ECON 4389: PRELIMINARY COURSE OUTLINE:

GREED, INTERPESONAL INTERACTION, AND ECONOMIC COLLAPSE

Fall, 2009 Prof. S. Craig

Required Text: MicroMotives and MacroBehavior, Thomas Schelling, 1978.

Course Requirements: 3 short papers (or homework of some sort), 1 midterm, 1 final

This will be a microeconomics course, loosely organized around the causes of the recent economic downturn (“collapse”). One of the purported causes is that employees in the financial industry had incentives that were not compatible with the interests of the institutions for whom they were employed. Further, many of the government policies that followed were predicated on the assumption that the economy is linked, so that taxpayer support for the institutions is justified by the collective economic interests of the general population. I would like for us to learn about these events, policies, and processes, and see if we agree with these presumptions.

Thus, we will study the linkages in the economy, and hopefully the financial incentives within firms. The book by Schelling is about the former- it is a set of essays about how the interests of specific individuals may not be compatible with the collective interests of society, and even of the individuals. I am still searching for appropriate readings on the within-firm incentive structures, and the strategies in particular by the financial firms. Thus I expect to assign additional readings as I find them. They will be for the “educated layperson,” meaning you will not have a high technical requirement for this class, but at the same time I will expect you to be “economically literate.” We will end up drawing a lot of graphs showing individual behavior, firm behavior, and markets in aggregate.

By the end of the class we will hopefully have an understanding of the causes of the economic downturn, and whether we should expect a recurrence. We will also hopefully have some perspective as to whether the federal government policies, both enacted and proposed, will be helpful. And I will expect you to demonstrate your understanding graphically, and in essays.