Jeffrey Timmermans

Global Financial JournalismWeek 12: Wrap-up & Intro to Economic Journalism

Thursday, 2 May, 13

What is economics?

Thursday, 2 May, 13

One answer:

“Economics is a study of mankind in the ordinary business of life.”

- Alfred Marshall, Principals of Economics

Thursday, 2 May, 13

Another answer...

✤ The study of how people deal with scarcity

✤ Nothing is available in unlimited quantities

✤ This requires making choices, making trade-offs

Thursday, 2 May, 13

Economic choices

✤ Which product/service to choose?

✤ What other products/services to forego?

✤ Which choice will make us happiest?

✤ Classical economists assume people make these choices rationally

✤ People will act to maximize their well-being

✤ But aren’t always rational (according to behavioral economists)

Thursday, 2 May, 13

Factors that affect those choices

✤ Supply & Demand (markets)

✤ Incentives (from businesses & governments)

Thursday, 2 May, 13

Incentives

✤ People’s choices are affected by incentives

✤ “Half-price!”, “Three for the price of two!”

✤ Smoking indoors – or cursing – could result in a fine

✤ Incentives don’t have to be monetary

✤ Wearing a helmet when riding a motorcycle

✤ Reduces the bodily “cost” of an accident

Thursday, 2 May, 13

Incentives & their (unintended) consequences

Thursday, 2 May, 13

Traffic accident deaths

0

2

4

6

8

1985 1987 1989 1991 1993 1995 1997 1999

Helmet lawenacted% of total

accidents

Source: Maryland Dept. of Transportation

Thursday, 2 May, 13

Course topics

✤ How economies function

✤ How to measure economies

✤ How governments manage economies

✤ How banks function

✤ Some of the major trends in economic thought

✤ And, how to write about all these things

Thursday, 2 May, 13

Supply & Demand

✤ Demand is based on the value consumers attach to goods & services as well as their income & substitute goods

✤ Supply is determined by suppliers’ costs

✤ The market price is a summary of the supply & demand in the market

Price

Quantity

Demand

Supply

MarketPrice

{New

Demand

New Price

Add’l Suppliers

Thursday, 2 May, 13

What kind of product is this?

Price

Quantity

Demand

Supply

MarketPrice

New Price

Q2

Q1

New Price

Thursday, 2 May, 13

Types of economies

CommandEconomy

Free-marketEconomy

No gov’tintervention

Totalintervention

N. K

orea

Sweden

U.S.

Hong K

ong

Thursday, 2 May, 13

Circular Flow Model

Thursday, 2 May, 13

Circular Flow with Savings

Thursday, 2 May, 13

Circular Flow with Inventory

Thursday, 2 May, 13

The Business Cycle

Real output

Time

Trend line

Recession

Recession

Recession

Reco

very Re

cove

ryTrough

Peak

Thursday, 2 May, 13

U.S. Economic Growth (1940-2010)

Source: St. Louis Federal Reserve Bank

Thursday, 2 May, 13

U.S. Business Cycle (1970-1980)

Source: St. Louis Federal Reserve Bank

Thursday, 2 May, 13

Why do economies grow over time?

✤ Population growth

✤ Investment

✤ Accumulated knowledge

✤ Improved productivity

✤ Better technology

Thursday, 2 May, 13

Economic goals of governments

✤ Full employment

✤ or at least as full as possible...

✤ Steady annual growth in output

✤ without overheating

✤ Stable prices (low but steady rise in inflation)

Thursday, 2 May, 13

Measuring economic performance

✤ Output of goods & services

✤ Changes in prices for goods & services over time

✤ Mood of consumers

✤ Employment

✤ Total supply of money

✤ Trade with other countries

✤ Productivity of workers

Thursday, 2 May, 13

Major economic indicators

✤ Gross Domestic Product (GDP)

✤ measures output, not wealth nor well-being

✤ Consumer Price Index

✤ measures how prices change (e.g. inflation)

✤ Unemployment

✤ Money Supply

Thursday, 2 May, 13

The Economic/Regulatory Cycle

Crisis in un- or under-regulated area

Politicians respond to people’s anger

Lobbyists/companies seek deregulation

Politicians respond to companies

Economic stimulus & increased regulation

Fiscal/monetarytightening,

deregulation

Recession

Growth

Thursday, 2 May, 13

Remember...

✤ Journalists can provide perspective and context:

✤ A recession isn’t the end of the world

✤ A growth & recovery phase won’t go on forever

✤ This time isn’t different!

✤ Regulatory response isn’t always appropriate and is influenced by political considerations

Thursday, 2 May, 13