Archive for November, 2015

Don’t Panic

November 29, 2015 Leave a comment

Noah Smith says most of what you learned in Econ 101 is wrong.

Don’t panic.

It’s not that mainstream thinking about anything is never wrong. Often it is.


When an uneducated person claims to be in on a secret the rest of the world doesn’t know, we call that person a crackpot.

When an educated person sees the world from an enlightened position that the masses–including best selling textbook authors–simply can’t attain to, they write clickbait for Bloomberg. Or CNN.

It’s fun to watch someone explain why they understand something the rest of the world doesn’t:

But Mankiw’s book, like every introductory econ textbook I know of, has a big problem. Most of what’s in it is probably wrong.

After the fun, though, you should listen to the adults in the room:

He doesn’t actually make the case that would support that title….Here’s what’s striking. In an article that purports to show that Mankiw is wrong on many issues, he doesn’t point out how he’s wrong on ANY issues. Moreover, he doesn’t even try. At no point in his piece, does Smith ever relate anything he says to specific things that Mankiw claimed.

Don Boudreaux elaborates

I add here that when I teach supply-and-demand analysis I always label the horizontal axis “Qty./t” – in order to make clear to my students that the quantities demanded and supplied are quantities demanded and supplied “during some specific period of time” such as “per day” or “per year.”  Changing “t” changes the elasticity of both demand and supply.

Any professor who teaches supply and demand in a way that implies that the elasticity of demand and the elasticity of supply are invariant to time, or who otherwise implies that time is not a relevant-enough factor to account for when doing supply-and-demand analysis, is a very poor professor indeed.

I’m fairly certain my freshman economics students understand, after less than a semester of class, that the effects of a price floor or ceiling are smaller in the short term and larger over time.

I expect they also understand that we are working with simplified models that are far less complex than the real world. They might have been led to that thought by my saying it about 1,000 times, or by the hidden part of Mankiw’s text that (translated using a password-protected decoder code) says, “All models–in physics, biology, and economics–simplify reality to improve our understanding of it.” No, wait, that’s in Chapter….2.

So when Noah Smith says, “In other words, minimum wage hikes should quickly put a bunch of low-wage workers out of a job,” I’d like to know: whose “other words” are those? Not Mankiw’s. Not the freshmen students I teach.

Are they Noah Smith’s? But surely he knows better. Who’s getting everything wrong from Econ 101?


Practice on Welfare Economics

November 23, 2015 Leave a comment


The equilibrium price is $___ and the equilibrium quantity is ___.

At the equilibrium price, consumer surplus is $___, producer surplus is $___, and total surplus is $___.

Assume demand increases and as a result, the equilibrium price increases to $22 and equilibrium quantity increases to 110.

The increase in producer surplus due to new producers entering the market would be equal to $___. The increase in producer surplus to producers already in the market would be equal to $___. Therefore, the increase in producer surplus would be equal to $___.

The answers can be found here. But before you check the answers, compare your answers with a classmate! Try to make sure you understand how to work the problem forward. Working backward from the answer is easy by comparison.

Categories: Microeconomics

Really? Refugees Can Also Be Productive? Of Course!

November 20, 2015 Leave a comment

I wanted to use the “Remember, Journalists Who Write About Economics Often Majored in Journalism” title, but unfortunately, Mr. Cassidy actually majored in both.

Nevertheless, this silliness:

Turkey has taken in an estimated 2.2 million [Syrian refugees], Lebanon 1.1 million, and Jordan six hundred and thirty thousand.

Based purely upon these figures, you might think that the economies of these countries would be sagging under the burden, but they aren’t.
Really? GDP doesn’t contract when a country’s population increases? Stop the presses!
According to a new report from the Paris-based Organization for Economic Co-Operation and Development, the Turkish economy will expand by three per cent this year and by four per cent next year. Lebanon’s economy is also growing, at a rate of about two per cent this year, which will expand to more than three per cent next year, the World Bank reckons. Despite an influx of refugees that now amounts to more than ten per cent of its population, Jordan, too, is bearing up. Its gross domestic product will rise by about three per cent this year, the International Monetary Fund says.
Someone who studied economics should know better.
The only possible way a country’s GDP could not go up, ceteris paribus, given an influx of refugees, would be for not one single refugee to produce, or consume, anything of value.
That is incredibly unlikely. Refugees may typically be poor, but they aren’t incapable of productive work. They bring money, too, even if small amounts. They always increase the amount of consumption, and therefore production, of goods and services.
So, I can’t imagine who “might think that the economies of these countries would be sagging under the burden,” but it certainly wouldn’t be anyone with a freshmen-level understanding of how GDP is calculated.

Analysis Practice

November 19, 2015 1 comment


The New Straights Times is reporting that South Korea, Taiwan, the Philippines, Colombia, Thailand, Laos, Indonesia, Cambodia, Bangladesh and India have all indicated an interest in joining the TPP.

With a quick, back-of-the-envelope analysis, determine how much larger this would make the trade pact.

I’ll give five bonus points to any student who turns in to me a typed, printed professional-looking analysis on Friday.

Categories: International Trade

Earn Your Degree, Don’t Take It from Someone Else

November 16, 2015 Leave a comment

Earn Your Degree, Don't Take It from Someone Else

Categories: Uncategorized

More Evidence of Cheating

November 16, 2015 Leave a comment

This time it was on JaLaine’s midterm exam.

She gave two different versions of the same test, with just the order of the questions rearranged.

Several students obviously cheated. Here’s an example, where all of the answers on the blue test are exactly the same as all the answers on the green test–and all are wrong! These two students were seated next to each other. The cheating student even copied the wrong answers of the student with the green test paper.

26 and 27

Here’s another example:

46 and 47

The answers on the blue test are all incorrect–and all match exactly the answers on the green test of the student in the next seat.

To the students who care about academic integrity: you must help us drive this out of your class. It will destroy your class morale. It will destroy your teachers’ motivation to create high quality classes.

Marginalize them. Encourage them to transfer to another program or university. Make it clear that you do not respect their lack of integrity.

There has to be a cost for this–an academic cost, and a social cost.

Categories: Education, Grades

Quotable Don Boudreaux

November 14, 2015 Leave a comment

Sounds about right:

The second ditty that I heard on NPR was a report in which a member of the DC city council worried aloud that money “will pollute our politics.”  Such a concern is akin to worrying that dropping a moldy bagel into a cesspool will pollute the contents of the cesspool.

Categories: Tax Policy