Wednesday, June 28, 2006

Economics and Music

Joshua Hall, one of the crew over at Division of Labour has an interesting post on Using Music to Teach Introductory Economics. Click on the link at the end of the first paragraph to see a very interesting paper.

I've used popular music to illustrate concepts and points over the years. Some of the songs and the concepts I've used them with can be had for the asking. Contact me at the e-mail address at the top of this site.

I welcome your thoughts and any recommendations you may have.

Posted by TSchilling at June 28, 2006 7:23 PM

Monday, June 26, 2006

Teaching about Money and Payments

Whether you teach personal finance, consumer economics, or a more traditional economics course, here is an article that I found quite interesting.

Loretta Mester of the Federal Reserve Bank of Philadelphia has an article in the Business Review about Changes in the Use of Electronic Payments.

I think you will find this interesting (although I doubt you'll find it surprising) because of the tables that show who uses which forms of electronic payments. The data is sorted by age, income, and education. It looks at ATM usage, debit and smart card usage, direct deposit and bill payment, and other aspects of banking. The patterns are about what one would expect. Younger people use ATM and debit cards more than their elders. Older people use direct deposit and bill pay more than younger people. And the relationship of use to income and education are pretty direct. The higher income and more education one is, the more likely to use these methods of payment.

I hope all teachers would find something of interest here when they discuss the concept of money. The definition of money as "medium of exchange" is changing to something very abstract. This data would seem to indicate that we depend on more tactile forms of money, e.g. currency, coin, checks (especially checks) less and less. It would seem that it is more and more important for our students to understand the importance of keeping track of their spending and how they handle their finances in a world where the idea of money may be more and more abstract.

Let me know what you think, both of this post and the data.

Posted by TSchilling at June 26, 2006 5:34 PM

I wonder if people distinguish between debit and credit cards. Considering the only time I ever used a debit card was when I mistook it for a credit card, they probably distinguish them, but not necessarily as banks do.

Posted by: Lord at June 26, 2006 7:11 PM

I think you raise an interesting point. I know I definitely distinguish between them. There are certain transactions that are always debit, others that are always credit. There are very, very few that I will use either at different times.

I wonder what other people do. Any feedback here?

Posted by: Tim at June 26, 2006 7:18 PM

Thursday, June 22, 2006

Teaching and Learning with Headlines

It started yesterday as I was looking at a financial market web site. I noticed that oil prices were hovering around $70 a barrel, slightly up for the day (nothing new there), and gasoline prices were somewhat higher. I then noticed a bulletin about oil and gasoline stockpiles both growing. In fact oil stockpiles were at a multi-year high. (The last time we had this much oil on hand the price was about $15 a barrel.)

I wondered, if oil and gasoline were in plentiful supply, why were spot and futures prices remaining stubbornly near $70, and why had my local station recently pushed the per gallon price up by more than a nickel in the past 24 hours? Didn't economics say that increased availability would push prices down? I dug further, found my answer, and the economics lesson was revealed.

1. Price is not determined solely by supply but by supply and demand. Two news headlines provided the link to demand. From Iran: a statement saying that the U.N. offer of concessions for giving up the nuclear program in that country would likely not be answered until August (read further uncertainty and fear in the marketplace), helping to drive demand by countries/firms seeking to secure supplies now. From Saudi Arabia: a statement speculating that an assault on Iran could triple the price of oil (same effect).

2. Prices tend to be sticky, especially on the downside. To what extent do oil producers (any particular countries come to mind) have a disincentive to let prices drop, and how could providing "information" impact the current price structure?

Your thoughts and observations are welcome.

Posted by TSchilling at June 22, 2006 5:36 PM

It's the expectations game. Gas supplies were up, but only a fraction (20-25%) of what was expected. That was noticed.

Posted by: Lord at June 22, 2006 6:40 PM

Wednesday, June 21, 2006

Chicago and Utility

Bill Testa of the Chicago Fed Research Department has an excellent post on his blog about the importance of transportation of goods to the Chicago economy. Whether you're teaching economics, geography, or American History, take a look.

Posted by TSchilling at June 21, 2006 3:46 PM

Tuesday, June 13, 2006

Explaining the Yield Curve

Part of my daily routine is to briefly look at CNBC in the morning and get a sense of such things as foreign markets, domestic market futures, commodities pricing and Treasury yields. This last item, over the past week, has been interesting (pardon the pun) to watch and has me thinking about the yield curve.

Back in January, I posted on using the yield curve in high school econ classes. Today, Greg Mankiw has a good post explaining the inverted yield curve. What I found most appealing was the Q&A format he used. He also referenced and linked to a well-written article from the Cleveland Fed. IMHO, it's worth a look.

Let me know what you think.

Posted by TSchilling at June 13, 2006 5:31 PM

Monday, June 12, 2006

Economic (Over)Confidence

Arnold Kling at EconLog has an interesting post about overconfidence in economists. He links to an article by Erik Angner at University of Alabama - Birmingham (UAB). I found it interesting that the author found "overconfidence is endemic among economists who are called upon by public policy makers for their expertise." He further pointed out that this can have "dramatic effects on both public policy and investors."

I don't find anything really surprising about this. I remember a saying that went something like "people are least interested in the things economists agree on the most, and are most interested in the parts with the greatest disagreement", or something to that effect.

While this seems obvious to me, maybe it really isn't. I would think the fundamentals are just that, fundamental and probably not worth debating. It would be the application and forecasting that offer opportunities and the hitherto unknown. If one can bring clarity, one can make a name for oneself. And a person is more likely to get buy-in for their view if they're confident it's the right one. I suspect you can sell more if you actually believe in the product.

Maybe I'm making too big a leap. Am I missing something here?

Posted by TSchilling at June 12, 2006 8:00 PM

Thursday, June 8, 2006

The Cul-de-Sac: Experts vs. Markets

Let me start by stating that I do not, nor have I ever lived in a home located on a cul-de-sac. But I've noticed recently a smattering of news articles regarding cul-de-sacs -- that quintessential landmark of suburban living; the bulbous dead end street that seems to be the highlight of so many residential developments. A recent article in The Wall Street Journal and a piece on National Public Radio seem to indicate that community planners, and other experts are trying to write the obituary for the cul-de-sac. Many seem to feel that this piece of American suburbia has outlived its usefulness, if it actually ever had any.

Some argue that, from the standpoint of making things easier for emergency and other vehicles, cul-de-sacs create problems. Fire trucks, school buses and even moving vans have trouble negotiating the tight spaces created by the layout of the homes. And according to some, the lack of sidewalks creates an undo incentive to hop in the car for almost any errand. One report even pointed out that "driving was the only way to get from a typical cul-de-sac to a restaurant, a store or your office." I suspect this may be as much a function of distance as it is one of the street layouts. (Here I feel obligated to note that while I have not lived on a cul-de-sac, some of my acquaintances did, and I never noticed an inordinate lack of sidewalks, certainly no more or less than the various other developments that had streets laid out in something resembling a grid pattern. But I digress. As I’m sometimes reminded, "anecdotes are not data.") Were sidewalks a major concern, I suspect they could be placed in the developments. However, it may be that there is no desire for them, or that sidewalks don't add sufficient value to the homeowner in relation to the cost of installing them.

However, both of the stories here mentioned point out that despite what the experts think, home-buyers (read "the market") think otherwise. Could it be that the "market" understands, or at the very least values, something that "experts" do not? What creates value? What form(s) of utility can be obtained by someone purchasing a home on a cul-de-sac? Is this an example of why "planning" does not do as good a job in providing those factors that the "market" reveals to be of value?

Conversely, given the issues of safety and convenience that are cited in the articles, are the costs of living adequately reflected in things like additional taxes, insurance, and resources spent? And if they are, and if buyers recognize these things, is there a problem with them seeking these homes?

Your comments are welcome.

Posted by TSchilling at June 8, 2006 2:49 PM

Cul-de-sacs are frequently preferred by those with children to reduce hazards and noise due to through traffic. Pie shaped lots are also in demand, minimizing public front yards and maximizing private rear yards, though my preference is for the outer bend of a right angle. Parking is a drawback for those on one, and the lots leading up to one can be more desirable than those directly on one.

Posted by: Lord at June 8, 2006 8:44 PM

I agree on all counts. I think both of the pieces I cited tended to overlook the place the utility offered by quiet, difficult to access property that provides a bit of privacy and yet a sense of community, even though it may not have all the commercial ammenities of a small town.

Posted by: Tim at June 8, 2006 9:37 PM

Why not build more of the cul-de-sac style corners in roads? The kind where you have a right angle in the road and create a sort of bulbous corner. This seems like it would be a good compromise between the home-owners' desires for cul-de-sac and the planners' desires for traffic flow etc.

Posted by: Rick at June 19, 2006 9:22 PM

First a disclaimer - I am a transportation planner. The argument that the market chooses more cul de sacs does not incorporate that homes on cul de sacs result in higher transportation costs to the community. Rather than providing a system with multiple paths of getting from point A to point B, long cul de sacs often force all traffic onto collector roadways. This means those major roads will fill up and have to be widened earlier. At $10-20 million a mile, that's no small amount. While the homeowner may be willing to pay several thousand more for the home in a closed subdivision, that home is generating additional thousands of dollars of impacts on the road network versus a home in an interconnected network. In a true free market system, the additional money people pay for that cul de sac home would go directly to mitigate its traffic impacts and not to the developer of the subdivision. And while people do undeniably get quieter streets with cul de sacs, is it worth fighting the six lanes of gridlock to get there, or risk your life making a left turn across six lanes of traffic every morning? Small courts of cul de sacs (4-5 homes) within a larger interconnected system might serve both interests. There is almost always a way to reach a consensus, but first we have to truly understand the problem.

Posted by: Cherie at February 22, 2007 11:11 AM

Cherie's comments raise an interesting point. This could be an example of an "uninternalized externality." That is the true costs are being born by parties outside the transaction (i.e. not the developer and home buyer). This then becomes an example of "market failure." How could the costs of cul-de-sac ownership then be more accurately moved to the market, and away from the public sector? I don't recall that either of the original articles really addressed that. (And maybe that's why some experts were calling for the end of the cul-de-sac.) Thanks for the comment, Cherie.

Posted by: Tim at February 22, 2007 11:30 AM

Thursday, June 1, 2006

Economics of Place

In several previous posts, I've mentioned books that touch on both economics and geography. Among these are works by Jane Jacobs and, Nature's Metropolis by William Cronon. As mentioned before, Cronon's book reminded me of the concepts of time utility and place utility and the addition of value. Now Chicago Fed economist Bill Testa has put up an interesting post about the transformation of the Chicago economy.

In Hog Butchers No Longer, Testa talks about what has changed about the Chicago economy; what makes it different from the rest of the Midwest; and why it will remain important to the region, despite these differences.

There are some important points connecting Testa's post with Cronon’s book (as well as others). Testa references the capital concentration (both private and public) that made and continues to make Chicago a desired location, both for business and for the new workers that staff the city's changing economy. In a sense, the workers are going where the jobs are, but they are also consumers of services once they arrive. Those services are one reason they seek to work in Chicago. The services go beyond basic needs. They include cultural and recreational opportunities. Those opportunities are due in part to where Chicago is (thus place utility), but they also are a result of the concentration of capital that came about because of Chicago’s economic evolution. Chicago's evolution was marked by building transportation infrastructure and by developing certain financial markets. These developments both were facilitated by accumulated capital and, in turn, allowed more capital (including human capital) to be accumulated and reinvested in such a way as to make the city more desirable. By first servicing the agricultural region and then the manufacturing region that was the Midwest, Chicago grew into the service center it is today.

How is this usable for the classroom? Again, as we know, students learn a subject better if they are given context. In this case, by looking at Chicago (or other cities for that matter), students can see how economic change can lead to growth and new opportunity. Or by contrast, they can see how failing to adapt can stifle growth. Students can also discover how resources can shape the opportunities of a society, a country or a region. These resources can take the form of natural resources, human resources, or capital resources, but they all can build on one another if properly developed.

Your views are welcome and appreciated.

Posted by TSchilling at 8:13 PM Comments (0)