Sez who?The need for attribution!

Affect: a verb Effect: a noun

Affect or effect?

Affect: a verb Effect: a noun “The lack of attribution affected the teacher and the

subsequent effect on Arnold’s grade was devastating.”

Affect or effect?

Two tough questions we must ask

Is capitalism Christian?

Remember consequences, not intent: rent control was supposed to help the poor

Is capitalism Christian?

Remember consequences, not intent: rent control was supposed to help the poor

The first thing communists and fascists do is eliminate or marginalize religion: Stalin, Lenin, Castro, Mao, Hitler

Is capitalism Christian?

Remember consequences, not intent: rent control was supposed to help the poor

The first thing communists and fascists do is eliminate or marginalize religion: Stalin, Lenin, Castro, Mao, Hitler

In socialism, the state becomes the religion

Is capitalism Christian?

Remember consequences, not intent: rent control was supposed to help the poor

The first thing communists and fascists do is eliminate or marginalize religion: Stalin, Lenin, Castro, Mao, Hitler

In socialism, the state becomes the religion Nowhere in the Bible do I see where it is the duty of

the state to care for the poor… it is the individual and the church

Is capitalism Christian?

Christians are the most generous people in the world… and most are capitalists

Is capitalism Christian?

Christians are the most generous people in the world… and most are capitalists

Christ’s teachings about caring for the poor are all about a changed heart… not about your money being taken by the state and given to others

Is capitalism Christian?

Christians are the most generous people in the world… and most are capitalists

Christ’s teaching about caring for the poor are all about a changed heart… not about your money being taken by the state and given to others

The Bible gives us no explicit economic system, but it seems clear to me capitalism is much more in line with Christianity than socialism

Is capitalism Christian?

“Religion is the sigh of the oppressed creature, the heart of a heartless world, just as it is the spirit of a spiritless situation. It is the opium of the people. The abolition of religion as the illusory happiness of the people is required for their real happiness.”

Karl Marx

If I become rich, do I make others poor?

Refers to the idea that there is a winner and loser in all transactions, kind of like a tennis or boxing match

Zero sum thinking

Refers to the idea that there is a winner and loser in all transactions, kind of like a tennis or boxing match

So if Bill Gates is rich, he must have taken that wealth from others

Zero sum thinking

Refers to the idea that there is a winner and loser in all transactions, kind of like a tennis or boxing match

So if Bill Gates is rich, he must have taken that wealth from others

The economic pie is only so big, so government has to make sure we all get the same size slice… “fairness” and “social justice”

Zero sum thinking

Does not recognize how much wealth Bill has created for others… e.g., the increased productivity from using Microsoft Office

Zero sum thinking

Does not recognize how much wealth Bill has created for others… e.g., the increased productivity from using Microsoft Office

Free-market thinkers want the pie to grow bigger… rising tide floating all boats

Zero sum thinking

Seen today in discussions of how rich are getting a larger share of the economy, and how CEO pay is now 250 times that of the average worker, versus 50 times in the 1960s

Zero sum thinking

Seen today in discussions of how rich are getting a larger share of the economy, and how CEO pay is now 250 times that of the average worker, versus 50 times in the 1960s

Ignores the fact that the average worker is living much better than ever

Zero sum thinking

Seen today in discussions of how rich are getting a larger share of the economy, and how CEO pay is now 250 times that of the average worker, versus 50 times in the 1960s

Ignores the fact that the average worker is living much better than ever

Used to argue against free markets and international trade, and for minimum wage, price controls, “paycheck fairness” act

Zero sum thinking

Liberal economists in general want to make the pie more equal through government interventions and redistribution of wealth

Zero sum thinking

Liberal economists in general want to make the pie more equal through government interventions and redistribution of wealth

Free-market economists in general want the pie to keep growing through the free market and supply and demand

Zero sum thinking

Liberal economists want equality of outcomes… i.e., everyone makes about the same through government redistribution

Zero sum thinking

Liberal economists want equality of outcomes… i.e., everyone makes about the same through government redistribution

Free-market economists want equality of opportunity… everyone has an equal chance to succeed

Zero sum thinking

20,000 pages of regulations and counting It hasn’t gone into effect yet CBO estimates it will add $6.2 trillion to debt

Affordable Care Act (aka Obamacare)

National output

Fallacy of composition

The mistaken assumption that what applies to a part applies to the whole

Fallacy of composition

The mistaken assumption that what applies to a part applies to the whole

In economics, we’re looking at the economy in total… not any given individual, company or industry

Fallacy of composition

The mistaken assumption that what applies to a part applies to the whole

In economics, we’re looking at the economy in total… not any given individual, company or industry

We know that the economy is dynamic… some companies and industries must pass (typesetters, milkmen) so others can rise (app developers, organic bakers)

Fallacy of composition

Most common when government intervenes to “save jobs” such as the taxpayer bail out of GM and Chrysler

Fallacy of composition

Most common when government intervenes to “save jobs” such as the taxpayer bail out of GM and Chrysler

Said to “save” 1 million jobs… at a cost of $80 billion of taxpayer money, and locked in GM and Chrysler’s pension obligations and high fixed costs

Fallacy of composition

Most common when government intervenes to “save jobs” such as the taxpayer bail out of GM and Chrysler

Said to “save” 1 million jobs… at a cost of $80 billion of taxpayer money, and locked in GM and Chrysler’s pension obligations and high fixed costs

More important: what has been the cost to the rest of the economy in lost jobs and opportunities?

Fallacy of composition

“Figures often beguile me, particularly when I have the arranging of them myself; in which case the remark attributed to Disraeli would often apply with justice and force: ‘There are three kinds of lies: lies, darn* lies and statistics.’"*Teacher’s edit

Measuring National Output

More common measure is GDP: gross domestic product

Measuring National Output

The sum total of all goods and services produced within a nation’s borders including by foreign nationals during a year

Gross Domestic Product

The sum total of all goods and services produced within a nation’s borders including by foreign nationals during a year

GDP is the preferred measurement of contemporary economists, used by the U.S. since 1992

Gross Domestic Product

The two main components of GDP

Private consumption and public sector spending

The two main components of GDP

Private consumption and public sector spending In 2012, U.S. GDP was $15.7 trillion

The two main components of GDP

What’s a trillion look like?Here’s $10,000 in $100 bills

And here’s $1 millionYou’re rich!

Here’s $100 millionFits on a standard pallet

Here’s $1 billionPretty impressive!

And here’s $1 trillionLess than our annual deficit…

Private consumption and public sector spending In 2012, U.S. GDP was $15.7 trillion Private consumption was $11.1 trillion

The two main components of GDP

$407 billion on autos $829 billion on food and beverages $366 billion on clothes $440 billion on gasoline and fuel $266 billion on furnishings

Private consumption 2012: $3.7 trillion for goods

$2 trillion on housing and utilities $1.8 trillion on health care $410 billion on recreation services $714 billion on food service and accommodations $829 billion on insurance and financial services

Private consumption 2012: $7.3 trillion for services

Private consumption and public sector spending In 2012, U.S. GDP was $15.7 trillion Private consumption was $11.1 trillion Private investment was $2.1 trillion

The two main components of GDP

$460 billion on structures $555 billion on information processing equipment and

software $198 billion on transportation equipment

Private investment 2012

Private consumption and public sector spending In 2012, U.S. GDP was $15.7 trillion Private consumption was $11.1 trillion Private investment was $2.1 trillion Government spending was $3.1 trillion

The two main components of GDP

$809 billion on national defense $405 billion on nondefense $1.8 trillion on state and local government spending

Government spending 2012

Hey, wait a minute!

Problem 1: The totals add up to $16.3 trillion, not $15.7 trillion

Hey, wait a minute!

Problem 1: The totals add up to $16.3 trillion, not $15.7 trillion

Problem 2: The federal budget alone was $3.5 trillion in fiscal 2011-2012 (October 2011-September 2012)

Hey, wait a minute!

We need to subtract the trade deficit from GDP: in 2012, the deficit was $560 billion. We balance!

Problem 1

Most of government spending is “transfer” payments for Social Security, welfare, health care. Does not count as part of GDP because it’s taking from one part of the economy and giving to the other… it’s not productive because it doesn’t produce anything

Problem 2

Most of government spending is “transfer” payments for Social Security, welfare, health care. Does not count as part of GDP because it’s taking from one part of the economy and giving to the other… it’s not productive because it doesn’t produce anything

Key corollary: Government does not produce wealth; it consumes it

Problem 2

GDP = C + I + G + (X − M)

C is consumptionI is gross investmentG is government spendingX is exportsM is imports

Common GDP Formula

Top 5 GDP Nations

U.S.................$15.6 trillion PRC (China)......$8.2 trillion Japan...............$6 trillion Germany..........$3.4 trillion France.............$2.6 trillion

Top 5 GDP Nations: 2012 by International Monetary Fund

Top 5 GDP Nations, Per Capita

Liechtenstein Luxembourg Monaco Norway Qatar

Top 5 GDP Nations, Per Capitasource: United Nations

Liechtenstein Luxembourg Monaco Norway Qatar U.S. #18, China #93

Top 5 GDP Nations, Per Capitasource: United Nations

Chapter 16: “Money and the banking system”

Assignment 3/26

Chapter 16: “Money and the banking system” Then write a 350-word essay: Based on Dr. S’s

teachings, why is a strong banking system essential to a prosperous society?

Assignment 3/26