Sunday, August 30, 2009

Economics of Biofuels

This past Thursday (8/27/2009), The Wall Street Journal contained an interesting story (currently subscriber content) on the current downturn in the biofuel market. It was quite good and if you poke around using your browser, you might find most of the text in one or more sites.

What I found interesting were the various economic concepts that were illustrated in the story. I played with it a bit and came up with a PowerPoint® presentation that uses various quotes from the story and relates each one to basic ideas in economics - some with simple graphs to demonstrate them.

I'm interested in finding out whether this type of presentation would be helpful to classroom teachers. As a result, I will send a copy of the presentation to the first 25 high school teachers who reply to this post and request a copy. However, I will request three things: your name, the school you teach at and its location, and your analysis of the presentation. Let me know if it would be useful for your class or not. If not, why not. I'd be most grateful.

Trade-offs

As societies grow and develop, some interesting trade-offs are made.

Do you agree? What about your students?

Wednesday, August 26, 2009

A Study of Unintended Consequences?

The "Cash for Clunkers" program has been a great lesson for classroom use. This is particularly true if you believe the true value of economic-thinking is developing the ability to understand second-order effects.

Perhaps one of the better (or at least more entertaining) assessments of the program to date has been on the Economists Do It with Models blog. (You have to go beyond the blog's banner - trust me.)

The author of the Cash for Clunkers post at EDIWM has a clear opinion about the program. I'm not sure I'm as down on it as she is. I do agree it distorted the market and was a significant wealth transfer. (To paraphrase, "A billion here, a billion there, pretty soon you're talking real money.")

The program itself was touted as a classic example of targeted fiscal stimulus. I suspect that the authors of the legislation were hoping that the impact would be longer lasting, and focused on the "Big Three." Nevertheless, there was an impact on the numbers (see today's release of durable goods numbers). Now the question for your students, and perhaps one all of us should have asked earlier, "What’s the likely effect now that the program has ended?"

But the post goes beyond the effect on the auto industry. It examines the impact on charitable giving (smaller than we think, I expect) and the used car market (larger than we think). It also provides some points to counter concerns about which companies benefitted and, by extension, which workers and which stockholders. And the video she uses can surely be used in some classes to generate discussion - especially later in year when you start discussing macro and the role of government.

Finally, a word about the blog itself. I've been following it for a short-time, and I find it both informative and entertaining. The same goes for another recent addition to my blogroll, The Seven Scholars, although that one has more of a “finance and investing” focus. (It’s still worth visiting.)

What I enjoyed about EDIWM's post was the broad array of links and graphics. While I can't say it's joined my daily rotation yet - it's rapidly becoming one of my regular stops.

I welcome your comments about the post and the blog in general.

***UPDATE***
Here are more posts on the Cash for Clunkers that make very interesting and very clear reading. Gary Becker and Richard Posner on the Becker-Posner blog - one of the best.

Tuesday, August 25, 2009

Another Way to View Cost/Price

Last week, The Economist published an alternative Big Mac Index. But this one didn't show prices of the famed sandwich as adjusted for exchange rates. This one showed the price of a Big Mac expressed in time spent to earn the price, based on average net wage in cities around the world.

The chart provides some interesting comparisons, but can raise many questions about costs, relative demand, etc. But it did remind me of an interesting annual report by the Federal Reserve Bank of Dallas. While it is now more than ten years old, and the data has certainly changed, it contained similar comparisons scattered on tables throughout the publication. What made it more interesting was the time/price equivalents were all within the U.S. at select times in through the 20th century.

I would think students in economics, personal finance or even Twentieth Century American History would find the information interesting and a prompt to discussion. What do you think? Please share.

For the EconoGeeks among Us

I know some of you can think of nothing more relaxing than putting your feet up on the patio, with your beverage of choice and an economic paper or two to while away the afternoon. The focus was on the recent financial crisis.

For you then, here's the link to the Kansas City Fed's recent symposium in Jackson Hole, WY, featuring most of the papers presented by the participants.

One hopes that the KC Fed will, in the future, put podcasts or videos up so we can enjoy the discussants' comments and general discussion.

Enjoy. And please share your thoughts.

Monday, August 24, 2009

Credit Cards and Teens

An article in today's edition of The Wall Street Journal (free at this writing) talks about the importance of teaching teens about credit (and establishing a credit history).

Recent changes in the law will make it harder for teens to get credit cards and establish a history of responsible use. The first consequence is cheered by many. The second has the potential to make life more difficult for them once they leave school.

The article makes some basic suggestions to help your students build a solid credit history before they strike out into the world. I think they all are good and will help students develop good credit habits before they leave home, rather having their first encounter being a poorly informed one. I've always felt shielding students from credit before they go out on their own was the equivalent of throwing a child into the pool without teaching them to swim.

I know many personal finance advocates will point at the data in the first paragraph of the article. And I concede that point. But I suspect some sound, supervised use of credit before entering college could have reduced those numbers significantly.

I look forward to your comments.

Choice and Quality of Life

Over the weekend, there were a couple of articles in The Wall Street Journal that resonated with me. It was amplified when I remembered an entry in my personal journal that seemed to explain why.

The entry in my journal was a brief line from Ernest Hemingway's For Whom the Bell Tolls.
“...nothing is done to oneself that one does not accept…”
In, my opinion, this is one of the ultimate statements of empowerment and of responsibility. It speaks to the idea that people can make a difference. Whether talking about politics or fate, people have the ability to take things into their own hands. There may be consequences for that action, but one can change things or refuse to submit - to "rage, rage against the dying of the light" as Dylan Thomas wrote (although he was talking about something else). Conversely, doing nothing, or choosing not to act is the same as accepting what is done to you. Those who do nothing really have solid basis for complaint. Now, before I go too far afield, let me return to the subject of this post - choice and our quality of life.

There were two articles in the Weekend Journal. One dealt with Russia and one dealt with private communication. Both spoke of the choices people make.

The first article, Pride and Power (free at this writing), was about Russia's desire to remain relevant and maintain what it sees as its proper place among the "Great Powers." The article addressed U.S. policy and Russia's need for internal political challenges. But that was largely normative in nature. But what struck me were the references to the Russian people, their desire for their country to be a player on the world stage; and their seeming willingness to sacrifice aspects of democratic life that citizens of other countries would deem more important, in order to maintain or regain that status. Given international status as an incentive, the quote from Hemingway seems to offer some explanation.

Not So Fast (free at this writing) was the second article that grabbed my attention. It was about our constant obsession with communication. It is a plea to slow down - to think about how we communicate and with whom. This may seem like an odd idea to be promulgated through a blog, but hear me out. I'm not for or against the message, largely because I'm not sure what side I fall on. But I think the author's exhortation to choice is important. People can be overwhelmed by the immediacy of the modern world. But then there's the statement from For Whom the Bell Tolls. The extent to which contact intrudes or keeps us from enjoying a more deliberate pace is the extent to which we allow it to be so.

How does this fit into to your class? In a crowded curriculum, it is difficult. But these are items that could be "kept in reserve" for those serendipitous moments where discussion of the mundane - choice and opportunity cost - evolves into a deeper and more meaningful opportunity to bring economic thinking into a realm that your students may see as "non-economic." At the very least, the articles will put some ideas in your head to use in discussion. The choice is what's important - and whether you accept the recommendation is your choice.

I look forward to your comments.

Thursday, August 20, 2009

Good Audio Visual on the Financial System

The Federal Reserve Bank of Cleveland has put together a very simple and very easy to understand video on aspects of the financial system. It helps explain certain aspects of the current crisis without getting too technical.



(HT to the NPR PlanetMoney blog.

Would you/could you use this with your students? In what context? I can think of a couple but I'd like to hear from you.

Wednesday, August 19, 2009

Choice at the Supermarket

One of the first things many of us like to do in an economics class is to put forth the idea that economics is the study of how people choose. And while it's easy to toss out examples involving purchases, it's often more stimulating and entertaining to use situations that involve other resources, such as time. Today's issue of The Wall Street Journal offers just such a situation.

The article focuses on the issue of waiting in check-out lines. And the basic choice is one of efficiency (get as many people checked out as quickly as possible) vs. equity (make sure no one has to wait too long while others who come to check-out later are taken first).

The article examines consumer attitudes, as well as resource allocation by stores. I could see this being used as an opener with a "polling question" for the students.

"When you're shopping, is it more important that you get checked out quickly (efficiency) or that you get served in the order in which you arrived at check out (equity)?"

This can also segue into a discussion of larger policy issues, because they are often choices about efficiency vs. equity. But more importantly, it can help your students understand that individuals make choices based on different preferences. Consequently, designing the marketplace (and I don't mean a store) can be a very difficult proposition for outside parties. It can also be used to explain how we develop our own rules and practices (institutions) to meet our needs.

Would this be a useful ice-breaker for your first day of class? Or would it be better later in the course? I look forward to your comments.

Credit Cards

Back in May, I posted on a piece of legislation that was working its way through Congress and was expected to get President Obama's signature when it was passed. In it, I raised a number of questions about the possible impact of the legislation on the credit card market.
1. What will be the impact on size of the credit market - how many people will be eligible to get credit cards - based on some of the proposed changes?
2. If demand (the number of customers) changes, what happens to the price of credit?
3. If banks cannot cover risk or make a profit at a given price, what can they do to the supply of credit to change the price?
4. If people (consumers) get less (fewer benefits) and are charged more, are they likely to change their spending patterns?
5. Given that using credit is usually a choice, what incentives to use or not use are created by the changes?
6. Do these changes create externalities (costs or benefits that accrue to parties outside the transaction) that will complicate the pricing of the service?
Some of the changes will not take effect until 2010. And it is probably too early to truly measure the impact of those that are taking effect tomorrow. But I think this article in today's issue of The Wall Street Journal offers some hints at the answers, at least in the short-run.

Do you think this article might be a way to open your personal finance classes? Maybe you could use it as a "while you were away" approach to introduce the topic. This might then get the students talking about credit and credit cards. It could provide a baseline for you about their level of knowledge (or misunderstanding), as well give you an early way to peak their interest.

I look forward to your comments.

A Resource for Early Elementary

Earlier this year, I was involved in a reading program at the school where the Powell Center for Economic Literacy is located. I was reading stories to kindergarten students to introduce them to economic concepts.

That may sound like a tall order. But the book Apple Farmer Annie (see link in carousel at left) made it easy. And as school will soon start, and in many parts of the country early elementary students will be visiting nearby orchards, this is a good time to tell you about the book and offer some ideas for using it.

The book is simple enough. Annie is an apple farmer. The story tells about the things Annie does to raise and market her apples, including making cider, applesauce and apple pies.

The link to economics was easy. Before reading the story to the students, I first asked them about visiting an apple orchard. The students had visited an orchard the previous September, and all were able to recall many details of their trip.

As I read the story, I asked the students point to items in the book that they might have seen on their visit to the orchard. As Annie made applesauce, apple cider and apple pies in her kitchen, I asked them about making or having those products at home.

The illustrations were helpful. As I talked with the students, I also introduced the ideas of human resources, natural resources, and capital resources - all of which are used in production. I would have students identify the human resources they saw (Annie), the natural resources they saw (apples, bees, trees), and capital resources (the tools on Annie's farm and in Annie's kitchen).

I chose not to introduce entrepreneurship in this exercise. It’s a harder concept for kindergarten students to grasp, and since Annie was both the human resource and the entrepreneur, I didn’t want to confuse them. Also, as I defined natural resources as products from nature used to make other things, I accepted answers of butter, flour and sugar as natural resources if the students could tell me why they were from nature.

If you teach early elementary and one of your activities is visiting a nearby orchard or farm (doesn't have to be restricted to apples), this might give you an introductory exercise or a capstone activity after the visit.

***UPDATE***
You can find a lesson plan to use with this book at the website of the Powell Center for Economic Literacy.

Please share your comments.

Tuesday, August 18, 2009

Random Thoughts from Reading

One of the things I do when I read is keep a journal of passages that I find interesting. The interest may be the words the author used to describe something; or a particularly vivid (to my mind) description of an event or place; a clear explanation of an idea; or just something that gets me thinking – along old lines or new doesn’t matter.

My objective for the journal has long been to react to each entry. The problem has been opportunity cost. To write reactions has meant not reading. That still hasn't changed but situation has changed over time. Originally the reaction was strictly meant for me. Now I can share these passages, share my thoughts, and solicit yours. Hopefully what started as personal reflection will now lead to discussion.

Given my recent review of Barry Eichengreen's Globalizing Capital, it is fitting to use a passage from another of his books as my first attempt to "share my journal."
“Why were European countries with depreciated currencies so hesitant to expand? To a remarkable extent, their actions were still conditioned by attitudes formed during the last episode when the gold standard had been in abeyance. The early 1920s had been marked by inflation, social turmoil, and political instability. Only when domestic interest groups had agreed to compromise over the distribution of incomes and the burden of taxation and had sealed their compact by reimposing the gold standard had this chaos subsided. Central bankers hesitated to capitalize on the suspension of the gold standard until they were convinced that the same would not happen again."
Barry Eichengreen
GOLDEN FETTERS:
THE GOLD STANDARD AND THE GREAT DEPRESSION, 1919 – 1939”
I found this passage interesting because it explains the lack of response by central banks in the early years of the Great Depression. Central bankers are averse to inflation, as are most bankers in general. Likewise they are concerned about political and social instability. These fears are logical. Inflation, political and social instability represent risk and risk makes long-term planning and growth difficult. But risk also makes long-term lending difficult. It increases the likelihood of default, and devalues the future stream of payments meant to repay the principal and compensate the lender (depositors as well as stockholders) for deferred consumption.

As Eichengreen points out in this book, after World War I the great commercial powers sought to restore economic and financial stability by reattaching their respective currencies to the gold standard. But this proved especially difficult because the powers sought to reattach their currencies to gold at the old values. This ignored the years of expansion in the monetary base that helped finance the war. It also ignored the fundamental change in the social and political structure.
Socially, there had been a major shift. Workers issues had become more important. Unions became a larger factor in economic and political life.

And with the expansion of the franchise, policy moved toward greater support of the working class - a welfare state. This restricted the flexibility in the economy to adjust to downturns by reducing wages and employment levels. This was accompanied by a corresponding lack of willingness by politicians to hold the currency value stable. Consequently a currency pegged to gold was contrary to the new social and political reality. A gold-based currency was fine, as long as it did not interfere with political needs.

When viewed in this light, the gold and currency connection to the economic unrest of the twenties that ultimately contributed to the Great Depression is understandable. There was a fundamental conflict between the central bankers and the policy-makers seeking to meet the desires of their newly important sector of the electorate.

To me, this speaks to one of the trade-offs of a democratic system. While greater opportunity and voice are among the benefits of a society with a wider franchise, it creates new incentives for the participants at all levels. And we know from economics that incentives are a motive to action (decision-making). By making the political system more responsive to the workers, the incentive to those representing the workers changed. And the opportunities for the workers changed as rules changed to accommodate them. These changes, in turn, act to limit the politically acceptable range of choices.

There is much more to Eichengreen's book. And there were more passages that intrigued me. When I'll get to them I don't know. But share your thoughts on the passage, and whether or not this type of entry is interesting and or useful. If it's an exercise in personal interest only, I'll discontinue it.
I look forward to your comments.

A Great Example...

of setting a proper price. I would think AP students should be able to tackle Mankiw's question at the end.

Saturday, August 15, 2009

What I've Been Reading - Part III

The third book in this spate of reviews is Globalizing Capital: A History of the International Monetary System by Barry Eichengreen.

Let me state at the beginning that the most significant shortcoming of this book is one of timing. It is the second edition (paperback) of the book and was published in 2008. I'm guessing it was early 2008 as there are no direct references to the issues that began to manifest themselves in late 2007.

Nevertheless, the book was interesting and, to me, a valuable addition to my library. I reviewed another of Eichengreen's books about two years ago. A part of the earlier book’s thesis appears in this one, albeit in less detail. But it should. His first book essentially covers the rise and fall of the first international monetary system that he is covering in Globalizing Capital. In both cases, Eichengreen lays out an argument that the monetary systems that were established ultimately broke down because of changing conditions. A more specific way of stating it is that international monetary systems were established to meet certain problems. But as the international conditions changed, and the incentives on politicians laboring in the international policy arena changed, the established systems were unable to respond and eventually succumbed to pressures they were not designed to withstand.

Eichengreen puts forth well-researched and logical explanations for the failure of the post-World War I gold standard, the Bretton Woods System and other post Bretton Woods arrangements. (Indeed, the second edition of this book was written, in part, to help explain the Asian Financial Crisis in the 1990s.

I admit that part of my appreciation of the book is how it conforms (or maybe confirms) my current interest in institutional economics. The political and policy landscape that engendered and later supplanted each of the monetary systems examined by Eichengreen seem to offer a sufficient (but maybe not necessary) prerequisite for each failure. (My reason for the parenthetical comments rests on the difference between correlation and causation, and the fact that in an international arena, there are always multiple pressure points.)

For teachers, I would offer the following recommendations. Modern history teachers, looking for a better understanding of the international financial system in the 20th and early 21st centuries, would have to look far to find a better and more succinct history. Eichengreen's book offers enough data and anecdotal information to provide a framework for history teachers to build on for personal exploration or classroom discussion.

Economics teachers who seek to better understand the advantages and disadvantages of different exchange and monetary regimes would find this book helpful for its lucid explanations and clear examples of how each is meant to operate, but can fail to do so.

I would welcome comments from others who have read this book, as well as their recommendations for this blog's readers.

Thursday, August 13, 2009

Microfinance and Economics

There was an interesting group of articles in today's issue of The Wall Street Journal (WSJ), all dealing with the idea of microfinance or making small loans to poor people (usually in underdeveloped countries) to help them improve their personal economy, which in turn can help the local and then the larger economy develop. I'll get to the stories later, but first some background.

Long-time readers of this blog have read about microfinance, Grameen and Yunis before. There are some excellent summaries of what Yunis is doing with the Grameen Bank on YouTube, and on the Nobel Prize site.

What makes this microfinance story so compelling is the success it has generated. With a 95%+ repayment rate, at interest that many Westerners would consider onerous, Grameen has made a difference in many lives. But what is most interesting is the procedure the Grameen Bank uses. It lends to women, in societies where women are often looked down upon or, at the least, undereducated. It also depends on peer pressure. Borrowers are expected to have sponsors or be part of a group. The group has a role in making sure the borrower makes repayment, on time and in full. And the Bank turns traditional credit on its head. The less the borrower has, the more creditworthy they are. In fact, Yunis himself states in a February, 2008 lecture before the London School of Economics that the approach was to examine what large financial institutions did and to do the opposite.

This brings us to today's WSJ stories (all free at these links at the time of writing). It seems that the success of Grameen Bank has drawn other institutions into the microfinance market, with some success.

One sees the attraction, high rates of return with low default rates. It certainly seems like an attractive business model. But I suspect for the kind of success Grameen has experienced, the full model must be implemented. (Please note Grameen plows profits back into loans. The borrowers are the owners - more of a credit union/co-op model than a commercial bank.)

A second story (which includes a great short video) relates how for-profit investors are noting what may be the early signs of a credit bubble (not unlike the one experienced the West); with borrowers piling loans on loans on loans, often to finance consumption rather than business development. Apparently, the lenders often ignore the real uses or encourage borrowing. This leads to short-term increases in living standards, but not long-term development or financial independence.

Indeed, the article indicates that because the firms did not use the full Grameen model, institutions are now pushing back on the loans. Groups of borrowers and religious organizations are encouraging non-payment. And, as is shown in this accompanying story, some object to the idea of group pressure, despite the fact that the same pressure is part of what makes Grameen successful.

I think the larger issue, offers a lot of possibilities for classroom use. The most obvious ones are related to the topics of banks, credit, capital, production and economic development. But one can also intertwine discussions of economic institutions. After all, what role can traditions or beliefs about of honesty, peer pressure, and gender discrimination have in credit markets? And while the WSJ stories focus on women borrowers, I found myself wondering if, with greater desire to lend, came a loosening of standards - i.e. money was also lent to men, or to people who already had access to capital (other loans). Clearly there were some false statements of intent on the part of some borrowers; and some “looking the other way” by some of the lenders.

I know there's a lot of information here. And I hope you will be able to access all of it. (Sometimes free links get changed to subscriber links.) But I expect you will find the story interesting, and I hope your students will, as well.

I look forward to your comments.

Wednesday, August 12, 2009

Evidently People Respond to Incentives...Sort of

Dilbert.com

What I've Been Reading - Part II

Another of my summer reads was The Wages of Destruction: The Making and Breaking of the Nazi Economy by Adam Tooze. This book was more work than my previous recommendation, but it was still an interesting read.

I suspect that those of you who only teach economics might not choose this book unless you also have an interest in Germany in the period between the World Wars.

But those who teach history and look to find ways to integrate economics, or those who teach history and economics will find much to absorb. Some may even change small parts of their existing program as a result. The basic thrust and content of a history course would likely remain the same, but there would be a deeper understanding of Hitler's appeal to parts of the German electorate, as well as an understanding (I hesitate to use appreciation because it has the wrong connotation) of the economic problem Nazi Germany brought on itself with the decision and acquiescence to go to war. The results were unarguably horrific. And Tooze's descriptions in later chapters of the ways prisoners and slave labor were used are troubling, there are still insights into the choices that were made, often without a proper understanding of consequences and costs.

Hitler's choices, and the choices of those around him, were not rational in the sense that most readers would understand. But with an appreciation of the morals (or many might say, the lack thereof) behind laws that were instituted, one gains a new sense of what choices existed and ultimately how they were made.

For the economics teacher, I can say that the book provides a sense of what economic understanding can bring to historical analysis. My interest in economics grew out of a realization of what economics could add to an appreciation of history. But too often the economist and the historian fail to appreciate what the other brings to their respective problems. When the two come together, the result can be enjoyable as well as enlightening (see my earlier review of Castles, Battles and Bombs by Brauer and van Tuyll).

As always, I'd be interested in your thoughts. But I'm especially so if you've read this book.

Tuesday, August 11, 2009

What I've Been Reading - Part I

Followers of this blog know it's been an interesting summer. Despite everything, I always find time to read. I just haven't been able to put down my thoughts on the books I've read that I want to recommend. So I've got three to bring to your attention.

I finished the first book back in June. It's Saving Adam Smith by Dr. Jonathan Wight, an economics professor at the University of Richmond. I've gotten to know Dr. Wight through a number of different avenues. I'm glad that I have. His views on economics are stimulating and interesting - not always descriptors that go together.

Saving Adam Smith is a novel about economics and moral philosophy. And while you may initially wonder what the connection is, I direct you to the title. Most people know that Adam Smith is the father of modern economics. Most of them may even know the title of the work that earned him that title, An Inquiry into the Nature and Causes of the Wealth of Nations (WN). Fewer of that group may know that he was also a professor of philosophy; and that his major work in that field, The Theory of Moral Sentiments (TMS), was the work in which Smith took the most pride. But how does that work to make a novel? I can say "wonderfully."

The two main characters are an economics teacher at a small college, working to finish his dissertation; and an immigrant truck mechanic in Virginia who channels Adam Smith. They work their way cross country with some interesting experiences. But the value of the book lies less in the plot than in the way Wight brings together the ideas in Smith's two great works. The result is that we begin to see the popular view of Smith's capitalism for what it is - incomplete. By treating Smith's works as complements, Wight shows us what capitalism can be when tempered with moral understanding. And at various points, we see how the larger Smith - the Smith not bound by one work - offered insights into "new" areas of economic research.

I was particularly struck by this quote from WN, which seems to presage much of current happiness research:
Every man is rich or poor according to the degree to which he can afford the necessities, conveniences, and amusements of life. But that same richness, that same poverty has no essential corollary with his happiness.
Combine it with this passage from TMS and we have a foundation for classroom discussion about a variety of economic topics from choice and consequences to utility to income distribution to the role of government and policy:
Happiness consists in tranquility...What can be added to the happiness of the man who is in health, who is out of debt, and has a clear conscience? To one in this situation, all accessions of fortune may properly be said to be superfluous...Do they imagine that their stomach is better, or their sleep sounder in a palace than in a cottage? The contrary has been so often observed, and, indeed, is so very obvious...
The book is full of such opportunities, each presented in a context that clarifies Smith's meaning.

This is worth your effort if, for no other reason, you would like to deepen your understanding of Smith. But if you are seeking a text to augment your regular class readings in an enjoyable way while providing a platform for discussion through the semester, you may want to consider it. Additionally, if you're looking for a foundation for a summer reading list for next year's students, this would be a light and yet thought-provoking addition.

I welcome your comments.

Monday, August 10, 2009

Teen Unemployment

There’s a story in today’s issue of The Wall Street Journal about the high rate of unemployment among teenagers.

The quick reaction is to blame it on the recent minimum wage increase, but that went into effect too recently to make a huge impact. That’s not to say it won’t show up later.

This article from Macon.com does a good job of examining the issue, but the WSJ article raises a few more questions – particularly as minimum wage relates to competition and price in labor markets. When a wage rate impacts a given market, the employer wants to receive as much as possible in return. What they’re looking for is skills. If an employer can get more skills for the same wage, it’s to their advantage to do so. As the WSJ article points out, given the current state of the larger economy, there are plenty of people with higher skill levels that are competing with teenagers with lesser skills.

One other thing I would offer is an application of income effect. I’m presuming that many Federal jobs programs mandate that wages cannot fall below the Federal minimum. That’s good for those that can get the jobs. But it also means that for a given pool of funds, there’s less labor that can be purchased. Example: A six-million dollar program translates to fewer hours and/or fewer jobs at a wage rate of seven dollars and change per hour than it does at six dollars and change. (I admit I don’t know the details on these programs, but I am ready to be corrected.)

What do you think about using these articles to discuss some of the “other concepts” I’ve outlined? Or aren’t they relevant?

Bank Fees (One Side of the Story)

There is an interesting, although incomplete in my opinion, story on the web page of American Public Media's Marketplace website. The story is about the overdraft fees banks are collecting when people misuse their debit cards. It goes back to the overdraft protection many of us get when we open our checking accounts and get an ATM/debit card. The story explains how using your card to buy a $1 pack of gum when you don't have sufficient funds in your account may end up costing you as much as an additional $35 in overdraft fees. (You can click on the link about the Fed for a marginally better, although still incomplete story on this part of the page. Generally, I find better reporting from APM and Marketplace.)

The main reason I feel the piece is incomplete is that it does not address the issue from the perspective of financial education. The main concern seems to be whether banks are somehow taking advantage of consumers, rather than helping consumers understand how to manage their funds - which includes keeping a watch on your bank balance and making informed decisions. I do think that there should be an active choice invoked at the point of purchase, whether the customer has opted for overdraft protection or not. However, solid financial education would go a long way towards helping people at all income and age levels to better manage their resources.

I'd be interested in your comments.

Monday, August 3, 2009

Economics and the Great Depression

There's a risk of overdoing this issue, but the combination of the current situation and the approaching 80th anniversary of the 1929 Stock Market Crash make it relevant.

I ran across (somewhat belatedly, I admit) an essay on the History Now website. Historian David Kennedy (author of Freedom from Fear: The American People in Depression and War, 1929 - 1945) discusses some of the fundamental problems leading up to the Great Depression, as well as some of the challenges faced by Presidents Herbert Hoover and Franklin Roosevelt.

Kennedy brings some valuable insights to the discussion for teachers of both economics and American History. Among the insights for economics teachers are the roots of the Depression that extend back to the end of World War I, including the attempt to return to the gold standard after a fundamental change in political priorities and the mainly agricultural structure of the U.S. economy. There are institutional aspects that are tied to all of the economic explanations Kennedy offers. The rules and beliefs that existed shaped how economic problems were viewed and how possible solutions were shaped, both internationally and domestically.

American History teachers should find some new ways to frame the Great Depression and the attempts to correct it. Again, there are early harbingers of hard times in the Dust Bowl years of the 1920s and desire to return to isolationism after the War. Both of these provided a foundation that would entrench the economic downturn, as well as limit the view of those seeking options to counter it. Kennedy even points out that the hurdles Roosevelt faced included the American traditions of self-reliance and individualism. Roosevelt had to overcome these in bringing what had hitherto been limited Federal government to the problem of macroeconomic problem-solving and policy-making: macroeconomics itself is an area of economics that didn't even exist prior to the Great Depression.

Both economics and American History may wish to look at the essay, if not already familiar with it. But I especially recommend it to those who teach both. The possibilities for cross-disciplinary learning are there. And, as we know, that can enhance student learning.

I welcome discussion on the essay.

Saturday, August 1, 2009

Some Changes

Regular readers will note the title no longer refers to the Powell Center for Economic Literacy. As of July 31, due to current economic conditions, I am no longer employed by the Powell Center. It has been an enjoyable and interesting experience. I will be seeking opportunities elsewhere. The Powell Center was kind enough to let me keep the blog. There will be some other changes forthcoming, but today I leave on a short vacation with my family and in-laws. I may post occasionally in the coming week. Otherwise, I hope to be back in about a week.

Money Value of Time

The comic strip Frazz often has good economic lessons embedded in it. Today's installment is a case in point. Frazz
There are some interesting economic choices made regarding relative values of time (and money).