The Economics of Happiness

Summing up each side is a disgrace to the argument but I will try to be succinct. In a nutshell, Justin Wolfers argument is that people in wealthier countries are consistently happier in almost every recordable way. They experience more love, less pain, more satisfaction, etc... Additionally, there is no cut off point of wealth beyond which someone is not happier. Robert Frank argues the same point, but disagrees mainly on more micro-focused data. Similar to quantum physics, where natural laws fall apart as smaller molecules are observed, happiness caused by economic growth falls short when measured within societies. His argument is not that the free market is bad or that money does not buy happiness, but that instead there are some inefficiencies which could be streamlined through incentives to unilaterally improve happiness.

I agree fully with Justin Wolfers. So fully that I feel I barely need to go into it. Literally, everything he said was rational, well-justified, and insightful. Let me move on instead to Mr. Frank, with whom I have a few quarrels. Firstly, using an animal parallel to explain the inefficiency of outcome in a free market is understandable, and provides a simple demonstration of the point he is making. But why does it have to be animals? For some reason, this was something that bothered me. It is an overly simplistic metaphor, which lacks any real supporting evidence and is instead only theoretically enticing.  Metaphors seem to always lose something in translation. In addition, his proposal of a "consumption tax" is unfathomable. Spending would be de-incentivized across the board, which would negatively impact the economy. Innovation would be stifled, since people would be less likely to take risks. Enjoyable activities would become victimized hallmarks of guilt and "wasted" income. Mr. Frank makes the mistake of assuming inherent value, a fundamental slip-up! It is essentially social communism. I wish I were lying. The benefits to society in terms of material gains, including better infrastructure, would be far outweighed by the loss of happiness. It is an astoundingly poor argument, almost to the point where I wonder if I am simply misunderstanding his argument. 

Questions:

1. How can we merge niches into one competitive field where the best of the best compete? Should we?

2. At what point will smaller problems such as higher stress and less sleep become destructive, even with net benefits across the board? For instance, even though we are getting happier overall, can smaller externalities such as stress eventually overpower the net benefit?

3. How can we identify and improve inefficiencies in the market?

4. Can we effectively steer markets?

Main Ideas:

1. Wealthier societies = Happier societies

2. People would rather be poor in a rich country than rich in a poor country. Absolute > Relative (according to Wolfers, who I personally agree with)

3. The Easterlin Paradox as an argument for ending economic growth is absolutely untrue.

Class Notes 9/30

1. Hume - Wealth is a country's command of resources and access to goods and services, not the amount of gold they have.

2. Trade is important because:

(a) Competition

(b) Imitation, Learning

(c) Division of Labor

3. For a country to have a chance for success, according to Adam Smith, they needed:

(a) Rights to property

(b) Division of Labor

(c) Exchange is peaceful and mutually agreed

(d) Honesty; no special privilege

4. Adam Smith - Wealth is the ability to produce and exchange goods and services.

Class Notes 9/28

1. The French Physiocrats and Scottish Moral Philosophers were among the first to apply science to understand people, just as it was used to understand Earth, just beginning social science.

2. Mercantilism was responsible for poor economics. Countries which followed it practiced protectionism, allowed monopolies and heavy internal regulations, restricted free movement of people, placed limits on production, instituted price controls and wage controls, and heavily punished anyone who did not follow the law.

3. Because trade was considered zero-sum under mercantilist philosophy, the King would have to protect trade to prevent wealth from leaving the country and protect national interests.

4. Physiocrats believed the source of wealth was production in agriculture, mercantilists in the King's Bank Account, Gold and specie, and a Positive trade balance. The Scottish Moral Philosophers saw wealth in all commerce.

Class Notes 9/26

1. Historically, people have opted for quantity of children rather than quality of children. The rich have historically had fewer kids.

2. Virtuous cycle countries grow with a self-fulfilling growth cycle

3. Tolerance is good for economic growth

4.  Better technology -> improved productivity -> wages increase -> more training -> better technology

The Failures of Social Science

It is true that Social Science cannot accurately control for variables and can therefore never definitively prove a hypothesis. In arguing the very same issue brought up in the article, the failure or success of the stimulus plan, I ran into the same obstacles the author describes. If I argued it didn't work due to the still high unemployment and floundering economy, I was told that things could have been worse. If I took the other side and claimed that it succeeded, I was pointed back to the same argument I used when I said the stimulus didn't work. It became a circular argument, lost in philosophy and miles away from hard science. As the article outlined, when it comes to social policy, this is not a desirable way to debate. Assuming progress, I believe that one day we will have the capability to control social variables and therefore account for "causal density". Until then, perhaps we should just be content to observe and measure until we know we can effect positive change. In the hard sciences, a spaceship would not be sent to outer space without an absolute certainty it would succeed. There is a direct and unambiguous consequence if there is a failure. In social science, the consequence is indirect, interpretable, and long-term, all factors that muddle perception. Humans are naturally biased to worry more about direct consequence, and less about indirect consequence. Long-term consequence is actually the more dangerous, so let's be careful in deciding short-sighted public policy.

Probative Questions:
1. How will we know when we will be able to effectively interfere in society?
2. At what point does the quantity of evidence for one side overrule questions of "causal density"?
3. What remedies would the author suggest for improving the scientific credibility of the social sciences?

Main Ideas:
1. Social Science is yet to be confirmed as a definitive science.
2. The aim of social scientists should be to observe rather than interfere until we can effectively interfere.
3. Admitting how little we know is the key to learning more about our environment.

"The Freshman 15"

What are the causes of the dreaded "Freshman 15"?

Economists like to explain everything in terms of incentives. Well, here is my explanation for the Freshmen 15. First and foremost is the drinking. For many college students, drinking is the caloric equivalent of a 4th meal, after breakfast, lunch, and dinner. Unfortunately, the calories are the nutritionally devoid byproduct of wheat and hops, which, consumed late at night, are converted to fat as the body sleeps.  How is drinking incentivized? Frat parties, social pressures, lack of punishment, the list goes on. Hence the rise of the infamous "beer gut". Of all the reasons for the Freshmen 15, alcohol is probably the most direct cause and the most dramatic lifestyle shift upon coming to college.

Reason number two is the lack of sleep among college students. There have been many studies to show that sleep deprivation disrupts weight-regulating hormones, which directly leads to weight gain. More indirectly, less sleep leads to less energy and lower activity levels during the day, meaning less exercise and more time sedentary. Finally, people who stay up late typically enjoy eating junk food in the middle of the night. Junk food is bad enough during the day, but at least you have time to burn it off before sleeping. Food eaten late in the evening is often unused, and becomes fat as the body sleeps. This compounds the problem. Due to high social and academic pressures, which causes a high demand on time, most college students compensate by elongating their days into the evening, increasing the supply of time. Staying up late is awesome and well worth the sacrifices, but there are consequences.

The increased workload is my final reason, though there are certainly more. College students have more work and therefore spend more time studying. In other words, more time sitting and less time exercising.
Additionally, mental exercise mimics physical exercise in that it makes you feel hungry, or at least it does for me. With mental exercise you haven't burned any calories though, so you are consuming more than you have burned, leading to weight gain.

There are definitely more subtle reasons for the weight gain, but that is my analysis!

Class Notes 9/23/11

1. We are getting less violent as our economic conditions improve.

2. Rates that have fallen over the past century, which has been marked by consistent economic growth: crime, use of illegal drugs, homicide, war deaths.

3. Improvements include: more access to education, better working conditions, more freedom for minorities, and more freedom in general.

4. Economic growth facilitates positive social change

5. The planet has not been wrecked. Environmental conditions have improved.

Class Notes 9/19/11

1. As income increases, quality of life increases
2. Income as grown exponentially over the past century
3. Some of the fastest growing economies in the past decade have been in Africa

Class Notes 9/16/11

1. The poorest conditions now are better than the richest conditions hundreds of years ago.

2. In the past, the most powerful Kings would have hundreds of people working for them. Due to globalization, the average person now has millions of people working for them.

3. The problem with poverty is not the lack of wealth, it is the lack of security and inability to escape from adversity.

The Worldly Philosophers and The Economic Revolution

Explaining the rise to capitalism as a change in social attitudes is an argument I am entirely unfamiliar with.  Reading this chapter revealed my total ignorance to the context of capitalism's birth. The fact that wealth has for most of history been derided and propriety has been defined by the modesty of destitution is one of those important facts that needs to learned by any scholar looking to understand the history of economics. It truly was a backward system, yet back then the idea of the "market system" was entirely novel. Even today there are those who criticize the existence of a free market, calling it heartless and exploitative. Given this new context, an argument could be made that these are outmoded mindsets influenced by the pull of tradition. The concept that medieval society could not understand capital, land, and labor as philosophical entities defining an abstract market perfectly captured the ignorance of the period, even though today we take this concept for granted.

Due to my lack of historical knowledge on this subject, it is hard to disagree with the conclusions the author reaches. However, through analysis, it does seem to make sense. The Earth is assumed as a constant; over the thousands of years of recorded history, it has been largely similar. So humans are the main variable. Now, what could have changed in us to cause the Industrial Revolution? Well, it could have been a few things. First is an increase in intelligence that allowed for innovation. This makes sense, but brilliant inventors had been around for centuries before the IR. Think of Leonardo da Vinci, the Ancient Romans and their Aqueducts, Alexander the Great, Archimedes. Intelligence was not unique to the 20th century. So an argument that we were just smarter is probably off-base. The other most common argument is that things just happened to come together then, due to years of unseen progress which culminated in the Industrial Revolution. Why at that moment in history though? Nothing had changed for hundreds of years. We were poor before, and poor at the time of the IR. By process of elimination, since the other reasons don't hold up to scrutiny, I would argue that the driving factor behind the Revolution was certainly a change in mindset, counter-intuitive as it may seem. So I agree with the author's analysis.

Professor Rizzo said that one of the most important reasons for studying economics was the sense of wonder it provides. This was a reading that proved his point.

Questions:

1. How was the rise of the free-market system an inevitability?

2. What system comes after the free-market system? If a book is written like this hundreds of years in the future, how will they look back on our capitalist society?

3. Was the change in attitude towards wealth a revelation of theory or a revealing of human nature?

Main Ideas:

1. People haven't always sought wealth. The idea of gain is a relatively new one, and for most of history has been reviled.

2. The rise of capitalism was influenced heavily by a change in social attitude towards economic growth. This allowed for the material gains and material inventions that defined the Industrial Revolution.

3. Economics is a new field.

4. Human unpredictability makes for a society based on astoundingly fragile foundations, which can collapse if not treated carefully. A fear of this collapse creates the need for economics.

Forever and The Danforth Dining Center

for·ev·erAdverb/fəˈrevər/

1. For all future time; for always.

2. A very long time (used hyperbolically). 

Anybody who has been to the Danforth Dining Center can tell you about how crowded it is. The lines stretch back to infinity, the portions are small, and silverware is limited. Don't believe me? This morning during brunch I ate my omelette with a spoon since there were no forks. Sitting there with my friends, eating my omelette with the remarkably effective spoon, an idea struck me: The U of R should replace all the spoons and forks with sporks! Without increasing the total number of silverware, this would double the quantity of both spoons and forks, easing shortages without creating an extra load for the cleaners. The demand would be matched, with no increase in supply. Buying sporks would probably save the University money, which could then be spent elsewhere. Brilliant!

Moving on, the problem of the lines is more complex. There are a few possible solutions. One would be to decrease the number of stations. Currently, a meal typically consists of more than three plates. Since most people go up for seconds, thirds, fourths and beyond, the lines are always crowded. Eating dinner ends up taking over an hour, most of it spent standing idle waiting for food. This creates massive overlaps in the different dinner cycles. People who prefer to eat at six have to compete with the people eating at seven, those at seven with those at eight, and so on. Consolidating the stations would increase the portion size by focusing the work force, creating more satisfying plates which would de-incentivize going up for more than firsts or seconds. Hopefully this would mitigate the wait-time for food and speed up the dinner cycles, removing overlap and improving the dinner experience for everybody.

Keynes vs. Hayek: The Fight of the Century

Round 1

Round 2

WHO WINS?

Class Notes 9/12/11

1. Economics is simple, but economic systems are complex
2. Do not infer intentions where they do not exist
3. Individual incentives lead to social cooperation and benefits

"I, Pencil" Notes

My Response: The simplicity of the metaphor expressed in this piece makes for a refreshingly easy read. Yet the author is able to define and elaborate on the concept of the "Invisible Hand" with no loss of clarity. It makes the piece accessibly enlightening to even beginning economists. So the format of the piece was excellent. Now onto the content. I struggle to find many flaws with his logic. The "Invisible Hand" certainly exists, it is miraculous, and it is important that we do not take it for granted. I caught one potential "plot hole": the "invisible hand" may not need a "master mind" to function, yet someone has to begin the cycle. Therefore, the hand does not have the ability to magically meet human demand without one person or persons to come up with the original product and means of production. The "magic hand" fuels production, but it cannot create innovation. That is left to individuals. Through education funding and federal funding to private and public research ventures, the government can help advance "invisible hand" production lines. This concurs with Read's point, but may conflict with his implied anti-government position. One other potential oversight would be that this metaphor applies mainly to product engineering. Today's finance world and economy is centered in part around entities that move currency around through investment and capital management, rather than creating product. Finding an "invisible hand" in these workings would be more complex than tying together a string of individual actions, since the process and end product are not nearly as simple. Structures on Wall St. do need a master mind. Not everybody understands the stock exchange, derivative and securities market, or the idea of buying debt through government bonds. Though making a pencil is a complicated process, each step seems simple and able to be quickly learned. This does not hold true for all professions or products.

Implied in the reading strongly is the belief that government should stay out of industry, that regulation is inhibitory and hurts rather than protects the consumer. Fair point, but how do you reconcile this opinion with deceptive marketing techniques and corrupt forms of predatory capitalism. The "magic hand" fuels production, but it cannot create innovation. That is left to individuals. Through education funding and federal funding to private and public research ventures, the government can help advance "invisible hand" production lines. This concurs with Read's point, but may conflict with his anti-interference position.What I took away most from this reading was the wonder that even the most simple product should command admiration and respect.

Discussion Questions:
1. What are positive incentives to prevent corruption, or are negative incentives the better option?
2. When is it appropriate for a government to attempt to streamline the market?
3. What happens when the private sector fails or stifles competition, as in a monopoly?

Main Ideas:
1. If left uninhibited, human ingenuity has the ability to meet human demand with astonishing ability.
2. Simplicity of product does not mean simplicity of production. Even the most everyday object will have an astoundingly elaborate family tree that deserves respect.
3. Government is not more effective than the "invisible hand". Regulation is inhibitory and only gets in the way.

Justifying My Lack of Sleep...

This week I have gotten barely any sleep. Two nights I have stayed up into the early hours of the morning, one until 9 AM, the other until 6 AM. On more "normal" evenings, I have gone to bed typically between two and four. Don't get me wrong, I understand the need for sleep, the physical and mental benefits of sleep, and all that. I am not ignorant. Every night, I tell myself that I am tired and need to go to bed, yet every night I stay up late. It has become a habit. Here is why. I value time (don't we all?). Staying up late is a way to increase the number of hours I have to do what I want to do. My staying up is not purposeless. Each night I have found a reason to put off sleep until my body takes over and I can no longer keep my eyes open. What is the reason? People to talk to. There is something about the night that facilitates honesty and openness. The best conversations, in my opinion, occur most frequently at unnatural hours.

Now, you may be asking how this applies to Economics. It was a question I asked myself and am still asking myself as I write this sentence. Supply and demand may be a plausible link. Perhaps it could be that staying up late is a way for me to increase the supply of something I highly value. That makes sense. Incentives could also be used to explain my inability to make good decisions regarding sleep. To others it may seem like a mistake; to me, it is perfectly logical. There are some external punishments, such as the mid-afternoon crash, but nothing I can't handle. In the long-term, I am confident I will look back without regret, knowing that I made the right decision. So don't give me a curfew!

Class Notes 9/9/11

1. Economics - The study of the emergence of order and wealth creation and the consequences of the choices made as apart of the extended order of human cooperation.

2. Micro v. Macro Economics - Micro is more a study of price theory, while Macro studies states of disequilibrium

3. Three reasons to study Economics. One, to understand the wonder and miracle behind what we take for granted, items as simple as a pencil or  iPod. Two, to understand important concepts such as "The road to hell is paved with good intentions". And three, the need to understand important economic facts and comprehend the magnitude of growth.

4. To be a good economist, you first have to analyze a well-functioning economy.

Incentivizing Who Steps Off

Extra Credit: When Britain began re-locating criminals to Australia, the conditions aboard convict ships were atrocious, making even slave ships look like cruise liners. Two solutions were attempted. The first was governmental regulation, with laws determining minimal food rations, exposure to light, and the like. After this failed, an economist developed an alternative using incentives. At the time, Captains were paid in full, on a scale based on the number who stepped on the ship, as they departed the dock. Instead, this economist proposed, they should be paid upon arrival, and be paid on a scale based on the number of healthy passengers who stepped off. This new method of payment incentive instantly increased the survival rate nearly three-fold.

Though it was a massive success, were there any issues with this incentive?

Corruption would probably be the most likely issue with this incentive. Captains were encouraged to arrive with passengers. If there was no method of confirming the history of passengers onboard, Captains could potentially turn to kidnapping to gain more "convicts" to deliver. Once arrived, any convicts who pleaded innocence or tried to explain their situation would probably be muzzled, called crazy or dishonest, or killed. Even if the Captains were exposed, bribery was probably an easy way to avoid the law. Without a transcontinental system of communication, there would be no easy way to determine if a Captain "gained" a few extras or fudged the numbers. To add to the misery, weaker members who were likely to die before reaching land were probably killed early to save resources for the more healthy ship members. It would become a brutally accelerated process of Darwin's Natural Selection.

Class Notes 9/7/11

1. Economics is a social science, not an atomistic subject.
2. Man acts with purpose and rationality
3. Economics exists because we live in a world of scarcity.
4. Value is subjective, not inherent

Class Notes 9/2/11

1. The oil reserves will never run out because the cost of extraction will eventually be more than the value of the oil extracted. We will never completely exhaust any non-renewable resource, since alternatives will take over before this happens.

2. Rising prices encourage innovation, competition, and alternatives.

3. The federal debt is a large problem, but not as large as it is played up to be. There can be legitimate arguments made for why the federal debt is a good thing and why it is a bad thing.

Class Notes 8/31/11

1. Professor Rizzo threw money at the class to show that Economics is not all about money
2. Economics applies to everyday activities
3. Incentives, incentives, incentives