Author: aje

• Further reading: Kaleidic Economics

• Further reading: “Shake it all about” The Economist, January 2012

The training scene from Rocky IV demonstrates the difference between the USSR (technologically sophisticated but lacking in heart) and the US (backward but free).

https://youtu.be/1oDTNEEu3Rw

• Audio: Planet Money, “Peanuts and Cracker Jack”
  • What are the main factors that determine the earnings of a vendor?
  • Why is it better to have the vendors decide on who does what, rather than senior management?
  • How much entrepreneurial profit comes from working harder than others?

One of my favourite ruminations on the differences in economic systems.

• Further reading: “Havana or Prague” in Hitchens, Christopher, (2010) Hitch-22: A Memoir, New York: Twelve

There’s a big difference between queuing for basic necessities, and queuing in excitement about the first McDonalds in Moscow:

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• You should take this pre class survey.

Tyler Cowen wants to fund the following question:

• What should Widodo do? Indonesia is a large, populous middle-income country. It faces no major near-term security threats. It has a small manufacturing base and no major non-commodity export sectors. What is the best non-bureaucratic 10 page economic development briefing document and set of prescriptions that one could write for Indonesia’s president?

Here’s my analysis of Belarus, using many complementary concepts.

• Also see my page on Country Competitiveness Dashboard.

Although I use Chapter 3 as the pre reading for this class, I highly recommend the full book: “And the Money Kept Rolling In”. Here’s The Economist’s summary. 

A 2016 episode of the podcast Planet Money looked at sovereign debt crises, and is well worth a listen. The title was “A Hedge Fund, A Country, And A Big Sailboat“.

To understand the dynamics of a sovereign debt crisis, use this model from The Economist.

The key goal for monetary authorities is credibility: [Credibility flashcard]

What constitutes an optimal currency areas? [Optimal Currency Areas flashcard]

To get a good understanding of how currency crises occur, and their implications, see Yegor Gaidar’s 1999 article on “Lessons of the Russian Crisis for Transition Economies“.

The key goal for monetary authorities is credibility: [Credibility flashcard]

What constitutes an optimal currency areas? [Optimal Currency Areas flashcard]

Further resources

• Key reading: Diamond, D.W., and Dybvig, P.H., (1983) “Bank Runs, Deposit Insurance, and Liquidity”, Journal of Political Economy, 91(3):401-419
• Audio: How fake money saved Brazil, Planet Money, October 5th 2010
• Audio: Investor Feed Guide: Hash Power – a three part audio documentary that explores the world of blockchain and cryptocurrencies
• Further reading: Bitcoin: A Primer for Policymakers, Mercatus Center

Here’s a good video on Bitcoin:

Here is an explanation of the Birthday Paradox. Notice that the probability calculation assumes a uniform distribution (i.e. that there’s a 1/365 chance of being born on any given day). In fact, birthdays in July, August and September are more common than other months.

This applet allows you to play multiple games of the Monty Hall problem. An article in the Smithsonian Magazine asks “When Did Girls Start Wearing Pink?”

The purpose of the case is to find examples that allow you to complete:

• A List of Behavioural Anomalies, March 2011

Here’s a nice poster of cognitive biases:

One of my favourite uses of behavioural economics is to reflect on the design of a menu when I am eating in a restaurant. This analysis by William Poundstone is truly fascinating.

Although I take behavioural economics seriously, I don’t think it majorly restricts the usefulness Efficient Market Hypothesis:

The reason for this is (partly) explained in Vernon Smith’s Nobel prize address:

• Smith, V. L. (2003). “Constructivist and Ecological Rationality in Economics†”. American Economic Review. 93 (3): 465–508

Further videos on the implication for stock picking are: “The psychology behind irrational decisions“, “Understanding Unconscious Bias” (Royal Society) and from Marginal Revolution University: “How expert are expert stock pickers?” (and subsequent videos such as “Can you beat the market?” “Investing: Why You Should Diversify” and “Who Is More Rational? You or the Market?“)

• Audio: “Brilliant vs Boring“, Planet Money

Here is my Economics Mission Statement, March 2018.

The incredible data visualisation used at the beginning of my lecture is from Gapminder. I strongly encourage you to visit their website and play around with the tools. In particular, try to create a chart showing GDP per capita against infant mortality and then see how the data has changed over time.

• Additional resources: http://www.gapminder.org/tools
• Here’s a video about Gapminder.
• I also recommend browsing through “Our World in Data“

The increases in global income have been incredible. In Factfulness, Hans Rosling tells us that 100,000 years ago everyone was poor and most children didn’t survive long enough to become parents. 200 years ago, 85% of the world were still in extreme poverty. Today, most people live in middle-income countries, with living standards similar to Western Europe and North America in the 1950s. (p.38).

Higher incomes are important, they lead to:

• Reduced population growth (poor communities have lots of children because many will die early, and they need a contribution to family income. As they get richer, the need for more extra children declines and parents focus on quality not quantity… based on current growth projections total global population is due to stabilise at ~11 bn people. As Rosling says, “Once parents see children survive, once the children are no longer needed for child labour, and once the women are educated and have information about and access to contraceptives, across cultures and religion both the men and the women instead start dreaming of having fewer, well-educated children” (p.91)
• Greater concern for the environment
• More resources for humanitarian assistance (e.g. for natural disasters or global pandemics)

In the lecture I argue that infant mortality figures are better proxies for living standards than life expectancy. As Hans Rosling argues, “this measure takes the temperature of the whole society” (p.20). This is because children are fragile, and you therefore require lots of good circumstances in order for children to routinely survive – it tells us about access to basic health care, the literacy of mothers, etc.

The lecture tried to show the link between economic growth and rising living standards for the general public. This is something that Dracula noticed when he encountered a “normal” modern house:

I’ve been a nobleman for 400 years. I’ve lived in castles and palaces among the richest people of any age. Never….never! Have I stood in greater luxury than surrounds me now. This is a chamber of marvels. There isn’t a king, or queen or emperor that I have ever known or eaten who would step into this room and ever agree to leave it again. I knew the future would bring wonders. I did not know it would make them ordinary.

Some great videos to watch that explore the themes from the lecture:

I provided some pessimistic views on transformative breakthroughs. But every now and then I notice the power of steady, incremental progress. For example:

40 years of improved precision engineering and execution speed pic.twitter.com/pDLGbeeqAN

— Roberto Alonso González Lezcano (@robertoglezcano) February 2, 2020

For more on Permissionless Innovation

The importance of ideas:

• Additional reading: Cowen, Tyler “Ten Ways to Live a Less Complacent Life”, LinkedIn, May 2017