Monday, April 30, 2012

A review of Charles Murray - Coming Apart

A review of Charles Murray - Coming Apart

The ASET book club read and discussed this book earlier this month.  This is a thoughtful review which, in many ways, captures our discussion.

Sunday, April 29, 2012

Rethinking How We Teach Economics

Click to review 7 very interesting points of view.

Saturday, April 28, 2012

THE PRINCETON REVIEW PUBLISHES NEW GUIDEBOOK TO AMERICA'S TOP UNDERGRADUATE PROFS

How The Professors Were Chosen

The Princeton Review and RateMyProfessors.com annually collect data from students at thousands of colleges across the country (and abroad) about their classroom experiences and assessments of their professors. For this project, The Princeton Review culled an initial list using its surveys of hundreds of thousands of students that revealed the colleges at which students highly rated their professors' teaching ability and accessibility. Data from RateMyProfessors.com identified more than 42,000 professors at those schools that students had rated on its site. Combining this info, a base list of 1,000 professors was formed. After obtaining further input from school administrators and students, as well as from Princeton Review's surveys of the professors under consideration, the editors of The Princeton Review made the final choices of the professors they profile in the book.

If you teach and have not examined

Friday, April 27, 2012

Wednesday, April 25, 2012

Tuesday, April 24, 2012

Discussion Questions
FTE/PTA Conference
Perspectives From and On the Federal Reserve System

Next week I will be traveling to Washington DC for a conference sponsored by the Foundation for Teaching Economics - Perspectives From and On the Federal Reserve System Conference. This PTA Members-Only conference, co-hosted by The Federal Reserve Board of Governors and The Federal Reserve Bank of Richmond, will be held April 26th – 28th.

Our second set of readings address issues of the current financial system, the role of the FED and expectations for future governance of financial markets.

Bank Runs and Private Remedies

1. In light of the recent experience with “The Great Recession” and considering the history of bank panics/runs described in Lombard Street, evaluate Dwyer/Gilbert’s view of the probability of bank runs and their view of private reactions to bank panics.

2. Dwyer/Gilbert acknowledge that “A low probability is not the same as zero probability”(44). If bank runs are indeed a Black Swan occurrence how do you evaluate the author’s analysis of the efficacy of private rather than state responses? In a broader sense, how does this article help focus attention on the relative costs and benefits of private v public action in response to a Black Swan event?

3. Describe the support the author’s provide for their assertions: “The view that the banking system is vulnerable to runs may be based primarily on the experience of the early 1930s, but the most relevant period to examine for evidence of runs is before the operation of the Federal Reserve System.”(47). Why do they make this assertion, does it strengthen or weaken their argument and how might Bagehot comment on this argument.

4.Dwyer/Gilbert indicate that, during runs in their period of analysis “banks rationed currency”(51). How did banks ration currency? How does this rationing compare to Bagehot’s maxim to lend freely . . . How does this rationing compare the actions taken by the Federal Reserve since inception of the central bank?

5. Losses from bank runs can accrue to depositors, bank stockholders and the general public. The justification for government action seems to be losses to the general public (external to the direct market interaction). How do the authors compare the losses in each group during the “free banking period” and FRS period and what conclusions are the author’s inviting the reader to make.

Lessons Learned?

1. After reading Wheelock’s article, how would you guess he would evaluate the performance of the Fed in terms of supervision/regulation?

2. Wheelock indicated that the Fed acted to “promote recovery of housing markets”. Does this type of action rise to the level of the government picking winners (and penalizing losers) and if so, what does this imply about the evolution of monetary policy?

3. How does Wheelock support the conclusion that “The Fed clearly did not repeat many mistakes of the Great Depression during the crisis of 2007-9?” What actions of the Fed during this period might be considered as mistakes – either by Bagehot or Bernanke?

What Powers the Fed?

1. Feldstein seems to disagree with Wheelock (question 3 above) when he says: “The financial crisis was due not to a lack of regulation but to a failure of supervision of policy actions more generally”(2). What policy actions does Feldstein indict and how does he press his argument of policy failure?

2. Robert Higgs writes of the ratchet effect of government action. His analysis suggests that during a crisis, the government increases action and activity to address the crisis. Post crisis, government action recedes, but not to the level of previous government action – thus over time as crisis are addressed there is a tendency for government action to ratchet to higher levels. How might Feldstein respond to a suggestion that recent FED action exemplifies Higg’s ratchet effect. What are costs and benefits might Feldstein see in recent FED actions?

3. Bagehot’s maxim that the central bank should lend freely on good security at high rates was described in Lombard Street. What is Feldstein’s assessment of FED action from the perspective of Bagehot?

Too Big Not to Fail and letters to the editor

1. John Macey (Yale Law) writes of this legislation: “Laws classically provide people with rules. Dodd-Frank is not directed at people. It is an outline directed at bureaucrats . . .” Walter Bagehot in his plan to manage the Bank of England seems to advocate a bureaucracy with a permanent “dignified subordinate” (VIII.26) whose appointment as the “new and skilled authority of the Bank is the greatest reform which can be made there”(VIII.32). What can you find in the Economist article that would support the contention that Bagehot would support Dodd Frank?

2. Bagehot writes: “New wants are mostly supplied by adaption, not by creation or foundation”(III.2). How would this assertion shape Bagehot’s analysis of Dodd Frank and the debate currently under discussion regarding Dodd Frank?

3. FA Hayek made a distinction between law and legislation. The former were the result of an emergent process that, over time, generated general rules. He considered law an important institution to support society. Legislation, in contrast, was specific, detailed regulation, often generated in a very short time by legislative bodies. Sheila Blair commented on DFA: “regulators should think hard about starting over with a simple rule” (5). In an era where the legislative process is scrutinized for rent seeking in the form of earmarks, revolving door employment and intense lobbying what are potential consequences to use of legislation rather than law formation (to use Hayek’s paradigm) to address the 2007-9 financial crisis.

4. Bagehot analyzed the impact of leverage in his discussion of reserves and bank regulation. In letter responding to the Economist article “Too big to fail”, Neal Wolin, Dept. Sec. of Treasury writes that the original article, “argued that the reforms (in Dodd Frank) do nothing to address the most important problems in our financial system. And yet they have already brought about a fundamental change in capital requirements, the most important source of vulnerability in any financial system.”(4). How might Bagehot respond to Wolin’s assertion and how might the assertion that capital requirements are the most important element of the banking sector be supported.

5. Dr. Jan Eberly asserts that the Economist article “Too big to fail” presents “blithe conclusions about the cost of regulations (that) are below the standard of evidentiary rigor”. Thank back to your reading of both the article and Lombard Street – does Dr. Eberly have a point and if so, what criteria of rigor might she find satisfying and what type of evidence did the original article lack?

The Choice: Dynamic Capitalism vs. the Welfare State

Interesting article - Thoma seems to adopt a short run v long run perspective.  To the extent that an emergent and evolutionary process is at work I wonder:
1.  To what extent this evolution is path dependent
2.  To what extent we might look to Schumpeter for hints as to the any change in the direction of this evolution
3.  How useful is a comparison to other developed countries as opposed to a historical comparison to our own society
4.  What variables associated with the welfare state has Thoma omitted or minimized

That said, this is an interesting piece that overviews a macroeconomic tradeoff facing developing societies.

The Choice: Dynamic Capitalism vs. the Welfare State

Monday, April 23, 2012

Bernanke, the role of the FED and Bagehot

Speaking of the Fed’s dimly remembered mission as lender of last resort to this menagerie of institutions, Bernanke told his undergraduate auditors at George Washington University,


[R]ather than being some ad hoc and unprecedented set of actions… the Fed’s response was very much in keeping with the historic role of central banks, which is to provide lender of last resort facilities in order to calm a panic. And what was different about this crisis was that the institutional structure was different. It wasn’t banks and depositors. It was broker-dealers and repo markets. It was money market funds and commercial paper but the basic idea providing short-term liquidity in order to stem a panic was very much what [Walter] Bagehot envisioned when he wrote Lombard Street in 1873

Saturday, April 21, 2012

ACEE - Dinner and a Movie




The Arizona Council on Economic Education in partnership with the Arizona Historical Society, presented the newest edition to our popular Dinner and a Movie Workshop series.

Professor William Boyes, Professor Emeritus, Arizona State University provided an engaging economic analysis of the Wizard of Oz. 

Friday, April 20, 2012

A must read -

Too Big to Fail – Again

March 27, 2012

by Jerry O’Driscoll

The issue of banks viewed as too big to fail has been taken up several times on this site. In its Annual Report, the Federal Reserve Bank of Dallas has weighed in on the topic with an essay on “Choosing the Road to Prosperity: Why We Must End Too Big to Fail – Now.”

It is authored by Harvey Rosenblum, the bank’s Director of Research. Since Richard Fisher, the bank’s president, signed off on the annual report, one presumes he endorses the substance of the essay.

It is a very hard-hitting piece, arguing that “the vitality of our capitalist system and the long-run prosperity it produces hang in the balance.” It explains why TBTF is “a perversion of capitalism,” which undermines faith in markets. Rosenblum quotes Allan Meltzer on point: “Capitalism without failure is like religion without sin.”

The essay spares no sacred cows and, among other things, charges that the “the Fed kept interest rates too low for too long” in the 2000s. That directly contradicts the stated position of Fed Chairman Ben Bernanke. I assume there is much grinding of teeth over the essay in Washington, D.C. The essay details how government support is the source of the gigantism in banking today, and debunks the idea that efficiencies and financial innovation are the reason why, since the early 1970s, the share of banking assets belonging to the five largest banks has grown from 17 percent to 52 percent of the total. These financial institutions expand in size to capture the government support available only to the largest banks.

The essay notes that “commercial banks holding roughly one-third of the assets in the banking system did essentially fail,surviving only with extraordinary government assistance.” As noted elsewhere, “a bailout is a failure, just with a different label.” Amazingly, the report even identifies two of the failed institutions – Citigroup and Bank of America (albeit in a footnote).

It’s a lengthy essay and I recommend it to everyone interested in the issue.

Thursday, April 19, 2012

Bank regulation and supervision

Eugene White of Rutgers University talks with EconTalk host Russ Roberts about the regulation of banks and financial crises. White argues that most regulation tries to limit the choices of banks to restrain them from making choices that create instability or fragility. A better approach, White argues, is to change the incentives facing bankers so that they would be encouraged to make prudent choices without the need for top-down monitoring. He shows how in the 19th century various regulations and market results encouraged stability and prudence while some regulations made the system more fragile. White discusses the lessons for the current crisis and what might be done to improve the current state of regulation.

Wednesday, April 18, 2012

2012 Econ Challenge




Mesa Community College Center for Economic Education and the Arizona Council for Economic Education hosted the 2012 Arizona State finals of the Econ Challenge at Mesa Community College.


The Challenge applies the excitement of an athletic competition to academic excellence and encourages students to apply their economics knowledge and work in teams. Competitions are held at the State, National Semi-Final, and National Final levels. In each competition, teams of students answer rigorous questions on microeconomics, macroeconomics, international economics, and current events. At the National Final, students complete rounds of testing, work in teams to solve case problems, and participate in a quick-paced oral quiz-bowl in order to compete for the title of National Champions.


Tuscon University High School claimed the Arizona State title in a close match, defeating a team of classmates from the same school. The Arizona State Econ Challenge winning team advances to the next round of competition for the opportunity to compete for the National Championship in New York.


The National Semi-Finals will be a proctored exam administered at the state champions’ schools. The top four scoring teams in each division at the National Semi-Final level will advance to the National Finals, which will be held in New York City on Sunday, May 20.

Tuesday, April 17, 2012

Lombard Street - Walter Bagehot

Discussion Questions
FTE/PTA Conference
Perspectives From and On the Federal Reserve System

Next week I will be traveling to Washington DC for a conference sponsored by the Foundation for Teaching Economics - Perspectives From and On the Federal Reserve System Conference. This PTA Members-Only conference, co-hosted by The Federal Reserve Board of Governors and The Federal Reserve Bank of Richmond, will be held April 26th – 28th.

In reading Walter Bagehot's classic I have come up with a number of ideas/comments/questions that I am looking forward to discussing with my colleagues.


Lombard Street – Bagehot

1. Macroeconomists compare and contrast monetary policy by rule v monetary policy by discretion. How does Bagehot address this question and which approach does he seem to favor?

2. Benjamin Bernanke outlines 3 roles for a central bank: macroeconomic stability, intervention during panics and bank supervision/regulation. Bagehot offers the maxim that the central bank (Bank of England) should lend freely on good credit at high rates. How does Bagehot develop this argument and how might his maxim impact the three functions described by Bernanke?

3. Monetary policy makes use of reserves as a key policy tool. (II – all, II.13, 14) How does Bagehot evaluate the Bank of England’s use of reserves? Based upon this critique, what approach to reserves does Bagehot advocate?

4. Bagehot (I.8) argues that “commercial morality” has declined to the “dirty crowd of little men” and this decline has changed the incentives that shape banking. What implication does this evolution in informal institution have for central banking in the form of the Bank of England? For central banking in general?

5. Bagehot uses the phrase “natural system of banking” (IV 6). How does he use this phrase to understand the costs and benefits of central banking?

6. Bagehot explores financial leverage and capital mobility. (I.11 and I 14) ) Both of these issues have come under contemporary scrutiny and are “addressed” by Dodd Frank. What costs and benefits to leverage and mobility does Lombard Street analyze and what conclusions does Bagehot offer based upon this analysis?

7. Bagehot makes a distinction between domestic and foreign deposits and the risk offered by each. (II.16 and 30-33) What implications does Bagehot describe as a result of this distinction and what are the differing consequences? Does the “solution” or “plan” offered by Bagehot in his conclusion mitigate these consequences?

8. FA Hayek calls the price system a “marvel” in part for the information included in price. (Use of Knowledge in Society). Bagehot seems to anticipate Hayek in his use of bank profit as a signal of risk and stability (II.21-23). What are the tradeoffs that Bagehot identifies in this risk/stability tradeoff? How has this tradeoff been resolved in the past and what challenges does Bagehot see for future resolution of this tradeoff in England?

9. Bagehot describes panic as “a series of neuralgia, and according to the rules of science you must not starve it.”(II.41). euralgia is pain in one or more nerves[1] that occurs without stimulation of pain receptor (nociceptor) cells. Neuralgia pain is produced by a change in neurological structure or function rather than by the excitation of pain receptors that causes nociceptive pain. How useful is this metaphor in understanding a bank run and why does Bagehot argue that is must not be starved or eliminated?

10. Bagehot writes: “New wants are mostly supplied by adaption, not by creation or foundation”(III.2). How does this assertion shape Bagehot’s analysis and his recommendation for improving the BOE? Note: This question can be repeated in the second discussion when considering Dodd Frank.

Upcoming ACEE events

Arizona teachers are invited to engage their students in this outstanding academic competition. This FREE competition is open to all Arizona middle and high school students that have taken a personal finance or economics-related course in school. Students compete in teams of four with each student eligible to participate as a member of only one team. Spring testing dates are April 11 - 19, 2012. Teachers with participating teams in this competition are automatically entered in a drawing for a Kindle Fire (or cash equivalent) in May 2012.

Register your teams today at www.financechallenge.org.

A special "Thank You" to our Spring 2012 FinanceChallenge Online! sponsors:

Allstate Insurance and Elena Zee, CFP, Waddell & Reed





Dinner and a Movie featuring The Wizard of Oz


Picture

The Arizona Council on Economic Education in partnership with the Arizona Historical Society, present the newest edition to our popular Dinner and a Movie Workshop series. Join us for a fun-filled evening at the Arizona Historical Society theater as we discover the economic lessons of the beloved classic The Wizard of Oz. Professor William Boyes, Professor Emeritus, Arizona State University, will be our guest speaker. Dinner, curriculum, door prizes, and 3.0 hours of professional development will be provided.

While lesson materials are most appropriate for middle and high school classrooms, this programs is open to all. Don't miss this opportunity to have a great time and get some fantastic material for your class(es). Teachers, spouses, guests and community members welcome. Registration closes Tuesday, April 17, 2012.


Date/Time: April 20, 2012, 5:00 p.m. to 9:00 p.m.
Location: Arizona Historical Society, Tempe, Arizona -
Click HERE to register.

This program was made possible through a grant from the Arizona Humanities Council.






Geonomics Workshop Integrating Economics, Geography and Children's Literature


Come Join ACEE and the Arizona Geographical Alliance with the support of the Thomas R. Brown Foundation, SRP, and Kinder Morgan, for a fun-filled day of lesson demonstrations and new ideas for integrating the study of Geography and Economics with a special focus on Conservation, Natural Resources and Migration
using C
hildren’s Literature.

This workshop includes: Continental Breakfast and Lunch, lessons taught by Master Teachers, door prizes and 6.0 hours of professional development.

Dates/Times:

Thursday, May 3rd, 2012 in Tempe - Register HERE

Saturday, May 5th, 2012 in Tucson - Register HERE




Meet the Expert Speaker Series

Join the Arizona Council on Economic Education as we partner with the Federal Reserve Bank of San Francisco at their Phoenix Cash Facility to bring educators together for a special workshop featuring a live telecast presentation by Chairman Ben Bernanke. This special event will also feature speaker Cynthia Course of the San Francisco FRB. Seating is limited.

This event includes: Lunch, 6.0 professional development hours, and raffle prizes.

Date: August 7, 2012, 8:30 a.m. - 3:00 p.m.
Register online at:
http://www.frbsf.org/education/meettheexperts/

Monday, April 16, 2012

The Federal Reserve

David Warsh blogs on the FED and Benjamin Bernanke's recent 4 part lecture series.

Eventually we’ll have the Black Box: the record of what policy makers of the Federal Reserve Board were saying to each other as the crisis deepened in 2008, in the course of fourteen tense meetings during the year, six of them unscheduled. The Federal Open Market Committee releases transcripts of its meetings five years after the fact.

But September 2013 is a long time to wait for a clearer view of the crisis and its aftermath.

So last week Fed chairman Ben Bernanke took another step in constructing a history of events, delivering the first of four lectures to a class of undergraduates at George Washington University. All the details, including transcripts of the first two lectures, are here.


Tyler Cowens writes of the shadow banking system

I RECENTLY asked a group of colleagues — and myself — to identify the single most important development to emerge from America’s financial crisis. Most of us had a common answer: The age of the bank run has returned.


Since the end of World War II, economists have generally thought that runs on banks were dead, at least as a phenomenon in advanced nations. In the United States, for example, bank deposits are insured by the Federal Deposit Insurance Corporation, and, as a last resort, the Federal Reserve can back deposits by printing money.

The new complication is that bank deposits are no longer the dominant form of modern short-term finance. The modern bank run means a rush to withdraw from money market funds, the disappearance of reliable collateral for overnight loans between banks or the sudden pulling of short-term credit to a troubled financial institution. But these new versions are in some ways still similar to the old: both reflect the desire to pull money out of an endeavor — and to be the first out the door. And both can set off a crash.

These newer forms occur in the so-called shadow banking system, involving short-term financial credit not guaranteed by the deposit insurance umbrella.

Sunday, April 15, 2012

Lecture 4: The Aftermath of the Crisis

Chairman Ben S. Bernanke will deliver a four-part lecture series about the Federal Reserve and the financial crisis that emerged in 2007. The series begins with a lecture on the origins and missions of central banks, followed by a lecture that will discuss the role and actions of the Federal Reserve in the period after World War II. In the final two lectures, the Chairman will review some of the causes of, and policy responses to, the recent financial crisis, focusing specifically on the actions of the Federal Reserve.

The lectures are being offered as part of an undergraduate course at the George Washington University School of Business.



Live video of each lecture will be available to the public at http://www.ustream.tv/federalreserve. Transcripts and video recordings will be made available following each lecture.


Lecture 4: The Aftermath of the Crisis
Watch live on March 29, 2012 12:45 p.m. ET


Powerpoint slides
http://www.federalreserve.gov/newsevents/files/bernanke-lecture-four-20120329.pdf

Saturday, April 14, 2012

Lecture 3: The Financial Crisis and the Great Recession

Chairman Ben S. Bernanke will deliver a four-part lecture series about the Federal Reserve and the financial crisis that emerged in 2007. The series begins with a lecture on the origins and missions of central banks, followed by a lecture that will discuss the role and actions of the Federal Reserve in the period after World War II. In the final two lectures, the Chairman will review some of the causes of, and policy responses to, the recent financial crisis, focusing specifically on the actions of the Federal Reserve.

The lectures are being offered as part of an undergraduate course at the George Washington University School of Business.



Live video of each lecture will be available to the public at http://www.ustream.tv/federalreserve. Transcripts and video recordings will be made available following each lecture.

Lecture 3: The Financial Crisis and the Great Recession
Watch live on March 27, 2012 12:45 p.m. ET

http://www.federalreserve.gov/newsevents/files/bernanke-lecture-three-20120327.pdf

Thursday, April 12, 2012

Lecture 2: The Federal Reserve after World War II

Chairman Ben S. Bernanke will deliver a four-part lecture series about the Federal Reserve and the financial crisis that emerged in 2007. The series begins with a lecture on the origins and missions of central banks, followed by a lecture that will discuss the role and actions of the Federal Reserve in the period after World War II. In the final two lectures, the Chairman will review some of the causes of, and policy responses to, the recent financial crisis, focusing specifically on the actions of the Federal Reserve.

The lectures are being offered as part of an undergraduate course at the George Washington University School of Business.


Lecture 2: The Federal Reserve after World War II
Watch live on March 22, 2012 12:45 p.m. ET

Live video of each lecture will be available to the public at http://www.ustream.tv/federalreserve. Transcripts and video recordings will be made available following each lecture.

Powerpoint slides
http://www.federalreserve.gov/newsevents/files/bernanke-lecture-two-20120322.pdf

Wednesday, April 11, 2012

Lecture 1: Chairman Bernanke discusses the "Origins and Mission of the Federal Reserve,"

Chairman Bernanke will discuss the "Origins and Mission of the Federal Reserve,"

Link to powerpoint of the first lecture

http://www.federalreserve.gov/newsevents/files/bernanke-lecture-one-20120320.pdfhttp://www.blogger.com/img/blank.gif

Tuesday, April 10, 2012

April Book Club


Save the date! Join the Arizona Society of Economics Teachers Book Club to discuss "Coming Apart" by Charles Murray on Wednesday, February 22, 2012. Please email programs@azecon.org for more information.

Wednesday, April 11, 2012

5:45 - 7:45 p.m.

Arizona Council on Economic Education office
3260 North Hayden Road, Suite 207
Scottsdale, Arizona 85251

Monday, April 9, 2012

AEA Teaching Economics Conference

Second Annual AEA Conference on Teaching Economics
and Research in Economic Education
May 30 – June 1, 2012
Boston, MA

The AEA Committee on Economic Education (CEE) is organizing the second annual conference on teaching undergraduate and graduate economics, and research on economic education at all levels (including precollege). The conference is cosponsored by the Journal of Economic Education. All sessions will be held at the Royal Sonesta Hotel in Boston, except a dinner at the Federal Reserve Bank of Boston. Plenary speakers at the conference will include:

•Susan Athey, "Economics Education for the Internet Age: Design, Analysis, and Experimentation in Large-Scale Online Marketplaces"

•Peter Diamond, “Unemployment, Vacancies, Wages”

•Greg Mankiw, “Recent Challenges Facing Monetary and Fiscal Policy, and What They Mean for What We Teach”

A large number of concurrent sessions will also be scheduled, featuring both research and pedagogy papers, panel discussions, and workshops on teaching economics at the college level (undergraduate and graduate). Proposals for individual papers, complete sessions of papers on a particular theme, panel discussions, or workshop sessions, should be sent by e-mail to KimMarie McGoldrick, University of Richmond, kmcgoldr@richmond.edu no later than December 1, 2011.

The registration fee for the Boston conference will be $75 for AEA members until April 15, and $125 after April 15. For those who are not AEA members, the registration fee will be $125 until April 15, and $175 after April 15. Registration for the conference and hotel will open on March 1, 2012, on the AEA CEE web page.