Here's an idea for generating discussion in economics and government classes. It addresses the idea that we often have a good idea of what's best for the country, but at election time we vote in our own interest.
In a recent New York Times piece, Greg Mankiw lists what he would put forth as a platform that would be supported by many economists. My suggestion is to use the piece with your students and then ask them these questions.
"What support or objection would you anticipate for each plank? Why?
Do you think a total platform would like this could be aligned with either party? Why or why not?"
I would think this type of discussion would promote some critical thinking, and lead to some discussion as to the economic understanding of the U.S. electorate.
I look forward to your comments.
P.S. I would make a change to one plank. I think any forms of price controls are uncalled for. On the basis of this story alone, I think the elimination of farm price subsidies should be expanded to get rid of any types of
price controls or subsidies. (HT to Mark Perry.)
Monday, July 14, 2008
Friday, July 11, 2008
PPP vs. NNN: Pervasive Pollyannas of Postivisim vs. Nattering Nabobs of Negativism
I always enjoy it when my reading brings together a number of seemingly unrelated pieces and, serendipitously, everything falls together and starts the mind racing. This has happened over the past couple of weeks and I think offers an opportunity to examine how we measure and address economic progress.
When we talk about economic policy, we often discuss the main objectives of policy: growth, employment, price stability, and exchange. Admittedly, none of these statistics are anything to get excited about. Gross domestic product (GDP), according to the most recent release was up 1% for the first quarter of 2008, and up .6% for the fourth quarter of 2007. It's hardly stellar, but not negative, and certainly not in recession territory if one is to go by the (incorrect) definition of two consecutive quarters of negative GDP.
Unemployment stands at 5.5% according to the most recent release. That is a bit higher than we've been used to for most of the past fifteen years. But it is not outside the bounds of the Non-Accelerating Inflation Rate of Unemployment (NAIRUE) or the natural rate of unemployment which many people believe to range between 5-6%. Furthermore, it is not of a magnitude to compare with the late 1970s and early 1980s, and nothing like the 1930s. First-time jobless claims were at 356,000 this week. This is not a good number. On the one hand, it's over 1/3 of a million people - that's hard to ignore. On the other hand, many expected worse.
Inflation is a concern. We are awaiting next week's release of the June Consumer Price Index (CPI). The May CPI showed year-over-year inflation for all urban consumers was up 4.2%. That translates to a doubling of prices every seventeen years plus a couple months. That's certainly not as good as it was even as recently as a few years ago. But it also does not compare with the inflation rates of the late 70s and early 80s. Back then inflation was near 20% which meant prices stood to double every three-and-a-half years.
Exchange is also a concern. The value of the dollar is very low, compared to most major currencies. As of this writing the dollar trades for about 106 Yen and will only fetch about .6 Euros. And since many major commodities are priced in dollars, the weakness is also contributing to higher commodity prices - especially oil. The flip side is that a weaker dollar is helping our export-oriented industries and narrowing (not eliminating) the trade gap. But it is easy to see how one could slip into the NNN category after looking at these statistics.
But they are not the whole story, just an episode. Just like a single still from a movie can't tell the whole story, the economy needs to consider time for us to get the whole picture. That's where my recent reading comes into play.
The roots of this post started with a recent post on The Big Picture blog by Barry Ritholz. In it, he found fault with an article inThe American magazine by W. Michael Cox and Richard Alm of the Federal Reserve Bank of Dallas. (The American is conservative in its editorial stance.) In the Cox and Alm article, they examine the U.S. standard of living by looking real income - the things we get for our money. I'm familiar with other work by Cox and Alm. And while I'm aware of the problems may have with drawing inferences from an average, the authors manage to tell an important story. And the story is not restricted to a single, still photograph. Their story is based on a movie. It develops over time. And that story is solid. But because it does not offer a moment in time for us to study and dissect, it does give the "now" short shrift. That does not mean the longer story is immaterial. To dismiss the work as belonging to the PPP category because it doesn't solely reflect the current situation is to compare apples to oranges. Cox and Alm are not talking about the same thing Ritholz is - despite what some may think.
Another resource that helped shaped this post was a podcast. It was an interview with Gregg Easterbrook on EconTalk. In it, Easterbrook and host Russ Roberts discussed the U.S. standard of living and how people perceive it. While there were a number of "ah-ha" moments, I found one most revealing and relevant to what Cox and Alm had written. Roberts mentioned that he frequently polls his classes, asking how much the U.S. standard of living has increased over the past 100 years. He said the average (there's that data again) answer was 50% - 50% increase over 100 years. Roberts said he was inclined to believe that a certain level of innumeracy may play into this response. It's possible that those polled believe you can't have an increase of more than 100%. But the interesting thing is that, depending upon the measures you use and how you correct for inflation, the increase is actually between 7 and 30 times! Clearly, we're not the best estimators of our own progress. (I would add that, given economic mobility over the course of a lifetime, it's even harder.)
The podcast would have been the end of it, but it wasn't. After hearing Easterbrook and Roberts discuss how hard it is to measure "happiness," I ran across one more article in The American, "Can Money Buy Happiness?" I also ran across a review of two books in The New Republic. The American article talked about the link (or lack thereof) between income and happiness. The reviews focused on research into how we choose, combining aspects of economics and psychology. Given some of the ideas that arose in reading these, it occurred to me that maybe our economic mood - ranging from NNN to PPP - has something to do with how we view the current state of the economy as well as our economy.
As an illustration, my view is that we are not in a CRISIS. I will admit that the economy is shaky but it is far from the worst economy in U.S. History. It's not even the worst of the past 50 years. Many will disagree with this view, but I would place them in the NNN category. Conversely, these are not good times. There are problems (largely of our own making) that call for solutions (again, we should be looking to ourselves rather than others for the answer). For those of us whose memories were largely forged in the expansion of the 1990s, the current state of things is disappointing, to say the least. People who would have us believe that the present state of things are nothing to be concerned about would fall into the PPP category.
I would label the current environment by borrowing from Charles Dickens, with a slight but significant alteration. It is not "the best of times". But neither is it "the worst of times." I don't agree with either extreme. The "now" is challenging. Can we work through the challenge? More importantly, can we provide to the tools to our students to work through the challenge? That's the
key question for this post. I think those of us who teach economics need to make sure our students can analyze and understand the short-term as well as prepared to solve the short-term problems. But this needs to be tempered with an appreciation of, and ability to see the long-term. If we do the first without the second, we run the risk of misunderstanding and misapplying what John Maynard Keynes meant when he said "In the long-run, we're all dead."
I apologize for this rather long-winded post, and I look forward to your thoughts.
When we talk about economic policy, we often discuss the main objectives of policy: growth, employment, price stability, and exchange. Admittedly, none of these statistics are anything to get excited about. Gross domestic product (GDP), according to the most recent release was up 1% for the first quarter of 2008, and up .6% for the fourth quarter of 2007. It's hardly stellar, but not negative, and certainly not in recession territory if one is to go by the (incorrect) definition of two consecutive quarters of negative GDP.
Unemployment stands at 5.5% according to the most recent release. That is a bit higher than we've been used to for most of the past fifteen years. But it is not outside the bounds of the Non-Accelerating Inflation Rate of Unemployment (NAIRUE) or the natural rate of unemployment which many people believe to range between 5-6%. Furthermore, it is not of a magnitude to compare with the late 1970s and early 1980s, and nothing like the 1930s. First-time jobless claims were at 356,000 this week. This is not a good number. On the one hand, it's over 1/3 of a million people - that's hard to ignore. On the other hand, many expected worse.
Inflation is a concern. We are awaiting next week's release of the June Consumer Price Index (CPI). The May CPI showed year-over-year inflation for all urban consumers was up 4.2%. That translates to a doubling of prices every seventeen years plus a couple months. That's certainly not as good as it was even as recently as a few years ago. But it also does not compare with the inflation rates of the late 70s and early 80s. Back then inflation was near 20% which meant prices stood to double every three-and-a-half years.
Exchange is also a concern. The value of the dollar is very low, compared to most major currencies. As of this writing the dollar trades for about 106 Yen and will only fetch about .6 Euros. And since many major commodities are priced in dollars, the weakness is also contributing to higher commodity prices - especially oil. The flip side is that a weaker dollar is helping our export-oriented industries and narrowing (not eliminating) the trade gap. But it is easy to see how one could slip into the NNN category after looking at these statistics.
But they are not the whole story, just an episode. Just like a single still from a movie can't tell the whole story, the economy needs to consider time for us to get the whole picture. That's where my recent reading comes into play.
The roots of this post started with a recent post on The Big Picture blog by Barry Ritholz. In it, he found fault with an article inThe American magazine by W. Michael Cox and Richard Alm of the Federal Reserve Bank of Dallas. (The American is conservative in its editorial stance.) In the Cox and Alm article, they examine the U.S. standard of living by looking real income - the things we get for our money. I'm familiar with other work by Cox and Alm. And while I'm aware of the problems may have with drawing inferences from an average, the authors manage to tell an important story. And the story is not restricted to a single, still photograph. Their story is based on a movie. It develops over time. And that story is solid. But because it does not offer a moment in time for us to study and dissect, it does give the "now" short shrift. That does not mean the longer story is immaterial. To dismiss the work as belonging to the PPP category because it doesn't solely reflect the current situation is to compare apples to oranges. Cox and Alm are not talking about the same thing Ritholz is - despite what some may think.
Another resource that helped shaped this post was a podcast. It was an interview with Gregg Easterbrook on EconTalk. In it, Easterbrook and host Russ Roberts discussed the U.S. standard of living and how people perceive it. While there were a number of "ah-ha" moments, I found one most revealing and relevant to what Cox and Alm had written. Roberts mentioned that he frequently polls his classes, asking how much the U.S. standard of living has increased over the past 100 years. He said the average (there's that data again) answer was 50% - 50% increase over 100 years. Roberts said he was inclined to believe that a certain level of innumeracy may play into this response. It's possible that those polled believe you can't have an increase of more than 100%. But the interesting thing is that, depending upon the measures you use and how you correct for inflation, the increase is actually between 7 and 30 times! Clearly, we're not the best estimators of our own progress. (I would add that, given economic mobility over the course of a lifetime, it's even harder.)
The podcast would have been the end of it, but it wasn't. After hearing Easterbrook and Roberts discuss how hard it is to measure "happiness," I ran across one more article in The American, "Can Money Buy Happiness?" I also ran across a review of two books in The New Republic. The American article talked about the link (or lack thereof) between income and happiness. The reviews focused on research into how we choose, combining aspects of economics and psychology. Given some of the ideas that arose in reading these, it occurred to me that maybe our economic mood - ranging from NNN to PPP - has something to do with how we view the current state of the economy as well as our economy.
As an illustration, my view is that we are not in a CRISIS. I will admit that the economy is shaky but it is far from the worst economy in U.S. History. It's not even the worst of the past 50 years. Many will disagree with this view, but I would place them in the NNN category. Conversely, these are not good times. There are problems (largely of our own making) that call for solutions (again, we should be looking to ourselves rather than others for the answer). For those of us whose memories were largely forged in the expansion of the 1990s, the current state of things is disappointing, to say the least. People who would have us believe that the present state of things are nothing to be concerned about would fall into the PPP category.
I would label the current environment by borrowing from Charles Dickens, with a slight but significant alteration. It is not "the best of times". But neither is it "the worst of times." I don't agree with either extreme. The "now" is challenging. Can we work through the challenge? More importantly, can we provide to the tools to our students to work through the challenge? That's the
key question for this post. I think those of us who teach economics need to make sure our students can analyze and understand the short-term as well as prepared to solve the short-term problems. But this needs to be tempered with an appreciation of, and ability to see the long-term. If we do the first without the second, we run the risk of misunderstanding and misapplying what John Maynard Keynes meant when he said "In the long-run, we're all dead."
I apologize for this rather long-winded post, and I look forward to your thoughts.
Tuesday, July 8, 2008
Food Policy
Perhaps one of the better economic issues for classroom discussions about markets, price and price distortion is the current food crisis. To that end, I want to point you to a couple of interesting articles, the first three with an admittedly market-oriented view. The first is an article by Adam Lerrick of the American Enterprise Institute from today's Opinion Page of The Wall Street Journal. In it, Lerrick notes that the current crisis is less a result of speculation than bad agricultural policies. These policies are hurting the countries that can least afford rising commodity prices, and were often put in place by countries that needed protection the least. And while Lerrick offers little in the way of data and policy recommendations in this article, it is easy to read.
The second article, also by Lerrick, is published by the American Enterprise Institute (AEI) and is similar to the first. But it offers a bit more in the way of policy recommendations, and data in the form of some graphs on various foodstuffs.
The third resource is the summary of a recent (July 2) AEI conference titled "Was Malthus Right?" Malthus has long been in disrepute, but in my opinion it is largely a result of his bad timing. Specifically, he failed to foresee the full impact of the Industrial Revolution. But, so did his other contemporaries. The value of his teaching is that it shows how, without changes in our productive resources (specifically capital - human or physical), we can run into the occasional productive wall.
The final piece comes in the form of an article that appeared in the British newspaper, The Guardian. Unlike the first three sources, The Guardian is a self-styled liberal news source. The article claims to reference an internal World Bank study which seems to place the blame for the current crisis at the feet of biofuels. It is a different perspective but it ties in with these other articles nicely. Now, I admit I'm always a bit skeptical about "secret reports" as sources regardless of the politics of the writer. But the four articles together provide some nice ideas to kick around the classroom.
I look forward to your comments.
The second article, also by Lerrick, is published by the American Enterprise Institute (AEI) and is similar to the first. But it offers a bit more in the way of policy recommendations, and data in the form of some graphs on various foodstuffs.
The third resource is the summary of a recent (July 2) AEI conference titled "Was Malthus Right?" Malthus has long been in disrepute, but in my opinion it is largely a result of his bad timing. Specifically, he failed to foresee the full impact of the Industrial Revolution. But, so did his other contemporaries. The value of his teaching is that it shows how, without changes in our productive resources (specifically capital - human or physical), we can run into the occasional productive wall.
The final piece comes in the form of an article that appeared in the British newspaper, The Guardian. Unlike the first three sources, The Guardian is a self-styled liberal news source. The article claims to reference an internal World Bank study which seems to place the blame for the current crisis at the feet of biofuels. It is a different perspective but it ties in with these other articles nicely. Now, I admit I'm always a bit skeptical about "secret reports" as sources regardless of the politics of the writer. But the four articles together provide some nice ideas to kick around the classroom.
I look forward to your comments.
Natural Disasters as Engines for Growth
Yesterday, I ran across this interesting post by Don Boudreaux over at Cafe Hayek. The reporter (preparing this story for The Boston Globe) was asking whether natural disasters like the recent earthquake in China, can actually be helpful by causing a rapid upgrade in technology and infrastructure as the region is rebuilt. Many of Boudreaux's readers rightfully identified the usual economic arguments against such a view.
I thought Boudreaux's main argument, that businesses constantly reinvest in new, more productive capital without the impetus of a disaster was good -- but with one caveat. To accept the argument, there is an assumption of a market economy, where investment is largely driven by the individual owner seeking advantage in the market. I'm not confident that his point would necessarily hold in a system where many decisions are still largely driven by a centralized authority. And while Don is on the mark about the opportunity cost attending the rebuilding (how might the productive resources involved been otherwise used); it is possible that disasters may reprioritize the use of resources in a beneficial way.
Regarding the article, I find the reporter's use of the "creative destruction" analogy totally misplaced. Schumpeter's concept of creative destruction applied the entrepreneurial process of improvement and replacement. It is a natural process, involving constant tinkering and tweaking to apply new ideas and ways of doing things. The entrepreneur is creating new human capital, and it is that creation that destroys the old industry or method. Earthquakes, hurricanes, floods and tornados create little more than the need to replace and repair. Any creation comes as a result of the destruction. Schumpeter's idea reversed the sequence.
I think this discussion provides some possibilities for discussion with your students. Can or does disaster create growth? Does destruction lead to something better in the long run? (Here's an opportunity to test their time horizon by borrowing from Keynes: "In the long run, we're all dead.") If destruction is beneficial to the economy, why are vandalism, arson and willful destruction crimes? Shouldn't they be encouraged?
I look forward to your thoughts and comments.
***UPDATE***
Rick Matoon, one of the economists at the Federal Reserve Bank of Chicago and an old friend, just posted on the Assessing the Midwest Floods of 2008 (and 1993). It provides a good comparison of the two events, and a solid explanation for those who think natural disasters are really engines for growth.
I thought Boudreaux's main argument, that businesses constantly reinvest in new, more productive capital without the impetus of a disaster was good -- but with one caveat. To accept the argument, there is an assumption of a market economy, where investment is largely driven by the individual owner seeking advantage in the market. I'm not confident that his point would necessarily hold in a system where many decisions are still largely driven by a centralized authority. And while Don is on the mark about the opportunity cost attending the rebuilding (how might the productive resources involved been otherwise used); it is possible that disasters may reprioritize the use of resources in a beneficial way.
Regarding the article, I find the reporter's use of the "creative destruction" analogy totally misplaced. Schumpeter's concept of creative destruction applied the entrepreneurial process of improvement and replacement. It is a natural process, involving constant tinkering and tweaking to apply new ideas and ways of doing things. The entrepreneur is creating new human capital, and it is that creation that destroys the old industry or method. Earthquakes, hurricanes, floods and tornados create little more than the need to replace and repair. Any creation comes as a result of the destruction. Schumpeter's idea reversed the sequence.
I think this discussion provides some possibilities for discussion with your students. Can or does disaster create growth? Does destruction lead to something better in the long run? (Here's an opportunity to test their time horizon by borrowing from Keynes: "In the long run, we're all dead.") If destruction is beneficial to the economy, why are vandalism, arson and willful destruction crimes? Shouldn't they be encouraged?
I look forward to your thoughts and comments.
***UPDATE***
Rick Matoon, one of the economists at the Federal Reserve Bank of Chicago and an old friend, just posted on the Assessing the Midwest Floods of 2008 (and 1993). It provides a good comparison of the two events, and a solid explanation for those who think natural disasters are really engines for growth.
Wednesday, July 2, 2008
Free Resources
I keep forgetting to post these. You need to know about these two resources for economics and personal finance teachers. They're FREE!
The first is a new newsletter produced by the Federal Reserve Bank of Richmond called 5E Educator. You can download it and subscribe electronically here.
The second is a new issue of old newsletter produced by the Federal Reserve Bank of Boston called The Ledger. You can find the complete issue along with select back issues here.
They're both worth a look and the price is right.
The first is a new newsletter produced by the Federal Reserve Bank of Richmond called 5E Educator. You can download it and subscribe electronically here.
The second is a new issue of old newsletter produced by the Federal Reserve Bank of Boston called The Ledger. You can find the complete issue along with select back issues here.
They're both worth a look and the price is right.
Creative Destruction and the Entrepreneur
As you probably know, Bill Gates is no-longer heading up Microsoft. He has retired from the company he helped found and led for over 30 years in order to spend his time overseeing the Bill and Melinda Gates Foundation. This transition from for-profit to not-for-profit executive by one of the 20th-century's most successful entrepreneurs has been grist for the media mill. Some of the better articles (imho) appeared in The Economist.
The first (and shorter) of two articles explores The Meaning of Bill Gates. It clearly portrays him as an innovator and business leader - an entrepreneur. He saw a demand, he had a product and had a vision for it. He pushed new innovation when he could and he pragmatically adopted (some would say co-opted) other ideas when he saw value he could not duplicate, folding them
into his own products. As an example of what a true entrepreneur does and should do, this article provides a short, thorough description using Gates as an abbreviated case-study.
The second article, After Bill, spends more time discussing the impact of his departure on his corporate legacy, Microsoft. It examines the obstacles (self-imposed and competitor-imposed) and opportunities that confront Microsoft at the time of Mr. Gates departure. While reading it, one considers whether the entrepreneurial culture will continue at that firm, allowing it to grow as a result of continuing innovation or to eventually stagnate into a niche player - granted a very large one.
And while these articles are interesting on their own, this post has another objective. There is a new blog that is worth your time to investigate. Creative Capitalism is an on-line conversation among a number of leading economists, business leaders, and other thinkers. The purpose is to produce a book that will be "a collection of essays and commentary on capitalism, philanthropy, and global development." The idea arose as a result of a speech given by Mr. Gates (and reviewed on this blog back in January, 2008) where he used the term "creative capitalism." I, along with others, took Mr. Gates to task because capitalism is, by its very nature, creative. To imply otherwise is to demean the process.
The essays posted so far (the blog's first entry was on June 26, 2008) have been impressive. The discussion is informed and interesting. When reading Gate's speech that introduced the term "creative capitalism", one senses that he wasn't decrying the lack of creativity in capitalism; rather he was calling for the inherent creativity to be unleashed to solve the world's larger problems. He is asking the business community to apply resources and methods which are either lacking or foreign to government, in order to find new ways to serve the underserved of the world.
Mr. Gates seems to applying the idea of creative destruction to the paradigms that have settled in place. He sees a need for business and business leaders to recommit themselves to an understanding, appreciation and adoption of the long-term over the short-term. There needs to be a willingness to look at the variety of problems, to apply resources in an efficient manner, and to bring more of the world into the marketplace where their wants can be fulfilled.
I think you'll find the discussion a valuable source of information and discussion for your classroom. I look forward to your comments.
The first (and shorter) of two articles explores The Meaning of Bill Gates. It clearly portrays him as an innovator and business leader - an entrepreneur. He saw a demand, he had a product and had a vision for it. He pushed new innovation when he could and he pragmatically adopted (some would say co-opted) other ideas when he saw value he could not duplicate, folding them
into his own products. As an example of what a true entrepreneur does and should do, this article provides a short, thorough description using Gates as an abbreviated case-study.
The second article, After Bill, spends more time discussing the impact of his departure on his corporate legacy, Microsoft. It examines the obstacles (self-imposed and competitor-imposed) and opportunities that confront Microsoft at the time of Mr. Gates departure. While reading it, one considers whether the entrepreneurial culture will continue at that firm, allowing it to grow as a result of continuing innovation or to eventually stagnate into a niche player - granted a very large one.
And while these articles are interesting on their own, this post has another objective. There is a new blog that is worth your time to investigate. Creative Capitalism is an on-line conversation among a number of leading economists, business leaders, and other thinkers. The purpose is to produce a book that will be "a collection of essays and commentary on capitalism, philanthropy, and global development." The idea arose as a result of a speech given by Mr. Gates (and reviewed on this blog back in January, 2008) where he used the term "creative capitalism." I, along with others, took Mr. Gates to task because capitalism is, by its very nature, creative. To imply otherwise is to demean the process.
The essays posted so far (the blog's first entry was on June 26, 2008) have been impressive. The discussion is informed and interesting. When reading Gate's speech that introduced the term "creative capitalism", one senses that he wasn't decrying the lack of creativity in capitalism; rather he was calling for the inherent creativity to be unleashed to solve the world's larger problems. He is asking the business community to apply resources and methods which are either lacking or foreign to government, in order to find new ways to serve the underserved of the world.
Mr. Gates seems to applying the idea of creative destruction to the paradigms that have settled in place. He sees a need for business and business leaders to recommit themselves to an understanding, appreciation and adoption of the long-term over the short-term. There needs to be a willingness to look at the variety of problems, to apply resources in an efficient manner, and to bring more of the world into the marketplace where their wants can be fulfilled.
I think you'll find the discussion a valuable source of information and discussion for your classroom. I look forward to your comments.
Tuesday, July 1, 2008
What I'm Reading
I just finished reading Confessions of a Subprime Lender: An Insider's Tale of Greed, Fraud and Ignornace by Richard Bitner. I got interested in the book via this review this review in an issue of The Wall Street Journal last week. I had recently done a presentation for some students that included a discussion of the role of ethics in economics; and I'll be taking part in another presentation for the same group in a week. For the latter, I thought about talking about ethical failures as they relate to the subprime issue and thought the book might provide some insights. It did.
For the first third and the last ten percent, the book did a good job of putting a face on the subprime market. We get introduced to borrowers, brokers, and lenders that the author dealt with, and he does a good job of selecting his anecdotes to make his point. There is a middle portion of the book that, while less captivating in terms of humanizing the story, provides a thorough examination of how various levels of the "food chain" contributed to failure. From borrowers to brokers, through the Fed and rating agencies, Bitner draws a picture combining ethical lapse with intentional fraud, and colored with unintended consequences or willful neglect. The result is the mess we're in. This section also requires a little more concentration as Bitner explains some of the mechanics of the mortgage market. And while that may sound daunting for people without a background in finance, Bitner does a good job of explaining the basics in an easy-to-understand way.
So how might this help you as an economics and/or personal finance teacher? In both areas, the book is a fine example of how the large macro reflects the decisions and choices made at the micro. At the same time, it offers a fine way to discuss the "everybody did it, why shouldn't I" defense that some young people like to toss back as justification for certain behavior. While Bitner makes it clear that not "everybody did it;" it also is clear that had fewer people gone along with the crowd, the picture would be different.
I look forward to your comments.
(You may also want to look at the review and comments at The Big Picture.)
For the first third and the last ten percent, the book did a good job of putting a face on the subprime market. We get introduced to borrowers, brokers, and lenders that the author dealt with, and he does a good job of selecting his anecdotes to make his point. There is a middle portion of the book that, while less captivating in terms of humanizing the story, provides a thorough examination of how various levels of the "food chain" contributed to failure. From borrowers to brokers, through the Fed and rating agencies, Bitner draws a picture combining ethical lapse with intentional fraud, and colored with unintended consequences or willful neglect. The result is the mess we're in. This section also requires a little more concentration as Bitner explains some of the mechanics of the mortgage market. And while that may sound daunting for people without a background in finance, Bitner does a good job of explaining the basics in an easy-to-understand way.
So how might this help you as an economics and/or personal finance teacher? In both areas, the book is a fine example of how the large macro reflects the decisions and choices made at the micro. At the same time, it offers a fine way to discuss the "everybody did it, why shouldn't I" defense that some young people like to toss back as justification for certain behavior. While Bitner makes it clear that not "everybody did it;" it also is clear that had fewer people gone along with the crowd, the picture would be different.
I look forward to your comments.
(You may also want to look at the review and comments at The Big Picture.)
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