OUTLINE by Paul Nervy Copyright (c) 2006 by Paul Nervy Visit www.paulnervy.com. wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww ECONOMICS Contents Methodology Philosophy of economics. Science of economics Areas of economics Basic concepts Economic systems World economics National economics Industries. Markets. Sectors. Economics of the firm (business) Economics of the individual consumer. Inflation Unemployment Taxes Stocks and bonds Development economics History of Economics. Theory and Practice. wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww METHODOLOGY wwwwwwwwww Philosophy of economics Metaphysics of economics. Epistemology of economics Ethics of economics Methodological issues Normative issues Philosophy of classical economics The unit of study is the individual. The individual is assumed to be rational. Behavioristic. Egoistic. Utilitarianism. Decision theory. Free market. Critiques of classical economics. Environmental critiques. Marxist critiques. Welfare economics. Rawls Social choice theory. Kenneth Arrow. wwwwwwwwww Science of economics Quantitative methodologies Qualitative methodologies Comparative economics - compare how two countries economies are running Economic models - simple and complex models of the economy Computer modeling. Statistical methods Probability. Calculus methods first derivative measures slope second derivative measures slope of slope Questionnaires. Interviews. Opinion polling. Observation. Participation. Experiments. Double blind experiments. Controlled experiments. Money focus. Economics as primarily about money. Money methodologies. Mathematical modes. Equations. Statistics. Data gathering. vs. Human focus. Economics as primarily about people. Human methodologies. Rational choice Consumer behavior. Save. Spend. Invest. Consumer psychology What is philosophy of economics? What is the methodology in economics? What is the metaphysical status of economic concepts? How does one measure what is going on in the economy? The government asks businesses to report. What about areas where stats are not collected? Large parts of the economy can go unrecognized. To what degree is the economy measurable? To what degree is the economy predictable? To what degree is the economy controllable or manageable? Assumptions of economics. Assumption of money as the primary value. Assumption of primary importance of economics and business in world, life, society. Assumption of the invisible hand. Assumption of rationality of consumer. Assumption of individual consumer. What is a healthy economy? A fair economy A growing economy wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww BASIC ELEMENTS OF ECONOMICS Economics. What is economics? How to define economics? Economic philosophy. Economic science. Economic techniques and practices. How important is economics? How useful is economics in shaping the world? How well can economists measure, predict and control the economy? Is economics merely a battle ground for competeing political ideologies? Or is economics the root of all, as Marx argued. needs, resources, scarcity, utility, value Opportunity Cost. What you can't make if you make something else. Production possibility curve. If you make more of one, you make less of another. Marginal analysis. Marginal utility. The value or worth of items change as you acquire more. Marginal benefit Marginal cost wwwwwwwwww Supply, Demand, Equilibrium, Price, Elasticity. Supply Demand Equilibrium Prices Change in demand Change in quantity demanded. Change in supply Change in quantity supplied Equilibrium Price ceilings and price floors. Elasticity elastic inelastic What is elasticity? factors in elasticity: supply factors and demand factors PED - price elasticity of demand PES - price elasticity of supply Macroeconomic supply and demand. World economy. National economy. Microeconomic supply and demand. Market or industry. Firm wwwwwwwwww Circular Flow Model. Producers and consumers. Producers give products to get money. Consumers give money to get products. Production. Four factors of production. Capital, land, labor, entrepreneurship. Distribution. Prices, market mechanisms Consumption. consumer income, spending, saving, and investing wwwwwwwwww Parts of the economy The government sector. The business sector The individual consumer sector wwwwwwwwww Levels of economics macroeconomics world level regional level Ex. NAFTA. Europe. Aisa. Middle East. national level microeconomics industry or market level corporation or business level individual person level wwwwwwwwww Types of economics urban economics suburban economics rural economics wwwwwwwwww Types of things produced and consumed goods services experiences information wwwwwwwwww Economics of non-profits and philanthropic organizations Economics of religions Economics of the Hidden economy: barter, housework, etc. Economics of ideas: education industry. Public schools. Colleges. Economics of entertainment: movies, sports, travel, music, books. wwwwwwwwww Major economic decisions and alternatives answers. What is made. Who makes it. How is it made. Who gets it. Who decides what the company does? What to make. How to make it. The executive? The board of directors? The share holders? The workers? The public? Who get the profits of the company? The executive? The board of directors? The share holders? The workers? The public? Who owns the assets of the company? The executive? The board of directors? The share holders? The workers? The public? wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww ECONOMIC SYSTEMS Goals of an economic system Efficiency. The economic system must react in a timely manner. Growth. The economic system must grow with the population. Development. The economic system must develop toward justice and sustainability. Just, Fair. The economic system must be free of corruption. Stable. The economic system must weather boom and bust. Economic system ills. Unemployment. Inflation. Recession. Injustice Corruption. wwwwwwwwww CAPITALISM Definitions of capitalism Free markets. No controls on markets. Invisible hand. No government planning of economy. Private ownership. Private property. Arguments for capitalism Critiques of capitalism. wwwwwwwwww COMMUNISM Definitions of communism. Government ownership of everything. No private property. Government planning of economy. Marxism Marx Wrote the Communist Manifesto Engels Principles of Marxism. The people, or the state, or the workers own the means of production. "From each according to ability, to each according to need", to paraphrase Marx. Economic determinism: economics determines the shape of society. Class struggle: Upper classes exploit lower classes. Marx's critique of capitalism. Capitalism will wither away and be replaced by communism. Marx's view of communism as the apex of economic development. Lukacs Communism in practice USSR. Trotsky. Lenin. Stalin. KGB. Gulags. China. Mao Tse Tung. Little red book. Cultural revolution. Famine. Cuba. Che Guerra. Fidel Castro. East Germany. Vietnam. Totalitarianism. wwwwwwwwww SOCIALISM Definitions of socialism. Government ownership of some things. Socialism is the median between pure capitalism and pure communism. Socialism in England. The Dole. Socialism in Japan. Keriatsu. wwwwwwwwww Capitalist economies Examples. Describe them. How have they fared. Socialist economies. Examples. European socialism. Describe them. How have they fared. Higher pay. Longer vacation. Shorter work week. Better housing. Child care for working mothers. Better health care. Better education. Iceland Norway. Sweeden. Canada. Communist economies Examples. Describe them. How have they fared. Free market economies. vs. Command economies. Private property economies vs. Communal property economies. Comparative economic measurements. To compare the above economies. What is being produced? Necessities like food, clothing and shelter? Or luxuries at the expense of necessities? Who is getting the results of labor? One individual only, like some king? Or only a few people, like oligarchs? Or only the people who are working? Or everyone? How many hours does it take to produce an object? How much money does a worker get per hour and what can that money buy? How is money balanced against other values, like justice? wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww WORLD ECONOMY Which countries are most developed economically? Which countries are least developed economically? Which countries are developing fastest economically? Which countries are developing slowest economically? Which countries have the fairest overall systems? Which countries have the slowest overall systems? I.e., fast economic growth is not fair if it is accomplished via slave or prison labor. How many people worldwide live below the poverty level? What can be done to help them? What are the causes of poverty? What are the solutions for poverty? wwwwwwwwww INTERNATIONAL TRADE Comparative advantage Comparative advantage is when one nation can produce a product cheaper than another nation. Due to labor costs. Due to natural resources. Due to investment in technology like factories. Balance of trade Balance of trade is the ratio of imports to exports. Exports Exports are goods being sold to other countries. Imports Imports are good coming into a country. Trade deficit. A trade deficit is when you have more imports than exports. Trade deficit is when you have a negative balance of trade. Trade Protectionism Arguments for trade protectionism To protect jobs. To protect developing industries. Arguments against trade protectionism Trade protectionism leads to higher prices. Types of trade protectionism Types of trade protectionism include quotas and tariffs. Quotas Quotas set limits on the amount of foreign imports. A quota of zero means no foreign imports. Tariffs Tariffs are a tax on foreign imports. Trade barriers Trade barriers are devices that limit free trade. Free trade Arguments for free trade absolute advantage comparative advantage Arguments against free trade Free trade agreements Free trade agreements are agreements that foster free trade. Trade liberalization Trade liberalization means moving toward free trade. Dumping Dumping is a practice of sending many, low cost items. International trade agreements. NAFTA CAFTA European Union OPEC Foreign Trade multiplier What if a country imports more than it exports? What if a country tries to isolate itself economically? What are the causes and effects of the following cases: Amount of monetary worth of of exports and imports. Export much, import little. You are self sufficient and producing a surplus. Good. Export little, import much. You are not self sufficient and not producing a surplus. Bad. Export much, import much. Export little, import little. You are closed to trade. Bad. Types of exports and imports. Export one good, import one good. You have a single good economy. Bad. Export one good, import many goods. Export many goods, import one good. Export many goods, import many goods. If you export one product you have a single product economy. If you export many products you have a diversified economy. Export finished goods, import raw materials. You are a first world mercantalist society. Export raw good, import finished goods. You are a third words exploited country. Equal balance of export and import of raw and finished goods. wwwwwwwwww INTERNATIONAL BUSINESS Multinational corporations. American jobs going overseas to other countries Foreign investment in US US investment abroad wwwwwwwwww INTERNATIONAL EXCHANGE. Gold standard Floating exchange rates Parity or pegged exchange rates. Balance of payments Exchange rates. Strength of dollar relative to foreign currencies. The gold standard. pegged (fixed) exchange rates. Pegged to gold or silver. floating (floating) exchange rates clean float dirty float national currencies regional currencies - ex. euro world currencies International finance. How does one express what a currency is worth? In terms of what products it can buy, like gold or oil. How does one express what a product is worth? In terms of money. How does one express one currency in terms of another currency? Both are expressed relative to products they can buy. Which country has the strongest currency. Is currency strength a reflection of inflation? wwwwwwwwww WORLD ECONOMIC ORGANIZATIONS G7 - Group of Seven GATT World Bank WTO - World Trade Organization IMF - Internation Monetary Fund wwwwwwwwww REGIONAL ECONOMIES Asia - China, India, Japan, Southeast Asia, Koreas, Taiwan Europe - European Union - Euro Middle East - OPEC - Saudi Arabia, Kuwait, Dubai, etc. North America - Nafta. USA, Canada, Mexico South America - Brazil, etc. wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww NATIONAL ECONOMY wwwwwwwwww GNP GDP GNP - GDP = ? What percentage of total national production and consumption is by the US government, business and individual consumers? US government revenues Business taxes Individual taxes US government expenditures Social security Welfare Military US Business - B2B, Wholesalers US Individuals - consumers, retail GNP Net National Product National Income aggregate demand aggregate supply wwwwwwwwww USA is currently, per capita, in the world richest, wealthiest most productive most technologically advanced most powerful most free (?) most fair, most just (?) How long will it stay that way? Is it due to education? Japan is better educated. Is it due to population size? China and India are more populated. Is power due to riches? Is riches due to technology? Is technology due to hard work? wwwwwwwwww national debt rate national savings rate national investing rate national spending rate national earning rate USA too much debt and not enough saving wwwwwwwwww What percentage of economy is from goods? What percentage of economy is from services? What percentage of economy is from retail sales? What percentage of economy is from wholesale sales? What percentage of economy is from raw material sales? What percentage of economy is from Government spending Business spending Individual personal spending. What percentage of economy is from Food Clothing Shelter Transportation Communication Entertainment and Media Military Health care Energy wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww GOVERNMENT ECONOMICS wwwwwwwwww Government expenditures Government revenues Taxes wwwwwwwwww Federal budget Federal deficit Federal debt wwwwwwwwww Federal subsidies for businesses Government economic policies. Fiscal policy taxing spending Advantages Disadvantages Deficits - spending more than you are taking in. Monetary policy printing more money taking money out of circulation Advantages Disadvantages Inflation - due to printing too much money. Fiscal policy (government spending) Federal budget. tax and spend. Monetary Policy. (Prime lending rate. Money supply) Federal Reserve. Change interest rates. Federal interest rates. Greenspan raising and lowering to speed up or slow down the economy. wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww MARKETS wwwwwwwwww Types of markets Monopoly Imperfect competition Monopolistic competition: many sellers, similar products Oligopoly: competition among the few. Ex. cartels Perfect competition. wwwwwwwwww Market structure Seller concentration Product differentiation Barriers to exit and entry wwwwwwwwww Types of markets by industry How big is the market? In dollars revenue annually. In number of people it employs. What percentage of GNP is it? Is the market growing or shrinking? Relative to rest of economy. Energy market. Oil. Gas. Coal. Hydropower. Solar and wind power. Raw materials Lumber. Metals. Food Housing. Shelter. Transportation. Cars and trucks. Communication. Telephone companies. Media. Broadcast. Television. Radio. Print. Newspapers. Finished goods. Clothing. Home goods. Financial markets Money markets Commodities markets Stock markets Bond markets wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww PRODUCTION THEORY OF THE FIRM wwwwwwwwww Factors of production land, rent labor, wages capital, money entrepreneurs, management Marginal productivity Determination of Factor Prices Theory of wages Theory of Rent Theory of Interest Theory of Profit Cost of Production Short run costs Long run costs Production function Minimize short run costs. Maximize short run profits. Maximize long run profits. wwwwwwwwww Business starts Business failures. Business bankruptcy. Business spending. Wholesale sales. wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww CONSUMPTION PERSONAL, INDIVIDUAL ECONOMICS Consumption Consumers Consumer earning Wages and salaries. Minimum wage. Cost of Living. Consumer Price Index. Consumer spending Auto sales New housing starts Retail sales Consumer saving Consumer investing Consumer debt Personal bankruptcies wwwwwwwwww Personal finance. Personal Income Disposable Personal Income Earn Spend Save Savings accounts. Invest. Stocks Bonds Mutual funds Certificates of Deposti (CD's) Cost of living. Insurance Property insurance - for your house Life insurance - in case you die. Health insurance - in case you get sick Automobile liability insurance Theft insurance - for items stolen, like jewelry. College tuition. Retirement. Taxes Estate planning: wills and trusts. 401k and Roth IRAs wwwwwwwwww Earning money Spending money Needs Wants, Luxuries Saving money Investing money wwwwwwwwww Quality of Life COLA wwwwwwwwww Cost of living Cost of living components Shelter, housing Food Clothing Education Medical Transportation Communication, Information, Entertainment Television - monthly bills Telephone - monthly bills Internet - monthly bills Books, music, movies wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww DISTRIBUTION PRICES wwwwwwwwww How much do things cost? It depends on supply and demand. Supply: how much is being made Demand: how much people want it. wwwwwwwwww What do prices reflect? Prices reflect, in part, how much money people have to spend. Prices reflect, in part, the nature of the product. Example, prices of staples. Must haves. Food. Example, prices of luxuries. Movies. Example, prices of rare objects. wwwwwwwwww Price indexes Producer price indexes Consumer price indexes wwwwwwwwww Price controls When should price controls be put into effect? Types of price controls Government says you can charge no more than x for a product Government says you can charge no less than x for a product. wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww Money Definitions of money Money "on paper". I.e., Money that does not exist except as an accounting. Money in the form of printed bills. Paper money. Money in the form of gold bullion. Gold standard. Definitions of Money M1: Narrow M2: Medium Range M3: Wide Range L: Liquid and Near Liquid Assets History of money Barter for unlike objects. Barter for objects using a universally acknowledged object of value as a medium of exchange. A portable, durable object, like gold, silver or copper ingots. Coins, of standard weight, made of gold, silver or copper. Paper money. Paper money as a fiat for gold or other metal. Gold holding in Fort Knox to back up paper money. Dollar, Yen, Franc, Deutschmarc, Pound. Bank checks. Money orders. Personal checks. Travellers checks. Credit cards. Conversion of currency for international business and travellers. wwwwwwwwww How does the fed decide how much gold to hold? Less gold than paper currency. Gold equal to paper currency. Gold more than paper currency. If you have a bigger economy than there is gold then there is more paper money than gold. How does the fed decide how much money to print? How does the fed know how much money is in circulation? wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww Banking wwwwwwwwww Types of banking Government banking Investment bankers - IPO's, stocks, bonds. Commercial or business banking. Commercial banks. Personal, individual banking Banks, types of. Central banks. Handle money transactions for the government. Investment banks. Handle stock and bond transactions for corporations. Commercial banks. Handle loans for businesses. Savings and loans. Handle accounts for individuals. Federal Reserve System Federal Reserve Chairman - ex. Greespan interest interest rates Lending Loans Prime Lending rate Deposit Banking Goldsmith's principle Liquidity Profitability Safety vs. risk. FDIC. Insuring Types of banks Personal banking Savings and loan banks Business banking. Corporate banks Government banking Central banks. Government monetary Policy via the central banks. Major controls Change reserve ratios Change discount rate Open market operations Minor controls margin regulations moral persuasion Monetary policy involves the government controlling the money supply and interest rates through the central banking system. wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww Taxes wwwwwwwwww Types of taxes progressive tax regressive tax estate tax capital gains tax flat tax direct tax indirect tax income tax luxury tax sin tax value added tax - VAT Taxes on Income. Taxes on Wealth. Taxes on activities. Taxes on products. Ex. Cigarettes. Why have taxes? What if there were no taxes? Individual vs. business taxes? Who pays more? Who pays more per income? What is the profit of each? What does each pay? Corporate taxes. Corporations don't pay enough taxes. Income taxes Fixed tax. Ex. everyone pays $1000 a year. Fixed percentage tax. Ex. everyone pays 33% of they income to taxes. Proportional percentage tax. The rich pay a greater percentage than the poor. Income tax is a tax on income or earnings. Sales tax is a tax on consumption or spending. Why tax consumption? wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww indexes price indexes consumer price index - cost of living index producer price index stock price indexes Dow Jones S&P 500 cost indexes wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww Indicators leading indicators coincident indicators lagging indicators housing starts auto sales wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww Inflation wwwwwwwwww Inflation - types, causes and cures deflation stagflation disinflation wwwwwwwwww What rate of inflation is optimal? What rate of inflation is too high? What rate of inflation is too low? wwwwwwwwww Inflation due to quantity of money Printing too much money can cause inflation. Your dollar is worth less so your dollar buys less. Example: Hyperinflation in Weimar Germany The government may be tempted to print more money to cover debts. wwwwwwwwww Inflation due to demand. When demand exceeds supply it pushes prices up, so your dollar buys less. wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww Unemployment structural unemployment technological unemployment unemployment of those searching for a job unemployment of those who choose to be jobless unemployment of those who gave up looking Unemployment - types, causes and cures What rate of unemployment is too high? 10% What rate of unemployment is too low? What rate of unemployment is optimal? Unemployment rate is rarely 0. 5% unemployment is seen as reasonable. 10% unemployment is seen as unreasonable. wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww STOCKS, BONDS, OPTIONS, ETC. wwwwwwwwww stocks dividends IPO - initial public offer number of shares created price per share EPS - earnings per share investment bankers portion of funds that the company gets from IPO wwwwwwwwww margin margin calls wwwwwwwwww bonds junk bonds wwwwwwwwww commodities foods: wheat, soybeans, pork bellies, frozen concentrated orange juice metals: gold, silver, platinum, copper, zinc, wwwwwwwwww Money markets Currency markets. wwwwwwwwww futures options put call derivatives hedge arbitrage bid offer spread wwwwwwwwww shorting - betting price will drop long - betting it price will rise wwwwwwwwww Stock markets NYSE Amex Nasdaq wwwwwwwwww Indexes Dow Jones Industrial S&P 500 Nasdaq composite wwwwwwwwww Buying pieces of the entire market. QQQ - nasdaq Spyders - S&P Diamonds - Dow Mutual funds. Market makers Archipelago Investment bankers. Overvalued stocks Undervalued stocks. Market measures future values - 6 months out. Bullish bearish Approaches to investing. Contrarian. Value investor Dogs of the dow People Peter Lynch - common sense, buy what you know Warren Buffet - fundamental analysis, analyze financial statements. Benjamin Graham George Soros Books Random walk down wall street Confessions of a Stock Operator. Was it about Jesse Livermore? Warren Buffet's mentor. Fundamental analysis - analyze financial statements and management Technical analysis - chart analysis, momentum, Betting the market is going down Short a stock - sells now, buy back later Buy a put - an option, more risk but more reward Betting the market is going up Long a stock - buy now and sell later Buy a call - an option, more risk but more reward Brokerage firms Brokerage firms serve institutional customers and retail customers. Institutional customers buy blocks for pension plans and mutual funds. Smith Barney AG Edwards Charles Schwab. Goldman Sachs Bear Stearns Morgan Stanley Chase US markets Foreign markets How accurately does a stock represent the value of a company? How accurately does the stock market represent the health of the entire economy? Growth stocks. Increasing in value quickly. Value stocks. Good buy for the price. wwwwwwwwww Intial public offering. How many shares, and at what price per share? How much money was raised at the initial public offering of a stock? Majority stock holder. Who owns the most shares of a companies stock? Do they own more than 50% of shares? Can owning a majority of shares, through the process of voting for board members, enable one to determine the directon of a company? Number of shares outstanding. Earnings per share. The company announces quarterly earnings. Price / Earnings ratio. Price earnings ratio is Why does the price earnings ratio sometime not accurately reflect the worth of the stock? The P/E ratio is based on past performace. The future performance of the company may be different. The future business environment may be different. Stock valuation. The value of a stock, being the price people are willing to pay for a stock, is based on what people expect the future worth of the stock will be. There are various methods by which people value stocks. Greed, fear and stock prices. Psychological factors such as greed and fear affect stock prices, sometimes leading to bubbles and then burst bubbles. Information and stock prices. The amount of information available affects stock prices. People want timely, accurate information about companies. If information is not available, or is inaccurate, or is not timely, or is not relevant, then the market ceases to function well. What functions does the stock market perform? What functions do stock brokers perform? What function is performed by individuals buying and selling stocks? (1) Companies compete with each other to make money, also called gross revenue and net profits. (2) Companies also compete to raise the worth of the company, as reflected in the value of the company's stock. (3) The worth of the company as reflected in the value of the stock is a better measure than revenues and profits because a manager could sell all the companies assets to generate short term profits at the expense of long term worth. (3) When informed people, like theoretically a stock broker or an individual day trader, make stock choices they are assessing the worth of companies. The stock market Short term vs. long term outlook. Businesses manager today are criticized for having a short term outlook instead of a long term outlook. They look one quarter ahead instead of years or centuries ahead. They look for short term profitability for the corporation at the expense of the environment and the people. Narrow outlook vs. wide outlook. When is the stock market not an accurate reflection of the economy? When are stock prices disconnected from economic statistics? wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww LABOR ECONOMICS WORK Labor Labor markets How to measure the supply of labor. The amount of workers available. The amount of work each worker can do. How to measure the demand for labor. The amount of work available. work wages and salaries How to measure work? How much work is being done? In person/hours. How efficient are the workers. On average. What is the resulting productivity? For example. A person plants 2 acres per day, and works 10 days, thereby planting 20 acres. Benefits Medical and Dental Sick days and personal days Holidays Bonuses Wages and salaries Childcare Gym Work physical environment Work cultural environment Hours worked per day Days worked per week Take home work On call 24x7 Changing schedule shifts Work tasks interesting or boring? Labor economics Supply of labor Demand for labor Cost of labor Wages for labor Unions Discrimination Human Resources wwwwwwwwww History of Labour Slavery. Peasants. Indentured servitude. Guilds. Craftsmen. Trades. Middle class. Marx Industrial revolution. Assembly line. Sweatshops. Worker safety issues. Maximum hours per week. Minimum wage. Triangle Shirt Co. fire. Migrant workers. Cesar Chavez. Sick pay. Child labor. Farm workers. Mine workers. Assembly line workers. wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww WELFARE ECONOMICS Economics of welfare. How many people on welfare? How much money spent? What values are they getting? Unemployment insurance Job welfare What percentage of the population is on welfare? How much do they get on welfare? Money. Food. Shelter. How long can they stay on welfare? Medical insurance Which countries have national medical insurance How much does national medical insurance cost? In total and per capita. How well does national medical insurance work? Social Security What percentage of the Federal budget is social security? Public education Why have welfare? What if there was no welfare? How many people are on welfare? What is the total dollar amount spent on welfare? How much does each recipient get? How much does each tax payer contribute to welfare? How does the amount spent on welfare compare to the rest of the economy? wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww GROWTH economic growth boom bust - recession, depression growing too fast relative to - inflation growing too slowly relative to population level - unemployment Solow growth model Harrod Dolmar growth model What growth rate is optimal? What growth rate is too high? What growth rate is too low? How is growth related to inflation and unemployment? Growth, unemployment and inflation. Growing too slowly leads to unemployment above 6%. Growing too quickly leads to inflation. Growth of the economy in terms of the number of jobs. Growth of economy In relation to growth of population. Growth of economy in relation to standard of living of population. wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww DEVELOPMENT ECONOMICS wwwwwwwwww PATTERNS OF DEVELOPMENT Hunter - gatherer societies Agrarian societies Industrial societies Information societies Can any of the above stages of development be skipped? wwwwwwwwww CAUSES OF DEVELOPMENT Science and Technology Scientific knowledge spurs technology Technology makes possible more science. Political climate Change viewed as good Laws reward innovation Lack of corruption. Rule of law Educated people Literate people. Informed people. Free press. Free libraries. Free public education. Industrious people Not lazy Justice People concerned with social justice and environmental sustainability. Government concerned with social justice and environmental sustainability. Incentive Incentive for work. Incentive for invention and entrepreneurship. Geography. The land. Arable land. Waterways for transportation. Transportation. Communication. Coasts and ports. Infrastructure Roads Schools Hospitals. Communication lines. Impediments to development include the lack of any of the above causes of development. wwwwwwwwww GOALS OF DEVELOPMENT Development that is sustainable, environmentally healthy and socially just. Development without oppression and exploitation. Development without destroying the earth. wwwwwwwwww Development Economics Strategies Labor vs. Capital Small vs. Large Private vs. Public 1st world vs. 3rd world. Rich countries vs. poor countries Industrialized countries vs. non-industrialized countries Northern hemisphere vs. Southern hemisphere How can the rich countries avoid exploiting the poor countries? How can the rich countries help get the poor countries on their feet? Monetary aid. Free money. Loans. Food aid. Political development. Move from dictatorships to democracy. Better legal system. More justice. Technological development Move from agrarian to industrial to information society Economic development - diversity Move from poverty to monied. Education Health Development as growth. More people Development as diversity. More diversity and toleration. Development as progress. Amartya Sen wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww POVERTY What are the causes of poverty? How is the poverty line determined? How is the poverty line determined in the US? How is the poverty line determined in the world? What percentage of the US population lives in poverty? What percentage of the world population lives in poverty? Poverty has to do with individuals, not corporations or the government. Poverty has to do with economic consumption. wwwwwwwwww If you take the population and divide it into quarters, or tenths, or even percent by percent, how much income does each The top quarter of the population has what percent of total income? 70%? The second quarter of the population has what percent of total income? 20%? The third quarter of the population has what percent of total income? 8%? The bottom quarter of the population has what percent of total income? 2%? One sees that income is not distributed evenly. wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww ECONOMICS CYCLES. Boom Bust. Over-capacity. Due to over-investment. Due to lack of forecasting Due to slowness of reaction of building, hiring, etc. Economic cycles Long cycles Kondratieff waves Short cycles Business cycles AS curve Phillips curve Unemployment Natural Unemployment (4%) measuring causes, effects Inflation measuring causes, effects Stabilization theories. How to stabilize the economy? How to slow down a booming economy? How to stimulate a receeding economy? Keynesian theory. Government spending during a depression. Monetary policy. wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww Technology and economics The replacement of human workers by Industrial age machines. Luddites. The replacement of human workers by computers. The replacement of human workers by robots. wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww Computers and economics Internet and economics. Open source. Many people, geographically dispersed, working for free. The product available for free. wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww Economic eras or ages. Hunter / gatherer. Agrarian. Industrial. Post industrial. Computer age. wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww Economics and politics. Economic policies of the left. Economic policies of the right. wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww World Trade Organization. WTO Who runs the WTO? How influential is the WTO? What are the goals of the WTO? Arguments for the WTO Increases world free trade. Raises standards of living worldwide. Improves economies worldwide. Modernizes countries technologically. Improves the political framwork of countries. Arguments against the WTO The WTO wwwwwwwwwww International Monetary Fund. IMF. What does IMF do. Arranges loans to help poor countries. How does IMF do. How influential is the IMF? Arguments for IMF Arguments against the IMF. By putting conditions on loans to poor countries, the IMF coerces poor countries to accept corporations. The IMF helps rich countries dictate exploitive economic policies to poor countries. wwwwwwwwwww World Bank What does World Bank do. How does World Bank do it. How influential is the World Bank? Arguments for World Bank Arguments against the World Bank. wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww Economic indicators for US and World. Employment Unemployment. Housing starts. New car sales. Business starts and failures. GNP per capita. Foreign trade and investment. Foreign investment in US. US investment abroad. Exports v. imports. Consumers Consumer spending, saving, investment. Consumer bankruptcies. Business Business spending, saving, investment. Corporate bankruptcies. Stocks. Dow Jones industrial. NASDAQ World stock index. Prices Consumer Price Index. Money Inflation. Prime lending rate. Value of dollar v gold or other currencies. Other indicators Poltical indicators. Technological indicators Ecological indicators. Quality of life index. Number of people in jail. US v. past US performance. US v. other countries. wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww Forms of Business wwwwwwwwww "Businesses" that are not on the books, that do not get figured into economic statistics, and that do not pay taxes. Barter economy. Barter is trade of goods and services conducted without the exchange of money. Not recorded. Not taxed. How big is the barter economy? Working "off the books". Workers "off the books", for example, illegal immigrants working illegaly in legal businesses. How big is this segment. Unpaid labor Unpaid labor, for example, housework done by housewives. How big is this segment? Illegal businesses. For example, illegal gambling, illegal prostitution, illegal drug selling, extortion, murder for hire, that is, criminal acts for money. How big is this segment. Slave labor. In some countries people are forced to work for no wages. Slave labor is unethical and should be illegal. How big is slave labor? How much money are involved in the above activites? What percentage relative to the legal economy? wwwwwwwwww Tax exempt organizations. What types are there? Are all tax exempt organizatons non-profit organizations? Non-profit organizations. How many are there in the U.S.? How to measure what they accomplish if one does not measure it in dollars? wwwwwwwwww Businesses that are not corporations. Small propriotorships. How many are there in the US? What is their net worth? What percent of US economy are they? Small partnerships. How many are there in US? What is their total worth? What percentage of the US economy are they? wwwwwwwwww Businesses corporations. A business corporation is a legal creation. Basically, no one is responsible for the economic losses of a corporation. Is anyone responsible for the ethical and legal status of a corporation? Privately owned corporations. Some business corporations are privately owned, not public. How many are there in US? What is their net worth? What percent of US economy are they? Publically owned corporations Some business corporations are publically owned because they issued stock. How many are there in US? What is their net worth? What percent of US economy are they? All public corporations issue stock? How much stock can they issue? Is there a minimum limit? Is there a maximum limit? wwwwwwwwww World wide, there are many people working who are not part of businesses, for example, subsistance farmers in third world countries. How to measure their output? wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww HISTORY OF ECONOMICS (see history database) History of Theory of Economics Schools of economics Classical school - a reaction against mercantalists Adam Smith. "Wealth of Nations". David Ricardo. Supply and demand. International trade. Claims that "invisible hand" results in a self correcting economy. All savings are invested. Prices and wages are flexible. Neoclassical school Austrian school Von Hayek Keynesian school. John Maynard Keynes. Government controls economy to even out the boom and bust business cycle, in order to avoid recession and depression. Savers and investors are different Prices and wages are not flexible Chicago school Milton Friedman Marginalists. Monetarists. Control economy through control of money supply, which controls interest rates. Rational Expectations Supply side economics. Marxian school wwwwwwwwww History of Practice of Economics Production. Trade. Barter. Money. Money lending. Banks. Savings. Loans. Interest rates. Taxes. Feudalism. Guilds. Middle class. Mercantalism Corporations Stock and Bond markets Capitalism Communism Socialism Accounting Corporations. Multinational corporations. Consumer protection laws. Anti-trust laws. Monopoly busting. Private property laws. Public works projects. Environmental protection laws. Credit cards. History of labour. History of economics and business is closely tied with technology and politics. Computerization of economics. Mathmatization of economics. Marketing, advertising. Internet trading of stocks. International trade currency exchange. Labor. Minimum wage. Maximum hour limits, 40 hour week, weekend. Health benefits. Welfare economics. Social security. Food stamps. Medicare. Medicaid. Primitive economies Economies of primitive tribes during the 20th century. Ancient civilization economies. Ancient Egypt. Mesopotamia. Ancient Greece. Ancient Rome. Feudal economies Agricultural economies Industrial economies Information economies. Computer economies. Internet economies. Robotic economies. wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww MORE TERMS IN ECONOMICS Evolutionary economics Environmental economics. Sustainable economics. Exchanges NYSE NASDAQ AMEX Indexes S&P 500 Dow Jones Industrial NYSE NASDAQ Commodities Futures Options. Stock options. Index options. Mutual Funds. Bonds. Treasury bills. Dividends. Foreign Bourses. Xetra Dax (Germany) FTSE (England) CAC (France) World Stocks MSCI World Index Revenue (gross income) Net income Shares outstanding Earnings per share (EPS) multiplier effects indifference curves. Philips curve regulation - government controlled deregulation - not government controlled privatization - privately owned nationalization - government owned uncertainty risk - ex. risk due to uncertainty risk of uncertainty uncertainty of risk dynamics statics resources renewable non-renewable foreign exchange gold standard bretton-woods - pegged exchange rate Smoot-Hawley Act - protectionism. Helped cause the Great Depression. Says law Unconscious assumptions Shopkeeper-customer relationship honesty, informative, friendliness short run long run USA too obsessed with short run subsidies - a form of welfare? Open Source, philosophy of assets - financial and physical BEA - break even analysis ROI - return on investment S&P Moody's expectations rational expectations Market efficiency and inefficiency Inefficiency causes, effects or costs, and solutions short term long term insurance real estate foreclosures bankruptcy barriers to entry risk averse risk loving real estate property - land and buildings rent mortgages financial statements savings US citizens don't save enough social security productivity personal firm nation global expenditures (spending) Lorenz curve Laffer curve Phillips curve Indifference curve efficiency inefficiency efficiency of production efficiency of exchange Time value of money Present value Future value - predicted, not guaranteed Past historical value Business cycles: boom and bust. Overproduction. Excess capacity. Unemployment as a result of a stagnant or shrinking economy. Inflation as a result of underproduction. Costs. explicit, implicit. short, long. incremental, fixed. Growth in size (dollars, people, geographic regions) vs. increase in diversity of business or trade. Interest rates (raise and lower) NICs Newly Industrialized Countries LDCs Less Developed Countries Profits = Revenues - Costs econometrics immigration economies of scale Income and Employment Determination Income-Expenditure models Income-Price models Multiplier Principle Macro economic equilibrium. Quantity theory of money Determination of the Interest Rate Monetarism (i.e., neo-classicism) Rational Expectations model Income-Price model Micro demand market demand, individual demand diminishing marginal utility equal marginal utility per dollar income effects. Substitution effects consumer demand Anti-trust Laws Large cap companies Mid cap companies Small cap companies Trading foreign currencies in hopes that they will appreciate in value relative to the US dollar. Euro (Europe) Yen (Japan) Yuan (China) Pound (Britain) Franc (France) Mark (Germany) Peso (Mexico) Raw material suppliers, Manufacturers, Wholesalers and Retailers. How many of each? What is the ration of each? 1 to 10 to 100 to 1000? Wholesale and retail is about distrobution. Markup of 100% by each. wwwwwwwwww Hypothetical positions No imports or exports, everything made in country.. All imports and exports, nothing made in country. Equal balance between domestic trade and foreign trade. All imports, no exports. All exports, no imports. Equal balance between imports and exports. wwwwwwwwww Economic controls by government Price control Minimum price: subsidies Maximum price Wage control Minimum wage for workers Maximum wage for ceo's cooperation competition regulation deregulation privitization nationalization Nobel prize winners 2002 Kahneman Amartya Sen Money supply interest rates. prime lending rate. Government debt and deficit producers consumers Corporations Critique of free markets proceeds along the same lines as critiques of the stock market. Consumers are not rational. Supply and demand. When supply exceeds demand then price goes down. When demand exceeds supply then price goes up. When supply equals demand the price is at equilibrium. Goods Services Information private property public goods: healthcare, education, transportation, infrastructure. USA. Savings rate is down. Even worse, credit card debt is up. Michael Milken Ivan Boesky S&L scandal 1 trading partner (bad) versus many trading partners (good). 1 product produced for trade (bad) versus many products produced for trade (good). Finance Raising money: Commercial loans. Stocks. Bonds. Investing profits: Growth, expansion. Marketing Radio, television, internet, newspapers, word of mouth, free samples. Management Set goals. Cut costs. Increase sales. Improve products. Develop new products. Expand distribution into new geographic areas. International labor. How many franchises in how many countries? How much product selling to other countries? How much revenue coming from which countries? International labor Labor is more expensive in first world countries than third world countries. Labor is less expensive in third world countries. Labor is also less expensive in countries where the currency is relatively weaker. wwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwwww