This blog was started in March of 2007 as a resource for economics students at the Shanghai American School, originally meant to accompany our class wiki. At first, the posts were written specifically for AP and IB Econ students at SAS, but over time readers from all over the world started visiting, reading and commenting on the blog. Other sites linked here, and our numbers steadily increased from rougly 40 visitors per day (mostly students) 12 months ago to an average of 200 visitors per day today. Since June of 2007 the blog has had over 60,000 visitors.

Welker's Wikinomics Blog has changed in other ways as well. Teachers and students as well as other readers all over the world are reading the blog to learn how economics relates to the events going on around us in the world. Several times per week, a post is written with the purpose of applying basic economic concepts as they affect the world and explaining them in a way within the grasp of anyone seeking a principles level understanding of economics.

Recently, new authors have joined this blog, including Steve Latter from Fairfax, Virginia, who has taught AP Economics for nine years after retiring from his career as a CPA and a chief financial officer. Steve brings much real world experience to a blog that can sometimes be a bit on the academic side. Michelle Close, a fellow SAS economics teacher, continue to write the occasional post and has committed to writing regularly next year. In addition, I have recruited a few additional econ teachers from around the world to sign on as contributing authors, and I look forward to introducing them to our readers when the new school year starts.

Welker's Wikinomics Blog has also been invited and has since joined the Forbes.com Business and Financial Blog network, an exciting opportunity that has further increased our readership and points to the credibility of what we write about here.

Right now, I am enjoying my second day of summer vacation. Two days ago I woke up in Shanghai and headed to the airport, tonight I sleep in my mountain cabin nestled in the rugged peaks of Northern Idaho. The serenity here seems like a different universe from the chaos from Shanghai. Over the next two months I will post only occasionally to this blog, but post I will… and readers can rest assured that when a new school year begins, and I once again start teaching Advanced Placement and International Baccalaureate Economics (next year I'll be teaching at Zurich International School in Switzerland), daily posts will once again return to this blog.

For now I wish to thank readers for visiting this blog, and invite you to become not just readers or visitors, but contributors as well. Comments are always welcome, and if you are an Econ teacher or professor who is interested in becoming an Econ blogger, please send me an email and I'll see about signing you on as an author. I can be contacted at welkerswikinomics@yahoo.com

Have a great summer. Be sure to return in early August to read more great posts from myself and my fellow authors here at Welker's Wikinomics Blog.

~Jason

• Paul Krugman – Bits, Bands and Books – Op-Ed – NYTimes.com

  In the future, will everything be free? Well, maybe not everything, but lots more will. Krugman explains why:
  “…the ease with which digital content can be copied and disseminated would eventually force businesses to sell the results of creative activity cheaply, or even give it away. Whatever the product — software, books, music, movies — the cost of creation would have to be recouped indirectly: businesses would have to “distribute intellectual property free in order to sell services and relationships.”

  tags: economics

• Obama or McCain – who’s better for Housing Market | Wexzilla – Phoenix | Scottsdale Real Estate

  Blogger James Wexler summarizes McCain and Obama's strategies for dealing with America's housing crisis:

  “Sen. Obama has suggested $10billion in government funding to help homeowners sell their homes of modify their loans to avoid bankruptcy or Foreclosure.

  Sen. McCain feels like this is a bailout. He feels struggling homeowner and borrowers should share the responsibility and if helped should share equity (if there is a gain) with the lender and Federal Government.

  Obama wants the government to lend money to struggling home owners. Money which usually comes in the form of higher taxes

  McCain has pledged to eliminate (AMT ) taxes. A break that many Americans want (and need). However AMT tax cut with other extended tax cuts leaves less money for such help to home owners. Unless, other government programs are sacrificed. A move, most do not want.”

  tags: economics, housing prices, recession, fiscal policy

• What is Driving the High Oil Prices?

  “High oil prices are here to stay due to heightened political risks, irresponsible behavior by oil-producing governments and growing global demand outside U.S. control. Oil is a finite resource which is produced by a partially cartelized imperfect market. Consumer countries should expand cooperation in order to level the playing field and reduce prices by increasing investment and production, promoting conservation, and diminishing geopolitical risks. Yet, in the long term, high demand, inadequate supply and severe geopolitical risks combine to make oil a problematic transportation fuel.”

  tags: economics, oil prices, scarcity, resources

• FT.com / World – Emerging-market cities climb world rankings

  Shanghai ranked one of the best cities in the world for global commerce:

  “Shanghai jumped into the top 25 in this year’s index, joining seven other Asian cities in this group with an eight-position jump that was the most of any city in the index. Among the world’s most populous and fastest-growing cities, Shanghai’s position in the index was bolstered by its economic stability, its legal and political framework, an increased quality of life and China’s booming economy.”

  tags: economics, china

• Why the oil boom will eventually bust – Jun. 6, 2008

  Are high oil prices here to stay? This article suggests they're not. New supplies will come online at the same time that consumers start to conserve and switch towards alternative energies.

  “The longer prices stay stratospheric, the worse the eventual crash – simply because the higher the prices and bigger the profit margins, the bigger the incentive to over-produce.

  It's even possible that, a few years hence, we could see a sustained period of plentiful oil supplies and low prices, meaning $50 or below.”

  tags: economics, oil prices

The Employment Law Blog by John Phillips

I receive an alert every time another website links to my blog. When I received one this morning telling me that John Phillips at the Employment Law Blog linked here, I checked out his post and saw that he had done a post sharing with readers some of his favorite blogs. I just love the description he gives of this blog, which, when I think about it, is quite accurate and telling:

Another site to check out if you want a take on politics and the economy is www.welkerswikinomics.com/blog, particularly if you want to mix depression with hope and have it all made somewhat understandable.

Thanks for the plug, John. I'm glad to hear that I am making economics at least somewhat understandable!

Check out John's Law blog for an interesting take on how legal issues affect the workplace.

FT.com / Weekend columnists / Tim Harford – Why a tax cut just isn’t fair on teenagers

Tim Harford, aka The Undercover Economist, loves to expose the overlooked effects of governments' economic policies. For example, both the United States and the UK have recently announced tax cut and rebate plans aimed at putting hundreds of dollars back into the hands of taxpayers, with the hope that households will spend their “free money” from the government, giving the national economies a much needed boost in a time of economic slowdown.

Expansionary fiscal policy, as such a tax cut is known, is a popular tool in times of macroeconomic slowdowns. The hope, of course, is that taxpayers who experience sudden fiscal relief will rejoice upon their newfound disposable income, spending it on goods and services, creating new income for various sectors of the economy, which in turn will be spent on more goods and services. In economics, we call this the “multiplier effect”, the idea being that a certain tax cut (say $150 billion), will ultimately create some multiple of that amount in new spending and income throughout the economy as a whole.

In reality, however, house holds do not spend 100% of a tax rebate or tax cut like those recently passed in the US and the UK. When disposable income increases, household will spend a certain proportion and save or pay off past debts with the rest. The proportion of new income spent is determined by an individual's marginal propensity to consume, and the proportion saved is based on his or her marginal propensity to save. The greater proportion of additional income that is spent, the larger the multiplier effect in the economy as a whole, and the greater impact expansionary fiscal policy will have towards achieving growth in the economy.

Policy makers, therefore, prefer households spend, rather than save, new income from a tax cut or rebate. According to the Undercover Economist, however, saving a tax rebate is precisely what smart households will do. Why? Because of the basic economic truth learned in the first week of most principles of economics courses: There's no such thing as a free lunch! Tim Harford explains:

…since neither the UK nor US governments plans to alter its spending plans, these tax holidays will be funded by government borrowing – borrowing that must eventually be repaid. That will require taxes to go up in the future, or not to fall when they otherwise might.

Who should celebrate? Not the typical taxpayer, that is for sure. The tax cut makes no difference to her. If she – assume she is British – had wanted an extra £120 right now, she could already have it in her pocket, either by withdrawing it from savings or by borrowing the money. If she did that, of course, she would later have to repay £120 plus interest. But that is exactly what Darling’s successor as chancellor will require of her. To look at it another way, the rational taxpayer should save the £120 windfall now, keeping it to pay the higher taxes that are surely on the horizon.

A tax rebate financed through government borrowing does not make American or British households any better off. Imagine a scenario where your buddy is experiencing some financial difficulties (maybe he's lost his job, maybe he's experienced an expensive injury and has no health insurance…), so you decide you'll help him out by throwing some cash his way. The catch is, you're already in debt and have spent more in the last couple of years than your actual income should have allowed. So, in order to help your buddy out, you actually need to borrow money from him. So you give him an IOU, he scrounges up the little cash he can find, gives it to you for the IOU, and you turn around and give it back to him to “help him out.” You can imagine, your buddy is not very thankful and certainly doesn't feel any richer.

On the macro level, the cash mailed out to American households as part of the recent stimulus package came from new borrowing by the government from American households. All those IOUs issued to finance the stimulus must be paid back, and must be done so through future tax increases. The government has chosen to forgo future spending in order to stimulate current spending. Not everyone should dismay, however, as a certain lucky group will clearly benefit from today's debt-financed fiscal stimulus packages:

…some people should count themselves wealthier after the tax cut. Anyone expecting to die without making a bequest should be pleased: if the Grim Reaper knocks on the door before the taxman does, he can spend the tax rebate now and leave the bill for some other sucker.

Who will be the fall guy? We don’t know for sure, because we can’t say who a future government will tax. But an obvious candidate would be today’s teenagers, very few of whom are paying income tax right now, but most of whom will pay it in the next few years. Their best hope is that their grandparents add the tax windfall to their bequests rather than blowing the money on a weekend in the sun.

A tax cut today almost certainly implies a tax increase tomorrow. Since teenagers enjoy almost none of the tax cuts today, but will bear the future increases required to pay back new debt, it is you, my students, who should be most opposed to the shortsighted policies being undertaken by US and UK policy-makers.

• Fitch: China’s economy to weather through quake – People’s Daily Online

  “The international rating agency, Fitch, believes that neither this year's heavy snow nor strong earthquake will have much of a negative impact on China's economy…”

  tags: economics, China, earthquake, economy

• Bernanke: Gloomy on growth – Jun. 3, 2008

  “[H]ouseholds continue to face significant headwinds, including falling house prices, a softer job market, tighter credit, and higher energy prices, and consumer sentiment has declined sharply since the fall,” said Bernanke, addressing the International Monetary Conference in Barcelona via satellite.

  At the same time, Bernanke said that some of the more troubled aspects of the economy are starting to show signs of stability. He said the battered financial markets had “improved of late but conditions remained strained.” He also said the pressures on the U.S. economy are being softened somewhat by foreign demand for U.S. goods and services.

  “We may see somewhat better economic conditions during the second half of 2008, reflecting the effects of monetary and fiscal stimulus,” he said.

  tags: economics, recession, monetary policy

• PintPrice.com – the price of beer anywhere in the world

  The price of beer in 200 countries.

  Pint Price is a database of World Beer Prices. Use this site to find the best watering nation. Pint Price has also been described as an important economic iindicator…

  tags: economics, PPP

pintprice.com – the price of beer anywhere in the world

The theory of purchasing power parity (or PPP) holds that in the long run, the price of a particular basket of goods should adjust across countries and currencies to “cost” the same amount regardless of the currency the goods are denominated in. In other words, one dollar should buy the same amount of “stuff” in the US as it does in Mexico, China, the Netherlands or anywhere else in the world. If a dollar buys MORE in one of these countries once it's been converted to the local currency, it implies that the local currency is undervalued and should adjust in the long run to achieve parity in the amount it can purchase in dollar terms.

One popular measure of purchasing power parity, devised by the folks at the Economist magazine's intelligence unit, is the Big Mac Index, which measures the price of McDonald's Big Macs in over 100 countries where they can be purchased. You can read more about this index here.

The Economist magazine recently reported on an new alternative to its own PPP index, “the Price of a Pint”:

Barflies around the world provide a useful service for their beer-drinking comrades at PintPrice.com. The prices of pints of lager are compared on the basis of anecdotal evidence from beer-drinkers around the world, so figures are regularly updated. There are some surprising results. Beer in Zambia and Burundi seems eye-wateringly expensive considering that they are among the world's poorest countries. The French overseas départments of Guadeloupe and Martinique charge just about as much as in mainland France. Beer-loving America and Britain fall somewhere in the middle. Happily for sports fans at the Beijing Olympics, a pint in China is just $2.46.

I thought it might be useful to some of our graduating seniors planning their summer vacations or gap years. Pay close attention to the data in this table.

(source: http://www.economist.com/displayStory.cfm?story_id=11333131)

So, if cheap beer is a priority in your vacation decision, it looks like North Korea and Myanmar are ideal destinations. I must say, I am relieved to see that Switzerland, my own new home, is not in the top ten… but it is far from cheap.

The website will tell you the average price of a pint of beer in any country in the world, and then break it down to cities within each country. In Zurich, my soon to be home, a pint costs the equivalent of $6.57 US. Compared to my hometown of Seattle, Washington, where a pint goes for $3.25, that's exactly double the price! Surprisingly, however, a pint of beer here in Shanghai goes for a shocking $5.15, more than double the Chinese average of $2.35.

Apparently, the price of beer has more to do with the local supply and demand than with relative exchange rates. Where the Big Mac Index offers a rather genuine approach to determining purchasing power parity (since the Big Mac is an identical product sold by the same restaurant facing similar costs in over 100 countries), a pint of beer is a bit more subjective a measure of PPP. Quality of beers clearly differ in locales as diverse as North Korea and Luxembourg, not to mention the incomes of beer drinkers, the number of domestic brewers, excise and value added taxes, consumers' price elasticities of demand, and so on.

As summer vacation approaches, however, vacation planners may care to take into account the “Price of a Pint” index of purchasing power parity. Clearly, one's dollars will go much further at bars in some places than others.

I know what you 18 year old American high school grads are thinking, “Mexico or Canada?” You'll just have to follow the link to find out!

(Disclaimer: Mr. Welker is in no way encouraging his former students to travel to certain places based solely on the cheap price of beer there, merely to avoid places where beer is clearly out of their price range!)