December 2008 Archives

Since you've made it this far, you've got to finish reading the book with the Epilogue:  Life in 2050. Since you are reading it anyway, you might as well post one last blog entry that gets you five points of extra credit... These need to be posted by the end of Friday, January 9th if they are going to count.

From "Epilogue: Life in 2050"

One question here, with seven variations: You've got your own crystal ball. Take any one of the "seven questions worth pondering about life in 2050" and give me your prediction/forecast for what the reality will be when you all are contemplating retirement (or traveling the nation in your RV) in 2050.

As of now, you are supposed to have read Chapter 12, "Development Economics." You should post a response of at least one good paragraph to one or more of these questions. (You can also react to other posts.) This is due before the final Tuesday's class begins.

From Chapter 12 - "Development Economics"

1. It's a pretty good question on page 207. "At a time when we can split the atom, land on the moon, and decode the human genome, why do 2.8 billion people, or roughly half the world's population, live on less than $2 a day." What do you think?

2. From page 208 onward, Wheelan (in bold type) lists a "sample of the kinds of policies that make the difference between the wealth and poverty of nations." Choose the one factor that you find most significant and explain your rationale for that choice.

3. There are a ton of interesting statistics and examples in this chapter. Select the three you found most interesting and/or surprising and explain why you chose them.

4. Wheelan likens the World Bank and International Monetary Fund to the world's "welfare agency" and "fire department," respectively. Based on what you've learned, are those characterizations accurate? How well do you feel that they do "their jobs?"

You were asked to read Naked Economics Chapter 12, "Development Economics," for class today. We can chat about anything you found interesting there.

Your Blog Entry #11 should also be posted today. (I decided to call the MPA Forum entry Blog #10 so there's no missing entry.) Your final required Blog Entry #12 is now posted.

Macroeconomics and International Economics Exam - I didn't take these home to correct, but we can certainly go over them in class if you would like. It's up to you guys.

Taking Sides - Clashing Views on Controversial Economic Issues - All we've got on the agenda for today is setting up and preparing for the "Taking Sides" debates that we'll be having after break. My plan is to give you today and part of the Monday we come back to work on these.

Here's the scoop:

I picked seven chapters from the book, Taking Sides: Clashing Views on Controversial Economic Issues. You can choose to work in groups of 2 or 3. (I am assuming most of you will do threes, otherwise we might run out of topics.)

Once you have settled on groups, you'll need to figure who is getting what topics. Certainly, various economists would recommend different ways to allocate these scarce resources: auction, command and control, random draw, the free market, etc. We'll see what the group decides...

#1 - Are profits the only business of business?
#2 - Should cities subsidize sports and sports venues?
#5 - Should markets be allowed to solve the shortage in body parts?
#10 - Should a program of universal service be created?
#13 - Are protectionist policies bad for America?
#15 - Are the costs of global warming too high to ignore?
#17 - Has the North American Free Trade Agreement hurt the American economy?

Each packet contains background material, a "yes" article and a "no" article.

Here's what you'll be expected to have for these:

* We'll do three of these Tuesday and Wednesday after break. We'll figure out who goes when that first Monday. Everyone MIGHT need to be ready for Tuesday.

* Figure that each of these will go 20 minutes or so. That doesn't mean you need to talk all that time. (In a group of 3, I'd expect a background information speaker, a "yes" speaker, and a "no" speaker to get things started. In a group of 2, you can cover the "background" however.) We'll open these up to the "big group" for participation as well. I figure those "opening speeches" might be 4-5 minutes per side. (They don't need to be actually written out in "speech" form...)

* Think of the article you get today as a starting point. I expect EACH side to draw information from at least one additional source. There's a wealth of information on most of these topics.

* You can draw up a couple discussion questions or link the topic to current issues. (For example, the group on doing the public funding for sports might be able to think of a relevant situation going on locally...)

Once you've got an idea of what you're supposed to do and have your group and article set, the rest of the hour is yours to prepare and/or research. Enjoy your breaks...

HOMEWORK for next session - Monday, January 5th

Take advantage of the generous terms of the "MPA Economics Bailout" and get caught up on any of your missing blog entries.

Blog Entry #12 is posted, and that will be your final required entry.

Don't forget that you need to answer FOUR questions on the Macroeconomics and International Economics Short Essay portion of the exam. Those are due on Wednesday, January 7th. (If you'd like to do a fifth for some extra credit, that's fine as well.) Those questions are listed on the blog entry for Lesson #32.

Well, no big surprises here. You'll take the Macroeconomics and International Economics Exam today. There are 25 multiple choice questions and 20 points worth of "problems."

These will be due on Wednesday, January 9th, 2009.

A. Martians have landed on the earth, and they want to better understand the American economy. You are allowed to teach them about the two (and only two) economic measures or indicators that you believe reveal the most about the economy. Which two would you choose to explain? Why?

B. Assume that the United States needs a new "chief economist". You have been tapped for the job. At your Senate confirmation hearing, you are asked if your macroeconomic "view" relies more heavily on the "demand" approach or the "supply" side. What would you tell them? Why?

C. Taxes are, however unfortunately, a fact of life in America. Assume that you are on the committee appointed to look at "tax reform". What would you recommend as the best system of taxation in America? (You don't need to talk about specific numbers, but be sure that your choices reflect the values you would want to emphasize in our society.)

D. Here's a "softball" for you. What do you believe should be the role of government in managing and/or regulating the economy?

E. The Federal Reserve Board has been responsible for conducting our nation's money supply for decades. Critics charge that it is often ineffective, sometimes making things worse. Based on what you know, should changes be made in the way the Fed operates? Why or why not?

F. You and one of your Economics classmates have recently been elected the leaders of two of the world countries. Using specific examples (names, products, and countries), demonstrate your understanding of the terms "absolute advantage" and "comparative advantage".

G. Assume that you are teaching a class of second graders some basic economic principles. You need to explain why the nations of the world benefit from trade. Keeping in mind that the authors of The Armchair Economist will sue plagiarists, develop an analogy or story that gets this point across. (By the way, The Armchair Economist was the source of the "Iowa Car Crop" story...)

H. You are the new headline writer for the StarTribune. Tomorrow's issue is a special edition devoted to globalization. You are in charge of writing five "headlines" for the pro-globalization forces and their best arguments and five "headlines" for the anti-globalization forces and their best arguments. What would those headlines be?

I. The rest of the world has gotten tired of arguing about globalization. They have left you to cast the deciding vote. Is gloablization helpful or harmful? Why?

J. You have been named the President of the World Bank. You unexpectedly have an additional $10 billion in funds to loan out for the purposes of development assistance. In broad terms, tell us what you would do with that money. Where/how would you spend it?

HOMEWORK for tomorrow - Friday, December 19th

Read Naked Economics Chapter 12, "Development Economics," before class time on Friday.

Take advantage of the generous terms of the "MPA Economics Bailout" and get caught up on any of your missing blog entries.

Your Blog Entry #11 should be posted before class time on Friday. (We'll call the MPA Forum entry Blog #10 so there's no missing entry.) I'll post #12 before the end of the week, and that will be your final required entry.

Economics Current Events: Here are a couple of stories worth at least a couple minutes of our attention...

• "What Fed rate cut to zero to 0.25% means for consumers" - USAToday
• Federal Reserve Board Press Release - December 16, 2008

• "Inside the Madoff Mysteries" - Forbes
• "Madoff Fallout Hits Jewish Charities Hard" - NPR
• "The 10 Nastiest Ponzi Schemes Ever" - Business Pundit

There's a Macroeconomics and International Economics Review page on the blog. (Of course, you can also just click that link...)

Macroeconomics and International Economics - Short Essay choices: You have ten options here. From this list, you need to choose and answer FOUR. Answers should be between 300 - 500 words or so. (Obviously, you CAN go longer if you'd like.) You can either print out your answers or submit them to me as an e-mail attachment.

These will be due on Wednesday, January 9th, 2009.

A. Martians have landed on the earth, and they want to better understand the American economy. You are allowed to teach them about the two (and only two) economic measures or indicators that you believe reveal the most about the economy. Which two would you choose to explain? Why?

B. Assume that the United States needs a new "chief economist". You have been tapped for the job. At your Senate confirmation hearing, you are asked if your macroeconomic "view" relies more heavily on the "demand" approach or the "supply" side. What would you tell them? Why?

C. Taxes are, however unfortunately, a fact of life in America. Assume that you are on the committee appointed to look at "tax reform". What would you recommend as the best system of taxation in America? (You don't need to talk about specific numbers, but be sure that your choices reflect the values you would want to emphasize in our society.)

D. Here's a "softball" for you. What do you believe should be the role of government in managing and/or regulating the economy?

E. The Federal Reserve Board has been responsible for conducting our nation's money supply for decades. Critics charge that it is often ineffective, sometimes making things worse. Based on what you know, should changes be made in the way the Fed operates? Why or why not?

F. You and one of your Economics classmates have recently been elected the leaders of two of the world countries. Using specific examples (names, products, and countries), demonstrate your understanding of the terms "absolute advantage" and "comparative advantage".

G. Assume that you are teaching a class of second graders some basic economic principles. You need to explain why the nations of the world benefit from trade. Keeping in mind that the authors of The Armchair Economist will sue plagiarists, develop an analogy or story that gets this point across. (By the way, The Armchair Economist was the source of the "Iowa Car Crop" story...)

H. You are the new headline writer for the StarTribune. Tomorrow's issue is a special edition devoted to globalization. You are in charge of writing five "headlines" for the pro-globalization forces and their best arguments and five "headlines" for the anti-globalization forces and their best arguments. What would those headlines be?

I. The rest of the world has gotten tired of arguing about globalization. They have left you to cast the deciding vote. Is gloablization helpful or harmful? Why?

J. You have been named the President of the World Bank. You unexpectedly have an additional $10 billion in funds to loan out for the purposes of development assistance. In broad terms, tell us what you would do with that money. Where/how would you spend it?

HOMEWORK for tomorrow - Thursday, December 18th

Here's a study guide (also a blog page) that you might find useful in preparation for tomorrow's Macroeconomics and International Economics Exam.

Read Naked Economics Chapter 12, "Development Economics," before class time on Friday.

Take advantage of the generous terms of the "MPA Economics Bailout" and get caught up on any of your missing blog entries.

Your Blog Entry #11 should be posted before class time on Friday. (We'll call the MPA Forum entry Blog #10 so there's no missing entry.) I'll post #12 before the end of the week, and that will be your final required entry.

As of now, you are supposed to have read Chapter 11, "Trade and Globalization." You should post a response of at least one good paragraph to one or more of these questions. (You can also react to other posts.) This is due before Friday's class begins.

1. That "machine" that converts corn into things like stereos and cars has reappeared. (page 187) Is this just too simple an allegory for trade? Is it effective? Explain why or why not.

2. Did the discussion on economic sanctions of page 194 lead you to any new conclusions or positions on that topic? (If so, explain. If not, I'd recommend answering a different question.)

3. We've talked about sweatshops a number of times. It's your turn. You've read the section about the "comparative advantage" of workers in poor countries. (page 201) As the quarter's end approaches, give us your answer. "Should we sweat about sweatshops?" Why or why not?

4. "Preferences change with income, particularly with regard to the environment." (page 203) Discuss.

We'll continue with the 5th Annual MPA Globalization Forum. I asked you to read Chapter 11 in Naked Economics for today. That blog entry is posted, and we can certainly discuss that chapter both today as ideas come up in the forum and tomorrow in class.

Economics 5 x 10s: We'll spend up to 5 minutes on each of the ten topics/statements below. I'll ask for comments "in character" first, but you are also welcome to speak "as yourself" as we get further into the topic.

• The United States benefits disproportionally from globalization.
• Globalization is a tool by which the West spread its values and ideas around the world.
• Globalization threatens national sovereignty.
• The world can continue to develop economically while remaining environmentally sustainable.
• On balance, globalization is a negative for the majority of the world's population.
• There's nothing wrong with large inequalities in wealth around the world as long as conditions are improving for all.
• On balance, globalization has been a benefit to the interests of workers.
• Those who oppose free trade are inadvertently working to keep poor people poor.
• Globalization has made large-scale terrorism more likely.
• The process of globalization has decreased the risks to human health.

HOMEWORK for tomorrow - Wednesday, December 17th

Here's a study guide (also a blog page) that you might find useful in preparation for Thursday's Macroeconomics and International Economics Exam.

Read Naked Economics Chapter 12, "Development Economics," before class time on Friday.

Take advantage of the generous terms of the "MPA Economics Bailout" and get caught up on any of your missing blog entries.

Your Blog Entry #11 should be posted before class time on Friday. (We'll call the MPA Forum entry Blog #10 so there's no missing entry.) I'll post #12 before the end of the week, and that will be your final required entry.

Welcome one and all to the "5th Annual MPA Globalization Forum." We gather to try and make sense of this force that is reshaping our world...

Today, we'll commence with the "opening statements" from those in attendance. In your ninety seconds of fame (read that as a minimum of one minute and a maximum of three...), you'll have a chance to share your story and your views. There may be a question or two from the floor, and then we'll move on.

So there's no rush to the "podium," I offer this quite random speaking order... (Really, it WAS random. I used the Microsoft Excel random number generator and everything.)

• Asia - "Sweatshop" laborer
• Asia - Indian service-industry worker
• North America - Consumer (middle class)
• North America - Worker whose job was "outsourced"
• Africa - Person existing on $1 a day
• Latin America - Illegal immigrant to the United States
• Asia - Rural youth recently emigrated to Shanghai
• Latin America - Manager of foreign-owned factory
• Africa - Leader of nation dependent on coffee exports
• Middle East - Islamic fundamentalist
• North America - Environmental activist
• Asia - Peasant
• North America - Governmental official 
• Europe - Owner of multi-national corporation
• Asia - Chinese government official
• Middle East - Leader of oil-rich state
• North America - "Big Business" executive
• Europe - Worker "displaced" by immigrant labor

We'll see what time it is when we make it through these speeches. I've got a few questions I may ask you yet today... We'll spend up to 5 minutes on each of the ten topics/statements below. I'll ask for comments "in character" first, but you are also welcome to speak "as yourself" as we get further into the topic.

• The United States benefits disproportionally from globalization.
• Globalization is a tool by which the West spread its values and ideas around the world.
• Globalization threatens national sovereignty.
• The world can continue to develop economically while remaining environmentally sustainable.
• On balance, globalization is a negative for the majority of the world's population.
• There's nothing wrong with large inequalities in wealth around the world as long as conditions are improving for all.
• On balance, globalization has been a benefit to the interests of workers.
• Those who oppose free trade are inadvertently working to keep poor people poor.
• Globalization has made large-scale terrorism more likely.
• The process of globalization has decreased the risks to human health.

HOMEWORK for tomorrow - Tuesday, December 16th

Read Naked Economics Chapter 11, "Trade and Economic Development," before class time on Tuesday.

Here's a study guide (also a blog page) that you might find useful in preparation for Wednesday's Macroeconomics and International Economics Exam.

Just wanted to let you know that everything should be updated in terms of grades for Economics. (I know, it took me a while... Sorry.)

Anyway, a couple things:

• If you think you turned in something that isn't showing up, let me know.
• If you need to make up the first exam, let's do that soon.
• If the grade shows (  ), that means the computer is pretending it doesn't exist. (It does not hurt your score. If you don't ever do it, it WILL hurt your score.)
  
• If the grade shows "post this," it is now considered to be missing. You WILL get points for that if you follow that simple instruction to "post this." In keeping with the real world, I am announcing a bailout for the next week when you can update blog posts without penalty.

Please "introduce" yourself here in advance of our MPA Globalization Forum on Monday.

Here, you are limited to 150 words maximum. You should use the blog entry to advocate for any causes, aspects of globalization, etc. that would be of the most benefit to your character. This is your chance to rant against your enemies, blow your own horn, or do a combination of these. You, of course, are bound by the need to not be obscene and totally inappropriate, but think of this as your billboard, letter to the editor, protest sign, bragging sheet, or whatever it is. Be creative, be outspoken, but also be appropriate...

We'll be short some people today (Peer Leaders), but we'll go a little further in our look at globalization. I'll make sure you get some time to either work on your globalization "character" or begin your review for Wednesday's Macroeconomics and International Economics exam.

I realize that I forgot to make sure everyone was okay with the exchange rates exercise with the cell phone. In addition, I made some copies of the last "Burgernomics" exercise I have, since I did a pretty week job of explaining it...

Globalization: Our look at globalization begins today. Many people argue that this force of integration will come to characterize this era as much as the Cold War had dominated the previous era. Author Thomas Friedman argues that the "Web" has replaced the "Wall" as the symbol of the era.

What is globalization? Simply put, this is the increasing integration of the world through the forces of global trade, business, and finance.

Thomas Friedman's book, The Lexus and the Olive Tree: Understanding Globalization, has become the most widely-cited book on the topic. (Yes, his recent work, The World is Flat is also being widely cited... You 21st Century folks will soon learn what I'm talking about.) He has a number of very useful metaphors and explanations. You'll be asked to read one of the chapters for Monday.

A couple of Friedman's ideas:

• The Title: The "Lexus" represents the forces of modernity and technology. It is the "drive for sustenance, improvement, prosperity, and modernization." The "Olive Tree" represents "everything that roots us, anchors us, identifies us, and locates us in the world... a family, community, tribe, nation, religion, or home."

There are three balances in the global system:

• Balance between nation-states: The United States has clearly emerged as the sole superpower.
• Balance between nations-states and global markets: Friedman calls the global market of investors the "Electronic Herd". They trade in the global financial centers he calls "Supermarkets".
• Balance between individuals and nation-states: The emergence of people that he calls "Super-empowered Individuals" is a new factor to consider. Some are very angry, others are wonderful.

The "Walls" come down... Friedman argues that the Cold War era gave way to the era of globalization as a result of three fundamental changes.

• Democratization of Technology: caused by advances in miniturization, computerization, digitization, etc. (Computer power has doubled roughly every eighteen months over the past thirty years.)
• Democratization of Finance: caused by computerization, investment technologies, access to financial markets, etc.
• Democratization of Information: spread through things like the Internet, satellite dishes, and television

Mounds Park Academy Globalization Forum: Monday, we will come together for the Fifth Annual Mounds Park Academy Globalization Forum. Each of you will represent the interest you selected on Thursday in class.

Requirements:

Obviously, you will need to "create" much of your own detail. Think about how your life has changed over the past decade. What are the advantages/ drawbacks of globalization in your world? What will the future hold?

• You will be expected to provide an introductory statement of not less than ninety seconds. In this statement, you will tell other participants of your "situation," and you will offer your preliminary comments on events associated with globalization.

• You will post on the Globalization Forum Blog Entry. Here, you are limited to 150 words maximum. You should use the blog entry to advocate for any causes, aspects of globalization, etc. that would be of the most benefit to your character. This is your chance to rant against your enemies, blow your own horn, or do a combination of these. You, of course, are bound by the need to not be obscene and totally inappropriate, but think of this as your billboard, letter to the editor, protest sign, bragging sheet, or whatever it is. Be creative, be outspoken, but also be appropriate...

• Do whatever research in class that might help you create your "perspective" and better understand the issue of globalization.

Here are some resources that you might consult:

• The Lexus and the Olive Tree There are some excerpts and reviews here that you might find interesting.
• Globalization: Threat or Opportunity? This is an IMF report addresses many of the central issues in globalization.
• The International Forum on Globalization This is the site of a group critical of many of the effects of globalization.
• The World is Flat: A Brief History of the Twenty-First Century This is a talk by Thomas Friedman about his most recent book.
• Globalization and Its Discontents - Joseph Stiglitz (He won a Nobel Prize for Economics...)
• In Defense of Globalization - Professor Jagdish Bhagwati

HOMEWORK for next session - Monday, December 15th

Post your MPA Globalization Forum blog entry before class on Monday.

Read Naked Economics Chapter 11, "Trade and Economic Development," before class time on Tuesday.

Here's a study guide (also a blog page) that you might find useful in preparation for Wednesday's Macroeconomics and International Economics Exam.

We'll start off today chatting about "How Statistics Lie" and your reactions to it.

Next, we'll head back to issues of poverty and economic development:

Questions to try to answer together:

• What are the causes of poverty?
• What are the causes of global inequalities in growth and wealth?
• Do wealthier nations have a moral obligation to help those poorest nations?
• Do individuals have any responsibility to work to benefit those less fortunate?

Here are some of the resources you might find useful: 

• Global Issues website maintained by Anup Shah
• Poverty Facts and Stats. 
• Poverty around the World 

The other resource that we'll make use of today/tomorrow is Jeffrey Sachs' book, The End of Poverty: Economic Possibilities for Our Time. (Bono wrote the forward, so it must be good...) We'll use a couple charts and brief sections from this work.

• Overview of poverty around the world
• An individual family - income growth and income reduction
• Why are some countries poor?

Professor Jeffrey Sachs also chaired the UN Millennium Project that issued its report in 2005.

Here are the resources that we consulted yesterday:

• Millenium Development Goals 
• Millennium Development Goals Indicators. The Gapminder chart under the Data menu section is really neat...
• Millennium Development Goals Indicators Dashboard. (The key is in the upper left.)

>>>>>>>>>>>

Development Economics: This will be more discussion oriented than "lecture" based. You know a lot about inequality and the problems of poverty and related issues. For us, I'd like the bigger questions to be these:

• What CAN be done to foster economic development?
• What SHOULD be done to foster economic development?

There are a few terms and concepts that will be useful in this discussion:

World Bank: The World Bank is owned by 184 countries. In 2002, almost $20 billion in loans were provided to clients in more than 100 countries. The World Bank's focus is on development assistance.

Work your way through this overview of the World Bank's functions at "10 Things You Never Knew about the World Bank."

Here are the "Quick Reference Tables" from the World Bank. You can find a lot of information here.

International Monetary Fund: According to its own web page, the IMF "works for global prosperity by promoting the balanced expansion of world trade and stability of exchange rates..." Its functions complement those of the World Bank.

Structural Adjustment Programs (SAP): The IMF and World Bank at times require nations to "adjust" their economies in order to assure debt repayment. Many critics believe this only deepens the poverty of the people. Nations may be required to encourage foreign trade, shift to a cash crop focus, or otherwise be directed to act in a particular way. These are also referred to as "economic austerity" plans.

>>>>>>>>>>

We'll set up the MPA Globalization Forum today, but it will not take place until next Monday.

Globalization: Our look at globalization begins today. Many people argue that this force of integration will come to characterize this era as much as the Cold War had dominated the previous era. 

What is globalization? Simply put, this is the increasing integration of the world through the forces of global trade, business, and finance.

MPA Globalization Forum: Monday, we will come together for the Fifth Annual Mounds Park Academy Globalization Forum. Each of you will represent a different interest.

* You are allowed (within limits) to select your role for this forum. I do need certain perspectives represented, but you can take creative liberties within those limits.

We will need:

5 American representatives: 1 from government, 1 from "big" business, 1 consumer, 1 environmental activist, 1 worker whose job has been "outsourced"

2 Europeans: 1 owner of a multinational corporation, 1 worker "displaced" by foreign competition

2 Africans: 1 person existing on less than $1 a day, leader of poor nation that exports coffee

5 Asians: 1 "sweatshop" laborer, 1 peasant, 1 Chinese governmental official, 1 Indian service-industry worker, 1 recent migrant to Shanghai from Chinese countryside

2 Latin Americans: 1 manager of a foreign-owned factory, 1 illegal immigrant to United States

2 Middle Easterners: 1 leader of oil-rich nation, 1 Islamic fundamentalist

Obviously, you will need to "create" much of your own detail. Think about how your life has changed over the past decade. What are the advantages/ drawbacks of globalization in your world? What will the future hold?

* You will be expected to provide an introductory statement of not less than ninety seconds. In this statement, you will tell other participants of your "situation," and you will offer your preliminary comments on events associated with globalization.

* You will post on the Globalization Forum Blog Entry. Here, you are limited to 150 words maximum. You should use the blog entry to advocate for any causes, aspects of globalization, etc. that would be of the most benefit to your character. This is your chance to rant against your enemies, blow your own horn, or do a combination of these. You, of course, are bound by the need to not be obscence and totally inappropriate, but think of this as your billboard, letter to the editor, protest sign, bragging sheet, or whatever it is. Be creative, be outspoken, but also be appropriate...

* Do whatever research in class that might help you create your "perspective" and better understand the issue of globalization.

Here are some resources that you might consult:

The Lexus and the Olive Tree There are some excerpts and reviews here that you might find interesting.

Globalization: Threat or Opportunity? This is an IMF report addresses many of the central issues in globalization.

The International Forum on Globalization This is the site of a group critical of many of the effects of globalization.

The World is Flat: A Brief History of the Twenty-First Century This is a talk by Thomas Friedman about his most recent book.

Globalization and Its Discontents - Joseph Stiglitz (He won a Nobel Prize for Economics...)

In Defense of Globalization - Professor Jagdish Bhagwati

HOMEWORK for tomorrow - Friday, December 12th

Your Blog Entry #9 is due Monday.

We'll hold the MPA Globalization Forum on Monday as well. You'll be asked to have your blog entry done before the start of class time, and you can simply put them on this entry.

Please read Chapter #11, "Trade and Globalization," for Tuesday's class.

Let's settle on Wednesday for the Macroeconomics and International Economics Exam. That should take some pressure off of your college deadlines, etc.

REMINDER: In order to receive credit, these comments need to be posted by class time on Monday. Remember that this is a public site, and you are responsible for the content of your postings.

At this time, you are supposed to have read Chapter 9, "Keeping Score." You should post a response of at least one good paragraph to one or more of these questions. (You can also react to other posts.)

1. After you finishing reading the joke on page 149 you tell yourself, "I can be funnier than that." Here's your chance. Write an anecdote, story, joke that makes a commentary about our current economy. Keep it clean, and no stealing someone else's material.

2. After reading about the Gross Domestic Product, assess its usefulness as a measure of economic progress. Is there another measure you think we should use?

3. During the Great Depression, FDR once said that we have "nothing to fear but fear itself." (page 157) Is that good economic advice for today? Explain why or why not using a specific example or examples.

4. We've spent time talking about both monetary and fiscal policy. (pp. 159-160) Assume that an economic recession is on the horizon. (OK, this year you can assume it is already here...) Which of these tools, or what combination, would you want government to use?

We'll talk a bit about Chapter 9 in Naked Economics if there is anything you are interested in sharing...

Please have "How Statistics Lie" read for Thursday's class. We'll have Blog Entry #9 due by Monday. It's posted.

Last time it was trade. This time it's money. More specifically, we'll look at international currencies and the role they play in the world's economy. Here are some definitions that you will need to understand:

Exchange Rates: The value of currencies worldwide is provided by exchange rates, which tell you what each currency is worth in relation to other currencies. In simple terms, a currency is worth what people will pay for it. Exchange rates are constantly adjusted to reflect markets.

• Fixed exchange rates: After the 1930s, most countries abandoned the gold standard. Instead, each country's government "fixed" the value of their currency, deciding what it would be worth. (For example, the British decided to exchange their pound into US dollars at a rate of $2.40 per pound.)
• Floating exchange rates: After 1973, international agreements on fixed rates expired, and currencies began to have their value decided in the market. A currency's value will "float" up or down. (An estimated $1.5 trillion dollars in currencies are traded every day in the world's foreign exchange markets.)

Purchasing Power refers to what money can actually buy in each country- calculating its purchasing "power". Purchasing Power Parity (PPP) would be when a currency can buy the same basket of whatever in any country.

Playing with "Purchasing Power Parity (PPP): I think you'll like this stuff...

To do the following, you need a copy of "cross currency" rates. You can get one from the Benchmark Currency Rates page at Bloomberg.com. (Yes, that's the same Bloomberg as in the Mayor of New York City.)

Economists refer to purchasing power parity to describe why, over time, the dollar price of a good in one country should equal its dollar price in all other countries. The notion that a particular type of cordless telephone should sell for the same dollar price in the United States as it does in, say, Japan and Great Britain, makes sense if you think about supply and demand in world markets. Suppose that the telephone sells for $29.99 in the United States, 2500 yen in Japan, and 25 pounds in Great Britain.

Let's figure out in which country the dollar price of the cordless phone is lowest?

1. What is the exchange rate between the Japanese yen and the United States dollar?

2. What is the exchange rate between the British pound and the United States dollar?

3. Calculate the dollar price of the cordless phone in Great Britain.

4. Calculate the dollar price of the cordless phone in Japan.

5. In which country is the dollar price of the cordless phone the lowest?

6. In which country is the dollar price of the cordless phone the highest?

So, what does "purchasing power parity" suggest that an entrepreneur could do to earn profits?

Of course, purchasing power parity theory suggests that price adjustment will continue until the dollar price of cordless phones is the same in each country. This price equalization is an example of purchasing power parity. Note that it works best for close substitutes that can be traded among countries over long periods of time.

Foreign Exchange map: This is a service from The Economist. Once you get to the page, you have to "Launch the Map". Give it a minute or so to load itself. After that, follow the directions from the first page. Try several comparisons between countries and over time periods.

>>>>>>>>>>

Since the other activity I used to do is no longer available for free on the Internet, we'll move on to poverty for a bit. (I have no idea why the rest of this is indented...)

HOMEWORK for tomorrow - Thursday, December 11th

Please have "How Statistics Lie" read for Thursday's class. We'll have Blog Entry #9 due by Monday. It's posted.

I'm now thinking that we will have our Macroeconomics and International Economics quiz on Tuesday, December 16th. We'll be sure and get a review sheet posted yet this week. 

We'll go back to trade today. Let's chat about the comparative advantage worksheet and the rest of the "Iowa Car Crop" article.

A couple questions with which to get going:

What are the arguments in favor of restricting trade?
What are the arguments against restricting trade?
In your opinion, when are restrictions on trade justified?

There are a couple more definitions we need to make sense of this information we will consider today.

Balance of trade: Balance of trade data describe the exports of goods and services produced in the U.S. and sold abroad and the imports of goods and services produced abroad and sold to individuals, businesses, and governments in the U.S. To obtain the balance, imports are subtracted from exports and the result is described as a surplus if exports are greater than imports and a deficit if imports are greater than exports.

More commonly, you will hear of the trade deficit. This is exports minus imports.

bilateral trade negotiations: These are trade negotiations between two coutries only

most-favored-nation clauses: These extend the benefits of lower trade barriers granted to one country to all nations what have most-favored-nation status. This term is being phased out in favor of the terms, normal trade relations or permanent normal trade relations.

The Status of US Trade: Charts and graphs...

You can download this Powerpoint of September 2003 trade report graphs and charts. (I realize that's a little old, but I haven't found a newer set, and they make the points I want to highlight...)

Here's more current information from the US Government on our trade balance and situation.

Specific issues in US trade policy: We'll access resources from the "Public Citizen" web page. They call themselves a national, non-profit public interest organization. Ralph Nader helped found this organization 30 years ago, so there is a definite liberal perspective here.

We'll have you pick one of these issues. I want you to figure out the basics and report back to us. In addition, please consider what you think the "conservative" response might be...

World Trade Organization (WTO)
North American Free Trade Agreement (NAFTA)
Free Trade Area of the Americas (FTAA)
Central American Free Trade Agreement (CAFTA)
Offshoring

HOMEWORK for tomorrow - Wednesday, December 10th

Please read Naked Economics Chapter #9, "Keeping Score," for Wednesday's class. 

Please read the "How Statistics Lie" chapter from The Armchair Economist for Thursday's class.

I'm thinking that we will have our Macroeconomics and International Economics quiz on Monday, December 15th. We'll be sure and get a review sheet posted yet this week.  

REMINDER: In order to receive credit, these comments need to be posted by class time on Tuesday. Remember that this is a public site, and you are responsible for the content of your postings.

At this time, you are supposed to have read Chapter 8, "The Power of Organized Interests." You should post a response of at least one good paragraph to one or more of these questions. (You can also react to other posts.)

1. "When it comes to interest group politics, it pays to be small." (page 140) Imagine that your world is limited to the MPA community. Give an example that you think supports this claim made by Wheelan. (You should avoid mentioning names if it might be controversial or hurtful in any way.)

2. What SHOULD we do when it comes to ethanol?

3. How do we keep interest groups from using/abusing the political process to "generate regulation that either helps them or hobbles their competition?" (page 142) Should we even try to control this? Why or why not?

4. Is giving a president "fast-track authority" desirable? (page 146) Why or why not?

5. "Creative destruction" is a term coined by Joseph Schumpeter. (page 144) Using examples from today's world, comment on the desirability and/or drawbacks of such a process from your perspective.

You were asked to read Chapter 8, "The Power of Organized Interests" by today's class. The blog entry for that is posted and should be done by Tuesday.

An introductory discussion on trade
Very often, discussions of trade center on "winners" and "losers". Let's consider the case of NAFTA, the North American Free Trade Agreement. NAFTA went into effect on January 1, 1994. Its goal was to limit trade barriers among Canada, the United States, and Mexico. (We'll forget about Canada, since we have long had very free trade with them.)

Who do you believe have been/ are/ will be the "winners" and "losers" under NAFTA?

Brainstorm two lists, and have them ready to share. (I'm thinking of "classes" of people here - things like "American unions" or "Mexican entrepreneurs" or "consumers" or things like that...)

Introducing two key concepts in trade
We need to learn a bit of vocabulary that goes along with international trade. There are two fundamental terms that often cause confusion.

• absolute advantage: When two countries can each produce a different good (or service) more efficiently than the other country, each of the countries has an absolute advantage in the good or service they produce more efficiently.
• comparative advantage: When Country A can produce two different products more efficiently, but has a greater advantage in one product than the other, they have a comparative advantage in the product with the greater relative efficiency. Country B has a comparative advantage in the product in which the disadvantage is less large.

That seems like a mouthful, but let's try to make sense of it. Clearly, it is in both counties' best interest to trade in a situation of absolute advantage. What if we are talking comparative advantage?

Let's work through an example of a simple economy. Download this Comparative Advantage handout, and work through the scenario with a partner. 

Trade explained 

I have a short (2 page) reading that I want us to do. It may be the single most effectively worded defense of trade that I have ever read. Let me hand it out... This is from The Armchair Economist. Let's read it and talk about it.

Limits on trade

Next, let's think about the limits that are put on international trade. These barriers can take a number of forms.

• tariffs - taxes on imports (either for generating revenue or sheltering firms from competition)
• quotas - restrictions on the quantity of a good that may be imported or exported
• non-tariff barriers - regulations on labeling, packaging, and testing; customs restrictions
• embargo - This, of course, is a cutting off of trade with another country.

A couple questions with which to close:

What are the arguments in favor of restricting trade?
What are the arguments against restricting trade?
In your opinion, when are restrictions on trade justified?

HOMEWORK for tomorrow - Tuesday, December 9th

Your Naked Economics Blog Entry #8 should be posted by tomorrow.

Please read Naked Economics Chapter #9, "Keeping Score," for Wednesday's class. 

I'm thinking that we will have our Macroeconomics and International Economics quiz on Monday, December 15th. We'll be sure and get a review sheet posted yet this week.

We'll get right to our simulation today...

Federal Reserve Board simulation: We'll conduct our Federal Open Market Committee (FOMC) meeting.

This group meets eight times a year. The FOMC discusses current and near-term economic and financial conditions, prior to making a decision to raise, lower or keep short-term interest rates the same.

The federal funds rate (the one you will consider changing) is currently targeted at 1.00%. (When I last did this two years ago, it was at 5.25%.) Those of you wanting more historical data should look at changes in the federal funds rate over time.

Resources:

Several of you will represent the Federal Reserve Board of Governors itself, and another of you will be Ben Bernanke. You might brief yourselves on the summary information, and you might browse the homepage of the Board of Governors of the Federal Reserve. By the way, only five Reserve Bank Presidents at a time actually serve on the FOMC, but we'll let you all come to the meeting...

The Federal Reserve Districts and Banks - Clicking on the area of the map you represent will take you to that district's home page. There you can find information relating to your region.

The FRB "Beige Book" - This collection of information is compiled 8 times a year for use at the FOMC meetings. The October 15th data was the most recent at the time of Wednesday's class. Of course, keeping with our theme of change, here's the data hot off the presses for DECEMBER 3. This link will take you to the overall summary. In addition, the links on the left will take you to "your" district. 

Agenda for the Simulation:

• Chairman Bernanke calls the meeting to order.

• Federal Reserve District President presentations: (We'll go through the districts in "numerical" order. In your three minutes of fame, try to cover these...)

• provide an overview of current economic conditions in your district
• discuss the prospects for economic conditions for the near future
• identify any economic issues of special concern at the present time
• recommend whether short-term interest rates should be raised, lowered or kept the same.

1st District - Based in Boston
2nd District - Based in New York
3rd District - Based in Philadelphia
4th District - Based in Cleveland
5th District - Based in Richmond
6th District - Based in Atlanta
7th District - Based in Chicago
8th District - Based in St. Louis
9th District - Based in Minneapolis
10th District - Based in Kansas City
11th District - Based in Dallas
12th District - Based in San Francisco

• Chairman and Board of Governors offer recommendations regarding the direction for short-term interest rates

• Discussion of issues of controversy

• Each member of the Board of Governors and the Bank presidents cast a vote regarding the direction for interest rates, with the decision going to the majority.

• Hypothetical situations (if we have time...)

HOMEWORK for next session - Monday, December 8th

As I mentioned, my plan is to get all of your Blog Entries updated during the day on Friday since I have relatively few conferences. Anything up through Blog Entry #7 should be in by that time.

Please make sure you read Chapter 8, "The Power of Organized Interests" by Monday's class if you have not already done that. I'll post a blog entry for that yet today and hope to have your entries posted by Tuesday.

One of the best ways to understand the role of the FED, at least in more normal times, is to simulate one of their meetings. We'll set up a process today by which we can do that tomorrow.

First, we can briefly chat about either Chapter #7 or Chapter 10 in Naked Economics.

A reminder that FED 101 is a great website on topics related to money and banking. Check it out.

Federal Reserve Board simulation: Next time, we'll do a simulation of the Federal Reserve Board and a Federal Open Market Committee (FOMC) meeting. You'll each play a role as either a representative of one of the Federal Reserve districts or a member of the Board of Governors.

This group normally meets eight times a year. The FOMC discusses current and near-term economic and financial conditions, prior to making a decision to raise, lower or keep short-term interest rates the same. We'll "deliberate" after hearing the statements from the member banks on Thursday.

The federal funds rate (the one you will consider changing) is currently targeted at 1.00%. (When I last did this two years ago, it was at 5.25%.) Those of you wanting more historical data should look at changes in the federal funds rate over time.

Here is the text of the press release issued on October 29th, at the end of the last FOMC meeting. 

"The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 1 percent.

The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures. Business equipment spending and industrial production have weakened in recent months, and slowing economic activity in many foreign economies is damping the prospects for U.S. exports. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.

In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate in coming quarters to levels consistent with price stability.

Recent policy actions, including today's rate reduction, coordinated interest rate cuts by central banks, extraordinary liquidity measures, and official steps to strengthen financial systems, should help over time to improve credit conditions and promote a return to moderate economic growth. Nevertheless, downside risks to growth remain. The Committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability."

Agenda for the Simulation:

* Chairman Bernanke calls the meeting to order. We can pretend that it is the next scheduled meeting of the FOMC, which is December 15th and 16th.

* Federal Reserve District President presentations: (We'll go through the districts in "numerical" order. In your three minutes of fame, try to cover these...)

* provide an overview of current economic conditions in your district
* discuss the prospects for economic conditions for the near future
* identify any economic issues of special concern at the present time
* recommend whether short-term interest rates should be raised, lowered or kept the same.

* Chairman and Board of Governors offer recommendations regarding the direction for short-term interest rates

* Discussion of issues of controversy

* Each member of the Board of Governors and the Bank presidents cast a vote regarding the direction for interest rates, with the decision going to the majority.

* Hypothetical situations (if we have time...)

HERE ARE SOME RESOURCES TO HELP IN YOUR PREPARATION...

Preparing for the simulation: Most of you will represent one of the districts. Figure out who you "are" by consulting "your" district's home page. Browse around there for a while. In addition, go to the "Beige Book" below, and be sure to read both the overall summary and the page for "your" district. Several of you will represent the Federal Reserve Board of Governors itself, and another of you will be Ben Bernanke. You might brief yourselves on the summary information, and you might browse the homepage of the Board of Governors of the Federal Reserve. By the way, only five Reserve Bank Presidents at a time actually serve on the FOMC, but we'll let you all come to the meeting...

The Federal Reserve Districts and Banks - Clicking on the area of the map you represent will take you to that district's home page. There you can find information relating to your region.

The FRB "Beige Book" - This collection of information is compiled 8 times a year for use at the FOMC meetings. We'll use the October 15th data. (If the December 3 data is published by class time, we can switch to that.) This link will take you to the overall summary. In addition, the links on the left will take you to "your" district. There, you can find a one "page" overview of recent developments in your district.

HOMEWORK for tomorrow - Thursday, December 4th

Get ready for your role in tomorrow's simulation.

Please have your Blog Entry #6 ASAP. (I'll update all the blog entries during the day Friday, so get it in by then.) Blog Entry #7 should also be up by tomorrow.

We'll make the Blog Entry #10 (also out of order) due by the start of class on Monday, December 8th.

I'd like you to read Naked Economics Chapter 8, "The Power of Organized Interests," for tomorrow's class. 

Our main focus today will be on money and banking, but we've got a couple things to take care of off the top...

• Article jigsaw - We'll hear from the four groups with the various articles I handed out yesterday.
• Naked Economics - Chapter 7, "Financial Markets" - We'll hear what you thought about this chapter.

What is money? I know, dumb question. However, the reality is a bit more complicated.

Money is something that we can use to make purchases with. Generally speaking, there is a continuum of ways to make purchases, but some are clearly easier than others. Liquidity refers to the ease with which an instrument can be used to buy things.

What is considered "money"? Certainly, the currency and coins in your pocket are money. What about checks? Credit cards? Savings accounts? Bonds? Well, the answer depends on just who you are asking.

The Federal Reserve holds that money has three functions:

• serves as a medium of exchange - People will accept money in exchange for goods and services.
• serves as a standard of value - Money is a unit of measurement that can be used to specify the value of other things.
• serves as a means of saving or storing purchasing power - Money is a form in which wealth can be held.

Various definitions of "Money Supply": These are the most common classifications. They get "bigger" as you go down the list.

• M1: currency (in circulation), demand and checkable deposits (banks and thrifts)
• M2: M1 and savings accounts, additional (small time) deposits, and retail money-market funds
• M3: M2 and additional (longer time) deposits, and eurodollars, and institutional money-market funds

"Money Supply for Dummies" - If you can get past the demeaning title, this is a really informative article.

If you want to look at changes in the money supply (M1) over recent years, you can manipulate this data from "Economagic" to produce graphs.

Banking and the Federal Reserve System: To fully understand banking, you need to get beyond seeing banks as simply places where people keep money. Only a small percentage of deposits are actually on hand at a bank at any given time. Instead, we operate on the fractional reserve system. Banks keep a percentage of deposits on hand, but they are able to loan out the remaining funds in order to generate profits. Think about how that fits into our macroeconomic model of the economy.

The Federal Reserve System (FED) was created in 1913 to strengthen the nation's banking systems. You can learn more about how it works by consulting "The Federal Reserve System."

The nation is divided into twelve districts, and most banks within each district are members of the system. Each district has a Federal Reserve Bank. These twelve banks are governed by the seven members of the Federal Reserve Board in Washington DC. These members are appointed by the President to serve fourteen year terms, so they are designed to be the "independent" authority for monetary policy. The Chairman of the Federal Reserve system is also a Presidential appointment, and that is currently Ben Bernanke. (Alan Greenspan finished finished his fifth 4-year term as Chairman several years back. Reagan, Bush, Clinton and Bush all named him to that post.)

The "Tools of Monetary Policy" - The Fed has three main tools at their disposal.

Reserve requirements: These are the percentages of deposits that banks need to keep on hand in their vaults or on deposit at a Fed bank. (The Fed last changed this rate in April of 1992, and it is a rarely used tool of monetary policy.)

• If the reserve requirement were raised, banks would have less money available to lend.
• If the reserve requirement was lowered, banks would be able to increase lending.

Discount rate: This is the interest rate that the Fed charges banks for loans. Member banks can borrow from the "discount window" at this lower rate. This is now rather symbolic, as the Fed considers itself to be the "lender of last resort." Banks are encouraged to borrow from other banks.

• When the discount rate rises, it would typically slow economic activity.
• When the discount rate is lowered, it would typically stimulate economic activity.

Open market operations: This is when the Fed buys or sells previously issued government (Treasury) securities.

• If the Fed wants to expand the money supply (boost the economy), they buy Treasury securities. That puts additional money into the banking system, and that should influence interest rates downward.
• If the Fed wants to tighten the money supply (slow the economy), they sell Treasury securities. That removes money from the system, and that should influence interest rates upward.

As of today, the discount rate is at 1.25 (down from 6.25% when I last taught Econ in Spring 2007), and the prime rate is now at 4%. (It was 8.5% last time.) These drive a wide variety of interest rates for different types and durations of borrowing.

SITE OF THE DAY: FED 101 is great. Check it out.

HOMEWORK for tomorrow - Wednesday, December 3rd

Please have your Blog Entry #6 ASAP. (I'll update all the blog entries during the day Friday, so get it in by then.) Blog Entry #7 should also be up by Thursday.

I'll be asking you to read Chapter 10, "The Federal Reserve," out of order for tomorrow's class. 

Please also read the handout, "The Mythology of Deficits," for tomorrow. (Assuming I remember to hand it out this time... Oops.)

I'd like you to read Naked Economics Chapter 8, "The Power of Organized Interests," for Thursday's class. 

At this time, you are supposed to have read Chapter 7, "Financial Markets." You should post a response of at least one good paragraph to one or more of these questions. (You can also react to other posts.) To receive full credit, your response should be posted before class time on Wednesday

1. Wheelan explains that there are four functions for all "financial instruments": raising capital; storing, protecting, and making profitable use of excess capital; insuring against risk, and speculation. Project yourself two decades into the future, and assume that you are in a good, but not great, financial situation, maybe with a family. Prioritize these functions in terms of how you would anticipate using "financial instruments" at that point in your life. Explain why you ordered them that way.

2. Are you more "risk adverse" or "risk tolerant" when it comes to financial issues? React to one or more of the insurance anecdotes (or another with which you are familiar) in this chapter.

3. Later in the chapter, Wheelan shares some "lessons" about the markets. Comment on anything you "learned" in the anecdote about the "brownstone" or anything else.

4. On pages 130 and 131, Wheelan talks of a monkey picking stocks. (OK, a fictional monkey, maybe Curious George?) What do you make of this story? Does it change your level of "confidence" in financial markets?

5. In the section entitled "Diversify" (page 134), Wheelan urges his students to flip coins. Do you think this is a valuable activity here? Can you think of another that you would recommend for students learning about financial markets?

REMINDER: I had trouble getting this one posted. Now, obviously, it works. So, in order to receive full credit, let's say these comments need to be posted by class time on Thursday. Remember that this is a public site, and you are responsible for the content of your postings.

At this time, you are supposed to have read Chapter 6, "Productivity and Human Capital." You should post a response of at least one good paragraph to one or more of these questions. (You can also react to other posts.)

1. (pp. 98-99) "Meanwhile, one in five American children - and a staggering 40 percent of black children - live in poverty." Should our federal government be doing more to change these numbers? If so, what? If not, why not?