Direcions: Disribe he cles so ha each person is holding a leas one cle. Cles #1-4: Black Deah, #5-8: Spanish Fl, #9-10: Hrricane Karina Share he cles in a rond-robin fashion, ping each cle ino one of he following piles: Relevan o solving he problem No helpfl in solving he problem No sre Answer he qesion: ARE disasers good for he economy? Deermine he leas # of cles necessary o answer he qesion. Be prepared o defend yor answer & cle selecion. NO! NO! NO! NO! NO! NO! NO! 1
Resorces are limied Resorces are necessary for prodcion (op ƒ resorces) Disasers increase resorce scarciy (disasers desroy land, labor &/or capial) Op ms be lower han i wold have been had he disaser no occrred GDP Aciviy Cle #9: J.P. Morgan senior economis Anhony Chan: "Preliminary esimaes indicae 60 percen damage o downown New Orleans. Pleny of cleanp work and rebilding will follow in all he areas. Tha means over he nex 12 monhs, here will be los of job creaion, which is good for he economy." Terminology & Measremen: Wha do we mean by he economy? 2 opions op = real GDP well-being or sandard of living = real GDP/capia or economic growh: increase in real GDP &/or real GDP/capia???? Confsion???? : Did he mean level or rae? 2
Level vs. Rae O p Q D Time D disaser B boom O p Q D Time D R disaser recovery 3
O p Q Time O p Q Time O p Q Time 4
Aciviy Cle #9: J.P. Morgan senior economis Anhony Chan: "Preliminary esimaes indicae 60 percen damage o downown New Orleans. Pleny of cleanp work and rebilding will follow in all he areas. Tha means over he nex 12 monhs, here will be los of job creaion, which is good for he economy." Prodcion Possibiliies Fronier (PPF) Assmpions of he Model: 1. All resorces are sed o prodce he 2 caegories of prodcs on he X and Y axes 2. A all poins on he crve, all resorces are flly employed, given he available echnology. (we choose from he possibiliies) x Prodcion Possibiliies Fronier (PPF) Assmpions of he Model: 3. Technological improvemens or he discovery of new resorces makes more prodcion possible. The crve moves o, o he righ. 4. Desrcion of resorces or echnology makes less prodcion possible; he crve moves in and down, o he lef. 5
Prodciviy: op per ni of inp ƒ { hman capial, physical capial } skills & alens edcaion raining bildings machines & ools echnology Labor Prodciviy: op per person-hor ƒ {availabiliy of capial} Effec of poplaion change in economy wih lile capial Capial o Labor Raio raio falls raio rises 6
raio falls raio rises raio falls raio rises raio falls raio rises 7
raio falls raio rises raio falls raio rises raio falls raio rises 8
Tseax Cone Explosion: circa 1750 9
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NO! NO! NO! NO! NO! Resorces are desroyed Toal op ( real GDP) falls The PPF always shrinks: economic well-being - sandard of living (real GDP/capia) When capial o labor raios rise, real GDP/capia may rise even as oal real GDP falls 11
Aciviy Cle #9: J.P. Morgan senior economis Anhony Chan: "Preliminary esimaes indicae 60 percen damage o downown New Orleans. Pleny of cleanp work and rebilding will follow in all he areas. Tha means over he nex 12 monhs, here will be los of job creaion, which is good for he economy." Qesions o Ask: Is his a credible sorce? If so, are he sandards for comparison specified? (Wha are yo measring?) There is only one difference beween a bad economis and a good one: he bad economis confines himself o he visible effec; he good economis akes ino accon boh he effec ha can be seen and hose effecs ha ms be foreseen. The Broken Window Fallacy Sppose James Goodfellow s son breaks a window? 12
"I's an ill wind ha blows nobody some good. Sch accidens keep indsry going. Everybody has o make a living. Wha wold become of he glaziers if no one ever broke a window?"... Sppose ha i will cos six francs o repair he damage.... The glazier will come, do his job, receive six francs, congralae himself, and bless in his hear he careless child. Tha is wha is seen. B if, by way of dedcion, yo conclde, as happens only oo ofen, ha i is good o break windows, ha i helps o circlae money, ha i resls in encoraging indsry in general, I am obliged o cry o: Tha will never do! Yor heory sops a wha is seen. I does no ake accon of wha is no seen. I is no seen ha if he had no had a windowpane o replace, he wold have replaced, for example, his worn-o shoes or added anoher book o his library. Le s nex consider indsry in general. The window having been broken, he glass indsry ges six francs' worh of encoragemen; ha is wha is seen. If he window had no been broken, he shoe indsry (or some oher) wold have received six francs' worh of encoragemen; ha is wha is no seen. 13
... Desrcion is no profiable. He Shold Know Beer: "Ghasly as i may seem o say his, he error aack... cold do some economic good." [... desrcion will simlae he economy hrogh bsiness invesmen in rebilding]. Pal Krgman, Princeon Universiy New York Times, Sep. 14, 2001 Basia Hasn Been Forgoen: We know his has o be fishy js by asking: Wold here have been even greaer "economic good" had he erroriss scceeded in desroying bildings in Los Angeles, San Francisco, Chicago, Philadelphia, Boson and all oher major ciies? Of corse, yo and I know ha is er nonsense. Propery desrcion always lowers he wealh of a naion. I hope one of Krgman's sdens asks him, "If propery desrcion is good for he economy, why aren' Beir and Belfas boom owns? Waler Williams, George Mason Universiy hp://www.jewishworldreview.com/cols/williams100401.asp "If propery desrcion is good for he economy, why aren' Beir and Belfas boom owns? 14
1. How do we measre non-angible hman loss? 2. How do we measre wha migh-have-been? Disaser casalies immediae AND fre losses 15
Pal Ehrlich Jlian Simon [The]... more people here are, he more minds ha are working o discover new sorces and increase prodciviy.... The sorce of... improvemens in prodciviy is he hman mind, and a hman mind is seldom fond apar from a hman body. And becase improvemens heir invenion and heir adopion come from people, he amon of improvemen plainly depends on he nmber of people available o se heir minds. (Simon, The Ulimae Resorce 2, 372) 16
[The] daa show clearly ha he bigger he poplaion of a conry, he greaer he nmber of scieniss and he larger he amon of scienific knowledge prodced; more specifically... scienific op is proporional o poplaion size, in conries a he same level of income. (Simon, The Ulimae Resorce 2, 380, 385)... The main conribion ha addiional persons make o sociey is he new knowledge of all kinds scienific, organizaional, and everyday knowledge... ha hey creae and leave behind hem. And o repea an earlier saemen, hese gains are he resl no only of genises b of a real nmber of work-a-day ingenios people. (Simon, Ulimae Resorce 2, 380 & 385) No Everyone Is Hr By Disasers Fallacy of Composiion: To erroneosly assme ha wha is re of he whole is re of an individal Economic change creaes winners and losers. 17
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