Section V Extra Credit Sources (for Tufte's ECON 2020, All Sections, Spring 2022)

For 4/15, 4/18 and 4/20

If there's big news, I'll cover it. 

Just a super minor piece of news. I said in Chapter 11 that changing the reserve ratio is no longer used by our central bank as a monetary policy too, but it is sometimes still used by other central banks. China's central bank cut their reserve ratio on the 15th. This is an expansionary policy: being required to keep less money in the vault, means that banks can make more loans. China has been pursuing expansionary monetary policy with this policy tool since 2011, as shown in the top graph on this link.

Except, for this one. CM in the 11 am class sent in an article entitled  "Two Wisconsin gas stations are suing a competitor for its low fuel prices". It is tangentially related to inflation. Basically, gas stations are trying to use the legal system to make sure customers have to buy gas at the more expensive price they'd like to charge. Yes, this is dumb. But legislators and bureaucrats fall for this all the time. Expect the consumers to lose.

But my plan is just to do slides from the "Why Is Macro So Hard?" PowerPoint slide deck in Module 5.

For 4/13

The Bureau of Labor Statistics (BLS) released the March update for the Consumer Price Index (CPI) yesterday. Prices are up 8.5% over the past year. Once again that is the most in 40 years. The last time inflation was that high was December 1981. 

For perspective, that was the end of my first semester of college (and my principles of macro class). The surprise hit movie from that month was Mad Max 2: The Road Warrior. The new hit TV show my cool older cousin talked about at a holiday meal was Hill Street Blues. The song on the radio that was really annoying but everyone liked was "Angel Is a Centerfold" by J. Geils Band. For all you may know, dinosaurs might have roamed the streets, and I'll bet that there's one person in this class whose grandparents hadn't met yet. Forty years ago is a very long time: those pop cultures things are supposed to be forgotten, and so are the memories of how bad inflation can feel.

The big problem with inflation is that nominal wages have to keep up. They will for some, but for most they won't. We measure this with the real wage. The BLS also announced that real wages have fallen by 2.7% over the last year. It's an approximation to just add them up, but that implies nominal wages only rose by about 5.8% during the past year.

This relates back to the extra credit source post (on Canvas in Module 2) for 2/14. There I noted that there is no theory in which "running the economy hot" actually makes both employment and real wages improve at the same time. The quote from Tyler Cowen was "Simply wishing for better outcomes, and describing them with catchy language, does not suffice to bring them about.". Less politely, you were lied to.

Sorry to be a buzzkill, but for me this is the saddest semester for covering macroeconomic current events in 13 years.

For 4/11

This is the one I attempted to show on Monday, but actually covered during Wednesday's class.

Here's some more stuff on economic sanctions, and Russia's oil and gas exports.

In the U.S., we are used to the idea of owning a piece of land, and everything underneath it (if we care to dig for it). This is not the way most countries do it.

In many countries, you only own the surface of your land. All the mineral wealth underneath belongs to the country, which really means its government. For curiosity's sake, in Utah, we do the same thing with groundwater, but not with stuff like oil. 

Oil and gas are such a big deal for Russia because the government owns them. In contrast, our government may own land and sell it or lease it to someone who wants to drill. But if they find anything it belongs to them.

Getting oil and gas out of the ground is costly, but you can still make a profit. Mostly Russia lets its firms go get the oil or gas, and then takes a lot of the profit as taxes and fees.

Russia produces more oil and gas than it can use domestically, and sells the rest as exports.

Recall from the earlier extra credits that Russia is not that big of an economy. It needs the currency of other countries to manage its exchange rate (the value of its currency). We'll talk about this more in Chapters 18 and 19. For now, just learn that the name for the big pile of other countries' currency that a country might have is "foreign exchange" or "FX". Russia has accumulated a lot of FX from exporting oil and gas, getting paid in euros, yen, yuan, dollars, or whatever, and then saving that money.

That money has to be in accounts, in banks, in the countries where they use that money. When they talk about sanctions blocking Russian access to funds, this is what they mean. For example, a Russian oil firm might produce the oil, ship it overseas, get paid in, say, pounds ... and then the Russian government would tell them to put their cut in a bank in London. That's FX.

This is a post from the end of February from the blog for the ECON 3020 class. At that time, western countries had blocked off about 40% of Russia's FX. It's up to about 60% now. They have about $100B in Chinese banks that are not sanctioned, about $100B in gold bullion in Moscow (that no one will trade for), and perhaps as much as another $60B unaccounted for, but probably in banks in various banking havens around the world (banking havens are places where the bankers don't ask a lot of questions).

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Two more slides from "Why Is Macro So Hard?", available on Canvas.

For 4/8

Two more slides from "Why Is Macro So Hard?", available on Canvas.