The Best of Economics is an HTML textbook for a new high school course in economics. In addtion to the traditional topics of microeconomics and macroeconomics, this textbook covers three subject areas that have become increasingly important in the last fifty years:
Two hundred years ago, the mission of economists such as Adam Smith and David Ricardo was to explain the advantages of free trade, specialization, and the division of labor. For the next hundred years, their theories of economic efficiency were refined, and this body of work is known as microeconomics.
Since the Great Depression of the 1930's, the mission of economists such as John Maynard Keynes and James Tobin was to explain the uses of fiscal and monetary policy to maintain full employment and price stability. That field is known as macroeconomics.
In the late 1950's, the mission of economists such as Robert Merton and William Sharpe was to explain the advantages of portfolio diversification and passive indexing. The study of finance, which this course will cover under the topic of "saving, finance, and social security," has been rewarded with over half a dozen Nobel Prizes. It deserves exposure for both its theoretical importance and its practical implications.
More recently, the mission of economists such as Robert Solow and Paul Romer has been to explain the role of innovation and the practical application of scientific knowledge in improving a nation's standard of living. A difference in the rate of economic growth of just one percentage point per year, when cumulated over many years, has enormous impact on living standards. Economic growth is the main focus of many of today's leading economists, and it is considered the central policy issue both in the United States and abroad.
In the last decade, the mission of economists such as Hal Varian and William Nordhaus has been to explain the significance of rapid innovation in information technology. The development that is most exciting is Moore's Law, the empirical regularity that describes the phenomenal increase in the power of computers. The development that is most challenging is the advent of zero-cost distribution via the Internet, which undermines traditional payment models, requiring businesses to come up with creative mechanisms for financing the development of information-based products. As I put it, "information wants to be free, but people need to get paid."
To bring these exciting topics into the course, we will have to cut out some of the traditional material. In macroeconomics, this means spending little or no time on the doctrinal issues of the 1930's (IS-LM analysis) or those of the 1970's (rational expectations). Instead the focus will be on understanding the meaning and significance of key macroeconomic variables, such as the real exchange rate, unit labor cost, and the real interest rate. In microeconomics, numerical examples will be used in place of the graphical apparatus that has been the staple of standard textbooks.
Students who want to keep up with current events in economics are welcome to visit my Great Questions of Economics web log. A related site is Brad DeLong's Semi-Daily Journal.
This is an exciting time to be an economist. The goal of this course is to convey that sense of excitement.