Wednesday, September 9, 2009

Think Outside the Box

One of the things I challenge my econ students to do is to use their understanding and knowledge (not just of economics) to look beyond the headlines, to ask "Is there more?" Here are three articles that go the extra step and, in the course of doing so, ask those additional questions.

The first comes from The Wall Street Journal. There are a number of reasons behind the push for alternative energy. One is energy independence, but another is that green energy is better for the environment. But it seems that at least one of these alternatives, wind-generated electricity, is having an impact on bird populations. Some may have expected that, but the number of birds killed by windmills is quite significant. And according to the article, in some cases it is larger than that from more traditional energy sources. (I expect some selection was involved in the information, but I digress.) In economics, we would call this effect a negative externality - a cost born by those outside the transaction (the producers and consumers of energy). The standard economic response is to "internalize the externalities," to somehow put a cost (either through fines or correction of the problem) on the activity and pass it on to the producers and consumers of the good or service.

But it appears that wind-generated electricity is not being held to the same standard as more traditional energy sources. I expect the cost to reduce this externality could be significant. That could really hurt the claim that this source of energy is "cheap."

The second article is from an article by the Associated Press, available here at ( is a great source of current topics for integration in social studies.) One of the hot financial topics lately is the role of speculators in commodity price volatility. Specific attention is usually drawn to the wild swings in oil prices over the past couple of years. And there are calls to curb speculation in basic commodities because the price volatility in the commodities eventually works its way to the consumer.

But this article presents a good argument that speculators can actually reduce volatility. After all, many of them (like the individual spotlighted in the article) want to buy low and sell high. If they're successful, they will be acting at the bottoms and highs in ways that break trends - their selling helps find the top and end the upward trend. Their buying helps to determine the bottom and brings the downward slid to an end. And isn't that how prices are supposed to work?

While the third article doesn't have quite the same level of economic content, it still fits the theme of thinking beyond. And it also comes courtesy of, although the original story is from the Los Angeles Times.
Also, my original training was in history, so I find that angle interesting. According to this article, a previous period of global warming actually had some positive effects - for the Incas. It seems that the negatives of climate change in one place may have benefits elsewhere.

I do not maintain that these articles reveal great truths and should be taken as the last word on the issues they address. But they do represent "taking the next step" and thinking outside the box. What do you think?

An article in the new issue of The Economist seems to provide more fodder for discussion on the issue of speculators, at least in the oil market.

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