Archive for March, 2014

The Sowellians today dug into the world of money and banking.  After sharing why a solid banking system is essential to a prosperous society, the students reviewed the history of money.

Creating wealth by banking... Khan broke down fractional reserve banking

Creating wealth by banking… Khan broke down fractional reserve banking

From salt to cowry shells to bitoins, money is not just pieces of paper and traditional coins.  Money is simply anything that people can use to acquire real goods and services.

And when money goes bad — hello Zimbawe and its 100 trillion notes — a nation will suffer.  Both inflation and deflation can take a toll.

We then had a guest lecture from Sal Khan of the Khan Academy who explained in 11 minutes how fractional reserve banking works.  Start with 1,000 gold coins and wind with 2,700 coins in circulation (or something like that).

Finally, we touched on the role of the Federal Reserve Bank and its charter.  And we met the new Fed chair, Janet Yellen.  Here’s the PPT from today.   Week 11, March 25


In this, our 10th week of economics studies, we broached two big questions that needed discussion:

  • Is capitalism consistent with Christianity?
  • If somebody gets rich, does that mean somebody else becomes poor?

1TrillionWe then launched into what comprises a nation’s output.  GDP, or gross domestic product, while imperfect, is the agreed-upon metric for comparing the world’s economies as well as gauging growth in an economy.  The U.S. GDP of $16.8 trillion still leads the world, although China is closing at $10 trillion.

And as the illustration next door illustrates, a trillion is a huge stack of $100 bills.  We all admired a genuine $100 as it moved around the classroom and back into the thin wallet of Mr. G.

GDP, as it turns out, has two major components: private consumption and investment, and public (government) spending.  And  we instantly memorized the simple formula for computing GDP:  GDP = C+I+G+ (X-M).

Here’s the PPT from today.  Week 10, March 18



The LAF economists today tackled a challenging mini-MOAT (Mother-Of-All-Tests) and agreed that they were better off for the experience.  Covering two sections, the test required more analysis that prior DPQs.

We then dove into the world of controls on the free deployment of labor.  From minimum wages to paid family leave, we discovered that the U.S. and international labor markets are anything but free.

Sounds good on paper... but beware unintended consequences

Sounds good on paper… but beware the unintended consequences

Much of the discussion centered on minimum wage.  President Obama is making his proposal to hike the rate to $10.10 the centerpiece of Democrat re-election efforts this fall.

Alas, Dr. S punctures the myths of minimum wages, showing how they actually hurt the very people they are intended to help.  Fewer jobs, higher unemployment (particularly among teens and minorities), increasing automation and rising costs for goods and services by owners forced to pay more for labor are among the consequences.  The beneficiaries?  Those who manage to keep their jobs.

We also looked at labor unions.  Although in long-term decline, unions, particularly public-sector unions, remain a powerful political force in the U.S.

Here’s the PPT from today.  Week 9 March 4    Have a relaxing spring break and see you on March 18.