Sunday, 30 September 2012

The Euro Crisis Explained, II. - The Euro in The Crosshairs

Continuing our line of European crisis posts, we present this video detailing the origins and the problems of the common curency. Our detailed assessment of the problem will come on Monday - until then, keep on reading us and have a nice weekend.

Reader's notice: Starting this Sunday, I'll divide this blog's posts into two categories - 'working day posts' will be the longer, essay-like pieces detailing various economic issues, while 'weekend' posts will focus more on the light side, presenting infographics, videos and the like. Our hope is that the new changes will lead to more predictable and higher-quality posts.

Saturday, 29 September 2012

The Economics of Booze

We have already thoroughly discussed in our Mafia Economics post the significance of the alcohol trade in the 1920's. And while regulations come and regulations go, people's aptitude for beverages never changes - or so it seems. The following infographic represents the contemporary American alcohol industry. 


Alcohol: A Recession-Proof Industry?
Browse more infographics.

Friday, 28 September 2012

A brief history of tax havens

 Seychelles, Bahama, The Cayman Islands - most readers have heard the name of at least one, and usually not due to their magnificent landscape. These territories are all tax havens, which have converted their entire legislation with the sole purpose of trying to attract investors wishing to evade - or as they call it, 'optimize' taxes of their home country. But what is their story? Why did tax havens form in the first place, how much money they house, and can they be stopped (or even should be stopped?) Read the article to discover the answers to all your evasion-related questions.

Click on the image to enlarge. Source: Visual.ly

Thursday, 27 September 2012

All in! - Why Casinos Are Good For The Economy

What do Las Vegas, Atlantic City and Monte Carlo have in common? The answer is obvious – they all started as small settlements, growing into huge cities due to their success as gambling resorts. Hence on the first look, gambling seems like a powerful engine of the economy – but on the other hand, it also increases crime, causes addiction, and it really is just a transfer of money from gamblers to casino owners, not creating real productive value. So what is the truth? Schoolonomic believes that despite their social setbacks, casinos have several positive macroeconomic effects. Why? We will explain below.

Source: Destination360.com

Wednesday, 26 September 2012

Economist of The Week - John Stuart Mill

Periods come and periods go – and it isn't any different with the economic sciences. Today's economist in many ways represents the end of the era of classical economics, and the beginning of a new age of economic thought. Not only his work concludes and finalises the ideas of his legendary predecessors, but he also was a famous philosopher, a child prodigy and an outstanding intellect. His name is John Stuart Mill.

Source:Wikipedia Commons

Tuesday, 25 September 2012

School day off and Marshallian curves

Yesterday, on the Monday of September 24th, around 9:30 CET, construction workers outside our secondary school have cut a water pipe. As a result, the owner of the school buffer has raised the price of bottled water from 260 HUF to 600 HUF (although only temporarily, and as a joke). And while most of us very just happy that school came to a quick end due to the risk of infestation, the story has some important economic consequences as well. Wondering how? Read below.


Source: Peak Oil Technology

Monday, 24 September 2012

The Euro Crisis Explained, I. - What's With All The Debt?

Welcome back to Euro Crisis Explained! In our first post on the origins of the European financial crisis,  we have argued that Eurozone governments, like  Greece, Ireland and Portugal, Spain and Italy - the GIPSI countries, known without Ireland as the PIGS - had troubles financing their debts due to high interest rates forced upon them by the markets. However, that is just one side of the story. Countries like Spain, Italy, Greece, Ireland and Portugal have accumulated substantial government deficits on their own - and if your read below, we will explain how. 

Government debt in Greece, Spain, Italy, Ireland and Portugal is one of the biggest problems of the Great Recession.
Source: Gaijinpot.com

Sunday, 23 September 2012

A post you can't refuse... - Mafia Economics

"I'm gonna make him an offer he can't refuse" - says Don Vito Corleone, and thousands of fans of the movie 'The Godfather' fans experience the same goose bumps they did back in 1972. Even if you did not see the movie - you should -, you are most likely familiar with the story of Michael Corleone, youngest son of the Don who goes from being an outsider to the head of the organisation. But there are some facts even fans don't know about - for example, that besides being a movie classic, 'The Godfather' serves us with important lessons on supply and demand and the role of government. How? Read below.  

Source: HowManyAreThere.net

Saturday, 22 September 2012

What Is Game Theory?

Reader's of Schoolonomic already know by now that economics is not an isolated discipline - the non-conclusive list of connections includes history, philosophy, psychology and also mathematics. And while we have written extensively about the first three, so far has been little coverage of the latter.
So to open a new line of explanatory posts aimed at explaining mathematical economic concepts, this post will cover game theory, the mathematic study of decision-making.

Game theory's practical applications include poker, chess and several other forms of classical games.

Friday, 21 September 2012

The Euro Crisis Explained, Introduction

Starting from this Friday, Schoolonomic will expand the scope of it's covered topics by introducing a new form of articles - from now on, once or twice a week, one of this blog's posts will be a coverage of contemporary economic events, providing an unique opinion and explanation on the issue, most likely using examples of economic, historical and political history. This week's first post is about the euro - how did the countries of the European Union reach their current, volatile debt status, and why is it a problem? Look at the infographic below to discover, and read our explanation on the matter below.

Source: Infographics Archive

Thursday, 20 September 2012

7 Biggest Crashes of All Time, III.

Many people believe that the 1929 Crash was the biggest of all time in terms of percentage change – and while that has been the case for decades after 1929, the winner of the dubious glory of being the biggest percentile fall in the DJIA belongs to another crisis – the relatively unknown, yet still very real and consequential Black Monday of 1987.

Brokers of Drexel Burnham in panic after the collapse of the 1987 bubble.
Source: Media.Nowlive.net


5.
The Black Monday (The crash of 1987)
Date: October 19th 1987
Location: USA
Causes: shady IPOs, junk bonds, program trading
Duration of panic: 1 day
Biggest percentage change of market index: -22.61% (DJIA)
Length of recession: none
Results: a temporary halt in the 18-year long bear market of 1982

Wednesday, 19 September 2012

Economist of The Week - Thomas Malthus

Merely two decades after the appearance of Adam Smith and his Wealth of Nations, the public discussion was already being turned upside down. Economists like David Ricardo expanded and explained his then-utopian concepts of free markets and unrestricted capitalism, while others like Jean-Babtiste Say spread it abroad – and with the French Revolution starting it 1789 – aiming at achieving human and governmental perfection –, it looked as if the atmosphere of the earliest 19th century was one of utter optimism.
Not everyone shared this optimism, however. This week's economist was an 'outcast' – and while being severely criticised by both his contemporaries and successors, his ideas are one of the most influential ones of classical economics – his name is Thomas Malthus.

Thomas Malthus, father of sustainability, and population theory
Source: Wikimedia

Tuesday, 18 September 2012

The Rise and Fall of The Gold Standard, II.

If you've read our first post on Gold standard (the monetary policy where the nation's currency is pegged to a fixed amount of gold), you know that in the 1870's it came and took the world like a storm. The reliability of prices lead to utopistic efforts of international financial co-operation. Where did the dream disappear then? Read below to discover the story of the slow demise of the gold standard, finally disappearing exactly one century after it's popularity peak.
McKinley, President of USA advocating the gold standard on a poster.
Source: Center for History and Media

Monday, 17 September 2012

Anatomy of a Diamond

The following post is a guest post by Christina Mann.

A diamond's cut determines a huge part of its value and what kind of price it will fetch in the market. A beautifully done cut on a diamond can spell all the difference between a sparkling, brilliant stone and one that is lackluster and dull. The cut also determines the diamond's proportions, ability to reflect light, and the symmetry of its facets...all the aspects that contribute to a shining, much-desired diamond whether it's loose or set in a jewelry piece.
This new infographic from Brilliance gives readers the basics of a diamond’s anatomy in a no-nonsense, highly informative manner. You can learn about the components of a diamond (table, crown, girdle, pavilion, and culet) in-depth, and educate yourself on how to evaluate the cut of a diamond via helpful diagrams. There are also handy tips and advice interspersed in the infographic which can prove especially helpful for first-time diamond buyers. Brilliance also features a chart on how the company determines the “make” of a diamond.

An interesting infographic regarding diamond shapes and prices.
An interesting infographic regarding diamond shapes and prices.

Christina Mann works for Brilliance, an online diamond retail company specializing in loose diamonds and diamond jewelry. She is interested in the engagement rings which Hollywood stars parade, and always keeps her eyes peeled for the latest in Tinseltown bridal bling.

Sunday, 16 September 2012

Rise and Fall of the Gold Standard, 1.5

During the 19th century, the gold standard came and conquered Europe (and other parts of the world) like a storm. And even though in the end it fell - as it will be demonstrated in our post tomorrow, the metal itself still held in high esteem for historical, investment and aesthetical reasons. Check out the infographic below to expand your knowledge on King Midas's metal - and read about the principal reason of it's demise as an universal medium of exchange and other fun facts below the picture.

Source: Visual.ly

Saturday, 15 September 2012

What are the hottest currencies?

We have written excessively about the role of national currencies in recent days - ranging from the description of 19th century currency union, to the description of the gold standard and much more. What may still leave some readers wondering is that which currencies are the hottest ones, the most used in international trade?  Ever wondered why don't we trade in Russian rubles or Chinese renminbis instead of US dollars? Check out the infographic below, and then read on to get your answers.




Friday, 14 September 2012

What The Heck Is a Federation? - Your Humble Guide to Forms of Government

The biggest blockbuster of European political news was the September 12th speech of Manuel Barroso, head of the European Comission, calling for the European Union to unite together as "a democratic federation of nation states that can tackle our common problems, through the sharing of sovereignty". There has been both rejoice and outrage, supporters visualising a global superpower European Federation, while opponents feared a 'bureaucratic superstate'. But who is right – and more importantly, what on earth is a federation - or a superstate? Read below to discover.

The night lights of the European Union enlight the question of Federation
Source: 123rf.com


Thursday, 13 September 2012

How did the Pope destroy the Euro?

When discussing the contemporary European crisis, many people think about the Euro as a first-of it's kind concept which is doomed to fail exactly because there are no historical examples – but that is simply not true. The „Euro of the 19th century”, the Latin Monetary Union was actually the first example of a monetary union – and while in the end it failed, it's lessons were remembered and used when creating our contemporary common currency. And what did it have to do with the Pope(or precisely, the Papal States)? Read below.

Source: Staticflickr.com


How did it start?


With the introduction of worldwide bimetal and later, gold standards, and the rise of international trade, several countries wished to make a step further from their de-facto fixed exchange rates, and create a monetary union. Hence, in 1865, France, Belgium, Italy and Switzerland decided, that while they would uniformise the size and weight of their silver coins, and make their currencies interchangeable.


Expansion


The concept had unprecedented success, and regardless of daily political alignments, many countries wanted to join – as Greece and Spain did so in 1868, and later Romania, Serbia, Bulgaria, San Marino, and intriguingly, Venezuela – thus making the only intercontinental monetary union so far. With the union, a f.e. French trader could easily accept Italian liras, knowing that he would be able to convert back the Italian liras to his native currency at a fixed price. This bolstered trade relations between countries.


The Papal Troubles


The first troubles however immediately showed after the beginning of the union – the Treasury minister of the Papal States – a then de-facto French-controlled entity – decided to start to mint new coins which contained less silver than the guideline. Since there was no single central bank to control this, they could do so freely, and soon Papal coins flooded the common Latin markets, themselves inflating, but meanwhile bringing huge profits to the Holy See. The Union members in the end, excluded the Papal States from the Union – but the problem lying at the core, the lack of a central authority, was never resolved.

The silver-gold dilemma


When the union was created, the silver coins were pegged to the gold, at a rate of 15.5 ounces of silver to 1 ounce of gold. This inflexibility of prices and the manipulation possibilities soon lead to another crisis. When the California silver mines were discovered in the 1870's, the metal's price fell sharply, which meant that suddenly it became profitable to change silver to gold – profits without risks, also called arbitrage. While countries using a gold standard didn't suffer, those using a silver one like the LMU did – and while in the end they managed to change to a de-facto bimetal standard with gold being the priority, the instability caused by the decision greatly weakened the union's integrity.

Final years and legacy


The increasing international political hostility starting from the 1890's soon made every effort for international cooperation impossible, be it monetary or else. Hence, the LMU countries one by one started to inflate their currencies, with noone there to punish them – and when the First World War broke out in 1914, the union practically came to an end (although legally it was only dissolved in 1927).
The ill-fated Latin Monetary Union did not stop the Norse countries from creating a similar one, named the Scandinavian Monetary Union. More importantly, it also had an important lesson for monetary unionmakers – monetary union's, like any sort of money-issuing, must be backed up by an independent central authority. The Euro itself adheres to this – the current crisis has different roots, which will be throughly explained in a later post.

Would you like to know more about the Scandinavian Union, or do you have questions? Ask us in comments.

Wednesday, 12 September 2012

Economist of The Week – Jean-Babtiste Say

If Adam Smith was the prophet and David Ricardo his foremost evangelist, then this week's economist plays the role of Paul, the outsider convert who makes the new ideas known to the whole world. This week, we present you the life and ideas of one of the most famous French economists of his time, who saw the rise and fall of the turbulent French Revolution with his own eyes – Jean-Babtiste Say.


Source: Wikipedia

Tuesday, 11 September 2012

5 Materials Worth More Than Gold

We have written extensively about gold, the eternal substance – throughout the Middle Ages, alchemists struggled to transmute less precious metals into the one they deemed to be the most expensive. However, they were wrong. Actually, modern science knows a couple of materials which are more expensive than gold when taking equal weights of it – so Schoolonomic will list you the five most famous ones.

Source:Wikimedia

Monday, 10 September 2012

Great Depression vs. Great Recession?

Remember our post on the 1929 financial collapse, and the subsequent crisis known as the Great Depression? This chart compares the mayhem of the 1930's with the contemporary trouble's we are experiencing? Are we headed for a new Depression, or is it less severe? Just at the graphic says - you decide.


 Great Depression vs Great Recession
by NowSourcing. Browse more data visualization.

Sunday, 9 September 2012

Hydronomics – A Case Study Of Central Planning

As promised, Schoolonomic is back – I arrived back from a school trip at Lake Tisza, Hungary's second largest water surface. The artificial lake houses a huge variety of wildlife, and has been an increasingly successful tourist destination. It's origins are, however less idyllic – the story of the construction of the dam supporting the artificial lake is not merely one of power plant construction, but one of disregarded property rights, flooded houses and a general example of the controversies of central planning. Read more to learn about the history of one of the country's biggest engineering projects.


Wednesday, 5 September 2012

Economist of the Week - David Ricardo

Every prophet needs his evangelists – people who embrace his ideas, interpret and clarify them, in the end contributing to their field very much in their own name. Regarding the field of economics, the prophet was Adam Smith, but who is his evangelist? In this week's edition of Economist of The Week, we bring you Smith's most important follower, a stock broker turned economist – David Ricardo.

Image from Wikipedia


Tuesday, 4 September 2012

How to feed a planet – The Economics of Star Wars

We all remember the famous words: "Luke, I am your father!", and the real enthusiast also remember the huge space battle in Revenge of the Sith above the magnificent city-planet of the series, called Coruscant. Star Wars is a truly global phenomenon, with avid fans worldwide – yet when watching the film, few of us realise just how massive the scale of the films is in economic terms. So we now present to you the economics of Star Wars – namely, how a planet the size of Coruscant could be fed and cared for.


Source: Wallpaperimages.org

Monday, 3 September 2012

The Rise and Fall of The Gold Standard, I.

We all have seen the shiny wedding rings of our parents, some families even have pieces of jewelry with a story spanning multiple generations – the precious metal of gold is the most ancient material associated with wealth. More to that, it was the foundation of the monetary system for thousands of years – and abandoning it was the biggest change in the way we think about wealth since the introduction of banknotes. But why did that happen? Read our two-post long series to discover the complete history of the gold standard.

Picture from mint.com

Sunday, 2 September 2012

5 Tips to Survive The School Year (Financially)

So it has began. Starting from tomorrow – and for some, even earlier - hundreds of thousands of schoolchildren will begin their next academic year, with challenges not only in terms of school performance, but for some in finance as well. Be it buying your yearly dose of school equipment, or sparing enough money for night outs on Friday after a busy week of study – Schoolonomic now presents five easy tips about surviving the next school year – with as much money left as possible.
Source: gradschoolgrants.org


Saturday, 1 September 2012

7 Biggest Crashes of All Time, II.

As promised in our earlier posts, now we present the story of the biggest financial crash of the 20th century, with political and economic consequeces which have an impact on our lives to this day. Behold the 1929 crash - the events leading up to and following Black Thursday.

Image from Wikipedia

6.
The Black Thursday (The 1929 crash)

Date: October 24th 1929 - November 14th 1929
Location: USA

Causes: burst of the 1920's speculative bubble
Duration of panic: 22 days
Biggest percentage change of market index: -44% (DJIA)
Length of recession: 4 years, 7 months
Results: worldwide economic and political destabilisation leading to WWII

Background


The biggest financial crash of all time has been preceded by the "Roaring Twenties", a decade of prosperity and economic growth for the Western world – and not only for the winners of the first World War. The volatile Weimar Republic, having tamed it's record-high inflation levels, also managed to pay back it's debts and curb it's inflation, and began a decade of intellectual golden age.
The decade of growth also generated it's economic bubble, however – in the United States of America, thousands of households started to take loans in order to buy stocks, generating the country's then-biggest ever speculative bubble.

Immediate causes


By August 1929, brokers were routinely lending their clients more than two-third of their total assets. As opposed to the 1907 crash, there was no single company or organisation forced to declare bankruptcy – but from September 3rd, the markets started to crumble and prices fluctuate, possibly due to the Congress debate of the controversial Tarriff Act which raised import tariffs to record-high levels.

The crash


The slow crumble began to fasten on October 24th. The market lost 11% at the opening bell – a committee of bankers, lead by Richard Whitney, president of the NY Exchange immediately stepped in, and by injecting large amount of money into US Steel, then to blue chips stocks above market prices, they managed to contain the day's losses at only 2.1%. Then the exchange closed for the weekend, but newspapers spread the news all around the country, and on October 28th, next Monday (Black Monday), prices fell by a then-record of 13% - the scheme of Whitney failed.
Then it all came down the next day – Black Tuesday. 16 million shares changed owners, and the market fell by an additional 12% - the scale of that day's trades was not surpassed until the 1987 crash. The prices fell, and fell, and fell unstoppably, until reaching their (temporary) bottom at November 14th. By that time, stock prices fell by 44% - which was still nowhere from the bottom point of the DJIA in the 20th century, which only came in 1932.

Aftermath


The US crash instantly caused similar collapses all around Western stock markets, and it marked the beginning of the decade-long Great Depression. While the actual reasons of the Depression are debated to this day, but it was definitely the prolonged deflation (prices become lower over time) which did most of the damage, discouraging investors from investing and hence crippling the economy for years - the market only reached it's pre-crash levels on 1954. The economic hardships lead to a surge in extremism in many countries – and foremost among them, in the once-liberal Germany, where a totalitarian dictatorship replaced a democracy. In the end, it was Hitler who launched the second World War – but who knows whether he could have ever gained power, if not for the Depression?

Do you think the crash caused the Depression? Or was it a mere symptom of an underlying economic instability, suddenly emerging? Share your thoughts in comments and continue reading us.