What’s up with the economy?

Let’s assume I’m a typical 6th grader. I heard something is up with the economy, and so, encouraged by my teachers to “start paying attention to the world around me” I see this front page from Saturday’s New York Times, and I don’t even know how to begin to read it because it’s filled with words and concepts I have never heard of before.

I have so many questions that my brain hurts, so I just go to the sports or the comics…

But what if an adult took me seriously and we sat down and tried to start to understand what’s going on?

What if we dropped “the curriculum” and said, “hey, this story seems important.” What if we decided to spend a few hours this morning getting some context for this story? And let’s take about half an hour each morning for the rest of the week to further unpack the story, because we won’t magically “understand” the economy in just two hours. But we can get started…

So let’s approach this article as an opportunity to begin to gain a basic understanding of the US economy. We can end the week by summarizing what we have learned through an extended reflection piece (blog post, art work — some form of creative expression). And, because we’re curious folks who want to understand more and who are starting to see that the world is a complex place, we will also pose questions that will guide our further inquiry into the workings of the US and the world economy.

So let’s get started…  Here are some initial questions I might ask 6th graders to start our discussion:

Those are nine questions we could start with. If I had students to work with, I’d have my students look at the front page and come up with questions of their own. But since the school I plan to open in 2013 does not exist yet, I can’t ask students right now. But these nine questions seem like good ones to begin with:

1. What is S&P?  Who runs it?

2. What is Debt vs Deficit?

3. What is a AAA rating?

As a follow-up, why did S&P lower the US credit rating? What has been going on?

4. What is the “Group of 7”?

5. What does a finance minister do?  Does the US have a finance minister?

6. What does 1% growth mean?  What is healthy growth?

7. What is Wall Street and how does it work? (this would be a long-term unit that demonstrates the idea that “Math Is Everywhere”)

8. Who measures job growth?  How many jobs are there in the US economy?

9. What does 117,000 new jobs mean, in context?

Let’s group the questions, because some simply require definition and are reasonably easy to answer. Others are more involved (particularly the ones about how Wall Street works and what finance ministers do).

Let’s start with defining the S&P. That should not be too hard. Let’s start with Wikipedia:

Standard & Poor’s (S&P) is a United States–based financial services company. It is a division of the McGraw-Hill Companies that publishes financial research and analysis on stocks andbonds. It is well known for the stock market indices, the US-based S&P 500, the AustralianS&P/ASX 200, the Canadian S&P/TSX, the Italian S&P/MIB and India’s S&P CNX Nifty. It is one of the Big Three credit rating agencies (Standard & Poor’s, Moody’s Investor Service and Fitch Ratings).[2]

Pasted from <http://en.wikipedia.org/wiki/Standard_%26_Poor%27s>

Who runs it? Well, that’s on Wikipedia, too:

Looks like it’s run by a man named Deven Sharma. Let’s see what we can find out about him…

First, what does he look like?

Now, what does Wikipedia say?

Deven Sharma is the President of Standard & Poor’s, a Division of The McGraw-Hill Companies,[1] and the world’s foremost source of financial market intelligence, providing independent credit ratings, indices, risk evaluation, investment research and data. Mr. Sharma joined Standard & Poor’s in 2007 as executive vice president, Investment Service and Global Sales. Before joining Standard & Poor’s, he was executive vice president, Global Strategy at The McGraw-Hill Companies for five years.

Early life and education

Sharma received his Bachelor’s Degree from Birla Institute of Technology, RanchiIndia, a Master’s Degree from University of Wisconsin and a Doctoral degree in Business Management from Ohio State University.

Pasted from <http://en.wikipedia.org/wiki/Deven_Sharma>

Now that’s just starting to answer the first question. Question #2 would be pretty easy — what is the difference between debt and deficit?

Debt is the total amount you owe, and deficit is a yearly figure. So let’s say I borrow $1000 a year from you, starting in 2006. Today, after five years of borrowing, I’d owe you $5000. My deficit for this year is $1000.

Ah, but it’s more complicated than that… would you loan me money for free? Why would you do that? And what is money anyway? Let’s say you decide to charge me 5% interest, and to keep it simple, let’s say the interest is calculated yearly. That would mean that at the end of 2006, I’d owe you $1050, rather than just $1000 ($1000 + $1000 times 5%). At the end of 2007, I’d owe you $2050, plus interest of $2050 times 5%, or $102.50. So that’s $2152.50…

This would be a fascinating unit to look into. I’m not an economist, but I know how to get in touch with economists at UNC, Duke, NCCU, NSCU, and with the internet, there’s no end to the resources we could leverage to answer our questions…

Another good first step would be to have students read and discuss the New York Times article from that Saturday.

And then we could compare the coverage in the NYT to that of the Washington Post:

U.S. stocks fluctuate wildly despite positive jobs report

By Cezary Podkul, Published: August 5 — Washington Post

Wall Street posted its worst weekly performance in more than two years Friday after a roller-coaster trading day that was marked by wild swings and major confusion among investors unsure whether to hold tight or give in to fears of a global economic recession.

The blue chip Dow Jones Industrial average ended the week down 5.76 percent, its worst weekly percentage decline since March 2009. Standard & Poor’s 500-stock index, a broader market measure, fell 7.19 percent, and the tech-heavy Nasdaq finished the week down 8.13 percent, marking the worst week for both indexes since November 2008.

All three indexes are now solidly in red territory for the year and are off 10 percent from their recent highs two weeks ago.

The declines have been driven largely by fears that the European debt crisis could spread to Spain and Italy and worsen economic slowdowns underway in Europe and the United States. But Friday brought respite on two fronts: Italian officials announced efforts to accelerate their plans to bring their budget into line, and an upbeat U.S. jobs report showed the economy created 117,000 jobs in July, 32,000 more than economists had expected.

So now we have a little more context. The 117,000 jobs figure showed up again, but now we know that for the week, the various stock markets went down nearly 6-8%, and that seems like a huge drop.

What exactly is a stock market and how does it work? That would be a great two-week project to investigate at some point later in the year.

But just from a preliminary examination of the news, we’re starting to get a flavor for the complexity of the US economy — and we have not even started to look at how the US connects with the world’s economy.

But this is a good start. We’re practicing active reading, listening (in discussion), speaking (again, in discussion), and writing (blog posts and reflections about what we’ve learned). And we’re learning a good deal of applied math, starting with basic concepts like deficit and debt.

And if we look at a third source, such as NPR, we might learn that defining the debt as the total amount we owe is (surprise, surprise) more complicated than it appears. The number that has been floating around is $14 trillion* (see end of post for *), but an economist interviewed on NPR says that’s only the tip of the debt iceberg.

The professor — Laurence J. Kotlikoff — served as a senior economist on President Reagan’s Council of Economic Advisers. Here’s a quote from the NPR article:

“If you add up all the promises that have been made for spending obligations, including defense expenditures, and you subtract all the taxes that we expect to collect, the difference is $211 trillion. That’s the fiscal gap,” he [Kotlikoff] says. “That’s our true indebtedness.”

Now it depends, of course, on the time-frame and on various assumptions. Is our debt $211 trillion over the next 10 years? Over the next 20 years? Right now? How is he measuring? He continues to note that:

“We’ve got 78 million baby boomers who are poised to collect, in about 15 to 20 years, about $40,000 per person. Multiply 78 million by $40,000 — you’re talking about more than $3 trillion a year just to give to a portion of the population,” he says. “That’s an enormous bill that’s overhanging our heads, and Congress isn’t focused on it.”

So that quote got me thinking: Is that right? Are there that many baby boomers? What does the US population distribution look like?

I looked around online and found this chart:

So before we went any further, we’d need more updated numbers, but assuming these numbers are correct from 2007, that lines up with Professor Kotlikoff’s claim in the NPR article. It also suggests that of those 85 million people in 2007, seven million of them died in the past four years, since 85 minus seven leaves 78 million, and that’s how many boomers Professor Kotlikoff talked about when he came up with the figure of $3 trillion per year.

Before I end this post, I should note that the three sources consulted thus far — New York Times, Washington Post and NPR — all have a liberal bias. We’d want to balance those articles with ones in the Wall Street Journal and others.

* Finally, let’s address the asterisk after the trillion. How big is a trillion? If we’re not able to explain how big it is, numbers like 14 trillion and 211 trillion don’t mean much. One of the first units we’d do at my school in 6th grade would be a look at really big numbers, so that students grasp the difference between hundreds of thousands, millions, billions and trillions. There are, for example, about 270 thousand people living in Durham County; there are about 312 million people in the US and nearly seven billion people in the world.

By the time you read this post, all of those numbers will have increased. Check out the US Census Bureau’s US & World Population Clock to see for yourself.

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About Steve Goldberg

I teach students at Research Triangle High School (RTHS) about US History. RTHS is a public charter school in Durham, NC, whose mission is to incubate, prove and scale innovative models of teaching and learning. The blog posts here reflect my own personal views and not those of my employer.
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One Response to What’s up with the economy?

  1. Norman says:

    this is great stuff…..how do i get a job at your school?

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