************ Advice for Potential Majors & AIM Placement

Here is our message to those of you thinking about pursuing an economics major (or minor).  For more on the collegiate economics major more generally, here is some information from the American Economics Association.

Advice to Potential Majors:  Students interested in a major in Economics should begin with introductory classes in economics and mathematics.  The first economics class is ECON 100.

Students who have satisfied the ECON 100 requirement should consider taking 200-level classes based on their own interests (e.g., 200 Development Economics, 205 International Economics, 225 Decision Theory, 245 Law & Economics, 280 Environmental Economics, 290 Economics of Medical Care).

There are three intermediate theory courses that are offered sequentially each year – ECON 300 Microeconomics in the fall, ECON 380 Econometrics in the winter, ECON 320 in the spring.  These courses are most effective when taken sequentially in either the sophomore or junior year.  Freshman should not enroll in these courses.

Sophomore year is a good time to take ECON 225 Decision Theory.   This is not a required course, but we strongly recommend it for all majors and minors.

Mathematics Requirements and Advice:  The introductory mathematics courses are essential because they are foundational to intermediate theory courses.  Calculus (MATH 120 and 130 or MATH 140) is a prerequisite for ECON 300 and ECON 320.  Statistics (MATH 107 or the equivalent) is a prerequisite for ECON 380.

For the purposes of the Economics Department, we believe students should consider MATH 120 and 130 if they are interested in applied problem solving and developing some Excel skills.   Students who plan to take math beyond the calculus sequence should take MATH 140.   The decision on which calculus to take is probably worth a discussion both with the math and the econ department faculty.

A typical sequence for a student who comes in as an economics major.

Freshman: Introductory Economics (ECON 100), 200-level courses based on student interest, Calculus (MATH 120 and 130 or MATH 140).

Sophomore:  Intermediate sequence (ECON 300, 380, 320), 200-level courses based on student interest, Statistics (MATH 107).  ECON 300 and MATH 107 are offered in the fall.

Junior-Senior: Advanced electives.

This sequence can be pushed back a year for those who decide during their sophomore year to pursue an economics degree.

MINOR: The minor requirements are indeed minor.  No significant planning is necessary during the Freshman year to complete this degree, though our recommendations in terms of taking introductory economics and mathematics courses remains the same for majors and minors alike.

 

AIM Placement: If you scored a 4 or 5 on the AP micro test, you can obtain credit through the Registrar’s office for ECON 100.  This satisfies that requirement for the department, though we strongly suggest you take at least one 200-level course before beginning the 300 sequence.  There are plenty of 200-level courses to choose from this year.

If you earned a 4 or a 5 on the AP macro test, you can obtain credit for ECON 120 and you will satisfy that prerequisite for select 200-level courses.

GDP: Useful Construct or Weapon of Mass Misdirection

Estimates of GDP growth vary widely (often well over 1 percentage point) from the initial one (typically at the end of the first month after the quarter) to a final one (up to a year later).  This post addresses such variation and the debate about whether it arises from measurement error or definitions based on contemporary politics.  No matter which view you might hold, it’s pretty clear that macroeconomic policy should not be based on early estimates of quarterly GDP growth.

Last month, the Bureau of Economics Analysis (BEA) reported that 2nd Quarter 2015 GDP had increased by 3.7% (in annualized terms.)  Its first estimate (in July) was 2.3%.  For the first quarter of 2015, we now have three estimates: earliest +0.2%, 2nd -0.7%,  and most recent (August) +0.6%. In short, we can’t easily tell whether the economy grew or not.

Some of you may recall that GDP can be calculated in three ways:  1) the sum of what it would cost to purchase all goods produced in the US for final sale, 2) the income paid to all factors of production in the U.S. plus depreciation and indirect business taxes, and 3) the sum of all values added.

Typically no one calculates the third but recently, the BEA has begun to provide the income-based measure.  For the first quarter of 2015, the second estimate was 0.4% after an initial estimate of 0.1%.  For the second quarter of 2015, the only estimate of growth of gross domestic income was 0.6% (well short of the 3.7% GDP growth estimate cited above.)

GDP ResidualThe difference between income based and expenditure based methods, as reflected by the residual (in red) in the above chart, is far from trivial. The blue line reflects gaps in converting nominal GDP to real GDP.  These were substantial in the past, but appear not to be a problem today. See the St. Louis Federal Reserve’s discussion of this residual for details.

In a recent article entitled “Weapons of Economic Misdirection,” John Mauldin traces the history of GDP accounting and asks whether the changes reflect improved knowledge of the economy – such as updates to inventory, export, and import data – or political manipulation.  Keynes and Hayek disagreed about what to measure and how it should be used, and Simon Kuznets, who created the national income accounts and received one of the first Nobel prizes in economics for his work, disagreed with the Commerce Department regarding the same two concerns.

Mauldin refers to and quotes from Diane Coyle’s new book GDP: A Brief But Affectionate History to illuminate the controversy.  I encourage you to read Mauldin’s posting.

I’ll give Chinese Premier Li Keqiang the last word (especially with reference to the accuracy of Chinese GDP estimates – which seem to matter to many investors in the U.S.) “Chinese economic statistics are ‘man made’ and, apart from the numbers for electricity use, bank lending and rail freight, are for reference only.”  Gives you great confidence, doesn’t it?

 

 

What Can I do with an Economics Major?

Why not take him/her out to lunch with you?

No, no, no.  Of course, I’m talking about what sort of Life After Lawrence is out there for our economics majors?  Well, the American Economic Association is encouraging its members to share this video.  Here’s the link:

A career in Economics… it’s much more than you think

Much more than finance, banking, business and government, a degree in economics is useful to all individuals and can lead to many interesting career choices. These four diverse individuals offer their insights on how a background in economics can be a tool for solving very human problems.

  • Marcella Alsan, a physician of infectious disease, discusses why she needed to pursue a degree in economics to improve the lives of her patients.
  • Randall Lewis, a research scientist at Google, uses economics and “big data” as tools to improve the functioning of markets.
  • Britni Wilcher, a PhD student of economics, offers insight on some misconceptions about economists and factors influencing her career path decision.
  • Peter Henry, dean at the NYU Stern School of Business, points to the true nature of economics and the importance of diverse voices informing the field.

Here is the American Economic Association’s link of information for students considering an economics major, covering topics from what economists do to what type of skills you will develop as an economics major.

If you are considering a major, please click on the Advice for Potential Majors link that you should see in your left frame.

In your life expect some trouble, when you worry you make it double…

Those of you interested in international financial markets probably noticed there have been some rather dramatic changes in the the major stock indices over the past week.   The US benchmark Dow Jones Industrial Average stood at 17, 345 last Thursday and subsequently plummeted to 15,666 at the close of business Tuesday.  Following a turbulent Friday and some bad news from China on Monday, the Dow went into a free-fall on Monday, losing over 1,000 points before closing 588 points lower.

On Tuesday, the Dow seemed to regain some of its mojo, soaring 442 points in early trading.  That mojo was a no-go, however, and by the end of the day the Dow had shed another 205 points.  Ouch.

On Wednesday things really did turn around, with the Dow closing 619 points higher, the third-largest gain ever in absolute terms.  As of this writing on Thursday, the Dow is up another 200 points, continuing to scratch back some of the losses from last week.  (Wait, now it’s only up 150 points, better post this picture before it changes again):
dow

The causes of these wild gyrations are quite varied, and would be difficult to explicate before the market moves a hundred points in either direction (that is, even if we knew what all of those causes were, which I’m not convinced that we do).  The question for the decision maker is what do these market fluctuations mean to you?

Well, many flesh-and-bone economists will tell you with a straight face that you are either in the market or you’re not, so if you want to get out now, you shouldn’t have been in the first place.  If you are in, you should just sit tight.

Although that might seem preposterous to you, what economists will tell you is that the idea that you can either predict or time the market is even more preposterous. More on this after the bump: Continue reading In your life expect some trouble, when you worry you make it double…

River Red

Some of you have certainly read about the mishap at the “abandoned” Gold King mine site in Colorado that left Animas River a peculiar shade of orange — here is a before and after picture that I nabbed from Reddit.

The basic story is that EPA is working to reclaim and shore up a historic mine site, and one of its contractors accidentally breached a dam that led to a spill of several million gallons of toxic water into the Animas River.  The High Country News tells us nine things we need to know about the spill.

In the department of self-promotion, I also used to spend time thinking about cleaning up hazardous waste sites, and recently did a Q&A with PERC about the problem of abandoned mines.   If you are interested in law & economics, or some of the knotty problems of environmental policy, consider taking a look.   The abandoned mines problem could use some fresh thinking, that’s for sure.

A grave note

Канторович
Photo by Tim Dahlstrom © 2015

I had coffee with Tim Dahlstrom ’16 a couple of days ago, which is not very unexpected, except that we had it in a cafe with a view on the Kremlin. I am here visiting family, and he is here practicing his Russian and prepping for the GRE. He shared with me afterwards this photo, which he recently took here in Moscow: It is the grave of a Nobel prize-winning mathematical economist, obviously from Russia. This should probably be enough for you to guess the name, but if you need more, here is a cogent Austrian perspective on his prize. Tim remembered him from the Red Plenty reading group from his freshman year.

Technological Anxiety and Economic Growth

Prominent economic historian Joel Mokyr and two co-authors, Chris Vickers and Nicholas Ziebarth, provide a compelling discussion of the historical relationships among technology, economic growth, and (cultural and other forms of) anxiety.  They address three major forces:

1. Widespread substitution of capital for labor in the short run with beneficial long run trends for employment and living standards

2. Anxiety over the moral implications of technological change on people’s welfare

3. The notion (as posited by economists including Robert Gordon and Tyler Cowen) that economic growth influenced by technological change is behind us.

They argue that the current episode is similar to our experiences with industrial revolutions of the past 250 years.  This time is NOT different.  The complete paper is available from the Journal of Economic Perspectives. 

I encourage everyone to read it.

Event Studies

I was recently chatting with some alumni who shocked me by saying they regularly hit the Lawrence Econ blog for…  Well, I forgot to ask why they came to the blog, but presumably for posts like this.

Today’s question: how can we quantitatively assess the impact of a big event?

The answer, sometimes, is to set up an event study!   Craig MacKinlay has a nice overview in the Journal of Economic Literature  (cited more than 3000 times!) where he shows how to evaluate the impact of an event on the value of a firm (or firms). The basic idea is that if the event is unanticipated, you can look at the value of the firm before and after the event, and see how “the market” assessed the event’s impact.

Leah Libresco at the FiveThirtyEight website recently took a look at how the recent Supreme Court decision on the Patient Protection and Affordable Care Act (PPACA) (a.k.a. “Obamacare”) affected the value of big insurance companies.   The picture is after the bump: Continue reading Event Studies

Data Science for Humans

The last Economics Colloquium of the year, at 4:30 on Wednesday, May 27th, Steitz 102:

Data Science for Humans
Shilad W. Sen Macalester College,Associate Professor, Mathematics and Computer Science

Data scientists mine massive datasets to help software understand our tShilad Senastes, needs, and routines. Want to become a data scientist? Many new data science degrees incorporate coursework in statistics and computation. However, most programs focus shallowly on data, without deeply connecting to existing domain knowledge in the fields in the social science, humanities, marketing, etc.  Continue reading Data Science for Humans

Econ Colloquium — Big Data Monday at 4:30

UPDATE:  Schafer tapped to lead Large Synoptic Survey Telescope(LSST) Informatics and Statistics Science Collaboration.

 

Big Science + Big Data = Big Opportunities: An Overview of Statistics in Astronomy

Chad Schafer

Department of Statistics

Carnegie Mellon University

Progress in disciplines such as astronomy is increasingly being made through large-scale, multi-institution projects, often referred to as “Big Science.” It is only through careful statistical analysis that the massive amount of information (the “Big Data”) produced by these endeavors will be translated into answers to the questions of interest. This talk will make a connection between fundamental statistical concepts and the challenges facing astronomers and cosmologists as they seek to make use of the flood of data that result from modern experiments.

Monday, May 18, 4:30 p.m.

Steitz Hall 102

Ice Cream Social, Friday at 4:30 p.m.

Economics majors are welcome to an Ice Cream Social Friday at 4:30 in Briggs 217 (and probably the surrounding area).  Typically, the faculty member chosen for the Convocation Award has lunch with a few students after the Convo, but I actually have class in this slot and I decided that I wanted to include more than a handful of students.

I expect several of my colleagues on the faculty will be in attendance as well.

We have budgeted for 50 students, so ice cream priority will be given to those with either a Convo program or a ‘selfie’ taken at the Convo.   A selfie with an Econ prof will give you preferential  access to the toppings.   You can forward the selfies to me some time prior to Friday.  Please exercise discretion when taking the selfies (i.e., *not* during the performances or during Professor Niblock’s invocation).

If you could send an RSVP to Linda Peeters linda.o.peeters@lawrence.edu by Friday at noon, that would be super.

GMOs, Blood, Sperm, Human Milk…. not necessarily in that order

Here are two upcoming talks that are certainly of interest:

What you need to know about GMOs

Tuesday, April 7 in Warch Campus Cinema.  7 p.m.

Explore the benefits and drawbacks of GMOs in a panel discussion led by Professors Beth De Stasio and Dave Hall. They will cover the facts and myths of GMOs and how they affect human health and the environment.

For a recent economics survey article on GMOs, see Geoffrey Barrows, Steven Sexton, and David Zilberman. 2014. “Agricultural Biotechnology: The Promise and Prospects of Genetically Modified Crops.” Journal of Economic Perspectives, 28(1): 99-120.

 

For Sale: Markets in Eggs, Sperm and Human Milk in Modern America  

Kara Swanson, Associate Professor, Northeastern University School of Law.Thomas Steitz Hall of Science 102 – Lecture Hall.  4:30 p.m.

Here is a recent interview with Professor Swanson in The Atlantic Monthly.  For a recent economics survey article on blood, see Robert Slonim, Carmen Wang, and Ellen Garbarino. 2014. “The Market for Blood.” Journal of Economic Perspectives, 28(2): 177-96.

Money Ball and Medicine

In 2003, Michael Lewis published Moneyball, the story of how a team with a relative small payroll (the Oakland Athletics) was able to be competitive by understanding how a general manager (Billy Beane) should spend money to generate the most wins.  Many major league baseball teams now apply some of the strategies that Beane adopted andmoneyball Lewis articulated.

Moneyball and Medicine

 

 

 

 

 

In today’s “Upshot”, Jeremy Smith applies the same logic to how resources might be spent on improving health.   For a number of years, health economists have argued that death rates and life expectancy provide too limited a way to understand how much value the medical sector generates from its vast expenditures (approaching $3 trillion per year in the United States.)   Smith argues that not all years of life are equivalent and that most efforts by medical practitioners are unrelated to life and death situations.  He proposes DALYs – disability adjusted life years, an indicator that sums lost quality of life and lost life expectancy due to such disabilities, as a better indicator than life expectancy.

Lancet, the British equivalent to the New England Journal of Medicine, recently published an article analyzing 291 diseases and injuries across 21 regions of the world to assess the global burden of disease. Comparisons between rankings based on deaths versus DALYs  for the US in 2010 is quite interesting.

Using deaths, the top five causes are as follows:

1. Heart disease  2. Stroke 3. Cancer of the trachea, bronchus or lung, 4. Alzheimer’s or other dementias and   5. Chronic obstructive pulmonary disease (COPD)

The rankings using most DALYs foregone introduces two major differences:

1. Heart disease 2. COPD 3. Low back pain 4. Cancers of the trachea, bronchus or long, and 5. Major depressive disorder

Low back pain and major depressive disorder are not causes of death, but they generate huge amounts of pain and suffering and billions of dollars of lost productivity in addition to whatever medical services might be employed.

If a “Moneyball” approach to health spending was directed towards the DALY list, the gains in health and productivity would be substantial.  Unlikely baseball, however, there are no league standings based on health outcomes; therefore, the US continues to spend a great deal on clinical care without significant gains in health and reductions in the effects of disability.

 

 

Climate Change References

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Selected References:

BP Statistical Review of World Energy (2014)

Initiative on Global Markets www.igmchicago.org

Jeffrey A. Frankel & Andrew K. Rose “Is Trade Good or Bad for the Environment? Sorting Out the Causality,” The Review of Economics and Statistics 87(1):85-91. (2005)

Michael Greenstone and Adam Looney. “Paying Too Much for Energy? The True Costs of Our Energy Choices.” Daedalus141.2 (2012): 10-30.

Alan Krupnick et al. Toward a New National Energy Policy: Assessing the Options, Resources for the Future (2010)

William Nordhaus, The Climate Casino: Risk, Uncertainty, and Economics for a Warming World. (2013)

Nicholas Stern, The Economics of Climate Change: The Stern Review

World Bank World Development Indicators (2014)

 

 

The Evolution of Land Reform in Latin America, Thursday at 4:30pm, Steitz 102

Despite recent improvements, Latin America remains the most unequal region in the world.  Historically, one of the most important determinants of income and opportunity is access to land.  In this seminar Dylan Fitz will discuss the justifications for land reform and the implementation challenges that reforms face. The discussion will draw on his evaluations of recent market-assisted programs in Brazil that build upon previous land reforms. fitz

New Look Econ Blog

Econ Dept Feb192015_0020-X2

New look blog, new look department.

Front (l-r):  Hillary Caruthers, Marty Finkler.

Back: Adam Galambos, David Gerard, Jonathan Lhost.

This was taken before Professor Finkler’s Povolny Lecture, ““China Ranks Number One. Or Does It? Should We Care?”

Wisconsin vs. Minnesota – The Battle for Sustainable Economic Growth

In the years after World War II, Wisconsin leveraged its manufacturing base to keep its income per capita above that of its Minnesota rival.  Since the 1960s, however, the pattern has reversed.  Consequently, Minnesota now ranks among the states with income well above the US average while Wisconsin has fallen below this benchmark.  In a recent article, Roger Feldman, University of Minnesota economist, provides  four compelling reasons for this marked change in economic fortune, largely based on growth pattern differences between the Milwaukee Metropolitan Area and the Minneapolis-St. Paul Metropolitan Area

1feldmanONLINE

1. Minnesota diversified its economy more than Wisconsin has.

2. Minnesota did a better job of educating its residents generating fewer high school dropouts and more college graduates.

3. Minnesotans are much healthier than Wisconsinites with, among other factors, lower adult obesity rates and higher spending on parks and recreation.

4. Minnesota located its primary university and state capital in its economic center; Wisconsin chose not to locate these entities in Milwaukee.

For more details on his arguments, check out the article.  In my view, these arguments support the notion that sustained economic growth comes from a vibrant, diverse, urban economy rather than one that tries to preserve economic advantage of past eras at the expense of supporting innovation and entrepreneurship.

Updated Schedule for 2015-16

The most recent iteration of the 2015-16 schedule is below and you can also find a slightly less updated one in Banner.   The red bolded entries represent updates.  Click here for non-garbled version.

Fall 2015 Draft

ECON 100 ● INTRODUCTORY MICROECONOMICS (Q) ● 1:50-03:00 MWF ● Jonathan Lhost

ECON 208 ● SUSTAINABLE CHINA: ENVIR/ECON (G) ● APR ● 02:30-04:20 TR ● Jason Brozek

ECON 211 ● IN PURSUIT OF INNOVATION ● 11:10-12:20 MWF ● Adam Galambos, John R. Brandenberger

ECON 271 ● PUBLIC ECONOMICS ● 12:30-02:20 TR ● David Gerard

ECON 290 ● ECONOMICS OF MEDICAL CARE ● 09:00-10:50 TR ● Merton D. Finkler

ECON 300 ● MICROECONOMIC THEORY (Q) ● 08:30-09:40 MTWR ● David Gerard

ECON 405 ● INNOVATION & ENTREPRENEURSHIP ● 08:30-09:40 MWF ● Adam Galambos

ECON 421 ● INVESTMENTS ●  12:30 -2:20 T ● Merton D. Finkler  (Approval required)

ECON 460 ● INTERNATIONAL TRADE (G,Q) ● 01:50-03:00 MWF ● Hillary Caruthers

 

Winter 2016 Draft

ECON 100 ● INTRODUCTORY MICROECONOMICS (Q) ● 09:50-11:00 MWF ● Hillary Caruthers

ECON 151 ● INTRO TO ENVIRONMENTAL POLICY ● 12:30-01:40 MWF ● Staff

ECON 200 ● ECONOMIC DEVELOPMENT (G,Q) ● 02:30-04:20 TR ● Hillary Caruthers

ECON 245 ● LAW AND ECONOMICS ● 12:30-02:20 TR ● Jonathan Lhost

ECON 380 ● ECONOMETRICS (Q) ● 9:50 – 11:00 MTWR ● Jonathan Lhost

ECON 415 ● INDIVIDUALITY & COMMUNITY ●  09:00-10:50 TR ● Steven Wulf

ECON 420 ● MONEY AND MONETARY POLICY (Q) ● 12:30-02:20 TR ● Merton D. Finkler

ECON 444 ● POLITICAL ECONOMY – REGULATION (W) ● 09:00-10:50 TR ● David Gerard

ECON 601 ● SENIOR EXPERIENCE: READING OPT ● 02:30-04:20 T ● David Gerard

ECON 602● SENIOR EXPERIENCE: PAPER ● APR ● 02:30-04:20 R Arranged ● Merton D. Finkler

 

Spring 2016 Draft

ECON 100 ● INTRODUCTORY MICROECONOMICS (Q) ● 08:30-09:40 MTWR ● David Gerard

ECON 215 ● COMPARATIVE ECONOMIC SYSTEMS (G) ● 11:10-12:20 MWF ● Adam Galambos

ECON 225 ● DECISION THEORY ● 01:50-03:00 MWF ● Adam Galambos

ECON 280 ● ENVIRONMENTAL ECONOMICS ● 12:30-02:20 TR ● David Gerard

ECON 295 ● TOP: FINANCE ● 12:30-01:40 MWF ● Gary T. Vaughan

ECON 320 ● MACROECONOMIC THEORY (Q) ● 09:50-11:00 MTWR ● Hillary Caruthers

ECON 320 ● MACROECONOMIC THEORY (Q) ● 03:10-04:20 MTWR ● Hillary Caruthers

ECON 400 ● INDUSTRIAL ORGANIZATION ●  01:50-03:00 MWF ● Jonathan Lhost

ECON 410 ADV GAME THEORY & APPLICATIONS (Q) 08:30-09:40 MWF Adam Galambos

ECON 481 ● ADV ECONOMETRICS & MODELING ● 11:10-12:20 MWF ● Jonathan Lhost

Right to Work

Is that FTW?

Governor Walker signed “right to work” (RTW) legislation earlier this week, which it is fair to say has led to mixed reactions among the electorate.   A Wall Street Journal piece touts the “right to work advantage,” whereas Slate.com teaser says “It has never been more painful and humiliating to be a Wisconsin Democrat.”  Owie.

(Curiously, the sign on the table in the photo is “Freedom to Work,” rather than “Right to Work”).

Right to Work laws generally allow employees to work in unionized workplaces without paying union dues. In principle, the free-rider problems caused by the elimation of compulsory union dues mitigates union bargaining power, hence lowering wages (ceteris paribus), and increasing employment.  Clearly, then, this legislation potentially has fundamental implications for employment, wages, output, and probably a whole lot of other stuff.  How is one to sort all this out?

Fortunately, Ed Dolan at EconoMonitor has taken it upon himself to sort it out for us.  He begins by providing a nice review of the history and basic logic of RTW legislation. Following that, he reaches the conclusion that, well, it’s complicated:

The bottom line is that the economic effects of RTW laws are not nearly as clear-cut as their advocates and opponents make them out to be. Correlations of RTW laws with wages and employment are economically small even when they are statistically significant. Most problematic of all is the question of causation—does RTW cause observed differences between states, or do pre-existing differences cause the passage of RTW laws?

It’s almost too bad that the effects are so benign, as RTW is a genuine political dynamo. In response to Walker’s signature, President Obama took to his Twitter feed today to “blast” the Wisconsin legislation and encourage the 25 states that don’t have RTW legislation to keep it that way.