Principles of Macroeconomics Class 1

 okay 

so let's go ahead and get started like i

said

they're going to be taping all semester

long so if you come in late it's

probably

best if you come in through the back

door

and so if you two or three guys right

there would probably generally try to

keep those seats open so maybe move

up i don't know that way if people come

in late they can would that be a huge

issue if people are walking in

or not really or

all right so basically try to fill up

this side first

rather than to leave kind of these

couple of slots over here for students

that come in like

that makes sense okay

so let's kind of start off here with our

discussion

so the father of economics is generally

considered a guy by the name of adam

smith

and he wrote a book in 1776 called the

wealth of nations

okay by the way i have really bad

handwriting i'm going to try to do my

best to make it

good for you but i generally say

everything that i write i basically

almost write everything that i say

so adam smith was a scottish economist

and legend has it and i'm gonna draw

this picture of

you know here's lower england and here's

scotland so we have scotland up here

all right we've got lower england here

and the

history is the myth the rumor whatever

as he's going from scotland to england

he notices that

basically as soon as he crosses the

border everything in england is better

people are richer they're better

educated they're wealthier

the kids live longer infant mortality

rates are lower

basically every single metric that you

could think of to say

and compare life in one country to

another it's better in england than it

is in scotland

okay and this gets into thinking about

why is this right i mean we have the

same language

similar culture similar religion right

what is it that makes

nations wealthy right because

up until this point you have a system

called mercantilism

and mercantilism says well what makes a

country rich is gold and silver

right so under mercantilism you have

this idea

that you want gold and silver coming

into the country

in other words you want lots of exports

right so we're going to export goods and

services we're going to have gold and

silver coming in that's what makes the

country wealthy if we have lots of gold

and solar

all right what kind of goods and

services can we make and sell to other

people and then there's gold and silver

coming in

that's what makes the country wealthy

right that was the system of

mercantilism adam smith says no i don't

think that's right

he says what makes the countries wealthy

is something

different than that this is a completely

different way of thinking about the

world

now what other significant event

happens in 1776

declaration of independence all right it

is not coincidence

that the declaration of independence and

the wealth of nations both come out in

the same year that's not coincidence

right because people over here in

america are saying to themselves look

we have this king over here who's saying

do this do that

we don't think that's the way the world

works we think people are smart enough

to figure things out on their own we

think people have

political freedom

adam smith comes along and says

essentially the exact same thing except

under the kind of guise of economics and

here in essence he's saying look

in essence what you can do is you can

have

an invisible hand

can solve a lot of these economic

problems

right because

in essence what you have at this time

you've got countries like france

that will have 13 000 different

regulations

right on how to build a chair

not thirteen thousand different

regulations total thirteen thousand

different regulations on how to build a

chair

right if you have thirteen thousand

different rules on how to build a chair

is making a chair easy or is it hard

that's going to be pretty hard right and

you know some of these regulations

counteract each other right this

regulation says the chair must be no

higher than 32 inches and there's

another regulation that says the chair

must be

no lower than 32 inches or whatever

all right and adam smith says look you

don't need all this

if you're a company building chairs and

your chairs collapse when people sit in

them you're going to go out of business

if you're a company that makes chairs

and when you sit in your chairs people

are comfortable the chair doesn't

collapse you're going to stay in

business

the invisible hand is going to say these

people that are making products well are

going to stay in business these people

that don't make products well are not

going to stay in business

you don't need the government coming in

and saying we have all these different

regulations on how you're going to build

things

in essence he's saying just like you

have over here

in the u.s in philadelphia in 1776

people saying look we don't need a

government coming in and saying all this

stuff people are smart enough to figure

things out for themselves it's the exact

same thing over here

right it's an entirely different new way

of thinking

about the world okay

so let's look at the economic problem

in detail all right

there it is that's what we do

how are we going to turn resources into

goods and services

this is what economists deal with right

and what we have here is that these

resources are limited and scarce

meaning that there's not an infinite

amount of them

and since we're not god we cannot create

goods and services out of thin air

we have to use these resources to make

these goods and services that means

these guys

are going to be limited in scarce

so which goods and services do we

produce how are we going to produce them

which sets of resources do we use to

make those goods and services

what economists do economics is really a

decision science

right it is not something to deal with

stocks and bonds

we have stuff to say about that but it's

basically a decision science which sets

of resources do we want to turn into

goods and services how are we going to

turn those resources into goods and

services

how are we going to distribute those

resources those goods and services etc

that's what economics is all about right

if economics was about picking stocks

and bonds

and people ask me that all the time what

stocks should i buy

dude i don't know if i knew what stock

to buy i wouldn't be working

right if your broker knew what stock to

buy

he would not be working

this is what economists deal with all

right

we turn with these resources and these

goods and services so let's kind of

define some terms here we kind of have

an idea of what scarcity is

scarcity is the fact

that there are insufficient resources

to produce all the goods and services

that people want

right so you're going to have to make a

choice basically that's what that says

right which should be obvious

so we know that these guys are limited

and scarce

we know we can't create these guys out

of thin air therefore these guys are

going to be limited and scarce

how are we going to distribute them

that's economics in a nutshell

what we study is how do we get from here

to here that's what we study

so when we're looking at these goods and

services let's look at these different

types we've got

goods um

right

things that are scarce and desirable

beyond what is freely available

all right so here's our goods stuff that

basically all the goods and services are

is the stuff that we want

right but it doesn't have to be tangible

things

right leisure time is a good stuff that

we want

all right so we have these economic

goods

and we've got these economic bats

right so our economic bads are things

that we don't want

things that are undesirable

crime etc

right so economists are interested in

well okay

what sets of goods and services do we

want what sets of goods and services and

things do we don't want the economic

balance we don't want

and how we're going to achieve that

right

and this definition might not be the

same for everything

right so for example

here's a pizza so when it was just my

wife and i

we could get a bot we could get by with

just ordering one pizza because there

was just two of us

now we have three kids and we have to

get like four or five but

that's another story so here's our pizza

here right

so she hates pepperoni pizza she hates

it

so i love it right so i'm getting

half pepperoni we're getting half cheese

and invariably

you're going to get a little bitty piece

of pepperoni on that little slice of

pizza

and that whole piece of pizza is now

infected right

it's not a matter of i'm going to pull

the pepperoni off and eat this cheese

pizza

it's the whole slice is infected

and so when it comes to eating she's

eating this part right here

right so here's her and then here's me

eating all this part right yay me all

right that's why my cholesterol is at

712 and hers is at 110. i don't know

what my cholesterol is

all right but the point is is that to me

pepperoni pizza is an economic good i

like it

to her it's an economic bet right

so it's not that there's a universal

definition

for goods and bads goods are just stuff

that you desire the badge are things

that you don't desire right

blessing

so

a couple of other ideas we want to keep

before we start looking at these

resources in more detail

that's the idea of positive economics

and normative economics

positive basically looks at what is

normative looks at what should be

or what ought to be

all right

so these guys right here are testable

these guys right here are value

judgments

okay

so let's look at an example

the federal budget deficit

should be smaller

the federal budget deficit

is 300 billion dollars

the minimum wage

should be increased

increasing the minimum wage

increases arrow going up increases arrow

going down decreases

increases the unemployment rate

among black males

got four statements here one two three

four

which guy is positive which guy's

normative the federal budget deficit

should be smaller positive or normative

normative right this guy is normative

federal budget deficit is 300 billion

dollars positive or normative

positive is it true maybe

maybe but it's still a positive

statement

minimum wage should be increased

positive or normative

normative

increase in minimum wage increases

unemployment among black males positive

or normative

positive is it true

maybe the idea here is that it's

testable

maybe increasing the unemployment the

minimum wage

makes unemployment among black males

goes down

maybe it has no effect the point is that

it's a

testable hypothesis you can go out and

you can collect data and you can see

whether it's true or not

these guys are untestable hypotheses

their value judgments

right the minimum wage should be

increased somebody else says i think it

should go down

we're done all right there's nothing

left to say

so generally speaking what type of

economics do you think we want to do

positive or normative

positive right because this right here

is like we're done

what else can you say all right all

right we'll pick it from here

on friday