Transition economics

Learning Objectives: Understand the socialist calculation debate. Consider the empirical record of different transition economies.
Lecture handout: Transition Calculation*

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

  • 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
Lecture handout: Transition Shock*

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

These resources form part of my Managerial Economics course map. You can watch the full YouTube playlist here. This page ties into Chapter 12 of ‘Economics: A Complete Guide for Business‘.

Foreign Investment

Case: Porter, M., and Ketels, C., “Indonesia: Attracting foreign investment” Harvard Business School case no. 9-708-420, January 11th 2013 (£)

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.

This page ties into Chapter 12 of Economics: A Complete Guide for Business

Learning Objectives: Consider the role of foreign investment in economic development. Perform a country competitiveness exercise.

Focus on diversity: Asli Demirguc-Kunt is Chief Economist for Europe and Central Asia at the World Bank.

Spotlight on sustainability: This session reveals how policy makers can incorporate social factors in a development plan

Debt crises

Case: Blustein, P., 2005, “And the Money Kept Rolling In” Public Affairs (pp.39-60)

  • Discussion question: As of July 1998 should the IMF suspend their program in Argentina, or continue their support?

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.

Instructor Resource: “Argentina: What Happened Next?” January 2014

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

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

This page ties into Chapter 10 of Economics: A Complete Guide for Business

Learning Objectives: Understand the causes of a sovereign debt crisis. Understand the role international agencies play in managing a debt crisis.

Focus on diversity: The highly influential paper on sovereign debt tipping points was co authored by Carmen Reinhart, a Cuban-born economist who became Chief Economist of the World Bank in 2020.

Currency crises

Case:Currency Crises” Harvard Business School case no. 9-799-088

  • Discussion question: Which countries are on the verge of a currency crisis?

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]

This page ties into Chapter 10 of Economics: A Complete Guide for Business

Learning Objectives: Understand the causes and triggers of a currency crisis. Consider indicators that predict a currency crisis.

Banking crises

Lecture handout: Banking crises*

Here’s a good video on Bitcoin:

This page ties into Chapter 7 of Economics: A Complete Guide for Business

Learning Objectives: Understand the origins of money. Understand seminal models of bank runs. 

Cutting edge theory: Making assessments of digital and crypto currencies.

Behavioural economics

Lecture handout: Behavioural economics*

“A science that claims to interpret demand fails every time it explains consumer behaviour as irrational”

Douglas, M., and Isherwood, B., 1979, The World of Goods (1996, Routledge, p.xvi)

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?

Case:Sun: A CEO’s Last Stand”, Business Week, July 26th 2004

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

Here’s a nice poster of cognitive biases:

This is a nice illustration of the winner’s curse (h/t David Skarbek)

The UK government are so concerned with “excessive optimism” that they released guidance on how to mitigate it.

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 Review93 (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?“)

This page ties into Chapter 11 of Economics: A Complete Guide for Business

Learning Objectives: Apply a range of examples of behavioural anomalies to real business situations. Understand behavioural anomalies in light of an ecologically rational framework.

Global Prosperity

Here is my Economics Mission Statement, March 2018.

Lecture handout: Global prosperity*

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.

Group activity: Stoves Handout, May 2020

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).

Some more detail can be found in “Rosling’s Charts“.

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:

This page ties into Chapter 12 of Economics: A Complete Guide for Business

Learning Objectives: Understand the empirical evidence around economic growth and globalisation

Focus on diversity: Esther Duflo has done highly impactful research on the role of RCTs in combating poverty. She has shown how field research is an important part of the economics toolkit. 

Macro Policy Workshop

Group activity:Macro Policy Workshop“, March 2018 and complete the Macro Policy Workshop Form.


“Choose your own financial crisis” a role-playing app

Recommended reading:

Memo to the Biden administration on priorities for the US Treasury, By Larry Summers, November 10th 2020

Instructor Resource:

  • “Macro Policy Workshop: Solutions”, March 2018
  • Macro Policy Practice Exam

This page ties into Chapter 9 of Economics: A Complete Guide for Business

Learning Objectives: Test understanding and utilisation of important macro concepts.

Focus on diversity: In 2014 Janet Yellen became the first female chair of the Federal Reserve. In 2020 she was widely tipped to become the first female U.S. Treasury secretary. This would mean that she’s occupied the twin positions of being in charge of monetary and fiscal policy. You can learn more about her here.

International economics

Group activity: Josko Joras (A), December 2012

  • Instructions: Complete exercises 1,2, and 3

For an open economy

GDP = C + I + G + (X – M).

However it’s important to realise that imports don’t subtract from GDP.

Read more about the Big Mac index at The Economist. For more on how Argentina games it, see:

Here’s an intro to Balance of Payments:

Instructor Resource: 

  • Josko Joras (A) Solutions, December 2012
  • Josko Joras (B), December 2012
  • Josko Joras (B) Solutions, December 2012

This page ties into Chapter 10 of Economics: A Complete Guide for Business

Learning Objectives: Perform foreign exchange calculations. Understand Balance of Payments

International Trade

Group activity:

The best way to understand economic interdependence is the classic pamphlet I, Pencil.

This guy attempted to make a sandwich from scratch. It cost $1500 and took 3 months. It’s remarkable how cheap and plentiful sandwiches are, due to an extended global supply chain and division of labou.

This video shows the history of globalisation through some important maps:

Here we use basic demand and supply analysis to look at the welfare effects of trade intervention:

This page ties into Chapter 10 of Economics: A Complete Guide for Business

Learning Objectives: Estimate the welfare effects of trade intervention

Focus on diversity: Deepak Lal is one of the most famous advocates of open trade policies. He was also a known skeptic of development economics. He passed away in 2020.