EEAH Economic Way of Thinking chapter 1

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An Introduction to the World of
Economic Thinking
February 22, 2012
Mark C. Schug
Professor Emeritus
University of WisconsinMilwaukee
Overview
• Problems teaching
history
• Perspectives of history
and the social sciences
• How economic thinking
might help
• Solving economic
mysteries
Problems Teaching History
Problems Teaching U.S. History
• Schools rely on U.S. history to teach
– Our national identify
– An academic understanding of our
past
• Some states are encouraging teachers
to place more emphasis on economics
in non-economics courses such as U.S.
and World History.
• History teaching is criticized as being
– Boring in content and pedagogy
– Superficial/Trivial
– Remote
– Rarely focused on “why”
Status of State Economics Standards
Relationship Between Time in the
Curriculum and Learning
• Students usually take 6
semesters of U.S. history:
– Grade 5: 2 semesters
– Grade 8: 2 semesters
– Grade 11: 2 semesters
• Yet, national tests show that
achievement in history is
low compared to civics,
geography, and economics.
NAEP Achievement Levels
36 % below basic
21 % below basic
30 % below basic
NAEP Achievement Levels: History
55 % below basic
How Economic Thinking Might Help
What Can Economics Contribute to
Improving the Teaching of History?
• Economics stresses the idea
that all people make
choices.
• But, individuals don’t know
at the time what the
consequences of their
choices will be.
They Didn’t Know How It Would All
Turn Out
• In writing history or biography, you must remember that
nothing was on track. Things could have gone any way at any
point. As soon as you say “was” it seems to fix an event in the
past. But nobody ever lived in the past, only the present.
• The difference is that it was their present. They were just as
alive and full of ambition, fear, hope and all the emotions of
life. And, just like us, they didn’t know how it would all turn
out.
TALKING HISTORY WITH: David McCullough; Immersed in Facts,
The Better to Imagine Harry Truman's Life
By ESTHER B. FEIN
Published: August 12, 1992 New York Times
They Didn’t Know How It Would All
Turn Out
• The challenge is to get the reader [student] beyond the
thinking that things had to be the way they turned out and to
see the range of possibilities of how it could have been
otherwise.
Introduction to the Economic Way of
Thinking
The Economics Myth
• Myth
– Economics is all
about the money.
• Reality
– Economics is all
about how people
make choices.
– Economics is a way
of thinking and
understanding.
Perspectives of History and the Social
Sciences
• History
• Geography
• Economics?
How to Start Thinking Economically
• Concentrate on skills that
require only a few basics to
get started.
• Think about the basics of a
sport or a hobby you enjoy.
• Swinging a golf club
– Grip
– Stance
– Backswing
– Impact and follow though
How to Start Thinking Economically
• Casting with a spinning rod
• Driving a manual
transmission
• Playing spider solitaire
• Playing a musical
instrument
It’s a World Filled with Mysteries
The Delaware Teacher Mystery
• History teachers have
lots of things to do
during the semester.
They:
– Prepare lessons
– Attend staff meetings
– Attend parent
conferences
– Teach classes
– Run clubs and coach
sports
– Grade papers
– Enter grades
– Attend more
meetings…
• Why would teachers
with so many things to
do want to attend a
workshop on economics
-- a subject most
teachers love to hate?
A Guide to Economic Reasoning
1.
2.
3.
4.
5.
6.
People make choices because they face
scarcity.
People’s choices involve costs - opportunity cost
People respond to incentives in
predictable ways - - profits, self-interested
behavior and competition
People create economic systems - - rules
of the game - - that influence individual
choices and incentives.
People gain when they trade voluntarily - specialization
People’s economic actions have primary
effects and secondary effects.
Frédéric Bastiat
• There is only one difference
between a bad economist and a
good one: the good economist
takes into account both the
effect that can be seen and
those effects that must be
foreseen.
• Yet this difference is
tremendous; for it almost
always happens that when the
immediate consequence is
favorable, the later
consequences are disastrous,
and vice versa.
Frédéric Bastiat
• [Thus] it follows that the bad
economist pursues a small
present good that will be
followed by a great evil to come,
while the good economist
pursues a great good to come,
at the risk of a small present
evil.
A Guide to Economic Reasoning
1.
2.
3.
4.
5.
6.
People make choices because they face
scarcity.
People’s choices involve costs - opportunity cost
People respond to incentives in
predictable ways - - profits, self-interested
behavior and competition
People create economic systems - - rules
of the game - - that influence individual
choices and incentives.
People gain when they trade voluntarily - specialization
People’s economic actions have primary
effects and secondary effects.
The Oil Reserves Mystery
• Proven oil reserves stand at 531
billion barrels and we are
consuming 16.5 billion barrels
annually.
• Quick! How many years will it
take us to run out of oil?
• This was the situation in 1970.
• By 2010, proven oil reserves
had increased to over 1.30
trillion barrels even though the
world is consuming about 35
billion barrels annually.
• How can this be?
The Battle for the Overhead Bins
• Air travelers kiss their loved
ones goodbye…
• And then transform into
baggage warriors stuffing all
sorts to oversized bags
rudely into overhead bins.
• Why do they do that?
• Bonus Question: How could
a change in the rule of the
game influence their
behavior?
Why Can’t You Buy A Car on Sunday
• In Wisconsin,
– You can buy a lottery
ticket on Sunday.
– You can buy a cigar on
Sunday.
– You can buy a bottle of
gin on Sunday.
• But in Wisconsin (and
Colorado, Illinois, Indiana,
Iowa, Louisiana, Maryland,
Michigan, Maine,
Minnesota, Missouri, Texas
and Utah) you can’t buy a
new car on Sunday.
• Why?
Why Grow Cotton in the Desert?
• Water is a scarce resource,
especially in Arizona.
• Yet, growing cotton and citrus
crops are an important part of
the Arizona’s economy.
• Why would farmers grow
monsoon crops in the desert?
Circling Back to Oil: Adam Smith’s Invisible
Hand
• Does Adam Smith’s invisible
hand and the profit motive
contribute to providing all
of us access to goods and
services such as oil, books,
movies, cars, homes, and
iPads?
• What is the metaphor of the
invisible hand meant to
convey?
• Free markets - - allowing
people to act in their own
self-interest - - promotes
positive social outcomes
even those these are not
intentional.
But What Limits Profits?
Questions
Lightning Preview of Book Features
Lightning Preview of Book Features
• Framing the Issue
(with a personal story)
• Key Economic Concepts
• The Historical Context
• The Economics of ________
• Historical Questions and
Economic Answers
• Primary Source
• Then and Now
• Discussion Questions
• Web Resources
• Glossary
Lightning Preview of Book Features
• Framing the Issue
(with a personal story)
• Key Economic Concepts
• The Historical Context
• The Economics of ________
• Historical Questions and
Economic Answers
• Primary Source
• Then and Now
• Discussion Questions
• Web Resources
• Glossary
Lightning Preview of Book Features
• Framing the Issue
(with a personal story)
• Key Economic Concepts
• The Historical Context
• The Economics of ________
• Historical Questions and
Economic Answers
• Primary Source
• Then and Now
• Discussion Questions
• Web Resources
• Glossary
Lightning Preview of Book Features
• Framing the Issue
(with a personal story)
• Key Economic Concepts
• The Historical Context
• The Economics of ________
• Historical Questions and
Economic Answers
• Primary Source
• Then and Now
• Discussion Questions
• Web Resources
• Glossary
Lightning Preview of Book Features
• Framing the Issue
(with a personal story)
• Key Economic Concepts
• The Historical Context
• The Economics of ________
• Historical Questions and
Economic Answers
• Primary Source
• Then and Now
• Discussion Questions
• Web Resources
• Glossary
Lightning Preview of Book Features
• Framing the Issue
(with a personal story)
• Key Economic Concepts
• The Historical Context
• The Economics of ________
• Historical Questions and
Economic Answers
• Primary Source
• Then and Now
• Discussion Questions
• Web Resources
• Glossary
Lightning Preview of Book Features
• Framing the Issue
(with a personal story)
• Key Economic Concepts
• The Historical Context
• The Economics of ________
• Historical Questions and
Economic Answers
• Primary Source
• Then and Now
• Discussion Questions
• Web Resources
• Glossary
Lightning Preview of Book Features
• Framing the Issue
(with a personal story)
• Key Economic Concepts
• The Historical Context
• The Economics of ________
• Historical Questions and
Economic Answers
• Primary Source
• Then and Now
• Discussion Questions
• Web Resources
• Glossary
Lightning Preview of Book Features
• Framing the Issue
(with a personal story)
• Key Economic Concepts
• The Historical Context
• The Economics of ________
• Historical Questions and
Economic Answers
• Primary Source
• Then and Now
• Discussion Questions
• Web Resources
• Glossary
Lightning Preview of Book Features
• Framing the Issue
(with a personal story)
• Key Economic Concepts
• The Historical Context
• The Economics of ________
• Historical Questions and
Economic Answers
• Primary Source
• Then and Now
• Discussion Questions
• Web Resources
• Glossary
Preview of Teacher’s Edition
• Chapter summary
• Learning goals
• Suggested answers to all
Questions for Discussion
• An extension activity that
reinforces main ideas.
• Student assessment items: essay
questions, a vocabulary-matching
exercise, multiple-choice
questions addressing history
content, and multiple-choice
questions addressing economics
content.
Preview of Teacher’s Edition
• Chapter summary
• Learning goals
• Suggested answers to all
Questions for Discussion
• An extension activity that
reinforces main ideas.
• Student assessment items: essay
questions, a vocabulary-matching
exercise, multiple-choice
questions addressing history
content, and multiple-choice
questions addressing economics
content.
Preview of Teacher’s Edition
• Chapter summary
• Learning goals
• Suggested answers to all
Questions for Discussion
• An extension activity that
reinforces main ideas.
• Student assessment items: essay
questions, a vocabulary-matching
exercise, multiple-choice
questions addressing history
content, and multiple-choice
questions addressing economics
content.
Preview of Teacher’s Edition
• Chapter summary
• Learning goals
• Suggested answers to all
Questions for Discussion
• An extension activity that
reinforces main ideas.
• Student assessment items: essay
questions, a vocabulary-matching
exercise, multiple-choice
questions addressing history
content, and multiple-choice
questions addressing economics
content.
Preview of Teacher’s Edition
• Chapter summary
• Learning goals
• Suggested answers to all
Questions for Discussion
• An extension activity that
reinforces main ideas.
• Student assessment items: essay
questions, a vocabulary-matching
exercise, multiple-choice
questions addressing history
content, and multiple-choice
questions addressing economics
content.
Preview of Teacher’s Edition
• Chapter summary
• Learning goals
• Suggested answers to all
Questions for Discussion
• An extension activity that
reinforces main ideas.
• Student assessment items: essay
questions, a vocabulary-matching
exercise, multiple-choice
questions addressing history
content, and multiple-choice
questions addressing economics
content.
The Mystery of the Alien Bananas
• Bananas are a tropical fruit.
• No one in Delaware grows
them.
• Delaware statutes provide
no plan for getting bananas
to grocery stores.
• Yet, there they are there –
everyday, even the most
rural grocery stores.
• How can that be?
John Stossel Gets a Steak
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