The Economist Articles — Week of 27 Feb 2016

Every week I read through The Economist to pick out articles that may be useful for teaching in the classroom. I’ll be sharing some of my notes and the discussion prompts I’ve come up with in these weekly posts. For students, they can serve as guide-rails for your reading. For teachers, I hope they will be helpful for your teaching.

1. Forests — A world on fire

Externalities: “Smoke settled over Singapore for months…” “For much of last October greenhouse gases released by those fires exceeded the emission of the entire American economy.”

Rational Decision Making: “One of the reasons for those forest fires is economic… the country produces… palm oil… accounts for around 4.5% of… GDP… demand is still rising… set fires to clear forest and make way for new plantations.”

Principal-agent problem & Unintended consequences: “The president and national ministers may understand the benefits of conservation, but local officials have little interest in curbing their revenues for a nebulous goal such as ‘sustainability’.” How might governments ensure that policies achieve their intended consequences?

Expectations of future: “188 Indonesian palm-oil companies… made sustainability pledges… deforestation continues. Perversely, it may even have increased temporarily, as companies cleared as much land as they could before the agreement took effect.”

2. Foreign property-buyers — Mountains and molehills

Anti-thesis 1: “The argument goes that foreign owners drive up prices, bringing down the rate of home-ownership among Londoners.”

Thesis 1: “The high rate of ‘foreign’ ownership is thus a function of the capital’s cosmopolitanism: about one in four Londoners is a foreign citizen.”

Synthesis 1: “in 2013… non residents may account for just 3% of all property transactions in London.”

Anti-thesis 2: “the people who make up that 3% are still open to the charge that they push house prices up. If so, it is probably because they buy properties and then leave them empty.”

Thesis 2: “Little evidence… number of houses… left vacant… more than six months has fallen by 50%.”

Synthesis 2: “Most foreign investors instead look to make money… rent out their property… may reduce the cost of renting by boosting the supply of rooms.” “Other Asian buyers… want their children to use… property while at university… international students… contribute about 3 billion pounds to the economy (each year).”

Thesis 3: Foreign investment may even pep up housebuilding. (Great argument. Read the article to find out.) 

3. Roll out the welcome mat

Barriers to entry: “(Indonesia’s) labour laws are rigid. To start a business takes an average of 47 days, compared with 4 in Malaysia and 2.5 in Singapore.”

Economic performance: “value of the rupiah… against the dollar has fallen by… 30% since mid-2013.” “inflation… remained within… 3-5%” “current account deficit… around 2% of GDP last year.” “prudent fiscal policy during the boom years… public debt is just 26% of GDP.” “GDP growth of around 5% is far below the 8% which the World Bank says Indonesia requires to create jobs for the 2.5m people entering the workforce each year.” Explain how a high GDP growth rate creates jobs.

Comparative advantage: “Jokowi realises that Indonesia cannot lift its long-term growth rate if the economy remains reliant on extract industries; it needs a broader range of manufacturing and service industries.”

Microeconomic reform: “one-stop service for licensing businesses” “easing onerous regulations, cutting industrial energy tariffs, streamlining licensing procedures… and providing tax incentives to invest in special economic zones.”

Fiscal policy and merit goods: “provide poor Indonesians with government-funded healthcare, free schooling for 12 years… cash transfer of 200,000 rupiah a month.”

I hope to hear your thoughts and contributions in the comments section below.

Till next time, dream economics.