Comparative Economics

In the next couple of weeks those of you teaching macro will begin examining national economies. Sometimes it is hard for students to understand how large the U.S. economy is compared to many other nations. Consequently, it can help for them to have a comparison.

Over the past few years, there have been numerous charts like this one from The Economist (HT to Carpe Diem). It compares the GDP of a number of countries around the world to the GDP of the 50 states. In each case it's a close match. But what makes this version different is that it then also allows you to compare the state population to the populations of various nations. It's very interesting.

An Interesting, Albeit Sobering, Graphic

There is an interactive on the Associated Press web site (HT to Chartporn) that you can use in your macro sections. But it might also be useful in micro as a kickoff to the year. You can zero in on your state, and even your county to get a statistical reading. Then you can discuss whether it "feels" better or worse. You can also discuss the change rates.

Do you think you can use this in class? Please share any additional ideas.

Economics of the World Cup

While I know most of you are out of school, you may still be looking for interesting graphics to use during the forthcoming school year.

If you have soccer players, coach soccer, or like soccer, here is a very good graphic courtesy of The Mint. It shows some of the economics of the World Cup. This could be especially useful when discussing the economics of big events or sports facilities.  One could even dig further by researching the economics of previous World Cups or Olympics.  (One of my students said he had heard a story that the Athens Olympics was one reason Greece was in the condition it is in. We had a good, short discussion on whether or not that might be true.) 

***UPDATE***
Here is a link (free access at this writing) to a story in today's (6/17/10) edition of The Wall Street Journal that seems to confirm my student's comment.

Neat but Incomplete

I ran across this interactive from the Brookings Institute on the global economic recovery (HT to the folks at Chartporn). While it is incomplete (most economies that I would consider developing are not included - and a number of economies that are grabbing headlines are missing as well); for those that are included, there are charts and data that could be used for reports or project or end-of-year discussions.  It's even fun just to poke around.  It's worth a look, in my opinion.

Agriculture, Choices & Poverty

I really enjoy it when one resource becomes even more relevant due to another item popping up.

The topic for this post is agriculture, choices and poverty. My first recommendation is this research article on the Voxeu web site. It's a basic study of the effect on agricultural trade barriers on global poverty. The imposition of trade barriers is a choice, frequently a political one, which has far-reaching economic effects. There are often domestic benefits for the country imposing the barriers. And there are often foreign costs that are not considered.

The authors of the study feel that the costs to global poor are significant. Their conclusion states that removal of agricultural trade barriers could lower global poverty by 3%. While that may not sound like much, in absolute terms it is more impressive.

According to their research, removal of agricultural trade barriers will increase demand for the produce of the global poor who live in rural areas and depend on agriculture for their livelihood. The study recognizes that increased demand also can raise the price of staple foods these same poor need to survive. But it also posits that removal of global barriers, while providing higher prices for food for export can have beneficial effects on food prices within the various countries, and on wages. Overall, the Voxeu piece is a worthwhile read.

The second resource also deals with agriculture, poverty and choice. It deals with the "buy local" choice. This article in Foreign Policy magazine (HT to Division of Labour) shows how decisions to "buy local" can have an impact on global agriculture markets, again affecting the poor in other countries. It has some amazing photographs, as well.

This third article, from today' edition of The Wall Street Journal gets into the definition of a farmer's market. In my opinion, it also talks about how market drive competition and how competition reduces costs. If you’ll pardon the pun, it’s just some "food" for thought. Please share yours (not your food, your thought).

Comparative Advantage, Interdependence & Volcanoes

Take a look at this story from National Public Radio's Planet Money blog. While many of us are aware of the economic problems related to air travel caused by the volcano in Iceland; I suspect few even considered this aspect. I know I didn't. But it's an excellent example of the concepts of comparative advantage (Kenya's advantage in growing and providing flowers); and interdependence (Kenya's exports and GDP are impacted by sale of flowers to Europe). More posts later today.

This Is Globalization

Long-time colleague, Dr. William Polley at Western Illinois University offers this post. Although the link seems to require payment to access the story, Dr. Polley sums up the relevant point - an excellent example of globalization.

To make the point clearer, take a map of the world. Start at Duluth, MN, and draw lines to all the other parts of the world that are affected or will be affected (according to the story) by the transaction of the ship taking on grain.

Peace and Trade

And second, here's an interesting piece on the Voxeu web site.

If you read The World Is Flat by Thomas Friedman, particularly the first edition, you are familiar with the idea that globalization reduces conflict. Friedman states that no two countries with McDonalds had ever gone to war. That no longer holds, I believe. But the idea is that trade promotes peace. The economic gains from trade outweigh the potential losses from warfare. Therefore it is in the interest of the countries to find a different channel to resolve conflicts.

While noting that political and historical benefits may be stronger motivators for trade agreements (bilateral and regional) than the economic benefits, the authors point out that they are not substitutes but can be viewed as complements. I'm not really doing the article justice, but I hope you will find it interesting.

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?

Institutions, Incentives and Prosperity

M.I.T. professor Daron Acemoglu has an engaging opinion piece in Esquire (HT to Arts & Letters Daily). One intriguing aspect is a graphic that compares "How Governments Affect the Wealth of Nations." And while I wish it were more interactive - perhaps showing details for more countries as you mouse over them - it tells makes a convincing case.

My only complaint with the article is that I wish it was longer. (I suspect the limitation was due to space.) For example, I would like more explanation of his comparison of Nogales, a city on the U.S.-Mexican border that is split by that border. While I have no doubt that differing institutions lead to differing incentives, I would like to know Acemoglu's assessment of how quickly an improvement in the institutional structure on the Mexican side would take effect. I think many institutions need time to become ingrained in a society before they have a full effect. Otherwise, the members may be reluctant to change their behavior for fear of another, counter-veiling change.

I welcome your thoughts.

There’s No Such Thing as Free…

With many of us looking to Copenhagen (swell to "Wonderful Wonderful Copenhagen" in Hans Christian Anderson, starring Danny Kaye), it's fitting that we provide some links to a pair of climate-related stories. Both focus on the cost of a likely plan to reduce green-house gas emissions.

The first is from The Economist. And while the online article is short, the chart is good. The second story is from a special section that ran in yesterday's edition of The Wall Street Journal. Again, the graphics are pretty good. And I found the story - indeed the whole section - thought-provoking.

Globalization in Reverse?

Finally, one of the topics of my Global Economics class is how trade can allow cultures to share. McDonald's is an oft-cited example. Just consider the fact that the Big Mac is considered a "universal commodity" as the basis for the Big Mac Index.

But how many of these McDonald's products have made it to the U.S.? (HT Marginal Revolution.)

Granted, it is an example of a multi-national adapting to local markets, but still... One would expect some reverse flows, wouldn't one?

I look forward to your comments.

Big Macs in Iceland...Not!

When teaching my course on the economics of globalization, McDonalds is frequently cited as an example of a global corporation. And one of the books the students use, The World is Flat, mentions even mentions McDonalds.

Earlier this week, it was reported that the golden arches would no longer be found in Iceland. Today's edition of The Wall Street Journal has a short opinion piece (free content as of this writing) on the event which can provide some explanation of foreign exchange values. It seems that when the global financial crisis sunk the krona (Iceland's currency), it made all kinds of imports more expensive. (To quote from the piece "beef to special sauce, lettuce, cheese, pickles, onions and, we assume, sesame seed buns.")

Feel free to comment.  I just thought it was interesting.

On a Chart Jag

(I may be due for a graph intervention.) But I recently ran across a site that is full of charts, graphs, tables and other visual stimuli to assault our understanding, and just asking to be debated. I find the examples most useful as opportunities to ask "so what?"

The first is actually a whole series of bar graphs comparing the United States to Russia. It is is on Mint.com. (But HT to Chartporn.) The Mint.com site also has similar comparisons with China and India at the bottom of the page.

The second has some real value for teaching personal finance. Specifically, if you teach about credit cards, this is a great illustration of all the steps involved in a credit transaction. (Note: I didn't say the sequence was correct. I would have made step 8 the first step and then proceeded. But we can debate another time.) Again, I found it on Chartporn.

While I don't endorse all the content on Chartporn, these examples are pretty good. Used judiciously by teachers who like want their students to dig a bit deeper, these charts can offer a good place to start.  What is your take on the site? I have temporarily added it to my link list. Should I keep it?

Globalization on Every Corner

Some of the most basic products we consume are linked to the global economy. Here are some excellent examples.

(HT to Alex Tabarrok at Marginal Revolution.)

An Interesting Site for GDP per Capita

Last of all, here's an interesting site (HT to the Carpe Diem blog)that provides easy comparison of GDP per capita and groups countries in various ways (economically, geographically, even religiously). I wouldn't go so far as to use it to make sweeping generalizations. Particularly because it only provides a snapshot. But it would make a very good jumping-off point to discuss institutional constraints, resource curse, and a number of other topics that lend themselves to analysis.

I hope you find it interesting.  Feel free to suggest some uses.

Cup of Joe

If you're one of those people whose day just seems to go better if you can start it out with a cup of coffee, you might find these two items of interest.

The first is from the Voxeu.org web site. Two economists used coffee prices as a method of examining real income gains prior to the industrial revolution. Their reasoning is interesting; although I'm not sure I totally buy into it. What I do find compelling is their conclusion that real incomes (and hence standard of living) increased during the period of study. This seems to go along with some of the work done by others, including Gregory Clark in A Farewell to Alms (previously reviewed and recommended on this blog).

The second article, while not as deep provides some interesting facts suitable for classroom use. It's from the Globalization 101 web site and focuses on the global market for coffee. I know most of us are aware that coffee comes from "somewhere else." But I suspect most of us don't know the complex structure of production, markets and treaties that allows us to enjoy the hot brew.

I hope you find these of interest. I also hope you find them useful and I'd be interested to hear how you used them.

The Big Mac Index

I’m a bit late on this, but…it's been almost two weeks since The Economist published their most recent Big Mac Index. This can be an interesting tool to use when discussing exchange rates in your economics class. We often spend time explaining how exchange rates allow us to price and trade goods across national borders. And the easiest next step is to start taking local prices and converting them to foreign currencies using established rates.

But as the accompanying story explains, that should not be the end of the discussion. Exchange rates alone don't usually fully explain the prices of goods in different countries. The currencies themselves may not move freely within a market, or may be subject to other pressures depending on the state of the economy and expectations in still other countries. This explains why an index is used to measure these possible effects.

By using a standard commodity (in this case, McDonald's Big Mac), we can measure prices against a single good across many countries and see how those prices conform to differences in exchange rates. Prices that vary significantly from simple exchange rate prices are either over-valued (too strong - benefitting importers in those countries and hindering exporters) or under-valued (too weak - benefitting exports and hindering importers). That can then be used in conjunction with the balance of trade for countries to see if there is an effect.

For those of you who teach exchange rates, do you integrate the Big Mac Index and does it help? I look forward to your comments.

This post references the following Keystone Economic Principles:
3. All choices have consequences.
and
4. Economic systems influence choices.

Globalization and Mickey D

Do you have trouble connecting global issues to your students' lives? Here's an interesting story that was on Marketwatch a few days ago that can bring the idea home.

The article points out that McDonald's had a decent month in May from the standpoint of "same store sales." That's an important measure of success and viability for a firm like McDonalds because it provides a stable basis for future growth. A company may grow by opening new stores, but if the new stores just shift demand from existing locations, or if existing locations can't generate enough revenue to "keep the lights on," the business is probably not sustainable.

But for our purposes, the key to this story is farther down. When exchange rates are factored in, the sales are actually down. That means when the improved sales in other countries were recalculated to dollars, things looked worse. This is likely because the dollar strengthened against a number of key currencies from March through May. Consequently, it took more units of foreign currency to equal a dollar in many markets. When sales were converted to dollars, the increase "disappeared".

If you want to take this idea farther, this story becomes particularly ironic because a McDonalds product is one measure of purchasing power parity - The Big Mac Index found in The Economist. (The link takes you to a simple explanation and an excellent video explaining the Index. The most recent publication of the index is February, 2009 - just prior to the period in question.)

Please share your thoughts.

This post references the following Keystone Economic Principles:
2. There ain't no such thing as a free lunch.
4. Economic systems influence choices.
6. Do what you do best, trade for the rest.
7. Economic thinking is marginal thinking.
and
9. Prices are determined by the market forces of supply and demand… and are constantly changing.

What a Difference 18 Months Can Make: India's Growth & Infrastructure

Yesterday's edition of The Wall Street Journal had an excellent article about problems facing India's growing urban centers. It had links to some informative interactive graphics, a slide show about one urban center - Lucknow, and an informative video. It is a rich resource for a variety of teaching environments including world history, current events, geography and economics, and I strongly recommend it.

That piece also reminded me of another article from the same source that I read about 18 months ago. That one spoke about the then surging Indian economy's positive effects on the poor. After a bit of digging, I found a link to it. It also has an excellent series of interactive graphics, and despite being 18 months old offers some interesting possibilities for discussion.

In the older article, the main point is that economic growth is an engine for social change. Public education was expanding and offering opportunity for many with a subsequent result that the caste system was slowly falling apart. There was a new confidence and a belief that the state may not necessarily be the best director of economic growth. And many of India's rural poor were choosing to move to the cities where they saw greater opportunity.

The more recent article speaks to the result of that movement. While opportunity did exist, much of it has dried up with the slack global economy. But the poor have not returned to their villages. They still choose the potential of the city despite a woeful lack of public services. Part of that shortfall is the result of insufficient funding, but part of it remains competition for use of public funds among overlapping governmental authorities. Large monuments to government officials are touted as "make work" projects. Funds are diverted to build modern roads providing access to monuments, rather than building bridges or water treatment plants, largely as a result of a decision made by government agencies.

In fairness, the rate of population growth would strain the resources of the cities even in the best of times. But the stories, when read together, provide an interesting problem for discussion about pubic goods and services, the role of government, and the productive value of infrastructure in promoting growth and opportunity.

I'm sure there's more to discuss than I've outlined, but the articles are well-written and additional information provides a rich resource for classroom use. I look forward to your comments.

This post relates to the following Keystone Economic Principles:
1. We all make choices.
2. There ain’t no such thing as a free lunch.
3. All choices have consequences.
4. Economic systems influence choices.
and
8. Quantity and quality of available resources impact living standards.