Class videos 2014

Here are the videos from the last week of class.  (One group removed theirs, so it's not available anymore.)

Brazil Report  http://youtu.be/_kK8CisbncQ

The Financial Crisis http://youtu.be/bRimY7h45L8

Symposium on the Wealth of Nations http://youtu.be/dKmZ8QNCf2g

Black Markets http://youtu.be/DX_ZqW3TOXc

Sources for country data

The CIA World Factbook is one useful source   https://www.cia.gov/library/publications/the-world-factbook/

The World Bank also has useful data. http://data.worldbank.org/country

Supply and Demand

To really understand how the world economy works, it's worth investing some time to learn a few basic economic models. Supply and Demand models explain the market for a particular good, in particular place, at a particular time.

1. There are several free videos from the Khan academy explaining the model in some detail.
Law of Demand
Law of Supply
Market Equilibrium
Factors Affecting Supply
Price of Related Products and Demand
Changes in Income, Population, or Preferences
Changes in Market Equilibrium

2. Jodi Beggs from "Economists do it with Models" also has free videos on these topics. Lessons 3, 4, & 5 cover demand, supply, and market equilibrium.

3. Flat World Knowledge has free online textbooks.
Chapter 3 of Rittenberg and Tregarthen covers supply and demand.

Economics for Global Travelers

This blog will serve as the homepage for my new course: Economics for Global Travelers. This class is a sophomore seminar, part of Kalamazoo College's Shared Passages seminar program. It is open only to sophomores and designed primarily for those planning to study abroad during their Junior year. (Others, of course, are welcome to follow online.)

What plug?

Frank Jacobs shares a world map of electrical sockets at BigThink

Here’s an overview of the world’s elusive ‘electrical communities’, as defined by the socket models they use:

The ‘American’ model (yellow), consisting of two vertical rectangular ohttp://www.blogger.com/img/blank.gifpenings, side by side. This prevails across all of North and Central America, and most of South America (sharing Brazil with the fifth model). It’s also the standard model in Saudi Arabia, Liberia, the Philippines, Japan and Taiwan - in each case probably the direct consequence of American influence. A bigger mystery is the prevalent use of this model in Indochina - it is the standard model in Laos, and an option in Vietnam, Cambodia and Thailand.
The ‘subcontinental’ model (dark green), a triangle of circular openings, is used throughout a swathe of South Asia: Afghanistan, Pakistan, India, Bangladesh, Nepal, Bhutan. It has a dependency on the southern tip of Africa, consisting of South Africa and Namibia; and two more adherents in West Africa: Benin and Ghana.
The ‘antipodean’ model (light blue), made up of three rectangles arranged to look like the mask from the Scream movies, is used in only four countries, all in the Southern Hemisphere: Argentina, Australia, New Zealand, and Papua New Guinea.
The ‘imperial’ model (dark blue), two flat rectangles below, one upright on top, quite clearly is a remnant of the British Empire, as it is used not only in the UK and Ireland, but also in that swathe of Africa with which Cecil Rhodes had once sought to connect ‘the Cape and Cairo’: Sudan, Uganda, Kenya, Tanzania, Malawi, Zambia, Zimbabwe, and Botswana. Other adherents include Nigeria and Sierra Leone in West Africa; Qatar, the United Arab Emirates and Oman in the Arabian Peninsula, and Birma/Myanmar and Malaysia in Asia. China also uses this model, but to my knowledge was never part of the British Empire.
The ‘European’ model (light green), which looks a bit like Wall-E, is present in all of Europe (except the UK and Ireland), all former Soviet republics, both Koreas, Turkey and most of the Middle East (2), most African countries (3), Indonesia, and five South American countries (4).

This map, sent in by Mark Lakata, was first published in National Geographic. It chooses clarity over comprehensiveness: in reality, there are 13 plug-and-socket systems in operation throughout the world (some are compatible with each other), and numerous national standards for voltage and frequency.

See the map at
http://bigthink.com/ideas/40910

Value of the dollar

A few days ago, an American living in Uruguay asked me to explain why the value of the dollar had dropped. It's a great question but I didn't have a great answer or, more accurately, I had too many answers.

Explaining exchange rates, in one sense, is very simple: the value of the dollar depends on supply and demand. Supply comes from people who are willing to sell dollars and demand comes from those who are interested in buying dollars. The value of the dollar adjusts to balance the desires of the buyers and sellers.

This gives us two possible explanations for a drop in the value of the dollar-- an increase in the supply of dollars or a decrease in the demand for dollars. While true, this isn't very profound and unless you're studying for an economics 101 exam it's probably not very interesting. We can use this simple model, however, to look for some explanations.

Why would someone want to have dollars? You can't eat them or drink them. You can't wear them, drive them, or live in them. No, the value of the dollar is indirect. People want dollars because those dollars can be used to buy real goods and services. So, at least partially, the demand for dollars comes from people in other countries who want to buy things priced in dollars-- stuff from the US-- a tractor from John Deer, a copy of Microsoft Windows, accounting services from Ernst & Young, a trip to Disneyworld, a US Treasury bond, or stock in Google.

Let's turn to the supply of dollars to the international currency markets. Unlike the supply of an ordinary product, the supply of dollars isn't based on the physical cost of producing currency. Dollars are supplied by people who want to buy something from another country-- a Mini Cooper, a Nokia phone, a villa in Tuscany, Mitsubishi stock, or a diamond mine in Botswana.

We're basically looking at imports, exports, and international flows of capital. When the US imports more goods and services than it exports-- a trade deficit-- it depresses the value of the dollar. Capital flows into the US (foreign purchases of US stocks, bonds, and other assets) can offset that downward pressure. In the last few years, the US has had record trade deficits. These have been mostly balanced by foreign purchases of US treasury bonds, particularly by Asian central banks. But the appetite for US debt isn't endless, so the value of the dollar depreciates.

Have I left anything out? Sure. I should probably discuss speculation, risk, interest rates, relative inflation rates, purchasing power parity, reserve currencies and more. But those will have to wait for another day.

Will WalMart save India?

Arjun Swarup at Global Economy Matters has an interesting post on how big retailers could help India's agricultural sector and, more generally, its economy.

"The key to creating a market economy in rural India lies in creating a demand for the products of rural India, as well as in creating a far more efficient agricultural sector. One symptom of the malaise is to be found in the fact that 28,000 crores worth of fruit and vegetables, the core output coming from rural India, is left to rot every year, This is largely due to the absence of cold-storage infrastructure and the inability of the farmer to get the product to market place in time"

Arjun Swarup argues that multinational retailers like Wal-Mart , Metro, or Carrefour have the resources and expertise to store, to ship, and to market this food, that is currently wasted. Furthermore, the retailers could contract with farmers to produce jams and other processed foods adding substantial value to the goods.

"So this is an area of HUGE opportunity for India, yet at one and the same time it is also fraught with risk. The Indian farmer, the bulk of whose output is currently wasted, would be assured of a buyer for his product, at stable prices. He would not be subjected to the vagaries of seasonality and volatility of market prices as he is at present Most importantly the big retailers will set up cold-storage infrastructure thereby reducing wastage. In addition, given India’s existing capital intensive industrial manufacturing base, and thus the comparatively high levels of technology already in place there, much of the value-addition industry will be based inside India itself. Thus the ancillary benefits for India would be tremendous."

Strategy + Business writes on One Billion New Automobiles
by Bill Jackson and Vikas Sehgal

Imagine how the world would be transformed if the number of people who owned cars doubled in a decade. In fact, as the rate of personal vehicle ownership soars in Asia, a new kind of global automotive manufacturing industry is emerging to capitalize on this new customer base. Automakers (and the financial markets and supply chains that support them) already know their world is going to change; the media are beginning to pay attention to fledgling motor vehicle companies such as Chery (in China) and Mahindra and Mahindra (M&M, in India). But few people realize the full implications. If the auto markets of developing nations evolve on a par with established markets by, say, 2020, that development could upend today’s prevailing notions of what a car costs, how it is produced, and how it is used.

The trends that will shape this future — from automobile production to environmental impact to changes in working patterns — are proceeding at different speeds. But they are all interrelated, and their impact will be cumulative. These trends include:

• Social Mobility

• Environmental Impact

• An Expanding Lower-End Auto Market.

• New Pressures on the Auto Industry.

Credit card practices

Boing Boing writes on Ripoff: Visa/Mastercard's "Foreign transaction fee

I just got off the phone with Citibank after noticing a bunch of "Foreign Transaction Fees" on my bank statement -- turns out that when you use your credit or debit card outside of the US, Visa and Mastercard charge three percent in transaction fees on the spend. It doesn't matter if you use an ATM, buy over the Internet/phone, or walk into a store -- the credit-card companies always dip their beaks. When you pay your hotel bill, when you buy a plane ticket, every time you use Amazon.uk to order a British release (Citibank told me that they even charge the fee when I withdraw from my Citibank US account while at a Citibank UK ATM, using Citibank's own network!).

and from their comments

"Nationwide and Citibank are the unusual banks in that they don't make up a bogus fee and stick it on your cards when you go abroad.

"This shows that:
1. its a bank thing, not a Visa fee
2. its entirely optional
3. they do it, because they can get away with it.

Country data

Going Global writes on Comprehensive Comparative Country Data Just a Click Away

In doing some research on an issue the other day I came across NationMaster.com (http://www.nationmaster.com/statistics). With two simple pull down menus -- one to select among 30 categories, ranging from "education" or "media" to "disasters" or "lifestyles"; and one to select the individual Nationmaster_site statistic that you are interested in, for example "personal computers per capita by country" -- you can search hundreds of statistical descriptors and quickly produce data driven bar charts that compare all the countries in the world relative to your selected inquiry. Fort many inquiries, you can also have the data plotted in pie charts or displayed on a map. And at least the way the site works at the moment, you can perform as many independent searches as you'd like for FREE.

Trading tasks

The Economist looks at a model of International Trade

Ricardo illustrated his insights with the example of Portuguese wine trading for English cloth. But some trade theorists think this metaphor will no longer do. Indeed, two of them—Gene Grossman and Esteban Rossi-Hansberg, of Princeton University—published a paper* last year subtitled “It's not wine for cloth anymore”.

Ricardo, it seems, did only half the job. He described the first of two “great unbundlings”—as Richard Baldwin, of the Graduate Institute of International Studies in Geneva, has put it in a recent guide†. Trade in wine, cloth and other goods allows production to be distanced from consumption. Countries do not need to grow grapes to enjoy the fruit of the vine; thanks to trade, they can transform cloth into wine instead.

But in Ricardo's world, a country must still take care of all of the separate tasks required to finish the goods it makes. In a country of pinmakers, to take Adam Smith's seminal example, someone must still cut, draw and straighten the wire; fashion and affix the head; then whiten and sheath the finished product, if any pins are to be made at all.

In the second great unbundling, production is spliced and diced into separate fragments that can be spread around the globe. Pin-whitening is done in one country; wire-cutting in another. Some theorists call this the “vertical disintegration of production across borders”. Thankfully, Messrs Grossman and Rossi-Hansberg have a more felicitous phrase: “trade in tasks”.

and continues

The new breed of models paint globalisation with a much finer brush. (It is high-resolution globalisation, Mr Baldwin says.) International competition plays out not just at the level of the industry, or even the firm, but right down at the level of individual tasks—assembly, packaging, data entry—that cut across whole sectors of the economy. Moreover, in a break with most traditional models, the new theories do not take the tradability of things as a given. For Messrs Grossman and Rossi-Hansberg, the ease of trading a particular task is a matter of degree not kind; and it is a variable, not a constant. Hence tasks that seem safe from foreign competition today may not be so tomorrow. Finally, the tradability of a task might bear no relation to the amount of skill it requires.

thanks to Creativity Exchange

Comparing GDP

Carl Størmer writes:

When seeing Norway's GDP in the context of this map, one realizes why Norway often is one of the last countries U.S. companies consider when expanding to Europe.

Norway might be an unattractive market when considering expansion because the market is so small and as a result there is little domestic competition. This has enabled local players to build monopolies or duopolies with substantial entry-barriers in many industries. Furthermore, the government has sheltered the domestic market against international competition by adding a hefty import tax and inconvenient delivery methods on goods purchased outside the country, rendering international online merchants at a disadvantage when competing on price and convenience.

On the flip side, if you manage to establish your business here, you can overcharge your customers and get away with horrendous customer service. The average Norwegian customer is not used to good service and competitive prices. Online merchants are slow. Recently it took four weeks before I received a book shipped to me from a local merchant. On a recent trip I recently purchased shoes for our kids in the U.S. The selection was superior, and the price: 1/4th of what the local Norwegian merchant was charging.

On the other hand, we have managed to build world-leading clusters in energy (oil, hydro) and shipping. We have inexpensive good, engineers and one of the most advanced markets in the world for mobile content (i.e. ring-tones etc.), and we are six hours ahead of the U.S. East-Cost, making us a good place to farm out work; you leave instructions at 6pm EST and have the work finished at your desk in Manhattan the next morning at 9am. This would give a Norwegian developer or project worker ample time to finish a good days work.

Creative Think adds this explanation of the graphic

It's an "economic production equivalence" map. The country whose name is inside of each state has a GDP that is approximately the same as the state in which it is placed. For example, California and France have approximately the same GDP.

global business etiquette

Escape from Cubicle Nation writes on
How not to be a cultural knucklehead in a global business world

In presentations and meetings:

1. Don't use baseball analogies when talking to a global audience. People around the world certainly know what baseball is. But it is not nearly as prevalent as football (aka "soccer") in most countries of the world. So if you are going to use a sports analogy, use one that most of your audience can relate to. I have felt very annoyed when hearing an executive address a global audience and use metaphors like "hitting it out of the park," or "throwing a curve ball." The rub is not that the global audience will not understand, but that the executive did not take the time to think of a metaphor that is universally applicable.
2. Stay away from "country insider" metaphors and analogies. My favorite is when a presenter talks about a business idea and says something like "but that is just Motherhood and apple pie." If you are American, you will nod your head in agreement since you know that this means that the concept is wholesome and prevalent. But if you are not American, you may scratch your head and wonder how mothers and pies relate to business.
3. Speak clearly and enunciate. You don't have to slow down until you sound like a kindergarten teacher, just make sure you enunciate your words. This will benefit not only your audience members who speak English as a second language, but everyone else as well. A tip: if you smile while you talk, your words will come out clearer.
4. Accompany your talk with written notes. I have experienced the agony and ecstasy of operating in another language. The first time I walked into my all-French language Swiss classroom as a high school exchange student , I felt like my brain was turned on hyper-speed. I tried to grasp philosophy, chemistry, history and calculus in French, and my head almost exploded. Even a person very fluent in English as a second language will have to work extra hard to make sure he understands what you are saying in a presentation. So provide written notes as backup which will allow your non-native speakers to fully grasp the materials, and review them after the meeting.
5. Avoid potentially offensive metaphors. I once attended a meeting which included Native American participants. Another non-Native participant said to illustrate his point: "We have too many Indians and not enough chiefs." His face did turn three shades of red once he realized that it was offensive to those in attendance. It is best to banish these kinds of metaphors from your vocabulary, as frankly they are unbecoming in any context.
6. Plan for a level of interaction appropriate for the culture of your audience. The first time I taught a class in Europe, I felt like I was a comedian playing a really hostile comedy club. I tend to be a very interactive presenter, and frequently ask the participants questions. Each question dropped like a lead weight in the room, and I was met by cool stares. At the break, I checked in with a colleague, and was told that for this group in Amsterdam (with participants from England, France, Germany, Holland and Switzerland), large group presentations were often more formal, and people would often not speak up until they got in smaller groups. They looked to the instructor to be well-prepared and knowledgeable, not to act as a talk show host.
7. Ask people what they prefer to be called before you introduce them. Americans have the wonderful quality of making friends quickly and using informal terms with each other. But you might want to ask Prince Charles how he prefers to be referred to, before introducing him as "My Main Man Chuck."
8. Include social events that meet the needs of all global participants. A favorite pastime after many American and European business meetings is to go drinking. Some of your participants may not drink alcohol for personal or religious reasons. Some will feel fine going to a bar and drinking a non-alcoholic beverage, while others may feel very uncomfortable. So try to schedule a mixture of activities that will meet the needs of all participants.

In electronic communication:

* Include your time zone in your email signature in the form of "GMT +/-" Here in the U.S., we are used to using time zones such as Pacific, Mountain, Central and Eastern. But outside the U.S., not everyone is as familiar with which states fall in which time zone.
A handy global measure is to use the Greenwich Mean Time (GMT) as a standard. In 1884, an international conference agreed to adopt the Meridian of Greenwich, England as the starting point for reckoning longitude and to divide the world into 24 time zones of 15 degree longitude each. (Amazing how the center of the earth happened to fall in Europe, huh? The after-effects of colonialism is another topic for another day.) So if you live in Arizona like I do, my time zone is GMT-7. If you live in Tokyo, your time zone is GMT+9. This can make scheduling global meetings much easier. (I have a handy "World Time Zone" map to decipher GMT times from Streetwise Maps.)
* Include a salutation. Email culture in general tends to be shorter and less formal than traditional written communication. But many cultures have a more formal written protocol than in typical email style. So the first time you approach a new business partner in Japan, make sure you don't say "Hey Jim -- read that you are doing interesting things with green technology. Call me and let's discuss. -Joe" A more appropriate greeting might be "Dear Mr. Tanaka," or even better, "Dear Tanaka-San."

thanks to Seth Godin