Advanced Principles of Economics

Prologue to Partha Dasgupta: Economics: A Very Short Introduction

Becky's world

Becky, who is 10 years old, lives with her parents and an older brother Sam in a suburban town in America's Midwest. Becky's father works in a firm specializing in property law. Depending on the firm's profits, his annual income varies somewhat, but is rarely below 145,000 US dollars ($145,000). Becky's parents met at college. For a few years her mother worked in publishing, but when Sam was born she decided to concentrate on raising a family. Now that both Becky and Sam attend school, she does voluntary work in local education. The family live in a two-storey house. It has four bedrooms, two bathrooms upstairs and a toilet downstairs, a large drawing-cum-dining room, a modern kitchen, and a family room in the basement. There is a plot of land at the rear - the backyard - which the family use for leisure activities.

Reading Notes and Discussion Questions on Dasgupta, "Economics: A Very Short Introduction"

Reading Notes to the Beginning to Get You Started...

Preface

• An account of how economists reason
• Examples of how that reasoning can be applied to (some of) the most urgent problems Humanity faces today
• The lives of Becky--the daughter of a Chicago lawyer--and Desta--the daughter of an Ethiopian farmer couple

Prologue

• Becky's household income $150K/year as the daughter of a Chicago lawyer (and stay-at-home mom)
• Desta the daughter of an Ethiopian corn-growing farmer couple with a household income of $5K/year
• Desta's household's income subject to much greater risks
• Economists look at things from the bottom up: resources, institutions, choices, histories, destinies
• Economists use models and quantitative models

Macroeconomic history

• Annual GDP per capita as a measuring rod:
  • GDP per capita in the world today: $7K/year
  • GDP per capita in the year 1: $500/year
  • GDP per capita in 1800: $1500/year in western Europe; $500/year in Africa; $750/year global average
• Rule of 72
• The world today:
  • 1B people with an average per capita income of $20K/year at the top
  • 3.5B people in the middle
  • 2.5B people with an average per capita income of $2.1K/year at the bottom
  • Agriculture 25% of GDP in poor countries, 5% of GDP in rich countries
• Causes:
  • Proximate causes of the difference: (physical) capital, (human capital) education, gender equality, public health, technologies? markets? division of labor?
  • Deeper causes: institutions (corruption), institutions (markets), institutions (incentives), the application of ideas (technological and organizational), natural resources vs. population growth
  • Virtuous and vicious circles

Reading Notes on Dasgupta, "Economics: A Very Short Introduction": Preface, Prologue, and Macroeconomic History

Things to Note:

Preface * An account of how economists reason * Examples of how that reasoning can be applied to (some of) the most urgent problems Humanity faces today * The lives of Becky--the daughter of a Chicago lawyer--and Desta--the daughter of an Ethiopian farmer couple

Prologue

• Becky's household income $150K/year as the daughter of a Chicago lawyer (and stay-at-home mom)
• Desta the daughter of an Ethiopian corn-growing farmer couple with a household income of $5K/year
• Desta's household's income subject to much greater risks
• Economists look at things from the bottom up: resources, institutions, choices, histories, destinies
• Economists use models and quantitative models

Macroeconomic history

• Annual GDP per capita as a measuring rod:
  • GDP per capita in the world today: $7K/year
  • GDP per capita in the year 1: $500/year
  • GDP per capita in 1800: $1500/year in western Europe; $500/year in Africa; $750/year global average
• Rule of 72
• The world today:
  • 1B people with an average per capita income of $20K/year at the top
  • 3.5B people in the middle
  • 2.5B people with an average per capita income of $2.1K/year at the bottom
  • Agriculture 25% of GDP in poor countries, 5% of GDP in rich countries
• Causes:
  • Proximate causes of the difference: (physical) capital, (human capital) education, gender equality, public health, technologies? markets? division of labor?
  • Deeper causes: institutions (corruption), institutions (markets), institutions (incentives), the application of ideas (technological and organizational), natural resources vs. population growth
  • Virtuous and vicious circles

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Discussion Questions

Preface

• How different do you think the lives of Becky and Desta are?
• How would you go about explaining why the lives of Becky and Desta are different?
• How would an economist go about explaining why the lives of Becky and Desta are different?
• What are the costs and benefits of thinking like an economist?
• What kind of person would start an analysis by asking: "What are the costs and benefits of thinking like an economist?"

Prologue

• Why does Becky's household live outside of Chicago and earn money by having the father work all day outside of the house doing transactions processing rather than, say, living 100 miles further west and growing corn in DeKalb County?
• How different would Becky's life be if her father (and mother) were corn-growing farmers in DeKalb County?
• Why did they choose to become suburban Chicago yuppies?
• Why doe Desta's household live in rural Ethiopia and grow their own corn rather than, say, living in Addis Ababa and earn money by having the father work all day outside of the house doing transactions processing?
• How different would Desta's life be if her father were an Addis Ababa lawyer?
• Why did they choose to become rural Ethiopian subsistence farmers?

Macroeconomic history

• In the long sweep of human history, is Becky very lucky, lucky, unlucky, or very unlucky?
• In the long sweep of human history, is Desta very lucky, lucky, unlucky, or very unlucky?
• How much richer is the world today than it was in the long centuries from 5000 BC to 1800?
• How much richer are the world's rich today than the world's poor today?
• What would count as an explanation of this divergence across space and time--that is, what kinds of things would count as "causes" and make you happy that you understood what was going on?
• How many useful "hierarchies of causation" can you imagine here?

Prologue to Partha Dasgupta, *Economics: A Very Short Introduction*

From: Brad DeLong delong@econ.berkeley.edu
To: UCB Econ 2 Spring 2014 students
Subject: The Prologue to Partha Dasgupta's "Economics: A Very Short Introduction"

Read it:

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Prologue

Becky's world

Becky, who is 10 years old, lives with her parents and an older brother Sam in a suburban town in America's Midwest. Becky's father works in a firm specializing in property law. Depending on the firm's profits, his annual income varies somewhat, but is rarely below 145,000 US dollars ($145,000). Becky's parents met at college. For a few years her mother worked in publishing, but when Sam was born she decided to concentrate on raising a family. Now that both Becky and Sam attend school, she does voluntary work in local education. The family live in a two-storey house. It has four bedrooms, two bathrooms upstairs and a toilet downstairs, a large drawing-cum-dining room, a modern kitchen, and a family room in the basement. There is a plot of land at the rear - the backyard - which the family use for leisure activities.

Discussion Questions for Partha Dasgupta, *Economics: A Very Short Introduction*

Prologue

• How different do you think the lives of Becky and Desta are now and are likely to be?
• How would you go about explaining why the lives of Becky and Desta are and are likely to be different?
• How would an economist go about explaining why the lives of Becky and Desta are and are likely to be different?
• What are the costs and benefits of thinking like an economist?
• What kind of person would start an analysis by asking: "What are the costs and benefits of thinking like an economist?"

Articles for Section Student Oral Presentations, Sections 5, 6, 7, 8

Section 5: excess supply, inflation, and expectations:

1. Alan Blinder and Jeremy Rudd, "The Supply-Shock Explanation of the Great Stagflation Revisited" http://www.nber.org/papers/w14563

2. Olivier Blanchard, "The Lucas Critique and the Volcker Deflation" http://www.nber.org/papers/w1326.pdf

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Section 6: central banking and stabilization policy:

1. J. Bradford DeLong, "Review of Alan Greenspan, The Age of Turbulence" http://delong.typepad.com/sdj/2007/09/los-angeles-tim.html ; and "The Republic of the Central Banker" http://www.prospect.org/cs/articles?article=republic_of_the_central_banker

2. "The Crude Art of Policymaking: How Should Central Banks Respond to a Rise in Oil Prices?" Economist (June 10, 2004) http://www.economist.com/node/2747507 ; "Hyperinflation: Our Mutual Friend," The Economist (Apr 12, 2007) http://www.economist.com/node/9009086?story_id=9009086 ; "Desperate Times in Zimbabwe," The Economist (Jul 11, 2007) http://www.economist.com/node/9466417?story_id=9466417 ; "What Can You Do with a Zimbabwean Dollar?" The Economist (Jul 26, 2010) http://www.economist.com/blogs/freeexchange/2010/07/inflation_zimbabwe

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Section 7: government budget accounting and the U.S. long-term fiscal gap:

1. Congressional Budget Office, "2010 Long-Term Budget Outlook" http://www.cbo.gov/doc.cfm?index=11579

2. William Gale and Peter Orszag, "The Budget Outlook" http://www.bepress.com/ev/vol1/iss2/art6/

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Section 8: international economics: background on exchange rates; imports, exports, and balancing money and reserve flows:

1. "The real picture: The euro area may have a single currency, but it still has many different real exchange rates," Economist (Feb 17th 2005) http://www.economist.com.hk/research/articlesBySubject/displaystory.cfm?subjectid=348930&story_id=E1_PGGGVQQ&source=login_payBarrier&CFID=134871090&CFTOKEN=77935876 ; Daniel Abraham (2007), "The Cambist and Lord Iron: A Fairy Tale of Economics" pp. 133-142 http://issuu.com/spectra/docs/cambistandlordiron (ac. June 7, 2010)

2. The Euro Crisis, The Economist: "Germany vs. Greece" http://www.economist.com/blogs/charlemagne/2010/04/euro_crisis_0 ; "Europe's 750 billion euro bazooka" http://www.economist.com/blogs/charlemagne/2010/05/euro_crisis_2 ; "It's Angela Merkel's euro-party, and she'll cry if she wants to" http://www.economist.com/blogs/charlemagne/2010/06/euro_crisis

Articles for Section 2 Student Oral Presentations

Articles for section 2 presentations:

1. The Financial Times's "austerity debate" at http://www.ft.com/cms/s/0/dc3ac844-9010-11df-91b6-00144feab49a.html, which has the first paragraphs of contributions and links to the larger pieces;

2. The Economist's "Is inflation or deflation a greater threat?" at http://www.economist.com/economics/by-invitation/questions/inflation_or_deflation_greater_threat_world_economy;

3. The Economist's "Are current deficit reduction plans likely to boost growth?" at http://www.economist.com/economics/by-invitation/questions/are_current_deficit_reduction_plans_likely_boost_growth.

Articles for Section 3 Student Oral Presentations

Articles for section 3 presentations:

1. “That 1937 Feeling,” by Paul Krugman. New York Times, January 4, 2010. http://www.nytimes.com/2010/01/04/opinion/04krugman.html and “Fed Will Hold Down Rates, Citing Tenuous Recovery,” by Catherine Rampell. New York Times, December 16, 2009 http://www.nytimes.com/2009/12/17/business/economy/17fed.html

2. “Four Ways Out," by Brad DeLong. The Economists' Voice, Vol. 6:2. (2009) http://www.bepress.com/ev/vol6/iss2/art4 pay attention to the comments from Wilson and Sumner; and “Shift to Saving May Be Downturn’s Lasting Impact,” by Catherine Rampell. New York Times, May 9, 2009. http://www.nytimes.com/2009/05/10/business/economy/10saving.html

Articles for Section 4 Student Oral Presentations

Articles for section 4 presentations:

1. “Thrifty families accused of prolonging the recession,” by Gráinne Gilmore. The Times December 23, 2009. http://business.timesonline.co.uk/tol/business/economics/article6965784.ece and “Can Consumers Spend Asia Out of Recession? Many Asian countries are handing out cash and vouchers to get people spending again. But real economic recovery may take a lot more,” by Frederik Balfour , Business Week (March 15, 2009). http://www.businessweek.com/globalbiz/content/mar2009/gb20090313_404180.htm

2. “Subprime Mortgages: A Primer,” by Mara Lee. NPR.org, March 23, 2007. http://www.npr.org/templates/story/story.php?storyId=9085408 and "The Menace of an Unchecked Housing Bubble," by Dean Baker. The Economists' Voice: 3 (March 2006). http://www.bepress.com/ev/vol3/iss4/art1

Summer Reading Assignment for Econ 1, U.C. Berkeley, Fall 2010

Date May 9, 2010 4:04 PM PDT
From Brad DeLong brad.delong@gmail.com
Subject Summer Assignments for Econ 1, Fall 2010
Body Before you show up here in the fall for Econ 1, please read:

1. The whole book of Partha Dasgupta, Economics: A Very Short Introduction (ISBN #: 0192853457 Publisher: Oxford) http://www.amazon.com/Economics-Very-Short-Introduction-Introductions/dp/0192853457

2. The "Introduction" and chapters 1 through 5 of Book I (i.e., I:1-5) of Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (available for free on the web or free for Amazon Kindle or Apple iBooks; you can also buy a copy) http://www.gutenberg.org/files/3300/3300-h/3300-h.htm

3. Pp. 1-31 of Paul Seabright, In the Company of Strangers: A Natural History of Economic Life (ISBN #: 978-0691146461 Publisher: Princeton) http://www.amazon.com/Company-Strangers-Natural-History-Economic/dp/0691146462/

4. Pp. ix-69 of Milton Friedman and Rose Director Friedman, Free to Choose (ISBN #: 978-0156334600 Publisher: Mariner) http://www.amazon.com/Free-Choose-Statement-Milton-Friedman/dp/0156334607/

Yes, there will be a quiz. :-)

Sincerely Yours,

J. Bradford DeLong
Professor of Economics

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UPDATE: August 23: If you haven't done any of it yet, I would strongly recommend getting cracking on Dasgupta...