Wednesday, January 13, 2010

AP Economics: 14 January 2010

Prayer (alphabetical):
Current Events:

Jan. 13 (Bloomberg) -- William Fleckenstein, president of Fleckenstein Capital Inc., talks with Bloomberg's Betty Liu about the role of the Federal Reserve's interest rate policy in the U.S. financial crisis. Fleckenstein, speaking from Seattle, also discusses today's hearing by Financial Crisis Inquiry Commission and the outlook for the U.S. banking industry. (Source: Bloomberg)

As noted yesterday, hearings are beginning in Washington in an attempt to form a bi-partisan account of the financial crisis.

We will pick up where we left off: finish Ch. 16, PowerPoint presentation.

A "jobless recovery" or "jobless growth" is a phrase used by economists, especially in the United States, to describe the recovery from a recession which does not produce strong growth in employment.

Prior to the 1990s, most economic recoveries led to employment increases relatively rapidly. However, in the early 1990s recession, early 2000s recession, and late-2000s recession the employment recoveries have lagged behind increases in gross domestic product (GDP).

A jobless recovery is usually seen as a bad thing in a capitalist industrialized society, primarily because in such a society most people need jobs to earn the money they need to purchase goods and services from the marketplace, and also secondarily because doing something useful and productive is usually connected to a healthy individual's self-esteem. Some economists have suggested that increasingly better automation (including AI and robotics), better design, better materials, and better communications are together creating permanent structural unemployment as human labor is being replaced by machines (or, sometimes, voluntary efforts) and that social trends like environmentalism or voluntary simplicity may also reduce aggregate demand. But many mainstream economists still suggest the economy will correct itself in time through continually increasing demand for ever more new goods and services, and they suggest those goods and services will always require lots of paid human labor to produce or otherwise to guard.

Some heterodox economists suggest moving towards a possible approach for dealing with the problems posed by a jobless recovery and other related economic issues like social equity and sustainability.

There is a paradox that many people may be happier with more free time to spend with friends, families, and hobbies, if they still can acquire the basic goods and services they need somehow, but this positive increase in satisfaction might appear as negative economic indicators like a shrinking GDP or a continually increasing unemployment rate. Also, not all jobs created by a recovery are equal in terms of their implications for overall societal well being (for example, more prison guard jobs may indicate some other social dysfunction is taking place).

In general, the US economy has for the 2000-2010 decade failed to create many new good jobs relative to population growth, and there is disagreement about what that trend means, whether it will continue, or what to do about it if it does continue. Some past predictions about the effect of automation on employment have failed to prove true, so predictions on future trends regarding employment based on automation are viewed with suspicion by default. Because any related predictions or suggestions rely on assumptions about human nature, embody political values, or entail speculating about the potential of future technology, there is much room for uncertainty and disagreement.


Economic Growth Chapter 17

Chapter Overview

After discussing the classical model, the chapter presents material on the sources
of long-run economic growth (with particular emphasis on productivity growth)
and the importance of infrastructure. The chapter concludes with a section on innovation waves.

Chapter Outline

The Classical Model, p. 455, 4:15

I worked to illuminate new insight and critique on classic economic theories in relation to the Information Society. Although mainstream economic theory emphasizes the quintessential importance of monetary value to induce motivation within a capitalistic society, the Information Age has revolutionized the way we create, share and consume within our culture specifically illustrated in the case of YouTube.

By definition, economics is the social science that studies the production, distribution and consumption of goods and services and also involves the study of choices as they are affected by incentives and resources. Economics aims to explain how economic work and how economic agents interact.

For classic economic theorists, such as David Hume and Adam Smith and for the majority of Western World thinking after them, self-interest became the primary motivating force that explained most of social reality and systemized supply and demand as joint determinants of price and quantity. Ultimately, traditional economic thinking within the capitalistic sphere believes that people choose strategies that will maximize their payoff while minimizing input. Humean though specifically notes that money is a sign of representing the value of all commodities. However, with the advent of new social technologies, common held theories that believe people can only be motivated to produce if there are monetary gains involved are being challenged.

My video project focuses specifically on the case of YouTube, as it is a revolutionary invention at the vortex of social change that has popularized and risen as a phoenix-like entity in our culture with immense implications in regards to our cultural interactions and exchanges. I question how YouTube has been so successful is a society that has traditionally been driven by financial initiatives and speculate how and why participants of the site dedicate so much time and energy without monetary rewards.

In reviewing literature on classic economic theory and comparing it to YouTubes model of creation, I was able to develop a personal analysis and understanding of this spectacular phenomenon. I also became familiarized with recent literature and work on YouTube and how it is impacting our society.

In essence, I worked to compare classic economic thinking to the case of YouTube labour relations and adapted a critical analysis of participants motivations to dedicate time and effort into creation and production of audiovisual material.


Berry, C.J. (2006). Hume and the customary causes of industry, knowledge and humanity. History of Political Economy, 38(2), 291-317

Croteau, D. (2006). The growth of self-produced media content and the challenge to media studies. Critical Studies in Media Communication, 23(4), 340-400

Deuze, M. (2007). Convergence culture in the creative industries. International Journal of Cultural Studies, 10(2), 243-263

Kaplan, J.A. (2007). You tube vs. them tube. PC Magazine, 26(3), 63-64

Seidenberg, S. (2009). Copyright in the age of Youtube. ABA Journal, 95(2), 37- 39

Sturn, R. (2004). The skeptic as an economists philosopher? Humean utility as a positive principle. European Journal of the History of Economic Thought, 11(3), 101-115

van Dijck, J. (2009). Users like you? Theorizing agency in user-generated content. Media, Culture and Society, 31(1), 41-51

Wasserman, T. (2006) Youtube. Brandweek, 47(37), 34

Music Credits:

Nighttiming, Coconut Records

Ghostwriter, RJD2

So He Wont Break, The Black Keys

Intro: Quest for Glory, Shad

My Girl Is Calling Me (A Liar), Chromeo

The Proxy, RJD2

Nothing Is Normal, Debra

Aggregate Production Function, p. 455, 6:55

The Cobb-Douglas aggregate production function is explained along with constant returns to scale and diminishing productivity returns. The author discusses the role of technology on economic growth.

Product Markets, p. 456; Labor Markets, p. 456, 2:27

Mr. Clifford's (except for the spelling errors) 60 second explanation of the differences between a perfectly competitive product market and a perfectly competitive resource market. Notice that the firms both have a horizontal curve but in the product market it is demand and in the resource market it is supply.

Capital Markets: Saving and Investment, p. 458

Personal Savings and Investment are Important for the Economy, 6:44.

Dr. Demos Vardiabasis on the post WWII global economy

Implications for Economic Growth, p. 460

The unemployment rate held steady at 10 percent in December 2009. Paul Solman travels to Atlanta to gauge the hiring outlook in a down job market, 7:17.

Checkpoint: The Classical Model, p. 460
Sources of Long-Run Economic Growth, p. 460
Growth in the Labor Force, p. 461, 4:26

Changing Gender Roles at Home

The rapidly increasing number of women in the labor force has been both a cause and effect of the shift in gender roles in recent years. Women have had less time and energy to devote to their traditional role as homemaker. This has triggered a seismic shift in the division of labor in many households. From the series Our Families, Ourselves: Marriages and Families. Copyright 2007.

Productivity Is Important, p. 461
Sources of Productivity Growth, p. 462
Increasing the Capital to Labor Ratio, p. 462
Increasing the Quality of the Labor Force
Improvements in Technology
Modern Growth Theory
Checkpoint: Sources of Long-Run Economic Growth
Infrastructure and Economic Growth
Public Capital
Protection of Property Rights
Enforcement of Contracts
Stable Financial System
Economic Freedom Index
Checkpoint: Infrastructure and Economic Growth
The Changing Face of Innovation Waves

Ideas for Your Classroom Audience
The best illustration of the importance of the rate of economic growth is the rule
of 72 (or 70 in some texts). Use different growth rates and illustrate how long it
takes for a countrys GDP to double. Follow this up with Question 7 from the endof-
chapter Questions and Problems (the question asks whether a 1.4% growth
rate is so different from a 3.4% growth rate).

The text mentions Somalia as a particular country that has suffered due to its
severe political problems. Take a virtual �gfield trip�h to Somalia on this website
from BBC News. See the Web site at

Chapter Checkpoints
The Classical Model
Question: The classical model relies on competitive markets for labor, products,
and capital to keep the economy near full employment and output. The United
States has enjoyed nearly 3 decades of high employment, high growth, and low
inflation, interrupted by two short and mild recessions. Has the recent growth in
globalization and trade liberalization introduced more competition into labor, capital,
and product markets, making our economy look and act like classical economists

The point is to check that students can: relate their understanding of the classical
model to changes in the global economy.

Sources of Long-Run Economic Growth
Question: In 2006, Warren Buffett, the world�fs second richest individual, announced
that over the next few years he would be giving 85% of his wealth, over $30 billion,
to the Bill and Melinda Gates Foundation. The foundation focuses on grants to
developing nations, helping the poorest of the poor. What suggestions would you
give the Foundation to help these developing nations grow?

The point is to check that students can: relate the factors that affect long-run economic
growth to the activities of a foundation like the Gates Foundation.

Infrastructure and Economic Growth
Question: Imagine a country with a “failed government” that can no longer enforce
the law. Contracts are not upheld and lawlessness is the order of the day. How could
an economy operate and grow in this environment?

The point is to check that students can: understand how important the legal framework
is to economic growth.

Extended Examples in the Chapter
The Changing Face of Innovation Waves
Looking back to Schumpeter’s creative destruction, this section argues that the time
between waves of innovation is becoming shorter. It cites the work of William
Baumol, who contends that capitalism’s ability to produce a steady stream of new
ideas and processes has made capitalism the most efficient growth machine and the
best economic system for generating growth.
The sources cited for this section are “Catch the Wave: The Long Cycles of
Industrial Innovation are Becoming Shorter,” from The Economist, February 19,
1999, and The Free-Market Innovation Machine: Analyzing the Growth Miracle of
Capitalism, by William J. Baumol (Princeton: Princeton University Press, 2002).

Examples Used in the End-of-Chapter Questions
Questions 4 and 7 reference growth rates in different countries. Question 11 references
per capita income (or output). To learn more about growth rates and per
capita income in different countries, visit the CIA Factbook Web site at
For Further Analysis
Immigration: Good or Bad for Productivity?
The example provided in the student handout can be used as a small group exercise
or as an individual exercise. It is also suitable to use as the basis for a classroom
debate. The exercise expands on the chapter’s coverage of the sources of long-run
economic growth by exploring the issue of immigration. Students are directed to
read two articles about different “types” of workers and use them as a basis for analyzing
the impact of immigration.

See the paper on guest-worker programs by Mark Krikorian, executive
director of the Center for Immigration Studies for a presentation of this viewpoint.

Web-Based Exercise
This example requires students to compare two different measures of economic
freedom and to assess what aspects of economic freedom they feel are most important.
This assignment builds on the discussion on the text and also provides an
opportunity to discuss the effects of corruption on economic growth.
The Dimensions of Economic Freedom
Visit the Web site of the Fraser Institute to read its Economic Freedom of the World
report. Compare it with the Index of Economic Freedom (from the Heritage
Foundation and The Wall Street Journal) by answering the following:
1) Which are the top ten countries according to each source? (Web sites are and http://www.
2) What categories are included in each definition of freedom? (You may consult
the list of categories in the text for the Fraser Institute; for the Heritage
Foundation, see the Web site at

The challenge with regard to this material is how much students may take for
granted about their freedoms and the economy in which they live. Trying to give
them another perspective will help them understand the strengths of the U.S. economy
and the challenges of other countries.


Immigration: Good or Bad for Productivity?
Growth in the labor force is listed as a major source of long-run economic growth. But what
causes the labor force to grow? As noted in the text, immigration is causing the U.S. population to
rise faster than anyone thought. Is this good for productivity?
Read the article titled “Keeping Out the Wrong People: Tightened Visa Rules Are Slowing the Vital
Flow of Professionals into the U.S.” by Spencer E. Ante in Business Week (October, 2004, pp. 90–
94, available on the Web at:
Then read “The Worker Next Door,” by Barry R. Chiswick in The New York Times, June 3, 2006,
p. A23. This article is available on the Web at:
Based on the two articles, assess whether immigration is good or bad for U.S. productivity.

"Mankiw's 10 principles of economics, translated for the uninitiated", by Yoram Bauman, . Presented at the AAAS humor session, February 16, 2007. For the record, the talk contains two unattributed quotes ("9 out of 5" is adapted from a line attributed to Paul Samuelson---although apparently he said it about Wall Street indices, not macroeconomists---and "wrong about things" is paraphrased from P.J. O'Rourke's Eat the Rich) and, of course, the Einstein "simple" quote is an intentional misquote. The talk is based on a published article in Annals of Improbable Research (see ), which sponsored my talk and to which you should subscribe ( ). In the paper you can see the "constructive example" of how trade can make everyone worse off (or you can just wait 50 years to see what happens with climate change). More info and other clips on my website ( ), and please sign up for my email list.

Email HW to
1. Study for the Ch. 15 Multiple Choice Test.