Covering the Economy: How did we get here?

Louis D. Johnston

Presentation at the Minnesota Newspaper Association &

Minnesota Free Paper Association ConventionJanuary 28, 2011

What is economics?

Frank and Bernanke: • “Economics is the study of how

people make choices under conditions of scarcity and of the results of those choices for society (p. 4).”

What is economics?

John Taylor: • "Economics is a way of thinking. It entails

accurately describing economic events, such as the Great Depression, explaining why such events occur, predicting under what circumstances such events might take place in the future, and recommending appropriate courses of action (p. 6)."

What is economics?

• Macroeconomics• Microeconomics

What is an economy?

• It is NOT the same thing as a company• Company: open system, few feedbacks• Economy: closed system, lots of

feedbacks

What is an economy?

The private sector

Households

Firms

Households

Resources (Human capital, physical capital, natural capital)

Firms

Goods and services

Households

Resources (Human capital, physical capital, natural capital)

Firms

Goods and services

Households

Markets for human capital, physical capital, natural

capital

Firms

Markets for goods and services

Households

Payments for resources

Firms

Expenditures on goods and

services

Households

Payments for resources

Firms

Expenditures on goods and

services

Things to watch in the private sector:

macroeconomics• GDP and its components (C, I, G, NX)• Personal income• Employment and unemployment• Prices and inflation

Things to watch in the private sector:

microeconomics• Individual industries• Particular labor markets• Poverty and income inequality measures

Adding in government

Private sector (households,

firms)

Government expenditures,

transfer payments

Government (Federal, state,

local)

Taxes

Private sector (households,

firms)

Government expenditures,

transfer payments

Government (Federal, state,

local)

Taxes

Things to watch regarding government

• Fiscal policy• Taxation• Spending

• Monetary policy• Regulatory policies

What about financial markets?

Financial markets

Households

FirmsGovernments

Things to watch in the financial markets

• Stock market trends• Bond market trends• Asset market trends (e.g. housing)• Interest rates (local, national)• Exchange rates

Get to know your economy!

Learn as much as you can about• Private sector• Government• Financial markets

How Did Minnesota Become “Above Average”?

How Minnesota Became Above Average

1950s-2000s

(Catching-up growth)• Growth in quantity of

resources• Adoption and

improvement of existing institutions and technologies from the technological frontier

2010 onward

(Endogenous growth)• Growth in quality of

resources• Development of new

institutions and technologies that expand the technological

frontier

The big questions for public policy:

Do people follow jobs?

or

Do jobs follow people?

How Minnesota Became Above Average

1950s-2000s

(People follow jobs)• Public policy focus:

– Accumulate and attract more human and physical capital

– Technology transfer

2010 onward

(Jobs follow people)• Public policy focus:

– Improve quality of human and physical capital

– Technological innovation

Thanks for your attention and participation!

Questions?