Friday, October 28, 2011

TBA reading for 11.2

Here's the link to Manuel's post with several articles on the Greek debt crisis. (You can access the WSJ article through Factiva--just search for it by title)

Also check out this article that discusses how the crisis is playing out in terms of Greece's internal politics.

Have a good weekend!

Sunday, October 23, 2011

Readings for 10.26

Sorry this is a bit late. The beautiful weather has sidetracked me so far this weekend--but I'm guessing with Homecoming you probably didn't notice. With the World Series in full swing, what better time to discuss the economics of sports? Here's three short pieces to read for Wednesday.

Will posted an interesting article on the stadium subsidy question: check it out here.

Here is another, short, obviously lefty but still interesting take on the subsidy question and on the economic structure of sports more generally.

Finally, here is a nice summary of how sports, like drug producers, are actually one of the best examples of the economic concept known as a "cartel." You might also check out the definition of that term from the same source (linked to both in the article and here).

Thursday, October 20, 2011

Essay #3 - Compare/Contrast Policy Positions

The goal of Essay #3 is to take us one step closer to producing our final term paper by going a little bit deeper into an issue of interest to you. In the last essay, we produced an informative argument that attempted to clarify misconceptions and highlight the most important aspects of an issue. In this essay, we will focus less on explaining the broad outlines of the issue and instead provide an account of different positions on an issue and how those differences come about--in other words, how do different assumptions about what facts are most important, what values are most pressing, and what outcomes are most desirable lead to radically different proposals regarding one and the same issue? Your opening paragraph should clearly define the issue you are discussing and the various positions you will compare; your thesis should provide a precise account of how those positions differ and what accounts for those differences.

For example: if we were comparing/contrasting proposals to reform Social Security by instituting personal accounts, on the one hand, and by eliminating the payroll tax and replacing it with a more progressive tax, on the other, we might argue the following: "This dispute arises from a different understanding of what Social Security is and should be: whereas proponents of private accounts see Social Security as akin to an investment in a private retirement account, and thus have no problem with the system leading to radically different payouts to beneficiaries depending on the performance of those accounts, proponents of changing merely the financing of Social Security see the program as part of the safety net designed to provide a minimum standard of retirement income regardless of how much an individual may have paid into the system before retirement." As you can see, once again it is best to focus on 2-3 proposals that are as specific as possible, which will make it easier to clearly define the reasons for those differences. The proposals need not be from radically different ideological camps as in the above example; instead, it would be perfectly acceptable to demonstrate how the same ideology can also lead to different policy prescriptions as a result of subtler differences.

Bring a rough draft of the paper to class on Friday, October 28th and Friday, Nov. 4th. The final paper will be due Monday, November 7th. The final draft should be 4-6 pages in 12 point Times New Roman Font with 1 inch margins.

Saturday, October 15, 2011

TBA reading for 10.19

Hey Folks,

Kolby posted some interesting links to the President discussing some of the possible proposals regarding Social Security. Check out the posts here and here.

Also, please read this article discussing the current status of Social Security. It will help clarify the financial situation of the program and to what extent this makes reforms necessary.

Wednesday, October 5, 2011

Recap of finance game scenarios

Here's the price changes that happened in our game today if you need to calculate or recalculate your results.

1. CDs 2%, Bonds $100, Stocks $50.

2. CDS 2, Bs 99, Ss 55

3. CDs 1, Bs 101, Ss 49

4. CDs 3, Bs 95, Ss 60.

5. CDs 4, Bs 94, Ss 65. Options at $10 dollars to Buy Bs at 98, sell Bs at 90, Buy Ss at 70, Sell Ss at 60. (All contracts are for 100 stocks or bonds).

6. No change in prices. Options expire.

7. CDs 0, Bs 108, Ss 45.

More background info: In the actual financial pages, you'll see the following terminology. It would have just made things more difficult today, but it's good to know what this stuff means for the future.

The option to sell something is called a "put," the option to buy is called a "call." The price at which you agree to buy or sell is called the "strike."

So you may see something like this in the Newspaper:

January 20xx Calls, Strike 65, $5.67

Which means you can buy for $5.67 an option that expires in January 20xx to buy something at $65.

Options that would yield a big profit right away are called "in the money," and sell for much more. So let's say stock prices are 70. An option to buy 100 shares at 68.5 would sell for more than $150. Such an option would be "deep in the money."

"Out of the money" options are cheap, because they will not yield a profit unless there is a big price change. So an option to buy at 78 while the current price is 70 would probably be very cheap as long as the price of the stock tends not to fluctuate too much.

"Out of the money" options work better as insurance policies against sudden, unexpected changes. Slightly "In the money" options, although often more expensive, are more volatile, which may allow for higher returns if someone feels confident about the movement of prices.

In the Podcast, they mentioned the notion of the "Greenspan Put." What this means is that there was a general consensus that the Federal Reserve would not let stock prices fall very far. In essence, all market participants were given for free an implicit "put" contract, which let them still make money if the price of stocks fell a certain amount. The Federal Reserve would stimulate the economy until stock prices went back up, just as if everyone had been given Put contracts that let them protect themselves against sudden downturns.

Tuesday, October 4, 2011

For our writing day this Friday.

Hey Folks,

Remember to complete the online course surveys on Moodle this week. This is your chance to give me input about the course so far and thereby to influence the remainder of our time together.

A few people have already completed the survey, and I quickly glanced at what is there so far. Some people have mentioned that they are having some difficulty with the economic terms. One thing that might help with that problem is the following link, which defines basic terms that may be unclear. Also, remember that at the end of the day, the economics we study is a means to an end. It is to help us analyze and understand public policy so that we can discuss the larger implications of it--the things that are important to everyone, not just economists. So if you find some subjects more difficult than others, don't worry; you won't be tested on them at any point. Just focus on what interests you and what you feel most comfortable discussing.

That said, I do want to clarify difficult concepts as much as possible so that you also leave class with the type of general knowledge that will help you understand news stories about the economy. Thus for Friday, please look up at least five terms you are having problems with and bring a question about something that is still unclear about the concept after reading the definition on the above website.

Please also read two Wikipedia articles about topics that confuse you, and bring at least one question to class regarding things that are still unclear after looking at those articles.

Also bring to class questions about the topics you are researching. If we have time, I want to work in small groups to help address these concerns.

Monday, October 3, 2011

TBA Reading, er, Podcast for 10.5

Hey Gang,

We've talked a lot about the recession, and yet still have not really discussed the topic that pops up most in media coverage of the economic crisis - finance and banking. Although the current recession is fundamentally a demand-side phenomenon, changes in the financial system arguably made such crises more likely. This podcast discusses some of those changes.

Post your responses on your blogs by 5pm Tuesday to give everyone a change to respond.