Monday, August 15, 2022

The End of Magic Money


In the July 2022 issue of Foreign Affairs there is an interesting article titled "The End of Magic Money: Inflation And The Future Of Economic Stimulus". In it the author explains how, "under the right conditions, magic money can undoubtedly be deployed successfully" and how US policymakers were successful in dealing with the 2008 financial crisis and how the first response to Covid-19 was also impressive. 

"The pandemic caused U.S. GDP to collapse in the second quarter of 2020: output shrank at an annualized rate of 32 percent. This fall was four times deeper than the hit from the financial crisis in the fourth quarter of 2008; indeed, it was the sharpest ever contraction in the post–World War II period. The Fed responded aggressively, creating twice as much money as it had from 2008 to 2009. Likewise, the president and Congress delivered a budget stimulus that was twice as big as the 2009 version."

This 'mega-stimulus' worked perfectly as the economy 'bounced back' to pre-pandemic levels 'with no sign of inflation' writing that "If the authorities had been able to stop there, they would have pulled off a textbook example of macroeconomic stabilization".

 According to the author, Sebastian Mallaby, "Starting in the spring and summer of 2021, the Fed committed three mistakes, opening the door to today’s price surge".  As a result of the March 2021 $1.9 trillion fiscal stimulus, Brookings forecast that by the end of 2021 the US economy 'would be operating above its maximum sustainable level'. All IB economics students should precisely understand what exactly this implies.  That was the first error according to Mallaby. The Fed did not tighten at that point, preferring to take a 'wait-and-see approach (which is understandable, given the uncertainty faced at that point).  For many it should have 'hiked interest rates, snuffing out the inflation before it became serious'.  Back then many academics claimed (most notably Krugman) that the rise in inflation was 'transitory' (see my earlier post on the debate between 'team transitory' and 'time persistent'; the Summers-Krugman debate, where Laurence Summers proved right: A primer on inflation).  

Then Mallaby goes on to explain the second error the Fed made.  in March 2022 it increased interest rates by only 25 basis points (0.25%), the smallest possible increase. Why? According to Mallaby it was because the Fed is "attached to 'forward-guidance', the practice of signaling interest-rate moves well ahead of implementing them". He calls this the 'speak-wait-act triple jump approach' which may be useful is inflation is too low (the ZLB problem monetary policy faces; you can check if you wish the Oxford IB Economics Study Guide volume on this: pages 98, 118, 122-123, 131, 140-142) but is not useful when the central bank faces the 'opposite challenge of high inflation'. Sometimes 'speed is the priority' when dealing with inflationary pressures arising.  

The third error relates to the fear that a sizable increase in interest rates would spook financial markets.  'Calling market tops is hard, and the Fed's caution is understandable'. But 'asset prices were screaming that the economy was running hot'.  According to Mallaby again, the Fed should have 'factored financial signals into its decisions' and tightened earlier.

The circumstances are such that 'magic money...for the foreseeable future is off the table'. Achieving price stability (the 2% average that Neel Kashkari of the Minneapolis Fed  reiterated in the Roundtable - see my post) is of paramount importance and this will perhaps be more difficult now because 'globalization has stalled' and many many economies are 'stockpiling strategic commodities and "friend-shoring" supplies which is inflationary.

The article IMO is excellent for IB Economics students as it provides them with examples of macroeconomic policies that helps their understanding and can be used in Paper 1 essays.

This is the link: The End of Magic Money Worth your time.

(if not a Foreign Affairs subscriber you can enter your email and they'll send a paywall-free link directly to your inbox).

The logic of carbon pricing

The new IB Economics syllabus expects a lot from students on
  • Negative externalities of production
  • Common pool resources
  • Government intervention in response to externalities and common pool resources including carbon pricing
This piece (see link below) by Max Roser published in June 2021 on carbon pricing in Our World in Data is exactly what an IB Economics candidate (HL and SL) should read to understand the logic behind it.

Quoting from the article:
Consequences include the negative economic impacts of climate change through its effects on people’s livelihoods, and the damage to infrastructure through rising sea levels, thawing permafrost, and extreme weather events. They pose a large threat to the life of animals and ecosystems on our planet and include the destruction of coral reefs, forest fires, the loss of ice shields, and the expansion of deserts. They include an increase in extreme weather events, like heat waves, droughts, floods, and storms. And especially for the world’s poorest people they pose a threat to their lives, as they increase the risk of hunger and food insecurity.

Climate change isn’t the only negative consequence of burning fossil fuels. The air pollution that is caused by burning fossil fuels kills an estimated 3.6 million people in countries around the world every year. 

This is the price we are already paying for burning fossil fuels.
 The author goes on to explain that
There are two ways in which a carbon price can be implemented: a carbon tax or a ‘cap and trade’ system:

In a ‘cap and trade’ system the carbon price changes over time. A maximum level of pollution (a ‘cap’) is defined and manufacturers need licenses to emit carbon. How expensive these licenses are is determined by a trading system. The price of a license increases as emissions approach the cap. 
A carbon tax is simply a levy that is applied to all goods and services which lead to carbon emissions in their production. 
In both systems the price of any product increases with the amount of carbon emitted in the production of it. The result is that products with a low carbon footprint (like taking the train or solar energy) do not get more expensive, while goods that do create a lot of emissions (like a flight or coal energy) do get more expensive.

This helps us reduce emissions and pollution in two ways: it makes carbon-intensive goods much more expensive, meaning consumers will opt for cheaper low-carbon alternatives when they are available; and in markets where they’re not available yet producers will be incentivised to develop low-carbon alternatives.
The link for this excellent Max Rosen article is here: The Argument for a Carbon Price

Carbon pricing can take the form of either a carbon tax or a 'cap and trade' system.  An excellent (brief and simple) article comparing the two is by Charles Frank of Brookings:
A carbon tax is one way to put a price on emissions. Cap-and-trade is another. A carbon tax and cap-and-trade are opposite sides of the same coin. A carbon tax sets the price of carbon dioxide emissions and allows the market to determine the quantity of emission reductions. Cap-and-trade sets the quantity of emissions reductions and lets the market determine the price. Which of the two is better?
Frank breaks down his simple analysis into four sections:
  • which has greater uncertainty and imposes more risks?
  • which is easier and less costly to administer?
  • which is more likely to be politically palatable?
  • what mix of policies combines the best of cap-and-trade and a carbon tax?
There are of course real world examples for students to use.
The link to this Brookings article is here: Pricing Carbon: A Carbon Tax or Cap-and-Trade

Finally, Ian Parry,  the Principal Environmental Fiscal Policy Expert at International Monetary Fund, has these has this list of Five Things to Know about Carbon Pricing for IB Economics students.  Brief and easy.

PS: Complementary to the above is of course ending fossil fuel subsidies.  Students can check out this one: greenhouse gas emissions we should not pay people to burn fossil-fuels, again by Max Roser at Our World in Data.

Hope these help IB Economics students thinking about this issue and tackling effectively related exam questions.

Nota Bene!👇

I just read an Opinion in the New York Times by Paul Krugman written on 16/8/22 and titled 'Why We Don’t Have a Carbon Tax'.  I decided to add his opinion here to help students have a (slightly) different view in related Paper 1 essay questions.  

Bottom line is that he does not  consider carbon pricing a panacea to the climate change challenge we face.  He writes about the Inflation Reduction Act that Biden in the US just signed (according to Krugman 'despite its name, [it] is mainly a climate bill') which 'relies almost entirely on subsidies intended to promote clean energy, offering tax credits for renewable energy, aid to keep nuclear plants operating, incentives to buy electric vehicles and make homes more energy efficient and more'. He continues arguing that 'an exclusive focus on carbon taxes was “dubious economics and bad political economy.'  A carbon tax would be bad political economy because 'people aren’t just consumers and taxpayers, they’re also workers. And any policy that reduces greenhouse gas emissions will displace jobs in fossil fuel industries.'  It would be interesting to point here to the objection that Larry Summers voiced in the roundtable concerning this displacement (go to 34:53) where at 35:17 he ask the rest to put this displacement issue in perspective saying that 'there are only 50000 coalminers in the United States of America right now.  That is one sixth of the number of manicurists...'! Following Krugman's arguments he concludes the piece by writing 'Does this mean that we should never impose a carbon tax? No, not at all. [But,]There’s still a good case for giving people a direct financial incentive to limit emissions, and such a thing may become politically possible as the economy decarbonizes and green energy becomes a more powerful interest group.'
This excellent (short and sweet) complementary article to the above can be reached by clicking here: 
Why we don't have a carbon tax (of course, he is referring to the US). Enjoy!

PS1: The 2019 Twitter thread Krugman refers to in the article is here 

PS2: Olivier Blanchard, the senior fellow at PIIE (also ex-chief economist at the Fund and MIT professor) another heavyweight also weighs in on the carbon tax vs green subsidies debate sparkled by IRA 'climate bill'; Blanchard argues that carbon pricing (carbon taxes) are necessary as (a) a subsidies only approach may prove way too costly for the Government (b) the effectiveness of such subsidies varies significantly and (c) carbon taxes are needed to finance such subsidies
This debate is great for IB Economics students.  The debate is now on Twitter:

Friday, August 12, 2022

A Roundtable on the US Economy to watch (easy and useful)

A most interesting roundtable organized the other day at the Aspen Institute on whether the US economy is headed towards stagflation.  

Excellent for IB HL Economics candidates.  

Exposure to what is going on in a major economy by Lawrence Summers of Harvard, Neel Kashkari of the Minneapolis Fed, Melissa Kearney Professor at the U. of Maryland and of the Aspen Economic Strategy Group and Lawrence Fink, the CEO of BlackRock that manages $10 trillion in assets.  The discussion was moderated by Greg Ip, of the WSJ and author of the great book The Little Book of Economics. Many connections with the current Economics syllabus.  

The video link is here: Is the US Headed for Stagflation

How do we measure living standards

Very often in HL and SL IB Economics exams, candidates are asked questions that relate to living standards and how can we compare across countries or through time.  The new syllabus pays even more attention to this topic so it is recommended that student research it more.

One thing to keep in mind is that even Simon Kuznets, the economist who developed national income and product accounts, warned against using per capita income as a way to make such comparisons.  

A December 2021 article by Benjamin, Cooper and Kimball, titled Measuring the Essence of the Good Life is, in my opinion at least, a must read for any serious student of IB Economics walking into May or November final exams. It was published in Finance & Development, an IMF free publication.  This publication has numerous (short!) articles that perfectly align with the requirements of our syllabus. And students (or an instructor) can request free hard copies.  Many of my students have and they thoroughly enjoy it!

The link to this interesting and useful  article is here: Measuring the Essence of the Good Life (8 minutes read)

Saturday, October 30, 2021

Some behavioral economics links for IB economics students

'Behavioral economics' is the new kid on the block for IB economics students (syllabus section 2.4).  Specifically the new IB Economics syllabus expects candidates not only to be able to explain  (AO2) but also to be able to respond to essay questions that have 'discuss', 'evaluate', 'examine', to what extent' etc. (AO3) as command terms (also using real world examples).  The following is directly from the 2020 syllabus:

Behavioral economics—limitations of the assumptions of rational consumer choice

  • Biases—rule of thumb, anchoring and framing, availability
  • Bounded rationality
  • Bounded self-control
  • Bounded selfishness
  • Imperfect information

Behavioral economics in action (HL only)

  • Choice architecture—default, restricted, and mandated choices
  • Nudge theory

There are plenty of sources for instructors to use beyond IB dedicated Textbooks and Study Guides.  I asked my Year 1 kids to prepare and present BE LOs in class.  I gave them lots of articles, papers, interviews, talks on these issues to consult.  I initially had assigned the works for all so that all would study and take notes on all issues (it would be like a flipped classroom thing that I rarely, if ever, attempt) and then, the day before the presentations, I narrowed down to a specific bias or issue for each student (or duet) to 'teach'.  It worked out ok; a few kids did a superb job.

There is one more site that I did not give my students before this assignment (now they are obviously aware of it) that I think may prove very useful for all.  It has tons of interesting and useful information, the surface of which I have only scratched.

These are a few links related to issues of (at least some) interest to IB Economics students:

Anchoring bias  

The availability heuristic

The framing effect

The restraint bias (self-control)

On bounded rationality

On heuristics - rules of thumb

On Herbert Simon

On Richard Thaler

On Daniel Kahneman

All of the above and much more are found here, at The Decision Lab.  Definitely worth visiting.

Another related and very interesting site worth visiting is BEworks (also a Canadian consulting firm; Dan Ariely is co-founder and chief behavioral scientist there - he has an interesting article in the 2021 BE works Choice Architecture Report that one may download for free.

Sunday, October 24, 2021

"...bottom line is that climate policy has not progressed over the last three decades": The "wobbly" Paris Agreement and the "syndrome of free riding"

The two opening paragraphs of the article this post is all about should really catch the attention of all IB Higher level and Standard level candidates (and, teachers IMO).  Section 2.8 of the new (current) syllabus is "Market failure—externalities and common pool or common access resources". Candidates are expected to know how to clearly and with the use of appropriate diagrams explain negative externalities of production as well as common access resources and to also explain responses that include international agreements.  

Of particular interest and significance is the next learning outcome which is an AO3.  AO3 means that these topics can feature in questions that use as command terms 'evaluate', 'discuss' and 'examine', typical in part (b) of Paper 1 (HL&SL) essays where real world examples are expected (and will make the difference in allocating marks).  Here is the learning outcome: "Strengths and limitations of government policies to correct externalities and approaches to managing common pool resources of effectiveness'.  The syllabus continues with this AO3 learning outcome: Importance of international cooperation" that includes "Challenges faced in international cooperation" as well as "Monitoring, enforcement".

It should be clear from the above that IB Economics students (HL&SL) should invest some time on studying the 2015 Paris Agreement as they should be able to present, explain and evaluate / discuss this agreement as a most important 'example' of international cooperation  (you can read the official agreement here and read about it in a nutshell from the UNCC here). 

The article I was referring to in the opening sentence of this post was published in Foreign Affairs.  It is by William Nordhaus, who received in 2018 the Nobel Prize "for integrating climate change into long-run macroeconomic analysis" (see also this to get an idea about his most impressive career/work and interests).  The article is titled "The Climate Club: How to Fix a Failing Global Effort".  These are the opening paragraphs:

Climate change is the major environmental challenge facing nations today, and it is increasingly viewed as one of the central issues in international relations. Yet governments have used a flawed architecture in their attempts to forge treaties to counter it. The key agreements, the 1997 Kyoto Protocol and the 2015 Paris climate accord, have relied on voluntary arrangements, which induce free-riding that undermines any agreement.

States need to reconceptualize climate agreements and replace the current flawed model with an alternative that has a different incentive structure—what I would call the “Climate Club.” Nations can overcome the syndrome of free-riding in international climate agreements if they adopt the club model and include penalties for nations that do not participate. Otherwise, the global effort to curb climate change is sure to fail.

The problem with the Paris Agreement is that after 25  "climate meetings (COPs) (and here) there is very little progress in meeting the goals as "there is no binding international agreement on climate change". 

As mentioned in the title of this post, at the heart of the problem is the 'syndrome of free riding':

The reason is free-riding, spurred by the tendency for countries to pursue their national interests. Free-riding occurs when a party receives the benefits of a public good without contributing to the costs. In the case of international climate change policy, countries have an incentive to rely on the emission reductions of others without making costly domestic reductions themselves.

Nations have failed to stop nuclear proliferation, overfishing in the oceans, littering in space, and transnational cybercrime. 

and, Nordhaus continues:

When it comes to climate change policies today, nations speak loudly but carry no stick at all.

Are we doomed? Are there 'solutions' as a dear colleague likes saying? 

The key to an effective climate treaty is to change the architecture, from a voluntary agreement to one with strong incentives to participate. 

Successful international agreements function as a kind of club of nations. Although most people belong to clubs, they seldom consider their structure. A club is a voluntary group deriving mutual benefits from sharing the costs of producing a shared good or service. The gains from a successful club are sufficiently large that members will pay dues and adhere to club rules to get the benefits of membership.

The principal conditions for a successful club include that there is a public-good-type resource that can be shared (whether the benefits from a military alliance or the enjoyment of low-cost goods from around the world); that the cooperative arrangement, including the costs or dues, is beneficial for each of the members; that nonmembers can be excluded or penalized at relatively low cost to members; and that the membership is stable in the sense that no one wants to leave.

So, what are the conditions?

The first is that participating countries would agree to undertake harmonized emission reductions designed to meet a climate objective (such as a two-degree temperature limit). The second and critical difference is that nations that do not participate or do not meet their obligations would incur penalties. 

Please, do read the article for the specifics that Nordhaus proposes.

And, do jot down a few points to remember in a May or November IB Economics exam.

Remember, that questions relating to issues of global importance are always sought by examiners / question-setters.  It only makes sense. 

PS: You could also read about the main points of the Nordhaus article 

Monday, October 18, 2021

Maxims for thinking analytically

A very interesting book recently came to my attention while I was visiting the US.  It's title is "Maxims for Thinking Analytically: The Wisdom of Legendary Harvard Professor Richard Zeckhauser".  It is exactly what the title suggests.  I managed to read only about half of it as I bought it only a couple of days before my return flight so I had to mail it back home together with quite a few other books I had purchased (max 23 kilos allowed...).  Still, not here...

I can't wait to get it and finish reading it.  Easy to read but forces you to reflect and to often re-evaluate decisions made without deeper thinking.

This is from a post in Jeffrey Frankel's blog Views on the Economy and the World (Frankel, a renowned macroeconomist, is a colleague of Zeckhauser at Harvard) on this book:

I recommend it highly. This is not a collection of tangential papers published together in someone’s honor.  Rather each chapter consists of an immortal maxim of Richard’s together with applications to real-world decision-making, whether at the personal or public-policy level. There are 19 such pithy insights, such as “Think probabilistically about the world,” or “Good decisions sometimes have poor outcomes,” or “Eliminate regret.”  Dan skillfully weaves into each of his chapters concise contributions from a big set of Zeckhauser-admirers, including Max Bazerman, Jason Furman, Hsien Loong Lee, Jennifer Lerner, Barry Nalebuff, Larry Summers, among many others. My own contribution is to Chapter 10.  Richard’s 10th maxim is: “Errors of commission should be weighted the same as errors of omission.” 

Worth reading the rest of Frankel's post and, of course, buying and reading Zeckhoauser's book!

Saturday, September 4, 2021

The national debt expressed as a proportion of GDP - and the Furman & Summers point (among lots of other interesting points for IB Economics students)

From my experience (not though from last year as all my classes were online) incorporating podcasts in teaching IB economics can be very effective. The podcast must of course be at an appropriate level for students taking IB HL (or, SL) economics.

In addition, at least in my opinion, the teacher must only focus on specific bits of the podcast, either to start a classroom discussion on a specific issue of interest, or to assign homework that expects students to explain or evaluate a position expressed in the podcast.  Focusing on bits is absolutely necessary if the podcast is long and/or if segments of it become too involved for their level.

David Beckworth, a senior fellow at the Mercatus Center at George Mason University,  hosts the Macro Musings Podcasts which are always excellent (for teachers) and sometimes appropriate (at least bits of them) for IB Economics students.
One recent very interesting podcast was an interview of Jason Furman titled Jason Furman on Overheating, Inflation, and Fiscal Policy in an Era of Low Interest Rates .  

Jason Furman is a senior fellow at the Peterson Institute for International Economics and a professor of the practice of economic policy jointly at the Kennedy School of Government and at the department of economics at Harvard University.

In this interview Furman, prompted by Beckworth, starts by explaining the two things that are a concern to him if inflation accelerates (namely that real wages decrease exacerbating inequality and the risk of recession if the central bank raises interest rates too quickly); he continues explaining the importance of anchored inflationary expectations (and there’s lots of discussion with Beckworth on the debate about whether inflation in the US is now transitory/temporary or persistent - in which case the central bank must start worrying); he also makes the case why a higher than 2% inflation target (perhaps even 4% even though Furman likes 3%) may be preferable – it gives policymakers more flexibility plus, given sticky nominal wages, the resulting decrease in the real wage will permit employment levels to be maintained; and then gets into some more esoteric issues (that are not accessible to IB Economics students in my opinion).

What is though most interesting for IB economics students (higher level only) is found later on in their conversation when Furman presents the paper he co-authored with Larry Summers “A Reconsideration of Fiscal Policy in the Era of Low Interest Rates". 

This is the paragraph that is worth some discussion given that the new IB Economics syllabus has now included a discussion of what a sustainable level of  national debt is and explicitly expects students to know that the size of the national debt should be expressed as a percentage of GDP (“Measurement of government (national) debt as a percentage of GDP”).  This of course makes sense…
but, Furman goes on saying that:
…our biggest argument is that debt-to-GDP is a misleading metric because debt is a stock. It's what you have at a point in time. Income is a flow. If you compare your debt to today's income, it's incredibly high. If you compare it to your income over the course of the next decade, it's a whole lot lower. That's more than just a cutesy observation when you combine it with the fact that interest rates have fallen on a sustained basis. You look across the G7 and the real interest rate has fallen from about 4%, 30 years ago, to around 0%, just prior to the pandemic. And that means that you can, from a fiscal sustainability perspective, pay your debt off over a longer period of time…
and continues by explaining…
So we (F&S) argue that the right way to look at it is from a flow-flow perspective. What's the flow you need to pay each year, and what's the flow of income you have each year. We go a little bit further into a place that I don't haven't noticed others do, but maybe they have. I'm sure somebody has. Which is that the relevant way to think about interest is the real interest payments. If you're in a world of higher inflation, you're inflating away more of your debt. You don't mind the portion of interest that's just covering inflation. What your mind is the portion above and beyond that. And so, our preferred metric for fiscal sustainability is looking at real debt service as a share of GDP.

This Furman & Summers point about the right metric to judge the sustainability of a country’s debt can be explained I think to IB HL economics students.  If explained and if understood then (strong) candidates could incorporate the discussion in a debt related paper 1 question related to debt sustainability.  I think that could push their response easily towards a Level 5.  

Sunday, August 1, 2021

All about investing (interesting for IB Economics students but NOT in the new IB Economics Syllabus)

 Throughout these past years, students have invariably been asking to devote some time to issues of (financial) investment.  They all want to know more about the stock market, how stock prices are determined, bonds, cryptocurrencies, you name it.  I don't have the time to spend more than perhaps a period on these questions   which is a pity. It is perhaps the only questions I do not (try at least) to provide an answer.

So, I was pleasantly surprised today when I found out that there is a series of short 'lessons' for high school students on exactly this stuff. 

It is the Planet Money 2021 Summer School series and you may find the first episode  on the Stock Market here.

Planet Money has also many episodes that directly link to the new IB Economics Syllabus requirements like this most recent one on three reasons for the housing shortage in the US but the new Paper 1 requires real world examples and some of what is explained applies elsewhere.  The issue would relate to maximum prices (price ceilings), in this case why in many cities rent controls are imposed or discussed/ debated.

Planet Money has many episodes that are of direct interest to our IB Economics Syllabus.  Check out past episodes here.

Sunday, July 18, 2021

A primer on inflation: A must read for all IB Economics students


Page One Economics is a tremendous resource for IB Economics teachers and students.  I’ve been using it for a number of years, and I always look forward to a new edition. The latest one  Inflation Expectations, the Phillips Curve and Fed's Dual Mandate written by Jane Ihrig, Ekaterina Peneva, and Scott A. Wolla is a jewel for us.

It starts off by clearly explaining what is meant by price stability. Price stability is one of the main goals of macroeconomic policy. Interestingly, it does not mean zero inflation.  Instead, the Federal Reserve (the US central Bank), as well as all central banks, considers that “a moderate, stable and positive rate of inflation is most consistent with its price stability mandate.” Why not target zero (0%) inflation?  It is explained beautifully in the article.  To protect the economy from deflation is one reason (deflation is when the average price level is decreasing which induces households to postpone purchases and thus forces firms to cut wages and/or jobs leading to a deflationary spiral).  The rate of inflation cannot be pinned at any level but tends to fluctuate, so entering negative territory is to be avoided. Also, there is an upward bias in measuring inflation meaning that if measured inflation is 0.5%, it could actually be minus 0.4% having entered deflation territory (see the Ellie Tragakes IB Economics textbook on this overestimation bias or the Oxford Economics Study Guide).  In addition, if inflation is extremely low for a long period, typically interest rates are also close to zero leaving no room for an interest rate cut if the economy faces the risk of recession.  This is the ZLB ('zero lower bound' problem – see the new Oxford IB Economics Study Guide for a brief explanation of this).  So, what do central banks mean by ‘price stability’?  If 0% inflation was not desirable as a target, what rate of inflation should central banks aim for? We know that high inflation is costly for many reasons.  Inflation decreases the purchasing power of all households with fixed money incomes (like wage earners or pensioners); it increases income inequality as low income individuals can only save any income they do not spend in bank savings accounts where the real interest rate earned (their real return of return) may be negative (remember, the real interest rate is the nominal interest rate minus (expected) inflation) and they cannot borrow to purchase (invest in) assets whose market value is expected to rise faster than inflation (while richer folk can invest in real estate, art, gold, etc.); it distorts the signaling power of relative price changes leading to allocative inefficiency; it leads to increased uncertainty that stifles investment and it renders exports less competitive in foreign markets, among other costs.  Where does this leave us? Well, the Fed, as most central banks did, gravitated to a 2 percent ‘healthy compromise’. So, for most central banks their announced target has been to achieve and maintain inflation “below, but close to 2 percent”.  The 2% target has become the orthodoxy despite being a rather arbitrary choice.  The story behind the choice is actually pretty funny

The St. Louis article, after explaining why now the US central Bank has chosen the Personal Consumption Expenditures Price Index (PCEPI) over the CPI (from my understanding the PCEPI also corrects for the substitution bias that plagues the CPI – note here that IB Economics students should stick with the CPI as it is the CPI that is in the new IB syllabus), continues with a short but beautiful exposition of the Phillips Curve which all IB Economics students should read.  The Phillips Curve reflects that (at least in the short run) there is a trade off between inflation and unemployment  

"which policymakers considered when setting monetary policy: They could pursue an economy with lower unemployment if they were willing to accept higher inflation. Conversely, if policymakers wanted to pursue lower inflation, they would have to accept higher unemployment and lower economic activity."

Interestingly enough this “tradeoff has weakened”.  There is evidence that the “Phillips Curve has flattened” (see "Is the Phillips Curve alive?"which allows them to pursue lower unemployment without having to accept higher inflation.” Now, in the US, “…policymakers are willing to allow employment to expand as long as inflation expectations are anchored around the 2 percent target.”

The important phrase to note from the last quote is the phrase ‘… inflation expectations are anchored’. Expectations about future inflation are perhaps the most important determinant of inflation.  Why? Because “they influence peoples’ decisionmaking today, which then impacts future inflation.”  Read the box on page 4 of the St. Louis article as this is explained in a way that all IB Economics students will understand.  If a firm believes that inflation will be around 2% this year and next year and the year after, it will increase its prices and wages by 2%, and based on this expectation, plan its investments. Similarly with households.  It follows that if expectations are anchored at 2% then inflation will indeed prove to be 2%. 

This brings us to my earlier July 2 post on the Summers-Krugman inflation debate where Krugman distinguishes between 'transitory' inflation and ‘hard core’ inflation.  I mentioned in the earlier post Krugman’s definition of transitory inflation as “easy come, easy go” but you will find a fuller explanation in the box titled “What is transitory inflation” on page 5.  You will then understand why the Fed has recently slightly changed its target to what is referred to as “flexible average inflation target”  (FAIT).  Inflation can now exceed 2%, as long as, on the average, it remains at 2%.  This really boils down to as long as peoples’ expectations about future inflation remain anchored at 2% and a higher rate of inflation does not become ‘embedded’ in their expectations. 

This St. Louis article is a great resource for not just my but for all IB Economics students.  Not only will it help them better understand inflation and policymaking (remember the Paper 3 new ‘recommend a policy’ part) but also provide them with plenty of real world information to satisfy a number of possible Paper 1 macroeconomics questions.

Please read the St. Louis Page One Economics article!


Saturday, July 10, 2021

IB Economics New Syllabus Paper 3 (micro calculations)


Focus on micro P3 calculation topics (new IB Economics syllabus)

The new IB Economics syllabus has changed quite significantly concerning Paper 3.  In terms of microeconomics related calculations, there are significantly fewer.  No need to bother anymore with linear demand and supply functions (a good development IMO, since candidates taking any IB math level know how to fool around with linear functions and many of the related calculations in past paper 3 questions could often be solved by inspection - no need even for a simple calculator); no need to fool around with fixed and variable costs and their averages (which again I think proved of little value); and, focusing on micro questions only, no need to know how to calculate MP, AP and TP from tables (data) or from diagrams.  IB Economics candidates now need to know what marginal whatever and average whatever are (HL only), and this is achieved in the new syllabus from requiring them to understand how to play (make calculations) only with MC, AC, MR, AR and also TR (from data tables). 

The new IB economics syllabus includes the following (micro related) calculations:

Calculation (HL only): consumer surplus and producer surplus from a diagram

Calculation: PED, change in price, quantity demanded or total revenue from data provided

Calculation: YED, change in income, quantity demanded from data provided

Calculation: PES, change in price or quantity supplied from data provided

Calculation (HL only): the effects on markets and stakeholders of:

• price ceilings (maximum prices) and price floors (minimum prices)

• indirect taxes and subsidies.

Calculation (HL only): welfare loss from a diagram

Calculation (HL only): profit, MC, MR, AC, AR from data

I will try to upload here some examples for these topics, taken mostly from my OUP Economics Skills and Practice volume.


To me, the trickiest point perhaps that (HL) IB economics candidates should have in mind relates to indirect taxation.  It is very simple, but it differs a bit from the treatment in the old syllabus.  The new economics syllabus is not explicit about this (correct) twist but if one checks out the specimen paper 3 provided to all teachers (and thus to all students) you’ll see what I mean and why all HL IB economics candidates must have this in mind {see specimen question 2a(ii)}.

Assume I went out to buy myself a shirt.  I come back home and my wife asks me how much did I pay.  I reply that I paid 93 euros.  The tax rate (VAT) in Greece is (unfortunately) 24% on most items. (a GST or sales tax in other countries)

The questions are:

(a) how much was the tax paid (in euros)

(b) what was the price of the shirt I bought net of tax (i.e. before the VAT/sales tax was applied).

We must realize that the 93 euros I paid included the tax.  So how do we go about answering the above questions?

First some notation. Let:

* P(wt) be the price paid (say, for the shirt) with the tax 

* t be the tax rate; in this case, say 24%

* Po be the price (of the shirt) net of tax i.e., before the 24% tax was applied

Then it should be that:

P(wt) = Po + tPo (i.e., the net of tax price plus the amount of the tax paid on the item)

P(wt) = Po (1+t)

So Po = P(wt) / (1+t)

Using our figures:

Po = 93/1.24 So Po = 75 euros (this is the net of tax price of the shirt on which the 24% sales tax was applied)

And thus, the tax I paid on the shirt I bought was P(wt) – Po or, 93 – 75 = 18 euros

(or equivalently, tPo= 0.24*75 = 18 euros)

I will try to post on a regular basis not only articles on issues that may be of interest to IB Economics students but also questions that I will construct, mostly P3 questions and P2 questions that may help.  I’ll also try to provide some insights on Paper1, part(b), questions, focusing mostly on the role of investigations that IB economics candidates should now regularly undertake in their classes to be able to effectively use real world examples (note the plural and the verb ‘use’ – not list or mention) in their responses.


Tuesday, July 6, 2021

This is great for IB economics kids (and, not only)

Our World In Data

Our World in Data has tons of information on a myriad of variables where all IB (not just Economics candidates) will find stuff they are interested in.  For example:

On outdoor air pollution

On child and infant mortality

On life expectancy

On smoking

On alcohol consumption

On fossil fuels

On homelessness

On happiness and life satisfaction

and on much more

You can fool around hereOur World in Data

Preannounced sales tax increases as a form of unconventional expansionary fiscal policy

Fiscal policy is a short run demand management stabilization policy that includes changes in government expenditures (G) and/or in taxes (T).  Mind you that it is changes in direct taxes that are considered part of the fiscal policy arsenal.  More specifically, if an economy is about to enter, or is in a recession (or suffers from a large negative output gap), then the government can decrease direct taxes (T). Disposable income (Yd) will increase and thus consumption expenditures (C) and aggregate demand (AD) will increase leading to an increase in overall economic activity (remember, disposable income (Yd) is income minus direct taxes plus transfer payments {so: Yd = Y – T + Tr}, and is not the same as the real income which is money divided by the average price level). On the other hand, if an economy is overheating then policymakers could increase (direct) taxes so that Yd decreases, decreasing consumption expenditures and thus AD (this analysis could also refer to corporate -profit- taxes but let's keep it simple). 

What about changes in indirect taxes?  We treat these at the IB Economics course as possibly affecting the short run aggregate supply.  If they increase across the board (say, an increase in a country’s VAT / GST to 20%) this will increase production costs of firms and as a result decrease the SRAS, shifting it to the left.  This is the typical impact of a change in indirect taxation on an economy according to the IB Economics syllabus).


In a recent paper in the American Economic Journal: Macroeconomics, titled  “Shopping for Lower Sales Tax Rates ” the authors (Scott R. Baker et al.) show that “shoppers do actually adjust spending on all kinds of items when state or local (sales) taxes change”. They used data for more than 150,000 households across 40 states to examine whether spending changed in response to increases in sales taxes (the full paper found here).

The researchers found that “…in the month before an increase, consumers stocked up on storable goods, like laundry detergent and alcohol, while they were less expensive.” The same authors find in another recent paper that car sales increased by over 8% in the month before a 1% increase in the sales tax rate!  Click  here for this paper.

The question is ‘so what?”  Why would a HL or SL IB Economics candidate be interested in this finding? Well, the answer is that it provides an alternative policy choice to policymakers who face the threat of recession and are constrained by interest rates at, or very close to zero (the ZLB -zero lower bound- problem) and also by little room for conventional expansionary fiscal policy.

"This research suggests that sales tax adjustments can be a way to stimulate spending at a time when monetary policymakers can’t turn to lowering interest rates because they are already near zero."

Policymakers confronted with the risk of a recession may announce that “..there's going to be a temporary sales tax cut that's going to be paid for by a sales tax increase in the future” 

Their finding imply that this may “induce people to spend more now, buy cars, or buy other things when they are in the low tax environment”. 


If you are to include this finding in a paper 1 (essay) response, make sure you first clearly explain the conventional tools for stimulating an economy.  Only then you can explain this finding making sure you remember to quote the title of the paper, the journal and one of the authors.  

Lastly, an absolutely excellent short piece on fiscal policy where everything an IB Economics student need to know is clearly explained is a 2020 article in the (free) IMF journal Finance and Development titled Fiscal Policy: Taking and Giving Away” by Mark Horton and Asmaa El-Ganainy.  

May I remind IB Economics students that they should make sure to subscribe to the Finance and Development IMF publication.  It has very many, easy and interesting articles that can help them achieve high grades in exams. 


Sunday, July 4, 2021

Big tobacco: High taxes in the North and their unintended consequences in the South


Negative consumption externalities are a most important topic in the new IB economics syllabus. A negative consumption externality arises when the consumption of a good imposes costs on 3rd parties for which they do not get compensated.  Tobacco (smoking) and alcohol (drinking) are prime examples.  The consumption of both not only harms those who consume these 'goods' but also society at large.  

Taxation on alcohol is considered ineffective (but a great way to collect high tax revenues which can also be used to finance other policies aimed at decreasing consumption of these 'demerit' goods).  Why won't even a high an indirect tax be effective in lowering consumption of alcohol?  Because taxes on alcohol lead to a "chain of substitutions".  There are very many different types of alcohol (vodka, whisky, wine, beer, tequila, rum, cider, ouzo, you name it...) and each type has zillions of brands and qualities and thus prices range from very low to extremely high. A high tax on alcohol (say 50%) would induce this "chain of substitutions": many consumers, especially individuals in lower socio-economic status (SES) groups where greater prevalence of harmful alcohol consumption (binge drinking) is documented will simply switch to equally strong but cheaper and often lower quality alcohol or brands.  Note though that the minimum unit price (MYP) policy implemented in Scotland and Wales (for which, BTW, you can not use a typical demand and supply diagram that we use to illustrate a minimum price on, say, corn, because the markets for vodka, whisky etc. are not perfectly competitive and there is no supply curve  in markets where firms are price setters) is considered most effective especially if complemented by other policies, such as increased education and awareness in the population (note that also some techniques -nudges- associated with behavioral economics have also produced promising results).

Cigarettes are a different story.  Why? Because even though there are again many brands of cigarettes, they are typically sold at roughly the same price.  An indirect tax can thus prove effective but only if it is high enough (very high) so that the post-tax price rises to the elastic section of the demand for cigarettes curve.  Remember that PED is affected by the number and closeness of available substitutes, whether the good is addictive (tobacco is very addictive)  but also, and most importantly, by the proportion of income spent on the good.  So a low indirect tax will not lead to a significant decrease in smoking (but it will fill the state's coffers with a lot of tax revenues) and will thus prove ineffective.  But a very high tax has a greater chance of proving effective because if smokers continue to smoke as much, their monthly expenditure on cigarettes will become a much too high proportion of their monthly income and many will be forced to cut back and even kick the habit as all are aware of the fact that smoking is a killer.  

But what about 'close substitutes'? That's a big one these days.  In order for a tobacco tax to prove effective it must be imposed on all tobacco-related products and this will have to include heat-not-burn nicotine delivery systems (like IQOS, devised and marketed by -take a guess- Philip Morris International, one of the biggest 'big tobacco' companies) and e-cigarettes (like JUULs).  In addition, the state must make sure that no illegal markets arise (relatively easy if there is the political will).

So, assume that with the high taxes that many countries have imposed and with the impact other necessary complementary policies sales of cigarettes do go down in many advanced economies

Well, unfortunately this would not be the end of the story for  the huge tobacco multinationals.

Watch this (very short): Big Tobacco Goes South 

In the search for new consumers, Big Tobacco is setting its sights on markets in the Global South, using the same tactics that hooked smokers in rich countries decades ago. But with weak health-care systems and low regulatory capacity, the developing world will have a harder time fending off the industry’s marketing blitz.

Remember though that in many countries in the South, the State needs high tax revenues to be able to finance pro-development projects: so they are caught between a rock and a hard place...

PS: I've quit very many years now but the first couple of years of my graduate work in the States I was, unfortunately, a smoker.  I still remember when, late one night, I ran out of cigarettes and, not having a car during my 1st year, I called a cab to get to the nearest ‘Store 24’ and buy me a pack.  The driver took me there and when he saw what I bought, he remarked “Oh, you went to buy coffin nails, I see’. Still, haven’t forgotten his comment.

Friday, July 2, 2021

IB Economics: new syllabus: sections 2.11 and 3.4 On market power, possible abuses of and impact on wages and income inequality

There is significant emphasis in the new IB Economics syllabus on market power, its abuse and the impact on income distribution.  This Project Syndicate video (Project Syndicate a source mostly of great short articles) explains the rise in concentration in many markets and the impact it has had on wages and consequently on income distribution in 2 minutes and 32 seconds.  A nice intro perhaps on the risks of market power being abused and also of possible use in student inquiries on market power and income distribution.  Very topical of course. We'll be focusing on abuse of market power and on income distribution issues a lot.

Watch here: The rise of monopsony power

Sunday, June 27, 2021

Causes of inflationary pressures and the Summers-Krugman ‘debate’ (useful for the Paper 1(b) real world example requirement)



Larry Summers is a most respected Harvard economist (check out here his very impressive cv – BTW, he entered MIT at 16!)  who has lately been very much in the news as he fears that inflation is knocking on the US economy’s door as a result of a the $1.9 trillion Biden American Rescue Plan. 

Interestingly, Summers had re-introduced in 2013 a depression-era term, ‘secular stagnation' to describe the slow growth, low interest rates and no sign of inflation that characterized the US and other advanced economies (see his article titled “Accepting the Reality of Secular Stagnation” in the March 2020 issue of “FINANCE & DEVELOPMENT” a free publication of the IMF that all IB Economics students should subscribe to; link to Summers F&D article here).  He then claimed that “it may have become all but impossible to boost growth by using the age-old trick of lowering interest rates to encourage more investment and consumer spending. The answer, he argued, was for governments to spend more instead” (see this article in The Conversation here; see also this Summer's article

But, today, it was perhaps Mr. Summers’ Washington Post February 4 article "The Biden stimulus is admirably ambitious. But it brings some big risks, too" that started the debate about whether as a result of the increased government spending there is risk of inflation now in the US. He explained why in his opinion this risk is real:

“First, unemployment is falling, rather than skyrocketing as it was in 2009, and the economy is likely before too long to receive a major boost as covid-19 comes under control. Second, monetary conditions are far looser today than in 2009 given extraordinary Federal Reserve policies, the booming stock and corporate bond markets, and the weakness of the dollar. Third, there is likely to be further strengthening of demand as consumers spend down the approximately $1.5 trillion they accumulated last year as the pandemic curtailed their ability to spend and as promised further fiscal measures are undertaken.”

He pressed further in a May 24 Washington Post article  “The inflation risk is real”  where he wrote:

“Fed and Biden administration officials are entirely correct in pointing out that some of that inflation, such as last month’s run-up in used-car prices, is transitory. But not everything we are seeing is likely to be temporary. A variety of factors suggests that inflation may yet accelerate — including further price pressures as demand growth outstrips supply growth; rising materials costs and diminished inventories; higher home prices that have so far not been reflected at all in official price indexes; and the impact of inflation expectations on purchasing behavior. Higher minimum wages, strengthened unions, increased employee benefits and strengthened regulation are all desirable, but they, too, all push up business costs and prices.”

But the US was in need of expansionary fiscal policy. So what is Summers' policy advice? He specifically asks: “So how best can we (the US) contain overheating risks and promote sustainable growth while also making necessary investments in infrastructure, greening the economy and helping low- and middle-income families?". He explains:

"First, starting at the Fed, policymakers need to help contain inflation expectations and reduce the risk of a major contractionary shock by explicitly recognizing that overheating, and not excessive slack, is the predominant near-term risk for the economy. Tightening is likely to be necessary, and it is critical to set the stage for that delicate process....Second...unemployment benefits enabling workers to earn more by not working than working should surely be allowed to run out.  Third, it is essential to make long-term public investments to increase productivity and enable more people to work" (his point here is to have redirected a big chunk of the Rescue Plan to (long-term) public investments).    

On the other side of the story, we find a most prominent name, Paul Krugman, the 2008 recipient of the Economics Nobel Prize (also a most impressive CV - click here)

Krugman argues for a while now that the rise in the rate of inflation is not to worry much about.  He considers that the size of the American Rescue Plan ($1.9 trillion) was necessary.  He explains here  in his revived blog that this plan should not be confused with typical expansionary fiscal policy initiative to close an output gap as this was not “a conventional recession — a decline in output due to insufficient aggregate demand”. He further explains that the size is not too big, given the circumstances; and, that there may be some risk of overheating but this risk is small and can be controlled by the Fed (the US central bank) tightening policy (i.e. increasing interest rates). 

A February 2021 YouTube debate between Summers and Krugman can be viewed here (longish- but try to watch until 40:48 ). You may find a summary here

Krugman’s most recent (June 21, 2021) New York Times article is titled “The Week Inflation Panic Died” (see here). He had been arguing that there are two types of inflation: “The key thing to understand is that there are really two kinds of inflation.”  The one type is ‘hard-core’ inflation which is when inflation becomes embedded in the economy (i.e. in the expectations of firms and workers) and then “transitory inflation...which is easy come, easy go” and policymakers should “worry only if core inflation looks as if it’s getting too high (or too low)”, i.e. if it becomes embedded in expectations.  He continues: “The Fed has been arguing that recent price rises are similarly transitory. True, they’re not coming from food and energy so much as from pandemic-related disruptions that caused surging prices of used cars, lumber and other nontraditional sources of inflation. But the Fed’s view has been that this episode, like the inflation blip of 2010-11, will soon be over.  And it’s now looking as if the Fed was right. Lumber prices have plunged in recent weeks. Prices of industrial metals like copper are coming down. Prices of used cars are still very high, but their surge has stalled and they may have peaked. Core inflation wins again.”

See also his April 16 article: "Krugman Wonks Out: The Case for Supercore Inflation. It’s going to be a year of bottlenecks and blips" and his May 21, 2021 “Krugman Wonks Out: What We Talk About When We Talk About Money” 

I'd like to add that I have been relying a lot for my IB Economics classes (when classes were not virtual...) on podcasts.  One that is very relevant (and, easy to understand) is this Post Reports podcast (June 17, 2021) Inflation, inflation, inflation (listen only only up to 12:50 for this issue; a must for IB Economics students).

One last point: if the US central bank (the Fed) is forced to increase interest rates because the Summers' scenario of inflation materializes and manages to do so without staring a recession, then there is an interesting benefit for the US economy: it will once again be able to lower interest rates (from say 4% to 1%) to fight a future recession.  The Fed now faces the ZLB (zero lower bound) constraint: with interest rates pretty much at 0%, there is virtually no room for cutting interest rates as deep negative interest rates are considered 'unchartered territory' (but if interested, see Rogoff's idea here)

Hope this provides some background information for investigations that you may conduct on several macro issues that may feature on an IB P1(b) econ exam.

PS: Concerning the distinction between 'embedded' inflation and transitory inflation (or 'blips' as Krugman refers to them in one of the above articles) we can realize why inflation (in the IB and not only) is defined as a 'sustained increase in the general price level'.  See for example Ellie Tragakes' excellent textbook, p.309. Unless inflation is considered sustained (i.e. at risk of becoming embedded in expectations), a central bank (like the Fed now) will not increase interest rates.


Sunday, September 8, 2019

IMF: Back to Basics

Was looking at the IMF Blog and I found a collection of all past Back to Basics short articles that aim at explaining fundamentals to students.  I've used several in the past and most are wicked good and fully compatible with the IB Econ Syllabus. 

You can find these titles here.


Great for IB students: Trade diversion in action and the role of macro aggregates on trade balances

Just listened to a most useful and clear trade talk/podcast that focuses on KORUS, the Korea-US Free Trade Agreement that went into effect in 2012.  A University of California Davis professor explains in most simple terms concepts of international trade that all IB Econ students should be aware of.

Kadee Russ discusses the results of a 2019 paper she co-authored with Deborah L. Swenson to the hosts of Trade Talks, a podcast about the economics of trade and policy, Soumaya Keynes and Chad P. Bown.  It is a question and answer podcast that navigates us through real international trade patterns.

Listen in class to The Surprising Story of the US Trade Deficit with South Korea.  It is rewarding!

(the NBER working paper for the more ambitious can be found (free) here).

Saturday, August 24, 2019

The limits of monetary policy?

Despite the work I have editing a new book (writing it with a colleague who happens to be an ex-student (IB) of mine), I just cannot ignore the news, especially when a lot has been going on lately in the world.

What am I referring to?
  • the escalating trade war between the US and China 
  • the rising chances for a no deal Brexit
  • China and the Hong Kong protesters
  • Italy's political instability
  • and, unfortunately, quite a few other 'developments'
Since I need to maintain focus on IB Economics, I will refer to an article in today's NYT titled One Crazy Day Showed How Political Chaos Threatens the World Economy What is of special interest to me and the course I teach are a couple of points made by Jerome Powell, Fed Chairman (the Fede is the Central Bank of the US) and by Mark Carney, the Governor of the Bank of England, about the limits of monetary policy.

This quote from the article refers to Jerome Powell:
Mr. Powell delivered a nuanced speech signaling the Fed was committed to a “risk management” approach, of adjusting policy to try to prevent bad things from happening. His words kept the Fed’s options open.
But he made clear that a breakdown of global trade relations was not the kind of thing that the Fed’s interest rate policies were well suited to addressing.
While monetary policy is a powerful tool,” Mr. Powell said, “it cannot provide a settled rule book for international trade.” The central bank can only adjust policy to try to respond to the ways trade policy changes affect the overall outlook.  The implicit message: If erratic trade policy undermines the economy, the Fed’s tools are likely to have only limited ability to overcome the damage. Interest rate cuts in that situation would be like giving pain relievers to someone with a broken bone — better to have than not, but unable to solve the underlying problem.
And this one to Mark Carney:
 Also speaking at the Jackson Hole symposium was the Bank of England governor, Mark Carney, who described a limited ability to use monetary policy to offset the damage from Britain’s potentially messy exit from the European Union this fall.
“In the end, monetary policy can only help smooth the adjustment to the major real shock that an abrupt no-deal Brexit would entail,” Mr. Carney said, and that ability would be constrained by the need to keep inflation under control.
Food for thought! 

Tuesday, August 20, 2019

The new IB Economics Syllabus

 I assume that most probably, the new Economics Syllabus for first teaching in August 2020 and first assessment in May 2022, will be out very soon.   

There are nine key concepts around which the course will be structured: scarcity, choice, efficiency, equity, economic well-being, sustainability, change, interdependence and intervention.  The initial decision to dump the theory of the firm and market structures thankfully does not seem to be the case as section 2.11, in the January 2019 updated syllabus outline, is on Market Power. 

Since to teach market power, and to ensure that students do understand its meaning and  implications, the basics of the theory of the firm and of market structures are necessary, I assume that they will also be present in the new syllabus.  We'll see. 

Otherwise, there is little in the latest outline to fully grasp the differences between the new and the current syllabus. 

In the area of assessment, what makes me wonder a bit is where it is stated that in the 'new' Paper 3:

 "students will work with new quantitative and qualitative data demonstrating a deeper understanding of a real-world issue scenario, using the theories, models, ideas and tools of economics and culminating in policy advice"

"Policy advice"!  I know a few governments (😜) that would need some good policy advice now! This new expectation is both interesting and will be a nightmare to mark (and to come up with an appropriate MS and provide guidance to examiners ).  We'll also see how this one works. 

The last item that makes me a bit curious (I was initially going to use the word 'worried'...) refers to the Internal Assessment.  It states in the outline:

"Each of the three commentaries should use a different key concept as a lens through which to analyse their commentaries"

The 10 'key concepts' are in italics above.  First of all, I would assume that a commentary can 'use' more than one 'key concept'.  But I am not at all sure what exactly the verb 'use' means.  Most, if not all of these concepts permeate all of economics.  And, of course, the question is how can a teacher or a moderator judge whether (and to what extent) a commentary does indeed 'use' a key concept'?. We'll also see this one in practice.

A more general point.  I've been teaching for a long-long time Economics (IB for 25+ years) and I have a decent (terminal degree) background in pure Economics.  I have to admit that I am not so sure what much of the language used in curricula and other IB guides/documents really means.  I am afraid that the program has been hijacked by many who have basically a solid background in Education (but a minimal background in a discipline) and who are forcing fashionable concepts and terms without a clear knowledge of how exactly these apply to each discipline.  More like buzzwords...

I do know that a solid background in Physics is needed to teach Physics and a solid background in Economics is needed to teach Economics.  Sometimes, it seems, this background is just not there.  Einstein had said that 'if you can't explain it to a six year old, then you don't understand it yourself'.
I am afraid that lots we lately find in many IB documents cannot be explained to a six year old.

PS: I had promised that I would maintain this blog last year (and, I am afraid the year before).  I didn't.  Let's see if I keep a new promise to maintain it this time.  The fact that real world examples are lately in such high demand by examiners and what's going on in the real world will be even more important when teaching the new syllabus, makes me hopeful that I will at least try harder this time around.  The goal is to facilitate both students and colleagues of IB Economics .  😁