An Introduction to the World of Economic Thinking

1. An Introduction to the World of Economic Thinking February 22, 2012 Mark C. Schug Professor Emeritus University of Wisconsin-Milwaukee

2. Overview • Problems teaching history • Perspectives of history and the social sciences • How economic thinking might help • Solving economic mysteries

3. Problems Teaching History

4. 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”

5. Status of State Economics Standards

7. 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.

8. NAEP Achievement Levels 36 % below basic 21 % below basic 30 % below basic

9. NAEP Achievement Levels: History 55 % below basic

10. How Economic Thinking Might Help

11. 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.

12. 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

13. 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.

14. Introduction to the Economic Way of Thinking

15. Myth Economics is all about the money. Reality Economics is all about how people make choices. Economics is a way of thinking and understanding. The Economics Myth

16. Perspectives of History and the Social Sciences • History • Geography • Economics?

17. 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

18. How to Start Thinking Economically • Casting with a spinning rod • Driving a manual transmission • Playing spider solitaire • Playing a musical instrument

19. It’s a World Filled with Mysteries

20. 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? The Delaware Teacher Mystery

21. 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. A Guide to Economic Reasoning

22. FrédéricBastiat • 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.

23. FrédéricBastiat • [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.

24. 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. A Guide to Economic Reasoning

25. 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 Oil Reserves Mystery

26. 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?

27. 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?

28. 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?

29. 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.

30. But What Limits Profits?

31. Questions

32. Lightning Preview of Book Features

33. 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

35. 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

37. 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

39. 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

41. 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

43. 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

45. 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

47. 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

49. 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