Saturday, February 27, 2010

Happy Birthday Irving

Given the title of this blog, I would be remiss in not recognizing the anniversary of Irving Fisher's birth. Irving Fisher was an economist in the early part of the 20th century, one of the preeminent economists of his day.

He is perhaps most famous for thre things: first the equation M x V = P x T (or sometimes P x Y or P x Q, as in the title of this blog). This equation basically related the money supply to the price level and became the basis for monetary economics.

The second thing he is famous for is, to say the least, unfortunate. In the days before the stock market crash of 1929, he was quoted as saying the market had reached a permanent plateau. He would lose much in the ensuing crash.

The third thing he did, he is often not connected with. Those of us of a certain age can remember a card filing system called a Rolodex. Fisher was the inventor.

You can find interesting biographies of Irving Fisher here and here. I also recommend Irving Fisher: A Biography. I'm adding it to my carousel at left.

Feel free to comment.

Friday, February 26, 2010

Incentives Influence Behavior

Mark Perry, who authors the Carpe Diem blog, has an article in the new issue of The American, the journal of the American Enterprise Institute.

It examines the difference between the Canadian and U.S. banking industry and how home mortgages are handled.

Now I know the fact that it's in The American means some people will refuse to read it, but I'm not asking that we all agree with Mark. I do suggest that his list of the key differences between mortgages in Canada and the U.S. presents an interesting thought experiment. Ask yourself or your students whether adopting policies similar to Canada's would result in a change in behavior in the U.S. when it comes to buying a home, and why?

Why should you do this? It's an example of how institutions (the rules of the game) affect incentives; and how those incentives impact our decisions. Let me know what happens, or just share your opinions. Have a good weekend.

Thursday, February 25, 2010

Great Example of How Subsidies Influence Choices,...

can distort the market, and have unintended consequences. I saw this story a couple days ago in The Wall Street Journal. If you're teaching macro and getting into fiscal policy, this can make a good case study. Short-term goals were noble and may even have been appropriate. Unfortunately, as we learn in political economy, once subsidies and preferences are created, it's very hard to get rid of them.

(Good video and slideshow, too.) I welcome your comments.

Foreign Aid?

Jagdish Bhagwati, of Columbia University, reviews the book Banned Aid by Dambisa Moyo in the recent issue of Foreign Affairs (HT to Marginal Revolution). Moyo is among the group of economists who believes that current foreign aid programs (at least those sponsored by the government) may do more harm than good because they frequently benefit those at the top of society in the targetted country and never really reach those for whom they are intended.

I had a chance to hear Moyo speak at the University of Richmond not long ago. She is an eloquent and persuasive speaker. While I have not yet read the book, I am adding it to my carousel at left on the strength the speech she made and this review.

If you've read it, I would welcome your comments.

Wednesday, February 24, 2010

Interactive Charts on the State of the Economy

With Federal Reserve Chairman Ben Bernanke testifying on the Hill, it seems timely that Chartporn would provide a link to this interactive chart depicting the current state of the economy.

As always, your comments are welcome.

Institutional Constraints on Choices

I was discussing economic institutions with an AP Macroeconomics class today. I pointed out that there are a great number of informal institutions that influence our behavior. That's probably a good thing.

Tuesday, February 23, 2010

Heads Up for Those of You in the Midwest

The Kentucky Council in for Economic Education and its affiliated Center for Economic Education at Bellermine University in Louisville, KY in cooperation with the Louisville Branch of the Federal Reserve Bank of St. Louis are hosting a three-day conference, March 8 - 10 on "In Search for Social Wealth: The Quest for Financial Literacy through Education". The program and registration information can be found at the link.

Happy Birthday Carl Menger

Today is the anniversary of the birth of Carl Menger, founder of the Austrian School of economics. One of the most significant aspects of his work was overturning the "cost theory of value" which stated that the value of a good or service was determined by the cost of the inputs.

This idea was a keystone to classical economics. Instead, Menger put forth a "subjective value theory" which stated that goods or services could have numerous uses, of different value to each individual. Consequently, it was possible for both sides of an exchange to benefit from the trade. When you're teaching mutual benefits of trade in either micro or macro, make sure to mention Menger's name. For more complete information on Menger and his influence, you can check here and here.

Your comments are welcome.

Monday, February 22, 2010

Remittance Economics

I ran across a very interesting article that may have application whether you are discussing national policies (as they relate to immigrant labor), entrepreneurship or exchange rates. The article is from the Middle-Eastern newspaper, The National, and is about remittances - the flow of payments from immigrant workers to their homes.

It provides a view of the issue we often don't think about, the flow from other countries with large numbers of immigrant workers. If you follow the immigration debate in the U.S. to any depth, you are bound to have run across the issue of remittances. Immigrant workers often send a significant amount of their pay home to support families in their home countries. Back in 2008, The Wall Street Journal had an excellent story (free at this writing) on the effect the then faltering U.S. economy was having on job opportunities and remittance flows for immigrant workers in the U.S.

However, back to the article that is the subject of this post. In addition to describing the importance of the flows from workers to their families (and the local economies where the families live), it describes some entrepreneurial activity (taking the process to the workers); as well as the value of exchange rate information.

I suggest you give it a read. It's short, but it's packed with opportunity. I look forward to your comments.

Looking a bit further, I found this article on the VOXEU website about the impact of remittance flows on sub-Saharan Africa, which can also help round out the picture. I hope you enjoy all of them. As always, I welcome your thoughts.

Redistributive Economics

This chart (HT to Chartporn) shows how member countries in the European Union measure up when comparing benefits from the Union and costs. It seems the "poorer" countries tend to see more benefits than costs; and the "richer" countries experience the reverse. I don't think that's surprising.

What is interesting is the reaction of many in the richer countries who don't feel they are getting their share and/or that the poorer countries aren't paying their share. One would think the idea of progressive taxation wouldn't be so surprising. I do find myself wondering how a chart of U.S. states would look, don't you?

Sunday, February 21, 2010

What I've Been Reading

Back on November 2 of last year, my post was to a link at The Washington Post reviewing the book, The Great Depression: A Diary (link can be found on my carousel, at left). I indicated I would review the book when done. Luckily, someone got the book for me for Christmas and I just finished it.

I can only repeat my recommendation, especially for anyone who teaches this era of American History. It was engaging and it was a short read. You may even want to consider using the book as an ancillary text for the course, or if you have a course that is restricted to this period, add it to your text list. I think it would even be usable with junior high/middle school students provided they are reading at or near grade level.

However, the book has some additional utility - at least in my opinion. The author of the diary was using the economic downturn as an opportunity to teach himself about finance. As he watches, studies and learns, he enters his thoughts in his journal. There are no earth-shattering revelations on money management; just sound, basic (some would characterize it as risk-averse - I disagree) principles that can be integrated into a personal finance course. Consequently, the book provides a number of ways to integrate personal finance principles with history and economics. There is even political commentary. (I suspect the author would get along well with Amity Shlaes, author of The Forgotten Man. But that's good company.)

The book is still on my carousel, so if you're inclined to purchase it, please consider that channel. Aside from the commercial plug, I think many of you will find this book useful. I welcome your comments.

Thursday, February 18, 2010

Monopolies and Other Games Businesses Play

A regular reader points out that there is a takeover in the making. Simon Properties is trying to buy General Growth Properties. Not familiar with those names? Simon Properties is the largest owner of shopping malls in the U.S. The main article (free at this writing) in The Wall Street Journal features a good video.  And here’s the story as reported by ABC NewsAnd the same story covered by The Economist.

There are other items that can be used that examine specific aspects of the issue. This blog entry from The Wall Street Journal lists some of the anti-trust issues. While this piece asks a basic question about the viability of shopping malls in an age increased online shopping.

I suspect there are lots more. Regardless, if you’re teaching about monopolies and such, and looking for relevant material, this is good stuff. (Thank you to my Indiana contact for the tip.)

Very Intriguing Article on Macro Policy

When discussing economic policy (monetary and fiscal) with students, the "easy" part is explaining how each tool is supposed to act. The harder part is discussing the impact of the policy mix. Here is an article is an article from Voxeu that,while not solving the problem, provides some lessons learned about policy mix as a result of the current downturn. Admittedly, it does not say "Do this." But I think it does provide some context for discussion on the limits of each kind of policy. Do you agree?

Adam Smith on CSPAN2 Book TV

(Not literally.)  While I didn't catch this program on C-Span2's Book TV the other evening, I have watched a good part of it. If you're interested in learning more about the author of The Wealth of Nations and The Theory of Moral Sentiments, this is an excellent opportunity featuring two excellent academics - one a philosopher and the other an economist.

I hope you enjoy it. I did.

Debt and Your Credit Reading

Frank & Ernest

And then again, it may not.

Wednesday, February 17, 2010

Some Fed Publications of Interest

I've been waiting to post these and now seems to be as good a time as any. 

The first is a short piece from the Federal Reserve Bank of St. Louis's Economic Synopses. I find it a good, clear explanation of Okun's Law, the relationship between output and employment. This is particularly relevant as the economy begins to work its way out of the recession.

That brings us to the second publication, this time from the Federal Reserve Bank of San Francisco Economic Letter. It focuses on timing the beginning and end of recessions. It points out that the "two-quarter" rule that is commonly used in the media is inadequate, and suggests using indicators developed by the Federal Reserve Banks of Chicago and Philadelphia. While they don't coincide perfectly, both indicate the recession bottomed out in the summer of 2009 (Philadelphia calls June, Chicago calls August). The article may be of some value when discussing business cycles with your classes, especially for those of you involved in monetary policy competitions like The Fed Challenge.

And that provides a transition to the third article, also courtesy of the Federal Reserve Bank of San Francisco's Economic Letter. One thing many of us teach to our students is the Phillips Curve - a relationship between inflation and unemployment. Indeed, one of the items I frequently heard students in the Fed Challenge discuss was the Phillips Curve trade-off. And while many maintain the two are correlated, I still don't think there is evidence of a cause-effect relationship. This article doesn't change my mind, but provides more subtle explanation than many of us give it. Too subtle for our students? Perhaps for some. But not for all.

I welcome your comments on these articles.

New Resource for Educators from CFR

The Council for Foreign Relations has set up a special page for educators and collected a wide array of materials. Much of it is perhaps better suited for "current events" or "world studies" courses. But there are several that offer some deep analysis and access to information on economic topics.

This link on Peru provides solid information when discussing the Resource Curse and the Development/Conservation trade-off; this link examines the road to financial reform and is very comprehensive; and this link leads to an article in Foreign Affairs about short-comings of the Green Revolution.

You may want to book mark the education page, or arrange for a feed to be notified when new material is added. Please share your thoughts.

Captain Renault is Shocked

This article was in The Wall Street Journal (HT to Division of Labour) about a week ago, but I missed it. It seems a Senator supported a bank acquisition in his home state. It also seems that there was a connection between said Senator and bank management. Captain Renault and I are both shocked.

Saturday, February 13, 2010

Positional Goods - TV Style

First, let me properly credit Jodi Beggs at Economists Do It with Models for posting this. It is funny. And you only need to listen to the first 40 seconds or so to get the idea.

Today in the History of Economics

Today is the anniversary of the birth of Thomas Malthus. Many people hesitate to recognize Malthus, dismissing his essay on population as faulty. For those of you unfamiliar with his essay posited that unchecked population growth always exceeds the growth of the means of subsistence. The problem with his hypothesis was it failed to take changing levels of capital into account. Since he wrote at the beginning of the Industrial Revolution, he was soon proved wrong.

But he also wrote on rent and Say's Law. Regarding rent, Malthus argued against the idea of rent being a cost of production, rather believing that it was a deduction from surplus. Regarding Say's Law, Malthus felt that general gluts were possible, thus negating the "supply creates its own demand" idea that felt those periods of overproduction weren't possible. You find some good bios on Malthus here, here and here.

Friday, February 12, 2010

Today in the History of Economics

It's the birthday of Eugen von Bohm-Bawerk. He was a leading member of the Austrian School, and his focus was on interest rates. If you're interested, you can access his major work, Capital and Interest, here. (I've not read it.) He was also one of Schumpeter’s teachers. There's a good bio of Bohm-Bawerk here.

It's a busy day today so there's just time for this short post. (If some extra time pops up, I may post again later.)

As always, I welcome your comments.

Thursday, February 11, 2010

Does Institutional Change Lead to Different Analysis?

There is an extremely thought-provoking article in the new issue of The American Scholar (HT to Arts & Letters Daily). The author is a professor of English at Drexel University and explains how students’ views of Shakespeare’s The Merchant of Venice have changed over time.

As I read the piece, I found myself thinking about the ways in which institutions change incentives, which in turn impact the choices we make. I thought, "If anything can provide an example of how the gradual change of beliefs can result in change in perspective and analysis of a problem, this does it.

Over the course of the author's career, her audience and her audience's beliefs have changed. As a result their sympathies toward the principals in The Merchant of Venice have changed in some rather astounding ways. And that change, I think it is fair to say, may imply the acceptance of certain interactions or consequences for them.

I admit I'm not sure how one might use this. As I said, it is provocative. And it crosses those disciplinary boundaries that we often find ourselves confronted with. But it has potential. I recommend it to you, in hopes that, together, we might be able to tease out the potential. This is too good to ignore. Please comment.

Is That What I Couldn't Put My Finger On?

Several years ago, I read Richard Parker's biography of John Kenneth Galbraith. And while I enjoyed it, I finished it with a sense that there was something about Galbraith that eluded me. Something in the analysis of the economic environment and the players within it was missing. Now I think I know what it is.

This article in City Journal (HT to Arts & Letters Daily again) gives a different picture of Galbraith. It does not diminish his importance as a popularizer of economics, or as a thinker. What it does do is imply a "blind spot." The author feels that many of the same short-comings that Galbraith attributed to business leaders and the wealthy are also present, but somehow overlooked by Galbraith, in political leaders.

It's an interesting proposition, and gave me an "ah-ha" moment. We often forget (or overlook) that everyone responds to incentives, and those incentives shape how we do things.  The presumption that people in the public sector have a wider and more benevolent view than people in the private sector is highly questionable. As a consequence, I think I may have to revisit Galbraith through other biographies and some of his writings and see if I concur the author of the City Journal piece. I would welcome your evaluation of the article, as well as any additional insights.

Wednesday, February 10, 2010

Economic Development, Comparative Advantage and Complexity

There was an article in a recent issue of The Economist that is definitely worth your time. The topic is economic development. But the twist on this article is not just size but sophistication. It seems that the complexity of the economy can be a factor in development, as much as size.

The article looks at the joint work of an economist and a physicist, examining the complexity of many of the world's economies. They have developed some fascinating visual models that you can find at this web site.

One of my big takeaways was the spin this puts on concepts like absolute and comparative advantage; and the role of the entrepreneur in economic development. As I stated above, this one is worth reading.

Let me know if you agree or disagree.

Fairy Tale

Steven Landsburg at The Big Questions has a post based on an opinion piece he wrote for The Wall Street Journal in 2001.

Part of the "fairy tale" should be familiar to most of you as it deals with the concept of double taxation of corporate profits. But Landsburg makes a case that there is actually triple taxation - an interesting idea. I will have to think about it a bit more, but he makes a good case. Although I'm not sure how to address the problem he lays out.

What is your reaction? I'm interested to hear a counter-argument.

Two from "Division of Labour"

While it's not on my blog roll, I still check this site out on a regular basis. Today provides an argument for moving it up to the blog roll.

This first post links to a National Bureau of Economic Research (NBER) paper that correlates employment protection and worker productivity. Specifically it looks at changes in absenteeism among probationary teachers after local principles were given greater flexibility to dismiss teachers in that category. The short version: incentives matter.

The second post offers some reason to believe in "job security" for those of us who teach economics. It looks at a recent Gallup poll asking people about economic concepts. At best, it seems that there's a certain level of confusion, misunderstanding, or lack of knowledge (pick one). The short version: keep plugging, there's work to be done.

I welcome your thoughts, both on the posts and whether I should add Division of Labour to the blog roll.

Tuesday, February 9, 2010

Something Depressing for History Teachers

Scott Sumner writes an excellent blog titled TheMoneyIllusion.  For the next couple of months, he's going to be devoting it to The Great Depression as he tries to finish a manuscript. I've been reading his blog occasionally and I've found it informative and interesting (a good combination).  If, like me, you find the period of The Great Depression to be of interest, I recommend you either bookmark it or set up an RSS feed. It promises to be worthwhile.

Monday, February 8, 2010

Today's Birthdays

Today we recognize the birthdays of two economists: Francis Edgeworth and Joseph Schumpeter. Edgeworth was a mathematician, as well as an economist. You can get a fairly full background by checking out sites here and here.

However, the "Edgeworth Box" may be what he is best known for. It is a graphical representation of the benefits of trade. I found this explanation to be helpful. Those of you teaching AP, IB or college principles courses may find this downloadable demonstration of some use.

Joseph Schumpeter was, in my mind, one of the greatest economists of the 20th century. His recognition of the nature of growing economies (creative destruction) was a keen insight. And his view of the role of the entrepreneur (and the acts of entrepreneurship) also earns him accolades. Good short biographies of Schumpeter can be found here and here. However, I also recommend Prophet of Innovation, and for the very ambitious, his History of Economic Analysis. I’ve added both to my carousel, at left. I welcome your comments.

Sunday, February 7, 2010

Posting on Super Bowl Sunday

Given that it's after 10:30 a.m. here in the eastern time zone, many of you are probably already gearing up and won't read this until Monday at the earliest.  But I'll post anyway.

First a little weather-related information: this post by Bryan Caplan at Econlog is appropriate and something to get the brain cells stirring.

Next, as you strike deeper into the heart of AP or IB Macro, here are some good charts (HT to Chartporn) to use. The first is from The Financial Times (free registration may be necessary), and looks at, among other things, GDP of the G7 and the BRIC countries (Brazil, Russia, India and China). The supporting story is also interesting. The second link is to Bloomberg and examines the recently discussed revision to the unemployment figures. One of the more informative aspects is how certain models affect other models and/or data. At the very least, it helps students understand that economic data is not always exact.

I welcome your comments.

Saturday, February 6, 2010

Happy Birthday to Dr. Allan Meltzer

Today is the birthday of economist Allan Meltzer. Meltzer is a professor at Carnegie-Mellon University, and is one of the foremost scholars on the Federal Reserve System. His work, The History of the Federal Reserve is a must read for those who would understand the nation's central bank. The second volume is on my carousel at left (haven't read it yet), I am adding the first volume to my carousel. The first volume is one of most heavily bookmarked in my library, and I learned a great deal and understood a great deal more as a result of reading it.  I had a couple opportunities to hear Dr. Meltzer speak when I worked at the Federal Reserve Bank of Chicago. I was impressed not only by his knowledge, but his ability to connect with the audience.

You can learn a little about Dr. Meltzer here, you can read one of his papers on the Great Inflation here, and you can listen to an interview with him about inflation courtesy of EconTalk, here.

I welcome any comments.

Biography of John Stuart Mill

Last fall, there was an evening lecture at the University of Richmond, hosted by the School of Leadership Studies. The speaker was Richard Reeves, a British writer, columnist and speaker, and author of the biography, John Stuart Mill: Victorian Firebrand. (If you're interested in purchasing the book, I've added the book to my carousel, at left.)

I knew of Mill as a 19th century economist, thinker and author of On Liberty. But beyond these superficial facts, I knew precious little. Thinking this would be an opportunity to expand my knowledge; I went and was not disappointed. While I could talk about the lecture, I want to focus on the book. After all, the lecture moved me to purchase the book and it is the book that has provided the most insight.

Mill's father, James Mill, was an associate and friend of Jeremy Bentham who promoted the idea of utilitarianism. While many may think of this as a cold and calculating philosophy, it is frequently misunderstood. Likewise, because of his early inculcation into the philosophy, Mill is also frequently misunderstood.

The writing is engaging, and the author has done a good job of breaking most of the younger Mill's life into short chronological bites, dealing with them thematically and yet tying them together into a larger picture.

While I found the chapter dealing with Mill's economics somewhat unsatisfying; the chapter that focused on the writing of On Liberty was particularly rewarding. Likewise the chapter on Mill's brief Parliamentary career also provided a view of the philosopher that I knew little (or had forgotten) about.

If you are a fan of biography, this is an excellent choice. There are many passages that make you stop, think, and reflect; not just on Mill, but on his view and what he has brought to us.

I welcome any comments.

Friday, February 5, 2010

Just in Time for the Super Bowl: Economic Lessons from the NFL

In today's issue of The Wall Street Journal, the page 1 story for the Personal Journal section is about what it takes to win the Super Bowl. If you're into football (and even if you're not), it's a fascinating piece and it offers several interesting opportunities for applying economic thinking.

Concepts that leapt to mind as I was reading included productivity (time spent per foot of offense), marginal thinking (value of additional hour of prep time), psychic income (return on effort because they love the game), marginal thinking (benefit of an additional hour studying film), and even a little labor economics (hints at the expiration of the current contract with the players' union).

While I haven't dissected it to the point of developing any lessons, it might make a good follow-on discussion on Monday when some of the class is discussing the game. We’re having our annual "family Super Bowl party" with the cuisine determined by which teams made the game. And some of us like The Who, so we'll make it half-time. Enjoy the weekend, and share your thoughts.

Wednesday, February 3, 2010

Economics in the Movies

Considering how often A Muppet Christmas Carol is played in my house during the holidays, I don't know how I missed this.  (Start at about 3:20 into the clip and the "lesson" is done by 3:35.)


Happy Birthday...

or, at least anniversary of birthday. Today we salute Walter Bagehot. Although not an economist by training, he is still often quoted in economic circles. He was a writer and journalist (one-time editor of The Economist) and was interested in current events. You can learn much about Bagehot's life here and here.

But my primary interest in Bagehot was his work Lombard Street: A Description of the Money Market. It is an excellent insight into the workings of central banks, including times of crisis. Anyone who has studied monetary policy knows his prescription to "lend freely at a penalty rate." You can access the entire work (free) at The Library of Economics and Liberty.

I welcome your thoughts.

Something New on Globalization

Here are a couple of links that you may find interesting. I did. The first is from Real Time Economics, one of the blogs of The Wall Street Journal. It highlights some recent research that sees a correlation between trade and peacetime. From reading the post, I get the impression that the authors of the study feel that the direction may run from peace to trade.

But I suggest that since it is correlation and not causation, it's possible it may run the other way. Trade promotes peaceful relations. I've read a few things that would suggest this, either directly or by implication. It's certainly worth thinking about.

The second link is to National Public Radio's Planet Money blog. The podcast (about 15 minutes long) is about globalization and the search for spices in the Middle Ages, and features a discussion with Tom Standage, author of An Edible History of Humanity. One of the more entertaining aspects of the interview was the discussion about the early Arab monopoly on the spice trade. It appears to me that the it rested (as many monopolies do) on an information asymmetry. And it was closely guarded.

And for those of you teaching World History, here's a bonus cut from All Things Considered that you may find valuable.

I look forward to reading your reactions.

A Few More Budget Charts

And finally, as a follow-up to yesterday's links on the federal budget, the folks over at Chartporn have, once again, done some great work. Here are a few more visual aids on the budget. All from The Washington Post.

Enjoy. And please share your reactions.

Tuesday, February 2, 2010

The Budget

Since everyone is talking about the administration's proposed budget, I thought you might like to see several charts on the budget (all the work was done by the fine people at Chartporn).

The first is from the UK Newspaper, The Guardian. It's frequently nice to get an outside view. The next is from The Wall Street Journal. It offers several ways to look at information. But, in my opinion, the best is from The New York Times. It's a bit more intereactive and provides you an opportunity to drill down a bit.

I hope these prove to be of use. I welcome your thoughts on which one is the most helpful for you and your students.

Calvin Questions Political Economy

Calvin, of Calvin and Hobbes fame, is one of my favorite "economists."  In this installment, he voices a concern common to many people who depend on the largess of government. 

I look forward to your thoughts.