MBA 540: Societal Economic Analysis Lesson #2 Agenda  Course Research Paper------Questions?  Review Course Learning Outcomes  Appropriate Roles for Economic Actors? Desired Outcomes?  Private Sector: Consumers? Producers / Firms?  Public Sector: Government? Local? State? Federal? International?  Service Sector: Non-Profit Organizations  Societal: Citizens and Civil Society Organizations  Key Economic Policy Issues to consider today-----roles, desired outcomes, impacts?  Unemployment Benefits  Federal Spending, Deficits, and Surpluses  Public Education  Health Care 1 Rick Coplen; Cell: ;

Course Learning Outcomes Develop an economic view of the state of the world through the application of rigorous analysis that connects real-world issues with core economic theories. Assess and interpret the challenges of the global economic environment by exploring and evaluating a wide-range of issues that encompass the private-sector, government and societal environments. Appraise the economic impact of issues and synthesize a course of action by analyzing arguments by thinking economically, while recognizing and avoiding logical traps. Envision what possible changes are likely to occur in the global economic environment over the next decade and apply economic concepts to develop rational market actions. Synthesize an understanding of the interplay between economics and the process of creating public policy. Apply economic methods; build practical approaches that promote both the short and long-term economic well-being of the organization and society.

Market Demand and Supply Curves / Shifters and Equilibrium Price Price Quantity Supply Curve Demand Curve Equilibrium Price Equilibrium Quantity Demand Curve Shifters Consumer Tastes Consumer Income Number of Consumers Level of other prices - Substitutes - Complements Supply Curve Shifters Technology Input Prices Changes in “Demand” vs Changes in “Quantity Demanded” 3

Determination of GDP = C + I + G + (X-M) Intended Spending Gross Domestic Product C o + I + G + (X-M) (zero tax rate) If …Then … TaxesGDP __ TaxesGDP __ I I G G 45° C 1 + I + G + (X-M) (15% tax rate) GDP 0 GDP 1

©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin What are the “appropriate” roles for all these actors? What are the desired outcomes for all these actors?

Model for Sustainable Economy presented in the Guiding Principles

Info Creation & Sharing System Market Economy Unemployment Agriculture weak Inflation / Deflation Imports > Exports Supply Chains Money, Banking, Finance Hidden banking actions Dependent on aid / DFI Inflation/Deflation Lack of access to credit Rule of Law Land Tenure and Property Rights Illicit Economies Corruption Economic Governance Fiscal Policy Tax Collection Budgeting Monetary Policy Trade Policy Regulatory Policy Causes of weak economic development and instability in the context of capacity building systems... Infrastructure / Public Services Sewage Water Energy Transportation Telecom (Human Capacity) Illiteracy / Uneducated Unskilled workers Health/Welfare issues Insurgents undermine capacity building People Macroeconomic Stabilization Employment Generation Market Economy Sustainability Control Illicit Economy & Economic-Based Threats to Peace

Civil Society Business Government Education & Training Illiteracy / Uneducated Unskilled workers Health/Welfare issues Insurgents undermine capacity building People (Human Capacity)

Asset-Based Community Development TEDxHouston 2011Angela Blanchard Key Takeaways?? “You can’t build on broken.”

... all about building local capacity, not projects or handouts. Supporting economic development is...

GAIN Framework for Analysis Goals Actors Interests Negotiation (Position, Leverage, Tactics)

Extend Unemployment Benefits? There are 10,000 Virginians who have been struggling to find work for too long – and because of Congressional inaction, they are beginning 2014 without any emergency unemployment assistance. For many, this makes a tragic situation potentially debilitating. These benefits help folks keep the heat on and put a little bit of food on the table. Earlier this week, the Senate passed the first hurdle in the fight to extend this critical lifeline for those striving to find work. But there is a lot more work to be done to ensure Congress passes this legislation – and I’m asking for your help. Will you join my colleagues and me and demand that Congress extend emergency unemployment benefits? This shouldn’t be a partisan issue. With the help of both Republicans and Democrats, Congress has always extended these emergency assistance programs when long term unemployment has remained as high as it is today. This isn’t just the right thing to do. It’s also good economics. Funds spent on this program are reinvested in the economy quickly – spurring job creation and economic growth. Please help apply the necessary public pressure to get this done. Add your name and demand Congress pass emergency unemployment benefits. Thanks for your help, Mark Warner

See Selected slides from… Chapters 3,4,5,6,11,12,14

©2012 The McGraw-Hill Companies, All Rights Reserved Chapter 34 Education

1- 16 ©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin Why “Free” Public School Makes Economic Sense The external benefits (the benefits to the rest of society that result from a child being educated) are such that the efficient price is zero. External benefits include the social stability that is enhanced by providing opportunity for all to succeed. the more intelligent voting population. the greater tax base associated with higher incomes. Lower crime rates

1- 17 ©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin Should We Spend More? What we get for our $650 billion in tax money More real spending per student Lower student-teacher ratios Flat to declining SAT Verbal (recently rising SAT Math) Increasing high school graduation rates

1- 18 ©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin Cautions Against Quick Conclusions Much of the increased spending has gone for Noninstructional spending (e.g. Janitors, secretaries, administration) Special education spending (more than 10% of students now qualify for special services) Some of the decline in SATs comes from more (and less academically prepared) students taking the exams. Some of the increase is graduation rates comes from GEDs, and social promotion.

1- 19 ©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin The Economic Literature on Education Spending Economists have studied the relationship between student success and spending. The majority show little relationship. Measures of success Graduation rates, standardized test scores Inputs Student-teacher ratios Teacher degree attainment Teacher salaries

1- 20 ©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin The Education Production Function Test Scores Teacher Quality/Quantity Education Production Function The flat of the curve. The argument is that in this range more spending does not increase scores.

1- 21 ©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin School Reform Issues The public school as a monopoly Lack of competition makes all monopolies less cost- and quality-conscious. The existence of tenure (the job protection for teachers with experience) and the lack of merit pay Tenured teachers are difficult to fire for poor teaching and good teachers are rarely paid more than poor ones. Evidence indicates quality teaching matters, but without merit pay, you can not use money to attract it. Private vs. Public Education and Vouchers Creating competition would stimulate cost and quality consciousness. Evidence is mixed. Collective Bargaining In most states teachers can bargain collectively and typically have relatively good (expensive) pensions.

©2012 The McGraw-Hill Companies, All Rights Reserved Chapter 23 Health Care

1- 23 ©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin Chapter Outline Where The Money Goes And Where It Comes From Insurance in the United States Economic Models Of Health Care Comparing The U.S. With The Rest Of The World

1- 24 ©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin Advantages and Disadvantages of Insurance Types Insurance Type AdvantageDisadvantage Fee-for- Service 1)Maximum physician choice 2)Little insurance company meddling in doctors’ decisions Highest premiums, deductibles, and co-payment rates because of little control over expensive and unnecessary procedures HMOMaximum control over expensive and unnecessary procedures so premiums, deductibles and co- payment rates are low. 1)Minimal physician choice 2)Significant meddling in physician decisions, especially when differing procedures have significant cost differences PPO1)Some physician choice 2)moderate premiums, deductibles and co-payment rates 3)some control over expensive procedures 4)minor meddling in physician decisions

1- 25 ©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin Why Medicaid Raises All Health Care Prices P* Q poor Q nonpoor D poor+nonpoor P* Q poor Q nonpoor P Q/t S D poor D nonpoor Without Medicaid Q/t S P D poor D nonpoor With Medicaid

1- 26 ©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin Why Health Care is not “Just Another Good” Rapid increases in quality (which get confused as price increases) Treatments developed in the 1990s for AIDS are expensive but this is a quality increase, not a price increase Consumers have less knowledge about what they are buying than they typically do when buying goods.

1- 27 ©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin©2012 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin Advantages and Disadvantages of Single-Payer Systems Advantages Universal coverage Low-to-no cost coverage to patients Disadvantages Long waiting lines for heart bypass and other surgeries Lower Survival Rates on many ailments High taxes

The Affordable Healthcare Act (aka “Obamacare”)