Who wants to be an economist
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Who wants to be an economist?. Zero-sum thinking. Refers to the idea that there is a winner and loser in all transactions, kind of like a tennis or boxing match So if Bill Gates is rich, he must have taken that wealth from others

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Who wants to be an economist

Who wants to be an economist?


Zero sum thinking

Zero-sum thinking

  • Refers to the idea that there is a winner and loser in all transactions, kind of like a tennis or boxing match

  • So if Bill Gates is rich, he must have taken that wealth from others

  • The economic pie is only so big, so government has to make sure we all get the same size slice… “fairness” and “social justice”


Fallacy of composition

Fallacy of composition

  • The mistaken assumption that what applies to a part applies to the whole

  • In economics, we’re looking at the economy in total… not any given individual, company or industry

  • We know that the economy is dynamic… some companies and industries must pass (typesetters, milkmen) so others can rise (app developers, organic bakers)


Fractional reserve banking

Fractional Reserve Banking

A system that enables banks to only have on hand a fraction of the total reserves needed to cover all deposits

Since all depositors won’t demand their money at once, banks lend out the rest and earn interest and fees

Fractional reserve banking creates “new” money to create wealth


Why does corruption lead to poverty

Why does corruption lead to poverty?

  • “The law’s delay...”

  • Bureaucrat ability to delay often means an opportunity for bribes

  • The lost opportunity for SRTHAU in businesses not started, investment not made, jobs not created

  • Which means fewer goods and services... and less prosperity


Just what does an economist do

Just what does an economist do?


Economists

Economists

Do research including preparing surveys and crunching the numbers


Economists1

Economists

Do research including preparing surveys and crunching the numbers

Forecast how the economy might change in the future


Economists2

Economists

Do research including preparing surveys and crunching the numbers

Forecast how the economy might change in the future

They study topics such as prices, jobs, interest rates, taxes, the stock market, commodities, money, the banking system, impacts from political decisions


Economists3

Economists

They then write up their reports and present the findings to clients


Economists4

Economists

They then write up their reports and present the findings to clients

They are really good at PowerPoint and developing charts, graphs and flow charts


Economists5

Economists

They then write up their reports and present the findings to clients

They are really good at PowerPoint and developing charts, graphs and flow charts

They spend a lot of time crunching numbers and doing statistical modeling


Economists6

Economists

More than half of economists work for federal, state and local governments


Economists7

Economists

More than half of economists work for federal, state and local governments

Many work for banks, consulting firms, NGOs or are self-employed


Who wants to be an economist

NGOs

United Nations, Greenpeace, Amnesty International, AARP, Doctors Without Borders,


Economists8

Economists

More than half of economists work for federal, state and local governments

Many work for banks, consulting firms, NGOs or are self-employed

And the rest live in the academic environment or non-profit “think” tanks such as The Heritage Foundation, Hoover Institution and Brookings Institute


Economists9

Economists

The media pay is $90,000 year


Economists10

Economists

The media pay is $90,000 year

There arejust 15,400 jobs and it’s a slow-growth profession


Economists11

Economists

The media pay is $90,000 year

There arejust 15,400 jobs and it’s a slow-growth profession

Most positions require a Ph.D. or at least a master’s degree


Economists12

Economists

The media pay is $90,000 year

There arejust 15,400 jobs and it’s a slow-growth profession

Most positions require a Ph.D. or at least a master’s degree

Lots of young people with a B.A. degree in econ work in other fields


Top economics schools

Top economics schools


Top economics schools1

Top economics schools

Harvard

Massachusetts Institute of Technology (MIT)

Princeton

University of Chicago

Stanford

University of California – Berkeley

Northwestern

Yale

University of Pennsylvania

Columbia


Top economics schools2

Top economics schools

University of Florida was #48


History of economics

History of economics

Modern economics began in 1776 with our pal Adam Smith (1723-1790) and The Wealth of Nations


History of economics1

History of economics

Modern economics began in 1776 with our pal Adam Smith (1723-1790) and The Wealth of Nations

Smith influenced generations of economists and thinkers including David Ricardo, John Stuart Mill, James Madison, Thomas Jefferson, Alexander Hamilton… and Thomas Sowell


Adam smith

Adam Smith

“Every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain; and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”[


Adam smith1

Adam Smith

In short, the “invisible hand” refers to the self-regulating behavior of the marketplace when people, acting in their own self interest, benefit society


History of economics2

History of economics

Over time, “schools” of economics formed about common framework of assumptions and that continues today


History of economics3

History of economics

Over time, “schools” of economics formed about common framework of assumptions and that continues today

Chicago, London, Austrian, Carnegie… also loosely organized around “saltwater” schools (on both U.S. coasts) and “freshwater” schools (Chicago, Carnegie Mellon)


Mercantilists

Mercantilists

Popular from 16th to late 18th centuries, the earliest of the economic schools


Mercantilists1

Mercantilists

Popular from 16th to late 18th centuries, the earliest of the economic schools

James Steuart was most prominent writer

Mercantilists argued that the most important role for government was to ensure a positive balance of trade… export more than you import


Mercantilists2

Mercantilists

Popular from 16th to late 18th centuries, the earliest of the economic schools

James Steuart was most prominent writer

Mercantilists argued that the most important role for government was to ensure a positive balance of trade… export more than you import

They were zero summers!


Mercantilists3

Mercantilists

Were concerned with the power of their nation relative to others

They didn’t care about SRTHAU to maximize their nation’s standard of living, they wanted more wealth and military power than other nations


Mercantilists4

Mercantilists

Were concerned with the power of their nation relative to others

They didn’t care about SRTHAU to maximize their nation’s standard of living, they wanted more wealth and military power than other nations

Typical policies included overseas colonies, ban on the export of gold, tariffs, wage limits, imperialism, subsidies for domestic manufacture


Final mercantilist thought

Final Mercantilist thought

  • Although gone from modern economic thinking, concepts about imports/exports remain such as “favorable balance of trade”


Classical economics

Classical economics

‘Wealth of Nations’ ended the mercantilists, although some of their policies such as positive balance of trade and tariffs endure


Classical economics1

Classical economics

‘Wealth of Nations’ ended the mercantilists, although some of their policies such as positive balance of trade and tariffs endure

Smith realized that the prosperity of a nation depended on creating more goods and services… and that economic policy should be for everyone’s benefit, not just the merchants


Classical economics2

Classical economics

‘Wealth of Nations’ ended the mercantilists, although some of their policies such as positive balance of trade and tariffs endure

Smith realized that the prosperity of a nation depended on creating more goods and services… and that economic policy should be for everyone’s benefit, not just the merchants

Smith also rejected slavery and imperialism


Classical economics3

Classical economics

‘Wealth of Nations’ ended the mercantilists, although some of their policies such as positive balance of trade and tariffs endure

Smith realized that the prosperity of a nation depended on creating more goods and services… and that economic policy should be for everyone’s benefit, not just the merchants

Smith also rejected slavery and imperialism

His theories led to the school of Classical Economics, with a nod to the Physiocrats


Physiocrats

Physiocrats

French economists who advocated that productive farm work, not gold, was key to wealth of a nation

Because of the agrarian society, they thought only agriculture land counted

First used the term “laissez-faire”… originally meaning not having the government intervene in marketplace on behalf of merchants


Classical economics4

Classical economics

Smith was radical: preached a sharply reduced role for government and elites


Classical economics5

Classical economics

Smith was radical: preached a sharply reduced role for government and elites

Argued that wealth is not a zero-sum game… everyone can win in both foreign trade and the domestic market


Classical economics6

Classical economics

Smith was radical: preached a sharply reduced role for government and elites

Argued that wealth is not a zero-sum game… everyone can win in both foreign trade and the domestic market

The free market will regulate itself due to the invisible hand


Classical economics7

Classical economics

Smith was radical: preached a sharply reduced role for government and elites

Argued that wealth is not a zero-sum game… everyone can win in both foreign trade and the domestic market

The free market will regulate itself due to the invisible hand

The Classical economists changed economics from a concern with a ruler’s interests to that of the nation


David ricardo 1772 1823

David Ricardo1772-1823

Most influential economist of the early 19th century

Developed “comparative advantage,” which showed how two unequal nations could trade to mutual benefit

Was also the first to use economics dispassionately… principles over immediate policy issues


Say s law

Say’s Law

Developed by French economist Jean-Baptiste Say (1767-1832)


Say s law1

Say’s Law

Developed by French economist Jean-Baptiste Say (1767-1832)

Say addressed the fears that a growing nation would produce so many good and services that it would exceed the ability of the people to buy them


Say s law2

Say’s Law

Developed by French economist Jean-Baptiste Say (1767-1832)

Say addressed the fears that a growing nation would produce so many good and services that it would exceed the ability of the people to buy them

Say argued that the national output and the income people had were related… “supply creates its own demand” and, therefore, no limit to what it can produce


Modern economics

Modern economics

First exclusive journal was in 1886, “The Quarterly Journal of Economics” at Harvard


Modern economics1

Modern economics

First exclusive journal was in 1886, “The Quarterly Journal of Economics” at Harvard

First U.S. professor of economics appointed in 1871 at Harvard, which awards first Ph.D. in 1875


Modern economics2

Modern economics

First exclusive journal was in 1886, “The Quarterly Journal of Economics” at Harvard

First U.S. professor of economics appointed in 1871 at Harvard, which awards first Ph.D. in 1875

Economics in 20th century began to turn to mathematics rather than verbal discourses


Modern economics3

Modern economics

First exclusive journal was in 1886, “The Quarterly Journal of Economics” at Harvard

First U.S. professor of economics appointed in 1871 at Harvard, which awards first Ph.D. in 1875

Economics in 20th century began to turn to mathematics rather than verbal discourses

At LAF, we’ve continued the verbal tradition!


Marginalist revolution

Marginalist revolution


Marginalist revolution1

Marginalist revolution

Refers to acceptance among economists that prices were based on the demands of consumers, rather than just on the cost of the producers


Marginalist revolution2

Marginalist revolution

Refers to acceptance among economists that prices were based on the demands of consumers, rather than just on the cost of the producers

Classical econ says labor and other inputs are crucial factors in prices. Marx went even further when he wrote that exploitation of labor was the main factor in economics and society


Marginalist revolution3

Marginalist revolution

Marginal utility theory of value: what consumers consider useful was what influenced prices

So while if you’re dying of thirst water is more valuable than diamonds

Once you have enough water, it’s the marginal utility of having another gallon of water compared to a diamond. Because most of us have lots of water, diamonds will sell for more


Marginalist revolution redux

Marginalist revolution, redux

  • Anyway, it’s the combo of supply (dependent on the cost of production) and demand (dependent on marginal utility) which determines prices

  • Ok?


Marginalist revolution redux1

Marginalist revolution, redux

  • Anyway, it’s the combo of supply (dependent on the cost of production) and demand (dependent on marginal utility) which determines prices

  • Ok?


Equilibrium theory

Equilibrium theory

Developed by Frenchman Leon Walras (1834-1910)

It’s a branch of theoretical economics (because things are rarely in equilibrium) that looks at prices/supply and demand for firms, industries and particular markets


Equilibrium theory1

Equilibrium theory

Developed by Frenchman Leon Walras (1834-1910)

It’s a branch of theoretical economics (because things are rarely in equilibrium) that looks at prices/supply and demand for firms, industries and particular markets

In a sentence: equilibrium theory notes that everything in an economy is interconnected so that one small change can set in motion many others


Try this definition

Try this definition

“The theory provides a summary description of economic interaction in a society where people are free to pursue their own interests. The theory may be viewed as an attempt to answer the question of whether trade arranged through markets could match demands with supplies for millions of goods and services in an economically efficient way. Notice that the question is could trade achieve an efficient outcome, not does it do so.”


Ok what s macro and micro

Ok, what’s macro and micro??

  • Macroeconomics: basically deals with the performance, structure, and behavior of a national economy as a whole. Macroeconomists seek to understand the determinants of aggregate trends in an economy with particular focus on national income, employment, inflation, investment, and international trade.


And micro

And micro?

  • Microeconomics is a branch of economics that studies how individuals, households, and firms make decisions to allocate limited resources, typically in markets where goods or services are being bought and sold.

  • Microeconomics examines how these decisions and behaviors affect the supply and demand for goods and services, which determines prices, and how prices, in turn, determine the supply and demand of goods and services.


Why should i care

Why should I care??

Because politicians constantly propose solutions to problems “without the slightest attention to how the repercussions of their ‘solution’ will reverberate throughout the economy…”


John maynard keynes say cains

John Maynard Keynes (say ‘Cains’)

Keynes (1883-1946) was the most prominent economist of the 20th century

His book “The General Theory of Employment, Interest and Money” became the prevailing orthodoxy around the world… with a few important exceptions

Keynes rose to prominence after the Great Depression


Keynesian economics

Keynesian economics

Keynes argued that inadequate “aggregate demand” could lead to high unemployment


Keynesian economics1

Keynesian economics

Keynes argued that inadequate “aggregate demand” could lead to high unemployment

He argued for governments to spend money during recessions and depressions to spur the economy (see President Obama)


Keynesian economics2

Keynesian economics

Keynes argued that inadequate “aggregate demand” could lead to high unemployment

He argued for governments to spend money during recessions and depressions to spur the economy (see President Obama)

Thus government could smooth out the boom and bust cycles inherent in free markets


Keynesian economics3

Keynesian economics

Keynes argued that inadequate “aggregate demand” could lead to high unemployment

He argued for governments to spend money during recessions and depressions to spur the economy (see President Obama)

Thus government could smooth out the boom and bust cycles inherent in free markets

Was the dominant thinking through the 1970s and resurfaced with the recent global recession


Milton friedman

Milton Friedman

Friedman (1912-2006) was an American economist at the University of Chicago who started the “Chicago school” of economics

He opposed Keynesian theory and argued the markets were more rational and responsive than governments were

Won Nobel prize in 1976 when raging inflation worldwide undermined the Keynesians’ ability to control the economy

Advisor to President Reagan


Milton friedman1

Milton Friedman

“I am favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it's possible.”

“The greatest advances of civilization, whether in architecture or painting, in science and literature, in industry or agriculture, have never come from centralized government.”


F a hayek

F.A. Hayek

Austrian economist (1899-1992) who won Nobel prize in 1974 while at U of Chicago

Was the one who developed theory of prices communicating information that enables people to coordinate their plans

“Road to Serfdom” is a must-read for every budding economist. A war-cry against central planning


Paul krugman

Paul Krugman

Nobel-prize winner in 2008

Hugely influential because he works for the New York Times and his column is gospel for liberal politicians

A Keynesian on steroids

“I believe in a relatively equal society, supported by institutions that limit extremes of wealth and poverty. I believe in democracy, civil liberties, and the rule of law. That makes me a liberal, and I’m proud of it.”


Assignment 4 22

Assignment 4/22

Chapter 20: “International Trade”


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