Lecture handout: Inequality*

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.

Here is an overview and discussion of a wealth tax:

Here is a KPMG report on how Switzerland treats Cryptocurrencies as part of its wealth tax.

You can see the trailer to Parasite here:

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

Learning Objectives: Survey the latest empirical work on inequality and relate this to wider social issues.

Cutting edge theory: Assessment of a wealth tax

Focus on diversity: Thomas Sowell has written extensively on topics such as race and inequality. In this interview he discusses the myths or economic inequality.


Lecture handout: Stagnation*

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

Noah Smith has a nice Twitter thread on progress since 1970.

In December 2020 Tyler Cowen provided a list of new technologies that may mark the end of the great stagnation. He included:

Extra reading: Dourado, Eli, “Notes on technology in the 2020s“, December 31st 2020

For more on Permissionless Innovation

A good, uplifting account of how creativity can result from not asking permission:

The importance of ideas:

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

Learning Objectives: Understand the debate around secular stagnation.

Cutting edge theory: A survey of potentially transformative breakthrough technologies.

Focus on diversity: Virginia Postrel’s book, The Future and it’s Enemies, encapsulates the distinctions made at the end of the lecture. 

Value creation

Lecture handout: Value creation*

The purpose of this session is to realise that value comes from satisfying people’s needs, and that this leads to a broad and insightful realisation that:

  • Competition is when anyone else tries to satisfy the same customer needs that you do.
  • Innovation is trying to find better ways to satisfy your customers needs.
  • Entrepreneurship is successful when you understand your customers needs better than they do.

You can read more about David Reynold’s model here and here. In 2013 Barry King tried to beat Reynold’s record by constructing a model of Salisbury Cathedral (which is a popular tourist destination for KGB agents). You can read more here.

Steve Job’s famous advice was to not listen to your customers. This is similar to Tyler Cowen’s “law of interesting content” – which is that interviewers should have the conversation that they want, not what they think their listeners want.

Here’s an example of how Starbucks creates value for me:

This concept is closely related to “Jobs to be done”, but here’s my review of ‘Competing Against Luck‘. Here’s my bleaker application of value to Apple’s iPhone innovation:

For a more traditional, textbook treatment for demand curves, see here:

A great application of consumer surplus is here:

Can you think of something that delivers a lot of consumer surplus for you? What’s the most consumer surplus you’ve ever received?

Finally, here’s a quick quiz on understanding value.

This page ties into Chapter 1 of Economics: A Complete Guide for Business

Learning Objectives: Link a thorough concept of value with implications for competition and innovation. Derive demand curves.

Cutting edge theory: Jobs to be done

Focus on diversity: Economists typically take preferences as given, but we can provide a theory of demand reflecting “the individual’s commitment to an intelligible universe” (p.52), where goods are considered to be a visible reflection of culture. Mary Douglas (1921-2007) was one of the world’s most admired social anthropologists, and her 1979 book, ‘The World of Goods’, provided a rich and compelling illumination of consumption patterns. 

Spotlight on sustainability: Plastic packaging

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 (and Out)”. 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.

Additional Reading: Escolano, J., “A Practical Guide to Public Debt Dynamics, Fiscal Sustainability, and Cyclical Adjustment of Budgetary Aggregates“, IMF, January 2010

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.