Soderbergh's "King of the Hill"

The employment situation in our economy is like nothing we've seen since the Great Depression, both in terms of long term unemployment and median duration. Things are staggeringly bad, but we can try to find bright spots where we can.

One such bright spot is that one of my favorite directors, Steven Soderbergh, has just released a new movie, Contagion. Back in 1993, Soderbergh made a film of one of my favorite books, "King of the Hill", A.E. Hotchner's account of being a schoolboy in 1933 in St. Louis. I missed the film in the theaters, and have searched in vain for it in any format since. However, Amazon has just made it available through their new "Amazon Instant Video" feather. You can find it here.

It's a heartbreaking story of a family struggling to survive the Great Depression. It begins with Hotchner's family way behind on their rent in a single room occupancy hotel, with his father having to travel to scramble for work and his mother's health failing. Hotchner eventually has to stay as a squatter in their apartment so that they can't be evicted, while he plays mind-games with himself to deal with starvation. But through it all, he is a kid, and plays marbles and does other kid things, while trying to hide from his school friends how desperately poor he is.

We have a better social safety net these days, but with poverty at rising rates, I wonder about how many people I interact with each week who are quietly suffering like Hotchner did as a boy.

Housing Prices as a Roller Coaster

Here is the Case-Schiller Home Price Index depicted as a roller-coaster. 

The data is inflation-adjusted and runs from 1890 to 2010. It's a redo of the original one that was developed in 2007. (HT to ChartPorn.)

Money & Central Banks

I don't know how many of you generally listen to National Public Radio's This American Life.  I don't always catch it, but I usually enjoy it when I do.

This weekend they had a really interesting episode on What is Money? It does a good job explaining how money is just a tool and has value only to the extent that we believe in it. The episode began when a number of NPR reporters started to wonder about the money that was "lost" in the recent down market.  It meanders through how Brazil addressed its inflation problem in the 1990s by creating a virtual currency. And it winds up with a discussion on how the Federal Reserve usually creates money and what it did differently during this last crisis (think "lender of last resort").

It will take you an hour to listen to, but it will be worth your time even if you only get some great short anecdotes to use in your classroom.

Let me know what you think.

On Friedrich Engels

About 15 months ago, I posted a link to a review of a then new biography of Friedrich Engels, Marx's General by Tristram Hunt. In the interim I received the book as a gift and just finished reading it. It was excellent.

I am not endorsing the book merely as one who studies the history of economics and the lives of economists. I also applaud the book for its historical and personal insights. Engels was a tireless, committed worker in the fields of the socialist movement of the mid-19th century. And he was a paradox.

The son of a wealthy manufacturer, Engels spent time on the barricades in the uprisings in the mid-1840s. But he would return to the world of commerce in order to finance Marx's writing. After Marx's death, Engels continued to move the socialist agenda forward, continuing to support members of Marx's family. All the while, his own life-style seemed to more closely parallel the bourgeoisie than the proletariat.

In fact, a quote from the epilogue may describe his view best:

"Neither a leveler or a statist, this great lover of the good life, passionate advocate of individuality, and enthusiastic believer in literature, culture, art and music as an open forum could never have acceded to the Soviet communism of the twentieth century, all the Stalinist claims of his paternity notwithstanding."

If you are looking for an interesting read to start off the New Year, I would recommend Marx's General. If you're still hesitant, I would suggest you might want to listen to a podcast of a lecture by the author on the London School of Economics (LSE) podcast series in April 2009.

For those of you who want go more deeply, here's Friedrich Engels' Conditions of the Working Class in England. I read it as a graduate student some (mumble mumble) years ago. It provides insights, not only into the impact of the Industrial Revolution in 19th-century Manchester, but provides a framework for The Communist Manifesto, of which Engels was a coauthor.

I welcome comments by anyone else familiar with Hunt’s book.

On Schumpeterian Ideas

The economist Joseph Schumpeter is known for a number of things. But for me, two of them stand out. He defined the role of the entrepreneur and he introduced the idea of growth as "creative destruction." Arts & Letters Daily recently had two links that focused on these ideas. Both are worth your consideration.

The first is a review of the book, American Colussus: The Triumph of Capitalism by H. W. Brands that appeared in The Wall Street Journal. It is a study of those entrepreneurs we first learned of as "robber barons" in early forays into American History. Reviewer Amity Shlaes finds fault with Brand's approach of pitting capitalism against democracy. And I understand why.

If we focus on "creative destruction" we may forget that it is the democratic choice (voting with dollars) of the majority that brings about true change, destroying one industry and creating another. While I have not read the book, I may have to add it to my holiday "wish list" despite Shlae's reservations.

The second link is an essay by Virginia Postrel on Big Questions Online. Postrel suggests that entrepreneurial spirit may be less about risk-taking and more about youthful optimism, or as she borrows it - irrational exuberance. That would seem to square with Schumpeter's views of the entrepreneur - one who opens a market, finds a new source of resources, develops a new product, develops a new product, or develops a new business organization. My only question is why Postrel didn't include him among the others she reference in her article. No matter - the idea is what counts in this case. And her article has an excellent idea.

I look forward to your comments.

Doug Irwin on Smoot-Hawley, Tariffs and Trade

About a week ago, I posted on why economic educators are needed to help educate the young about the importance and value of trade. I mentioned that a recent poll showed just over half of Americans feel free trade is detrimental to the economy.

This past weekend, one of my favorite economics authors, Doug Irwin at Dartmouth had a long and informative piece in The Wall Street Journal. I like Irwin because he is an engaging writer on what many consider to be an esoteric topic. His arguments are clear and his examples are always well-chosen. If you're an economics teacher looking for a piece to have your students dissect when you discuss trade, or if you're an American History teacher looking for something that relates the long tariff debate in the U.S. to current events, you could look a long time before you found anything as pertinent as Dr. Irwin's piece.

I welcome your thoughts.

Why Economic Education

The answer lies in this article from today's edition of The Wall Street Journal. It seems that as high unemployment lingers in this period of slow growth, people are becoming increasingly skeptical about the benefits of trade. And the skepticism cuts across all job, income and party affiliation brackets.

People are increasingly unaware of or unconvinced about the benefits of trade. They appear to be more concerned about job security than the corresponding impact on prices. In fact, I am reminded of a line from the musical play 1776. At a critical point of the debate, John Dickinson, a delegate from Pennsylvania, is reminded by his fellow delegate, Ben Franklin, that those who would sacrifice freedom for a little security can end up losing both. In the play, Franklin speaks of political freedom. But the same can be said for economic freedom. By sacrificing the freedom to trade to gain job security, we may sacrifice the benefits of competition that come with trade, and face a reduced number of jobs in the long-run.

This brings me to a related opinion piece in today's Journal. In it, the author uses a doomsday clock analogy to argue for renewing the Bush tax cuts and moving forward on free trade. I'm not about to discuss the tax cuts in this post. But his discussion about trade agreements is relevant. He likens the increasing calls for protectionism in various guises to the Smoot-Hawley Tariff that was a contributing factor to the Great Depression.

The analogy is not quite perfect, but the result could be. By cutting trade, we stand not only to face higher consumer prices, but to put ourselves at a disadvantage as world markets pull out of the slowdown and kick into high gear. If the U.S. isolates itself from the growing world market, we shouldn't be surprised if potential customers shop elsewhere.

So this brings us back to the topic of today's post. As economic educators, we need to be sure that students understand all sides of the trade issue. There are not just costs of trade, but benefits from trade. And the benefits can have long-term implications. I'd welcome your thoughts.

Teaching Economics

There's a very engaging discussion in The Economist. The question is "How has the crisis changed the teaching of economics?" The answers are provided by some very well-known names in the profession. And while it really doesn't address what is done in the high school as much as it addresses the collegiate and graduate level, it still makes for good reading. I find it particularly interesting that many of the respondents think there should be renewed emphasis on economic history as a component in collegiate studies.

At the very least, I suspect it's made high school students a bit more curious about what happened and why; and perhaps more interested in the course. Is that your experience?

Institutions and Incentives

This article from the summer 2010 issue of City Journal (HT to Cafe Hayek)is a sobering reminder that much of what happens in any economic system can be explained as a logical reaction to incentives. What is particularly arresting is that the incentives were often created by government in an attempt to manage economic growth and decision-making.

If we remember that incentives are the result of institutions, the rules and beliefs that guide our decision-making, it is harder to discount the effect of the institutions that have been put in place over the last quarter to half-century.

That is not to say that the rules were put in place to move the nation toward a financial crisis of the type and at the time of the the one recently incurred. However, one can say that efforts to promote certain activities (whether home-buying or derivative-trading) by distorting or transferring risk, should be seen for what they may result in - the attempted disguising of risk and postponed imposition of market discipline.

I hope you take a few minutes to read the article, think about it and then consider sharing your thoughts.

Is It Different?

There is an excellent article in the July 4 issue of The New York Times. It's about Dr. Carmen Reinhart and Dr. Kenneth Rogoff and the work they've done studying financial panics, the lessons learned, and the lessons not learned. Their research culminated in their book This Time Is Different.

Now, before you dismiss it as "just another theory of what caused this recession", you need to read the article (and maybe the book). Although the work is relevant to the current situation, it is more about the way smart people (including economists) continually make mistakes and repeatedly fail to see the next big disaster. It's not as much about poor theory as it is about human nature. We tend to think we're immune to "the same mistakes", to believe "this time is different". But it often isn't really that different.

I would also recommend a couple of things to accompany the review. The first is this long interview (over an hour) with Dr. Reinhart by Russ Roberts on EconTalk. The second is this shorter interview with Dr. Rogoff by Kai Ryssdal of Marketplace. And finally, here is a transcript of an appearance by both Dr. Reinhart and Dr. Rogoff at the Carnegie Council.

All in all, this is good material for your Saturday or Sunday morning coffee.

Credit on the Personal and Macro Level

A couple of items caught my eye this morning. Both dealt with forms of credit and how these forms relate to the current state of the economy. The first was this article in The Washington Post. The story provides a brief insight into the history of the credit card, as most of us are familiar with it. It goes back to 1981 when the state of South Dakota allowed banks to charge whatever interest rate they wanted on credit cards. This changed the availability and use of credit cards from its previous, more restricted, role.

But the article also examines how credit card losses in the most recent recession have impacted issuing banks; and how new legislation may impact banks' choices on who gets cards. The article makes a convincing argument that credit was too easy, and that this ease led to misuse. And the misuse put many individuals into circumstances that could not withstand an economic downturn and an interruption in income. I understand the logic, but I'm not sure the entire history of the role of credit in this downturn is ready to be written.

And that's because of another interesting piece of the puzzle is brought up in this post on the Voxeu web site. The author is an economist at the Federal Reserve Bank of Boston. And his research is in the role of housing equity in the credit market. Specifically, he looked at how homeowners were using equity in their homes in the period prior to the housing collapse. I have often heard arguments that individuals used escalating home values as collateral for home equity loans and lines of credit, using that credit as if it were an ATM to fund rising standards of living - essentially a mechanism for extracting the wealth from the wealth effect.

The author says his research doesn't support that explanation. Indications are that people were not treating their homes as ATMs to finance current consumption - at least not at the levels previously thought. Rather, his evidence shows that what was extracted may have been used to finance residential and household investment to a greater extent than was previously thought.

All of this made me think of an old but interesting book that I have recommended before and will recommend again: Money of the Mind by James Grant. It more than 15 years old and is in need of a new edition. But the history of credit in the United States from the early 19th to the late 20th century is an interesting one. And there is much in the book that provides a set-up to the current situation. I'll put it on my carousel at left in case anyone is interested. I found it an interesting read and if you like weightier subject-matter, I would even call it a "beach read."

Something on the Great Depression

For those of you interested in The Great Depression, you might want to check out this site for a very interesting podcast. (HT to Econlog.) It is a libertarian site, but the podcast should prove interesting.

I've read Scott Sumner before. (In fact, if you read his blog, The Money Illusion, you have too.) In my opinion, he is always interesting.  I may not always agree with him, but he is interesting.

Housing Related

With the recent allegations of fraud leveled against a major financial firm, and the indications that financial instruments linked to home mortgages were involved, it seemed like a good time to list some resources related to housing and the financial crisis.

Please note any one of these resources is going to be incomplete. And even taken together, they don't present the full story. But they do represent some informative and, in at least one case entertaining, pieces for your use.

Let me start with this post by David Warsh at Economicprincipals.com. Warsh give his thoughts on a new book, Slapped by the Invisible Hand. While this is probably not the definitive exploration of the crisis, Warsh thinks this version offers much that has been missing in previous attempts.

Next are a couple of timelines of the crisis that might offer a chronological perspective, as well as help explain the interdependence of various sectors of the economy. The first is from the Federal Reserve Bank of St. Louis. It is part of a larger resource section on their website, and is quite good. It even includes a downloadable .pdf.

The second is from The Council on Foreign Relations. It is more visually attractive, in my opinion. And it offers some other timelines as a way of augmenting the story.

Now we come to a couple of visual aids. This one is from Visualeconomics and is what led to this entire post. It's an interesting graphic representation of single family home sales from the mid-1960s to 2008.  By itself, the data does not mean a lot. How much of this is due to the Baby Boom generation coming of age and being able to afford a house; and how much is due to institutional changes in the economy? It's impossible to tell from the graph. But the trend is clear.

The other visual is something I've posted before. It's the home price roller-coaster. An innovative representation of home prices going back to the 19th century (I suspect some of the older data is estimated) up to 2007.

Again, the representation does little to explain why. But it does give a sense of the price of housing over the period. It does not explain how significantly housing has changed over the period (indoor plumbing, central heating/air, size, etc.). And those are significant factors in the price. But it's engaging.

Please share other resources. I don't expect this is a big topic as many of you prepare for the upcoming AP exams. But it might offer a direction for post-exam exploration or a recurring theme for next year.

Growth

Reader and friend Dr. Mark sent a link to this visual from FlowingData. It's a dynamic presentation showing the growth of WalMart and Sam's Club, from a single store in Arkansas in 1962 to a retail giant. It's impressive. And it adds meaning to the term "exponential".

The final image reminded me of something I saw on Chartporn. Also an impressive outcome, but definitely not as much fun to watch as the FlowingData link. Thanks Dr. Mark.

If It's Depressing, How Can It Be Great?

I know some of you are off on spring break. I also know some of you teach American History and may be about to jump into the Great Depression. For you I have some links to help you emphasize the economics.

The first is from the latest issue of Policy Review, a publication of the Hoover Institution. The article lays much of the blame at the steps of the Federal Reserve. It basically restates the position of the late Milton Friedman that the Depression was the result of miscues and errors on the part of the central bank. (The then "16 year-old" central bank - and as I like to point out, how many 16 year-olds do you know that never make mistakes?) There really is nothing new here. And since Chairman Bernanke apologized to Milton Friedman at a special dinner a few years back, there's really nothing controversial here. But the piece is clear and well-written. And if you're not familiar with the argument, it provides a good summary for an aspect that many textbooks don't cover.

The second source is an interview with Harvard economist Robert Barro on the Five Books web site. (HT to Greg Mankiw.) Barro talks about his research on the Great Depression and names five books he feels are important to understanding it. They are not beach reading. But for those of us who are really into the subject, they present a good set of additions to the bookshelf. (I already have one.)

If you're off, enjoy the break. If you're not, enjoy yourself anyway.

Fast Food in the Old West: Entrepreneurship and Utility

There is an extremely interesting book review in the most recent Weekend Edition of The Wall Street Journal. The book reviewed is Appetite for America by Stephen Fried, and it describes the life of Fred Harvey. Harvey was a 19th-century entrepreneur who developed and operated the first fast food chain in the United States. By putting his restaurants at railroad depots shortly after the completion of the transcontinental railroad, and then standardizing fare, maintaining quality, and staffing the restaurants with young ladies, he provided utility for travelers and frontier residents alike.

The utility I refer to are the basic types of utility (form, place, time). He was able to provide meals of predictable quality in a convenient place (think about on/off ramps on the interstates of today) and in short order (the train frequently didn't stop for long).

As to entrepreneurship, I'm falling back on Schumpeter's five roles of the entrepreneur:

introduction of a new product,
using new or different inputs to produce a product,
introduction of new technology or process,
opening a new market,
and creating a new economic organization.

I can make a case for at least three of these (the second, fourth and fifth). And after I read the book, I may be able to make a case for more.

I think this book could be useful to both the economics and the American History teacher. I will add it to my carousel at left. And I will try to review it when I read it. But be forewarned - my current 'to be read' pile is fairly tall. I look forward to your comments.

Resource for American History

For those of you who teach American History, there is a very good, short article on the Panic of 1893 and the role of J. P. Morgan in the recent issue of American Heritage.

It provides some solid background on what the role of a central bank, the gold standard, and the problem with bimetallism.

A Touch of "Madness"

A "March Madness" tournament view of what caused the financial crisis, courtesy of Allen Sanderson, University of Chicago economist and the American Economic Association. (HT economicprincipals.)

It is great. Please comment.

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.

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.