Facebook | It’s time you experienced my positive externalities…

With prom right around the corner, it’s time to think about getting that perfect date. In this arena, it is undeniable that economics students have the upper hand. Our intelligence and wit is unsurpassed among our peers in other subject areas. Not only that, but our subject lends itself to several cunning and effective pick-up lines. Here’s a few from the Facebook group, “It’s time you experienced my positive externalities…”. Thanks to SAS senior David Xu for the tip:

I’ll maximize your utility.

What do you say we expand our production possibility curves?

What do you say I eliminate some dead weight loss and add to your consumer surplus.

Do you work for the Fed, cause your raising my reserves.

You’re like the village commons…*sigh* what a tragedy!

You won’t find any elasticity with my demand, cause there are no substitutes.

It’s OK baby…I’m a price taker.

You’ve been spending too much time with the invisible hand…time for some external intervention.

You can price discriminate against me!

I’m a pure public good…you can free-ride on me any time you want.

We’re like monopolistic competition…all we care about is the short run.

Our society is underproducing…but I’m sure if we hooked up we’d achieve an efficient allocation of resources.

My fiscal policy is all about contributing to your private sector.

Your industry shows promise…time for my firm to break the barrier of entry.

Think you can come up with something better? Follow the link above and join the group, add your own Economics pick-up line!

I like this commercial. It teaches us nothing about economics, but it’s amusing and brings some light to a rather dismal outlook for the US economy and falling dollar…

*Click on the graphs to see full-size versions

The following message was submitted through the AP/IB Econ Help Desk:

Jason,

An AP Macro Question: Comes from the recently published AP Practice Exam

An increase in which of the following is most likely to promote economic growth?

A. Consumption Spending
B. Investment Tax Credits
C The natural rate of unemployment
D The trade deficit
E Real Interest Rates.

The answer is B, and I understand the economic principles of why that would promote economic growth, but what I can’t answer for my students is why A, Consumption Spending wouldn’t work. I know that consumption spending makes up part of the demand in aggregate demand, but I can’t help but think that an increase in it, would promote economic growth.

Thanks, “Econ Teacher”

For what it’s worth, here is my reply:

Hello “Econ Teacher”,

That’s a good question. I would explain to my students that in the (In macroeconomics): The period of time over which wages and prices are relatively inflexible. A fall in aggregate demand will lead to unemployment and recession in the short-run. Due to the inability of the nation's producers to reduce wages paid to worker, they must lay workers off to reduce costs as demand falls.');" onmouseout="tooltip.hide();">short-run, an increase in AD alone will lead to some growth, but would be accompanied by inflation, since AS does not shift out when consumption increases. However, an investment tax credit will result in REAL long-run economic growth (by real I mean nominal GDP will increase while the price level remains stable), since it encourages investment. Investment is a determinant of AD, just like consumption, so AD will shift out, but it is also a determinant of AS, since firms are investing in capital. Increase the quantity or the quality of capital, and labor becomes more productive. Greater productivity shifts out AS, leading to growth AND stable prices.

Economic growth is defined, in terms of the AD/AS model, as an outward shift of both AD and AS. Increases in consumption will increase AD, but this will lead to inflation, and in the long run, workers will demand higher wages, increasing the costs of production and shifting AS leftward, returning the economy to the full employment level of output at an even higher price level, i.e. no economic growth occurs (see graph to the right). Investment, however, encouraged through a tax credit, will have positive demand and supply side effects, resulting in real economic growth and stable prices (see graph below)

Hope that helps!

Jason Welker

Shanghai American School Economics Student Blog » You Hate Taxes, I Hate Taxes… Let’s Hug- by Alice Su

I’m repeatedly amazed at the intelligence and maturity of the young economists here at Shanghai American School. After only nine months of econ instruction, these students already know more about sound economic policy than politicians of 40 years! Case in point: SAS senior Alice Su offers an stinging critique of John McCain’s proposed tax plan over at the SAS Economists Blog. Read below…

It’s easy to see how politics and sound economic policy may not mix very well; in fact, trying to put the two together usually ends up in contradiction and confusion that puts economically concerned voters in great distress. (Example: Remember that one econ class when Welker was talking about taxes, trying to decide if he was more liberal or conservative, and then got so agitated that Jeff said “You’re having a midlife crisis” and Welker threw a smartboard marker at him yelling “I’M 29!!”? Case in point. )

In this case, McCain’s speech about his economic policies on Tuesday contains so many contradictions, both with classroom economic theory and various parts of his own policy platform, that I find myself questioning whether he is taking a solid stance on the economy at all, or is simply trying to say whatever will appeal to his audience the most.

First, McCain’s economic plan, dripping with supply-side sentiment, is centered around a series of tax cuts. In addition to making Bush’s tax cuts permanent, he also calls for cutting corporate taxes, phasing out the alternative minimum tax, doubling the value of exemptions for each dependent to $7,000 from $3,500, and giving people the option of using a simpler, shorter tax form. As a finishing tax-cut touch,

One of Mr. McCain’s tax proposals would take effect even before the Republican Convention: he called on Congress to suspend the 18.4 cent a gallon federal gas tax from Memorial Day until Labor Day. Mr. McCain said that doing so would provide “an immediate economic stimulus,” but some environmentalists said that the change might encourage more people to use their cars, while Mr. McCain has made combating global warming central to his campaign.

Hmm. Here’s where the first hints of contradiction kick in. Besides the conflict between wanting to end global warming and yet encouraging more cars on the road, we’ve all studied the Laffer Curve, and I think I can speak for all the SAS Economists when I say that the U.S. Economy is not at a place where further tax cuts will lead to an increase in tax revenue or benefit the economy. Furthermore, what about the enormous budget deficit that Mr. Bush has so graciously left us with? As the author of this article discreetly points out, McCain seems to have forgotten that he previously promised to balance the budget by the end of the first term; rather than offer the economic stimulus that McCain is claiming it will, the tax cuts would probably just plunge the nation deeper into debt.

What answers do McCain’s economic policy have to offer these questions? Well, he also proposes a one-year freeze on most “increases in discretionary spending” while he reviews every federal program, department, and agency… with the exception of spending on the military. Supposedly, the money saved from eliminating earmarks as well as getting rid of unnecessary “discretionary spending” will add up to $100 billion annually, and that is how McCain says he will pay for the lowered business taxes. However, he neglected to address the issue of all the money being spent on the wars in Iraq and Afghanistan, and whether any of that might be categorized as unnecessary “discretionary spending”, or whether we should be spending anything over there in the first place.

An analysis by the Center for American Progress Action Fund, a liberal think tank, estimated that the overall cost of Mr. McCain’s tax cuts would be three times as much as the $100 billion he estimates that he can save. And they questioned whether his programs would really save $100 billion a year.

While I’m not saying anything in support of Obama or Clinton’s economic policies, McCain’s plan seems so shaky that I would think twice before buying into how he’s going to save our country. Personally- especially since this tax-cut-focused speech was given on the day of the deadline for filing taxes- it looks to me like another plan designed for the purpose of politics, and not with sound economic policy in mind.

The Guardian.co.uk – Chinese demand Carrefour boycott…

At lunch today I was sitting across from a local hire, Chinese national employee of Shanghai American School, talking shop, when she perked up and announced to the table that we should all NOT shop at Carrefour on May 1st. If you’re not familiar with Carrefour, it’s a French mega-retailer that operates dozens of shops around China, serving basically the same roll here as Wal-Mart does in the US.

My colleague’s enthusiastic declaration of a nationwide boycott of the French retailer caught me off guard. She explained that it was in response to the French president’s announcement that he might not attend the Olympics opening ceremonies in August in Beijing. I didn’t get it… what did the French president’s decision have to do with a giant retailer serving urban residents in China. How are these two entities related, and how does boycotting a French retail chain send a message to the French president?

My colleague didn’t seem concerned with the details, and simply reiterated the urgency of committing to NOT shopping at Carrefour on May 1st (in fact, I’ve shopped there only twice in the last two years, so I can safely say I will be participating in the boycott, by default).

I decided to see if I could find out more about this story, so after school today I did a Google News search, and sure enough, there is a nationwide boycott being planned by pro-Chinese activists though online chat rooms, text messages, and by patriotic bloggers, aimed at sending a clear message to the French. The boycott’s purpose, it turns out, does not really have to do with anything president Sarkozy said about the opening ceremonies, rather,

Supporters of the boycott call said brands under luxury goods group LVMH had “donated a lot of money to the D**ai L**a”. Carrefour is 10.7 percent-owned by Blue Capital, a holding company owned by property group Colony Capital and French billionaire Bernard Arnault, chairman and chief executive of luxury goods group LVMH .

So it turns out the boycott has less to do with Sarkozy and more to do with some tenuous tie between one of Carrefour’s shareholders and the exiled leader of a politically sensitive region in the western part of China. Interesting. This got me thinking more.

Recently, Westerners have been exposed to lots of anti-Chinese sentiments in the news. From CNN commentator Jack Cafferty calling Chinese “a bunch of goons and thugs”, to Lou Dobbs’ regular reports on the “industrial espionage” and the “cyber-warfare” of the “Communist Chinese” against America, the Western media seems to focus on one side of the story, as the Chinese side seems to go unheard. The Carrefour boycott (as ill-devised as it seems, given the tenuousness of the link between Carrefour and any blatant anti-Chinese activities) is an attempt by patriotic, nationalistic Chinese send a loud signal to the West: “mess with China, and we won’t shop at stores owned by you!“

…”there is truly no reason to give the French money by buying their goods,” the boycott call said, posted on web portal Chinaren (www.chinaren.com).

“Let them see the Chinese people’s power, and the power of the Internet,” the post said.

Boycotts are funny things. Especially one-day boycotts like the one planned here. So let’s say that a few million Chinese agree NOT to shop at Carrefour on May 1st. First of all, my guess is that most people who support this boycott probably weren’t originally planning on shopping at Carrefour on May 1 (a Thursday), so those people won’t make any difference by continuing to NOT shop at Carrefour. Then there’s the people who would have shopped there. What will they do now? Go to a dozen or so local Chinese shops trying to find the things they would have bought at Carrefour? If so, then the boycott may in fact be effective, as local vendors will see an increase in their sales, Carrefour will suffer huge losses as their revenues cannot cover their operating costs, and a clear message will have been sent to France. More likely, however, shoppers who chose to avoid Carrefour on May 1st to show their patriotism will probably be first in line as the doors open on May 2nd… that’s just my guess.

Besides, as I read the passage quoted from a patriotic Chinese website above, “there is truly no reason to give the French money by buying their goods”, it dawned why this boycott is a dumb idea. Remember, Carrefour is like a French version of Wal-Mart. Hundreds of thousands of items from food to flat-screen TVs to lawn furniture to baby clothes: all made in France… wait a minute… hold on… let me check the label… oh, um, eh hem… I mean… yeah… Okay, so you get the point, NOTHING sold at Carrefour is made in France! Whose economy will be harmed if a boycott successfully dents Carrefour’s sales? France’s? There may be a few rich shareholders who feel the pinch, but more likely it’s factories right here in China, employing the very same patriotic Chinese who may support the boycott, who will suffer most if it is successful.

Finally, I followed a link from the Guardian article above to the website where the quote is from. (www.chinaren.com) Of course, everything was in Chinese, but through the magic of Google Translator I was able to read the headlines on this page. I thought I’d share them here. I didn’t read the articles, that would be tedious, but the headlines themselves are quite revealing:

• CNN news stigma of violence come from the gas
• Extremely shameless CNN Beijing Olympic Games does not welcome you
• Japanese look at how the Western media to demonize China
• 1000 source refused to admit to seek political asylum in the United States
• Bai Yansong Carrefour opposition boycott of the United States apologize CNN
• Million Chinese will be launched on the trans-European anti-T***t independence march
• Western China angry disdain brand affected France
• See passage of the Olympic flame safeguard the motherland’s honor dignity

Needless to say, these are headlines that did NOT make it onto CNN or BBC.

Bush pushes Congress to vote on Colombia trade pact. – Apr. 14, 2008

Click on the graphs for full-size versions

The benefits of trade, while visibly demonstrated by two basic economic models, the production possiblities curve and a simple supply/demand diagram, are not as straightforward when politics is involved. Case in point: the Bush administration has been trying to push through a free trade deal with Columbia, one of our key allies in a region ripe with anti-American sentiment. The White House views the trade deal as a win-win for the American economy:

The administration insisted the deal would be good for the United States economically because it would eliminate high barriers that U.S. exports to Colombia now face, while most Colombian products are already entering the United States duty-free under existing trade preference laws.

On the surface it appears the US has nothing to lose from extending trade relations with Columbia, since few if any American jobs will be lost by such a deal; so why are some Democrats resisting the trade deal?

In explaining their opposition, Democrats have cited the continued violence against organized labor in Colombia and differences with the administration over how to extend a program that helps U.S. workers displaced by foreign competition.

As is so often the case, what’s best for the economy does not seem to be what’s in the best interests of Americans. Our values extend, in some cases, beyond our pocketbooks. The White House argues that the US/Columbia free trade agreement only promises to increase demand for American products while doing little to affect domestic employment. The fact that most Columbian imports are already tariff-free probably confirms this. But the Democrats oppose this deal on the grounds that it would appear that America endorses the anti-labor activities of the Columbian governments.

Labor is a touchy political issue in America, where union membership among workers has fallen from around 40% in the 1950′s to around 13% today. As Columbia and other developing economies become integrated into the global economy, there is increasing pressure for governments to liberalize their domestic labor markets, weaken unions, lower wages in order to attract more investment from abroad, lower the costs of production, thus increase the quantity of their exports demanded abroad. Labor market flexibility and liberalization is certainly an important step in attracting investment and demand to developing countries, but if it comes at the expense of the well-being of the citizens of a poor country, then perhaps standing against such anti-labor actions is a just cause.

The free trade deal with Columbia poses more of a moral dilemma than an economic one. From America’s stand-point, it appears to be a win-win situation. But from the perspective of international labor standards, approving a trade deal with Columbia threatens to undermine another set of American values: those of human rights.

Discussion questions:

1. Why do you think the White House is so adamant about pushing through the trade deal with Columbia?
2. Are the Democrats correct to oppose a deal that could create jobs in America while at the same time make more goods available to Columbian consumers at lower prices?
3. Should America be trying to dictate the labor standards of its trading partners? Why or why not?

We began our final unit in AP Economics today on international economics. Some of the topics we’ll cover in this unit are trade, protectionism and exchange rates. We’ll also continue the discussion that began today about the impact of economic globalization on both developed and developing countries.

One of the big questions we’ll address is whether globalization works; whether it has contributed to real improvements in the lives of people in both the rich and poor countries, whether the international financial and trading systems in place today are adequate, and the degree to which government should be involved in controlling the impact of international economic integration.

One of the leading economists in the field of international economics is Joseph Stiglitz, winner of the 2001 Nobel Prize in Economics and author of the recent book, Making Globalization Work. As an introduction to some of the issues we will discuss in this unit, watch the video below in which Stiglitz addresses some of the major challenges nations face in making globalization work. Leave a comment sharing your responses to the questions below the video.

Discussion Questions:

1. What are some of the pressures faced by Americans in the era of globalization?
2. What does Stiglitz think it means to “manage globalization well”?
3. “Social protection doesn’t mean protectionism” – discuss…

Micro and Macro Graphs – Welker’s Wikinomics Page

Throughout the year, I’ve been saving the graphs we’ve learned in class on the Smartboard. Just yesterday Wetpaint, our wiki provider, added a new feature allowing users to create albums of uploaded images. I have created two albums (Micro and Macro), found through the link above, containing all of the graphs we learned this year.

Here’s the catch: the graphs contain no titles or detailed descriptions. That’s where YOU come in. Follow the link above, enter an album, and add any information you know about the graphs or images there. Of course, you as an individual don’t have to do more than one or two, but YOU as a group of AP Econ students need to complete all 60 or so descriptions before May 8.

Use your notes, the wiki pages, and text book to recall the important information for each of the graphs. By May 8, one week before your AP Exams, we should have one place to go to review all of the graphs you learned this year, full color images, titles and descriptions included!

Recession may be bad for your income, employment and level of consumption, but it might be just what you need to get yourself into better shape! Turns out when times are tough economically, Americans are at their healthiest. Listen to this short conversation:

From APM's "Marketplace" [ 3:25 ] Play Now | Play in Popup | Download (1)

What do you think? Is this ridiculous or is there really something to it?

Shanghai American School AquaEagles – World Swim Against Malaria

Students, teacher, parents, readers… here’s a good opportunity to spread good will and support students who truly care and want to make a difference in the world. The SAS swim team has organized a “World Swim Against Malaria” swimathon on Friday, April 18. The Aqua Eagle have set up a website where anyone can go and make a donation, small or large, $1 to $100, anything you can offer is welcome!

The money raised will go straight towards buying mosquito nets for residents of sub-Saharan African countries. A mosquito net costs $5 US, or roughly 7 days wages for a Malawian worker. One to three million die of malaria each, year, 70% of whom are children under five. Today alone, seven jumbo jets could be filled with the corpses of malaria victims.

Malaria is a disease of those in poverty. The simple solution to this disease is providing access to the simplest of technologies: a mesh bed net.

For each $100 the swim team raises, 20 nets will end up over the heads and beds of children in Africa. $100 could potentially save 20 lives right now. If you want to help out, follow the link above and make your donation now!