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"ORGANIZING" THE 21st CENTURY WORLD: Below is the list of 25 important intergovernmental organizations (IGOs) and non-governmental organizations. We'll have you each take one of these and spend a few minutes figuring out what they are about. (I recommend Wikipedia and/or the group's website.)

For "your" organization, we COULD have you do it like this:

• Give us a brief overview of what your organization does.
• Give us at least one way in which you see the organization playing a role in the 21st century world.
  

• Rap (or any other style of singing)
• Interpretive Dance
• Pantomime
• Other ideas?
  
  Feel free to incorporate other people as necessary...
  

We'll give you the remaining class time to get some work done. (Hint, hint.)

Here's a pair of population clocks from the US Census Bureau. Watch it change.

Worldometers has a whole lot of interesting information on population.

"How big was the world's population when you were born?" - You can get your answer, courtesy of The Guardian. While this is certainly only an educated "guess," here's the BBC answering the question, "What's your number?"

The World's Most Populous Countries - This is a cartogram of world population. Here's another at The Population Map.

IDB Population Pyramids are a cool resource from the US Census Bureau. Look at the way they break down populations by age and gender. In addition, they project changes out through 2050. Play with these a while. Some suggestions: Gaza Strip, Germany, India, Rwanda and the United States. Let's look a little closer to home at some maps and data...

Here's a look at a US population cartogram, but it's mixed in with information from the 2012 Presidential election.

You probably guessed he'd make at least one more appearance:  Here's Hans Rosling on global population growth.

This is another US Census Bureau publication, "Population Projections for States by Age, Sex, Race, and Hispanic Origin: 1995 to 2025." Scroll down to the "HIGHLIGHTS FROM PREFERRED SERIES" to find some highlights. What conclusions can we draw from these trends?

OK, that's enough high-tech nerdiness. We'll start drawing the connections from population to policy issues. (Immigration is yet to come...) I've got two articles for us to work with on population. Both are from one of my favorite new websites, The Globalist.

21st Century Demographics: Highs and Lows Let's look at these and ponder their implications for the future.

Ready for some gloom and doom? Here's an excerpt from Philip Bobbit's book, The Shield of Achilles. He projects a possible future for Africa as a result of projected population growth on the continent. Africa's Plight - The 2050 Scenario. I'm curious as to your reactions to this excerpt.

Migration and Immigration

First, some definitions are probably in order. (No, I didn't just go to Wikipedia. I sought some more academic sources...)

migration: the movement of persons from one country or locality to another (Princeton)

illegal immigrant: Someone present in the country without authorization. People considered illegal immigrants can enter the United States in two ways: either by sneaking across the border, or by entering the country legally under a temporary visa but then failing to leave once their visa expires. (NPR website)

refugee: Any person who, owing to a well-founded fear of being persecuted for reasons of race, religion, nationality, membership of a particular social group or political opinion, is outside the country of his nationality and is unable or, owing to such fear, is unwilling to avail himself of the protection of that country; or who, not having a nationality and being outside of the country of his former habitual residence as a result of such events, is unable or, owing to such fear, unwilling to return to it. (Source: UN Convention Related to the Status of Refugees and the 1967 Protocol)

Internally Displaced Persons (IDPs): Persons or groups of persons who have been forced or obliged to flee or to leave their homes or places of habitual residence, in particular as a result of or in order to avoid the effects of armed conflict, situations of generalized violence, violations of human rights or natural or man-made disasters, and who have not crossed an internationally recognized State border. (Source: "Guiding Principles on Internal Displacements" issued by the Special Representative of the UN Secretary General in 1998)

asylum-seekers: Persons who file an application for asylum in a country other than their own. They remain in the status of asylum-seeker until their application is considered and adjudicated.

foreign migrant workers: Foreigners admitted by the receiving State for the specific purpose of exercising an economic activity remunerated from within the receiving country. Their length of stay is usually restricted as is the type of employment they can hold.

trafficking: When a migrant is illegally recruited, coerced and/or forcibly moved within national or across national borders. Traffickers are those who transport migrants and profit economically or otherwise from their relocation. (Source: International Organization for Migration).

WORLDWIDE:

Here's the website for Refugees International. This set of Helpful Facts & Figures is also interesting.

Here's a comprehensive site from Human Rights Watch: Refugees, Internally Displaced Persons, and Asylum Seekers

In case you were wondering, it looks like we currently make provisions for the admission of about 70,000 refugees a year into the US. Specific quotas are set for different areas of the world, and 20,000 spots are held "in reserve."

UNITED STATES:

A New Century: Immigration and the US is an extensive article that provides a good overview of new issues and challenges in immigration policy that face the United States in the 21st Century.

Most estimates place the number of "undocumented" (illegal) immigrants in the country at any one time between 10 and 12 million.

NPR: The Immigration Debate is a very thorough website covering immigration and its status as a very important issue in American politics.

ISSUES FOR DISCUSSION:

1. China is experiencing an unprecedented internal migration. Estimates are that between 300 and 500 million Chinese will leave rural areas and migrate to the cities of China. What implications will these have for China's internal stability? How should Beijing deal with this movement?

2. By many estimates, the Palestinians make up one-quarter of the world's refugees. Based on your understanding of their situation, how does it compare with what you typically think of as a refugee issue? If you see it as different, explain why. What should the international community push for if they want to settle this issue?

3. How do you view the plights of refugees in comparison with those of internally displaced peoples? Should the international community treat them differently?

4. In the post-9/11 world, the United States has significantly altered its position on many immigration issues. Which do you think is the greater fear: allowing too much legal immigration or allowing too little? Why?

5. Congress is considering some broad immigration reforms. Assume that you are in charge. What would you do? In particular, what would you do regarding the southern border and the status of the 10-12 million illegal immigrants already in the country?

HOMEWORK for tomorrow - Friday, May 17th

Remember that the two "21st Century" Take-Home Essay are due Friday, May 24th. (You can also do a third for extra credit if you would like.)

As I've mentioned, I'm fine with receiving work up through the end of Memorial Day weekend, but I'll only give you credit for things received after that as far as needed to give you passing credit. (Talk to me IN ADVANCE if you think there's a reason why you should be an exception to that policy.)

The quiz on the world figures will take place next Wednesday.

Let's take a look at some of the issues raised in The World Is Flat's Chapter 8,  "The Quiet Crisis." Let's examine some "dirty little secrets."

• Dirty Little Secret #1:  The Numbers Gap
  
• Dirty Little Secret #2:  The Education Gap at the Top
  
• Dirty Little Secret #3:  The Ambition Gap
  
• Dirty Little Secret #4:  The Education Gap at the Bottom
  
• Dirty Little Secret #5:  The Funding Gap
  
• Dirty Little Secret #6:  The Infrastructure Gap
  

A SIDE TRIP TO GEOGRAPHY FOR A MINUTE: Of course, you almost need to start with a particular clip. Remind me. Next, let's try the 2006 National Geographic - Roper Survey of Geographic Literacy. I'm hoping it will make you feel good about where you're coming from.

Test yourself... We'll walk through these together.
Findings - read about what they found, conclusions they drew, etc.

Education in the 21st Century: Friedman hasn't really weighed in on this one yet very much, but I hope that the Foreign Policy article, "Lost in America," got you thinking about the way we educate in this country. I'm interested in hearing about your recommendations tomorrow, as well as hearing the reactions of the rest of the group to them.

Let's take a look at some of the issues raised in The World Is Flat's Chapter 8,  "The Quiet Crisis." Let's examine some "dirty little secrets."

• Dirty Little Secret #1:  The Numbers Gap
  
• Dirty Little Secret #2:  The Education Gap at the Top
  
• Dirty Little Secret #3:  The Ambition Gap
  
• Dirty Little Secret #4:  The Education Gap at the Bottom
  
• Dirty Little Secret #5:  The Funding Gap
  
• Dirty Little Secret #6:  The Infrastructure Gap
  
  

• Here's "The Clash of Ignorance," a response to Huntington from Edward Said published shortly after 9/11 in The Nation. Said, who died in 2003, was a Palestinian-American who taught at Columbia University and wrote and spoke extensively on a wide variety of issues.
  

The question for today... Is the American civilization (or, if you prefer, empire) headed for collapse? Two very interesting, and very different, takes on this one come from Jared Diamond and Kirkpatrick Sale.

Jared Diamond: Many of you have probably at least seen Jared Diamond's book, Collapse: How Societies Choose to Fail or Succeed. (He's also the author of Guns, Germs and Steel.) Diamond is currently a professor of geography and environmental health sciences at UCLA.

Here's a transcript from a 2002 appearance by Diamond on Australian radio.

Kirkpatrick Sale: Sale is an author and technology critic. (He's referred to himself as a 'neo-Luddite.') You'll probably either love him or hate him, but there's no denying he makes for interesting reading.

Here's a 2005 essay by Sale on what he sees as the impending collapse of the American empire.

YOUR TASK: You can either work alone or in a pair on this one. Read the two sources, making note of the factors they each identify in the collapse of civilizations/empires. As you probably guessed, I want to know which of the two views you believe better captures where America is headed. We'll hear what you have to say later in class.

Lost in America is another Foreign Policy article. It is a very interesting article, and certainly one of high relevance to all of us in the room. It asks the central question of how well we are preparing American students for a globalizing world.

IT IS FOUND ON THE EXTENDED ENTRY BELOW...

Here's what I'd like you to do. (Feel free to work alone or in a group of up to 3 people.) Please use the article as a backdrop from which to make your recommendations for improving the future of American education. (For purposes of this activity, let's assume we're talking about public education as a whole, not MPA.)

Your group should propose five specific steps you believe will help address the challenges presented in the article.

Have these ready to discuss Monday.


HOMEWORK for tomorrow - Monday, May 13th

Reminder that the cities quiz will be on Wednesday. You simply name the country in which each city is found.

Please read "Lost in America" on today's "extended blog entry" in time for Monday's class.

Blog Entry 2.5 should be submitted by the end of the weekend. (That involves reacting to another of the "flatteners.") We'll make use of chapters 6 and 7 in class the next couple days. In particular, we'll use Chapter 6 on Tuesday in class. Please try to read it.

Please try to make up the Macroeconomics and International Economics Quiz ASAP if you need to. Remember to finish up any missing Naked Economics Blog Entries as well. (There is also an Extra Credit Blog Entry posted if you are interested in that.) Remember that the three "short essay" questions from the second exam should also be turned in. (Either print out or email as an attachment.)

On pages 202 - 203, Friedman begins to get at the heart of what he means by "the triple convergence." My question is simple. Of the three, which convergence do you believe will have most profoundly influenced the world by the time you have graduated from college? Why?

On pages 228 - 229, Friedman begins discussing what he calls the "other" triple convergence, one that masked much of what is described earlier in the chapter. He is referring to the dot-com bust, 9/11, and the scandals in corporate governance. Do you believe these, or any other factors, can stop the continued impact of the ten flatteners and the triple convergence? Why or why not?

>>>>>

I want to go back to a couple of the "world views" that I have mentioned. We'll  introduce Samuel Huntington's work, The Clash of Civilizations and the Remaking of the World Order. We'll also look at what Thomas Barnett wants to do with The Pentagon's New Map.

Samuel Huntington's "Clash of Civilizations" - Huntington is a Harvard Professor who authored one of the most influential and controversial articles/books of the post-Cold War era.

Let's watch the first 4:30 of an interview Huntington did before the year 2000 with television host Charlie Rose.

Here's his "map" of the civilizations of the world.

If you want a rebuttal, here's 3:30 of Noam Chomsky, the famous philosopher/historian whose views are usually considered to be on the "left."

Here's a reprint of the 1993 Foreign Affairs article, "A Clash of Civilizations?" that became the basis for Huntington's later book.

FOR NEXT TIME: I'd like you to tackle at least part of the original Foreign Affairs article linked above. (It's better than assigning the whole book, right???) Anyway, it is challenging, but very interesting as well. I'm less concerned with you mastering every detail than with digging into the article in some places you find most interesting.

• What do you see as Huntington's main thesis and/or arguments?
  
• How persuasively do you believe he proves those key points?
  
• Identify three conclusions or arguments of Huntington's that you support.
  
• Identify three conclusions or arguments of Huntington's with which you disagree.
  
• Overall, what is your reaction to the article?

The Pentagon's New Map: Let's turn to Barnett's "The Pentagon's New Map."

Here's a good, quick introduction:  "The World According to Tom Barnett." (This is only the first of several parts of his speech that you can find on YouTube.)

I want to shift from Barnett's description of the world to his prescription for what should be done.

Several concepts that you might be interested in:

• a new US military: Gap Leviathan and the System Administrator
  
• rule sets, system perturbations and rule-set resets
  
• a future worth creating - Barnett's underlying optimism is that something can be done. We'll look at 10 steps he sees as essential in creating that future. I'd like you and a small group to look at these for two purposes.

• First, rank the 10 in terms of how likely they are to come to be in your opinion.
  
• Second, rank the 10 items in terms of their desirability from your perspective.

HOMEWORK for next session - Friday, May 10th

Today, we'll take a look at some of those that globalization has perhaps left behind, the "failed states." We'll also carve out time to take the countries quiz.

The Failed States Index: This is another neat tool that has been featured annually in Foreign Policy magazine. It was first used by "The Fund for Peace," a group conducting research in an attempt to prevent wars and conflict. We'll do several things with it.

First, before we look at the actual results, I want to consider the methodology they used. 12 "indicators" have been identified, and countries receive a score of up to 10 points on each of those indicators.

Here's the short list of the dozen indicators:

Social Indicators
1. Mounting Demographic Pressures
2. Massive Movement of Refugees or Internally Displaced Persons creating Complex Humanitarian Emergencies
3. Legacy of Vengeance-Seeking Group Grievance or Group Paranoia
4. Chronic and Sustained Human Flight

Economic Indicators
5. Uneven Economic Development along Group Lines
6. Sharp and/or Severe Economic Decline

Political Indicators
7. Criminalization and/or Delegitimization of the State
8. Progressive Deterioration of Public Services
9. Suspension or Arbitrary Application of the Rule of Law and Widespread Violation of Human Rights
10. Security Apparatus Operates as a "State Within a State"
11. Rise of Factionalized Elites
12. Intervention of Other States or External Political Actors

TWO TASKS: Let's cluster in groups of 4 or 5. I'll give you a handout with a bit more detail on the indicators. Use that to determine which of the indicators you feel are the strongest. In other words, "Which four indicators do you believe are the most useful in determining which states are at risk of failing?" You'll mark the numbers of your choices on the board. On the flip side, are there factors that you don't see linked to the success or failure of a state?

One more task: I want you to make a list of five states you expect to see appear high on the list. Let's put those up on the board as well.

Now that the preliminaries are out of the way, let's look at the 2012 Failed States Index. The map itself might be the place to start, but let's look at the graphs, tables and additional features as well. I'll give you some time in groups, and then we'll come back together.

Remember to finish up any missing Naked Economics Blog Entries as well. (There is also an Extra Credit Blog Entry posted if you are interested in that.)

Remember that the three "short essay" questions from last week's exam should be turned in ASAP. (Either print out or email as an attachment.) You can choose any three of the ten questions listed on last Thursday's blog entry.

Our major task for today will be to share information on the 10 "flatteners" that Friedman identifies in Chapter 2. Your written summaries should appear on the Blog Entry #2 below as "comments," and they will be the subject matter for your next required blog entry. I figure that we might as well go straight through the list, and we'll give each group up to maybe five minutes to share what they read as well as answer questions.

Assume that no one else has read either the section or your summary. Explain Friedman's point to us using whatever examples, anecdotes and/or facts that seem most appropriate. We'll probably have questions, but I am also interested in your own assessment of just how important you believe the flattener has been/ will be. Also, I'm curious about any ethical implications or other issues that you feel "your" flattener might raise.

Looks like we are going to be really short-handed today. I forgot about the AP Spanish exam. Here are some links we might need to rely on today.

Wikipedia - The World is Flat

Virtual Educators - 10 "Flatteners"

Flatteners of the World

The "Flatteners"
#1 - 11/9/89 -
#2 - 8/9/95 -
#3 - Work Flow Software -
#4 - Uploading -
#5 - Outsourcing -
#6 - Off-Shoring -
#7 - Supply Chaining -
#8 - Insourcing -
#9 - In-forming -
#10 - The Steroids -

HOMEWORK for tomorrow - Wednesday, May 8th

Please try to make up the Macroeconomics and International Economics Quiz ASAP if you need to.

Remember to finish up any missing Naked Economics Blog Entries as well. (There is also an Extra Credit Blog Entry posted if you are interested in that.)

Remember that the three "short essay" questions from last Friday's exam should be turned in this week. (Either print out or email as an attachment.) You can choose any three of the ten questions listed on Thursday's blog entry.

Tomorrow, we'll do the quiz on the 40 countries. (There is a word bank for you to use.)

Please read Chapter 3 of The World Is Flat, "The Triple Convergence." for Thursday's class.

Blog Entry 2.5 should be submitted by class time on Friday. (That involves reacting to another of the "flatteners.")

We'll have you break up into groups of 3 to examine the report. When we come back together, each group should turn in a page containing your names and the following:

#1 - Present 3 conclusions or inferences that your group has drawn from the data. (Don't just parrot back the ones in the article.)

#2 - Ask 3 questions that you now have as a result of the data and writing. (Note that you don't have to know the answers to the question.)

#3 - Make at least 3 foreign policy recommendations for the United States to undertake.

We can take the first thirty minutes or so to review before most of you take the Macroeconomics and International Economics Exam.

Here's a link to the review page. (You can bring a single sheet of notes again if that is helpful to you.)

Here's the format:

• 25 multiple choice (25 points)
  
• 3 problems - components of GDP, currency conversions, effects of Federal Reserve actions on the money supply (10 points total)
• 3 "short essay" - You choose 3 from the list of options and can write outside of class. Due on Wednesday, May 8th. (5 points each)

These will be due on Wednesday, May 8th.

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 globalization helpful or harmful? Why?

J. You have been named the President of the World Bank. You unexpectedly have an additional $15 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, May 3rd

I'd like all of the Naked Economics blogs to be posted by the end of the weekend. There is now an Extra Credit Blog Entry posted that will has choices from the "Epilogue."

You should now have access to a copy of Thomas Friedman's, The World Is Flat. Please have chapter 1, "While I Was Sleeping," read for class on Monday. That's pages 3 through 50. You'll again be required to make blog entries related to the readings on occasion.

I am available for those of you that need to make up the first quiz and/or do any reviewing that you would like to do. (We will also take some time for that on Thursday.)

As I mentioned, we don't have a "regular" class session scheduled for today. You are free to head down to College Counseling. Ms. Pederson and the staff will have some refreshments for you, and it is traditional that you make a pennant with your college choice to accompany a photo of you on the bulletin boards.

HOMEWORK for next session - Thursday, May 2nd

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

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, currency exchange rates, 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 8th. (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

Economics and Development: We'll start our shift to 21st Century topics this week looking at poverty and development economics before we turn out attention to globalization.

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."

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

We will need:

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

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

2 Africans: urban teen living on less than $1 a day, leader of poor nation that exports coffee

6 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

2 Latin Americans: 1 manager of a foreign-owned factory, 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, 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 tomorrow. 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 THIS Friday's class, please.

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

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.
  

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

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.

>>>>>>>>>

HOMEWORK for next session - Monday, April 29th

Nice job with the simulation yesterday. We'll be able to see next week what the "real" Fed decides.

We'll wrap up our whirlwind tour of economics with a quick venture into international economics over the next couple of days. 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. 

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

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

Remember, in addition to "normal" open market operations, the Fed has also purchasing hundreds of billions of dollars in Treasury securities over the last several years as part of "QE2," its expansionary monetary policy of "quantitative easing." While that wouldn't always be an "action item" at an FOMC meeting, we'll let you talk about it as well if time permits.

Federal Reserve Board simulation: Even though the "real" one is taking place in another weak, we'll do our simulation of a Federal Reserve Board Federal Open Market Committee (FOMC) meeting. You'll each play a role as either a representative of one of the Federal Reserve districts, a member of the Board of Governors or as an economist. The federal funds rate (the one you will consider changing) is currently targeted at 0.25%. (Four years ago, it was at 1.00%. When I did this six 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.

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 a two-day meeting that begins April 30th in Washington DC.
  
  
• Federal Reserve District President presentations: (We'll go through the districts in "numerical" order. In your two 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.

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

Preparing for the simulation: Many 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 four Reserve Bank Presidents (plus the NY Fed President) 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 April 17th data. This link will take you to the overall summary. In addition, the links on the top will take you to "your" district. There, you can find a one "page" overview of recent developments in your district.

CHECK THESE OUT:

Here are the text of the minutes and press release issued on March 19th-20th, at the end of the last FOMC meeting.

HOMEWORK for tomorrow - Thursday, April 25th

Naked Economics Blog Entry #5 is now due.

Our new Economics material for today will center around organizing a preparing for a simulation of a Federal Reserve Board's Federal Open Market Committee meeting that will be held tomorrow.

Banking and the Federal Reserve System:

The Federal Reserve System 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.

• 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.

• 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.
  

Here's Bankrate.com's tracking of a wide variety of interest rates.

Federal Reserve Board simulation: Tomorrow, 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.

The federal funds rate (the one you will consider changing) is currently targeted at 0.25%. (Two years ago, it was at 1.00%. When I did this five 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.

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 a two-day meeting that begins April 30th in Washington DC.
  
  
• Federal Reserve District President presentations: (We'll go through the districts in "numerical" order. In your two 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.

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

Preparing for the simulation: Many 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 four Reserve Bank Presidents (plus the NY Fed President) 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 April 17th data. This link will take you to the overall summary. In addition, the links on the top will take you to "your" district. There, you can find a one "page" overview of recent developments in your district.

CHECK THESE OUT:

Here are the text of the minutes and press release issued on March 19th-20th, at the end of the last FOMC meeting.

SITE OF THE DAY: FederalReserveEducation.org is great. Check it out. We'll take a closer look at their "The Economy - Crisis & Response" feature yet this week.

HOMEWORK for tomorrow - Wednesday, April 24th

Naked Economics Blog Entry #5 is due tomorrow.

Just a reminder that you are being asked to read through Chapter 9 in Naked Economics over the weekend. Please have read Chapter 10 read by Tuesday's class.

We'll start tout with a good video clip. Here's another Hans Rosling clip (2009) that I think you'll like from those TED conferences - "Let my dataset change your mindset." It's a good segue into the types of international issues we will soon be considering. (As a reminder, here's the Gapminder webpage.)

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 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 0.75% (down from 6.25% when I taught Econ in Spring 2007), and the prime rate is now at 3.25%. (It was 8.5% in 2007.) Both of those rates are unchanged from three years ago. These drive a wide variety of interest rates for different types and durations of borrowing.

SITE OF THE DAY: The FED's own education site is pretty good. Check it out. We'll be setting up a simulation of a FED meeting yet this week.

Assuming we have time, I was planning to close with another video clip. (We'll do it another day if need be.) Maybe some of you have heard of Khan Academy. (It'll come up in a couple weeks when we talk 21st century education.) Here's a clip of Sal Khan's talk at TED 2011 when he explains what he has set out to do. (I was originally planning to show a clip with him talking about the economic crisis in CNN a while back, but I thought this might help lay the groundwork for both our upcoming look at education and his own program.)

HOMEWORK for next session - Tuesday, April 23rd

Naked Economics Blog Entry #5 is posted, and it will be due on Wednesday.

At this time, you are supposed to have read Chapter 8, "The Power of Organized Interests," and Chapter 9, "Keeping Score." You should post a response of at least one good paragraph to one or more of these questions by the end of Wednesday, April 24th. (You can also react to other posts.)

CHAPTER 8

1. "When it comes to interest group politics, it pays to be small." (page 179) 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 181) Should we even try to control this? Why or why not?

4. Is giving a president "fast-track authority" desirable? (page 186) Why or why not?

5. "Creative destruction" is a term coined by Joseph Schumpeter. (page 183) Using examples from today's world, comment on the desirability and/or drawbacks of such a process from your perspective.

CHAPTER 9

1. After you finishing reading the joke on pages 191-192 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 202) 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. 206-209) 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?

Initially, we'll look at taxes today, and then we'll take two cracks at figuring out the "big picture" of the economy.

Here's a much more extensive set of debt (and other) clocks than the one I showed you yesterday.

Taxes: There's an old saying that, "there's nothing certain but death and taxes." Today, we'll spend some time looking at the less depressing half of that adage... Hopefully, you've been convinced by now of the economic necessity of some form of taxation. (If not, contemplate life without roads, schools, police, and national defense for a while...)

So, if we work from the common assumption that taxes are a necessity, there remain several questions:

• Who should be taxed?
• What should be taxed?
• How (at what rate) should the tax be levied?
• What should happen to the money collected from the tax?

Let's start our look at some internet resources with this... Taxpolicy.com invites you to "Build Your Own Tax Policy." It asks you a series of questions and then sketches out your broad views on taxes as derived from those answers.

The history of taxation: Of course, the history of taxation is long. If you want more information than you can ever use, consult "The History of Taxation" at the "Taxworld" website.

Types of taxes: There are several broad categories of taxes. Economists generally classify taxes as progressive, regressive, or proportional. (Another type of tax is called a "head" tax. Everyone pays the same amount.) Let's make sure we understand the differences.

Discuss: Which type of tax do you think is most fair? Are there any that you strongly oppose? Is the sales tax regressive?

The Federal Income Tax: This, of course, is the "big one". It has been in place since 1913, and it is the single largest source of governmental revenue.

One of the legacies of the Reagan years was a period of tax reform. Now, there are six federal income tax rates: 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, and 35 percent.

(As of 2011, these specific numbers were correct.) For married couples, the 15 percent rate currently applies to taxable income up to $69,000, whereas the 25 percent rate applies to taxable income between $69,000 and $139,500. Here is the Internal Revenue Service website. 

Discuss: Do you think it is fair to tax higher levels of income at a higher rate? Would you like to see a more or less progressive income tax?

Of course, Minnesota gets its share of income as well. You can learn more about that at the "Minnesota Department of Revenue Home Page." You can also browse around here to find a copy of the tax forms you would need to file as well.

For comparisons, here's some data on State Income Taxes for the rest of the nation.

Looks like we missed it. For the purposes of federal income taxes, "Tax Freedom Day" came on April 18th. However, if you were living in Canada, it would not be until June.

>>>>>>>>>>>>>>>>>>>>>

Demand, demand, demand: Let's look at flows in the economy, particularly as they originate on the demand side. We'll largely be looking at work pioneered by John Maynard Keynes. (I think this material is as potentially confusing as any that we will use this quarter.) We'll look at a visual representation of this.  I have a handout for you.

Supply, supply, supply: We'll look at the competing theory to the previous "grand explanation" of the economy.

By the early 1970s, serious questions emerged about relying solely on Keynes' explanation:

• Supply "shocks", such as the OPEC oil embargo of 1973, hit the economy, but the Keynsian model alone could not offer advice for dealing with these crises.
• For the first time, America was facing rising unemployment and rising inflation. The Keynsian approach alone couldn't explain these type of departures from the "business cycle" model.
• This approach tended to be short-term in its focus, and that diverted attention from longer term issues like economic growth and standard of living.

It was out of these concerns that a new approach, supply-side economics, emerged. It had its strongest impact during the Reagan years. (Many called it "Reaganomics".) Although the overall approach doesn't find as many supporters among economists today, looking at its approach still helps fully understand macroeconomic theory.

Here it is; a brief tour of the "supply side"...

The first key idea was found in the early 1800s when a French economist named J.B. Say got a law named after him... Say's Law: "Supply creates its own demand..." This idea held that overproduction and underproduction would never be problems since production itself generated enough income to purchase what is produced. "Gluts" or shortages would lead to price adjustments until the glut or shortage disappeared.

The experience of the Great Depression, and its sustained, high unemployment, led to an acceptance of the ideas of Keynes and discredited "Say's Law".

Modern "supply-siders":

The key to understanding this approach is the idea of incentives. Keynes assumed that an increase in demand automatically meant an increase in supply unless the economy was at "full capacity". Supply-siders disagree, saying that the production won't happen if the costs are too high.

What could make the costs too high? Things like taxes and interest rates.

The "solution"? Incentives- particularly in the form of lower taxes.

• They argued that reducing costs will lead to more production by business.
• Also, lower taxes would encourage household savings, creating more funds for investment.
• Further, some claimed that decreasing tax rates would lead laborers to work more, furthering the cycle.

The second key difference is the effect of government deficits, or the theory of crowding-out.

Here's the argument: When spending exceeds taxes, the government borrows money in financial markets. (States and locals also sell revenue bonds to finance projects.) The federal government also sells treasury bonds.

Supply-siders say these actions pull money (capital) out of the private markets and raise interest rates. These actions "crowd out" private investment, lowering output and employment.

You may have noted a potential contradiction here. How can you hope to both cut taxes to stimulate the economy and avoid budget deficits that might crowd out investment? What do you think?

Remember, although relatively few economists still hold these ideas, the concepts of "supply-side" economics still influence public policy decisions today.

Naked Economics Blog Entry #4 is posted (Chapters 6 and 7). You should be caught up through the four of those ASAP.

Today, we'll take a look at how the government gets its money and how it spends it. The budget, the budget deficit and the national debt will be the big topics for the day.

To set the mood, here's an interesting visual. What does one TRILLION dollars look like?

The Government and Its Role: Today, we'll focus on the numbers. These numbers, of course, will vary from year to year...

Where does the federal government get its revenue from?

44% from individual income taxes
36% from Social Security payroll taxes
11% from corporate income taxes
4% from excise taxes
2% from customs duties

Here's the history of the US budget deficits and surpluses since 1940.

Here's a look at the CBO budget inforgraphic. Here's a slideshow with projections for the future budget and overall economy.
Here's what the future looks like for Medicare and Social Security.

Let's check out Budget Explorer: The Complete U.S. Federal Budget. You'll get your chance to balance this whole thing...

Obama's 2012 Budget Proposal: How It's Spent - Here's an interesting graphical look at the budget proposal for FY 2012 done by The New York Times.

Where does the federal government spend its money?

22% is spent on Social Security
20% is spent on defense
9% is for other "direct" spending
10% on Medicare
6% on Medicaid
15% on interest on the national debt
other areas are smaller
about 2% is spent on welfare
less than 1% is spent on foreign aid

The largest single source of revenue for state governments is the sales tax. Local governments depend most heavily upon property taxes.

What are the risks associated with budget deficits? (Be sure you understand the theory of "crowd out" by the time we're done.)

We'll give you a few minutes to read "The Mythology of Deficits" and see what you think about that.

The National Debt: This is simply the sum of all outstanding government deficits.

Here's an example of a Debt Clock that we mentioned earlier. See what your share is today... I also have a series of charts from the report cited below to show you.

Grandfather Economic Report: Michael Hodges had put together this large site concerned with presenting information on the national debt. (To make it clear, I'm NOT agreeing with all of this guys recommendations or conclusions. I just think it is interesting what an "average" citizen is doing here.)

DO THIS: Browse through this report. The pictures and graphs are very user-friendly. Find five things (statistics, graphs, comparisons) that are of interest to you, and make note of them to share in class. Then, make at least two "policy recommendations" for the US government based on what you have learned. We'll share those in a while.

The Naked Economics Blog Entry #4 is posted (Chapters 6 and 7). I'm asking you to have that posted before tomorrow's class if possible, but please make sure it is taken care of that no later than this weekend.

• Taxes were due on Monday. What does your group see as the two biggest benefits of a system of taxation like that of the United States? What are the two biggest drawbacks?
  
  
• When it comes to the economy, does our government try to do too much or too little?
  
  
• Should government do more to redistribute income?  Why or why not?
  
  
• What experiences have you had with the type of issues raised in "Economics of Information?" (Some of the issues included adverse selection, racial profiling, incomplete information, asymmetry of information, and branding/signaling.)

Fiscal v. Monetary Policy - Let's make sure you understand the basics of these two concepts, since we'll come back to them again and again.

Today we have two more big "economic indicators to consider: Inflation and Unemployment

Inflation: We'll be looking at inflation today, since it might be the economic issue of most concern to policymakers and consumers. (I suppose that would be more true when the economy isn't emerging from its most serious challenges since the Great Depression...) This topic will come up several times, but we'll get some of the basics out of the way.

Defining "inflation": Inflation is a sustained increase in the overall level of prices. The most widely reported measurement of inflation is the consumer price index (CPI).

The Consumer Price Index measures prices of goods and services in a market basket of goods and services that is intended to be representative of a typical consumer's purchases. The percentages currently used to describe the categories of goods and services that market basket are as follows.

• Food and beverages 15 %
• Recreation 6 %
• Housing 42 %
• Education 3 %
• Clothing 4 %
• Communication 3 %
• Transportation 17 %
• Medical care 6 %
• Other goods and services 4 %

Consumer Price Index and Inflation, February 2013 - This includes the text of the most recent inflation report from the National Council on Economic Education. We can take a look at some of the graphs and charts for a minute. This little application is pretty cool...

You probably looked at hyperinflation with Germany after WWI last year. Here and here are signs that your economy is undergoing hyperinflation.

Much of the following information is simply copied from the EconEd website for our convenience in class today...

Causes of Inflation: Over short periods of time, inflation can be caused by a decrease in production or an increase in spending. We get the names for the two major types from this: demand-pull and cost-push.

Inflation resulting from an increase in aggregate demand or total spending is called demand-pull inflation.

Inflation can also be caused by increases in costs of major inputs used throughout the economy. This type of inflation is often described as cost-push inflation. Increases in costs push prices up.

A relatively minor, third cause - Over longer periods of time, that is, over periods of many months or years, inflation is caused by growth in the supply of money that is above and beyond the growth in the demand for money.

Costs of Inflation: Here's one short summary of some of the costs of inflation.

• High rates of inflation mean that people and business have to take steps to protect their financial assets from inflation.
  

• High rates of inflation discourage businesses planning and investment as inflation makes the forecasting of prices and costs more difficult.
  

• Inflation does reduce the purchasing power of money.

• Inflation does redistribute income. People on fixed incomes such as pensions or whose salaries are slow to adjust are negatively affected by unexpected inflation.

(I HAVE NO IDEA WHY THE FONT CHANGES SIZE...)

Unemployment: This, in many ways, is sort of the flip side of what we did with inflation.

Defining "unemployment:  The unemployment rate is the percentage of the U.S. labor force that is unemployed. It is calculated by dividing the number of unemployed individuals by the sum of the number of people unemployed and the number of people employed. An individual is counted as unemployed if the individual is over the age of 16 and is actively looking for a job, but cannot find one. Students, those individuals who choose to not work, and retirees are therefore not counted in the unemployment rate.

The Current State of Unemployment: This is a lot of numbers, but just browse it for a couple minutes. Here are the newest charts from the Bureau of Labor Statistics.

Questions to consider and discuss:

• What surprises you (if anything) about the statistics and graphs above? What explanations do you have for the discrepancies?

• In January 2002, a falling unemployment rate was accompanied by a significant fall in employment. How can the number of individuals employed fall and the unemployment rate fall at the same time?
  
  

Unemployment in your backyard (or anyone else's) ... You can go to the Bureau of Labor Statistics website and check the Local Area Unemployment Statistics for your city and/or state.

Answer these questions:

1. Is unemployment in our area higher, lower, or roughly the same as the national average? What about your favorite vacation spot? Your grandma's hometown?

2. What factors contribute to our area's unemployment rate? (Think about recent news...)

• Which industries have expanded?
• Which industries have contracted?

3. Will the recent changes affect you?

4. If avoiding inflation were your highest concern, where should you move? If you like the idea of unemployment, what cities would you recommend for your next move?

• Do you think unemployment benefits are appropriate in Minnesota?
• What changes, if any, would you make?
• Do you think these benefits are a disincentive to work?
  
  

The Relationship between Inflation and Unemployment: The Phillips Curve - Economists have long claimed an inverse relationship exists between unemployment and inflation. This "Phillips Curve" quickly gets very technical, but you can see the basics at this link. Browse around for a bit.

HOMEWORK for tomorrow - Thursday, April 18th

Please continue in your reading of Naked Economics. You should have Chapter 7 ("Financial Markets") read for Thursday.

Blog Entry #4 (Chapters 6 and 7) will be posted yet today and it will be due on Friday.

The Gross Domestic Product:

Things to note:

• Both goods and services are included.
• Current market prices are used to aggregate outputs. Government purchases, many of which do not occur on markets, are valued at their cost of production.
• Only final goods and services are included. This avoids "double counting".
• US GDP measures production by US citizens and foreigners alike inside the borders of the United States.
• GDP is an annual flow, a rate of production for the economy.

What's the difference between GDP and GNP (gross national product)? Many people, including your teacher, grew up discussing GNP. In 1992, the United States joined the rest of the world in using GDP as its national economic accounting system. GDP measures output produced inside the United States, whether by foreigners or US citizens. GNP, by contrast, measures output of US citizens, no matter where they are located in the world. As a result, US GNP tends to be about .3% higher that GDP, but that gap has been shrinking.

Here's a list of GDPs by Country you might find interesting. Scroll down that page to find some links to similar lists. Here's another visual you might find interesting.  What if individual states were renamed for countries with similar GDPs?

What other names are used to refer to the nation's annual output of goods and services? Some you will find in the media include: output, total output, national output, income, total income, national income, and aggregate supply.

How do we calculate GDP? A formula created by John Maynard Keynes is used to total the four categories that make up the Gross Domestic Product.

GDP = C + I + G + NX (or X-M)

or Gross Domestic Product = Consumption + Investment + Government Expenditure + Net Exports

Don't forget the difference between nominal and real GDP values. Real GDP takes inflation into account.

Of course, GDP per capita is often the more useful statistic for us to consider. Here is what Wikipedia shows as the countries with the highest (and lowest) GDPs per capita. Here's an extensive set of GDP per capita graphs that look at all sorts of things.

Is it the "Gross Deceptive Product"? Here are some potential weaknesses in using GDP.

• Some things are produced but never sold, so they are not included in GDP. What examples can you think of?
• Some expenditures are hidden from data gathers, so they are unrecorded transactions. Examples?
• Some items are included in GDP that do not reflect net benefits to society. Consider the Exxon Valdez.
• Government expenditures are based at cost, despite the fact that market forces might value them differently.
• Cross-country comparisons are made difficult because of climate, cost of living, and other differences.
  
  

Let's test your understanding: Which of the following raise GDP by $500?

• A steel company sells $500 of steel to an auto manufacturer.
• You are hired by the government to shuffle paper uselessly for $500.
• You are hired by General Motors to shuffle paper uselessly for $500.
• An antique dealer sells a $5000 painting, pocketing her 10% commission.
• You receive $500 in an unemployment insurance check from the government.
• You win $500 betting on the Mounds Park Academy soccer team.
  

SITE OF THE DAY #2:  College Budget Calculator

As I mentioned earlier, we'll do some "personal" or "consumer" economics throughout the course at different times. Sometimes, it will match up perfectly with what we are doing in class. Other times, I'll just stick it in when I feel like it. (This is one of those times...)

Let's take a closer look at the costs of college. You can do this in a number of places on the web, but I thought this was pretty user friendly.

Before you begin: You may need to make some assumptions. For example, if you have applied to several schools, run the program with the various numbers. Or, try it each way depending on whether you do or don't get that "big scholarship". In many cases, you'll have to make estimates, but maybe I can help with those. Remember, if you come up with "scary" answers, that is what college loans and other sources of financial aid are for. Don't just decide not to go...

DO THIS: Run through the activity first doing your best guesses on college you'll attend, costs, and income.

Now, do it for another of your college choices, or change another significant variable (live off campus, get a job, whatever). Share that new figure if you would like. We can discuss any of this today if you'd like. Alternatively, we can come back to it in the future.

HOMEWORK for tomorrow - Wednesday, April 17th

You should have three Naked Economics blog postings done by class time tomorrow if you want to be on schedule. If you are behind, get them done. (There is a separate blog entry for each one that you should be posting on.)

Please have Chapter #6 ("Productivity and Human Capital") of Naked Economics read for class tomorrow.

Later in the hour, you'll take the quiz on the basics of economics and microeconomics. We'll spend the first part of the hour reviewing and clarifying things that have you concerned, curious and/or confused.

Here's the Basics and Microeconomics review sheet.


Homework for next session - Tuesday, April 16th

You should be up through Chapter #5 of Naked Economics, "Economics of Information," before the start of class on Tuesday.

Your Blog Entry #3 should be posted before class time begins on Tuesday, April 16th.

We'll conclude our overview of business today with a look at how business compete in the market. Remember that we'll do the quiz tomorrow. Here's the Basics and Microeconomics Review terms list.

Competition - Market Structures: We will begin our look at various competition models with a quick activity. You'll take a look at a reading/ chart of the various market structures. We'll expand upon that beginning with some additional information and examples.

These characteristics help determine the market structure for a given good:

You were asked to have Chapters 2 and 3 from Naked Economics ("Incentives Matter" and "Government and the Economy") read for today. I'm interested in hearing what you thought about those. If you need some reminders, here are twelve things (and there are a lot more) we could talk about:

• SUVs
• dog poop
• crying babies
• cigarettes
• taxing externalities
• good and bad government
• copyright law
• pharmaceutical companies
• Indians: South Asian justice and American real estate
• public goods
• free riders
• redistributing wealth

• fixed costs
• variable costs
• total costs  
• average cost 
• marginal cost 
• law of diminishing returns
• revenue
• total revenue
• marginal revenue
• profits
• normal rate of return
• economic profits
  

SEE IT HERE: There are some useful overheads illustrating these ideas: Costs: Fixed, Variable, and Sunk. Let's look here for a minute.

Then, you can put your newly found business skills to work analyzing "Andrea's Software Business" from a handout I'll get to you.

The Economics of Seinfeld: I think you will enjoy this regardless of whether or not you are/were a fan of the show. Your task? Find at least three clips that illustrate concepts we have introduced so far. Share them with a classmate.

Homework for tomorrow - Wednesday, April 10th

Please have Chapter #5 of Naked Economics read for class tomorrow. (That will be the last chapter you'll be expected to have read before the quiz on Thursday.)

You can take a look at a Basics and Microeconomics Review terms list. The quiz will consist of 25 multiple choice questions and some "problems." They will include the drawing and shifting of supply and demand curves, as well as several questions about a very straight-forward business situation on costs and revenues. You may bring in a single sheet (regular size, one side only) of notes that you think might be useful if you would like. You are also welcome to use a calculator if you would like.

If anyone has any "review" problems on supply and demand they'd like to share, we can start with those...

My plan is to end the short week next Thursday with a quiz on the basics of economics and microeconomics. You'll get a review sheet posted on Monday.

First off, we'll practice some more with demand and supply.

• Thankfully, I've got a few of the prompts from last time left over to give the rest of you a quick review... What fun!
  
  
• Online Simulation on Supply and Demand: The University of Omaha has done a neat on-line "tutorial" as well as their Exploring Supply and Demand quiz. Now would be a good time to work through the six question "quiz" at the end, as well as any other questions that you might have.
  
  
• Solid job with the prompts on Thursday. I'm going to give you a slightly more challenging set of examples here called, "Going Bananas." 
  
  
• Review Problems: It's your turn. You and a partner have five minutes to come up with one or more situations for your classmates to work through. The more terms and concepts you can incorporate, the better. Remember to be informative, entertaining, and appropriate...
  
  

With the remaining time, I want to introduce you to one of my "academic crushes." I may have shown some of you a Hans Rosling video in World 10, but I'm not sure. This one is about a month old. Here's five minutes of Professor Rosling educating Fareed Zakaria on world economies.

• Here's the Gapminder website. You can download Gapminder World and play to your heart's content.
  
  
• I'm not on Facebook, so I haven't tested this, but here's a quiz you can take on the world:  Who knows more about the world - you or a Chimp?
  
  

Something "old" - Please read this classic article for next time. It's a little corny, but really interesting.

I, Pencil is the name of a 1958 essay by Leonard Reed. Please skim this online essay before class tomorrow. Think about what it is saying about the division of labor and the "invisible hand" of the market.

Homework for next session - Monday, April 8th

Read I, Pencil from above.

You were asked to have Chapter #2 read for today. Please read Chapter #3 of Naked Economic before Monday's class. Your Blog Entry #2 will be due by Tuesday's class time. (It will get posted later today.)

Welcome to the blog for this "Economics and the 21st Century" course at Mounds Park Academy. I think this is my tenth time teaching some version of economics and my seventh time with the "21st Century" material course here at MPA. We first joined the two topics three years ago, and that worked out pretty well. I would definitely suggest bookmarking this site, because we will refer to it almost every day.


"Textbooks": We will use a variety of resources in this course, but there are two books that you will be expected to have. Both are quite good.

• Naked Economics: Undressing the Dismal Science is the primary resource we will use for the economics material. I actually laughed out loud a couple times as I first read it. (Keep your comments to yourself about what that says about me...)
  
  
• The World Is Flat:  A Brief History of the 21st Century will be our primary book for the "21st Century" portion of the course.
  

Grades:  On what will you be graded? You can expect it to look something like this... Give me a few days to iron out all the specifics.

• Attendance and Participation
  
• Exams - both in-class and take-home formats
  
• Required Blog Entries
  
• Required Assignments

• "Freakonomics" Blog Entries - We'll have you take a look at a couple of these and share what you find. (I have some handouts, but the link will take you to the blog itself.)
  
  
• "Top Ten Economic Questions" - Click on the link to download a template where you can jot down the notes you find helpful.

Homework for tomorrow - Tuesday, April 2nd

Please read both the Foreward and the Introduction in Naked Economics for next class. Be prepared to discuss main points. Your first required blog entry for this will be due on Wednesday before the beginning of class time. I will post that for tomorrow's class.

We'll pay tribute to the MPA "5 x 10 program" with our own "Economics 5 x 10s." You will be asked to read a short chapter from Sex, Drugs & Economics: An Unconventional Introduction to Economics. Your job for next time will be to share the basics of the chapter with the rest of us. We're looking to see economic concepts in action and to begin to use some of the vocabulary of economists...

Your group's "presentations" should include each of the following:

• summary of interesting information
  
• questions or topics for discussion
  
• use of "economics" vocabulary
  
• attempt to use a supply/demand graph

Don't panic. Your group will have about 10 minutes total, including questions and discussion.

The chapters deal with these topics. (You may not get your first choice...)

• Sex
  
• Illegal Drugs
  
• Sports
  
• Music
  
• Food Fights

• If you have any missing tests or quizzes, those should be taken TODAY unless you have made prior arrangements.
  
• I will accept blog entries posted by midnight on MONDAY, MAY 28th and emailed assignments received by midnight on MONDAY, MAY 28th for credit. 
• After Monday midnight, unless previous arrangements have been made, I will ONLY accept additional work as required to get you a passing grade. In other words, you're not getting higher than a D- after that point.

• If you have any missing tests or quizzes, those should be taken today or tomorrow unless you have made prior arrangements.
  
• I will accept blog entries posted by midnight on MONDAY, MAY 28th and emailed assignments received by midnight on MONDAY, MAY 28th for credit. 
• After Monday midnight, unless previous arrangements have been made, I will ONLY accept additional work as required to get you a passing grade. In other words, you're not getting higher than a D- after that point.

First, the 21st Century "Job Fair" - I thought these were kind of neat. Joyce Gioia and Roger Herman both used to write for The Futurist magazine, and they composed a list of some jobs they expect to see emerging early in this century. We'll hand out the slips and you can check them out.

We won't do this next exercise in class, but you're obviously welcome to take a look at it if you would like. The 21st Century Workplace is the testimony of economist Jared Bernstein before a 2005 US Senate committee.

Second, I've got some lists and excerpts from the book, The Extreme Future: The Top Trends That Will Reshape the World for the Next 5, 10 and 20 Years. We'll get you a pair of their "Top Ten" lists on a variety of subjects. We'll also get you a handout containing some lists that might or might not be related. You'll get a few minutes to "mingle," and then we'll see what you think.

Weapons of Mass Destruction and Proliferation: There's a lot we could do here, but we'll try and give you an overview and have some discussion.

Deadly Maps: This is a collection of maps from the Carnegie Endowment for International Peace

• Global Proliferation Status - 2005
  
• Nuclear Weapons Status - 2005
  
• Biological Weapons Status - 2005
  
• Chemical Weapon Status - 2005
  
• Ballistic Missile Proliferation - 2005

NUCLEAR WEAPONS - DETERRENCE AND STRATEGY: There's a whole lexicon of terms used in the justification of nuclear weapons and the considerations for their eventual use (or non-use). Here are a few.

Doomsday Clock: This has been maintained by the Bulletin of Atomic Scientists since the end of World War Two. It shows the world how "close" they were to midnight, or a nuclear conflict, through use of a clock analogy. Scroll down to see past "times" with brief explanations.

Mutual Assured Destruction (MAD) - This is the belief that weapons would not be used since any use would result in the destruction of both the attacker and the nation attacked. It formed the basis of deterrence theory in the Cold War.

Prisoner's Dilemma: This explanation for the arms race is drawn from the field of game theory. (You know, the film, A Beautiful Mind, and all that.)

first strike - A nation is said to have a "first strike" capability when it can attack another nation without fear of being counterattacked. Typically, the attacker would destroy all of the other nation's WMDs in the initial attack.

Nuclear triad - This refers to the traditional "three prongs" of the US nuclear force: strategic bombers, ICBMs and missile submarines.

counterforce v. countervalue targets - Counterforce targets are those that are part of a nation's own weapons systems and the military structure that supports them. Countervalue targets refer to civilian populations and institutions.

WMD DISCUSSION QUESTIONS:

• Is the possession of WMDs by the government of a sovereign state immoral? Why or why not?
• Is it hypocritical for nuclear states to work to prevent others from acquiring the same weapons? Why or why not?
• Are nuclear weapons an effective deterrent? Why or why not?
• Are India and Pakistan more or less stable now that they both possess nuclear weapons?
• How can the international community best prevent "rogue states" from acquiring WMDs? What should be done with Iran? With North Korea?
• What do you believe would happen if Israel disclosed its nuclear arsenal to the world?
• Would a viable missile defense system make the world safer or more dangerous?
• Will nuclear weapons be used in anger by a nation during your lifetime?

FYI: Here's an article that has more than you'd ever need to know about the future (and past) of United States nuclear strategy in the 21st century.

What Are Nuclear Weapons For? Recommendations for Restructuring U.S. Strategic Nuclear Forces Sidney D. Drell and James E. Goodby, Arms Control Association Report, April 2005

Terrorism: We've touched on it before in the course, and Friedman does some of his best writing on the topic. In particular, I'd recommend Chapter 15, "The Unflat World." ("Too Disempowered" is a very strong section of the chapter.)

There are certainly many definitions offered for "terrorism." We'll work to derive a definition as well. Here, you can see what the University of Pittsburgh Law School journal had to say regarding common characteristics of definitions of terrorism.

Here's a rather depressing list of "Terrorist Incidents."

Aon, which is some sort of insurance and risk management business, issues a Political Risk Map. I'll show you the 2012 map. It's pretty detailed.

We're not going to do the blog entry thing, but here are 12 groups linked to terrorism (besides al-Qaeda) we should learn at least a bit about. We'll have you work in pairs for 5 minutes on one of these and then report back... Yeah, Wikipedia might also be helpful here.

Abu Sayyaf Group (ASG)
Al-Aqsa Martyrs Brigade
Aum Shinrikyo (Aum)
Basque Fatherland and Liberty (ETA)
Continuity Irish Republican Army (CIRA)
HAMAS
Hizballah
Liberation Tigers of Tamil Eelam (LTTE)
Palestine Liberation Front
Al-Qaida
Shining Path (Sendero Luminoso)
Revolutionary Armed Forces of Colombia (FARC)

TERRORISM DISCUSSION QUESTIONS:

• Are we safer now than we were before 9/11?
• Ten years from now, will terrorism be a greater or lesser threat to the international community? Why?
  
  
• What infringements or abridgments of privacy will you accept in America today?
• Should profiling be used to identify potential threats on airlines and elsewhere?
  
• What should be done with the prisoners at Guantanamo Bay?
  
  
• Other than simply working to better defend and guard possible targets, how can the US and others work to prevent terrorist attacks? Is the solution political, economic, military?
• Harvard's Dean of the Kennedy School Joseph Nye writes about "soft power" quite a bit. That refers to a state like the US working on "co-opting people, rather than coercing them" via interdependence, values, etc. Do you think this is more or less effective in combating terror than our traditional focus on "hard" power?

Remember that the two "21st Century" Take-Home Essay are due Friday, May 25th. (You can also do a third for extra credit if you would like.)

As I've mentioned, I'm fine with receiving work up through the end of Memorial Day weekend, but I'll only give you credit for things received after that as far as needed to give you passing credit. (Talk to me IN ADVANCE if you think there's a reason why you should be an exception to that policy.)

Migration and Immigration

First, some definitions are probably in order. (No, I didn't just go to Wikipedia. I sought some more academic sources...)

migration: the movement of persons from one country or locality to another (Princeton)

illegal immigrant: Someone present in the country without authorization. People considered illegal immigrants can enter the United States in two ways: either by sneaking across the border, or by entering the country legally under a temporary visa but then failing to leave once their visa expires. (NPR website)

refugee: Any person who, owing to a well-founded fear of being persecuted for reasons of race, religion, nationality, membership of a particular social group or political opinion, is outside the country of his nationality and is unable or, owing to such fear, is unwilling to avail himself of the protection of that country; or who, not having a nationality and being outside of the country of his former habitual residence as a result of such events, is unable or, owing to such fear, unwilling to return to it. (Source: UN Convention Related to the Status of Refugees and the 1967 Protocol)

Internally Displaced Persons (IDPs): Persons or groups of persons who have been forced or obliged to flee or to leave their homes or places of habitual residence, in particular as a result of or in order to avoid the effects of armed conflict, situations of generalized violence, violations of human rights or natural or man-made disasters, and who have not crossed an internationally recognized State border. (Source: "Guiding Principles on Internal Displacements" issued by the Special Representative of the UN Secretary General in 1998)

asylum-seekers: Persons who file an application for asylum in a country other than their own. They remain in the status of asylum-seeker until their application is considered and adjudicated.

foreign migrant workers: Foreigners admitted by the receiving State for the specific purpose of exercising an economic activity remunerated from within the receiving country. Their length of stay is usually restricted as is the type of employment they can hold.

trafficking: When a migrant is illegally recruited, coerced and/or forcibly moved within national or across national borders. Traffickers are those who transport migrants and profit economically or otherwise from their relocation. (Source: International Organization for Migration).

WORLDWIDE:

Here's the website for Refugees International. This set of Helpful Facts & Figures is also interesting.

Here's a comprehensive site from Human Rights Watch: Refugees, Internally Displaced Persons, and Asylum Seekers

In case you were wondering, it looks like we currently make provisions for the admission of about 70,000 refugees a year into the US. Specific quotas are set for different areas of the world, and 20,000 spots are held "in reserve."

UNITED STATES:

A New Century: Immigration and the US is an extensive article that provides a good overview of new issues and challenges in immigration policy that face the United States in the 21st Century.

Most estimates place the number of "undocumented" (illegal) immigrants in the country at any one time between 10 and 12 million.

NPR: The Immigration Debate is a very thorough website covering immigration and its status as a very important issue in American politics.

ISSUES FOR DISCUSSION:

1. China is experiencing an unprecedented internal migration. Estimates are that between 300 and 500 million Chinese will leave rural areas and migrate to the cities of China. What implications will these have for China's internal stability? How should Beijing deal with this movement?

2. By many estimates, the Palestinians make up one-quarter of the world's refugees. Based on your understanding of their situation, how does it compare with what you typically think of as a refugee issue? If you see it as different, explain why. What should the international community push for if they want to settle this issue?

3. How do you view the plights of refugees in comparison with those of internally displaced peoples? Should the international community treat them differently?

4. In the post-9/11 world, the United States has significantly altered its position on many immigration issues. Which do you think is the greater fear: allowing too much legal immigration or allowing too little? Why?

5. Congress is considering some broad immigration reforms. Assume that you are in charge. What would you do? In particular, what would you do regarding the southern border and the status of the 10-12 million illegal immigrants already in the country?

"ORGANIZING" THE 21st CENTURY WORLD: Below is the list of 25 important intergovernmental organizations (IGOs) and non-governmental organizations. We'll have you each take one of these and spend a few minutes figuring out what they are about. (I recommend Wikipedia and/or the group's website.)

For "your" organization, we COULD have you do it like this:

• Give us a brief overview of what your organization does.
• Give us at least one way in which you see the organization playing a role in the 21st century world.
  

• Rap (or any other style of singing)
• Interpretive Dance
• Pantomime
• Other ideas?
  
  Feel free to incorporate other people as necessary...
  

HOMEWORK for next session - Monday, May 21st

Welcome one and all to the "8th Annual MPA Globalization Forum." We gather to try and make sense of this force that is reshaping our world...

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.

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 10th. (5 points each)

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    Indian peasant
• Asia    Chinese government official
  
• Asia    Elderly Japanese citizen
  
• Europe    Immigrant from North Africa working in Paris
  
• Middle East    Islamic fundamentalist
  
• Latin America    Worker in eco-tourism industry
  
• Europe    Worker "displaced" by immigrant labor
  
• United States    College student
  
• Africa    Urban youth
  
• Asia    Rural youth recently emigrated to Shanghai
  
• United States    Environmental activist
  
• Latin America    Illegal immigrant to the United States
  
• Asia    Chinese peasant
  
• Africa    Leader of nation dependent on coffee exports
  
• Asia    Indian service-industry worker
  
• Latin America    Manager of foreign-owned factory
  
• Africa    Person existing on $1 a day
  
• Europe    Owner of multi-national corporation
  
• Middle East    Leader of oil-rich state
  
• United States    Worker whose job was "outsourced"
  
• United States    "Big Business" executive
  
• Middle East    Young woman hoping to attend college
  
• Asia    "Sweatshop" laborer
  

We'll see what time it is when we make it through these speeches. The plan is to revisit some of the ten topics/statements we tackled the other day. 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.
  
  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 - Thursday, May 3rd

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."

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

We'll be joined today by Dr. James Toole. In addition to being the father of an MPA 2nd grader, Dr. Toole is a Senior Fellow in the University of Minnesota's College of Education and Human Development.

HOMEWORK for tomorrow - Thursday, May 26th

Remember that the two "21st Century Take-Home" Essays are due Friday, May 27th. (You can also do a third for extra credit if you would like.)

As I've mentioned, I'm fine with receiving work up through the end of Memorial Day weekend, but I'll only give you credit for things received after that as far as needed to give you passing credit. (Talk to me IN ADVANCE if you think there's a reason why you should be an exception to that policy.)

INTERNATIONAL AGREEMENTS: We've done this type of thing before. You and a partner will claim one of the agreements below, research it a bit, and we'll briefly discuss these. (Yeah, this would have been a blog entry in a "normal" quarter.)

Briefly, what is the agreement? Who are the major parties? (Not necessarily a list...) When was it created? Why? What is the position/status of the United States regarding this agreement? Finally, what is your assessment of the desirability/efficacy of this agreement in the 21st century world?

• Maastricht Treaty
• Geneva Conventions
• International Criminal Court (ICC)
• Dayton Agreement
• Oslo Accords
• Sunshine Policy
• Kyoto Protocol
• Anti-Ballistic Missile Treaty (ABM)
• Chemical Weapons Convention (CWC)
• Comprehensive Nuclear Test Ban Treaty (CTBT)
• Land Mine treaty
• Nuclear Non-Proliferation Treaty (NPT)
• UN Resolution 242 (and 338)

"ORGANIZING" THE 21st CENTURY WORLD: Below is the list of 25 important intergovernmental organizations (IGOs) and non-governmental organizations. We'll go through these in a way that might make more sense than simply alphabetical...

For "your" organization, let's have you do this:

• Give us a brief overview of what your organization does.
• Give us at least one way in which you see the organization playing a role in the 21st century world.

United Nations General Assembly
United Nations Security Council
United Nations Children's Fund (UNICEF)
United Nations Educational, Scientific and Cultural Organization (UNESCO)
United Nations Population Fund (UNFPA)
World Bank
International Monetary Fund (IMF)
North Atlantic Treaty Organization (NATO)
World Trade Organization (WTO)
European Union (EU)
Group of 8 (G8)
Organization for Economic Cooperation and Development (OECD)
Organization of American States (OAS)
Mercosur
African Union (AU)
League of Arab States
Organization of Petroleum Exporting Countries (OPEC)
Organization of Islamic Conferences
Commonwealth of Independent States
Association of Southeast Asian Nations (ASEAN)
Asia-Pacific Economic Cooperation (APEC)
Non-Aligned Movement (NAM)
World Health Organization (WHO)
World Food Program (WFP)
World Intellectual Property Organization (WIPO)

TERRORISM DISCUSSION QUESTIONS:

• Are we winning the "War on Terror?"
  
• Are we safer than we were before 9/11?
  
  
• Other than simply working to better defend and guard possible targets, how can the US and others work to prevent terrorist attacks? Is the solution political, economic, military?
• Harvard's Dean of the Kennedy School Joseph Nye writes about "soft power" quite a bit. That refers to a state like the US working on "co-opting people, rather than coercing them" via interdependence, values, etc. Do you think this is more or less effective in combating terror than our traditional focus on "hard" power?
  
  
• Why do they hate us? (Yeah, it's cliche, but I want to know what you think.)
• Is Osama bin Laden irrelevant? Has al-Qaeda lost its bite?
  
  
• What infringements or abridgments of privacy will you accept in America today?
• Should profiling be used to identify potential threats on airlines and elsewhere?
• Is the National Security Agency's use of wiretaps justified in today's climate?
  
  
• What should be done with the prisoners at Guantanamo Bay?
  
  
• What form will future acts of terrorism against the United States take? Why?
  
  
• Ten years from now, will terrorism be a greater or lesser threat to the international community? Why?
  

HOMEWORK for tomorrow - Friday, May 28th

This entry lists the requirements for the 21st Century Take-Home Short Essay Exam. Remember that you need to do two of the questions, and you can get extra credit for a third. These are due on Friday.

Remember to finish up any missing blog entries. (There is also an Extra Credit Blog Entry posted if you are interested in that.)

Remember that the three "short essay" questions from that Macroeconomics/International Economics exam should also be turned in by those of you who have yet to do so. (Either print them out or email as an attachment.) You can choose any three of the ten questions listed on this previous blog.

Today's topic will be terrorism. We've touched on it before in the course, and Friedman does some of his best writing on the topic. In particular, I'd recommend Chapter 15, "The Unflat World." ("Too Disempowered" is a very strong section of the chapter.)

Terrorism or Not? - I'll read you some prompts. Tell us what you think.

There are certainly many definitions offered for "terrorism." We'll work to derive a definition as well. Here, you can see what the University of Pittsburgh Law School journal had to say regarding common characteristics of definitions of terrorism.

Here's a rather depressing list of "Terrorist Incidents."

Aon, which is some sort of insurance and risk management business, issues a Political Risk Map. You can Google it if you want to download a copy, but I'll pop mine up on the board. It's pretty detailed.

The Naval Postgraduate School has a site with Terrorist Group Profiles. We're not going to do the blog entry thing, but here are 12 groups we should learn at least a bit about. We'll have you work in pairs for 5 minutes on one of these and then report back... Yeah, Wikipedia might also be helpful here.

Abu Sayyaf Group (ASG)
Al-Aqsa Martyrs Brigade
Aum Shinrikyo (Aum)
Basque Fatherland and Liberty (ETA)
Continuity Irish Republican Army (CIRA)
HAMAS
Hizballah
Liberation Tigers of Tamil Eelam (LTTE)
Palestine Liberation Front
Al-Qaida
Shining Path (Sendero Luminoso)
Revolutionary Armed Forces of Colombia (FARC)

DISCUSSION QUESTIONS: We'll talk a little but more tomorrow about the 9/11 aspect of this, so I'll try not to go over the same ground here...

• Why do "they" hate us? (Yeah, it's cliche, but I want to know what you think.)
  
• How much does it really matter whether bin Laden is dead or alive?
• Ten years from now, will terrorism be a greater or lesser threat to the international community? Why?
• Other than simply working to better defend and guard possible targets, how can the US and others work to prevent terrorist attacks? Is the solution political, economic, military?
• Harvard's Dean of the Kennedy School Joseph Nye writes about "soft power" quite a bit. That refers to a state like the US working on "co-opting people, rather than coercing them" via interdependence, values, etc. Do you think this is more or less effective in combating terror than our traditional focus on "hard" power?

FYI: A couple of worthwhile sites to check out...

Frontline (PBS) produces great web sites. The Roots of Terror has information related to a number of their television broadcasts related to terrorism.

I'd never seen this before last year's class, but Terrorism Research appears to be some sort of "open source" research tool on terrorism. It looks like it has a lot of features.

HOMEWORK for tomorrow - Thursday, May 27th

This entry lists the requirements for the 21st Century Take-Home Short Essay Exam. Remember that you need to do two of the questions, and you can get extra credit for a third. These are due on Friday.

Remember to finish up any missing blog entries. (There is also an Extra Credit Blog Entry posted if you are interested in that.)

Remember that the three "short essay" questions from that Macroeconomics/International Economics exam should also be turned in by those of you who have yet to do so. (Either print them out or email as an attachment.) You can choose any three of the ten questions listed on this previous blog.

• "How to Lie Without Statistics"
• "The Enormity of the Fiscal Gap"
• "Declining Admissions Rates at Top Colleges"
• "An Auction"
• "Taxes Per Person"

• "How to Stack the Cards in a Broccoli v. Chocolate Study"
• "Not from the Onion:  NYC to Stop Paying Teachers to Do Nothing"
• "Who Really Failed?"
• "Why Do Colleges Care About Extracurricular Activities?"

• "Why Businesses Don't Experiment"
• "The Long-Term Effects of Short-Term Emotions"
• "Monkeys Like to Mix It Up"
• "The Power of Defaults in How We Eat"

Defining "unemployment:  The unemployment rate is the percentage of the U.S. labor force that is unemployed. It is calculated by dividing the number of unemployed individuals by the sum of the number of people unemployed and the number of people employed. An individual is counted as unemployed if the individual is over the age of 16 and is actively looking for a job, but cannot find one. Students, those individuals who choose to not work, and retirees are therefore not counted in the unemployment rate.

The Current State of Unemployment: The most recent figures we have take us through December.  This is a lot of numbers, but just browse it for a couple minutes. Here are the newest charts from the Bureau of Labor Statistics.

Questions to consider and discuss:

• What surprises you (if anything) about the statistics and graphs above? What explanations do you have for the discrepancies?

• In January 2002, a falling unemployment rate was accompanied by a significant fall in employment. How can the number of individuals employed fall and the unemployment rate fall at the same time?
  
  

Unemployment in your backyard (or anyone else's) ... You can go to the Bureau of Labor Statistics website and check the Local Area Unemployment Statistics for your city and/or state.

Answer these questions:

1. Is unemployment in our area higher, lower, or roughly the same as the national average? What about your favorite vacation spot? Your grandma's hometown?

2. What factors contribute to our area's unemployment rate? (Think about recent news...)

• Which industries have expanded?
• Which industries have contracted?

3. Will the recent changes affect you?

4. If avoiding inflation were your highest concern, where should you move? If you like the idea of unemployment, what cities would you recommend for your next move?

• Do you think unemployment benefits are appropriate in Minnesota?
• What changes, if any, would you make?
• Do you think these benefits are a disincentive to work?
  
  

The Relationship between Inflation and Unemployment: The Phillips Curve - Economists have long claimed an inverse relationship exists between unemployment and inflation. This "Phillips Curve" quickly gets very technical, but you can see the basics at this link. Browse around for a bit.

HOMEWORK for tomorrow - Friday, April 23rd

Your Naked Economics Blog Entry #4 is posted (Chapters 6 and 7). It is due by class time on Friday.

Please try to read Chapter 8 in Naked Economics for tomorrow and Chapter 9 over the weekend.

We'll do the rest of the Taking Sides - Clashing Views on Controversial Economic Issues debates today.

We have these topics for today - January 7th:

• #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?

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

* 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 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...)

If you missed Monday's class, we'll get you set up for Friday's Dead Economists' Breakfast.

I have 10 CDs, each containing a lecture from the "Legacies of Great Economists" series put out by The Teaching Company. I also have "lecture notes" for each of them. You and a partner will select one of the lectures and listen to it before Thursday. Your job is to be ready to share a few minutes of information from your lecture. We'll go through the history of economics while we have some breakfast on Friday morning. Yes, you get credit for doing a good job with this.

* Before Economics--Mercantilists and Physiocrats
* Adam Smith and the Birth of Economics
* The Dismal Science--Thomas Robert Malthus and David Ricardo
* John Stuart Mill and Utilitarianism
* Karl Marx and Socialism
* Alfred Marshall and Marginalist Thought
* The Socialist Calculation Debate
* Joseph Schumpeter and Entrepreneurialism
* John Maynard Keynes and the Keynesian Revolution
* Milton Friedman and the Rebirth of Classical Economics

HOMEWORK for tomorrow - Thursday, January 8th

Continue to 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 is 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 theoretically due on Wednesday, January 7th, but you can certainly work on them Thursday as well if you need the time. (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. BASICALLY, I want them by the end of school on Friday, unless you have talked to me about other arrangements before that time.

We'll do the first half of the Taking Sides - Clashing Views on Controversial Economic Issues debates today.

Tuesday, January 6th

* #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?

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

* 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 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...)

That leaves these topics for Wednesday, January 7th

* #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?

If you missed yesterday's class, we'll get you set up for Friday's Dead Economists' Breakfast.

I have 10 CDs, each containing a lecture from the "Legacies of Great Economists" series put out by The Teaching Company. I also have "lecture notes" for each of them. You and a partner will select one of the lectures and listen to it before Thursday. Your job is to be ready to share a few minutes of information from your lecture. We'll go through the history of economics while we have some breakfast on Friday morning. Yes, you get credit for doing a good job with this.

* Before Economics--Mercantilists and Physiocrats
* Adam Smith and the Birth of Economics
* The Dismal Science--Thomas Robert Malthus and David Ricardo
* John Stuart Mill and Utilitarianism
* Karl Marx and Socialism
* Alfred Marshall and Marginalist Thought
* The Socialist Calculation Debate
* Joseph Schumpeter and Entrepreneurialism
* John Maynard Keynes and the Keynesian Revolution
* Milton Friedman and the Rebirth of Classical Economics

HOMEWORK for tomorrow - Wednesday, January 7th

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 is 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 theoretically due on Wednesday, January 7th, but you can certainly work on them Thursday as well if you need the time.  (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. BASICALLY, I want them by the end of school on Friday, unless you have talked to me about other arrangements before that time.

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.

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.

• 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.

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.

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

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?

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.)

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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."

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.

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.  

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...)

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."

* 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. 

The Government and Taxes: Last time we were together, we looked at the "numbers". Today, we'll try to make some sense of them...

We can talk a little bit about Naked Economics Chapter 7, "Financial Markets." We can also look at anything interesting you found in the various websites from last Tuesday.

• Office of Management and Budget: Fiscal Outlook
• The National Debt: Here's the Debt Clock. 
• Grandfather Economic Report: Michael Hodges had put together this large site concerned with presenting information on the national debt. You're directed to the portion of the site concerning economic issues, but you may want to look around further.

On to the new stuff for today...

Taxes: There's an old saying that, "there's nothing certain but death and taxes." Today, we'll spend some time looking at the less depressing half of that adage... Hopefully, you've been convinced by now of the economic necessity of some form of taxation. (If not, contemplate life without roads, schools, police, and national defense for a while...)

So, if we work from the common assumption that taxes are a necessity, there remain several questions:

• Who should be taxed?
• What should be taxed?
• How (at what rate) should the tax be levied?
• What should happen to the money collected from the tax?

Let's start our look at some internet resources with this... Taxpolicy.com invites you to "Build Your Own Tax Policy." It asks you a series of questions and then sketches out your broad views on taxes as derived from those answers.

The history of taxation: Of course, the history of taxation is long. If you want more information than you can ever use, consult "The History of Taxation" at the "Taxworld" website.

Types of taxes: There are several broad categories of taxes. Economists generally classify taxes as progressive, regressive, or proportional. (Another type of tax is called a "head" tax. Everyone pays the same amount.) Let's make sure we understand the differences.

Discuss: Which type of tax do you think is most fair? Are there any that you strongly oppose? Is the sales tax regressive?

The Federal Income Tax: This, of course, is the "big one". It has been in place since 1913, and it is the single largest source of governmental revenue.

One of the legacies of the Reagan years was a period of tax reform. Now, there are six federal income tax rates: 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, and 35 percent.

For married couples, the 15 percent rate currently applies to taxable income up to $63,700, whereas the 25 percent rate applies to taxable income between $63,700 and $128,500. Here are the more complete 2007 federal income tax rate schedules.

Discuss: Do you think it is fair to tax higher levels of income at a higher rate? Would you like to see a more or less progressive income tax?

Of course, Minnesota gets its share of income as well. You can learn more about that at the "Minnesota Department of Revenue Home Page." You can also browse around here to find a copy of the tax forms you would need to file as well.

For comparisons, here are State Income Taxes for the rest of the nation.

The "Flat" Tax: One of the "new" movements in tax reform has been the call for a flat tax. Here are two articles to consider...

• Christian Science Monitor: "US already moving toward a flat tax."
• Economist: "The flat-tax revolution."

Current Events - Articles jigsaw - We'll give you one of four articles and ask you to be reading to discuss it tomorrow. 

Homework for next session - Tuesday, December 2nd

Please have your Blog Entry #6 ASAP. (I got that posted late, so we'll give you a day or two to get that done.) 

I'll be asking you to read Chapter 10, "The Federal Reserve," out of order for Wednesday's class. You could also take care of that. 

Please also read the handout, "The Mythology of Deficits," for tomorrow.

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

Some of you might be interested in this Civics Quiz.

Supply, supply, supply: We'll look at the competing theory to the previous lesson's "grand explanation" of the economy.

For quite a while, the ideas we learned about last time were almost completely accepted in economic circles. Keynes' analysis, even though it focused almost completely on demand, was accepted as economic "gospel".

By the early 1970s, serious questions emerged about relying solely on this explanation:

• Supply "shocks", such as the OPEC oil embargo of 1973, hit the economy, but the Keynsian model alone could not offer advice for dealing with these crises.
• For the first time, America was facing rising unemployment and rising inflation. The Keynsian approach alone couldn't explain these type of departures from the "business cycle" model.
• This approach tended to be short-term in its focus, and that diverted attention from longer term issues like economic growth and standard of living.

It was out of these concerns that a new approach, supply-side economics, emerged. It had its strongest impact during the Reagan years. (Many called it "Reaganomics".) Although the overall approach doesn't find as many supporters among economists today, looking at its approach still helps fully understand macroeconomic theory.

Here it is; a brief tour of the "supply side"...

The first key idea was found in the early 1800s when a French economist named J.B. Say got a law named after him...

Say's Law: "Supply creates its own demand..." This idea held that overproduction and underproduction would never be problems since production itself generated enough income to purchase what is produced. "Gluts" or shortages would lead to price adjustments until the glut or shortage disappeared. According to the theory, full employment would soon reappear.

The experience of the Great Depression, and its sustained, high unemployment, led to an acceptance of the ideas of Keynes and discredited "Say's Law".

Modern "supply-siders":

The key to understanding this approach is the idea of incentives. Keynes assumed that an increase in demand automatically meant an increase in supply unless the economy was at "full capacity". Supply-siders disagree, saying that the production won't happen if the costs are too high.

What could make the costs too high? Things like taxes and interest rates.

The "solution"? Incentives- particularly in the form of lower taxes.

• They argued that reducing costs will lead to more production by business.
• Also, lower taxes would encourage household savings, creating more funds for investment.
• Further, some claimed that decreasing tax rates would lead laborers to work more, furthering the cycle.

The second key difference is the effect of government deficits, or the theory of crowding-out.

Here's the argument: When spending exceeds taxes, the government borrows money in financial markets. (States and locals also sell revenue bonds to finance projects.) The federal government also sells treasury bonds.

Supply-siders say these actions pull money (capital) out of the private markets and raise interest rates. These actions "crowd out" private investment, lowering output and employment.

You may have noted a potential contradiction here. How can you hope to both cut taxes to stimulate the economy and avoid budget deficits that might crowd out investment? What do you think?

Remember, although relatively few economists still hold these ideas, the concepts of "supply-side" economics still influence public policy decisions today.

The Debate over Government: What do you think? An introductory discussion...

• Is the US government responsible for ensuring that all its citizens have an adequate standard of living? If so, how should they go about doing that? If not, why not?
• To what degree should the US government pursue policies of "income redistribution?" How?
• What "transfer payments" (welfare, social security, unemployment, etc.) do you support? Why? Are their changes that you would make?
• Should recipients of welfare be required to work in order to receive benefits?
• What would be the fairest system of taxation in this country?

The Government and Its Role: Today, we'll focus on the numbers. These numbers, of course, will vary from year to year...

Where does the federal government get its revenue from?

44% from individual income taxes
36% from Social Security payroll taxes
11% from corporate income taxes
4% from excise taxes
2% from customs duties

Where does the federal government spend its money?

22% is spent on Social Security
20% is spent on defense
9% is for other "direct" spending
10% on Medicare
6% on Medicaid
15% on interest on the national debt
other areas are smaller
about 2% is spent on welfare
less than 1% is spent on foreign aid

The largest single source of revenue for state governments is the sales tax. Local governments depend most heavily upon property taxes.

The Fiscal Year 2009 Budget: These links are from the Federal Government's Office of Management and Budget, and they deal with the most recent budget proposal.

Office of Management and Budget: Fiscal Outlook: DO THIS: Look through this overview and find three budget priorities that you support and three that you disagree with. Make note of these for discussion in class.

The National Debt: This is simply the sum of all outstanding government deficits.

Here's an example of a Debt Clock that we mentioned earlier. See what your share is today...

Grandfather Economic Report: Michael Hodges had put together this large site concerned with presenting information on the national debt. You're directed to the portion of the site concerning economic issues, but you may want to look around further.

DO THIS: Browse through this report. The pictures and graphs are very user-friendly. Find five things (statistics, graphs, comparisons) that are of interest to you, and make note of them to share in class. Then, make at least two "policy recommendations" for the US government based on what you have learned.

Homework for next session - Monday, December 1st

I'd like you to read Naked Economics Chapter 7, "Financial Markets," for Monday's class. (I'll be asking you to read Chapter 10, "The Federal Reserve," out of order for Wednesday's class. You could also take care of that.)

Please have your Blog Entry #6 completed by Monday's class as well.

We've only got two days this week, but we'll try to start putting the pieces together to get more of an "overall" look at the macroeconomy.

First, I'm interested in talking both about your Blog Entry #5 posts as well as the reading in Naked Economics Chapter 6 that you were asked to do for today. 

Demand, demand, demand: We're starting to put the "big picture" together here in our look at the macroeconomy. Today, we'll look at flows in the economy, particularly as they originate on the demand side. We'll largely be looking at work pioneered by John Maynard Keynes.  This is clearly the dominant theme of chapter 6 from Economics Explained. We'll make use of that in class.

We're going to try and work through this a couple different ways.

First, we'll literally try and walk through the explanations from the reading.  (I think this material is as potentially confusing as any that we will use this quarter.) Second, we'll look at a visual representation of this.  I have a handout for you.  

Continuing with our "Oh, great. Economics has changed again. What all economists thought for decades is now being challenged" theme, here's a Freakonomics blog entry that questions this whole "Keynesian economics" idea.

The credit crisis as Antarctic expedition - As we get closer to having a more complete idea of our economy, it's time to start looking more closely at just what has been going on in recent weeks. I found this video by Marketplace Senior Editor Paddy Hirsch very helpful. Let's see what you think. It's about 8 minutes.

HOMEWORK for tomorrow - Tuesday, November 25th

I'd like you to read Naked Economics Chapter 7, "Financial Markets," for Monday's class. (I'll be asking you to read Chapter 10, "The Federal Reserve," out of order for Wednesday's class. You could also take care of that.)

Please have your Blog Entry #6 completed by Monday's class as well. (I'm having trouble posting that. I keep getting error messages, but I'll get it straightened out yet today.

Employment and Unemployment: Today's topic, in many ways, is sort of the flip side of what we did with inflation.

Defining "unemployment:  The unemployment rate is the percentage of the U.S. labor force that is unemployed. It is calculated by dividing the number of unemployed individuals by the sum of the number of people unemployed and the number of people employed. An individual is counted as unemployed if the individual is over the age of 16 and is actively looking for a job, but cannot find one. Students, those individuals who choose to not work, and retirees are therefore not counted in the unemployment rate.

The Current State of Unemployment: The most recent figures we have take us through December.  This is a lot of numbers, but just browse it for a couple minutes.

Since I can't figure out how to get charts onto the blog, follow this link to my old page and scroll down to the charts...  Here are the newest charts from the Bureau of Labor Statistics.

Questions to consider and discuss:

• What surprises you (if anything) about the statistics and graphs above? What explanations do you have for the discrepancies?

• In January 2002, a falling unemployment rate was accompanied by a significant fall in employment. How can the number of individuals employed fall and the unemployment rate fall at the same time?

Unemployment in your backyard (or anyone else's) ... You can go to the Bureau of Labor Statistics website and check the Local Area Unemployment Statistics for your city and/or state.

Answer these questions:

1. Is unemployment in our area higher, lower, or roughly the same as the national average? What about your favorite vacation spot? Your grandma's hometown?

2. What factors contribute to our area's unemployment rate? (Think about recent news...)

Which industries have expanded?

Which industries have contracted?

3. Will the recent changes affect you?

4. If avoiding inflation were your highest concern, where should you move? If you like the idea of unemployment, what cities would you recommend for your next move?

Unemployment Insurance:  Go to the website for the Minnesota WorkForce Center. Browse through the links and see what kinds of benefits are available in this state.

• Do you think unemployment benefits are appropriate in Minnesota?
• What changes, if any, would you make?
• Do you think these benefits are a disincentive to work?

The Relationship between Inflation and Unemployment: The Phillips Curve - Economists have long claimed an inverse relationship exists between unemployment and inflation. This "Phillips Curve" quickly gets very technical, but you can see the basics at this link. Browse around for a bit.

"Inflation" is our topic for today, but we'll do a couple things off the top here first.

I'll return the quizzes that I have so that you can take a look at them.

Wachovia College Budgeting Calculator: Anything interesting come up here?

Naked Economics - Chapter 5: You were asked to have this read for today. I think this is one of the most interesting chapters, and I am curious as to what you found the most interesting.

Fiscal v. Monetary Policy - Let's make sure you understand the basics of these two concepts, since we'll come back to them again and again.

Inflation: We'll be looking at inflation today, since it might be the economic issue of most concern to policymakers and consumers. (I suppose that would be more true when the economy isn't facing its most serious challenges since the Great Depression...) This topic will come up several times, but we'll get some of the basics out of the way.

Defining "inflation": Inflation is a sustained increase in the overall level of prices. The most widely reported measurement of inflation is the consumer price index (CPI).

The Consumer Price Index measures prices of goods and services in a market basket of goods and services that is intended to be representative of a typical consumer's purchases. The percentages currently used to describe the categories of goods and services that market basket are as follows.

• Food and beverages 15 %
• Recreation 6 %
• Housing 42 %
• Education 3 %
• Clothing 4 %
• Communication 3 %
• Transportation 17 %
• Medical care 6 %
• Other goods and services 4 %

Inflation and the CPI, April 16, 2008 - This is the text of the most recent inflation report from the National Council on Economic Education. We can take a look at some of the graphs and charts for a minute.

Much of the following information is simply copied from the EconEd website for our convenience in class today...

Causes of Inflation: Over short periods of time, inflation can be caused by a decrease in production or an increase in spending. We get the names for the two major types from this: demand-pull and cost-push.

Inflation resulting from an increase in aggregate demand or total spending is called demand-pull inflation. Increases in demand, particularly if production in the economy is near the full-employment level of real GDP, pull up prices. It is not just rising spending. If spending is increasing more rapidly than the capacity to produce, there will be upward pressure on prices.

Inflation can also be caused by increases in costs of major inputs used throughout the economy. This type of inflation is often described as cost-push inflation. Increases in costs push prices up. The most common recent examples are inflationary periods caused largely by increases in the price of oil. Or if employers and employees begin to expect inflation, costs and prices will begin to rise as a result.

Over longer periods of time, that is, over periods of many months or years, inflation is caused by growth in the supply of money that is above and beyond the growth in the demand for money.

Living with Inflation: We'll do a quick activity here looking at the effects inflation had on the former Soviet Union and its neighbors in the years after the fall of the Berlin Wall and the shift to market economies.

The Costs of Inflation: Here's one short summary of some of the costs of inflation.

• High rates of inflation mean that people and business have to take steps to protect their financial assets from inflation. The resources and time used to do so could produce goods and services of value.

• High rates of inflation discourage businesses planning and investment as inflation makes the forecasting of prices and costs more difficult. As prices rise, people need more dollars to carry out their transactions. When more money is demanded, interest rates increase.

• The adage "inflation hurts lenders and helps borrowers" only applies if inflation is not expected. For example, interest rates normally increase in response to anticipated inflation. As a result, the lenders receive higher interest payments, part of which is compensation for the decrease in the value of the money lent. Borrowers have to pay higher interest rates and lose any advantage they may have from repaying loans with money that is not worth as much as it was prior to the inflation.

• Inflation does reduce the purchasing power of money.

• Inflation does redistribute income. On average, individuals' incomes do increase as inflation increases. However, some peoples' wages go up faster than inflation. Other wages are slower to adjust. People on fixed incomes such as pensions or whose salaries are slow to adjust are negatively affected by unexpected inflation.

Questions to consider: We'll get to them in a few days...

• How does the US government work to prevent and/or control inflation?

• What level of inflation should we aim for?

For one perspective on that issue, here's what Alan Greenspan had to say at a 1989 Congressional hearing:

"Maximum sustainable economic growth over time is the U.S. Federal Reserve's ultimate objective. The primary role of monetary policy in the pursuit of this goal is to foster price stability. For all practical purposes, price stability means that expected changes in the average price level are small enough and gradual enough that they do not materially enter business and household financial decisions."

 Maybe a "non-answer," but it seems to translate into a 2 or 3 percent rate in practice.

HOMEWORK for tomorrow - Thursday, November 20th

Your Blog Entry #5 should be posted before the start of class time on Friday.

Please have Chapter #6 of Naked Economics, "Productivity and Human Capital," read for Monday's class.

Naked Economics - Chapter #4 - "Government and the Economy, II"

Once again, I think there's a lot to talk about in this chapter. Here are some suggestions:

• Department of Motor Vehicles
• US Postal Service 
• Margarita Space Pak
• Soviet Union - command economies
• regulation
• dead weight loss
• taxes

Competition - Market Structures: Let's finish up that look at the various market structures. We'll expand with some additional information and examples.

Remember that these characteristics help determine the market structure for a given good:

• number of firms in the industry
• the presence (or absence) of product differentiation
• ability (or lack of ability) of any or all firms to influence the market price

Questions to Discuss:

We'll continue delving into the world of business today. I've decided that we will wait until Monday, November 17th to take our quiz on microeconomics. I'll have more information about that as the week progresses, and we'll also be sure to get a terms list posted for you.

You were asked to think of a business that you believe is either a "success" story or a "failure". Be prepared to discuss the business and what you believe makes it work or not work.

Types of Business: We'll start by looking at the various classifications of businesses that you find in the economy. This matrix will help you fill in the necessary information.

Costs and Revenues: We did the introductory vocabulary yesterday. Let's work with several examples today. You should feel comfortable with these terms.

• fixed costs
• variable costs
• total costs  
• average cost 
• marginal cost 
• law of diminishing returns
• revenue
• total revenue
• marginal revenue
• profits
• normal rate of return
• economic profits

SEE IT HERE: This is a useful web page illustrating these ideas: Costs: Fixed, Variable, and Sunk. Let's look here for a minute.

You can put your newly found business skills to work analyzing "Andrea's Software Business" from a handout I'll get you.

Competition - Market Structures: We'll have you begin our look at various competition models with a quick activity. Use the reading provided to work on the chart of the various market structures.

Homework for tomorrow - Wednesday, November 12th

Please have Chapter #3 of Naked Economics read for class tomorrow. Your Blog Entry #3 - Naked Economics is due to be posted before the start of class time on Thursday. 

Please have both the "Four Market Structures" and "Andrea's Software Business" activities done for class tomorrow.

You were asked to have Chapter 2, "Incentives Matter," in Naked Economics read for today. We'll see what you found interesting and/or enlightening in here.

Please post your Blog Entry #2 before class time tomorrow.

WSJ Political Markets: I've made several references to these "futures" markets. Here's one we can take a look at. While we're at it, here was an article from the Wall Street Journal highlighting interesting markets to watch on election day. For those of you who like the advantage of hindsight, check out: Best Bet for Next President: Prediction Markets from last year.

For those of you who thought I was making it up the other day: Amid furor, Pentagon kills terrorism futures market - CNN.com, July 30, 2003.

Online Simulation on Supply and Demand: The University of Omaha has done a neat on-line "tutorial" on using supply and demand. We'll spend some time trying to work through that. I'd suggest doing it with a partner. Our goal will be to get through the 6 questions on the "quiz" at the end together. I know some of you took the quiz already yesterday, but we'll make sure we are all on the same page.

Exploring Supply and Demand: Here's the quiz. Work through the problems and see how you do. Notice that the curves will actually move to help you better understand.

Supply and Demand "Prompts" and "Going Bananas" - I've got another couple of review activities here for us to try together. We'll take "volunteers" at the board...

Review Problems: It's your turn. You and a partner have five minutes to come up with one or more situations for your classmates to work through. The more terms and concepts you can incorporate, the better. Remember to be informative, entertaining, and appropriate...

Homework for tomorrow - Thursday, November 6th

Your Naked Economics - Blog Entry #2 should be posted before class time tomorrow.