Center for International Studies Summer Teacher Institute

1. Center for International StudiesSummer Teacher Institute 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

2. Origins of the Economics course at Lab Original course: practical economics stock market Hard lessons learned as an option trader: size and leverage kills managing risk more important than profit understanding positions critical Investing in markets: Peter Lynch approach No load index funds

3. How the AP course came to pass Stepping into the breach Renewal

4. 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

5. Attributes of good class, con’t. Economic reasoning: Cost/benefit reasoning Opportunity costs No free lunch Outside lecturers: Steve Levitt—story of Paul Feldman and price elasticity

6. Ed > 1 Ed < 1 Ed = 0 Elasticity Along a Demand Curve Ed = ∞ Elasticity declines along demand curve as we move toward the quantity axis $10 9 8 7 6 Ed = 1 Price 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 10 Quantity

7. Gained revenue Lost revenue Elasticity and Total Revenue Inelastic Demand E < 1 $10 TR rises if price increases 8 TRG = $1 x 9 = $9 TRH = $2 x 8 = $16 6 Price 4 H 2 G C A B 0 8 1 2 3 4 5 6 7 9 Quantity

8. Gained revenue J K Lost revenue B Elasticity and Total Revenue Elastic Demand E > 1 $10 C TR falls if price increases. 8 TRJ = $8 x 2 = $16 TRK = $9 x 1 = $9 6 A Price 4 2 0 1 2 3 4 5 6 7 8 9 Quantity

9. Attributes of a good class, con’t. Alan Sanderson—Olympics make no economic sense for Chicago Graphs to explain ideas

10. Comparative Advantage and the Combined PPC F The combined PPC is the curve connecting points F, H, and G. 5 The slope of the combined PPC is determined by the country with the lowest opportunity cost. 4 H 3 Pakistan 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. Textiles (in thousands of yards) 2 Belgium 1 G 1 2 3 4 5 Chocolate (in tons)

11. 5 A 4 3 Inflation 2 B 1 0 4 5 6 7 Unemployment rate The Phillips Curve • 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).

12. 100% 80 60 Cumulative percentage of income 1970 40 1929 2003 20 0 40 20 60 80 100% Cumulative percentage of population Lorenz Curve for the U.S. 1929, 1970, and 2003 Line of absolute equality

13. 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 leverage Beyond monetary policy The future is surprise

14. Attributes of a good class, con’t. Challenge basic concepts: the efficient theory of markets behavioral economists “incredible aberrations”

15. Attributes of a good class, con’t. Using Current Events Busy students don’t follow economic crisis “Ducks become rabbits”

16. A lens through which to look at the world Understanding events in history: concatenations kaleidoscopes

17. 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

18. Johnson article as kaleidoscope Some oligarchs must lose—not easy to accomplish: 41% of corporate profits actively prevent reforms money to campaigns “cult of finance” Problem is uncertainty—must respond with “speed and overwhelming force” “Policy by deal” Unwilling to challenge financial system

19. Johnson’s Solution Nationalize banks—no “velvet glove approach” Break power of financial oligarchs: revise anti-trust legislation caps on executive compensation greater transparency competition

20. 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

21. Student analyses and Johnson article Has Obama Administration taken on financial oligarchs? 1. Loren Kole: policy towards the banks 2. Amy Solomon: new financial regulations 3. Jennifer Glick: GM and Chrysler 4. Amelia Acosta-Pacelli: executive compensation 5. Danielle Kutasov: similaritiesbetween financial crises in emerging markets and that affecting the United States now 6. Sydney Small: health care system

22. 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.

23. 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.