Monday, June 29, 2009

Catching Up

It's been almost a week since my last post, and longer since I posted regularly. We've been busy here at Powell with the Cochrane Summer Economics Institute for the past week. And there was much going on prior to that. Consequently, I have a lot of resources that I want to bring to your attention. And now that you've got the summer to "pause and reflect," it is as good a time as any.

The first item I want to draw to your attention is an opinion piece from The Wall Street Journal, earlier this month.

It's by Todd Bucholz, author of New Ideas from Dead Economists: An Introduction to Modern Economic Thought. The book is entertaining and is one of my favorites on the topic.

Bucholz's WSJ article offers a perspective on the current economy that deserves some thought. He points out that overextending ourselves for purposes of immediate gratification had some negative effects; we need to be careful not to overreact. Consumption has virtues in that it is the actual measure of rising standards of living. Technology, improvements in health care and life expectancy, and reliable communications are examples of what our "consumerism" has brought us. Indeed, something that is worth noting is that there tend to be more improvements and advances to general standard of living in good times, than in bad - if for no other reason than there are resources to pay for them. There are downsides to a go-go economy, but as Bucholz's title notes, "There Is No Upside to a Down Economy." While I don't agree with the sweeping generalization, there are certainly very few upsides.

A second item that I hope you will find interesting is this article from The Economist. It references an interesting paper by a pair of professors at the Kennedy School at Harvard. And while much of the technical analysis was beyond my level, the data tables and conclusion were most interesting. The tendency revealed in the paper makes sense and, in my opinion, offers further support for the role of institutions (particularly informal institutions of the type we see in cultural norms) in decision-making, even when making decisions about policy.

Item number three comes from The Detroit News in my home-state of Michigan. They put together a very interesting interactive graphic on GM's global reach. The interactive maps allow you and your students to visualize the impact of General Motors plants, suppliers and retirees around the country, and understand the true global nature of the auto-maker. (It's worth noting to your students that GM is not unique in their global reach and impact.)

Don Boudreaux at Cafe Hayek provides a pointer to the fourth item - this post on the site of The Fraser Institute.

The Fraser Institute is a market-oriented organization in Canada. I find their materials interesting. But this post featuring Dr. Boudreaux was especially so. While I admit I am in agreement with his argument, I especially enjoyed the Q-and-A that followed it. I thought the questions were interesting, and Boudreaux provided solid answers. You might want to consider whether the article is worth sharing with your students if you want them to understand the pro-globalization argument and how it addresses certain concerns.

The Marginal Revolution blog gets thanks for pointing out the next item. Most of you are aware of, and many of you may actually use the classic I, Pencil essay by Leonard Read, either in total or in summary. The idea, of course, is that no one person can make a pencil. Yet the impersonal forces of the market bring together a myriad of people and processes in such a way as to put the simple pencil in your hand at a ridiculously low cost. Enter "The Toaster Project."

The idea behind The Toaster Project is try to build from scratch an appliance that can be purchased for about $6.60 at current exchange rates. The process will illuminating, and while I detect a certain "outcome bias" in the author's material - he appears to want to show that we spend too much time and effort on a process that many would deem frivolous or adding little to life - the lesson can still be enlightening in explaining how markets work and the marginal costs/benefits of an economic system that is market-based, for the most part.

The penultimate resource in this post was the result of a tip from Arts & Letters Daily.

Fareed Zakaria's article from the June 22, 2009 issue of Newsweek like Bucholz's provided some food for thought. One of the most important ideas was that, despite our desires for "justice" and punishment for anyone we view as a perpetrator, we need to remember that "markets are not about morality. They are large, complex systems, and if things get stable enough, they move on." In moving on, they demonstrate something that is valuable, while still being unsettling. As Zakaria later puts it "Capitalism means growth, but also instability. The system is dynamic and inherently prone to crashes that cause great damage along the way." As he points out, this was not so much a failure of capitalism, but of finance. But the lessons to be learned go beyond both. I encourage you to read his article.

The final piece was in the Fall 2008 issue of Region Focus published by the Federal Reserve Bank of Richmond. (Once again, thanks to Marginal Revolution for the pointer.)

The author develops a brief history of the U.S. policy of subsidizing homeownership. Various aspects of this policy, with roots in the Great Depression, have been fingered as leading to the collapse of the housing market at the beginning of the current recession. For those who would like to better understand the connection (notice I didn't say causation), you would search far and wide before finding another explanation as well-written and thought-provoking as this one.

I'm going to try to get back on a more regular posting schedule, but hopefully this makes up for lost opportunities. I look forward to your comments.

This post references the following Keystone Economic Principles:
1. We all make choices.
2. There ain't no such thing as a free lunch.

3. All choices have consequences.
4. Economic systems influence choices.
6. Do what you do best, trade for the rest.
7. Economic thinking is marginal thinking.
8. Quantity and quality of available resources impact living standards.

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