The Economist Articles — Week of 5 Mar 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. Electricity in Nigeria — Powerless

Asymmetric information: “Even as companies were bidding to buy power stations… striking staff prevented them from looking at what they were buying… they had bought rundown equipment and companies whose books had been systematically cooked.”

Price controls and shortages: “…many could not get the gas they needed to power their plants. Government meddling held down gas prices… producers would simply flare it off (while extracting oil) instead of bothering to sell it at a deep loss.” Illustrate the effects of the price controls on a suitable diagram.

Public goods: “…left the transmission grid in the hands of the state… (who) has not invested much, so huge amounts of power fizzle out on its dilapidated lines.” Why might the transmission grid be considered a public good? What do you think is causing the under-investment by the state?

Interest rates and foreign exchange: “a falling currency and shortages of foreign exchange have made it harder for private power producers to service debts denominated in dollars, a currency many chose because it offered lower interest rates than borrowing in naira.” Explain how a tightening of monetary policy in the U.S. may affect the private power producers.

2. Red ink rising

Debt and its associated problems are not entirely in the syllabus. But it can be helpful to know some of the negative effects of accumulating too much debt as they can be used to evaluate fiscal policies.

Debt as a cause of recession and financial crisis (1): “external sort, like Asia’s in 1997-98… foreign lending sparks a boom that fizzles… loans dry up. Firms, unable to roll over debts, cut spending to save money. As consumption and investment slump, net exports rise, helping bring in the money needed to repay foreign creditors.”

Debt as a cause of recession and financial crisis (2): “domestic balance-sheet recession, like… Japan in the early 1990s and America in 2008… dud loans swamped the banking system. Central banks struggled to keep demand growing while firms and households paid down their debts.”

3. Online retailing in India — The great race

Growing size of market: “In the next 15 years India will see more people come online than any other country.”

YED: “India is in many ways a tougher market for e-commerce than China. Its population is poorer and its infrastructure worse.” Why might a poorer population be especially problematic for e-commerce to flourish?

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

Till next time, dream economics.