Friday, June 22, 2007

Due North (HT to Arnold Kling)

One of the bloggers I frequently enjoy is Arnold Kling who is a regular on EconLog: Library of Economics & Liberty, as well as on TCS Daily. On the latter he has recently done essays on one of my favorite economists/authors, Douglass North, found here and here.

For those of you unfamiliar with North's work, he is an economic historian and winner of the 1993 Nobel Prize in economics. Much of his work has to do with the impact of economic institutions on choice and change. North does not refer so much to the physical structures and organizations where we transact business. Rather he defines institutions as the rules (formal and informal) that we establish for ourselves to influence our decision-making, and the impact those rules can have over time. If you're interested in learning more about Douglass North, I encourage you to pick up a couple of his books. My favorites include Institutions, Institutional Change, and Economic Performance and Structure and Change in Economic History. Both should be easy to find through a bookstore (traditional or on-line) or your library. Also, if you're interested, you can read his Nobel Prize lecture.

Your opinions are welcome.

Posted by TSchilling at June 22, 2007 2:16 PM

What a fantastic resource...Thanks.

Posted by: mike fladlien at June 22, 2007 5:01 PM

Wednesday, June 20, 2007


On page 3 of the Sunday, June 17, 2007 issue of the Chicago Tribune, section 2, in an item titled "A Land of Plenty," (link no longer operative) an interesting graphic compared the individual state economies as measured by Gross State Product (GSP) with comparable national economies as measured by Gross Domestic Product (GDP). I went on the Trib's web site and found story, but no graphic. (And now the story doesn't seem to be available, either.) And there wasn't an easy way to make comparisons given the way the information was formatted. So the basic information is available from me, on request, in two formats. (.doc and .xls) The matches that were given are not exact. In most cases, the state was matched as closely as possible to nation. As a result, GSP may be higher or lower than the corresponding nation’s GDP by a significant amount, sometimes more than 10%.

An idea for activity follows in the extended entry:

Part I
One way we compare nations is by using a statistic called per capita GDP. This divides the nation’s output by the population, and gives a measure of the average amount of output per person. While this does not take into effect issues of distribution (wealth vs. poverty), it does provide a benchmark. Using the Census Bureau Quick Facts and the CIA Fact Books web sites, have your students compare per capita Gross State Product (GSP) for their state (or other states) with per capita Gross Domestic Product (GDP) for the corresponding country. How do they compare? What might account for the difference?

Part II
Once we’ve looked at per capita GSP and GDP it would appear to be quite simple to determine which location (state or country) is better off. But that’s too easy. We have to take into account that items may not cost the same in another country as they do in a given state in the U.S. That’s where Purchasing Power Parity (PPP) comes in. PPP is a way of adjusting the data to allow for differences in local prices, etc. It tells us whether we will be able to purchase as much or more or less at local prices in the country in question. A good popular example of PPP is the Big Mac Index published in the The Economist magazine.

However, that site may not contain information for all nations in this activity. Using the data on the CIA Fact Book site, how does the per capita GDP compare with your original calculations from part I? (Please notice not all PPP
data is for 2006).

Additional discussion: One issue that hopefully will come up in discussion with your students is productivity, i.e. how many hours of labor does it take to produce the output (GDP). One can find labor data for various nations (although it doesn’t appear to be as recent as 2006) on the United Nation’s web site for labor statistics.

For the country you’re interested in, just scroll down and select. You will then be asked to select date (2000 appears to be recent in many cases – one would hope the labor force has grown since then), and once you continue you will be asked for file type (html, csv, or xls). Unfortunately, I haven’t been able to find a central source for state labor hours – any suggestions would be welcome here.

One can also examine growth rates for GDP (and GSP). This issue is sometimes debated because other countries are growing more rapidly (during the 1990s, there was discussion of the “tigers” in Southeast Asia. However, one must then consider how a small percentage increase on a very large number can, in nominal terms, be better than a large percentage increase on a smaller number. Regardless, this can get your students thinking on a larger scale, and can provide some opportunities to direct study outside their zones of familiarity.

Comment back and share how this worked for you.

Posted by TSchilling at 9:52 AM Comments (0)

Wednesday, June 13, 2007

Barney and the Theory of Moral Sentiments

It's taken a while for me to think this through, and I may not have it right yet. But let me relate an incident and then you can tell me if I'm analyzing it correctly.

About a year ago, I was a social function at our church. It included a wide variety of foods to sample. My wife, my step-sons and I helped ourselves and found a convenient place to sit and try the various items that were piled on our small paper plates.

One of my step-sons has a disability and is below grade level in his reasoning and behavior for just about anything. In fact, I often point out to people that, because he is 16 he acts like any teenager. He comes home...he goes to his room...he turns his music on, LOUD. It's just that his music is Muppets, Disney and Barney (especially Barney).

Anyway, he and I were sitting side by side and I noticed something on his plate that looked interesting. I asked if I could have some and was told "no." I said something to the effect that it's nice to share and Barney says we should share. At which point I was told "Barney not here."

Since then, I've thought about this incident from time to time. This past weekend, the connection came to me. As frequently is the case in my mind, there is a connection to economics (although many may find it tenuous).

As you may know, Adam Smith not only wrote An Inquiry into the Nature and Causes of the Wealth of Nations; he also wrote The Theory of Moral Sentiments. In the latter work, Smith maintains that our actions are governed, in part, by a need for acceptance by our companions and society. And he frequently writes about actions as viewed by an "impartial spectator." It is this "impartial spectator" who is the judge of what is good and just in our actions, and we measure our acts against the spectator's view.

Was framing the issue in terms of Barney's preferences an attempt to give substance to the "impartial spectator" in a way that my son might understand? (To some extent, yes - but let's also be honest - there were goodies at stake.) Was his statement a rejection of the concept, or just an insightful way to guard what was his?

To take this further, many critics speak of the "impartial spectator" as the anti-thesis of the "invisible hand" of the marketplace. Others, like me, believe there is more in common between the two than is immediately apparent. A true impartial spectator (even a purple one) may disapprove of both my son's refusal to share, and my attempt to invoke the judgment in an effort to get something that was not mine. And my attempt would not be so much an example of the "invisible hand" (which looks after the best interest of BOTH parties), as a failure to appreciate the "impartial spectator."

Your views are welcome.

Posted by TSchilling at June 13, 2007 3:08 PM

‘Our actions are governed in part, by a need for acceptance by our companions and society’, and this is brought about by a learning process from childhood and from when we enter the company of others, such as at nursery, school and eventually the wider world, or what Smith called the ‘great school of self-command.’

That a young boy was not willing to share his ‘goodies’ with an adult indicates that the socialisation process was not yet fully operating, a not uncommon feature in a child’s behaviour.

The impartial spectator is the ‘judge within the breast’ and is not heard by the other person ‘outside’, so to speak. The impartial spectator in this case may not be ‘fully formed’ and may indeed be operating within the boy and without the outside person knowing of it.

You do not report if the boy was comfortable with his decision not to share, or if he justified his actions, but you have no way of knowing what he was thinking. Acts of selfishness that we all have committed over our lives, including memorable one’s as a child, occasionally surface in memory, if only to embarrass us.

You say that ‘many critics speak of the "impartial spectator" as the anti-thesis of the "invisible hand" of the marketplace’.

As you are discussing Adam Smith’s two books, could you explain what is meant by ‘the invisible hand of the market place’ in the context of anything Adam Smith wrote about? I know of no reference by Smith to ‘an invisible hand’ in relation to the ‘market place’.

That is a construction placed on the metaphor (which he used only three times in all of his writings) and on no occasion was he referring to the market place. Of course, I speak of the Adam Smith born in Kirkcaldy and not the ‘Adam Smith’ supposedly ‘alive and well and living in Chicago’ (according to George Stigler).

On these grounds, Smith’s impartial spectator (the nature of which he detailed in Moral Sentiments) and his use of a well-known (at least to educated men like Adam Smith in the 18th century: Homer, Augustine, Shakespeare, Glanvill, Defoe, Rollin, Bonnet, Robinet, Voltaire, etc.,) literary metaphor of ‘an invisible hand’ have nothing in common or in ‘antithesis’ to each other whatsoever. That is a wholly false trail to set out upon, and compounds the errors in your formulation of the problem you discuss.

The young boy’s actions are explained by his youth (an unfinished development of his conscience/guidance of his impartial spectator), which, as an outsider, you cannot ‘listen’ to – he could have overridden its advice, as many do. No outsider can decide if another person’s impartial spectator is a ‘true’ spectator, whatever judgment is involved in such an odd construction. Neither has the ‘impartial spectator’ concept anything to do with an "invisible hand", which incidentally does not look ‘after the best interest of BOTH parties’ (at least, the “Kirkcaldy” Adam Smith’s use of the metaphor did not do so).

Posted by: Gavin Kennedy at June 14, 2007 4:15 AM

I think that your step son was acting economically. More is preferred to less and by not sharing, he moved to a higher indifference a nationally certified TESA teacher, I always teach to get students out of Maslow's basement and motivate students with affective needs such as acceptance...I loved this blog and will research Smith's theory and intelligently reply then...Thanks, Tim

Posted by: mike fladlien at June 14, 2007 7:07 AM

Mr. Kennedy,
You are correct, of course, that the invisible hand metaphor is nowhere used in connection with "the marketplace". There I am in error. I thank you for your observation.

The "impartial spectator" is, indeed, within. However, in the case of my son, it is hard to know what he is thinking, given the circumstances. I was using a figure he would be familiar with in an effort to get him to develop a sense of giving/sharing, in a sense to help him develop that "judge within the breast."

As to the connection between the spectator and the invisible hand, perhaps I will have to study this further. In my readings of Smith and of books about his work and life I have come to a conclusion that the inner force that governs our actions towards others and, hopefully, helps us to act justly; is not far removed from that invisible hand that brings us to serve the larger society when serving ourselves.

I will continue to study. I thank you very much for your comment and observation. It has given me much to think about.

Posted by: Tim at June 14, 2007 10:51 AM

Thursday, June 7, 2007

Welcome to The Jungle

(I actually keep hearing the song by Guns-n-Roses everytime I think about this.)

Back on April 6 of this year, I posted on the experience of some California students reading Upton Sinclair's The Jungle.

Yesterday, I received the newest issue of Econ-Exchange. It contained a good lesson on that book. And it placed the economics within the historical context. The issue also contains a lesson for middle school teachers using The Pearl, as well as a valuable bibliography for economic concepts in elementary literature, and a great article on economics in literature in general by Dr. Michael Watts of the Center for Economic Education at Purdue University.

It's worth a look.

Posted by TSchilling at June 7, 2007 11:29 AM

Thanks! what an excellent resource. Do you think "the road not taken" also involves sunk costs? For exampe, "I shall be telling this with a sigh." flad

Posted by: mike fladlien at June 7, 2007 5:42 PM

Tuesday, June 5, 2007

Supply and Demand

Some basic concepts of economic (and financial) literacy, as far as I'm concerned, are supply and demand and price. Today there's a great piece on supply and demand by Russell Roberts at Cafe Hayek.

He points out that many people see the treatment of supply and demand as unrealistic, and he states "it's supposed to be unrealistic." Roberts sees supply and demand as demonstrating a way of thinking, a way of looking at the world and problems of allocation. He also includes a link to a piece he's doing for the Library of Economics and Liberty that provides an explanation without using graphs. It's worth a look, especially if you find that students just don't get the graphs.

Please comment if you use this and let everyone know how well it works for you.
Posted by TSchilling at June 5, 2007 1:26 PM

I think economics, like mathematics, is a discipline used to analyze and solve daily decision making. Isn't it true that supply and demand answer the questions what will be produced, how, and for whom? As a model, supply and demand seems to predict human behavior...flad

Posted by: mike fladlien at June 5, 2007 9:24 PM

Just when I thought I could begin to taper down the economic reading--you point us in the direction of two excellent resources for next year's classes. The supply demand article by Roberts is a good supplement to any textbook--and as you indicated--for those students whose eyes begin to glass over when the whiteboard fills with graphs. I also clicked on the link "for those of you who want to do more work" (why I don't know--it's one more day till summer break!) This link provides great supplementary reading for the AP Micro class. Both sites are now bookmarked and
will be used. Thanks Tim--I really was going to take a break for at least a week or two. But, when it's good, it must be used!

Posted by: Julie Chismar at June 6, 2007 4:50 PM