Journalism and Economics
Right now, Economics is the world’s big story.
In Europe, the debt and banking crisis …
The rise of China …
In the US, the jobless recovery …
In Ukraine, ---------In Belarus, ----------International trade is important to understanding these events.
Growth of worldwide trade
In the past 50 years
A bigger share of world GDP
Increases 3x since 1970
International macro-economics
•
•
•
•
Employment
Savings
Trade balances
Price levels of money
Alternative: microeconomics – from the bottom up.
Look at particular businesses and consumers. If
we have time, direct conversation in that
direction.
My sources of help …
• Parker, Kotlikoff, Krugman, Mankiw
The questions that got me started
• In Maine, Why are the wages so low? And
work so dangerous?
• What led to the loss of industry in
Philadelphia?
North Philadelphia
.
There was a lot I didn’t know
What were the economic forces at work, and
how I could understand and use them as a
journalist? Was international competition a
factor?
It’s difficult to identify what you don’t know.
Forming your questions
Let’s identify what you are unsure about, elements
of international trade and currency that you
would like to better understand.
Terms, connections, concepts, sources of
information, aspects of trade economy or
currency, even specific businesses.
Trends, events, things happening in your cities that
you would like to better understand through the
lens of economics?
What makes an economist?
• Theories that express how the economy works
• Numbers that express how the economy
works
Free trade equilibrium in the immobile factor model
The journalist and economics
Events
Decisions, policies of government and business.
Accountability of decision makers.
The public’s understanding of events and issues.
Economic literacy.
Where does international economics
fit into your work?
Issues?
Articles?
People?
Industries?
Lives of readers?
Why do countries trade?
Countries trade because
... They are different
… And because Trade allows them to achieve
efficiencies in specific areas of production.
Key concepts
• Comparative advantage
• Competitive advantage
• Opportunity cost
The Krugman example
Millions of roses
Thousands of
computers
US
-10
+100
Peru
+10
-30
Total
0
+70
Comparative advantage
“A country has a comparative advantage in
producing a good if the opportunity cost of
producing that good in terms of other goods is
lower in that country than it is in other
countries.”
Allocating resources, industries
The market makes these decisions … the
invisible hand that responds to costs, prices,
opportunities for profit.
Ricardian model: The tendency of countries to
specialize in products or services where they
have a comparative advantage.
Again, comparative advantage
“Countries tend to specialize in products or services when
it has lower unit labor requirements (or other factors
of production).”
Factors of production:
Labor (from farmhands to programmers)
Land (including all natural resources
Capital (including all man-made resources, machines)
Entrepreneurship
Absolute advantage
A country has an “absolute advantage” in trade
when it can produce a product with less labor,
for example, than another country.
Absolute advantage is not a requirement for a
country to be able to trade, for its own
benefit, with another country.
Favorable factors of production
Ukraine?
Belarus?
Some basic concepts
Trade is beneficial to the buyer and the seller.
“Two countries can trade to their mutual advantage even when one of them
is more efficient than the other at producing everything and producers in
the less efficient country can compete only by paying lower wages.”
– Krugman
Trade can be thought of as an indirect form of
production. One thing is produced and sold in
order to buy something else.
Some myths about trade
1. Foreign trade is beneficial only if your
country is strong enough to stand up to
foreign competition
2. Foreign trade is unfair if is based on low
wages.
3. Foreign trade exploits workers in low wage
countries.
Debate: Arguments against free trade
• It eliminates jobs in the home country
• It can hurt industries that are important to
national security
• It prevents development of new “infant
industries.”
• It can represent unfair competition (wages, for
example)
• Trade barriers can become national bargaining
chips
-- Gregory Mankiw
Trade doesn’t benefit everyone inside
the country
• Some people gain, some people lose.
“Trade can hurt people in specific industries that compete with imports if
they can not find another source of employment… It can also alter the
distribution of income between groups.” – Krugman
• The nation as a whole gains
• Policy response to the pain from trade
• A source of stories for journalists
A current critique
Trade as mutually beneficial is taken as a
fundamental assumption by economists …
But there is some rethinking, in special cases, of
fully free trade by some including Joseph Stiglitz.
(“Globalization and its Discontents”)
IMF
China
Policy debates informed by economics.
What are your premises? Ideology?
•
•
•
•
•
Free markets (with qualifications)
Free trade (with qualifications)
Prudent government engagement
Low unemployment, low inflation
Rising personal income
What makes an economist?
• Theories that express how the economy works
• Numbers that express how the economy
works
Economic indicators
• Blood pressure test
• Key indicators: GNP, GDP, national income
accounts, trade.
• Examples and discussion of indicators
Some advice on numbers Take a breath, don’t panic
• We look for the story hidden in the numbers: A
change, or something unusual, or it stands out as
a question that leads to ask “Why?”
• The number compared to other numbers in a
data set (US unemployment)
• A single number standing by itself is not so
useful. Belarus GDP:$ 54.7 Billion
• The way a number changes over time – trends.
Ukraine GDP, 2010: $305.229 Billion
• The number expressed as a ratio – in other
words, a number in comparison to a different
number. GDP/ population or per capital GDP.
A system for tracking trade
• Balance of payments
• Current account
• Capital account
International trade
Now
Country
Value of exports - goods and services
Country
Value of imports - goods and services
Export categories - goods and
services
Import categories - goods and
services
Country
Country
Country
Exports minus imports
Current account
National income (GNP)
Consumption
Investment
Government expenditure
Current account
Current account / GNP (or GDP)
GNP (or GDP) / population
Connecting trade and national wealth
Gross National Product: The value of all final goods and services
produced in a country by its factors of production and sold on the
market in a given time period.”
GNP = National income (more or less) The value of the output (GNP) is
arrived at by adding up all the expenditures on final output.
NATIONAL INCOME =
Consumption +
Investment (set aside for future production including inventories) +
Government spending +
Exports – minus imports
<Income, by this definition, equals output.)
GNP, GDP
Gross Domestic Product (GDP) is similar to GNP
but not exactly the same. They tend to track
one another, so the distinction for our
purposes here is not that important.
GDP: The value of production within a country’s
borders. It does not capture some income
generated in another country.
What does I mean to be rich, poor?
GDP or GNP/ capita is an average, but it gives us
metric to consider standard of living.
Ukraine (1)
Belarus (1)
International trade
Now
Country
Value of exports - goods and services
Country
Value of imports - goods and services
Export categories - goods and
services
Import categories - goods and
services
Country
Country
Country
Exports minus imports
Current account
National income (GNP)
Consumption
Investment
Government expenditure
Current account
Current account / GNP (or GDP)
GNP (or GDP) / population
National income, again
NATIONAL INCOME =
Consumption +
Investment +
Government spending +
Exports – imports (current account balance)
Capital account
What happens when the capital account is in
deficit?
Forms of borrowing to finance a
current account deficit
•
•
•
•
•
Bond finance
Bank finance
Official lending (World Bank, for example)
Direct foreign investment
Portfolio investment in ownership of firms
Greece
• Current account balance
• Borrowing.
• Banks, and credit-default swaps.
Analysis of Exports
• The picture in general of Ukraine and Belarus
(1)
Now some closer examination
• Which sectors, which industries?
• How are they competing? What are the factor
inputs? Why is an exportable item? Is the
price subsidized in some way?
• Steel industry in Ukraine, for example.
• See Richard Parker.
Characteristics of developing countries
•
•
•
•
Extensive government control of economy
History of high inflation
Weak credit institutions
Currency rates are managed by the
government
• High proportion of natural resource sales or
farm commodities
• Gray economies – tax evasion, corruption.
Where does international economics
fit into your work?
Issues?
Articles?
People?
Industries?
Lives of readers?
Exercises for you
• Chart the basic trends in your nation or region
• Draw comparisons to other nations
• Relate the trends to prices, wages and job
security
Basic knowledge of your country’s
trade position
Which indicators? What else do you want to
know?
Reporting upstream
• Richard Parker’s point
Turning statistics into stories
Areas of your coverage
• Bring this later into the presentation
Factors affecting imports and exports
•
•
•
•
•
•
Consumer tastes
Prices
Exchange rates
Consumer incomes
Transportation costs
Government policies
Terms
•
•
•
•
•
•
•
•
•
•
•
Balance of payments
Current account
Capital account
Gross Domestic Product
National income
National income accounts
Demand curve
Capital inflows
Capital outflows
Purchasing power parity
International reserves
• Central bank
Sources of information
Ukraine trade:
http://info.worldbank.org/etools/wti/docs/Ukraine_taag.pdf
Belarus trade:
http://info.worldbank.org/etools/wti/docs/Belarus_taag.pdf
International trade and economic data:
http://www.economywatch.com
International Monetary Fund
http://www.imf.org/external/data.htm
World Trade Organization
http://www.wto.org/english/res_e/statis_e/statis_e.htm
Organizations
International Monetary Fund
An international organization that watches over the
world’s financial system and monitors macroeconomic
policies especially as they affect exchange rates and
balances of payments. Also provides loans to nations.
World Trade Organization
An international organization that supervises trade
among members and seeks to liberalize trade policies.
It also formalizes trade agreements and settles trade
disputes. Replaced the earlier GATT.