 Introduction
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The Evidence
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The Dictionary of Cultural Literacy: What Every American Needs to Know, by E.D. Hirsh, Jr., Joseph F. Kett, and James Trefil, attempts to pull together "that shifting body of information that our culture has found useful, and therefore worth preserving." Given the attention this book has been accorded in the media, I thought it might be interesting to examine the authors' idea of cultural literacy in economics.
One of the book's 23 sections is entitled "Business and Economics." This section was evidently authored by Joseph Kett, a history professor at the University of Virginia. In the section's opener, Kett assures readers they need not become professors of economics to know what's going on. He says, however, that people should understand the difference between stocks and bonds and why the stock market declines when interest rates rise. I don't agree with that emphasis. I think, for example, it's more important that people understand why there are gains from trade when producers specialize according to the law of comparative advantage. Regardless, I found that neither his nor my questions were answered by the definitions presented. With regard to his two questions, the reader is told that bonds, unlike stocks, have a definite yield, but that's about it. The interest rate gets one sentence, and there is no link between the interest rate and the stock market. With regard to my question, the terms specialization and comparative advantage do not appear.
What topics are covered? The largest category of definitions among the 400 or so entries are financial terms, such as accounting, actuary, amortization, and so on, to windfall and yield. Among all 400 individual entries, there is a tie for the longest coverage (at 23 lines) between OPEC and the "affluent society" a la Galbraith. Economic concepts get short shrift. Missing are such key economic concepts as opportunity cost, public goods, externalities, and, as noted already, specialization and comparative advantage. Adam Smith gets four lines, only one-third the coverage accorded Karl Marx and Ralph Nader.
Some of the definitions are fuzzy or misleading. Here, for example, is how "elasticity" is defined: "A shift in either demand or supply of a good or service depending on its price. Demand is said to be elastic when it responds quickly to changes in prices, inelastic when it responds sluggishly" (p. 420).
If this were my only formal exposure to economics, I don't think I would like the subject very much. I come away with the feeling that economics does not have much to do with me. it takes place mostly on Wall Street, not on my street. The subject also seems dead, or worse yet, irrelevant. Professor Kett has drained the life from the subject, dissected the cadaver, and put the vital organs in jars. What he provides us is a description of what's in some of these jars. To be sure, the market economy is far from perfect, but much of his description is a chronicle of diseases. The people pictured are primarily those whose contributions focus on some sort of economic pathology--Malthus, Marx, Keynes, Galbraith, Nader, Chavez, and the "robber barons." And most of the scenes pictured suggest an economy that doesn't work very well--scenes of a strike, a Depression bread line, a sweat shop, and an OPEC meeting. This history professor is a poor guide to the vitality and ubiquity of economics. The results show what happens when specialization and comparative advantage are ignored.
The quantitative difference between GNP and GDP is relatively small (typically less than one percent) for a country such as the United States, first because such flows are relatively minor and second because these flows tend to offset one another. For example, GNP in 1990 was $5465.1 billion. To get to GDP, subtract from GNP $137.4 billion in factor income receipts from foreigners and add $95.7 billion in factor income payments to foreigners, yielding a GDP that year of $5423.4. Differences between GNP and GDP are more important for countries such as Egypt and Turkey, where many citizens work abroad.
More information about the conversion from GNP to GDP is available in the August 1991 and October 1991 issues of the Survey of Current Business. The Bureau of Economic Analysis is in the process of working out additional details for the national income accounts. I have been told by that office that a report will go to the printer in April.
Jim Cox of DeKalb College suggests that the perverse effects of price floors and price ceilings can be conveyed to students by pointing out that the problem arises when the floor is where the ceiling should be and vice-versa. Surpluses result when the price floor is above the market-clearing price, instead of being low, where a floor belongs. Shortages result when a price ceiling is below the market-clearing price, instead of being high where a ceiling belongs. We get into trouble when the floor is above the ceiling.
Michael A. Stoller of SUNY Plattsburg saves abundant class time by providing students with handouts containing step-by-step answers to homework problems. A paper-saving alternative is to put several copies of answers on reserves. After reviewing the correct answers, students can then ask remaining questions in class or during office hours.
On the first day of class, Carol DiMambro of Sage Junior College breaks the class into teams of three or four students and provides each team with a budget of $1000 and production information about three products. Each team is then asked to decide on the product prices and quantities they want to put on the market. The next class they are given the demand schedule for each product and are asked to determine the actual profit. Professor DiMambro is amazed how students can logically work through a problem using many economic concepts before anything has been taught.
Fenton L. Broadhead of Ricks College has written a manual for effective teaching called "Instructional Management." The manual supports a seminar he offers to share information and research that contribute to effective teaching. He says his program is the result of evaluating the best teachers in the business world. For further details write to him at Ricks College, Rexburg, Idaho 83460.
Allen Prindle of Otterbein College uses an excise tax on gasoline to convey a number of economic points. He discusses how Europe and Japan have used excise taxes on gasoline to reduce oil consumption, reduce dependence on imported oil, shape public transportation habits, and influence the population density of urban development. The material is especially interesting to students who have been to Europe or Japan.
John R. J. Rossi of Delaware Technical and Community College believes in learning by teaching. Therefore, for extra credit he asks students to select an economic concept, explain why it's important to them, then develop a way to teach it to sixth graders. The less on must be in the form of a typed economic primer.
Paul Schoofs of Ripon College carries out the following experiment to offer an analogy to the law of diminishing marginal utility. A student with eyes closed (or blindfolded) is asked to hold a cardboard box. At irregular intervals, successively and silently, one-pound weights are added to the box. The student is asked to announce each time a weight has been added. As it turns out, the "marginal perception" diminishes, eventually reaching zero. Although this experiment involves only sensory perception, Professor Schoofs has found that it enlivens class discussions.
At the second class meeting Kathy Steward of Prestonburg Community College does a rap introducing a few key microeconomic ideas such as opportunity cost. At the end of the term, students participate in a comprehensive rap that incorporates many key micro ideas. She says that students have fun applying economic terms.
Paul S. Taperek of South Florida Community College has the class review and reconstruct the federal budget. In their last attempt, student not only eliminated the deficit, but generated a surplus after three years. The key was using fund for research and development and rewarding agencies that saved money. The budget revisions were mailed to federal elected officials. As part of the budget lesson, students are required to develop their personal budget and analyze their daily spending habits for a month. Some students find the results surprising.
Charles W. Johnston of the University of Michigan at Flint suggests that we teach students that economic concepts define, measure, explain, predict, and evaluate their own economic behavior as workers, consumers, savers, investors, and voters with local, national, and international markets. He also believes that economic concepts teach students how to improve their own behavior so they can earn more, acquire more wealth, experience more leisure, and generally be happier. I'm not sure I agree with the last sentence, but it's a great sales pitch.
To teach comparative advantage and the gains from trade, N. Wayne Jordan of Central Florida Community College gives students a list of the following cars: Pontiac LeMans, Chevrolet Lumina, Mercury Capri, Honda Accord Coupe, Dodge Stealth, Mercury Tracer and Plymouth Voyager. Students are then asked to match the model with a list of countries of origin. The irony is that only the Honda is made in the United States. (Respectively, the cars are from Korea, Canada, Australia, United States, Japan, Mexico, and Canada.) With this quiz, which is from The Wall Street Journal, Professor Jordon can raise questions about the "Buy American" philosophy.
When Ivan Kelly of Flagler College teaches about the quantity theory of money, MV = PQ, he brings a cassette tape to class and tells students he is going to auction it off. For money, he uses a bag of individually wrapped candies. He tears open the bag and throws the candy all over the room. Students pick it up and the bidding begins. Once a price is established, he stops the auction, opens a second bag of candy, and again throws the contents around the room. He reopens the bidding. As we might expect, the second price of the tape is higher than the first. He then refers to the quantity theory and asks students what in the equation has changed. V? No. Q? No, there is still just the one tape. M? Yes. P? Yes. He is thus able to trace the change in P to a change in M. This seems to be a great way to "sensationalize" the topic.
Kay Johnson of Penn State at Erie does the following the first day of class. Seven or eight student are told that each owns an identical one-room motel near the interstate exit ramp. The cost of providing the room is $23 per night. Each must decide on a profit-maximizing room rate, then display that rate. Three of four "travelers" then select a motel for the night. Motels with the higher rates go without customers. Rates can change the following night. At each stage the class discusses the behavior of participants. For example, the travelers focus only on the price and show no concern that some motels go empty.
John Virkler of Chowan College explains one difference between macro and micro as follows. Understanding the macroeconomy is like knowing what the weather will be. You cannot change the weather, but you can do many things to adapt to it, such as wearing a raincoat or sailing a boat to safe harbor. Likewise, firms and individuals, if they know what's going to happen to the economy can better position themselves to weather economic storms such as recessions and inflation.
Dick Grimes of DeKalb College has a simple and inexpensive way to make graphic presentations more, well, colorful--colored chalk. He tries to use the same color as his textbook--for example, red for supply, blue for demand. He says that the graphs for profit maximizing price and output become more interesting and more obvious. And the Keynesian cross comes alive!
J. Wilson Mixon, Jr. of Berry College feels that all the media talk about "jump-starting" the economy conveys the wrong idea that the economy is a sputtering machine that can be fixed by a knowledgeable, capable technician. Rather, he suggests that the economy is more like a supertanker on automatic pilot. The policy question then becomes whether to trust that automatic pilot (i.e., the self-correcting tendencies of the economy) or to try to override the mechanism (with activist discretionary policies).
Calvin A. Hoerneman of Delta College believes that the aggregate demand-aggregate supply curve approach would be more relevant and more descriptive of macro changes over the last half century if the variable measured on the vertical axis was not the price level but the rate of change in the price level. Disinflation could then be more easily demonstrated in the revised framework.
Gail Hafer of Southern Illinois University talks about externalities during the first class. Negative externalities are illustrated by those who disturb other students by chatting during class. Positive externalities are illustrated by students who ask clarifying questions. The class examines why individual private decisions produce too much classroom chatter and too few classroom questions. The class then agrees on a policy to internalize the externalities: any student who disturbs others is asked to leave, and a designated questioner (D.Q.) is selected to interrupt lectures at any point and say "Question" to get further clarification or elaboration. Other class members are required to compensate the D.Q., and they do so in a variety of ways, ranging from food to verbal thanks. Professor Hafer thinks all students on average ask more questions on their own because of the D.Q.
As a way of preparing students for the multiple expansion of the money supply, William J. Field of DePauw University uses T accounts for "your bank," "my bank," and the Fed to show how checks would clear if the student writes a check to pay Professor Field for an illicit advanced copy of the test. Students seem to enjoy being a character in a story the class analyzes.
Abraham M. Bertisch of Nassau Community College requires students to find a news story, editorial, or essay for each chapter of the textbook covered during the term. Students must briefly summarize the article, show how it relates to material in the chapter, then show how material in the chapter helps them understand the article selected. Students are encouraged to discuss the articles in class; this relates class discussion to current events and also helps other students find articles. Students submit their portfolio of articles at the end of the term.
Charles A. Bennett of Gannon University has experimented with open-book exams and has found the experience to be quite gratifying. Students liked having the text as a back-up, so they did not feel obliged to memorize formulas and diagrams. Professor Bennett believes that the approach enhanced student understanding in the course. Do any of you have experience to share about open-book exams?
Kathryn Combs of California State University, Los Angeles, suggests two alternatives to grading homework assignments. First, include study-guide or end-of-chapter problems on the exam. Second, set aside some class time when students can discuss answers, either in small groups or as blackboard presentations.
David Schap of Holy Cross College uses "road-kill" as an example to "sensationalize" his discussion of the free-rider problem. He asks students their reaction to seeing a dead animal in the road. The sight makes them uncomfortable. So why doesn't someone stop to remove the bloody thing? Because each would rather have someone else do it; each behaves as a free rider. Suppose 10,000 motorists witness the ex-animal and each would be willing to pay, say, an average of a penny to have it removed. The sight thus reflects a social cost of $100.00. Hence the inefficiency resulting from the free-rider problem.
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The Evidence File
Grapevine
The last issue of the "Grapevine" passed along some teaching suggestions from Art Welch of Penn State. Here are more thoughts from Art: Plan your examples in advance. Get to class early. Be obvious about your organizing plan and your main points. Maintain eye contact with the class, not with your notes, the blackboard, the ceiling, the windows, your shoes. Repeat and review often. Never bluff an answer when you don't know. Never embarrass a student. And don't be too quick to answer your own questions--remember that silence is golden.
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