Monday, November 29, 2010

Author Interview: The Economics of Ego Surplus

We have something different for the readers of MV=PQ today – an interview with the author of a new piece of economic fiction. Now, before you ask why don’t I do it as an MP3 file or otherwise take advantage of technology, let me state that I know many readers don’t have the latest technology or the fastest access to make those options really attractive. (Plus, I’m still on the upside of the learning curve.) Nevertheless, I think you’ll like the interview and I hope you’ll provide some feedback so I know whether to do more. Now to our guest =>

MV=PQ: This is an interview with Paul McDonnold, author of The Economics of Ego Surplus: A Novel of Economic Terrorism. Paul has taught at University of North Texas, University of Delaware and North Lake College in Irving, TX.  Paul, welcome to MV=PQ

Thanks Tim. Happy to be here.

MV=PQ: Paul, there are a number of books that use fiction to set the stage for teaching economics. What attracted you to the field of "economic fiction"? And what do you think is the advantage of presenting concepts this way?

I learned from teaching that economics is one of those subjects where a subset of the population likes it very, very much, while outside of that group many view it with confusion, suspicion or even hostility. In trying to make problem sets more palatable to my principles students, I incorporated a fictional scenario involving a terrorist attack on the U.S. economy. The reaction I got was very positive, and writing was already a big hobby of mine, so I thought a full-out novel teaching economics would be a great thing to attempt. After that I found out about some of the other works in this little subgenre, like the Marshall Jevons mysteries. I also discovered Sophie's World by Jostein Gaarder, which is probably the ultimate model of success with a “teaching novel.” It teaches the history of philosophy and was a huge bestseller. For better or worse, we live in a culture where people demand to be entertained, so if you can teach them something valuable through entertainment you can really accomplish something.

MV=PQ: Who do you see as your primary audience with this book?

I made a decision while writing the book to keep the economics basic enough that it would have a wider potential market than just “econophiles.” I hope anyone who likes a good story and isn’t opposed to learning something new will give it a chance.

MV=PQ: I really enjoyed how you managed, for the greater part, to make the economic explanations flow into the narrative. In many cases, I wasn't even aware I was being "taught" until I was into the explanation. Were there other economic lessons that you considered and discarded because they didn't flow?

Definitely. A considerable amount of economics ended up on the cutting room floor, so to speak. I worked with an editor who is very much a literary person, not an economist. She impressed upon me the need to not turn some readers off with more involved economic digressions.

MV=PQ: This is kind of a follow up question to my previous one; I really thought this book passed quickly. Were you tempted to write a longer book?

Not really, I wanted the book to be economical in more ways than one! Also, as a reader I really like good shorter novels like The Great Gatsby, so I made that my target length.

MV=PQ: I noticed two of your supporting characters were named Smith and Marshall. I thought that was interesting. I was particularly impressed when, at one point Smith essentially told Kyle Linwood, the main character to do what he wanted. Was that intentional or accidental? And were there any other little bits I missed?

The funny thing is I spotted quite a bit of symbolism after it was written. So maybe it was operating on a subconscious level. I did think it made a lot of sense for Kyle to have a girlfriend named Smith. But the part where she tells him to do what he wants was not something I have considered. It is very interesting though!

MV=PQ: Do you use story-telling or current events to illustrate points in your courses?

Yes, it’s actually been a few years since I’ve taught, but I always tried to incorporate as much story-telling and current events as I could without watering the subject down. The classroom is a little different from a novel in that your audience is captive and you are tasked with teaching them a certain amount of the “meat” of the subject.

MV=PQ: So, are you a micro- or a macro-? I'm guessing macro because of the setting of your book.

Macro, definitely.

MV= PQ: And a follow-up to the setting question that I just have to ask, did you get to go to Dubai to do research?

I’m a little ashamed to admit I did not. I wrote the novel in my spare time, entirely on spec, so time and money was always a factor. But the power of the Internet is amazing. I researched extensively and was even able to use Google Earth to “fly” around areas where I envisioned the action happening!

MV=PQ: Well, I must say I enjoyed the book and I hope my readers will find it of interest. Once again, the title is The Economics of Ego Surplus: A Novel of Economic Terrorism and this was an interview with the author Paul McDonnold. Paul, thank you and I look forward to your next effort.

Thank you, Tim. If the readers want to test drive the novel, a pdf of the first 54 pages can be downloaded free at

There you have it. The first MV=PQ interview. I know I’m not in the same league with some of the other great economic interviewers out there, but I hope we get the chance to improve. In the interim, let me point you once again to The Economics of Ego Surplus: A Novel of Economic Terrorism. I’ll also put it on my carousel at left. It would make a great little stocking stuffer for the economics student or teacher in your life. And we’re still in time for Cyber Monday.

I look forward to your comments.

Wednesday, November 24, 2010

Consumer, Producer and Total Surplus

Here's a little lesson in welfare economics that I'm sure most of us can identify with. 
I know many of you are out for the break already; but I will ask anyway. How many went with consumer surplus? How many went with producer surplus?  How many went with a socially optimal outcome?

Happy Thanksgiving and Thanks for Reading MV=PQ.

Tuesday, November 23, 2010

On the Homogeneity of Money

Today's lesson in money comes courtesy of the comic strip Frazz.


One of the fundamental characteristics of money is homogeneity. That essentially means each monetary unit is the same as every other unit. They are interchangeable. This concept is sometimes hard for some people to understand - especially the very young. They often view banks as warehouses. They may believe that if you deposit five $1 bills in your account, the teller takes those five bills and puts them in a drawer with your name on it. When you withdraw five dollars, the teller will give you the same five bills.

Those of us with more experience know that isn't true. That your five dollar bills are intermixed with others and they circulate. The chance of receiving bills is very, very remote.

But because money is homogenous, it helps to make a fractional reserve banking system possible. As long as everyone doesn't demand their money at the same time, money can be lent. Those wanting to withdraw funds can be given any cash on hand.

But when too much is lent and there's a demand for funds, a fractional reserve system can become illiquid. That's one reason for a central bank. The discussion can go much farther from here, but the lesson in the cartoon is that the money we put in is not necessarily the same money we take out. The deeper discussion may be why.

Friday, November 19, 2010

Institutions and Entrepreneurship

Regular readers of this blog know I find the idea of economic institutions interesting. Institutions have been defined as "the rules of the game." More specifically they are the set of rules and organizations (both formal and informal) that influence our decision-making by setting up incentives to action. They can include written laws, voluntary standards of conduct, even cultural beliefs. The last category is the subject of this post.

An article in today's edition of The Wall Street Journal (free content at this writing), discusses motorcycle taxis in Nigeria. Specifically, the article is about how dangerous the motorcycle taxis are. Evidently, there are so many accidents that one hospital has a ward specifically for people who were in motorcycle taxi accidents.

But attempts to get people to wear helmets have been unsuccessful, largely because of superstition (cultural belief). There is a belief among many that placing the helmet in contact with their head is bad "juju" which can have drastic consequences. People can disappear, lose their brains or their luck. People make choices, often tragic, because the belief presents a perceived cost that exceeds a perceived benefit. Thus, they make a "logical" choice.

Enter one entrepreneur who has developed a cloth liner that can be placed between the helmet and the wearer. It eliminates the contact and, for some at least, overcomes the cultural fear. There are other issues involved, including hygiene, but the fact is the entrepreneur was able to use his understanding of an institutional factor to identify and open a market. I don't know how successful he will be, given there are many inexpensive substitutes like personal handkerchiefs. And there are likely to be more commercial substitutes. But this remains an interesting example of entrepreneurship mixed with institutional economics.

I look forward to your comments.

Monday, November 15, 2010

Some Tools for Teaching Policy Tools

You may already be aware of both of these. But if you're not, it's worth your time to look at them.

The first is a new interactive on The New York Times website. (HT to Econlog.) It's a game on cutting the federal budget. You can cut certain spending categories and or raise certain taxes in effort to bring the Federal Budget back in line. It is rather simplistic and doesn't really show the complexity of the trade-offs, but it’s not bad for the venue. And I think that for a traditional high school economics course, it makes a great introduction.

The second resource is an opinion piece in today's issue of The Wall Street Journal. It's written by Princeton economics professor and former Vice-Chairman of the Federal Reserve Board of Governors, Alan Blinder. Dr. Blinder offers an interesting defense of the Fed and quantitative easing. I would think it would be usable for the monetary policy section in your AP or IB courses.

Saturday, November 13, 2010

U.S. - China Currency Rap

You will want to watch this before using in class (HT to the folks at Chartporn). It may not be appropriate in some settings. I'm thinking high schools and lower will have more problem with it than colleges. There are also some oversimplifications; but I think it can be good discussion starter. I'm not going to embed it for now, but I may change my mind.

Thursday, November 11, 2010

Consumer Surplus

I don’t know how much time you spend when discussing consumer and producer surplus; or how difficult your students find the concept. My experience is mixed.  Some classes seem to get the idea quickly and can transfer the concept to other topics easily. Others seem to struggle. But here is a short post from Econlog that not only explains consumer surplus quickly and efficiently, it offers a quick and easy way to expand the explanation into a discussion.  What do you think?

Tuesday, November 9, 2010

Structural Unemployment and the Beveridge Curve

One of the more interesting aspects of unemployment is how policy-makers choose to address it. But what many don't know is that the remedy needs to match the unemployment. That means you can't effectively address structural unemployment with programs mean to address cyclical unemployment.

This brings us to an interesting article from the Federal Reserve Bank of San Francisco. While it introduces a topic you probably don't cover, even in AP Macroeconomics - the Beveridge Curve - it provides a lot of information to help you through the section on unemployment.

China Isn't Solely a Major Exporter

When it comes to international trade, your students could get the idea from many media stories that China is strictly an exporting power. But this graphic (HT Chartporn) shows some interesting import flows. See if your students can account for them.

Sunday, November 7, 2010

On Schumpeterian Ideas

The economist Joseph Schumpeter is known for a number of things. But for me, two of them stand out. He defined the role of the entrepreneur and he introduced the idea of growth as "creative destruction." Arts & Letters Daily recently had two links that focused on these ideas. Both are worth your consideration.

The first is a review of the book, American Colussus: The Triumph of Capitalism by H. W. Brands that appeared in The Wall Street Journal. It is a study of those entrepreneurs we first learned of as "robber barons" in early forays into American History. Reviewer Amity Shlaes finds fault with Brand's approach of pitting capitalism against democracy. And I understand why.

If we focus on "creative destruction" we may forget that it is the democratic choice (voting with dollars) of the majority that brings about true change, destroying one industry and creating another. While I have not read the book, I may have to add it to my holiday "wish list" despite Shlae's reservations.

The second link is an essay by Virginia Postrel on Big Questions Online. Postrel suggests that entrepreneurial spirit may be less about risk-taking and more about youthful optimism, or as she borrows it - irrational exuberance. That would seem to square with Schumpeter's views of the entrepreneur - one who opens a market, finds a new source of resources, develops a new product, develops a new product, or develops a new business organization. My only question is why Postrel didn't include him among the others she reference in her article. No matter - the idea is what counts in this case. And her article has an excellent idea.

I look forward to your comments.

Friday, November 5, 2010

More on Monetary Policy

A good friend and colleague in Chicago sent me this link to a post on National Public Radio's Planet Money blog. It offers a unique translater for the most recent FOMC statement.  I think you'll find it amusing...and hopefully useful.

Thursday, November 4, 2010

Quantitative Easin'

This may not be appropriate for use with your class. You need to decide that.  But it is funny and it explains what is meant by quantitative easing.  (HT to Greg Mankiw)