Journalism and Economics

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Journalism and Economics

• Right now, Economics is the worlds big story.
• In Europe, the debt and banking crisis
• The rise of China
• In the US, the jobless recovery
• In Ukraine, ----------
• In Belarus, -----------
• International trade is important to understanding
  these events.

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Growth of worldwide trade

• In the past 50 years

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A bigger share of world GDP

• Increases 3x since 1970

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International macro-economics

• Employment
• Savings
• Trade balances
• Price levels of money
• Alternative microeconomics from the bottom up.
  Look at particular businesses and consumers. If
  we have time, direct conversation in that
  direction.

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My sources of help

• Parker, Kotlikoff, Krugman, Mankiw

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The questions that got me started

• In Maine, Why are the wages so low? And work so
  dangerous?
• What led to the loss of industry in Philadelphia?

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North Philadelphia

• .

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There was a lot I didnt know

• What were the economic forces at work, and how I
  could understand and use them as a journalist?
  Was international competition a factor?
• Its difficult to identify what you dont know.

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Forming your questions

• Lets identify what you are unsure about,
  elements of international trade and currency that
  you would like to better understand.
• Terms, connections, concepts, sources of
  information, aspects of trade economy or
  currency, even specific businesses.
• Trends, events, things happening in your cities
  that you would like to better understand through
  the lens of economics?

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What makes an economist?

• Theories that express how the economy works
• Numbers that express how the economy works
• Free trade equilibrium in the immobile factor
  model

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The journalist and economics

• Events
• Decisions, policies of government and business.
• Accountability of decision makers.
• The publics understanding of events and issues.
• Economic literacy.

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Where does international economics fit into your
work?

• Issues?
• Articles?
• People?
• Industries?
• Lives of readers?

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Why do countries trade?
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Countries trade because

• ... They are different
• And because Trade allows them to achieve
  efficiencies in specific areas of production.

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Key concepts

• Comparative advantage
• Competitive advantage
• Opportunity cost

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The Krugman example
Millions of roses Thousands of computers

US -10 100
Peru 10 -30
Total 0 70
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Comparative advantage

• A country has a comparative advantage in
  producing a good if the opportunity cost of
  producing that good in terms of other goods is
  lower in that country than it is in other
  countries.

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Allocating resources, industries

• The market makes these decisions the invisible
  hand that responds to costs, prices,
  opportunities for profit.
• Ricardian model The tendency of countries to
  specialize in products or services where they
  have a comparative advantage.

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Again, comparative advantage

• Countries tend to specialize in products or
  services when it has lower unit labor
  requirements (or other factors of production).
• Factors of production
• Labor (from farmhands to programmers)
• Land (including all natural resources
• Capital (including all man-made resources,
  machines)
• Entrepreneurship

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Absolute advantage

• A country has an absolute advantage in trade
  when it can produce a product with less labor,
  for example, than another country.
• Absolute advantage is not a requirement for a
  country to be able to trade, for its own benefit,
  with another country.

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Favorable factors of production

• Ukraine?
• Belarus?

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Some basic concepts

• Trade is beneficial to the buyer and the seller.
• Two countries can trade to their mutual
  advantage even when one of them is more efficient
  than the other at producing everything and
  producers in the less efficient country can
  compete only by paying lower wages.
• 
  
  Krugman
• Trade can be thought of as an indirect form of
  production. One thing is produced and sold in
  order to buy something else.

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Some myths about trade

1. Foreign trade is beneficial only if your country
   is strong enough to stand up to foreign
   competition
2. Foreign trade is unfair if is based on low wages.
3. Foreign trade exploits workers in low wage
   countries.

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Debate Arguments against free trade

• It eliminates jobs in the home country
• It can hurt industries that are important to
  national security
• It prevents development of new infant
  industries.
• It can represent unfair competition (wages, for
  example)
• Trade barriers can become national bargaining
  chips
• -- Gregory Mankiw

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Trade doesnt benefit everyone inside the country

• Some people gain, some people lose.
• Trade can hurt people in specific industries
  that compete with imports if they can not find
  another source of employment It can also alter
  the distribution of income between groups.
  Krugman
• The nation as a whole gains
• Policy response to the pain from trade
• A source of stories for journalists

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A current critique

• Trade as mutually beneficial is taken as a
  fundamental assumption by economists
• But there is some rethinking, in special cases,
  of fully free trade by some including Joseph
  Stiglitz. (Globalization and its Discontents)
• IMF
• China
• Policy debates informed by economics.

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What are your premises? Ideology?

• Free markets (with qualifications)
• Free trade (with qualifications)
• Prudent government engagement
• Low unemployment, low inflation
• Rising personal income

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What makes an economist?

• Theories that express how the economy works
• Numbers that express how the economy works

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Economic indicators

• Blood pressure test
• Key indicators GNP, GDP, national income
  accounts, trade.
• Examples and discussion of indicators

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Some advice on numbers - Take a breath, dont
panic

• We look for the story hidden in the numbers A
  change, or something unusual, or it stands out as
  a question that leads to ask Why?
• The number compared to other numbers in a data
  set (US unemployment)
• A single number standing by itself is not so
  useful. Belarus GDP 54.7 Billion
• The way a number changes over time trends.
  Ukraine GDP, 2010 305.229 Billion
• The number expressed as a ratio in other words,
  a number in comparison to a different number.
  GDP/ population or per capital GDP.

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A system for tracking trade

• Balance of payments
• Current account
• Capital account

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International trade

• Now Value of exports - goods and
  services
• Value of imports - goods and
  services
• Export categories - goods
  and services
• Import categories - goods
  and services
• Exports minus imports
• Current account
• National income
  (GNP)
• Consumption
• Investment
• Government expenditure
• Current account
• Current account / GNP (or
  GDP)
• GNP (or GDP) / population

Country
Country
Country
Country
Country
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Connecting trade and national wealth

• Gross National Product The value of all final
  goods and services produced in a country by its
  factors of production and sold on the market in a
  given time period.
• GNP National income (more or less) The value of
  the output (GNP) is arrived at by adding up all
  the expenditures on final output.
• NATIONAL INCOME
• Consumption
• Investment (set aside for future production
  including inventories)
• Government spending
• Exports minus imports
• ltIncome, by this definition, equals output.)

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GNP, GDP

• Gross Domestic Product (GDP) is similar to GNP
  but not exactly the same. They tend to track one
  another, so the distinction for our purposes here
  is not that important.
• GDP The value of production within a countrys
  borders. It does not capture some income
  generated in another country.

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What does I mean to be rich, poor?

• GDP or GNP/ capita is an average, but it gives us
  metric to consider standard of living.
• Ukraine (1)
• Belarus (1)

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International trade

• Now Value of exports - goods and
  services
• Value of imports - goods and
  services
• Export categories - goods
  and services
• Import categories - goods
  and services
• Exports minus imports
• Current account
• National income
  (GNP)
• Consumption
• Investment
• Government expenditure
• Current account
• Current account / GNP (or
  GDP)
• GNP (or GDP) / population

Country
Country
Country
Country
Country
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National income, again

• NATIONAL INCOME
• Consumption
• Investment
• Government spending
• Exports imports (current account balance)

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Capital account

• What happens when the capital account is in
  deficit?

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Forms of borrowing to finance a current account
deficit

• Bond finance
• Bank finance
• Official lending (World Bank, for example)
• Direct foreign investment
• Portfolio investment in ownership of firms

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Greece

• Current account balance
• Borrowing.
• Banks, and credit-default swaps.

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Analysis of Exports

• The picture in general of Ukraine and Belarus (1)

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Now some closer examination

• Which sectors, which industries?
• How are they competing? What are the factor
  inputs? Why is an exportable item? Is the price
  subsidized in some way?
• Steel industry in Ukraine, for example.
• See Richard Parker.

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Characteristics of developing countries

• Extensive government control of economy
• History of high inflation
• Weak credit institutions
• Currency rates are managed by the government
• High proportion of natural resource sales or farm
  commodities
• Gray economies tax evasion, corruption.

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Where does international economics fit into your
work?

• Issues?
• Articles?
• People?
• Industries?
• Lives of readers?

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Exercises for you

• Chart the basic trends in your nation or region
• Draw comparisons to other nations
• Relate the trends to prices, wages and job
  security

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Basic knowledge of your countrys trade position

• Which indicators? What else do you want to know?

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Reporting upstream

• Richard Parkers point

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Turning statistics into stories
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Areas of your coverage

• Bring this later into the presentation

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Factors affecting imports and exports

• Consumer tastes
• Prices
• Exchange rates
• Consumer incomes
• Transportation costs
• Government policies

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Terms

• Balance of payments
• Current account
• Capital account
• Gross Domestic Product
• National income
• National income accounts
• Demand curve
• Capital inflows
• Capital outflows
• Purchasing power parity
• International reserves
• Central bank

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Sources of information

• Ukraine trade
• http//info.worldbank.org/etools/wti/docs/Ukraine_
  taag.pdf
• Belarus trade
• http//info.worldbank.org/etools/wti/docs/Belarus_
  taag.pdf
• International trade and economic data
• http//www.economywatch.com
• International Monetary Fund
• http//www.imf.org/external/data.htm
• World Trade Organization
• http//www.wto.org/english/res_e/statis_e/statis_e
  .htm

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Organizations

• International Monetary Fund
• An international organization that watches over
  the worlds financial system and monitors
  macroeconomic policies especially as they affect
  exchange rates and balances of payments. Also
  provides loans to nations.
• World Trade Organization
• An international organization that supervises
  trade among members and seeks to liberalize trade
  policies. It also formalizes trade agreements and
  settles trade disputes. Replaced the earlier
  GATT.