G11 - Week 9 - Day 2

In-class work

1. Public Goods as a Market Failure - part 1
2. Public Goods as a Market Failure - part 2

Upcoming

1. Ch. 5-6 assessment on Thursday, October 20th
2. Make sure to be reading news sources and collecting real-life examples of market failures 

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From the blogosphere

1. Reasons Not to Stress about College Admission
2. How the other tenth lives - so important to know the progress that’s been made

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Currently Reading

Other People's Money: The Real Business of Finance

The newer hedge funds were, in fact, little more than trading funds with high fees: typically 2 per cent of assets as annual management fee plus 20 per cent of profit. Some sought-after funds charged more. Taken as a whole, although some particular hedge funds have been very successful, the hedge fund industry has been very profitable for hedge fund managers, but not for their investors. (Kindle Locations 1875-1878)

Many of these funds have a million dollar minimum to invest with them. With 100-200 clients, that totals 100-200 million dollars in assets. A two percent annual management fee translates into two to four million dollars a year before taking the 20 percent of profits, which might be anywhere between 5-20%, depending on the firm. A five percent return on 100 million dollars is five million dollars in profit, which the manager then takes 20 percent of, or an extra one million dollars. Between the two percent and 20 percent fees, that could mean a manager is making three million dollars on a normal year without much effort.

G11 - Week 9 - Day 1

In-class work

1. Exercises 1-3, page 133
2. Positive Externalities of Production as a Market Failure
3. Positive Externalities of Consumption as a Market Failure

Upcoming

1. Ch. 5-6 assessment on Thursday, October 20th
2. Make sure to be reading news sources and collecting real-life examples of market failures 

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From the blogosphere

1. More Migration Thoughts
2. A Trump Presidency Will Kill Thousands, Possibly Millions

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Currently Reading

Other People's Money: The Real Business of Finance

In most Western economies today, the assets and liabilities of banks exceed the assets and liabilities of the government and the aggregate annual income of everyone in the country. But these assets and liabilities are mainly obligations from and to other financial institutions. Lending to firms and individuals engaged in the production of goods and services— which most people would imagine was the principal business of a bank— amounts to less than 10 per cent of that total. In Britain, with a particularly active financial sector, that figure is less than 3 per cent. (Kindle Locations 181-185)

G11 - Week 8 - Day 1

In-class work

1. Exercises 8-18 on page 107 (HL Only)
2. The Effects of a Per Unit Subsidy
1. Exercises 19-23 on page 109
3. Calculating the Effects of a Subsidy using Linear Equations (HL Only)
1. Exercises 24-34 on page 112
4. Determining the Effects of Price Ceilings and Price Floors
5. Calculating the Effects of Price Controls using Linear Equations (HL Only)
1. Exercises 35-46

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From the blogosphere

1. The Great Californian Bag Surplus, by Bryan Caplan
2. WTO Doha deal would make world $11-trillion richer by 2030: Economists
3. Feeding people is smart: It's the best investment to do good in the world

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Currently Reading

Exodus: How Migration Is Changing Our World

I will refer to the combination of institutions, rules, norms, and organizations of a country as its social model. Even among high-income countries social models differ considerably. America has particularly strong institutions and private organizations, but somewhat weaker public organizations than Europe, and Japan has much stronger norms of trust than either of them. But though they differ in detail, all high-income societies have social models that function remarkably well. Quite possibly, different combinations work well because the components adapt so as to fit each other: for example, institutions and norms may gradually evolve so as to be well suited given the state of narratives and organizations. But such adaptation is not automatic. On the contrary, hundreds of different societies existed for thousands of years before any of them happened upon a social model capable of supporting the ascent to prosperity. Even the Glorious Revolution was not undertaken with the objective of unleashing prosperity: it was triggered by a mixture of religious prejudice and political opportunism. The English social model that emerged in the eighteenth century was replicated and improved in America. This in turn influenced social revolution in France, which exported its new institutions by force of arms across western Europe. The key point I wish to convey is that the present prosperity enjoyed in the Western world, and which is belatedly spreading more widely, is not the outcome of some inevitable march of progress. For thousands of years until the twentieth century ordinary people were poor, everywhere. A high living standard was the privilege of extractive elites rather than the normal reward for productive work. Had it not been for a fortuitous combination of circumstances that relatively recently produced a social model conducive to growth, this dreary state of affairs would most likely have continued. In poor countries it continues still.

If the prosperity of the high-income world rests on this platform, it has crucial implications for migration. Migrants are essentially escaping from countries with dysfunctional social models. It may be well to reread that last sentence and ponder its implications. For example, it might make you a little more wary of the well-intentioned mantra of the need to have “respect for other cultures.” The cultures— or norms and narratives— of poor societies, along with their institutions and organizations, stand suspected of being the primary cause of their poverty. Of course, on criteria other than whether they are conducive to prosperity these cultures may be the equal of, or superior to, the social models of high-income societies. They may be preferable in terms of dignity, humanity, artistic creativity, humor, honor, and virtue. But migrants themselves are voting with their feet in favor of the high-income social model. Recognizing that poor societies are economically dysfunctional is not a license for condescension toward their people: people can as readily earn the right to respect while struggling against a hostile environment as while succeeding in a benign one. But it should put us on our guard against the lazier assertions of multiculturalism: if a decent living standard is something to be valued, then on this criterion not all cultures are equal. (pp. 33-35)

G11 - Week 7 - Day 1

In-class work

1. Work on ch. 3-4 commentary assessment
2. Hand in hardcopy by end of class

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From the blogosphere

1. Firms that Discriminate are More Likely to Go Bust
2. Is Sustained 4 Percent Annual Real Growth Achievable?
1. “As we noted in our 16 Myths document, the last time the U.S. had 4 percent growth on average for 25 years was 1940-1964. And in the modern context with an aging population and a large percentage of women now already in the labor force, pursuing a number of pro-growth policies mentioned would only achieve about 3 percent real growth at best over the long run. Therefore, it would be very difficult to achieve sustained 4 percent annual real GDP growth.”
3. These charts prove that the world is getting dramatically better, not worse

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Currently Reading

Education for Sustainable Happiness and Well-being

EDUCATION FOR SUSTAINABILITY  

Education for sustainability is more than just a new curriculum. It is about how the content and process of education can be interwoven with real-life contexts to create opportunities for young people to take the lead in building sustainable communities and societies. Peter Senge (2014, p. 325) 

Peter Senge (2014) recounts the story of 12-year-old Analise during a student presentation evening. There were 250 people gathered to hear about the students’ sustainability projects. Analise represented her group and briefly described the wind turbine project that she and her peers had created at their middle school. Installing the wind turbine had involved many of the steps that Zhao (2012) outlined in product-oriented learning, including a presentation to the principal and the town’s mayor, as well as garnering expertise from parents to explore engineering and investment options. The scope of the project itself is impressive. Even more impressive is her wisdom and courage to challenge the adult audience. Senge tells us that once her presentation was finished,  

Analise set aside her notes and standing calmly, some 75 pounds of fierce determination said, “We children are often hearing that ‘you children are the future.’ We don’t agree with that. We don’t have that much time. We need to make changes now. We kids are ready, are you?” (Senge, 2014, p. 328)  

Analise is absolutely right. We need to make changes now. Muddling along with small revisions to curricula here and there is drastically out of step with the pressing need for educators to demonstrate greater leadership in sustainability education. (p. 85)

G11 - Week 6 - Day 2

In-class work

1. Applications of Elasticity (PED, XED and YED)
2. Find news article for practice IA assessment of ch. 3-4
1. How to Structure an Economics IA
2. Evaluation in Economics
3. Sample Micro IB Economics IA
4. Assessment Marking - See IA Rubric
3. Ch. 3-4 practice commentary will be handed in at the end of next class (hardcopy)

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From the blogosphere

1. Egalitarianism versus Online Education
2. Robert Shiller on Open Borders

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Currently Reading

Education for Sustainable Happiness and Well-being

“Many of the arguments in favor of innovation build on the premise that the most innovative countries are also the most economically competitive. Hence, the need for education to shift from contributing to the older industrial model of economic development to the modern era where the knowledge economy is paramount. Discussions rarely make the connection to sustainability. Tony Wagner is an exception: 

What we urgently need is a new engine of economic growth for the twenty-first century. The solution to our economic and social challenges is the same: creating a viable and sustainable economy that creates good jobs without polluting the planet. And there is general agreement as to what that new economy must be based on. One word: innovation. (Wagner, 2012, p. 2) 

Wagner builds on the work of Teresa Amabile (1998) regarding creativity to discuss the factors that help to develop innovators. Both Amabile and Wagner see critical thinking, developing expertise, and motivation as the three key factors that interact with one another. Likewise, they both have the view that motivation is more important than expertise and creative thinking skills because this determines what you will do with the skills you have developed. They further distinguish between intrinsic and extrinsic motivation. Extrinsic motivation refers to factors outside oneself. It could mean that motivation comes from other people, a desire for approval, good grades, or fear of failure. Intrinsic motivation is more internal and is associated with interest, curiosity, satisfaction, a sense of achievement, and so on. Wagner believes that the essential ingredients for intrinsic motivation are play, passion, and purpose. This was borne out through his interviews with innovators. 

As an interesting side note, positive psychologists have found that people who are intrinsically motivated tend to report greater life satisfaction, so there is an association between intrinsic motivation and happiness (Brown & Kasser, 2005; Kasser, 2014). For example, people who are extrinsically motivated tend to place greater value on popularity, social image, and financial success. In contrast, people who are intrinsically motivated are inclined to have values that contribute to their well-being or that of others." (pp. 60-61)

1. Do you think schools operate with the above ideas as primary to their purpose?
2. If no, how would schools operate differently if they did devote themselves to the above ideas?

G11 - Week 6 - Day 1

In-class work

1. Exercises 14-16 (p. 89)
2. Price Elasticity of Supply and its Determinants
1. Exercises 17-20 (p. 95)
3. Applications of Elasticity (PED, XED and YED)

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From the blogosphere

1. Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities
1. Socially optimal rates are between 50-83% depending on labor behavior elasticities.
2. Teacher Holds An Experiment With Students To Illustrate Gender Gap In Congress
1. How might this affect economic policies?
3. Here’s What Happens When You Give $1,000 to Someone in Extreme Poverty

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Currently Reading

Education for Sustainable Happiness and Well-being

“Happiness literacy reveals how we are being socialized to view happiness in a consumer society that often associates happiness with material consumption" (p. 47).

G11 - Week 5 - Day 2

In-class work

1. Questions on Exercises 4-7 (p. 82)
2. Cross Price Elasticity of Demand and its Determinants
1. Exercises 11-13 (p. 87)
3. Income Elasticity of Demand
1. Exercises 14-16 (p. 89)
4. Price Elasticity of Supply and its Determinants
1. Exercises 17-20 (p. 95)
5. Applications of Elasticity (PED, XED and YED)

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From the blogosphere

1. Is happiness inequality falling?
2. The Education Algorithm

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Currently Reading

The Happiness Manifesto

“It makes no sense if a nation’s current well-being comes at the expense of its future well-being,” (Kindle Locations 233-239) and that, “sustainability can be thought of as creating future happiness – human happiness that lasts over time” (Kindle Locations 446-448).

G11 - Week 1 - Day 3

In-class work

1. Distribute textbooks
2. Introduction to your textbook and resources
3. Read p. 1-8
4. Economic Systems - Market, Command and Mixed Economies
5. Positive vs Normative
6. Scarcity, Opportunity Cost and the PPC
7. The Law of Increasing Opportunity Cost and the PPC Model

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From the blogosphere

1. Economic Near-miracles Are Still Possible
2. The Meaning of Trust in the Age of AirBnB
3. Aetna Shows Why We Need a Single Payer

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Currently Reading

Why Nations Fail: The Origins of Power, Prosperity, and Poverty

"The central thesis of this book is that economic growth and prosperity are associated with inclusive economic and political institutions, while extractive institutions typically lead to stagnation and poverty" (p. 85).

Two Consequences of "Winner Take All" Societies

Tim Harford — Article — The lost leisure time of our lives

"The economic elites, meanwhile, continue to embody a paradox: all the income gains that Keynes expected and more, but limited leisure. 

The likely reason for that is that, in many careers, it’s hard to break through to the top echelons without putting in long hours. It is not easy to make it to the C-suite on a 20-hour week, no matter how talented one is. And because the income distribution is highly skewed, the stakes are high: working 70 hours a week like it’s 1830 all over again may put you on track for a six-figure bonus, while working 35 hours a week may put you on track for the scrapheap. 

The consequences of all this can emerge in unexpected places. As a recent research paper by economists Lena Edlund, Cecilia Machado and Maria Micaela Sviatschi points out, urban centres in the US were undesirable places to live in the late 1970s and early 1980s. People paid a premium to live in the suburbs and commuted in to the city centres to work. The situation is now reversed. Why? The answer, suggest Edlund and her colleagues, is that affluent people don’t have time to commute any more. They’ll pay more for cramped city-centre apartments if by doing so they can save time."

The above (long) quote is yet another piece of evidence in regards to the direction the world seems to be headed. That is a direction that rewards people at the very edge of their fields in ever smaller numbers, while the rest are automated, outsourced, or otherwise paid very minimal wages due to replaceability.

I see this as having two immediate consequences that all (young) people should be aware of.

First, recognizing that innovation and knowledge creation are likely to continue to garner the highest rewards makes understanding creativity, mastery, and expertise that much more important. If you can't get to the edge of the field through massive time and energy investments in gaining expertise, you will probably be one of the people automated, outsourced, or paid minimally. This is important to know. Choose appropriately how you spend your time and energy.

Second, deciding on what kind of society we should have becomes vastly more critical. If the majority of financial rewards will go to a smaller and smaller percentage of working people, while the majority of working people continue to earn relatively less over time, then creating societal norms around giving back and taking care of the less privileged becomes even more important.

It's a statistical fact that not everyone will be in the one percent regarding intelligence, physical prowess, creativity, or ability to persist on difficult work for decades at a time. For people not born with these outlier abilities through no fault of their own, it seems only right to care for them as a society. After all, it is society that allows the outliers to prosper in the first place, therefore, society should be entitled to many of those rewards.

This makes education aimed at caring, compassion, and inclusivity that results in citizens willing to engage and vote in elections to the benefit of all one of the most pressing issues of our time.

A Nice Book Review of "Saving Capitalism"

Below is a good read from Paul Krugman, a Nobel Prize winner for economics, on a recent book released by Robert Reich, the former secretary of labor for the US.

Challenging the Oligarchy by Paul Krugman | The New York Review of Books

Anyone hoping for a reversal of the spiral of inequality has to answer two questions. First, what policies do you think would do the trick? Second, how would you get the political power to make those policies happen? I don’t think it’s unfair to Robert Reich to say that Saving Capitalism offers only a sketch of an answer to either question.

'We The People' for The Global Goals

To learn more about these important goals in a school environment, see here:

1. 2030 Schools
1. Start Here
2. About
3. 2030 Schools Projects

Angus Deaton Wins Nobel Prize for Economics

Marginal REVOLUTION — Small Steps Towards A Much Better World

"I see Deaton’s work on world poverty as a tour de force, he made advances in theory, he joined with others to take the theory to the field to make measurements and he used the measurements to draw attention to important issues in the world."

See above link for more on Deaton.

Red Nose Day - Jack Black and Felix

I don't actually know what Red Nose Day is, nor did I look at the website, but the video itself is quite powerful. There are terrible living conditions in much of the world with horrible experiences happening every day.

The boy's wish is to learn.

At a school like ours, we have every opportunity to learn, but I often see students not taking advantage of it. I see it as a moral obligation to learn the most we can in order to make the world a better place and help others like the boy in this video. We are quite fortunate and should take advantage of the privileges we have each day.

Stimulus-Recovery-Adaptation in Complex Systems

Below are two pictures from a book I'm currently reading on strength training titled Scientific Principles of Strength Training. While the topic of strength training may seem completely unconnected from school or economics, it couldn't be more important to understanding how complex systems work (i.e. your brain during learning or the economy during the business cycle).

Stimulus-Recovery-Adaptation

The first picture below describes what happens during a single workout.

Some stimulus is presented during a workout (i.e. running, lifting, etc.), which actually induces a drop in performance due to fatigue. After appropriate recovery, you return to your baseline level of performance and then an adaptation occurs that allows you to perform more work the next time around. Eventually this adaptation reaches a peak before slowly declining again if no new stimulus is presented.

There are a couple important things to keep in mind with this model. The stimulus must be disruptive to homeostasis, meaning you are asking your body to do something it hasn't previously done. If you can do 100 push ups in a row, doing 25 push ups is not a stimulus. You will have to do more to overload your system and disrupt homeostasis.

Second, once you've reached a new performance peak, a new stimulus has to occur. That means in order to improve, ever larger and larger stimuli are required to continue progress. This is where the Navy SEAL motto, "The only easy day was yesterday," comes from. As your performance levels increase, you actually have to work harder to continue improvement.

This leads to the second diagram, which illustrates what several sessions look like over time. As you can see, session one is essentially the first diagram above, except that a new stimulus is presented before the decline in performance begins. This pattern repeats indefinitely if development is to continue with minor deviances to allow full recovery as the stimuli create larger amounts of fatigue.

Now that you understand the process of stimulus-recovery-adaptation, you can start to see it everywhere. For us, the two most important applications are learning in general and economics more specifically.

Learning in General

Learning in general follows this same pattern. Much like your body, your brain is a complex system which requires homeostatic disruption for learning to occur. If you continue to study the same thing you studied yesterday and never increase in difficulty, you won't experience progress (just like the 25 push ups example wouldn't spur progress).

For a student studying math, this might involve attempting to understand basic calculus after learning about algebra and trigonometry. Obviously, this will provide a novel stimulus that is larger than the ones required for the previously mastered subjects in math. That is why we teach students calculus later in school than algebra or trigonometry, just like we ask someone to try 100 push ups after they have shown the ability to do the 25, 50, and 99.

Economics

For our class more specifically, the economy is a complex system like the body or brain. That means growth requires stimulus. In fact, economics already has terms like "fiscal stimulus" and diagrams such as the business cycle, which mirror the second diagram above almost identically.

When you view economic ideas like "bubbles" and "overheating" through this new lens, you can understand quite easily that the stimulus leading up to a crash or crisis was simply too big for the current economy to recover from adequately. Stimuli need to be big enough to induce a performance drop so that recovery and adaptation can occur, but not so big that future growth is hampered by the need for excessive recovery that allows performance to decline and return to baseline as the first diagram above shows.

Bubbles are therefore the equivalent of asking someone to do 100 push ups when their current performance level is only 50 push ups. Of course they are going to crash afterwards. The stimulus was too large to adequately recover from. A stimulus of 55-60 would have been more appropriate.

Summary

1. Create a stimulus that goes beyond your previous abilities
2. Recover appropriately once a performance drop occurs
3. Adapt to a new peak performance level
4. Repeat as necessary for continued progress

Stiglitz on Improved Standards of Living

Below is a rather long video of Stiglitz discussing the importance of creating a "learning society". In the first few minutes of his talk (beginning around 15:00), he explains three explanations for increases in the standard of living over the past 200 years.

The three explanations include:

1. capital accumulation (savings that are utilized for productivity increases)
2. improvements in allocative efficiency of resources
3. learning (more outputs from a given amount of inputs) which accounts for 70-80% over the last 80 years (as researched by Robert Solow - Nobel Prize winner)

One really useful trick I've been using the last few weeks to watch more videos in less time or longer videos in less time is to adjust the video speed using the settings feature on the bottom right of YouTube videos. I usually adjust the speed from "Normal" to "1.5". This lets you watch an hour's worth of video in 40 minutes or 10 minutes worth of video in 6 minutes, but takes a little getting used to at first.

A Shout Out to "Effective Altruism" from Marginal Revolution

Here is a short blog post with a bunch of good links. "Effective altruism" is the idea that giving or donating to charity should be economically effective in terms of its cost/benefit ratio. Many of the organizations mentioned in the post below do just that. They use high level economic/finance evaluation to make decisions on the best charities to support.

Nerd Altruism is Becoming Cool!

"It’s exciting to see randomized trials, measurement and data science applied to philanthropy. Groups like GiveDirectly, GiveWell and The Center for Effective Altruism are creating a new culture of giving, they are making Nerd Altruism cool. We have a long way to go but it says something when billionaires are mocked for giving millions to Yale. In contrast, entrepreneurs like Dustin Moskovitz, Elon Musk and Bill Gates are making it cool to evaluate charities with the same rigor that business people use to evaluate business investments."

If this type of giving appeals to you, I highly recommend checking out the books The Life You Can Save and The Most Good You Can Do on my further reading page above. You can also check out this the Global Rich List to input your income or wealth (or your parents) to see how you (or your family) stack up against the entire world.