1. TEACHING ECONOMICS

2. A LENS THROUGH WHICH TO LOOK AT THE WORLD

3. SIMON JOHNSON ARTICLE, THE QUIET COUP

4. STUDENT ANALYSIS OF THE PRESENT ECONOMIC CRISIS USING JOHNSON’S FRAMEWORK AS A KALEIDOSCOPE

Center for International Studies

Summer Teacher Institute

Origins of the Economics course at Lab

Original course: practical economicsstock market

Hard lessons learned as an option trader: size and leverage killsmanaging risk more important than profitunderstanding positions critical

Investing in markets:

Peter Lynch approachNo load index funds

How the AP course came to pass

Stepping into the breach

Renewal

Attributes of a good AP Economics class

Importance of easy to read, accessible texts

“Who feeds Paris?” “Doggie birthday cake”

Let students do the learning:Exeter Harkness Method http://www.exeter.edu/admissions/147_harkness.aspx Inquiry approach—student-led learning

Attributes of good class, con’t.

Economic reasoning:Cost/benefit reasoningOpportunity costsNo free lunch

Outside lecturers:Steve Levitt—story of Paul Feldman

and price elasticity

Elasticity Along a Demand Curve

6-6

Pri

ce

$10987654321

0 1 2 3 4 5 6 7 8 9 10 Quantity

Elasticity declines along demand curve as we move

toward the quantity axis

Ed = 1

Ed = 0

Ed < 1

Ed > 1

Ed = ∞

Elasticity and Total Revenue6-7

A

Pri

ce

Inelastic DemandE < 1

Quantity

$10

8

6

4

2

0 1 2 3 4 5 6 7 8 9

TR rises if price increases

C

H

G

Lost revenue

Gained revenue

TRG = $1 x 9 = $9

TRH = $2 x 8 = $16

B

Elasticity and Total Revenue6-8

C

BA

Pri

ce

Elastic DemandE > 1

Quantity

$10

8

6

4

2

0 1 2 3 4 5 6 7 8 9

TR falls if price increases.K

J

Lost revenue

Gained revenue

TRJ = $8 x 2 = $16TRK = $9 x 1 = $9

Attributes of a good class, con’t.

Alan Sanderson—Olympics make no economic sense for Chicago

Graphs to explain ideas

Comparative Advantage and the Combined PPC

2-10

1 2 3 4 5

4

3

2

1

5

Chocolate (in tons)

Text

iles

(in

th

ou

san

ds

of

yard

s)

Belgium

Pakistan

H

F

G

The slope of the combined PPC is determined by the country with the lowest opportunity cost.

The combined PPC has the same slope as Belgium’s PPC from F to H and the same slope as Pakistan’s from H to G.

The combined PPC is the curve connecting points F, H, and G.

The Phillips Curve13-11

Republicans favored contractionary policy that meant high unemployment and low inflation (point B).

Democrats generally favored expansionary policy that meant low unemployment and high inflation (point A).

Infl

ati

on

Unemployment rate

5

4

3

2

1

0 4 5 6 7

A

B

17-12

Lorenz Curve for the U.S. Lorenz Curve for the U.S. 1929, 1970, and 20031929, 1970, and 2003

1970

2003 1929

100%

80

60

40

20

0

Cum

ulat

ive p

erce

ntag

e of

inco

me

20 60 80 100%Cumulative percentage of population

40

Line of absolute equality

Attributes of a good class, con’t.

Changing with the Times: “freshman course won’t be quite the same.”

More prominence to financial system

Consequences of leverageBeyond monetary policyThe future is surprise

Attributes of a good class, con’t.

Challenge basic concepts:the efficient theory of markets

behavioral economists“incredible aberrations”

Attributes of a good class, con’t.

Using Current EventsBusy students don’t follow

economic crisis“Ducks become rabbits”

A lens through which to look at the world

Understanding events in history:concatenationskaleidoscopes

Simon Johnson article, The Quiet Coup

Article as a lens

Seen it all before

Banana Republic—”shockingly reminiscent”

Too much risk in good times…no one will lend money in bad times

Johnson article as kaleidoscope

Some oligarchs must lose—not easy to accomplish:41% of corporate profitsactively prevent reformsmoney to campaigns“cult of finance”

Problem is uncertainty—must respond with “speed and overwhelming force”

“Policy by deal”

Unwilling to challenge financial system

Johnson’s Solution

Nationalize banks—no “velvet glove approach”

Break power of financial oligarchs:revise anti-trust legislationcaps on executive compensationgreater transparencycompetition

Limits to the analogy between emerging markets and the U.S.

Emerging market governments quickly run out of foreign currency when in crisis

United States can pay its debts in its own currency

Student analyses and Johnson article

Has Obama Administration taken on financial oligarchs?

1. Loren Kole: policy towards the banks2. Amy Solomon: new financial regulations3. Jennifer Glick: GM and Chrysler 4. Amelia Acosta-Pacelli: executive compensation5. Danielle Kutasov: similarities between financial crises in emerging markets and that affecting the United States now 6. Sydney Small: health care system

Bibliography

Colander, David C. Microeconomics. 7th ed. Irwin: McGraw-Hill, 2008.

Colander, David C. Macroeconomics. 7th ed. Irwin: McGraw-Hill, 2008.

Levitt Steven D.; and Dubner Stephen J. Freakonomics. New York: HarperCollins, 2005.

Manchester William. A World Lit Only by Fire. Boston: Little, Brown and Company, 1992.

Mankiw Gregory N. “That Freshman Course Won’t Be Quite the Same.” The New York Times. 24 May 2009.

Bibliography

Nocera Joe. “Poking Holes in a Theory on Markets.” The New York Times. 6 June 2009

Wheelan Charles. naked economics, Undressing the Dismal Science. New York: W.W. Norton & Company.