Just check this out: The World Clock

We’ll come back to this during our Development Unit in IB Economics. Very interesting to see the breakdown, makes you realize what kind of world we’re living in right now!

Poodwaddle.com

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IB students – As we begin unit 3.5 from our Macro syllabus, we will start to focus on the relationships between unemployment, inflation, economic growth, and further explore the policy measures available to central banks and governments to achieve macroeconomic goals. Over the weekend, you are to read chapter 16 from our text. In addition, you need to find an article that relates to the Phillips Curve, link to it, summarize it and offer a brief analysis on your own blog. Here are some articles I found by doing a quick search on Google News for “inflation and unemployment”.

• Bloomberg.com: German August Unemployment Falls as Economy Expands
• Polish central bank raises rates third time to keep inflation at bay UPDATE – Forbes.com
• www.kansascity.com | 08/28/2007 | Poverty rate falls, but U.S. has more uninsured
• Canada’s workforce needs to be more mobile to reduce jobless rate: report
• Lower the Fed Funds Rate – WSJ.com
• Bloomberg.com: Japan’s Consumer Prices Fall 0.1%, Production Drops
• TwinCities.com – Over time, data can prove unreliable

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Managing Globalization » Business Blog » International Herald Tribune » Blog Archive » Employment versus the environment?

This article represents the perfect example of comparative advantage. Almost a textbook version of the concept of countries producing the types of products for which they have a lower relative opportunity cost than other countries. Read this very short article and discuss below how this illustrates the basic concept of comparative advantage, specialization and trade. What decision should the European Commission make and why should they make it?

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China Chokes – New York Times, August 26, 2007

This article, one in a series of articles yet to come, is a must read for all IB and AP Economics students. The particular article investigates the effects of China’s massive growth on its population, its environment. and on its pollution levels. The authors present videos, photographs, interactive maps in their article in order to graphically illustrate the many ways that China is affected by its rapid economic progress.

As economists, we all know that there are opportunity costs to all decisions and this article looks at the “costs” of China’s massive economic growth. One video includes information about China’s attempt to apply a Green GDP formula to its own growth and sobered by the outcome. Another interactive map compares economic growth rate of different countries around the world while another looks at the carbon emission rate of different countries. The point is that this article is meant to be very interactive so that the reader can experience how China is choking on its own growth. It is your turn to find out.

Here’s what some of the Econ bloggers are saying about the Federal Reserve and its recent Monetary Policy moves. I encourage you post comments to the blogs you read, and then come back and share your impressions of the blogger’s views here.

• Grasping Reality with Both Hands: Notes on the Fed’s Current Actions
• The Big Picture | Five Reasons Why the Fed Won’t Cut Rates
• EclectEcon To What Extent Should the Fed (or any other Gubmnt Agency) Bail Out the Big-Time Risk-Takers?
• Economist’s View: Michael Woodford: Globalization and Monetary Control
• Finance Blog – Market Movers by Felix Salmon: The Four Views of What the Fed Should Do – Portfolio.com
• How the World Works: Globalization, Globalization Blogs – Salon.com
• Economist’s View: Robert Shiller: A Psychology Lesson From the Markets
• EconLog, Fed Attribution Error, Arnold Kling: Library of Economics and Liberty
• Writing by Tim Harford: Price fighters – Undercover Economist

And here’s what they’re saying in the news. Choose one of the articles below (or find one on your own) and blog about it on your own IB Econ blog.

• Top International Banks Tap Fed Discount Window – New York Times
• Big U.S. banks use discount window at Fed’s behest – International Herald Tribune
• Mortgage rates decline on Fed move – Aug. 23, 2007
• FT.com / In depth – Jitters hint at further intervention
• Bernanke’s strategy differs from his predecessor – Aug. 23, 2007
• It’s Out Of Bernanke’s Reach
• Will the Fed Weigh In Again? – New York Times

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Command vs. Market economics in Zimbabwe:
Mugabe’s decree on prices puts Zimbabwe economy in a tailspin – International Herald Tribune

And a blog post commenting on the news:
Managing Globalization » Economics 101 in Zimbabwe

Our first unit in AP Economics (and Friday’s lecture) examined the differences between command economies and market economies. One of the main points of yesterday’s lecture was that markets work because they result in an efficient allocation of resources towards the right products, using least-cost production methods, and putting those products in the hands of the people whose resources command the highest value in the resource market. If too much of one good is being produced and not enough of another, the “invisible hand” of the market will reallocate resources from the over-produced product to the under-produced product.

One of the reasons command economies fail is that central planners who attempt to control output and price, even when their intentions are to help consumers by assuring enough stuff is produced and available at an affordable price, are in essence acting against a basic economic law: that of supply and demand. In Zimbabwe, where inflation has reached nearly 10,000 percent (that means a candy bar that costs $1 today will cost $100 in a year!!) the president recently attempted to place price controls on all products by forcing merchants to slash their prices in half. The result? Food has vanished from the shelves of markets in Zimbabwe:

Essentials like bread, sugar and cornmeal, staples of every Zimbabwean’s diet, have vanished, seized by mobs of bargain-hunters who denuded stores like locusts in wheat fields. Meat is nonexistent. Gasoline is nearly unobtainable. Hospital patients are dying for lack of basic medical supplies. Power blackouts and water cutoffs are endemic.

Manufacturing has slowed to a crawl, because few businesses can produce goods for less than their government-imposed sale prices. Raw materials are drying up because suppliers are being forced to sell to factories at a loss. Businesses are laying off workers or reducing their hours.

As our first AP unit “Basic Economic Concepts” winds down, this article and blog post seem timely to remind us of one of the core principles of Economics: the importance of prices and markets in allocating resources (land, labor, capital and entrepreneurship) towards producing the goods and services society most wants. Later in the year we’ll examine what happens when markets fail, which they often do; but at this point in the course it is important to understand that despite their failures and shortcomings, free markets rarely experience the chaos associated with command economies of the past, and even the present as the Zimbabwe example shows. In the words of Daniel Altman, the blogger linked above:

The Soviets, Chinese and some of their allies kept their tightly controlled economies going for quite a few decades, though not perhaps with unalloyed success (former backyard smelters in China will get the pun). Mugabe’s version hasn’t even lasted through a change of seasons. Now, there are still a few lingering arguments in academia and policy circles about the merits of command economies. But a poorly planned command economy – no one seems to want that. Can anything short of total collapse follow?

Any thoughts? Why did Mugabe’s attempt to help consumers by keeping prices low only make the problem worse? What does this say about markets versus planned economies? Discuss!

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Bank borrowing from the Fed surges in Aug. 22 week – Aug. 23, 2007

IB students, you should now be able to read this article and know exactly what it’s talking about! AP students, hopefully you’ll be able to come back to this one in a few months and get it too. Monetary policy is a tool used by a country’s central bank in which the supply of money in circulation in the economy is increased or decreased in order to stimulate or slow down economic growth. In the US last week, the Fed, America’s central bank, employed one one of the three tools of monetary policy with a particular goal in mind. After reading the article, discuss which of the three tools of Monetary policy were used, and what you think the Fed’s likely goal was.

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China’s economy grew by 11.9% in the second quarter of this year. Great, right? Well, not if that growth is accompanied by 5% inflation and increasing threats to the environment. The reporter says that China’s rapid growth “has increased speculation that the Beijing government will raise interest rates again to cool growth.” Watch the video and discuss the following questions.

Discussion Questions: After reading chapter 15 of your text, discuss the following.

1. Which tools of monetary policy does the video reference that China’s central bank may implement?
2. How does the central bank affect interest rates charged by commercial banks?
3. Why is “China’s economy overheating” a bad thing? What are the signs of an overheating economy?

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Entrepreneurs From China Flourish in Africa- New York Time, August 18, 2007

One of my AP students recently asked me to explain why entrepreneurship was considered one of the four factors of production by economists. He questioned the nature of this “fourth factor of production” because unlike the other types of resources it was less obvious to him how this resource fit into the product market. In the product market, good and services are paid for directly by consumers. but how did entrepreneurs play a direct role in this market.

Part of the problem is that entrepreneurs truly belong in the factor market, a market that students new to economics are less acquainted with and one that both AP and IB students will be learning about this semester. Entrepreneurs are the “behind the scene” people. They are the “big ideas” people. They visionaries in business who figure out how to utilize all the other factors of production in order to make a good or service that will result in a profit.

I found the above New York times article about Chinese Entrepreneurs who have “taken the big risk” of moving to Africa in search of a better life and good profits extremely interesting. Chinese entrepreneur are moving into new territories in order to seek their fortunes, in places that many others have not dared to go before them because of a fear of violence, a fear of unfriendly governments or a fear of people. These are places where poverty and opportunity are rampant. Mr.Yang, an entrepreneur from the Fujian Province in China is a true risk taker and can teach all economics students about the meaning of entrepreneurship: the good, the bad and the ugly.

What set him apart was his destination. Instead of the traditional adopted homelands like the United States and Europe, where Fujian people have settled by the hundreds of thousands, he chose this small, landlocked country in southern Africa.

“Before I left China,” said Mr. Yang, now 25, “I thought Africa was all one big desert.” So he figured that ice cream would be in high demand, and with money pooled from relatives and friends, he created his own factory at the edge of Lilongwe, Malawi’s capital. The climate is in fact subtropical, but that has not stopped his ice cream company from becoming the country’s biggest.

Stories like this have become legion across Africa in the past five years or so, as hundreds of thousands of Chinese have discovered the continent, setting off to do business in a part of the world that had been terra incognita. The Xinhua News Agency recently estimated that at least 750,000 Chinese were working or living for

extended periods on the continent, a reflection of deepening economic ties between China and Africa that reached $55 billion in trade in 2006, compared with less than $10 million a generation earlier.

Today, in many of the countries where the new Chinese emigrants have settled, like Chad, Chinese-owned pharmacies, massage parlors and restaurants serving a variety of regional Chinese cuisines can be found; the Western presence, once dominant, has steadily dwindled, and essentially consists nowadays of relief experts working international agencies or oil workers, living behind high walls in heavily guarded enclaves.

At first, this new Chinese exodus was driven largely by word of mouth, as pioneers like Mr. Yang relayed news back home of abundant opportunities in a part of the world where many economies lie undeveloped or in ruins, and where even in the richer countries many things taken for granted in the developed world await builders and investors.

Conditions like these often deter Western investors, but for many budding Chinese entrepreneurs, Africa’s emerging economies are inviting precisely because they seem small and accessible. Competition is often weak or nonexistent, and for African customers, the low price of many Chinese goods and services make them more affordable than their Western counterparts.

Not everything that these entrepreneurs have touched is pretty. Some locals have come to resent Chinese entrepreneurs and accuse them of entering local markets where local business owners can not compete with such low prices.

Africans view the influx of Chinese with a mix of anticipation and dread. Business leaders in Chad, a central African nation with deepening oil ties to China, are bracing for what they suspect will be an army of Chinese workers and investors.

“We expect a large influx of at least 40,000 Chinese in the coming years,” said Renaud Dinguemnaial, director of Chad’s Chamber of Commerce. “This massive arrival could be a plus for the economy, but we are also worried. When they arrive, will they bring their own workers, stay in their own houses, send all their money home?”

In Zambia, where anti-Chinese sentiment has been building for several years, merchants at the central market in Lusaka, the capital, said that if Chinese people wanted to come to Africa, they should come as investors, building factories, not as petty traders who compete for already scarce customers for bottom-dollar items like flip-flops and T-shirts.

“The Chinese claim to come here as investors, but they are trading just like us,” said Dorothy Mainga, who sells knockoff Puma sneakers and Harley Davidson T-shirts in the Kamwala Market in Lusaka. “They are selling the same things we are selling at cheap prices. We pay duty and tax, but they use their connections to avoid paying tax.”

Whatever becomes of official Chinese-African economic ties, entrepreneurs like Mr. Yang will continue to take a leap of faith in the name of profit. He sounds like one “smart cookie” who as learned how to be a successful entrepreneur in Africa

After nearly seven years in Malawi, Yang Jie, the ice cream maker, seems to have learned better. Greeting his workers at the ice cream factory, he begins the day by asking, “How did you sleep last night?”

One quickly replied, “Very well,” sounding a bit formal.

“Don’t tell me a lie,” Mr. Yang answered with a sly, friendly smile. “It’s O.K. to tell me your worries.”

Be sure to check out the slide show in the article.

How the World Works: Who Invented Calculus? – Salon.com

IB students, here’s a blog post you’ll want to read closely once we start studying economic development later this semester. Andrew Leonard at Salon.com refers to a study titled “Does Economic Growth Reduce Fertility? Rural India 1971-1999″.

Interesting stuff. Leonard points out a peculiar paradox of growth in India:

India’s Green Revolution has been criticized by those who wonder if an agricultural model reliant on large inputs of fertilizers and pesticides is environmentally sustainable over the long run. But if in the short run these spikes in agricultural productivity contribute to population stabilization, then we have a nifty paradox: a (possibly) unsustainable agricultural model contributing to (possibly) sustainable population levels.

This article and the study it refers to might make for an interesting commentary for your internal assessment, or as a source for an extended essay on growth and development. Any opinions on the supposed correlation between economic growth and decreased fertility?

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