The Teaching Economist Issue 14, Fall 1997 1/3

The Teaching Economist

Issue 14, Fall 1997

William A. McEachern, Editor

Voluntary Standards

According to developers of the standards, by the time students graduate from high school, they should have achieved three objectives. "First, they should understand basic economic concepts, and be able to reason logically about key economic issues that affect their lives as workers, consumers, and citizens, so they can avoid errors that are common among persons who do not understand economics. Second, they should know some pertinent facts about the American economy, including its size and the current rates of unemployment, inflation, and interest. Third, they should understand that economists hold differing views on some economic issues. This is especially true for topics such as the appropriate size of government in the market economy, how and why the federal government should try to fight unemployment and inflation, and how and when the federal government should try to promote economic growth. Nevertheless, there is widespread agreement among economists on many issues and in their basic methods of analysis."

To put flesh on these objectives, the committee developed twenty "content standards" and accompanied each standard with (1) an explanation of what students can do with the knowledge, (2) why that knowledge is important, and (3) learning benchmarks, or expected achievement levels, for grades 4, 8, and 12. For your reference, The Evidence File lists the twenty standards. More details about the standards can be found at the Internet site.

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Virtual Economics

Speaking of pre-college economics, Virtual Economics: An Interactive Center for Economic Education is a CD-ROM aimed at teachers in primary and secondary schools. According to the Introduction, its mission is "to see that every student graduates from high school with an understanding of how economics can help them throughout their lives to be effective and informed citizens, consumers, savers, investors, producers, and employees." The project was funded by the National Science Foundation and developed jointly by the Nebraska Council of Economic Education and the National Council on Economic Education.

The central feature of the CD-ROM is the Interactive Center, which has four "rooms" focusing on (1) fundamentals, (2) macro, (3) micro, and (4) international. With a mouse, the user can navigate through these rooms and select icons representing major topics. For example, the "fundamentals" room contains icons for scarcity, opportunity cost, economic institutions and incentives, economic systems, social goals, productivity, exchange, money and interdependence. In all, 22 topic icons appear in the four rooms (one topic neglected was comparative advantage). A click on a topic icon summons a page offering several more icons. These include an animated element (usually a talking head), voice-overs, written descriptions, or text material.

The medium of this learning tool is appealing, and some of the message comes through. However, much of the message seems dated and confusing. The content could have been written a decade ago. For example, a discussion of fiscal policy priorities of U.S. presidents stops with President Reagan. The discussion of monetary policy includes a grainy video of former Fed Chairman Arthur Burns, who left that position in the Carter administration. One market scene pictures an Esso Extra gasoline pump, a brand name ditched for Exxon decades ago. A pie chart shows 7% of national income coming from profit and 10% from interest; that was the picture in the 1980s but today's division is the reverse.

Much of the content appears to be written by a committee, a committee that seldom met. The explanation of aggregate demand and aggregate supply is muddled. Aggregate demand is initially described as C + I + G + Xn, but net exports unexplainably disappear from the in-depth discussion. Aggregate supply is also confusing. First, aggregate supply is used interchangeably with aggregate output - "aggregate supply is the total quantity of goods and services produced in an economy in a given time period. Constraints on potential aggregate supply [where'd that come from?] are the quantity and quality of productive resources and the level of available technology." The central graph for this topic shows an upward sloping aggregate supply curve asymptotically approaching the full employment level. Yet, the written material talks about output exceeding the full employment level.

Two goods used to explain market forces are unhelpful. The first is the widget (nudge, nudge, wink, wink), which is as vapid an example as ever. I propose banning its use. The second example is the Edsel, which appears as the icon depicting market forces. A voice-over explains that because the Edsel's price was high, few were sold. But because few were sold, they are now scarce collectors items so their price is high. Imagine some high school teacher trying to explain supply and demand with the Edsel.

Because topics can be accessed in any order, there is no natural progression or building of material. Thus the subject does not unfold, but is a series of relatively isolated topics. The first version of this CD (Version 1.0), which has a 1995 copyright, has a Resource Library containing about 140 books, parts of books, and teacher aids such as lesson plans. Much of the library material is dated. For example, one of the resources available on the disk is a 1981 copyright of Michael Veseth's Introductory Macroeconomics. That book was written during an era of high inflation, so inflation takes center stage: "Inflation is today's most severe economic problem. It is also our least understood problem." Another resource is McConnell & Brue's 12th edition (1993). The CD producers scanned textbook pages to disc, but many exhibits are splotchy and all but unreadable. Despite the flaws in reproduction, at least this textbook is available to an ambitious teacher intent on sorting things out (though pages cannot be printed out).

A revised version of the CD (Version 2.0), which became available last spring, dropped some books, including McConnell & Brue, from the resource library (because of copyright restrictions) and cross-referenced material on the Voluntary National Content Standards in Economics. Version 1.0 was free to teachers, but Version 2.0 sells for $75. I'm told that the second version is not selling well - funny how quantity demanded drops when the price jumps from zero to $75.

To some extent this CD-ROM is an example of the medium getting ahead of the message. The mechanics of putting together something like this are so daunting that less time and energy are left for quality control and internal consistency. If this were my only source of information about economics, I would develop little feel for the subject, particularly macroeconomics. I certainly would be in no position to teach it.

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Less is More 1

The love-hate relationship that economics instructors have with their principles textbooks continues. Based on my own observations and discussions with other authors of principles textbooks, there appear to be two general criticisms. The first is that textbooks fail to include sufficient material on whatever topic is favored by that particular instructor. The second is that authors try to include too much material- more than can reasonably be covered in the course. So principles authors are charged, often by the same critic, with both covering too little and trying to cover too much.

The incredibly expanding textbook is not a new issue. The American Economic Association held a conference on the problem in 1952. To see how principles authors have coped with the competing pressures for both less comprehensive books yet more coverage of particular topics, I examined a sample of principles textbooks that have been around for six editions or more. The sample was limited to books that were available to me in editions from the mid-1980s and the mid-1990s. My sample consisted of books authored by Baumol and Blinder, Dolan and Lindsey, McConnell & Brue, Miller, and Schiller.

These five long-term survivors averaged 877 pages of text in the mid-1980s, compared to 867 pages in the mid-1990s, reflecting a decline of 1.1%. This decline, though small, reverses a trend in page growth that occurred up to the mid-1980s. How about other dimensions of size? The five books averaged 39.8 chapters in the mid-1980s versus 37.4 chapters in the mid-1990s, a drop of 6.0%.

Perhaps the most visible reflection of size is a book's physical thickness. These books shrank an average of 20% in thickness since the mid-1980s, much more than the minute decrease in page count would suggest. Apparently, publishers are trying to signal a leaner, non-encyclopedic approach. Incidentally, downsizing has invaded intermediate books as well. For example, Mishkin's newly revised money and banking text has 3.2% fewer pages than the previous edition and is about 25% thinner.

How have publishers coped with the problem of adding timely topics while slimming down? All five principles books either increased the number of lines per page or the number of characters per line. The four with a single-column format had ample enough margins in the mid-1980s to claim a portion of the margin for text by the mid-1990s, increasing the number of characters per line by an average of 10.9%. The only long-term survivor with a double-columned page format (McConnell & Brue) could not as easily reach into the margin and instead increased the number of lines per page by 18.2%. Consequently, despite the decline in total pages, the potential character field for the five books increased an average of 4.9%. The number of key terms also grew in accord with the growth in potential character field.

Publishers have attempted to satisfy the opposing pressures for less size yet selectively more coverage by trimming some obvious dimensions of size such as page length, the number of chapters, and especially physical thickness, while increasing more subtle dimensions of size such as line length and the number of lines per page. Since the mid-1980s, publishers have been getting away from the idea of fat books, even if the weight-loss program so far has been more cosmetic than real.

In the preface to his new principles book, Gregory Mankiw, the 1.4 million dollar man (his advance for the book), says that he has written "a brief and student-friendly book," one that is "hundreds of pages shorter than many of the standard texts used to teach the principles of economics." With 772 pages of text, his book is 95 pages (11.0%), shorter than the average of our five long-term survivors.

His book has nine introductory chapters, about twice the usual number for most books (my book has four). Since instructors typically cover only about 14 to 18 chapters per term, Mankiw's introductory chapters could easily eat up half the term. At those schools, such as UConn, where macro or micro can be taken in either order (and hence, where the introductory chapters must be repeated), Mankiw's introductory chapters will claim a big chunk of time from both courses.

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¹ This section is a revised and abridged version of my essay "Principles of Economics Textbooks: Coping with Scarce Resources and Unlimited Wants," in Rethinking Economic Principles: Critical Essays on Introductory Textbooks, N. Aslanbeigui and M. Naples, eds. (Irwin, 1996): pp. 215-224.
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Odds and Ends

For the second year in a row, days before the October 14th announcement of the 1997 Nobel Laureates in Economic Science, I surveyed the Internet site (at Technical University Berlin) that was holding a mock poll for the prize. To prevent ballot stuffing, only one vote was allowed from each computer. Last year 123 votes were spread over 40 different nominees; this year, 184 votes were spread over 60 different nominees. Amartya Sen was again the top vote-getter with 34 (up from 20 votes in 1996). Clive Granger was a distant second with 15 votes (he came in third last year with 15 votes). Vernon Smith was third with 12 votes, and William Boumal fourth with 10. Nobody else was in double digits. Curiously, Joe Stiglitz, who finished a close second last year with 18 votes, dropped to a tie for eighth this year with only 5 votes (out of sight, out of mind-since last year, he stepped down as head of the President's Council of Economic Advisers). Nobody else was in double digits; 34 received a single vote. No women received votes. A few days after I recorded the above totals, the Royal Swedish Academy of Science announced that Robert C. Merton of Harvard and Myron S. Scholes of Stanford would split the 1997 $1 million Nobel Prize for their work in the valuation of stock options. Neither had received a single vote in the mock election. For the second year in a row, the Internet poll failed to cast even one vote for the eventual winners. Incidentally, during each year of the 1980s, the Nobel Prize went to a single economist, but in five of eight years so far in the 1990s, the award has gone to more than one recipient.

In America's Best Colleges: 1998, the U.S. News annual volume, 90% of the 1,330 four-year schools surveyed accept more than half of all applicants. This year's report includes new information about student indebtedness upon graduation. Graduates of Howard University were deepest in debt; 40% of graduates were in debt averaging $32,401. Graduates of the College of William and Mary had accumulated the least debt; 45% of graduates were in debt averaging only $1,550. Not counted are loans taken out by parents.

"The great artist is the simplifier."
-Henri Frederic Amiel (Swiss philosopher)

"The wise learn many things from their foes."
-Aristophanes

"To know truly is to know by cause."
-Francis Bacon

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The Grapevine

The Spring 1996 issue of The Teaching Economist discussed the "Economist as Movie Hero." Jorge G. Gonzalez of Trinity University in San Antonio points out that Alex Keaton, the character played by Michael J. Fox on the TV sit-com "Family Ties," majored in economics. Gonzalez notes that, curiously, the decline in the number of economics majors began right after "Family Ties" went off the air. He says that although the Keaton character was a bit of a caricature, "many of our 1980s Reagan-loving majors found in him a great 'role model'."

Several issues back, I included a quiz matching quotes from Shakespeare with economic concepts. Charles W. Martie, formerly of Quinnipiac College in Connecticut and now with the Budget Office for the State of Kentucky, has passed along the following Shakespearean quotes. "To be or not to be..." is an example of an all-or-none choice. "My ventures are not in one bottom trusted, nor in one place" reflects risk aversion. "There's small choice in rotten apples" is an example of an economic bad.

For going on nearly four years now, Richard L. Hannah of Middle Tennessee State University (the alma mater of Nobelist James Buchanan) has required students to use the Internet. He has developed elaborate Web pages for several courses including principles of economics, managerial economics, industrial relations, economics of employee benefits, and labor and human resources. He invites you to check them out by going to his home page at http://www.mtsu.edu/~rlhannah/homepage.html. He also manages a discussion list on employee benefits, which he supports with material that can be found at http://www.mtsu.edu/~rlhannah/employee_benefits.html. Another on-line resource page he supports is linked to the Industrial Relations Research Association's page at Cornell University. Its address is http://www.mtsu.edu/~rlhannah/IR_HR.HTML.

Terry Liska from the University of Wisconsin-Platteville encourages, but does not require, his students sign up for The Wall Street Journal. Usually enough students subscribe to provide him with a complimentary subscription. If the number falls short, he asks all non-subscribers to submit written bids indicating what each would be willing to pay for a subscription. He explains that he will accept the highest bids and subsidize the shortfall to guarantee the seven subscriptions required. This approach not only gets him a subscription (though it is no longer free), but introduces The Wall Street Journal to students who would not otherwise have read it and provides sufficient information to construct the class's demand schedule for the paper. He refers to this schedule when discussing elasticity and other demand topics such as consumer surplus. Incidentally, I paid the $50 for an annual subscription to the WSJ on the Internet. I now prefer that to the hard copy, which starts to resemble a paper drive after a while.

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The Evidence File

Here are the statements of content from the Voluntary National Content Standards in Economics:

Productive resources are limited. Therefore, people can not have all the goods and services they want; as a result, they must choose some things and give up others.
Effective decision making requires comparing the additional costs of alternatives with the additional benefits. Most choices involve doing a little more or a little less of something; few choices are "all or nothing" decisions.
Different methods can be used to allocate goods and services. People acting individually or collectively through government must choose which methods to use to allocate different kinds of goods and services.
People respond predictably to positive and negative incentives.
Voluntary exchange occurs only when all participating parties expect to gain. This is true for trade among individuals or organizations within a nation, and usually among individuals of organizations in different nations.
When individuals, regions, and nations specialize in what they can produce at the lowest cost and then trade with others, both production and consumption increase.
Markets exist when buyers and sellers interact. This interaction determines price and therefore allocates scarce goods and services.
Prices send signals and provide incentives to buyers and sellers. When supply or demand changes, market prices adjust, affecting incentives.
Competition among sellers lowers costs and prices and encourages producers to produce more of what consumers are willing and able to buy. Competition among buyers increases prices and allocates goods and services to those who are willing and able to pay the most for them.
Institutions evolve in market economies to help individuals and groups accomplish their goals. Banks, labor unions, corporations, legal systems, and not-for-profit organizations are examples of important institutions. A different kind of institution, clearly defined and enforces property rights, is essential to a market economy.
Money makes it easier to trade, borrow, save, invest, and compare the value of goods and services.
Interest rates, adjusted for inflation, rise and fall to balance the amount saved with the amount borrowed, which affects the allocation of scarce resources between present and future uses.
Income for most people is determined by the market value of the productive resources they sell. What workers earn depends, primarily, on the market value of what they produce and how productive they are.
Entrepreneurs are people who take the risks of organizing productive resources to make goods and services. Profit is an important incentive that leads entrepreneurs to accept the risks of business failures.
Investment in factories, machinery, new technology and in the health, education, and training of people can raise future standards of living.
There is an economic role of government in a market economy whenever the benefits of a government policy outweigh its costs. Governments often provide national defense, address environmental concerns, define and protect property rights, and attempt to make markets more competitive. Most government policies also redistribute income.
Costs of government sometimes exceed benefits. This may occur because of incentive facing voters, government officials, and government employees, because of actions by special interest groups that can impose costs on the general public, or because social goals other than economic efficiency are being pursued.
A nation's overall levels of income, employment, and prices are determined by the interaction of spending and production decisions made by all households, firms, government agencies, and others in the economy.
Unemployment imposes costs on individuals and nations. Unexpected inflation imposes costs on many people and benefits some others because it arbitrarily redistributes purchasing power. Inflation can reduce the rate of growth of national living standards because individuals and organizations use resources to protect themselves against the uncertainty of future prices.
Federal government budgetary policy and the Federal Reserve System's monetary policy influence the overall levels of employment, output, and prices.

More details about the standards can be found at the Internet site http://www.economicsamerica.org/nctext.html. The standards are also discussed in John Siegfried and Bonnie Meszaros, "National Voluntary Content Standards for Pre-College Economics Education," American Economic Review, Vol. 87 (May 1997): pp. 247-253.

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