Journalism and Economics

Right now, Economics is the world’s 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.

Growth of worldwide trade

In the past 50 years

A bigger share of world GDP

Increases 3x since 1970

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.

My sources of help …

• Parker, Kotlikoff, Krugman, Mankiw

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?

North Philadelphia

.

There was a lot I didn’t know

What were the economic forces at work, and how I could understand and use them as a journalist? Was international competition a factor?

It’s difficult to identify what you don’t know.

Forming your questions

Let’s 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?

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

The journalist and economics

EventsDecisions, policies of government and business. Accountability of decision makers.The public’s understanding of events and issues.Economic literacy.

Where does international economics fit into your work?

Issues?

Articles?

People?

Industries?

Lives of readers?

Why do countries trade?

Countries trade because

... They are different… And because Trade allows them to achieve

efficiencies in specific areas of production.

Key concepts

• Comparative advantage• Competitive advantage• Opportunity cost

The Krugman example

Millions of roses Thousands of computers

US -10 +100

Peru +10 -30

Total 0 +70

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.”

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.

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 resourcesCapital (including all man-made resources, machines)Entrepreneurship

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.

Favorable factors of production

Ukraine?

Belarus?

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.

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.

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

Trade doesn’t 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

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”)

IMFChina Policy debates informed by economics.

What are your premises? Ideology?

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

What makes an economist?

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

works

Economic indicators

• Blood pressure test• Key indicators: GNP, GDP, national income

accounts, trade. • Examples and discussion of indicators

Some advice on numbers - Take a breath, don’t 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.

A system for tracking trade

• Balance of payments• Current account• Capital account

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)ConsumptionInvestmentGovernment expenditureCurrent account Current account / GNP (or GDP) GNP (or GDP) / population

CountryCountry

CountryCountry

CountryCountry

CountryCountryCountryCountry

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

<Income, by this definition, equals output.)

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 country’s borders. It does not capture some income generated in another country.

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)

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)ConsumptionInvestmentGovernment expenditureCurrent account Current account / GNP (or GDP) GNP (or GDP) / population

CountryCountry

CountryCountry

CountryCountry

CountryCountryCountryCountry

National income, again

NATIONAL INCOME =

Consumption +Investment +Government spending +Exports – imports (current account balance)

Capital account

What happens when the capital account is in deficit?

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

Greece

• Current account balance

• Borrowing. • Banks, and credit-default swaps.

Analysis of Exports

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

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.

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.

Where does international economics fit into your work?

Issues?

Articles?

People?

Industries?

Lives of readers?

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

Basic knowledge of your country’s trade position

Which indicators? What else do you want to know?

Reporting upstream

• Richard Parker’s point

Turning statistics into stories

Areas of your coverage

• Bring this later into the presentation

Factors affecting imports and exports

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

Terms

Sources of informationUkraine 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 Fundhttp://www.imf.org/external/data.htm

World Trade Organizationhttp://www.wto.org/english/res_e/statis_e/statis_e.htm

Organizations

International Monetary FundAn international organization that watches over the

world’s financial system and monitors macroeconomic policies especially as they affect exchange rates and balances of payments. Also provides loans to nations.

World Trade OrganizationAn 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.