Gapminder – Home

Hans Rosling, a Swedish professor of international health, is well known for his animated presentations on Human Health and Development. Some would describe Rosling’s presentations as doing for Economic Development what  Al Gore’s “The Inconvenient Truth” did for global warming, in that they have spread awareness of the obstacles to and sources of economic development to a wide audience using powerful visual metaphors and data presentations.

Using software he developed to analyze data on human development called “Gapminder”, Rosling gives a mind-blowing presentation on the trends in economic and human welfare over the last thirty years, debunking several myths believed true by many in the first world about development and poverty.

Watch three of Rosling’s presentations below before beginning the assignment.

2006 TED Conference:

2007 TED Conference:

Hans Rosling’s Magical Washing Machine

Related posts:

1. Lesson Plan: Sources of Economic Growth and Development
2. Lesson Plan: Visualizing Economic Growth and Economic Development
3. Does economic growth = economic development? Not for China’s rural poor…

This past weekend, the Obama administration officially put an end to US combat in Iraq. Seven years after the invasion, both politicians and economists are looking back and asking themselves, was the invasion into Iraq and the ensuing occupation of coalition forces actually worth it. Or in economic terms, was the benefit of the war greater than the costs of fighting it.

What have been the benefits of the US being in Iraq? Have their indeed been any and if so how can we measure them? There are some clear explicit benefits that can be measured such as companies that have profited from the war as well as evidence of increased investment in the middle east due to the presence of the coalition forces. But there are also benefits that are hard to measure such as the creation of democracy, freedom or the removal of a ruthless dictator. On the cost side there are explicit costs for the war in Iraq such as the total amount currently spent by the US Government which is around 748 billion USD. Like the benefits there are also costs that are hard to place a number on such as  the human cost with an estimate of over 100,000 total deaths, close to 4400 of which were Americans. For a more detailed look at these costs you can view the American Progress web site.

But as you know, economists do not only look at the explicit or obvious costs. In order to get a better understanding of the true costs of a decision, economists must look at the “could have beens” or the opportunity costs. In their recent article “The true cost of the Iraq war: $3 trillion and beyond” Nobel Economics recipient Joseph Stiglitz and Harvard Professor Linda Bilmes do just this. They calculate the costs of the war not only based on the explicit costs, but on the hidden ones. Several years ago, the authors estimated that the costs of the war in Iraq would eventually reach 3 trillion USD. This week, they claim that they may have underestimated the amount. The article states ,

Moreover, two years on, it has become clear to us that our estimate did not capture what may have been the conflict’s most sobering expenses: those in the category of “might have beens,” or what economists call opportunity costs. For instance, many have wondered aloud whether, absent the Iraq invasion, we would still be stuck in Afghanistan. And this is not the only “what if” worth contemplating. We might also ask: If not for the war in Iraq, would oil prices have risen so rapidly? Would the federal debt be so high? Would the economic crisis have been so severe? The answer to all four of these questions is probably no. The central lesson of economics is that resources — including both money and attention — are scarce. What was devoted to one theater, Iraq, was not available elsewhere.

Economists believe that if we can get a sense of what the “true costs” of a decision are, then we can make a more rational choice when faced with a decision.  Read the following two articles, the one quoted above by Joseph Stiglitz and the other entitled Iraq: Weighing the Costs and Benefits by Tim Kane and answer the following questions:

Questions

1. Why is it important to look at the hidden costs when making a decision?
2. In your opinion, what would be some of the opportunity costs associated with not invading Iraq? What are some that are associated with invading Iraq?
3. In your opinion, is it possible to properly do a cost benefit analysis of a war? Are there some things that we cannot put a price on? Is it possible to use opportunity costs as “true costs” when they are essentially “could have beens”?

Related posts:

1. The Costs of the Bailout, More Government Debt
2. Renewable energy resources still have significant opportunity costs

Over a year has gone by since the 2009 American Recovery and Reinvestment Act (ARRA) was passed and put into action by the Obama Administration. Supporters of the program say that it has been successful, arguing that the economy would be in much worse shape if no stimulus had been introduced at all. In fact, some are arguing that government spending has not been sufficient for a full economic recovery and that more direct government spending is necessary. Economists on the other side argue that the stimulus package has done little for the economy except to delay the inevitable, self correcting forces of the economy needed to pave the road back to recovery. Some actually say that we are in a worse situation now due to the massive increase in government debt which will eventually have to be paid back.

So the question is, are we better off as an economy a year after the stimulus package was introduced? With growth still sluggish and unemployment at 9.5%, many people have begun to question the success of the ARRA. Again, some say the $784 billion was insufficient while others say less regulation and more tax cuts should have been utilized.

In a recent Washington Post article, Neil Irwin argues that the obstacles towards economic growth may not be solved by more stimulus, lower interest rates or tax cuts for corporations. The problem, he claims, is not a lack of funds for investment, but in the uncertainty businesses have in future conditions. He writes:

Corporate profits are soaring. Companies are sitting on billions of dollars of cash. And still, they’ve yet to amp up hiring or make major investments — the missing ingredients for a strong economic recovery. Many Democrats say the economy needs more stimulus. Business lobbyists and their Republican allies say it needs less regulation and lower taxes. But here in the heartland of America, senior executives say neither side’s assessment fits.

They blame their profound caution on their view that U.S. consumers are destined to disappoint for many years. As a result, they say, the economy is unlikely to see the kind of almost unbroken prosperity of the quarter-century that preceded the financial crisis.

With consumers choosing to save or pay off their debts now rather than spend, many businesses find it in their interest to hold off on investments into new capital until consumers begin spending again. With no planned investment and no incentive to hire workers, unemployment stays high and economic growth remains stagnant. With inflation rates low and economists predicting deflation, it makes more sense to hold onto money as it is not losing its value.

So is there a solution? In this situation, expansionary monetary policy through lower interest rates will not have the desired effect as demand for loanable funds is low. As stated in the article:

For large companies such as Illinois Tool Works, the price of borrowed money isn’t the problem. The company had $1.3 billion in cash on its balance sheet at the end of June, up from $743 million at the end of 2008. Lower interest rates wouldn’t make much of a difference, either.

“I could borrow $2 billion tomorrow for 3 1/2 percent,” said Speer. “But what am I going to do with it?””

Other executives claim that an increase in government spending would only provide a temporary fix but have no effect on long term consumer spending.

David Speer is chief executive of the company, which has 60,000 employees worldwide in more than 800 business units and $14 billion in sales. He said an additional burst of fiscal stimulus from Washington might help boost economic growth for a period of months. But that is unlikely to affect his decisions about hiring and expansion, which Speer said are based on expectations for sales over years to come, not just the immediate future. As long as U.S. consumers remain deeply strained, he is unlikely to undertake aggressive expansion.

More fiscal stimulus “might help make things a little better for a couple of quarters, but I’m not sure it would get at the underlying economic issue,” Speer said. “The core question is: How do you get consumers back on their feet. We need growth in a sustainable way, not another Band-Aid.”

Another solution would be for the government to implement supply side measures such as less market regulation and lower corporate taxes. Again, without the much needed consumer spending and confidence, its difficult to say whether or not this will materialize into increased investment and employment.

The rest of the Washington Post article can be read here. Once you’ve read the article, answer discuss the questions below and share your thoughts in a comment on this post.

Discussion Questions:

Related posts:

1. It may not be a recession, but it sure feels like one…
2. The Great Economic Experiment – for all year 2 IB Econ students
3. A must read for AP Macro teachers: Paul Krugman explains why deficit spending during a recession does NOT cause crowding-out

Dear year 2 IB Economics students,

Welcome back and I hope you enjoyed your time off. Before breaking for summer we were in the midst of our unit on Macroeconomics, just beginning our debate on whether or not government intervention in the economy in order to kick start activity during a deep recession was a good or bad idea. In other words, would the economy correct itself or would government stimulus be necessary to get our economy moving again.

As you all know, exactly a year and a half ago, the US government decided that in order to a avoid a recession as potentially devastating as the Great Depression of the 1930’s, government interaction into the economy was necessary. 787 billion dollars was put aside for government sponsored projects, transfer payments and decreases in taxes. The hope was that this spending would not only help people maintain their current jobs but also create jobs for those who had recently become unemployed. A year and a half later, proponents of the stimulus package, Keynsians if you will, believe that this great experiment has been a success and that if nothing had been done the economy would be in much worse shape. Opponents of the spending believe that the bill has simply postponed the self correcting forces in the economy and has instead created what economists call a double dip recession where the increase in government spending only creates a temporary, unsustainable increase in economic activity. In fact many of these opponents say that we are worse off now as the government is now further in debt due to the spending.

Has the great experiment thought up by John Maynard Keynes over half a century ago been a success or was it a solution that has caused more harm than good, potentially making the recession worse than it would have been? The radio show Plant Money recently dedicated a show to addressing this very issue. In order to get a balanced look, they interviewed two prominent economists, Tyler Cowen, a Professor of Economics at George Mason University and Mark Zandi, Chief Economist at Moody’s Analytics. Cowen, a skeptic of Keynesian spending, believes that we would now be better off if the government had not intervened in the economy. Zandi, on the other hand, is adamant that the US economy would be much worse off if the government had done nothing. Two economists analyzing similar data and coming up with very different conclusions. This is where economics becomes both complex and fascinating.

Click play on the podcast player below, listen to the whole podcast, and then answer the following questions.

Discussion Questions:

1. How does an economy “self correct” itself once it has entered a recession?
2. What are the arguments put forth by Tyler Cowen and Mark Zandy about the effectiveness of government stimulus? Is one more convincing than the other? Why?
3. What are automatic stabilizers and why does Tyler Cowen believe they are better solutions than the government creating new jobs?
4. According to Tyler Cowen, why is it dangerous for economists to become “wed to only one theory”?
5. What does this podcast teach you about the importance of being able to evaluate economic theory and its effectiveness? Can we ever have an economic theory that is true under any circumstances? Why or why not?

Related posts:

1. The Big “C” – America’s crisis of confidence and the Great Recession
2. Obama’s stimulus is “the first real test of Keynesian economic policy”
3. A 17 year old’s critique of Washington’s “fiscal stimulus” package

Economists see financial bailout as necessary – Yahoo! News

Economists in the US are calling this week’s bailout of numerous US companies a necessary step in ensuring that no permanent harm is caused to the financial system and that we do not head into a deep recession.

The Treasury Department under the leadership of Henry Paulson is currently asking congress to move quickly on a bill that would provide $700 billion to the Department to buy up much of the bad debt that many financial institutions have incurred over the past years. Where’s this money going to come from? Since it doesnt look like the Bush Administration will be pushing for increased taxes anythime soon, Congress will have to borrow the money. 

Though most economists are agreeing that this is a necessary step in ensuring the integrity of the economy, I believe that it is important to look at how this additional debt may effect our government and economy in the future. So lets start with some numbers. The following statisitics are taken from the above article.

The deficit for this budget year, which ends on Sept. 30, is expected to rise to $407 billion, a figure that is more than double the $161.5 billion imbalance for 2007, reflecting what the economic slowdown and this year’s $168 billion economic stimulus program are already doing to the government’s books.

The Bush administration is estimating that the deficit for the budget year that begins Oct. 1, which will cover the new president’s first year in office, will hit $482 billion, a record in dollar terms.

And that forecast doesn’t include the $200 billion the administration committed to spending two weeks ago when it took over the nation’s two biggest mortgage companies, Fannie Mae and Freddie Mac.

And it doesn’t have any of the $700 billion the administration is seeking to soak up the bad mortgage-backed securities that have been at the heart of the severe credit crisis the country has been struggling with since August 2007.

The legislation the administration is now seeking to authorize the financial system bailout, according to a draft obtained by The Associated Press, would boost that debt limit to $11.3 trillion, up another $700 billion.

It is the rapidly rising debt that is cause for concern. The government is already spending more than $400 billion a year just to pay interest on the national debt. The higher that debt goes, the higher the government’s borrowing costs and the less it has to spend on other programs.

Discussion Questions:

1. What impact does the knoweldge that the government will bailout struggling financial firms have on investors willingness to take risks?
2. Should the government intervene in these finacial markets or leave the “invisble hand” to its own devices?
3. What are the opportunity costs associated with this decision?
4. What are some short term and long term implications of this bailout?

Related posts:

1. Robert Reich – the financial bailout represents “the worst type of trickle-down economics”
2. Federal Bailout of The U.S. Economy: Who’s To Blame?
3. How big is the government spending multiplier in America? Well, it depends on which economist you ask…

PickensPlan

The Pickens Plan is an initiative put together by the hedge fund manager of BP capital Management T Boone Pickens. The plan puts forth a model to get America off its addiction to foreign oil and on a path towards sustainable energy sources produced in the US of A. Watch the following video and read through the following information and comment on the questions.

“America is addicted to foreign oil. It’s an addiction that threatens our economy, our environment and our national security. It touches every part of our daily lives and ties our hands as a nation and a people. In 1970, we imported 24% of our oil. Today it’s nearly 70% and growing.

As imports grow and world prices rise, the amount of money we send to foreign nations every year is soaring. At current oil prices, we will send $700 billion dollars out of the country this year alone — that’s four times the annual cost of the Iraq war. Projected over the next 10 years the cost will be $10 trillion — it will be the greatest transfer of wealth in the history of mankind.

America uses a lot of oil. Every day 85 million barrels of oil are produced around the world. And 21 million of those are used here in the United States. That’s 25% of the world’s oil demand. Used by just 4% of the world’s population. The simple truth is that cheap and easy oil is gone.”

THE PLAN

Discussion Quesitons

1. Is Pickens correct in saying that America’s addiction to foreign oil is a problem? Be sure to use the concept of comparative advantage and specialization in your answer.
2. If we assume it to be a problem, what solution would you recommend? Do you agree with Pickens?

Related posts:

1. McCain vs. Obama on the costs and benefits of free trade
2. Free Trade Debate: to what extent has globalization based on free trade contributed to global economic growth and development?
3. US / China Trade War – Could this be the beginning?