The Role of the Price Mechanism in Resource Allocation...

My students and I have (re)discovered Prezi and they are working small wonders preparing sweet and short presentations on IB economics topics.  I found this jewel (by Danai Michalakaki) on the role of the price mechanism in resource allocation.  Enjoy it!

The role of the price mechanism on Prezi

Which European Union do you belong to?

Which European Union do you belong to?

The future of Economics

A couple of days ago in Big Think there was an interesting post with the views of 'Eight of the world's top young economists' on where the field is or should be heading.

Here are some quotes which may make you curious to read the full post:

NICHOLAS BLOOM, 39 years old at Stanford

'…Why are developing countries poor?  In terms of impact on mankind globally, this strikes me as probably the biggest and most important current economic question.  I think the answer is complex and linked to a combination of factors around history, geography, luck, etc.  I am personally working on management practices: people in developing countries are poor because wages are low, and wages are low because firms are very unproductive, and firms seem to be unproductive in large part because of bad management.  An Indian worker makes in one week what an average U.S. worker makes in a half a day.  One big factor seems to be that factories in India are frankly very badly managed: equipment is not looked after, materials are wasted, theft is common because inventory is not monitored, defects keep occurring, etc…'

RAJ CHETTY 32 years old at Harvard

'…Many economists are concerned with two broad questions: how can we increase the rate of economic growth and overall well-being, and how can we reduce the rate of poverty?  Countless policies—taxation, education, healthcare, etc.—have been implemented in an effort to achieve those objectives.  One of our biggest challenges is to distill each policy’s unique impact so that we can understand which ones actually work and which ones do not. '

XAVIER GABAIX, 40 years old at NYU

'…The most central open question in economic theory, as I see it, is how to model realistic economic agents.  Traditionally, economists have relied on the rational-actor model, but it is clear that it is just a rough caricature.  It has been greatly enriched by behavioral economics in the past 30 years.  Still, we are far from a unified, versatile, believable alternative to the rational-actor model.  I am hopeful, though, that this might be overcome—in part because of progress in the sister disciplines (psychology and neuroscience) and basic modeling, and also because empirical anomalies are forcing the economic profession to be more open-minded.  Contributions by computer scientists and physicists will help inject new perspectives into economics.

The largest concrete questions in economics are, arguably, how to increase growth—particularly in developing countries—and how to avoid economic disasters and financial crises…'

Peter Leeson, 32 years old at George Mason University

'…My candidate for the biggest unanswered question in economics is the status of the rationality postulate: the decision to analyze actors as utility maximizers with consistent preferences.  If we view economics as an “engine” for understanding the world, the rationality postulate was that engine in nearly all of economics until quite recently.  The rise of behavioral economics has challenged the usefulness and, in a more subtle but radical way, the legitimacy of the rationality engine.'

Glen Weyl, 27 years old at the University of Chicago

'…In his famous 1945 article, “The Use of Knowledge in Society,” F. A. Hayek argued that despite their inequity and inefficiency, free markets were necessary in order to allow the incorporation of information held by dispersed individuals into social decisions.  No central planner could hope to collect and process all the information necessary for social decisions; only markets allowed and provided the incentives for disaggregated information processing.  Yet, increasingly, information technology is leading individuals to delegate their most “private” decisions to automated processing systems.  Choices of movies, one of the last realms of taste one would have guessed could be delegated to centralized expertise, are increasingly shaped by services like Netflix’s recommender system..'

Justin Wolfers, 39 at UPenn

'…Economics is in the midst of a massive and radical change.  It used to be that we had little data, and no computing power, so the role of economic theory was to “fill in” for where facts were missing.  Today, every interaction we have in our lives leaves behind a trail of data.  Whatever question you are interested in answering, the data to analyze it exists on someone’s hard drive, somewhere…'

Poverty and development issues, the limitations of rationality, huge disaggregated data sets and vast computing power.....

Read it all here: Empirics and Psychology: Eight of the World's Top Young Economists Discuss Where Their Field Is Going. 

What do you make of this?

...and I'm quoting Alan Blinder (click here for who Blinder is and for some interesting and accessible WSJ contributions):

'...Our teaching about monetary policy must be completely revamped. Specifically, students must now learn something about “unconventional” monetary policies. Remember “conventional” monetary policy? The Federal Reserve shortens recessions by creating more bank reserves (“printing money”), which fuels a multiple expansion of the money supply and credit because banks don’t want to hold excess reserves. So they get rid of them making more loans and deposits, which also lowers short-term interest rates. Compare that to current reality: Banks are content to hold over $1.6 trillion in excess reserves, short-term interest rates are stuck near zero, and Fed policy often works on long-term interest rates instead. No, this is not your father’s monetary policy, and the old ways of teaching about it simply won’t do....'

You will find his short contribution (Not Your Father’s Monetary Policy) in a roundtable hosted by the New York Times on 'Rethinking how we Teach Economics' here. You will also find there An Open Letter to Greg Mankiw written by some of his Harvard Econ 10 students and published in the Harvard Political Review.

The opening piece by Mona Chalabi is also interesting (and those against the HLP3 will rejoice but will be missing the point):

 '...An economist must be a "mathematician, historian, statesman, philosopher, in some degree." So, promisingly, begins the sixth edition of "Macroeconomics" by Greg Mankiw, a key reading for my introductory economics class at the University of Edinburgh (and still a key reading six years on). Unfortunately, the book, like the course that prescribed it, delivered on only one of those claims: to be a mathematician.What began as eloquent and logical graphs and formulas quickly spiraled out of control and I soon found myself reading that “economics is not only a social science, it is a genuine science. Like the physical sciences” and that financial crises can bepredicted by using the following formula:

 

I was not persuaded. The over-reliance on mathematical modeling and its subsequent abstraction, together with a near-disdainful attitude toward other social sciences, left me feeling entirely disillusioned with economics in the U.K. So much so that I decided to leave the university and study abroad at Sciences Po in Paris, which took a broader approach to the field of economics.'

All contributions are of interest.  Click away!

Development Thread (3):

Summer is almost over and it is time to get back to serious work as the academic year has begun or is about to begin.

I have to admit that development issues have been in my mind over the past few months as I will soon start to  teach the development section proper from the new syllabus.  For the first time, IB Economics candidates will be forced to answer one of two development related data response questions.  In other words, for the first time, an IB Economics candidate cannot avoid studying this most interesting (but also, in my opinion, demanding) section of the syllabus.  And judging from my (senior) examining experience, examiners have not been easy to satisfy in this area, at least in the past.  High marks require a solid understanding and background that is not that easy to achive in a matter of months.

In any case, I'd like to bring to your attention a site and a great talk/ slide presentation.

The site is the Center for Global Development.  It seems to have usefull information for us.  In it I found this excellent in my opinion talk and slide presentation by Owen Barder (Senior Fellow and Director for Europe at the Center for Global Development) on the evolution of development economics (very easy to understand) as well as a thought provoking presentation of development as a complex adaptive system that borrows much from physics and biology which, if nothing else, may help IB economics students realize the high degree of interconnectivity of the items in the development section of the syllabus and why 'simple recipes' that students like to propose (e.g. spend more on education and health and reform institutions) are unlikely to work.  It is not an easy to follow presentation as it is chock full of ideas but Barder manages to use great examples to drive his points home.

This talk seems to me as a great way to start discussions on development and that's why I'm thinking of using it this year.  The link from the Center is here but I will use repost from youtube:

Development thread (2)

On the Millennium Development Goals

This is the last subsection of section 4.1 of our new syllabus:

'Outline the current status of international development goals, including the Millennium Development Goals'

MDG #1 is to eradicate extreme poverty and hunger. The targets within this goal include:

1. Halve, between 1990 and 2015, the proportion of people whose income is less than $1 a day
2. Achieve full and productive employment and decent work for all, including women and young people
3. Halve, between 1990 and 2015, the proportion of people who suffer from hunger

Click here to read the factsheet on MDG #1. Check the 'where do we stand' points and the 'what has worked' section (take down notes).

Please watch this video on Vietnam's growth and poverty reduction effort and jot down the key points in a word file (to be saved in your development folder as agreed).

Enjoy!

Growth and the importance of institutions

The other day in both my Higher Level and Standard Level Economics sections we discussed issues on growth and I found the opportunity to mention the work of Daron Acemoglu and the importance of institutions in the growth process.  It makes a big difference, as he argues, whether  institutions are inclusive or extractive.

Please watch these videos where Prof. Acemoglou explains his work:

(longer presentation)


This is a much shorter presentation:

Mr Stiglitz...

This is an interview of Joe Stiglitz in the Rolling Stone magazine: 'The Price of Inequality'

click here: http://www.rollingstone.com/politics/blogs/national-affairs/the-price-of-inequality-interview-with-joseph-e-stiglitz-20120625

A must as income inequality is part of the new 2013 syllabus (section 2.3 Equity in the Distribution of Income).  It's the one with the Lorenz curve and the Gini coefficient that we discussed only a few days ago.

(On Joe Stiglitz: check out his 62 (!) page CV here :http://www2.gsb.columbia.edu/faculty/jstiglitz/download/Stiglitz_CV.pdf 

Another interview on the same new book/ topic can be found here:

http://www.vanityfair.com/online/daily/2012/06/joseph-stiglitz-innovation-fallacy-reagan

(many thanks to my colleague and friend Marcus DeBaca for bringing this to my attention)

Development Thread (1)

In this thread I will be bringing to your attention resources (sites/ files/ articles/ videos) that my (and any) IB Candidates 13  students should check out, save and try to make summary notes in a development dedicated notebook (electronic or conventional).  These resources aim at helping us  understand and learn issues from the development section of our syllabus.

The first resource is about Burkina Faso and cotton ('white gold').  The issue is about the detrimental effects of US/EU cotton subsidies on the livelyhoods of millions of poverty stricken West African farmers and the expected benefits from a cotton subsidy reform (click on links)
Burkina Faso: Cotton Story

A couple of more resources on Western cotton subsidies can be found here:
West's billions in subsidy shut out African cotton growers

Cotton subsidies costing west African farmers £155m a year, report reveals

...and this video (which features a bit of Victoria's Secret in it - an additional non-academic incentive to the guys in my class to watch it...) is also about Burkina Faso cotton with a twist:

Enjoy!

IB Economics (May) Exam, coming soon to a theater near you...

Tuesday and Wednesday, the big days for Econ Cand12.  These are the tips  I give my kids for HLP3 and SLP2.  Please ignore if your instructor has advised you differently.

For SLP2 &HLP3

• ·         Choose 3 of the 5 questions; choose on the basis of the questions (during your 5 minutes reading time); just skim through the extracts;
• ·         You have 40 minutes for each: try doing (a), (b) and (c) in 15 to 17 minutes so that you have 23 -25 minutes for (d)
• ·         Definitions should be as compact as possible; no reason to write more than 3-4 lines maximum – often a lot less; these are 12 easy points to collect; find a solid IB economics textbook or study guide that contains a good glossary
• ·         Often (b) & (c) questions can be done without even looking at the extract
• ·         If a (b) or (c) question asks for an ‘appropriate’ diagram then it’s 2 marks for the diagram and 2 marks for the explanation: the diagram must be fully labeled; the explanation shouldn’t be longer than 10 lines long (IB exam paper) and there must be explicit reference to the diagram drawn.
• ·         To do (d) first read the question very carefully ensuring that you know EXACTLY what you are asked to evaluate; then, brainstorm to locate the area of the syllabus the necessary theory belongs; then start reading the extract trying to locate 2-3 phrases that you will use (in quotes and with an explicit ‘pointer’ à e.g. ‘see paragraph 3’) in your answer. Do NOT regurgitate the extract.
• ·         Try making 4 separate points in each (d) answer, 2 ‘on the one hand’ and 2 ‘on the other hand’, each in its own paragraph that is separated from the next with a blank line.  Your evaluation must be ‘balanced’. Remember that there are producers (domestic/ foreign/ export oriented / import competing/ large / small…), buyers (households that are rich / poor / old / young…; but also other firms…), the state, the short term and the long term etc.  Include a 5^th concluding paragraph that you start with something like: ‘Overall…’ or, ‘in my opinion it seems that…’ which brings together / synthesizes your analysis/ evaluation. 
• ·         Remember that when evaluating the impact of something on the performance of an economy you could look at the impact on output/ growth, inflation, employment/ unemployment, the current account and the exchange rate as well as on income distribution…
• ·         Remember that an evaluation is a normative piece of work; examiners ask for your opinion which though must be based and backed by theory; examiners expect economic analysis, explicit references to the extract and a balanced evaluative opinion on the issue(s).

Good luck!

The Big Mac (again)

Just minutes after talkeing to one of my two IB1 HL Economics sections about the Big Mac I found this interesting article explaining its origins  backgound (as a conversion factor and a measure of whether a currency is over or undervalued) and the results of a new research paper that interests IB Economics candidates:
Big Maconomics: How McDonald's Explains the World

Worth your time I think!

IBECON wiki is back!

I am trying to resurrect my IBECON wiki so that my (and other) students can access files that I prepare.  I just deleted most of the old stuff and uploaded a file with tips on how to tackle the (old) HLP3 and SLP2 as well as another file with all the HLP2 (short essays) updated (including November 2011) that you can find here.

50 Useful Twitter Feeds for Econ Students

Helene Schmidt brought this to my attention and I thank her as it trully seems a useful link for IB Economics students. Check out 50 useful twitter feeds for Econ students. I think you will like it.

The Open Academy..

This came to my attention a couple of days ago and it is great for IB and college students.

These guys (two of them -Apostolos and Christos Apostolopoulos are alumni of my high school and their kid brother is a friend of Elias, my son) have collected in their site all online video lectures on a whole bunch of diverse academic disciplines (Math, Sciences, Social Sciences, Engineering, Law, Humanities, Medicine, Arts) from top universities (MIT, Oxford, Yale, Stanford, ...and the Khan Academy) and lecturers around the world.

not IB economics....

A friend (Yiannis A.) brought this to my attention (and it made me smile!):

From South Sudan to Yale

Just read this one in the Herald Tribune. Wow.

The Story of Bottled Water

The Story of Bottled Water

On heavily polluted cities

The article I came across this morning is 'The 10 Most Air-Polluted Cities in the World' is found here.

Quoting from the article:

'...The most polluted cities tend to be found in developing countries. No surprise there—poorer countries tend to have dirtier cars, factories and power plants, and rarely have or enforce the kind of environmental regulations that have—over the course of decades—become common in the developed world. But what’s interesting is that the urban areas with the worst air aren’t the sort of Dickensian megacities one usually hears about: Beijing, Chongqing, Bangkok, Mexico City. The losers are smaller cities, many of them in Iran or South Asia, and none of them economic dynamos.
What do these cities all have in common, aside from the fact they’re not likely to show up on a travel agent’s? For the most part, they’re fairly poor—though the presence of a city from the African nation of Botswana on the list, where the per-capita income is over $8,000, shows that even middle-income countries can suffer from grievous air pollution. Residents often burn heavy, polluting fuel for heat and energy—including firewood or even dung, which can produce heavy, thick smoke. Add in old, diesel-powered cars that belch black carbon and growing population density in urban slums—plus weather conditions like Ulan Bator’s extreme cold, which worsens air pollution—and you have an ugly mess.'

Interesting reading for negative externalities, sustainability, common pool resources as well as the distincion between the 'pollution of affluence' and the 'pollution of poverty' (see the Tragakes Economics for the IB Diploma (second edition) textbook, p. 123)

Amazing pictures from industrial pollution are found here.




Enjoy....

This is what schools are all about...

They are all lovely!

Vote for the best:

AP 2012 Music Video Competition


Enjoy!




and many more.....!

It's been a loooong time...

Well, sorry to any who have been logging on to this IB Economics blog lately as it was a waste of time... No posts for a bit over a year...

Reason? I was (very) busy writing the two OUP books: The new Skills and Practice as well as the 2nd edition of the Study Guide.

They're out (and doing well - thanks!) so I've decided to start posting again anything that seems interesting and worth reading to IB (and not only) economics students.

This is an article on the IMF from The New Republic which describes the about face at the IMF concering its stance on fiscal issues. Interesting as it describes a bit of history and it is quite relevant to what is going on in the world now.

Here it is: How the IMF Got Its Keynesian Groove Back

At the IB teachers dedicated forum a great colleague (Russ Steponic
of the Bahrain School in Manama, Bahrain) started a while ago a forum with recent articles/ links that are of interest. I will re-post some that I find particularly useful to you guys.

Here is one that's great on how San Fransisco is dealing with parking (that Russel posted a few days ago):
A Meter So Expensive, It Creates Parking Spots

Common pool (access) resources are in the new syllabus and this artcle is good to show the issues involved:
In Mackerel's Plunder, Hints of Epic Fish Collapse

This one is on pollution in the oceans and it is scary to read:
The world's rubbish dump: a tip that stretches from Hawaii to Japan

That's all for now!