The EGB BLOG

Interesting stuff that would be good for next semester

He is one on measuring GDP and productivity:

https://www.wsj.com/articles/theres-no-productivity-miracle-hiding-in-the-data-1532516401

And a nice quote about Tech companies and how they are measured.

“The data do count Google search and Facebook : They are treated as an input to companies that pay for the ads. True, they also have large benefits to consumers who get them for free, but, Mr. Moulton points out, so did television. Also, as their benefits have risen, some benefits of other “free” ad-supported media like newspapers and magazines have shrunk.”

Here is one on peoples perceptions about Tariffs:

https://www.nytimes.com/2018/07/23/business/economy/trade-factory-trump.html

This quote is good too…

“Casey Jackson, a maintenance technician, said he would support the tariffs even if they cost him personally. “If it comes out of my paycheck, so be it,” he said. “You got to look at the big picture. That tiny bit of sacrifice we make will create jobs.””

Which relates directly to my paper, if this is OK, then why not use taxes to take a little bit out of his paycheck in the form of higher taxes, to ensure that others are protected. Instead, we should indirectly harm the most productive in our economy and then put them on welfare to “help” them out.

Here is one of my favorite:

https://www.nytimes.com/2018/07/26/us/politics/trump-steel-tariffs.html

And then this quote:

“Administration officials contend that overall job gains outpace the losses, and that companies like Mid Continent Nail may be using Mr. Trump’s tariffs as an excuse for their own business shortcomings.

“It’s not always because of tariffs,” the commerce secretary, Wilbur Ross, told reporters on Air Force One. “A lot of companies have been using the excuse ‘Oh, the reason my earnings weren’t good is that there were the tariffs.’”””

Orginal Granite City Article:

https://www.wsj.com/articles/new-life-for-steel-plant-perks-up-depressed-illinois-town-workforce-1520766001

And these are the costs of this…

https://www.wsj.com/articles/cindy-brown-hit-it-big-in-kidney-beans-then-came-the-tariffs-1533220705

Midterm II Pushed Back

Due to the snow days, I decided to push back the exam to 4/16. Please let me know ASAP if you have any conflicts with this.

Starting Trade

Welcome back from Spring Break! This week we start trade which is all over the news. Over the next couple of days I’m going to post some links in the news about changes in US trade policy and how to think about their implications. Stay Tuned!

Extra Office Hours

Today (Tuesday) 3-5pm in my office KMC 7-74

Solutions to Practice Exams

Here they are:

An extra test and solutions:

Extra Exam

More on technological change, growth and connecting it with class

Here is a short video discussing a new book that tackles the question about the future of US (and other developed countries) economic growth.

The logic of the author’s argument fits very well with what we have been doing in class the last couple of days. We showed how growth is connected with growth in productivity. His argument is that in the past we saw amazing technological innovations that increased productivity and, thus, GDP and leads to rising living standards.

Today—his argument goes—technological advances such as smart phones, improvements in computers, social media, artificial intelligence, etc., will have less of an impact on productivity growth than the innovations in the early 20th century (e.g. flush toilets, electricity). Thus, we should NOT expect growth in living standards like we experience in the past 100 years. What do you think?

FT Article

Today we talked more about economic growth. This article is a nice piece (especially the back end) illustrating how to understand and derive implications from economic forecasts and trends.

https://www.ft.com/content/76057bd8-1342-11e8-940e-08320fc2a277

The highlights:

The graph showing declining labor productivity growth. What does this mean (i) real wage growth must be declining as well…that is living standards are not growing in the same way that the have in the past. Second, if we work from our BGP notes, this is telling us that technological progress is slowing. Strange, but yes.
Another drag on growth are changing demographics. We now this from our accounting framework AND the BGP notes…lower population growth means (holding everything else constant) slowing growth in GDP.
The importance of TFP both in technological innovation and in changes in institutions. We know this now…we have seen it that this is THE driver for changes in living standards and economic.

Finally see the discussion above for more on this!

Practice Exams

Here they are:

What we did today…2/21

We finished up chapter 3. And the in class trump exercise. Solutions here.

We then talked about economic growth, looked at gap minder, and started to talked accounting for economic growth.

Happy Presidents Day

We had today off, but I wanted to highlight two things:

First, we are finishing up Chapter 3. The solutions to the in class exercises are posted for you to review as you study up on Chapter 3.
Second, we will have a quiz to cover this material. Same deal as last time, complete it by the end of this week. Link to the quiz is here: https://goo.gl/forms/qsPe9cweQEvIdcPv1

What we did today 2/14…

Talked about the demand side (consumption function and investment function). Then how an equilibrium is the real interest rate that makes production equal to demand. Or most interesting, makes national savings = investment. Then talked through two examples

Increase in government spending reduces national savings, “crowds out” private investment and increases real interest rates.
Talked though a deficit neutral tax cut…this lowers the tax burden on households increasing national savings, increases investment and decreases real interest rates. Solutions to the in class exercise are here.

What we did today 2/12…

Finished up talking through the in class example Solutions here.

Next class will talk about the “demand side”, specifically the consumption funciton, investment function and how the real interest rate equilibrates everything. This will open up the door to thinking about how recent changes in taxes and government spending will affect interest rates.

What we did today 2/07…

Reviewed the production function, talked through marginal products of labor and then capital. Then the marginal products represendted the “demand” curve for labor and capital by the firm, the economies equilibrium wage rate is where the demand for labor and capital equal the supply of labor and capital. This pins down the real wage for labor and real rental rate for capital.

Finally, we talked through the first part of the in class example on immigration. We will continue to work on this next class. Solutions here.

Problem set #1 is due THIS FRIDAY, Feb 9th. Online quiz due this FRIDAY (Feb 9th) as well.

What we did today 2/05…

We talked about where value added comes from—the production function. Some properties of the production function: (1) More inputs lead to more outputs (2) Diminishing marginal products and (2) Constant returns to scale. We will focus most the course on Cobb-Douglas production function.

Then we started talking about payments to income. A key result was that the marginal product of labor equals the real wage. This is providing a theory of the real price paid to labor…why does somebody get paid a lot, well their marginal product must be high!

With the cobb-Douglas production function, it turns out that the marginal product will be proportional to its average product. Wags should be tied to labor productivity.

Finally, reminder. Problem set #1 is due THIS FRIDAY, Feb 9th. Online quiz due this FRIDAY (Feb 9th) as well.

Update on my office hours: After class 11-12 and then 1-2 on Monday and Wednesday.

What we did today 1/31…

We finished up the GDP example. Solutions are posted here. We then talked about measuring real GDP and inflation.

Basic idea for real GDP, fix prices in some base year, then evaluate quantities over time (or space) at those fixed prices. This is real in the sense that only quantities are changing.
Please look at the slides and discussion on the CPI. Its the opposite idea, fix quantities, then trace out how prices change.
We talked about the population, labor force, unemployed, etc. Two measures we care about are the unemployment rate (unemployed / labor force) and participation rate ( labor force / population).

Finally, reminder. Problem set #1 is due NEXT FRIDAY, Feb 9th.

What we did today 1/29…

Great conversation today, lots of questions. We talked more about measurement of GDP and started the in class example. Some key aspects:

GDP = Value Added = Sales - material input costs. Key thing here is to reflect on the word…value added, this is how much value the Firm/Production unit, etc. ADDS!
GDP = Payments to Labor and Capital. Well who created the value added, what did they get paid for doing so…the value added gets paid out to the workers and capital owners who created the value added. Not this concept must always match up with the value added concept above.
GDP = Final Sales. Despite its ubiquity, this is the trickiest concept. Just look at the final sale (to consumers or firms for use in capital goods). That is all the value added in the economy. Why, that sale embeds all the value added to create the product/service/etc.

Next class, finish up GDP. Talk about real vs. nominal. Labor market performance measures.

Some thoughts on the Dollar…

This last week there was a lot of news about the current administrations conflicting views on the US Dollar. But this minor relative to the larger story about the dollar…its systematic weakening for much of 2017 and into 2018. All after an unprecedented appreciation of the dollar from about 2011-the start of 2017. Ok, what gives…this is why we are here in EGB to be able to think through this systematically!

Here are three nice articles about the Dollar. If you are to read one, focus on the Economist piece. A couple of others that discuss similar issues are the FT’s Gavin Davies (this should be free to Stern students) and another from the WSJ. A couple of things:

First, reflect on how much you DON’T understand. Its ok, that’s why we are here, but by the end of the semester we will revisit this.
Second, all are pointing to the following…expectations of monetary policy in EU are forecasting tighter conditions. Asset returns elsewhere in the globe are expected to be high…WHY? Its all about economic growth in the EU (in particular) and elsewhere. The Economist piece makes this point up front.

Why do I point this out, many of the things we read and discussed about at the end of the day are about economic growth. And that’s why we work on this first. Then as the semester progresses we will be able to work backwards and see how these stories behind dollar weakness make a lot of sense.

What we did today 1/24…

Great class! We talked through two key things:

Computing growth rates, we will most always use continuously compounded growth rates, i.e. take the difference of the natural logarithm. For us there are two important properties, average growth rates over time are easy to compute and interpret, and multiplicative values (e.g. P*Q) can be easily decomposed into their individual components.
GDP. We focused on the key idea that it reflects, value added, income, and then final sales…and they all must equal each other.

Next class, we work through measuring GDP in a more complicated example.

What we did today 1/22…

After each class meeting, I will try and provide a brief summary of what we did each day…here it is!

We talked about what kinds of topics we will cover, I discussed important course details covered on the syllabus. And I introduced myself to you. Very great first day.

A couple of things to follow up on if you have not done so already.

Read the Syllabus.

Take the online survey. The link is here:

https://goo.gl/forms/SHPrtRM5rBcKXtUj2

Welcome to The Economics of Global Business!

In a week we will have our first meeting and get the semester started. I want to reach out to you about some features of this course to help you prepare for the semester ahead.

Read the Syllabus. I’ve posted the syllabus for the upcoming semester. This has information about important dates, texts, grading, etc. Please take some time to go over this prior to our first class meeting.

Take the online survey. This link has the survey for you to complete. As the syllabus details, there will be a bunch of online quizzes throughout the semester. This is the first one. It just asks questions about your background and as long as you complete it, you’ll receive full credit. And you have until Jan 31st to complete it—so no rush if your still on vacation!

Explore the website. I’ve the designed website to provide a bunch of information about the course in a simple way. In particular, the main week by week guide of the course.

I’m looking forward to meeting you all and a great Spring semester!

mike