Wednesday, March 31, 2010

Entrepreneurs and Emerging Order in Haiti

One of my posts last week was about how systems seem to develop from such chaos and was a reference to the spontaneous nature of social and economic cooperation. Now we have a very good video from the folks at PBS (HT to Carpe Diem) to provide an illustration of the spontaneous nature of entrepreneurship in the same environment.

I hope you find it as interesting as I did.

Productivity and Unemployment

Having recently covered both unemployment and productivity with my students, I was intrigued by this article in today's issue of The Washington Post.

It discusses the connection between unemployment and productivity. And, on the surface, it seems to confirm a connection made in my previous post regarding Okun's Law.

More specifically, it addresses whether there is a connection between the persistent unemployment the nation has experienced, and the increased worker productivity that we've witnessed recently. It seems to make the argument that the unemployment numbers would fall if only we weren't being more productive. And while that is a seductive argument on the surface, we need to dig further. To that end, I direct you to three other sources.

The first is an old post by Alex Tabarrok at Marginal Revolution. He wasn't buying the connection in this 2003 entry. It's important to note that he was writing during a time when high unemployment was a topic of debate - although it was not as high as we are seeing at the moment.

The next two posts are from the always excellent Becker-Posner blog. Last November, Gary Becker explained why there may not be as clear a connection as many would think. Richard Posner provided a convincing dissent.

All of these are both worth reading. And the combination should provide an opportunity to review concepts while also providing substance for in-class debate when discussing aggregate supply and demand and government policy, don't you think?

Tuesday, March 30, 2010

Fed Speak Summary

If you're a professional Fed watcher, you already have or know about this graphic from The Wall Street Journal. (HT to The Big Picture.) But if you're an interested amateur, or if you're a student involved in something called the Fed Challenge, you may not be aware of it. Consequently, enjoy.

Monday, March 29, 2010

Creative Destruction

Change and growth strike again.

Arlo & Janis
Now the refrigerator magnet manufacturers will be demanding a bailout.

Some Sobering Factoids for Personal Finance

One of the recurring themes about causes for this recession has been the high level of debt the average American carries. Well, here's an amusing and sobering visual from Visual Economics. (It gets high points on the amusement scale for the layout.)

Because most of us have played the referenced game in one form or another, I think it will grab attention in any economics or personal finance course. But what I think makes it doubly effective for personal finance courses is the way it follows a life-cycle. Teachers, let me know the reaction if you share it with your students. Students, let me know the reaction if you share it with your teachers.

Price vs. Cost

Here's a comic that helps us differentiate between price and cost.
This can be hard concept for anyone to get clear. Price does not equal cost. And that thought provides a setup for the next post.

Demand Curves Slope Downward, Apparently

In an article in today's edition of The Wall Street Journal titled "Theater Chains Pricing for Slow Growth", (subscription only, but plug the title into your browser and you may find an accessible version) we find out that demand curves slope downward. Yet, there are people running movie theater chains who don't seem to understand that idea. They seem to think the remedy for falling attendance is to raise ticket prices.

You can even use this article to discuss substitutes because cable, online and DVD sales are viewed as cheaper alternatives. And because the article points out that as much as 40% of a theater’s chain comes from the sale of concessions, you can discuss compliments (think popcorn). This Econtalk interview with Richard McKenzie touches on movie prices and compliments. Start about the 48 minute mark.

Please share your thoughts.

Saturday, March 27, 2010

Still an Optimist

Gary Becker won the Nobel Prize for Economics and is an eminent member of the University of Chicago economics department and the Hoover Institute at Stanford. In fact, he is frequently mentioned along with Milton Friedman as one of the original members of what would come to be called The Chicago School. He is a great believer in markets, and The Wall Street Journal carried this interview with him in today's edition. It's worth a read.

I welcome your thoughts.

Friday, March 26, 2010

Belated Birthday Recognition

Wednesday, March 24 was the anniversary of the birth of Robert Heilbroner. And I, for one, am very grateful for what he accomplished. He was a great, socialist economist. And people who know me may find it strange that I would feel a debt to him. But were it not for his book The Worldly Philosophers, I would not be who I am or what I am. (If you're not familiar with the book, you should be.  I'm adding it to my carousel, at left.)

For it was The Worldly Philosophers which helped spark a lifetime of studying and learning about economics through the lives of the influential economists. Heilbroner brought the great minds to life, and gave insights into their work and their thoughts.

It was at a small high school in Michigan where I was teaching that I assigned the book in one of my first economics classes. I had discovered the book the summer before and was anxious to share it with my students. Some were a bit perplexed. This wasn't a traditional textbook. But by the end of the semester, most of them were finding what I had discovered. That economics was a method for looking at and finding solutions to problems. And economists were not just "abstract thinkers" but real people trying to explain the real world and solve real problems. Heilbroner's style was part of the reason they came to that view. He made economics entertaining, engaging and challenging. For that, I thank him - as a student and as a teacher.

You can learn more about Robert Heilbroner in this brief biography. And you can read some classic Heilbroner in this article on "Socialism" from the Library of Economics and Liberty.

If anyone else has memories, fond or otherwise of Heilbroner's work, I welcome your thoughts.

Economic Turnaround?

First, here's an excellent interactive graphic from USA Today (HT to Chartporn) that you can use in the classroom. My specific suggestion is to look at the top chart, and then examine each of the 11 component indicators below it. For each component, before clicking on each, ask the students whether they think it is a leading indicator, a concurrent indicator, or a lagging indicator and explain why. Then click on the indicator and see if it has bottomed or has a way to go.

And, here's a limerick that your students can probably identify with, and explain why it may or may not be an informal indicator of recovery.

I may have more later today.

Thursday, March 25, 2010

Choice on a Macro Scale

In an article titled Europe's Choice: Growth or Safety Net (subscription content, but poke around for the title on your browser) in today's issue of The Wall Street Journal, there is a good explanation of the choice and trade-offs facing the member states of the European Union.

Europe has not rebounded from the current malaise, even to the extent that has been seen in the U.S. And many observers believe that the reason for poor performance has been what many believe to be an over-generous safety net for Europe's workers. Labor laws and unemployment benefits are a bane to European employers, imposing costs that keep them from hiring or rehiring workers - essentially an incentive to not create jobs.

Concurrently, the level and duration of benefits can act as an incentive to workers to stay "on the dole" and makes finding a new job less imperative.

The story has an accompanying video (mostly useful for investors) and an interactive graphic showing a timeline for the crisis faced by the EU.

I look forward to your comments.

Spontaneous Order, Institutions and "Role of Government"

Today's (March 25, 2010) entry under Current Events at Izzit offers an interesting opportunity to discuss how groups form rules and organizations (read institutions) on their own to solve problems. The rules and organizations then help members of the group to make choices.

This example deals with survivors of the earthquake in Haiti and how they have dealt with the chaos that has descended as a result of that catastrophe.

In my opinion, this represents a fine example of Hayek's "spontaneous order", referring to the way societies and groups organize what seems like chaos into an orderly process.

As you read more of the article, it appears that a form of government has been established. My sense is that, given Haiti's official government, the committee structure outlined may not differ a lot from the official. The participants may have made some changes to address shortcomings as they saw it, as well as the lack of infrastructure, but the potential centralization of power may reflect the official.

What do you think?

Wednesday, March 24, 2010

Creative Destruction and Structural Unemployment at the Movies

Here is a cut from an almost 20-year old movie, Other People's Money, which starred Danny DeVito and Gregory Peck, among others. (HT to Marginal Revolution, by the way.)

The cut is from a speech made by DeVito's character, Larry the "Liquidator", who stereotyped the merger and acquisition barons of the 1980s. These were financiers who bought companies, and sold them off in parts, destroying the firm and the usually the lives of employees in the process. The role is similar to the Gordon Gecko character from Wall Street.

But in this speech, at least in the first three minutes of it, DeVito's character gives a very good explanation of the idea of creative destruction - the process that ultimately accompanies growth and progress. The remaining portion of the clip, while entertaining and an indictment of the mindset of "I got mine and to h_ _ _ with the rest", is not as valuable as the first three.

I'm going to have to pick up the movie and view it again.  It's been a while since I watched it.  Take a look and let me know what you think.

World Bank Data Visualizer

While I've not had time to play on the World Bank Datavisualizer (HT to Chartporn), I have played on the Gapminder site and they appear to be similar.  In both cases, I find the visualizations fascinating and frequently very compelling. (You might want to start with the Teacher Tab on Gapminder, but poke around.) You might want to consider either or both of these for use with your classes.

What do you think?

Tuesday, March 23, 2010

Great Source for Tables and Data

First, loyal reader and friend Dr. Mark sent this link to Visual Economics to my attention. It is awesome, indeed the entire site is great. Therefore, with a HT to Dr. Mark, I bring it to your attention and add it to my link list, at left.

Bounce Is Not the Same as Return

No significant lesson here. It's just a cartoon to brighten up your personal finance classes.
Frank & Ernest

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.

Obligatory Observation on Political Spectacle

Finally, after the political spectacle of the past weekend, I am reminded of a quote from the late former Beatle, George Harrison, "No matter who you vote for, the government always gets in."

'Nuff said.

Monday, March 22, 2010

Interdependence and Consequences

The next time your students ask what some issue has to do with another, go to this neat interactive graphic (HT to Chartporn). It truly demonstrates how one any part of larger world can impact others. And it provides an equally interesting opportunity to "connect the dots" between seemingly unrelated issues or events.

Let me know what you think.

Sunday, March 21, 2010

Negative Externalities?

Here's a funny cartoon.
Do you think it represents an example of a negative externality (cost imposed on others outside the decision/transaction)?  And if it's funny to outsiders, does that make it a positive externality for the observer?

Regardless, it reminded me of my days with the Chicago Fed. About the time the Treasury started putting security threads in the currency, students started telling us how easy it was to pull the threads out (something that has been remedied, I think). We used to remind them that doing so could have negative consequences for them when they were "identified" for passing "bad" currency or willfully "damaging" currency; or it might result in unnecessary costs to others outside the transaction.

Enjoy what's left of your weekend - even if you're suffering from "busted bracket syndrome."

Friday, March 19, 2010

Productivity, Unemployment & GDP

In a recent class, I asked my students to explain why output could grow while unemployment did not improve or even worsened. The answer seemed to be in productivity.

Now we come to this story in The Economist. It compares the recession, growth, unemployment and productivity in Europe and the U.S. The diagnosis is the same. The prognosis is that the U.S. recovery will be faster than Europe's despite the fact that Europe opted for lower productivity as a trade-off for saving jobs. The culprit, or at least one of them, appears to be institutions - in this case, labor regulations. It's an interesting read and presents a good case.

I welcome your thoughts.

Markets for the Unusual...or Not

Yesterday's issue of The Wall Street Journal had a somewhat amusing story (free content at this writing) about mortgages and "unusual housing." Specifically it talked about how bankers are balking at lending for houses built of unusual materials or using unusual construction methods. Since there is little to compare against to get a measure of value; and since bankers were burned with mortgages at some time in the not too distant past; the result is no mortgage.

One of the ideas that the article triggered in my head was the debate about value - does it arise from supplier's cost or from demander's intended use? Or does it come from an understanding of the market? And how big does the market have to be to provide sufficient information to avoid significant asymmetries?

I look forward to your comments.

Supply, Demand and Scrap Metal

Those of you looking for a good supply and demand story, try to find "Scrap Metal's Lament" with your browser. It was a story (subscription only at this writing) in yesterday's edition of The Wall Street Journal, and talks about shortages, prices and how the recession is impacting the supply of scrap metal at a time of rising demand.

Like I said, if you can find it using your browser, it's a good read. I hope you find it.

Thursday, March 18, 2010

Economic Limericks

Those of you who know me well know that I can have too much fun with economic humor. Thus, it is with great appreciation to Economists Do It with Models, that I bring you this bunch of limericks from yesterday's edition of The Wall Street Journal. The WSJ post also mentions this daily blog which is going on my blog roll.

Don't thank me, thank EconGirl.

Wednesday, March 17, 2010

This Is How Institutions Change...

slowly. Greg Mankiw links to this inspiring story from The Wall Street Journal. The article is about a young woman, a Harvard grad, who now works on Wall Street. Her senior thesis is, evidently, one of the clearest explanations of the financial crisis.

But what I found most satisfying was her desire to change the culture and to effect that change from within. One hopes that she, and others like her, can achieve that change. For when we talk about informal institutions - the beliefs, etc. that influence our decisions, the shift of focus from short-term to long-term would be extremely significant. Yet, those types of institutional change can take a long, long time. For it takes a long, long time to change the beliefs that others hold.

As always, I welcome your thoughts.

Some Interesting Charts...

courtesy of our friends at Chartporn. The first is a graphic from The New York Times. It shows how large and small banks are dominant in various parts of the country. I may be getting forgetful as maturity sets in, but I seem to remember from my days at the Federal Reserve Bank of Chicago, that smaller banks held a smaller proportion of deposits than is shown in this graphic. That may be a consequence of where the line between large and small is drawn, but the patterns look similar to what we knew about in the Seventh District.

The second is a graphic on outsourcing. The chart does a good job of explaining how outsourcing affects the domestic economy, and really lends itself well to discussions about structural unemployment. I do wish some of the negatives at the bottom of the chart were a bit more prominent, as they need to be part of the discussion when studying the role of government in managing aggregate supply and aggregate demand.

I'd be interested in your comments.

Monday, March 15, 2010

Ricardian Equivalence

As those in AP and IB courses on macroeconomics approach the chapters on fiscal policy and influencing aggregate supply and aggregate demand, I want to draw your attention to a couple of posts that you may find helpful. (And who knows, many of you may already be at this point and searching for additional information.)

Likewise, more traditional economics classes will probably transition soon into the macro portion of the course. And when discussing fiscal policy, the stimulus package may be invoked as an example of how government policy may influence aggregate supply and aggregate demand.
The first link is from the always informative Becker-Posner blog. Gary Becker lays out a pretty good explanation of the current stimulus plan and why, in his analysis, it does not meet the criteria for a good Keynesian stimulus. He discusses crowding-out and policy delays, and makes his case for a flawed attempt to kick-start the economy.

Richard Posner presents another viewpoint. Now, this is no counterargument. Posner does concede problems with the package and admit that it could be improved, but he is not ready to throw the package "under the bus."

But what was most interesting, in my opinion, was his invocation of the Barro-Ricardian equivalence. Indeed, it was this discussion on the Wealth of Nations blog about Ricardian equivalence that drew me to the Becker-Posner exchange in the first place. So a HT is in order.

My class had discussed Ricardian equivalence not very long ago and will do so again in the near future. I will be using information from all of these posts to help clarify the concept for my students.

I look forward to your comments.

Sunday, March 14, 2010

Exchanges Based on Asyemmetric Information

The theme is as old as, well, as old as fairy tales.  The series has been a favorite with my one son.  This looks like it has potential for the classroom, as well.

But "buyer beware". We know the final product often doesn't live up to the previews (or advertising).

Saturday, March 13, 2010

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.

Microeconomics Rap

I always enjoy a good economic music video. Here's one I like and that hope you'll enjoy, as well. (HT to Economists Do It with Models.)

Thursday, March 11, 2010

Encouraged Worker Effect

Today's edition of The Washington Post has a story about rising unemployment in the middle Atlantic region. The reason put forth is that improving economic conditions are giving the unemployed a feeling that jobs are or will be more plentiful. As a result, workers who had dropped out of the market because they were discouraged (which would have reduced the unemployment rate) are now coming back in. Call it the "Encouraged Worker Effect."

Is this something you could use when studying unemployment?


In recent years, airlines often have been vilified in the past for treating customers badly. This went on long enough that the government stepped in with a "bill of rights." I think it was needed. The airlines could probably have been more proactive, and those that were could have or did gain market share. Nevertheless, the new "bill of rights" has raised the potential cost of doing business.

In this article from The Wall Street Journal (free content at this posting), we read that some airlines are responding by cutting back on flights - reducing the quantity supplied for each price - with consequences for the consumer. Are these unintended consequences of decisions to regulate, or could these have been foreseen? I leave it to you.

Deficit Neutrality in Your Budget

Greg Mankiw offers this post, using a personal finance analogy to explain deficit neutrality in the Federal budget. Give it a look and see if it might be useful. It's simple, it's neat and it's clear. What is your reaction?

Wednesday, March 10, 2010

Economics in The Simpsons

Jodi Beggs provides an excellent resource at Economists Do It with Models. (HT to Mikeroeconomics).

I always knew there was some.  Who knew there was so much?  Guess I'll have to watch more often.

Tuesday, March 9, 2010

Okun's Law

In the past couple of months, I've put up two posts on Okun's Law, the relationship between output and unemployment. I stand by my earlier recommendations on the articles in those posts. But I must also draw your attention to this item from the Federal Reserve Bank of San Francisco's Economic Letter.

It seems that the relationship didn't hold true in 2009. Output rose by unemployment did not fall, largely due to improving worker productivity.

This is what Russ Roberts of Cafe Hayek meant when he asked "Is the Dismal Science Really a Science" in this piece for The Wall Street Journal (subscriber content). (You might want to put the article title in your search engine. You may find the complete article.)

Russ points out that economic "laws" are not capable of unerringly forecasting human behavior. This is an excellent example. It doesn't mean that Okun's Law has no value, just that you can't always tell what people are going to do.  I welcome your thoughts.

Monday, March 8, 2010


Here are a few links that could be useful when discussing markets. This first one is courtesy of  Carpe Diem. Mark Perry discusses the problems inherent in pricing a product when the producer and consumer are separated by a third party with more complete information.

The second link is to today's entry on Izzit. The entry connects to an article that originally ran in The Wall Street Journal back in January. In it, Alex Tabarrok discusses the shortage of transplant organs, and suggests there may be a solution in the marketplace. And here's a link to relevant video from The Drew Carey Project on Reason TV. All of these items are all pro-market, as you may expect.

Feel free to leave a comment.

Saturday, March 6, 2010

Unemployment and Economic Growth

Those of you teaching AP Macro either already have arrived or soon will be at the chapter on unemployment. And the chapter on economic is probably in your rear view mirror. However, when you get to unemployment, you probably will spend some time discussing the relationship between economic growth and unemployment, specifically structural unemployment.

Joseph Schumpeter called economic growth creative destruction. He pointed out that a growing, changing economy is constantly creating new products and new methods of producing products while destroying others. The destruction of old products and methods results in lost jobs that never come back.

National Public Radio has an excellent photographic essay (A photographic essay on a radio web site?) showing jobs that have been eliminated. (HT to Cafe Hayek.) One of my favorites was the photo of the pinsetters in a bowling alley. When I was growing up, my elementary school had a four-lane bowling alley in the basement. The church, of which my school was a part, had several small leagues that used the alley on a regular basis, and one of my first jobs was as a pinsetter. Our lanes actually had machines that dropped the pins, but after each ball, the setter had to jump into "the pit", put the ball on the rails that returned it to the bowler, and pick up the pins that were knocked down on that roll and place them in the machine for the next drop. It was hectic and you knew you had become a "master" when you could handle two lanes at once. For this workout you got a straight rate per bowler, per game and half-off the price of a bottle of soda.

We don't see pinsetters very often. Heck, in modern bowling alleys you don't even have to know how to score. Times change, jobs change, and unemployment often reflects these changes. It doesn't make it easier for those who suffer, but it should shape how we approach unemployment.

Just as a follow-up to the NPR piece, there is an engaging but somewhat dated annual report from the Federal Reserve Bank of Dallas (1992) that examines "creative destruction" and even has tables showing jobs that exist in 1991 that didn't exist earlier in the century. You might want to share some of it with your students when talking about the concept of unemployment.

Please share your comments.

Friday, March 5, 2010

Wal-Mart Effect?

A few days ago, I ran across this article from The Washington Post on Wal-Mart's impact on labor and environmental standards in China. Then yesterday, I ran across this article from The Atlantic (HT Arts & Letters Daily) on how Wal-Mart is having an impact on organic and locally grown foods.

Given the way the retailer is so often vilified, I found these to be rather enlightening and refreshing. But that's just my opinion. Please share your thoughts about the articles.

Poverty and a Pair of Jeans

I know many of you are using Haiti as a way to focus your students on economic issues. Here's a very informative piece from National Public Radio's Planet Money blog. (I especially like the information in the table.) It speaks to a number of ideas: globalization, specialization, tariffs and trade, incentives, and economic growth.

There was a companion story on All Things Considered that spoke to Haiti's need for trade rather than aid. In both cases, the comments are even worth perusing. Please share what you and/or your students think.

Happy Birthday James Tobin

James Tobin won the 1981 Nobel Prize in Economics, and is best known for his work on financial markets and the impact of those markets on consumption and investment decisions. (I'm thinking "wealth effect" but correct me if I'm wrong.) You can find good background on Dr. Tobin and his work here and here.

Thursday, March 4, 2010

Go Ask Alice...

You'd be hard pressed to do better.  I'm speaking, of course, of Alice Rivlin, whose birthday it is today. 

She is currently a senior fellow at the Brookings Institution. Her past accomplishments are many, but they include being the first director of the Congressional Budget Office, deputy director of the Office of Management of Budget, and governor (and vice-chair) of the Board of Governors of the Federal Reserve System. 

I had the pleasure of hearing her speak on a couple of occastions, both as vice-chair and as a Brookings fellow.  I have always been impressed by her intellect and her ability to connect with an audience, regardless of who is in it.

Fed Structure & Functions

The Federal Reserve Bank of Cleveland has posted a new installment on its Drawing Board series. This one deals with the structure and function of the Federal Reserve System and is quite good. I strongly endorse it.

What do you think? If you like it, you can find it and download it on Youtube.

Spatial Scarcity in a Knapsack

Back when I was working for the Powell Center for Economic Literacy, we frequently did workshops for elementary teachers. One of the favorites for illustrating the concept of scarcity was one titled Spatial Scarcity.

The lesson was aimed at early elementary students, and asked them to make choices when packing their backpack. They could assemble all the things they would like to bring to school and decide what would fit into their backpack. The assumption was that there are many things we want, but we have limited resources (the pack and our strength), so we must choose. It's very visual, but lacks sophistication for older grades.

Imagine my surprise when watching television (very) early one morning I happened upon an episode of NUMB3RS. For those of you unfamiliar with the series, it's a drama on CBS about an FBI agent and his mathematician brother. The academic uses math to help the law enforcer recognize patterns and otherwise solve crimes.

In episode 324 (sorry, I haven't been able to find the video or clip on the CBS site), the mathematician brother mentions a knapsack algorithm designed to help people choose what to put into a knapsack. Each item has a weight (total weight in the example is not to exceed 30 pounds) and a value assigned. The algorithm allegedly makes it easier to make an optimal selection. I followed some links and found that the knapsack problem was somewhat different from what was presented (surprise).

The variable that could be pursued in an economics course (when and if CBS puts the clip up) would be the assignment of values to the various items. As we know, individuals value things differently. As a result, your "optimal" knapsack may be different from mine. Certain items may be similar, but the final mix can differ from person to person. And that brings us to the whole issue of values in making choices. In the end, you may decide this is too sophisticated.  Nevertheless, it's an interesting extension of a classic elementary lesson.

Has anyone else seen the show/episode? What are your thoughts?

Wednesday, March 3, 2010

Complex Economy

Russ Roberts at Cafe Hayek posted a video yesterday. It really got me thinking and it seems to attracting a lot of attention. It shows a Rube Goldberg (you're dating yourself if you know that reference) set-up with music. As the song is over three minutes long, the mechanism is fairly complex. I think it can be used as an analogy to the complexity of the economy.

But where it's very valuable is in explaining why trying to manage the economy is difficult. How many of you think this worked the first try? And how many "unforeseen circumstances" still remain within the mechanism? Is it appropriate to believe the economy can be managed efficiently? Just some thoughts and questions for you and your class. Feel free to share responses.

GDP and School Kids

National Public Radio's Money Blog has this podcast on the correlation between gross domestic product and kids, particularly schooling. It appears to be part of a longer series, so there may be more on GDP. I would think it can also be used when discussing coincidence, correlation and causation.

The podcast in this link is about 25 minutes long, so I'm not sure I would play it in class. However, some of you may be able to assign it or download it and put it on your class webpage as an ancillary resource for use next semester or next year when you discuss GDP and its importance.

If you have a chance, please share your reactions.

Tuesday, March 2, 2010

Laffer Curve Redux

Some of you may be old enough to remember the Laffer Curve. The story that circulated at the time it was popularized was that it was an illustration, allegedly drawn on a napkin. (Here's more information on the Laffer Curve courtesy of Wikipedia.) It purported to show how a tax cut could result in increased revenues. It really was nothing more than a marginal productivity curve applied to taxes - saying that at some rate, higher tax rates produce less revenue. It was just applied in reverse.

Much of this has to do with the incentive effects of marginal tax rates: higher marginal taxes are a disincentive to work and produce; lower rates are an incentive to work and produce. It was quite controversial at the time and is still debated by some.

I take you on this nostalgia trip to bring your attention to this post on Division of Labor. Anecdotes are not data, but this still makes an intriguing example of how taxes influence behavior by changing incentives through prices. Please share your thoughts.

Changing Consumer Behavior? As If...

There have articles written about how this economic downturn would have the same effect on the present generation as the Great Depression had on a previous generation - forever changing the willingness to spend vs. the desire to save and create a cushion. I didn't buy it.

This article in The Washington Post would seem to confirm my skepticism. Do you agree?

Monday, March 1, 2010

Inventory & GDP

It would have been ideal to have this excellent interactive (courtesy of The Wall Street Journal) relating inventory change and GDP a couple of weeks ago. But now I (and you) know where to find it. (HT to Chartporn.) What's your assessment?

Competition Is a Great Thing...

provided it doesn't affect us. An excellent post on Carpe Diem shows how groups may react when competition induces change. (My family has used these clinics a couple of times. We have no complaints.)

As always, your comments are welcome.

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.