All Terrain Thinking

A Compendium of things I think are Important

Economics: It's not just whats' in your wallet

Intro to the Basics

The Setting

"Fashions in economic ideas come and go, like fashions in women's clothes....the history of economic thought is closer to the history of women's fashion than to the history of astronomy or physics. " _{Herbert Stein in Presidential Economics p 397}

"All systems either of preference or of restraint, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men. The sovereign is completely discharged from a duty, in the attempting to perform which no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of society._{" Adam Smith, The wealth of nations. Book 4, Chapter 9}

"It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our necessities but of their advantages."  _{Adam Smith, The Wealth of Nations, Book I Chapter II p16}

As it is the power of exchanging that gives occasion to the division of labour, so the extent of this division must always be limited by the extent of that power, or, in other words, by the extent of the market. _{Adam Smith The Wealth of Nations, Vol. I Book I Chapter III p19}

It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy...What is prudence in the conduct of every private family, can scarce be folly in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage. _{Adam Smith The Wealth of Nations, Vol. I Book IV Chapter II p422}

"neither a state nor a bank ever has had unrestricted power of issuing paper money, without abusing that power; in all States, therefore, the issue of paper money ought to be under some check and control; and none seems so proper as that of subjecting the issuers of paper money to the obligation of paying their notes, either in gold coin or bullion."_{David Ricardo}

"Now 'in the long run' this is probably true.... But this **long run** is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again." _{John Maynard Keynes,   The General Theory of Employment Interest and Money.}

Introduction

• What is Economics
• Economic Systems
  • Alternative Systems
  • Alternative Views
• How much Math

Alternative Economic Systems

• Traditional
• Command
• Market

Diagram 1
Structure of Market System

Diagram 2
Model of Choice

Diagram 3
Circular Flow Model

Alternative Views

Diagram 4
Ideological Pendulum

Marxists  /   Liberals    /   Conservatives

• Proper scope of government

• Self-adjusting nature of economy

Data Analysis

• A few good visuals
  • Gotti table
  • cholera diagrams
  • Challenger diagrams

   

  Where Does the Cholera Come From?

  

Should we stop the launch?

A few opening questions - and answers

• Where would you locate production to satisfy local demand?
  • Review the following demographic data and prepare a position paper on where APC should open a new production facility to be closer to the consumer.
  • 
• Would you support this person for re-election?
  • Review the following economic data and prepare a position paper on the incumbent who is running for reelection.

  

• Has the drug Ansylium reduced Chemical x?
  • The producer of Ansylium, in a recent advertisement, presented the graph below as evidence of the success of Ansylium as a treatment for high levels of Chemical X. At the time Ansylium was introduced the level of the Chemical began to fall.  Is this conclusive evidence of Ansylium's success? Are you ready to give the go ahead for the drug?

  

• Does the President deserve our support?
  • Slippery Slope University hired their president six years ago to help improve the revenue side of the University's finances. The president's track record is presented below:

    	Revenue($millions)
    1991	100
    1992	90
    1993	92
    1994	95
    1995	98
    1996	101

  • Would you vote for an extension of the president's contract? Has this person succeeded?

What questions need to be asked

• Where do you find the data?
• What data do you use?
• Which time period do you use?
• What form of the data do you use?
  • How do we adjust for inflation?
• How do you present the data?

What you need to know about graphs

• A Guide to the Table vs Graph Choice

A Sample of Graph Types

• Pie Graphs
• Bar/Column Graphs
• Time-Series Graph
  • decomposition / cycles - trends

  

• Scatter Diagram - what to look for - pattern

• Line Graph - what to look for
  • axes (qualitative vs. quantitative)
  • slope (direction of change)
• Linear relationships (constant slope)
  • turning points (maximum-minimum)

• Multi-dimensional Relationships
  • 3-D graph
  • Contour Lines

What are the limitations of graphs?

• Correlation Vs Causality
• Scale distortion

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