April 2012 Archives

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

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...

Here's a review page for Thursday's quiz on Macroeconomics and International Economics. You can again bring a page of notes to the exam if you find that helpful.

The format will be: (You can bring a single sheet of notes again if that is helpful to you.)

• 25 multiple choice (25 points)
  
• 3 problems - components of GDP, calculating GDP, effects of Federal Reserve actions on the money supply (10 points total)
• 3 "short essay" - You choose from a list of options and can write outside of class. Due by Friday, May 11th. (5 points each)

We didn't get a chance to dissect the Fed's "real" meeting that took place last week along with our simulation. Here are a couple of articles you might find interesting.

First, here is the Fed's press release from Wednesday:

"Fed stands pat but says will act if needed" - Rueters, April 25th, 2012
"Bernanke news conference on Fed policy" - Rueters, April 25th, 2012
"Bernanke Takes on Krugman's Criticism Ignoring Own Advice" - BusinessWeek, April 26, 2012

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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."(Click on a region of the world to start the 10 items...)

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.

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

We will need:

4 United States representatives: 1 from "big" business, 1 environmental activist, 1 worker whose job has been "outsourced," 1 college student

3 Europeans: 1 owner of a multinational corporation, 1 worker "displaced" by foreign competition, 1 immigrant from North Africa working outside Paris

3 Africans: 1 person existing on less than $1 a day, leader of poor nation that exports coffee, teen living in urban area

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

3 Latin Americans: 1 manager of a foreign-owned factory, 1 worker in eco-tourism industry, 1 illegal immigrant to United States

3 Middle Easterners: 1 leader of oil-rich nation, 1 Islamic fundamentalist, 1 young woman

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 deliver an introductory statement of not less than sixty 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 - Tuesday, May 1st

We will have our Macroeconomics and International Economics quiz Thursday. There's a review page for you to use.

We'll hold the 7th Annual MPA Globalization Forum on Wednesday. Try to post on the MPA Globalization Forum blog by then.

(I've posted the final required Blog #7 for Naked Economics, but I'll have you read the Epilogue as well. There will be a bonus blog entry there you can do for extra credit if you want.)

Blog Entries #1 - #5 can still potentially receive full credit if posted before next Monday's class time. After that, you will only be able to receive a maximum of 4 out of 5 for any of those.

Have your copy of The World Is Flat ready to go for Friday's class, please.

Since you've made it this far, you might as well finish reading the Naked Economics 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, March 25th 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.

You are expected to read Chapter 12, "Trade and Globalization," and Chapter 13, "Development Economics." You should post a response of at least one good paragraph to one or more of these questions by the end of Wednesday. (You can also react to other posts.)

CHAPTER 12

1. That "machine" that converts corn into things like stereos and cars has reappeared. (page 270) Is this just too simple an allegory for trade? Is it effective? Explain why or why not.

2. Did the discussion on economic sanctions on page 279 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. 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 289) Discuss.

CHAPTER 13

1. It's a pretty good question on page 295. "At a time when we can split the atom, land on the moon, and decode the human genome, why do 2.8 billion (2 billion in the new edition - that's progress) people, or roughly half the world's population, live on less than $2 a day." What do you think?

2. From page 296 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?"

We're still scheduled for the Macroeconomics and International Economics quiz on Thursday. Here's a link to the review page. I'll make sure I set aside at least a little time at the end to get some folks caught up. We can also take some review questions right at the top.

The format will be: (You can bring a single sheet of notes again if that is helpful to you.)

• 25 multiple choice (25 points)
  
• 3 problems - components of GDP, calculating GDP, effects of Federal Reserve actions on the money supply (10 points total)
• 3 "short essay" - You choose from a list of options and can write outside of class. Due on Wednesday, May 11th. (5 points each)

What has been happening in the "real world" these past few years??? We aren't going to have time to take an in-depth look at the economic events of the past couple years, but I wanted to at least alert you to a trio of sites that do a very nice job of trying to make sense of where we've been these past couple of years.

• Timeline:  Global Economy in Crisis - Council on Foreign Relations
• Frontline:  Inside the Meltdown
• The Economy:  Crisis and Response - Federal Reserve

Globalization: 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? Many definitions exist, but let's start with this one.

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

We'll tackle some "prompts" on globalization here today. You'll each get a single statement. Your job is to pair up with the other person that has the same statement. Each of you needs to articulate one side of the argument over that statement. We'll give you an example and then a few minutes to prepare.

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

We will need:

4 United States representatives: 1 from "big" business, 1 environmental activist, 1 worker whose job has been "outsourced," 1 college student

3 Europeans: 1 owner of a multinational corporation, 1 worker "displaced" by foreign competition, 1 immigrant from North Africa working outside Paris

3 Africans: 1 person existing on less than $1 a day, leader of poor nation that exports coffee, teen living in urban area

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

3 Latin Americans: 1 manager of a foreign-owned factory, 1 worker in eco-tourism industry, 1 illegal immigrant to United States

3 Middle Easterners: 1 leader of oil-rich nation, 1 Islamic fundamentalist, 1 young woman

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 deliver an introductory statement of not less than sixty 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, April 30th

We will have our Macroeconomics and International Economics quiz Thursday. There's a review page for you to use.

We'll hold the 7th Annual MPA Globalization Forum on Monday. Try to post on the MPA Globalization Forum by then.

Blog Entry #7 should be taken care of by the end of the week. There is now an Extra Credit Blog Entry posted that will has choices from the "Epilogue" and "Life in 2050."

Have your copy of The World Is Flat ready to go for next Friday's class, please.

Here's the review guide for Macroeconomics and International Economics. We'll take the quiz on that material next Thursday.

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 $3+ 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 20 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 initially confusing, but it should make sense if you play with it for a minute. Give it a little time to load itself. Try several comparisons between countries and over time periods.

Be sure I also show you the Big Mac Index.

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We'll start our shift to 21st Century topics early next week by looking at poverty and development economics. We'll at least get a start on this material today.

HOMEWORK for next session - Friday, April 27th

Please have your copy of The World Is Flat ready to go by the end of next week.

Blog Entry #6 (Chapters 10 and 11) was posted and it will be due before class time on Monday.

Try and get through Chapter 12 before class Friday, and we'll ask you to have Chapter 13 read for Monday. (I will post the final required blog for Naked Economics, but I'll have you read the Epilogue as well. There will be a bonus blog entry there you can do for extra credit if you want.)

Blog Entries #1 - #5 can still potentially receive full credit if posted before the end of NEXT week's class time. After that, you will only be able to receive a maximum of 4 out of 5 for any of those.

I'm looking at doing the Macroeconomics/International Economics Exam on Thursday, May 3rd. There is a review page posted on the blog that you may find useful. You can again bring in a sheet of notes.

FYI -  NEXT Tuesday, May 1st, you'll be able to head to College Counseling after checking in with me to celebrate College Choice Day. They'll have some refreshments and supplies for you to make a pennant with to hang next to your picture. (I'll treat it as sort of a catch-up day and be available to help anyone with that.)

By the end of the weekend, you are supposed to have read Chapter 10, "The Federal Reserve," and Chapter 11, "International Economics." You should post a response of at least one good paragraph to one or more of these questions by the end of Monday. (You can also react to other posts.)

CHAPTER 10

1. Does the quote from Paul Krugman on page 219 fairly summarize the role of the Federal Reserve Chairman? Why or why not?

2. How did reading this chapter change or reinforce the impressions of monetary policy and/or the Federal Reserve you held after our Federal Reserve simulation?

3. The latter part of the chapter deals with inflation and deflation. Which do you think poses the more realistic threat to the American economy over the next decade? Why?


CHAPTER 11

1. After reading the George Soros story at the beginning of the chapter, do you think the ability to "speculate" in currency markets is a good or bad thing? Explain.

2. On page 251, Wheelan writes, "In general, a weak currency is good for exporters and punishing for importers." Assuming the US government has some influence over the value of its currency, would you advise them to weaken or strengthen it at this time?  Why? 

3.  You read about the decline of Iceland's economy in "three acts." Where do you think blame should be placed for what happened in Iceland?  Why?

4. Does reading more about the relationship between the US and Chinese economies make you more or less confident about our economic future?  Why"

Nice job with the simulation yesterday. We'll be able to see later today what the "real" Fed decides. We can pick apart their statement when we meet tomorrow.

We'll wrap up our whirlwind tour of economics with a quick venture into international economics. Today, we'll look at trade.

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 to consider:

• 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 when we look specifically at a particular country, such as the United States.

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 countries 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 has been phased out in favor of the terms normal trade relations or permanent normal trade relations.

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

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

World Trade Organization:

This is the largest international organization focused on issues of trade. Here are a couple resources for you to check out from their website.

• Understanding the WTO
• 10 Benefits of the WTO Trading System
• 10 Misunderstandings about the WTO

HOMEWORK for next session - Thursday, April 26th

Blog Entry #6 (Chapters 10 and 11) is posted and it will be due before class time on Monday.

Try and get through Chapter 12 before class Friday, and we'll ask you to have Chapter 13 read for Monday. (That will be the final required blog for Naked Economics, but I'll have you read the Epilogue and there's a bonus blog entry there you can do for extra credit if you want.)

Blog Entries #1 - #6 can still potentially receive full credit if posted the end of  NEXT week's class time. (In other words, post them by the end of Sunday, May 6th.) After that, you will only be able to receive a maximum of 4 out of 5 for any of those.

I'm looking at doing the Macroeconomics/International Economics Exam on Thursday, May 3rd. There will be a review list available on the blog by tomorrow.