Spring semester in New York State high school social studies classes usually means studying the "dismal science," economics. In too many classes economics is taught like chemistry or trigonometry -- memorizing definitions and analyzing charts, graphs and equations which describe a hypothetical system that never quite corresponds to reality. It can be really boring stuff, especially as student interest in high school is already waning. To make lessons "real," some teachers involve students in a version of sports betting also known as the Stock Market Game, promoting speculation and greed but not an understanding of the global economy.
In this blog I suggest a different model for teaching economics based on curriculum innovations in Finland where they are moving away from compartmentalized learning in secondary school. Instead of studying math, science, history, or economics in isolation, students will explore broad interdisciplinary topics and questions such as "How can the world effectively respond to climate change?"
I recently saw the movie The Big Short. It follows a few small groups of stock market analysts who figured out the underlying weakness of last decades housing bubble and predicted and profited from the Great Recession. This year's high school seniors get to track and attempt to explain what may potentially be the burst of the global economy's next economic bubble as economic growth in China, which produces about a quarter of the world's manufactured goods, slows toward a halt. I propose analyzing potential holes in the global economy should be the core of the entire economics curriculum and all theory and practice, close reading of texts, charts and graphs, and hypothesizing based on evidence, focus on this phenomenon.
Part of the excitement of this approach to teaching is that we are all affected by current developments in the global economy and we do not know what will happen over the next few months. Writing in the New York Times, Nobel Prize-winning economist Paul Krugman argues that while China's recent economic woes are a concern for the global economy, China's problems should not bring the whole system to the point of collapse as irresponsible banking practices and the implosion of the housing bubble did in 2007.
Personally I hope Krugman is correct, but I am not so sure. Actually, he is also less sure than he sounds at the beginning of the essay. Krugman acknowledges that investor George Soros and other "smart people think that the global implications are really scary." He believes China's downturn is manageable by other major economic powers, but the problem for Krugman is that the United States and Western Europe are "woefully unready to deal with the shock." Neither economy has completely recovered from the 200-2008 "Great Recession" so central banks have little leeway and politicians little will to take the type of drastic actions that may be required.
Krugman concluded, "[M]y best guess is still that things won't be that bad -- nasty in China, but just a bit of turbulence elsewhere. And I really, really hope that guess is right, because we don't seem to have a plan B anywhere in sight."
I am certainly not an economist of Krugman's stature, but there are problems with the Chinese and global economy that I think he under estimates. In the past oil wealthy countries invested profits in the United States, but as the price of oil continues to decline along with demand for manufactured goods they have had to pull money out of the United States. China, the largest holder of U.S. Treasury debt, has also been dumping treasury bonds to support its own economy.
China's rapid economic growth built on controlled low wage labor, cheap exports and environmental degradation over the last two decades has stimulated the entire global economy and now threatens to bring the rest of the world down as well. Companies and governments in Brazil, Venezuela, Chile, Canada, Saudi Arabia, India, West Africa, Australia, and the United States have invested heavily and borrowed heavily to develop resources and build infrastructure to feed the Chinese industrial machine and with cuts in production in China they face lower demand and prices for their own products and the mounting inability to repay debts.
To begin exploring recent global economic developments tied to a Chinese economic downturn students can read and analyze a modified version of a recent New York Times economic report and use it to identify their own questions and topics for research.
China's Hunger for Commodities Wanes, and Pain Spreads Among Producers
Source:http://www.nytimes.com/2016/01/10/business/international/chinas-hunger-for-commodities-wanes-and-pain-spreads-among-producers.html
Guiding Questions
1. What is the "mismatch" described in paragraph A?
2. What is the best meaning of the word "voraciously" as used in paragraph B?
3. According to paragraph C, why is it difficult for companies to adjust to the new economic conditions?
4. An economic bubble is a rapidly expanding economy that is not rooted in solid economic growth and development so it has the potential to suddenly burst. What evidence is presented in this article suggesting that the global economy is an economic bubble waiting to burst?
5. In your opinion, is the global economy at risk of a broader economic downturn similar to the Great Recession of 2007-2009? Explain your reasons.
A. Chile is expanding its largest open-pit copper mine below the northern desert to dig up 1.7 billion additional tons of minerals, even as metal prices plummet around the globe.
India is building railroad lines that crisscross the country to connect underused coal mines with growing urban populations, threatening to dump more resources into an already glutted market. Australia is increasing natural gas production by roughly 150 percent over the next four years, as energy companies build half a dozen export terminals to serve dwindling demand. Across the commodities landscape, this worrisome mismatch mainly traces back to the same source: China.
B. For years, China voraciously gobbled up all manner of metals, crops and fuels as its economy rapidly expanded. Countries and companies, fueled by cheap debt, aggressively broadened their operations, betting that China's appetite would grow unabated. Now everything has changed. China's economy is slumping. American companies, struggling to pay their debts as interest rates rise, must keep producing. All the excess is crushing prices, hurting commodity-dependent economies across emerging markets like Brazil and Venezuela and developed countries like Australia and Canada.
C. The geopolitical and financial consequences of this shift have shaken investor confidence . . . Multibillion-dollar investment decisions made years ago on big projects, like the oil sands fields in Canada and iron ore mines in West Africa, are just getting up and running. Facing huge costs, companies cannot simply shut off projects. So the excess could take years to work through. The flood of raw materials is pressuring prices, prompting a painful shakeout . . . Michael Levi, an energy expert at the Council on Foreign Relations, likened the reversal to a rainfall that first relieved a drought but then created a flood. "Producers ended up being their own worst enemies," he said. "No one ever worried they would produce too much, but that is exactly what has happened and gotten them into this mess."
D. [E]conomists worry that the commodity mess reflects a weakening global economy, lowering the value of trade worldwide and perhaps even pushing some countries into the same kind of deflationary spiral that has hampered the Japanese economy for decades. Global turmoil last summer, stemming from China, prompted the United States to delay raising interest rates until the end of last year . . . Companies that took advantage of the cheap debt to increase production are now stuck with a big bill that will be difficult to cover.