybe there would be incentives to encourage investment out of retained earnings, but not through debt?)

These are just some thoughts to throw out to the students when you discuss "fiscal policy" during the semester.

Mass Production and Specialization

I know many of you know the basics of mass production and specialization. But if you're looking for a basic explanation to keep in the file and to share with the student who missed that day of class, here's a good one-pager, courtesy of The Economist. It should be useful, provided your students are at or near high school reading level.

Let me know if you think it's too hard.

Benefits from Globalization

This recent Wall Street Journal article, "Indian Firms Shift Focus to the Poor", was subscriber content when I last checked. (But use your browser to search the title, you might find the whole article somewhere.) However, what was not subscriber content was the interactive graphic. It highlights some of the technology that is working its way to the lower income groups. When we discuss the benefits of globalization, or the benefits of trade, these are the kinds of things that make for excellent examples. Why? Trade accelerates the spread of goods and services. Even if the products are made in India; one reason they are available is the increased profitability that comes from trading and sharing technology.

I look forward to your comments.

Globalization on Every Corner

Some of the most basic products we consume are linked to the global economy. Here are some excellent examples.

(HT to Alex Tabarrok at Marginal Revolution.)

Property Rights, Trademarks, Patents and Board Games

A friend of mine uses a popular board game, Monopoly, at various points in his AP Economics course. He uses it to fill up the period after the exams, but he also uses it to discuss the rules of markets. He even has numerous versions. As a result, when this article (free at this writing) appeared in yesterday's edition of The Wall Street Journal, I was drawn into it.

It chronicles the long struggle of an economist who came up with something called Anti-Monopoly. But its value for the economics and personal finance teacher is its repeated focus on property-rights: specifically copyrights (and patents). Those are specific enforcements of property rights (some even refer to them as temporary monopolies) meant to encourage innovation. But we can have very interesting discussions about the idea.  For the institution, designed to foster innovation, can also stifle innovation.  The idea can be extended to many areas including pharmaceuticals, and technology.

I won't ruin the story for you, but there is a lot of usable information in the story that relates the concepts to an experience that many of your students are sure to have shared. And that provides a point of departure for deeper and more complex discussion.

I look forward to your comments.

Exchange Rates, Trade and Value

Often one of the hardest concepts for students (and teachers) is exchange rates. The idea of paying money for money seems odd. But then it is compounded when we remember that the changing price (the exchange rate) can be affected by supply and/or demand. Once that hurdle is cleared, we then have to try to understand and explain how fluctuating rates impact producers and consumers on both ends of the transaction. It can be confusing, to say the least.

Yesterday's edition of The Wall Street Journal contained two articles that I believe may be helpful - if not for your students, at least for you. Currently, both are subscriber content, but if you use your browser to search for the title, you may be able to find them for free - I did. Although when I used the new links, the subscriber notice popped back up. You might have to poke around, but it's worth it.

The first article, "Value Is in Eye of the Holder," provides a sound explanation of exchange rates, using the recent rise in value of the Canadian dollar against its U.S. counterpart.

The second article, "Wallet Check: It's Pain or Gain," uses a tree farmer in Nova Scotia as the example to help understand how exchange rates can impact the producers and consumers of a seasonal item - Christmas trees.

What I found particularly helpful was the explanation of farmer's position when his revenues are priced in U.S. dollars, but his expenses are priced in Canadian dollars. It might even make for an interesting quiz or test question. You decide.

I hope you find the link. If you do, please share your thoughts on these articles.

Evolution of Our Healthcare System

While running a number of errands this weekend, I was listening to this well-done history of the evolution of the U.S. healthcare system on This American Life on National Public Radio. And while I haven't heard all of it, what I did hear was excellent. The evolution of our current healthcare system is a mix of entrepreneurial insights and development of an institutional structure (the rules and organizations) that create a system that provides many players with incentives to shift costs or seek incremental innovation, while depriving other participants of some basic information to help in decision-making. There are even examples of placing incentives to choose more expensive treatments under the guise of "it's free - someone else is paying for it."

I strongly recommend the program. What it made clear for me is the problem inherent in continuing any system that deprives the primary producers (doctors) and consumers (patients) of fundamental information (costs) to help them make choices. While we all want the "best," sometimes the "best" isn't what is needed.

I look forward to other comments on the episode.

***UPDATE***
I just received my email notification of this week's EconTalk episode.  It features a discussion of prices in the healthcare system between host, Russ Roberts of George Mason University, and frequent guest Mike Munger of Duke University.  While I don't always agree with either of them, their sessions on EconTalk are
consistently among the best, in my opinion.  Consequently, consider listening to this after you listen to the
show on This American Life. That's what I plan to do.

***UPDATE***
For those of you who tuned in earlier, my apologies.  I gave a link to the wrong episode of This American Life.  This is the episode I was referring to (although the other one is good, as well).

Cool, and at the Same Time, Disheartening

Mark Perry over at Carpe Diem has a link to this interactive graphic. It's fascinating and disheartening at the same time. What say you?

...and One More Resource

The Council on Foreign Relations has just posted this presentation by Alan Greenspan on the Global Financial Crisis.  Regardless of your opinions about the former Fed Chairman, this is a worthwhile event.  They have video, audio (streaming or download to your MP3), as well as written transcript.  If your weather is unseasonably cold this weekend, this might be something to curl up with and have a hot toddy.

Enjoy.

Interviews of Note

I recently ran across some interviews on economic issues that you might enjoy, on a new source that I plan to add to my regular reading.

The first is an interview with the Harvard economist, Robert Barro. Barro is a critic of the current stimulus plan, but the interview is about some of his empirical work on the Great Depression, focusing on the multiplier. The interview is short and understandable and provides a great addition to anyone interested in learning more about the economic lessons of that period.

The second interview is with Robert Skidelsky, the historian and author of the excellent biography of John Maynard Keynes. Skidelsky is more of the Keynesian interventionist, and is at his best when explaining Keynes.

I hope you enjoy them.  They provide a look at how two intelligent, articulate individuals, from different professions offer insights into an important and relevant piece of economic history.

I look forward to your comments.

Economic Return of Children

When I first introduce economics to my students, I talk about using economic thinking to examine “non-economic” problems, frequently using some of the work of Gary Becker as an example.

Likewise, when we discuss economic development, a frequent observation is that richer countries tend toward lower birthrates. The hypothesis sometimes put forth is that as parents become less dependent on children for support in old age, the incentive to have more children falls.

But Brian Caplan at EconLog draws our attention to an old article originally published in the Journal of Economic Literature by Ted Bergstrom (link appears to be to a more recent version).

While the paper is long and contains some math that probably can't be used in your classroom, Caplan does highlight two interesting points. The economic (read financial) benefit of having children is minimal and may even be negative in some cases. So, if the hypothesis is true, why do we see people choosing to have children? Apparently there is still a benefit that accrues to the parent, a value received. Maybe it’s more than financial?

It’s just something interesting to think about. I'd welcome your insights.

And Managing the Commons - Institutional Economics on TV

Those of you who watch Curb Your Enthusiasm undoubtedly saw this. But it’s an excellent example of the informal rules we place on ourselves to direct the choices we make. Think of the hors-doeuvres table as a commons. This is an application of what the Nobel Prize in Economics is recognizing this year.

HT to friend and regular reader, Mark Witte at Northwestern University.

Graphs Gone Wild

If your students complain about your excessive use of graphs, you might want to watch the following video. You, too, may be ripe for an intervention.

(HT to Mark Perry.)

Follow-up to Yesterday's Post

One of the topics for yesterday was the market for tickets for entertainment (sports, concerts, etc.) and one of the related concepts was elasticity. There’s an excellent post connecting the two on Economists Do It with Models. I encourage you to take a look.

No Such Thing as a Free Lunch?

Something free is not really free. Imagine that.

Resources for Middle School

For one reason or another, I've been reading a lot of books for children and young adults lately. As a result, I found several that I would recommend for those who teach middle school, and who are looking to integrate economics, history and literature. I was able to add two of them to my carousel near the top left of this blog. So if you think you're interested, I would appreciate it if you ordered them through that route, and help support this service.

The first recommendation (and the one I could not add to my carousel, is A Day No Pigs Would Die. It is the semi-autobiographical story of a boy, a Shaker, in the early 20th century northeastern U.S. The boy is given a pig as a reward for helping a neighbor's cow. And over the course of a year, the boy learns to treasure the pig, but also learns some important lessons about living. When his father, a butcher, shares fears that he may be dying; it becomes more important that the boy make some hard choices and face facts about being responsible.

The book contains a description of hog-butchering so may be intense for some students. But the decision-making and resource management make it an appropriate way to integrate some fundamental economics while adding color to discussion about early 20th century life in the U.S.

The second recommendation is Lyddie. You can find it on the carousel. This is a well-researched book about the mills in Lowell, Massachusetts in the mid-19th century. Lyddie, her mother and siblings have been abandoned by Lyddie's father. Although Lyddie and her brother try to keep the farm running, her mother decides to let out the land and to place the older children in positions to earn an income. Lyddie's first position is as domestic in a nearby inn. Lyddie is fired after she takes a day off (with her supervisor's permission) to go back and visit their home. She then decides to go work in the Lowell mills, having heard of them from other girls who have stayed at the inn. Again, the book has abundant examples of scarcity, choices, and managing resources to meet a goal. For Lyddie is determined to get the family farm back and to wait for her father.

The final piece of literature I'm recommending is Zlata's Diary (also on the carousel). This is the true story of an 11 year-old girl in Sarajevo in the early 1990s. Zlata is sometimes referred to as the "Anne Frank of Sarajevo." Her descriptions of life in the besieged city and the way the family dealt with scarce resources is moving and well-described. Again, integrating world studies, basic economics and literature is quite doable and should raise interest among the students.

Finally, I have one non-literary resource to recommend. This one is FREE. And while it is actually for grades K-12, I choose to mention it here because I think it can be particularly useful in the middle grades. It is the Nifty Fifty economic term cards available from the Federal Reserve Bank of Kansas City. It is actually a set of 100 cards - 50 economic terms and 50 definitions - accompanied by some suggested classroom applications. From memory games to "term a week", there are ideas here that could meet the needs of most, if not all social studies teachers.

I hope you share comments about the books or the cards. Everyone will benefit from further insights.

Tickets, Prices and Markets

I will admit, when I first saw this article from The Seattle Times on Mark Perry's blog yesterday, I failed to connect the dots. However, it has been in the back of my mind, and this morning I saw some connections.

The article is about a ticket reseller (scalper) who is suing the city of Seattle, the Mariners baseball team, and a couple of police officers. He feels his rights are being infringed. The argument of restricting voluntary trade between buyer and seller is an interesting one for economics. We often teach that voluntary exchange takes place because both parties benefit.  Because the exchange is voluntary, and because we assume that both parties are seeking to maximize their benefits, we say that both parties benefit because they each receive something they value more in exchange for something they value less.  I even point out to my students that, because of that point, an exchange in the market place is as much about disagreement - about relative values - as it is an agreement.

This story gains interest when we consider other actions against by ticket brokers against firms like Ticketmaster, as illustrated in this article from The Wall Street Journal earlier this month.

This issue can be used discussing things like consumer and producer surplus. Consumers willing to pay more than face value for a ticket would indicate there is some producer surplus to be captured. One can certainly see where that might be a cause for concern among the original producers of the service.

Another way to use this issue is with discussions of risk. Resellers (or scalpers, take your pick) often take significant risks - buying tickets only to find the demand does not materialize.

And when discussing demand, one can talk about elasticity for the item. A colleague of mine talks about time-sensitivity as a factor in demand elasticity. The more immediate their want, the less elastic is the demand.

I would think the topic of ticket reselling would provide an interesting discussion point for any of these concepts, and maybe even a few others (please share your thoughts).

If you decide to use this in the classroom, there are a couple of podcasts that also may be relevant. You might even pick up a couple of "quotes" to put at the front the room to spark reaction, or serve as the basis for your discussion. Both are from the EconTalk web site. And both are about an hour in length, so you may not want to use them in full in class. Whether you want to "assign" them, I leave to your judgment.

The first is an interview between EconTalk host and George Mason University professor, Russ Roberts and Duke University professor Mike Munger on ticket-scalping.  The second is a podcast featuring Roberts (an avid baseball fan, by the way) and an actual scalper. Both are quite entertaining and thought-provoking.

Submitted for Your Consideration

A couple of days ago, I posted a video interview with Joseph Stiglitz of Columbia University. Now, I thought you might want to read a rejoinder by one of his colleagues at Columbia, Jagdish Bhagwati. The Stiglitz interview and the Bhagwati piece (from World Affairs Journal) have possibilities for a classroom exercise or homework assignment. I need to look at them side-by-side. So this may not be the last post on this. I would welcome responses to this or the earlier post.

Tragedy of the Commons

When we teach property rights, we often spend time discussing "the tragedy of the commons" - the idea that everyone's property is nobody's property. And a significant number of us use the example of the English village first put forth by Garrett Hardin in his 1968 work.


Back in June, there was a very good article in The National Interest on the problem of the tragedy of the commons (HT to Arts and Letters Daily). In it, the author discussed a couple of ways to avert the problem. The one he favord was the establishment of an institutional structure that will foster incentives to take care of common areas.

Elinor Ostrom, one of the winners of this year's Nobel Prize for Economics has done some of the most significant research on this problem, including how groups create voluntary institutions that provide incentives. And in that, she was a leader in the field of institutional economics.


There are two articles from Forbes magazine that provide more background on the work of
Dr. Ostrom. This one by regular contributor Elisabeth Eves, and this one by Vernon Smith, also a winner of the Nobel Prize in Economics. I hope you find these resources enlightening. (I did.) And I think they provide some information and point toward other information that teachers can use when discussing property rights and paradox of "everyone's property is nobody's property."

I look forward to your comments.

On the Light Side

Here's a little humor to brighten your presentations

Frazz and Opportunity Cost

I especially like the observation of the young lady in the last panel. One thing I like to stress with my students is that choices help us understand values.

Dilbert and Expectations

I like this one because it emphasizes that our decision-making process, for good or for ill, takes the past into account. Expectations are founded, in part, on past experience.
 
I welcome your observations.

Heard This Before

Here's a gloomy op-ed from Robert Samuelson from today's edition of The Washington Post. First, lets forget the fact that he's addressing only one portion of the economy. There are numerous other factors that determine the quality of life beyond the health-care system. I hate to say it, but the "our children will have a lower standard of living than we do" is what people were saying in the late 1970s, early 1980s, early 1990s, and early 2000s. I suppose eventually it will be right, but recent history seems to be against it. What do you and your students think? Does everything ride on one sector?