For my analysis this week, I have decided to comment on the three media pieces Rizzo offered. The first video is the Mike Rowe discussing of how we belittle necessary jobs, the second is on the inherent injustice of tariffs, and the third is actually a brief audio clip describing how old-time Cigar makers were actually better educated and informed than the general population due to the hiring of "lectors", men or women who were hired to read newspapers or political pieces to the workers. The general theme is how our prideful American attitudes toward work unfairly victimize necessary but unglamorous occupations. Underlying themes are how American arrogance increases unemployment, and how bureaucrats try to control jobs they know nothing about, preaching their "moral superiority" onto the uncivilized masses.
First, the Rowe Ted Talk on his experience working on a pig farm. I think he is absolutely correct about how our sense of pride and focus on "living the dream" inhibits us from taking jobs that need to be done. Pursuing our passions is a noble endeavor, but it keeps us from taking hard-labor jobs that we see ourselves as above. Worse is when cultural values are portrayed as superior to another, and forced upon the "morally inferior", as in the case of the pig farmers who were told by PETA and the other environmental groups which informed Rowe about the "humanitarian way" to castrate the pigs. This well-intentioned guideline is actually more painful for the pigs. And this is the problem with bureaucratically defined morality.
In a way, this talk is a cut on Higher Education, but I think the issue at hand is more cultural and reflects the increasing urbanization of the United States population. Perhaps it is because Urbanites tend to think of themselves as culturally savvy cosmopolitans and our stereotypes of more rural folk portray them as less classy, less educated, and less intellectual. Think of the archetypal "hick". The city parallel would probably be closer to a "hipster". Now, I could never, ever imagine a "hipster" going anywhere near a farm. And I think this is what Mike Rowe is trying to illustrate about the problems with our attitudes. The plumber stereotype Rowe describes is dead-on accurate. So perhaps Higher Education is over-rated, but I do not think this is the main reason behind "enlightened" attitudes towards manual labor. People with a college degree are much more likely to find work, and that is why so many pursue degrees beyond high school. The other problem is simply geographical. Most of the jobs Rowe describes are rural, and people who are born in the city often like to stay there. But yes, we are in a "war against work".
The second video is much less complex. It reminded me of an article in "The Economist" I read a few months ago discussing over-regulation of the dairy industry (http://www.economist.com/node/18712862). The idea of this video was that tariffs force decisions on customers and sellers and are orthogonal to our pursuit of liberty. Tariffs hurt our nation and restrict our ability to choose, yet the government uses them as political and economical leverage. This is both economically damaging to both parties and inherently unjust. Yet out-moded Mercantilist models of trade continue to influence economic models. The government should not be able to restrict choice in this way and promote certain goods while demonizing others. Free-markets should be free.
NPR's audio clip and quick blurb about the Cigar makers illustrated that we unfairly portray the working class as under-educated and victimize their jobs in the pursuit of "enlightenment". It's true, most parents would shudder if they were told their child would grow up to be a cigar roller. Same idea as the Mike Rowe talk.
Overall, I find one issue at the heart of this mentality, which I think each of these talks overlooked. Manual labor jobs are less exclusive. More people are able to do them. Therefore, the pursuit of higher education and higher-level jobs is the pursuit of distinction, and with it job security. There is nothing wrong with this attitude. The dissonance here is actually more subtle. It is not a problem with the pursuit of one's passion, it is a problem with the inability to adapt to failure and let go of the idealistic self-image. What we need to remove is our reluctance to perform manual labor, rather than our inclination to seek white-collar jobs.
Saturday, October 29, 2011
Random Recitation Notes I Just Found 10/20
Interpersonal Transactions
1. Communal sharing
2. Authority ranking
3. Equality matching
4. Market pricing
Common Law - What society deems is fair or just
What to Consider in Making Decisions
1. What do we want to change?
2. Why?
3. Can we change it?
4. What are the pros and cons of the current system?
5. Whom does it affect?
6. What will be the outcome?
All voluntary transactions are at least marginally effecient
Equality does not equal equity
Vertical Equity - Burden on those most able to bear it
Horizontal Equity - Burden equally distributed
GDP - Gross Domestic Product; the value of FINAL goods and services produced within a country within a given period of time (final to avoid double-counting)
1. Communal sharing
2. Authority ranking
3. Equality matching
4. Market pricing
Common Law - What society deems is fair or just
What to Consider in Making Decisions
1. What do we want to change?
2. Why?
3. Can we change it?
4. What are the pros and cons of the current system?
5. Whom does it affect?
6. What will be the outcome?
All voluntary transactions are at least marginally effecient
Equality does not equal equity
Vertical Equity - Burden on those most able to bear it
Horizontal Equity - Burden equally distributed
GDP - Gross Domestic Product; the value of FINAL goods and services produced within a country within a given period of time (final to avoid double-counting)
Class Notes 10/28
1. Productivity and employment are generally inversely related, though this is not an effective argument against productivity or technology that promotes productivity.
2. More ATMs does not equal fewer jobs. In fact, it may mean the opposite.
3. Complements vs. Substitutes - Most technology is complementary to labor rather than a labor substitution.
4. Wages in China are increasing at a very rapid rate, NOT DECREASING
5. What is important is the ratio of wages over the Marginal Product of Labor. By decreasing this ratio, technology may actually save jobs by making the workers of more advanced countries more efficient. It is not necessarily cheaper to export jobs to countries with lower wages.
6. We have larger deficits with Germany and Japan than with China. China may even run a trade deficit in the near-future.
7. Statistics are meaningless without context.
8. If trade deficits kill jobs, trade surpluses must create jobs, right? NO
9. Roundabout Production
10. Due to diversity of tastes and interests, it is hard to completely eradicate any industry by providing free goods. For instance, even if on Jan 1 every year Korea sent us enough free cars for every person in the nation, the car industry would still survive since not everyone would prefer the Korean car.
11. NAFTA is good. Since it has passed, jobs have continued to increase.
AND FINALLY:
"You can always profit by doing something." - Rizzo on a gourmet chip company which sells burnt chips profitably.
"I think I understand how the world works. I really do. You should write that down. OMG my Econ professor just mentioned belief!" - Professor Rizzo.
2. More ATMs does not equal fewer jobs. In fact, it may mean the opposite.
3. Complements vs. Substitutes - Most technology is complementary to labor rather than a labor substitution.
4. Wages in China are increasing at a very rapid rate, NOT DECREASING
5. What is important is the ratio of wages over the Marginal Product of Labor. By decreasing this ratio, technology may actually save jobs by making the workers of more advanced countries more efficient. It is not necessarily cheaper to export jobs to countries with lower wages.
6. We have larger deficits with Germany and Japan than with China. China may even run a trade deficit in the near-future.
7. Statistics are meaningless without context.
8. If trade deficits kill jobs, trade surpluses must create jobs, right? NO
9. Roundabout Production
10. Due to diversity of tastes and interests, it is hard to completely eradicate any industry by providing free goods. For instance, even if on Jan 1 every year Korea sent us enough free cars for every person in the nation, the car industry would still survive since not everyone would prefer the Korean car.
11. NAFTA is good. Since it has passed, jobs have continued to increase.
AND FINALLY:
"You can always profit by doing something." - Rizzo on a gourmet chip company which sells burnt chips profitably.
"I think I understand how the world works. I really do. You should write that down. OMG my Econ professor just mentioned belief!" - Professor Rizzo.
Class Notes 10/26
1. Poor quality jobs replaced by machines are offset by the creation of higher quality jobs. New jobs created by technology > Old jobs lost to technology, in both quantity and quality (and safety, for that matter)
2. Trade is often used as a scapegoat for the world's problems.
3. Trade does create a more volatile job market, but it does not destroy jobs. It simply changes the composition of the job market.
4. There is an abundance of jobs, and if you have a strong (and relevant) skill-set, people will find a way to utilize it.
5. Jobs are a cost, not a benefit
6. Exports - Imports = "Trade Balance" of Goods and Services
7. Even with the trade deficit, jobs have continued to increase consistently. On any employment graph, it is impossible to note when the trade deficit began, because there is no significant change in any trend.
8. The societal determination of which skills and skill sets are valuable is the cause of inequality and its fluctuations.
2. Trade is often used as a scapegoat for the world's problems.
3. Trade does create a more volatile job market, but it does not destroy jobs. It simply changes the composition of the job market.
4. There is an abundance of jobs, and if you have a strong (and relevant) skill-set, people will find a way to utilize it.
5. Jobs are a cost, not a benefit
6. Exports - Imports = "Trade Balance" of Goods and Services
7. Even with the trade deficit, jobs have continued to increase consistently. On any employment graph, it is impossible to note when the trade deficit began, because there is no significant change in any trend.
8. The societal determination of which skills and skill sets are valuable is the cause of inequality and its fluctuations.
Class Notes 10/24
1. Trading is equivalent to discovering new resources, inventing new technologies, better education, etc...Trading is a non-technical source of production.
2. The goal of economics is to do more with the same pool of resources.
3. Imports are traded for with exports and vice-versa
4. When dealing with imports and exports, think on a micro, individual level, rather than a macro, state/country level.
2. The goal of economics is to do more with the same pool of resources.
3. Imports are traded for with exports and vice-versa
4. When dealing with imports and exports, think on a micro, individual level, rather than a macro, state/country level.
The Winter and Partying
It seems the Rochester winter is finally beginning to descend upon us, bringing with it biting winds, a gray winter sky, and precipitation which is neither rain nor snow, but something in between. Without a doubt, the winter will be cold and snowy. It always is. So, my question is: how will the change in season affect campus, and specifically the party scene?
Campus first. Let's begin with the obvious. There will be more warm clothes, more people in the tunnels, fewer people walking around outside at any given moment, and many more people in the dorms. This last change may result in higher grades. I wonder if there is any noticeable correlation between the weather and average GPAs on campus. My hypothesis is that as the temperature goes down, grades go up. The off-setting factor may be lower morale and energy brought about by the cold, but I still think the extra incentive to stay inside and study will increase grades slightly. More subtle changes will be a shift in attendance at the dining halls. Most people on the academic quad will probably go to Douglass more, and perhaps the Pit will see some higher revenues. Sue B people will probably forego the walk to Douglass and eat at Danforth. Starbucks too will probably see some more profits due to an increased demand for warm drinks. And the libraries will probably be less crowded. Extracurriculars might slow down as well. Maybe people are used to it and none of this will really change.
Now on to the party scene. Off-campus parties? Fuhgeddaboudit. Not happening. Only the really dedicated party goers will make the trek over the bridge, so I fully expect that the off-campus parties will really slow down. This would be a big boost to the Frat Quad. Unfortunately, one major issue here is that there are only 4 open frats on campus (is it 3?). The rest are on probation. So every weekend, anyone trying to get into a party will probably have to wait outside in line. Imagine that! People will inevitably be under-dressed for the weather, and will have to stand outside! Sounds awful. I'm pretty sure most people would wait for maybe five minutes and then leave. Or they just won't go. One or the other. And even those who wait in line will probably be rewarded with some of the most crowded parties you will see during the year. However, I expect this to level off. At first, there will be long lines and crowding, but after people discover these difficulties, they may just choose to stay in the dorm. The true party-goers will be revealed, and the less dedicated ones will be weeded out. The question is, will the drinking just shift to the dorm? I would bet that there will be a slightly higher rate of incidents in the dorms due to people drinking in their rooms or the like. Instead of going out, people will stay in. Simple.
A more subtle effect may be more lost jackets and warm clothes. If people do dress warmly for the frats, they will have to offload their jackets and other warmer clothes when they get inside. Then they go inside, dance, drink, and then leave, forgetting the winter coats and gloves! On second thought, I think it would be too cold to completely forgot, so let me remedy my prediction. There will probably be more people who leave and then have to come back. Even then, this number will probably be low, but there might be a slight increase in lost clothing.
We'll see in the coming months how many of my predictions turn out to be right.
Campus first. Let's begin with the obvious. There will be more warm clothes, more people in the tunnels, fewer people walking around outside at any given moment, and many more people in the dorms. This last change may result in higher grades. I wonder if there is any noticeable correlation between the weather and average GPAs on campus. My hypothesis is that as the temperature goes down, grades go up. The off-setting factor may be lower morale and energy brought about by the cold, but I still think the extra incentive to stay inside and study will increase grades slightly. More subtle changes will be a shift in attendance at the dining halls. Most people on the academic quad will probably go to Douglass more, and perhaps the Pit will see some higher revenues. Sue B people will probably forego the walk to Douglass and eat at Danforth. Starbucks too will probably see some more profits due to an increased demand for warm drinks. And the libraries will probably be less crowded. Extracurriculars might slow down as well. Maybe people are used to it and none of this will really change.
Now on to the party scene. Off-campus parties? Fuhgeddaboudit. Not happening. Only the really dedicated party goers will make the trek over the bridge, so I fully expect that the off-campus parties will really slow down. This would be a big boost to the Frat Quad. Unfortunately, one major issue here is that there are only 4 open frats on campus (is it 3?). The rest are on probation. So every weekend, anyone trying to get into a party will probably have to wait outside in line. Imagine that! People will inevitably be under-dressed for the weather, and will have to stand outside! Sounds awful. I'm pretty sure most people would wait for maybe five minutes and then leave. Or they just won't go. One or the other. And even those who wait in line will probably be rewarded with some of the most crowded parties you will see during the year. However, I expect this to level off. At first, there will be long lines and crowding, but after people discover these difficulties, they may just choose to stay in the dorm. The true party-goers will be revealed, and the less dedicated ones will be weeded out. The question is, will the drinking just shift to the dorm? I would bet that there will be a slightly higher rate of incidents in the dorms due to people drinking in their rooms or the like. Instead of going out, people will stay in. Simple.
A more subtle effect may be more lost jackets and warm clothes. If people do dress warmly for the frats, they will have to offload their jackets and other warmer clothes when they get inside. Then they go inside, dance, drink, and then leave, forgetting the winter coats and gloves! On second thought, I think it would be too cold to completely forgot, so let me remedy my prediction. There will probably be more people who leave and then have to come back. Even then, this number will probably be low, but there might be a slight increase in lost clothing.
We'll see in the coming months how many of my predictions turn out to be right.
Saturday, October 22, 2011
The Honor System
Panera Bread in St. Louis has come up with a new pricing model. Though the concept is not entirely new - Radiohead used the same idea when it digitally released its album "In Rainbows" - it is somewhat novel as a business model. The new pricing scheme is to have customers pay as much or as little as they want for their food: "Take what you need, leave your fair share". Under this new model, there are no set prices. What was the inspiration behind this change? The article quotes Panera owner and founder Ron Schaich as saying "he's trying to find out what human nature is all about...There's no pressure on anyone to leave anything, but if no one left anything, we wouldn't be around long." Customers who do not pay are encouraged to volunteer at the restaurant, but there is no official or binding requirement of payment.
So, what will be the outcome of this? Will philanthropy succeed and keep the business alive, or will the business go bankrupt after watching revenue fall below profitability?
My hypothesis is that the business will, unfortunately, go bankrupt or have to revert back to traditional pricing. Here's why. At first, the business may actually make more money. Customers with a sense of social justice or social responsibility will give more as a symbol of admiration to the cause. It will be their way of "paying" the business for its humanitarianism. As Rizzo talked about in class, the official term for this theory would be "reciprocal altrusim". And I believe that it would apply here, and would work...in the short term. In the long-term, let's look at incentives. People who can't afford the food have just been informed that price is no object. I've been to Panera, it's good food. If I couldn't afford to eat at restaurants, and a place as good as Panera offered me free food, I would go there as often as I could stand it. This increased demand would offset any philanthropy. Even if the company brought in more money through this method, I believe there would be too much demand. Demand would counteract philanthropy and the net effect would be a loss. In addition, those who already eat there have no incentive to eat there more often, unless they don't want to pay. Incentives have only changed for those who wouldn't otherwise eat there because of the cost. Without new paying customers or old customers paying more, Panera could not handle the increased traffic.
In a way, this situation is similar to that of the unlimited meal plan. There are no new costs for going to the unlimited dining halls. Essentially, since I have paid the one-time fee, they are now "free" dining halls. Now there are other places to eat on campus, but since I know that the unlimited dining halls do not cost me anything new, I find myself eating exclusively at Douglass or Danforth. Even if I am hungry and neither is open, I will wait until they open so that I do not have to spend declining. The same thing would happen at Panera. Non-paying customers will flock there.
The only way this could survive would be if customers who didn't pay did volunteer their time to the company. However, time is a highly valuable commodity, and I do not believe people would give up time to save one branch of Panera, especially if there are others available though those aren't free.
I hope I am wrong, but that is my prediction of the fate of this Panera bread and their humanistic experiment.
Individualism and Altruism
This collection of excerpts from Hayek's "Fatal Conceit" combined with Rizzo's notes on the subject discusses the contradictions of philosophy in the views of those who believe "from each according to his ability, to each according to his need". Forced altruism should be the enemy of any individual who values their liberty, and Rizzo makes the case that it is the opposite of individualism. Giving is not an immoral action, but forcing others to give is. All philanthropy should be voluntary. Now, individualists are not against giving. They just recognize that even when they are charitable, it is generally in self-interest. For instance, helping a friend may seem charitable, but in truth one may just value the friendship over the monetary cost of helping them out. This is an individualistic rather than altruistic form of charity, and is the correct form of charity. Individualists are not selfish. Rizzo goes on to explain how moral intimidation is not a sustainable incentive and can derail a society, and that altruism is not a morally sound belief, though it appeals greatly to our human sense of empathy. In small societies and actions, altruism functions vibrantly, but on a broad-scale it can not and should be implemented.
I think Rizzo and Hayek have it right. People generally only think of altruism in terms of money. This is where all the confusion begins. If someone gives money, they are altruistic. If they don't, they are selfish. But what is neglected is the non-monetary value being traded. As in Rizzo's friend example, what is being valued and traded is friendship against money, not money for money. So Rizzo's decision to bail out his friend is a selfish transaction, pure and simple. He values the friendship over the money. This is a truly hopeful concept. Yet, ironically enough, altruists see this as unselfish because all they follow is the money, regardless of more subtle values. Altruism is also indiscriminate in giving, deeming any selectivity in charity as morally depraved. This is a flaw ideology. If I only have a certain amount of money to give, and give it to anybody and everybody who asks for it, I am being inexcusably lazy. Instead, I should determine who could do the most with it, or I believe I could truly help. Which would be the best investment? If I gave all my money away to scoundrels, and then came across someone who deserved the money, I would be at a loss. In a nutshell, the money you give to toxic investments is money taken away from good investments. Instead of saving the virtuous, you are sacrificing them over the altar of the non-virtuous. This is where individualists have it right and altruists trip up.
That all being said, I think that there are some failures of individualism in explaining people's charity. Just because something can be explained in terms of self-interest does not mean that it is in self-interest. Today I saw Bill Clinton speak, and he talked about his charity work in Haiti rebuilding after the terrible destruction. I could explain this in terms of selfish investment, but I do not think that argument would hit the mark. There is some charitable impulse which drives non-selfish actions, like stopping to help someone pick up books they've dropped or holding the door for someone. Often there is little to gain from these actions, yet good samaritans still exist and lend a hand on a regular basis. How would individualism explain these exceptions?
Main Ideas:
1. Altruism is not an inherently sound moral philosophy.
2. Individualism is not inherently selfish
3. When examining altruistic actions, look for "soft" values being exchanged. Then determine if the action is altruistic.
I think Rizzo and Hayek have it right. People generally only think of altruism in terms of money. This is where all the confusion begins. If someone gives money, they are altruistic. If they don't, they are selfish. But what is neglected is the non-monetary value being traded. As in Rizzo's friend example, what is being valued and traded is friendship against money, not money for money. So Rizzo's decision to bail out his friend is a selfish transaction, pure and simple. He values the friendship over the money. This is a truly hopeful concept. Yet, ironically enough, altruists see this as unselfish because all they follow is the money, regardless of more subtle values. Altruism is also indiscriminate in giving, deeming any selectivity in charity as morally depraved. This is a flaw ideology. If I only have a certain amount of money to give, and give it to anybody and everybody who asks for it, I am being inexcusably lazy. Instead, I should determine who could do the most with it, or I believe I could truly help. Which would be the best investment? If I gave all my money away to scoundrels, and then came across someone who deserved the money, I would be at a loss. In a nutshell, the money you give to toxic investments is money taken away from good investments. Instead of saving the virtuous, you are sacrificing them over the altar of the non-virtuous. This is where individualists have it right and altruists trip up.
That all being said, I think that there are some failures of individualism in explaining people's charity. Just because something can be explained in terms of self-interest does not mean that it is in self-interest. Today I saw Bill Clinton speak, and he talked about his charity work in Haiti rebuilding after the terrible destruction. I could explain this in terms of selfish investment, but I do not think that argument would hit the mark. There is some charitable impulse which drives non-selfish actions, like stopping to help someone pick up books they've dropped or holding the door for someone. Often there is little to gain from these actions, yet good samaritans still exist and lend a hand on a regular basis. How would individualism explain these exceptions?
Main Ideas:
1. Altruism is not an inherently sound moral philosophy.
2. Individualism is not inherently selfish
3. When examining altruistic actions, look for "soft" values being exchanged. Then determine if the action is altruistic.
Class Notes 10/21
1. Value is relative to the people in the trade and is subject to value in other trades. For instance, if I trade a baseball card worth $20 for another worth $0.02, I may seem to have incurred a huge loss and acted irrationally. However, with my newly acquired $0.02 card, I now have a complete set of baseball cards, which is worth $760, at least $20 more than the set would have been minus the one card I didn't have. Therefore everybody gained from the trade and I acted rationally! This is why it is hard to objectively evaluate the value of trades.
2. Trade gets goods to those who value it most and can do the most with it, which increases production and allows for specialization of labor. Ultimately, we are creating time.
3. In a Production Possibilities Frontier (PPF), quality decreases as you near the intercept of the axis for the approached commodity, and average quality increases for the other commodity though the quantity decreases. This is because the first to go are often the least effective, and the last to go often the most.
4. "Absolute Advantages" in production have no meaning in terms of real economics.
2. Trade gets goods to those who value it most and can do the most with it, which increases production and allows for specialization of labor. Ultimately, we are creating time.
3. In a Production Possibilities Frontier (PPF), quality decreases as you near the intercept of the axis for the approached commodity, and average quality increases for the other commodity though the quantity decreases. This is because the first to go are often the least effective, and the last to go often the most.
4. "Absolute Advantages" in production have no meaning in terms of real economics.
Thursday, October 20, 2011
Class Notes 10/19
1. Do not conflate ethical values with market transactions.
2. What gives us confidence in companies like FedEx? FEEDBACK LOOPS
3. Feedback loops allow for improvement by revealing flaws and allowing for the reward of good behaviors. Most frustrations derive from a lack of feedback.
4. Factors of Production:
2. What gives us confidence in companies like FedEx? FEEDBACK LOOPS
3. Feedback loops allow for improvement by revealing flaws and allowing for the reward of good behaviors. Most frustrations derive from a lack of feedback.
4. Factors of Production:
- Land
- Labor
- Capital - What is produced to produce more. Physical and Human capital. Human capital is any increase in ability over one's lifetime.
5. Economic Activity - Action undertaken which deals with someone else. More self-sufficiency -> less economic activity
Class Notes 10/17
1. Large, complex markets need impersonal transactions
2. Every country centered around the "Golden Rule" has failed
3. "Golden Rule" doesn't work because of a knowledge problem, not because of a people problem. Even if the society consisted of morally perfect individuals, a "Golden Rule" blueprint of economics would still fail. It is impossible to predict what people want, which is accomplished organically by feedback loops. Removing competition removes the feedback loop.
4. Production for profit is production for people
5. Person who jogs is virtuous, yet person who sells shoes so one can jog is immoral?
6. Reciprocal Altruism - Altruistic actions are rewarded by further altruism, creating a positive feedback loop. This is essentially a market transaction, spread out over a greater period of time. Most examples of reciprocal altruism would become a market transaction if the action and reaction occurred at the same time, place, etc...
7. People ignore consumer greed, though it is a mirror of corporate greed, which is round criticized. People do what corporations do and vice versa.
8. Self-Interest - Pursuance of what interests you
9. Making Right Decisions - What is the motive of the person being helped? Who does it affect? What are the rules? This is why you need a non-arbitrary "Rule of Law". Generally there is an information problem, which the "Rule of Law" mitigates.
10. "Silver Rule" - Do not do to others what you would consider unfair or unjust if they did it to you.
11. Permissible to be charitable with your own money, but impermissible to be charitable with another's money.
12. Running a good business requires "soft" values
13. It is always someone else who is corrupt
14. Can't run a business like a family or a family like a business
2. Every country centered around the "Golden Rule" has failed
3. "Golden Rule" doesn't work because of a knowledge problem, not because of a people problem. Even if the society consisted of morally perfect individuals, a "Golden Rule" blueprint of economics would still fail. It is impossible to predict what people want, which is accomplished organically by feedback loops. Removing competition removes the feedback loop.
4. Production for profit is production for people
5. Person who jogs is virtuous, yet person who sells shoes so one can jog is immoral?
6. Reciprocal Altruism - Altruistic actions are rewarded by further altruism, creating a positive feedback loop. This is essentially a market transaction, spread out over a greater period of time. Most examples of reciprocal altruism would become a market transaction if the action and reaction occurred at the same time, place, etc...
7. People ignore consumer greed, though it is a mirror of corporate greed, which is round criticized. People do what corporations do and vice versa.
8. Self-Interest - Pursuance of what interests you
9. Making Right Decisions - What is the motive of the person being helped? Who does it affect? What are the rules? This is why you need a non-arbitrary "Rule of Law". Generally there is an information problem, which the "Rule of Law" mitigates.
10. "Silver Rule" - Do not do to others what you would consider unfair or unjust if they did it to you.
11. Permissible to be charitable with your own money, but impermissible to be charitable with another's money.
12. Running a good business requires "soft" values
13. It is always someone else who is corrupt
14. Can't run a business like a family or a family like a business
Sunday, October 16, 2011
The Story of Seguira
This week's reading assignment relays the story of Seguira, the newly appointed rector of a South American university. Upon inheriting his new office, Seguira surprised the locals by quickly turning into a serious reformer. Through the institution of a merit system, Seguira allows for competition between Professors and Graduate Students at the university. Yet in this system are a few kinks, which Seguira addresses with new regulations. Yet again, even in this new system, there are some kinks. So again, he institutes new regulations and new sets of rules. This back and forth game continues until the entire system falls apart.
To be honest, I am not quite sure what to make of this story. At first, I thought it was a specific instance of a free-market failure. The free-market system is not universally beneficial, especially in arenas which do not have the proper institutions. Rizzo explained this in class this week, citing the fact that Russia is poorer today than 30 years ago, despite the introduction of a market system. This could be an illustration of that point. Universities should focus on teaching, rather than competition, and are therefore not conducive to a market system. Forcing one on them is destined to lead to failure. So, as Pinzio warned, most solutions to the dilemma of higher education would have disastrous consequences.
However, then I realized that Seguira was playing the role of a central planner. Therefore this was not a true market system. In addition, the consistent shifting of rules is an indication of the importance of the "Rule of Law" in allowing for economic growth. And there is the "Law of Unintended Consequences". Each regulation Seguira instituted was well-intentioned, but failed due to unintended consequences. Excuse the quick term binge, but the three of these came to mind after I re-thought the story. So perhaps calling this a "free-market" is a misnomer. The problem is that it was a forced market, not one that developed naturally due to the proper conditions. In my opinion, this is the correct interpretation. Looking at it this way, everything makes more sense.
Main Ideas:
1. The free-market system does not work in any situation. There must be proper conditions.
2. A free-market cannot be forced.
3. Every decision has unintended consequences.
4. There must be a consistent and non-discriminatory "Rule of Law" for economic growth.
Questions:
1. What were the unique conditions that doomed the University's merit system?
2. What incentives could improve the fact that universities are "run in reverse"?
3. What is the meaning of the end, where Seguira leaves after receiving an offer from another university? Is there an indictment in the relaying of this action?
2. What incentives could improve the fact that universities are "run in reverse"?
3. What is the meaning of the end, where Seguira leaves after receiving an offer from another university? Is there an indictment in the relaying of this action?
Friday, October 14, 2011
Class Notes 10/14
1. Markets are often wrong due to:
- "Lack of Markets" (monopolies) -> Information problems, market power, and externalities
- Institutions matter -> social norms inhibit normal market transactions in certain situations, though both involved parties could benefit from a transaction
2. Efficiency - More with the same pot of resources. Efficiency is what people want at the lowest feasible cost.
3. Trial and error in the market leads to great waste.
4. Without enabling institutions, nations cannot have functioning markets. In fact, establishing a market system in a country with poor institutions will often have a negative effect, as we have seen with Russia. The good news is that institutions done right can spark massive economic growth.
5. "Rule of Law":
- Laws have to apply equally to everyone
- Laws should not be arbitrary in execution or enforcement
- Laws should be general
6. There can be no economic growth without savings and investment.
7. Inflation - When all prices increase; a general rise in prices; "too much money" and same amount of goods
Class Notes 10/12
1. Markets are not like a UFC death match between producers and consumers. The majority of trades are positive sum.
2. Good commerce leads to good government which leads to good commerce --> Positive Feedback Loop
3. Entrepreneurs, even the filthy rich ones, only capture a fraction of the monetary and immaterial benefits they create.
2. Good commerce leads to good government which leads to good commerce --> Positive Feedback Loop
3. Entrepreneurs, even the filthy rich ones, only capture a fraction of the monetary and immaterial benefits they create.
Wednesday, October 12, 2011
The Most Unusual Day
How can government incentives change the natural cycle of births?
A proof of the Law of Incentives and Unintended Consequences, this casual exploration shows how the most basic monetary incentive can alter even the biologically fundamental cycle of birth. In what may have been regarded as a failure of foresight, on May 11th the Australian government introduced a new policy of consolidating different maternal payments into one lump sum of $3000, to begin on July 1st, 2011. Now, this policy was certainly well-intentioned. But as any good economist will quickly point out to you, intentions are no indication of results. Knowing this, the economist who wrote this piece immediately did two things: first, his wife pregnant, he double-checked his baby's due date, and second, he formulated a hypothesis. In hindsight, it seems rather obvious. The hypothesis was that no babies would be born on June 31st. Now, this is an exaggeration of course, but the general idea was that, relatively, many more babies would be born on July 1st, and many less in the days close before it. And he was correct! July 1st and the few days after saw a spike in birth rates. The disturbing element was that the natural birth rate remained constant, while the number of C-sections and induced births jumped. People weren't forging birth certificates, they were actually altering the delivery date. So he was right!
Before I begin my analysis, I have one question. Wouldn't the cost of a C-section, induced labor, or other artificial birth cost more than the $3000 payment? At least for a C-section, this would seem to be the case. Maybe it is because insurance covers the birth.
Moving on, I think the lesson here is simple. People respond to incentives. When it comes to incentives, almost no behavior is sacred. If money can convince people to artificially change the birth date of their baby, there is no doubt it has a strong influence over the actions in a society. Furthermore, this brief article illustrates the "Law of Unintended Consequences". The law was well-intentioned, did benefit families, and was well-thought out in almost every aspect. But because of one logical mistake, there was an unintended and perverse incentive to manipulate birth dates. This is the "Law of Unintended Consequences".
Main Ideas:
1. Incentives, incentives, incentives
2. Even the most well-intentioned laws can have unintended consequences.
3. No behavior is sacred.
Before I begin my analysis, I have one question. Wouldn't the cost of a C-section, induced labor, or other artificial birth cost more than the $3000 payment? At least for a C-section, this would seem to be the case. Maybe it is because insurance covers the birth.
Moving on, I think the lesson here is simple. People respond to incentives. When it comes to incentives, almost no behavior is sacred. If money can convince people to artificially change the birth date of their baby, there is no doubt it has a strong influence over the actions in a society. Furthermore, this brief article illustrates the "Law of Unintended Consequences". The law was well-intentioned, did benefit families, and was well-thought out in almost every aspect. But because of one logical mistake, there was an unintended and perverse incentive to manipulate birth dates. This is the "Law of Unintended Consequences".
Main Ideas:
1. Incentives, incentives, incentives
2. Even the most well-intentioned laws can have unintended consequences.
3. No behavior is sacred.
Tuesday, October 11, 2011
Subsidizing the Fine Arts
In his essay, "That Which is Seen and That Which is Not Seen", Bastiat in part argues against the subsidizing of the fine arts. Using a classic "broken window" fallacy argument, he states that the government is not "creating" any weath by holding the arts intact. True, the industry may need the subsidies, but at best the government is re-locating capital that could have been spent elsewhere. The government cannot, in his opinion, create. It can only shift. Now, is this shifting ethical? Advocates of subsidies argue that the fine arts deserve subsidies because they are at least as good as other professions, and contribute equally to society. Yet to give them a subsidy requires taking money from a different private industry. Does this not mean inherently that the arts are being placed in a standing not equal to, but above, the other industries which it receives from?
The novel insight from this piece is that an argument for the abolishment of subsidies is actually a more humanistic argument than an argument for the continuation of subsidies. The first is predicated on the belief that human nature will determine the best way to keep theater and the fine arts alive, and will do so accordingly with no need for government intervention. The second is founded on the idea that the fine arts is an eternally sick patient, constantly needing life support from the government to survive since no private venture may survive in that particular field. Is this not an immediate admission that it cannot be a profitable investment? Worse, this belief relies on a distrust of human faculty, which it believes will never support the arts. This is fundamentally cynical, and even if true, who is to say that the arts deserve artificial support if the public are disinterested? Are they a better industry than others, or should we just save all of them indiscriminately? The failures of logic in the minds of Bastiat's adversaries are large, and so central that their weakness tears down the very fabric of their argument.
Even if the arts do eventually dry out, it is because we have, extremely unfortunately in my opinion, decided that they are not worth it, In this case there would be little point trying to keep the sector afloat. This does not mean that they are forever lost, but it would certainly be a great tragedy. However, this is a subjective opinion, and as such I recognize that I cannot force my values on others. Because of this, and it is a painful decision, I side with Bastiat's opinion that the arts should no longer be subsidized.
Key Points:
1. Being against subsidies does not mean being against the sector being subsidized. In Bastiat's opinion, it instead implies a fundamental belief in the industry and humanity.
2. Subsidies do not create wealth or boost the economy.
3. No industry can be given a standing above any other.
4. Sympathies should not equal subsidies.
5. Ignorance of those who pay for the subsidy does not negate their existence.
Questions:
1. Would the arts survive without subsidies? Bastiat is right to argue that the arts should not receive subsidies, but it is a different argument whether or not they would survive.
2. How can subjective value be turned into objective value? What if the subsidy is low cost, but the cultural value added to society is high?
3. Can a non-material benefit to society be accurately quantified? Should it be?
The novel insight from this piece is that an argument for the abolishment of subsidies is actually a more humanistic argument than an argument for the continuation of subsidies. The first is predicated on the belief that human nature will determine the best way to keep theater and the fine arts alive, and will do so accordingly with no need for government intervention. The second is founded on the idea that the fine arts is an eternally sick patient, constantly needing life support from the government to survive since no private venture may survive in that particular field. Is this not an immediate admission that it cannot be a profitable investment? Worse, this belief relies on a distrust of human faculty, which it believes will never support the arts. This is fundamentally cynical, and even if true, who is to say that the arts deserve artificial support if the public are disinterested? Are they a better industry than others, or should we just save all of them indiscriminately? The failures of logic in the minds of Bastiat's adversaries are large, and so central that their weakness tears down the very fabric of their argument.
Even if the arts do eventually dry out, it is because we have, extremely unfortunately in my opinion, decided that they are not worth it, In this case there would be little point trying to keep the sector afloat. This does not mean that they are forever lost, but it would certainly be a great tragedy. However, this is a subjective opinion, and as such I recognize that I cannot force my values on others. Because of this, and it is a painful decision, I side with Bastiat's opinion that the arts should no longer be subsidized.
Key Points:
1. Being against subsidies does not mean being against the sector being subsidized. In Bastiat's opinion, it instead implies a fundamental belief in the industry and humanity.
2. Subsidies do not create wealth or boost the economy.
3. No industry can be given a standing above any other.
4. Sympathies should not equal subsidies.
5. Ignorance of those who pay for the subsidy does not negate their existence.
Questions:
1. Would the arts survive without subsidies? Bastiat is right to argue that the arts should not receive subsidies, but it is a different argument whether or not they would survive.
2. How can subjective value be turned into objective value? What if the subsidy is low cost, but the cultural value added to society is high?
3. Can a non-material benefit to society be accurately quantified? Should it be?
Friday, October 7, 2011
Class Notes 10/7
1. Adjectives are empty unless a definition or context is provided. Saying "Rizzo is a bad driver" begs the question, by whose standard? Relative to whom? What is a "bad driver"?
2. People act with purpose.
3. Sunk Cost - A cost that cannot be prevented or regained, such as time.
2. People act with purpose.
3. Sunk Cost - A cost that cannot be prevented or regained, such as time.
My 1992 Audi
My EWOT this week is in tribute to my first car, a 1992 Audi 100s which lasted for 170,000 miles. It passed away right before I left for college, after reliably running for 18 years.
Through all the breakdowns and expenses as the car slowly started to fail, I fought for it. My mom wanted to scrap the car. In her opinion it was well past due. With each expense, she became more convinced that we should scrap it. However, she clearly misunderstood the economic reasons why the car was a better pick than any new car off the lot. Firstly, my car was so old that it had no insurance. So we saved plenty there. On to of this, even as the expenses started adding up, there was no way it would reach a sum approaching the cost of a new vehicle. Each repair was an economically justifiable investment with a good return. Besides, we all knew I only drove it around town. Any farther and I would begin to see smoke. Come out of the front. Then again, maybe that is why she was worried. But anyway, a local car was really all I needed, so why spring for a brand new one? As Rizzo said in class today, this would only be beneficial if the car was completely shot, which it wasn't.
If only I had known what I had known today, then maybe I could have saved the car for a little bit longer.
Interestingly enough, I stumbled upon an old blog post on Rizzo's site that talked about the "Cash for Clunkers" program. When the car wouldn't sell, or, to be more accurate, would break down every time we had a deal in the works, we thought about trading it in. If the car were eligible, odds are good that it would have been turned in as a clunker. Unfortunately, it was too old and had too many miles. Essentially, it was too much of a clunker. Really?
But for a moment, let's pretend we traded it in. With the $4500 credit and new need for a car, I can guarantee that we would have shopped around and spent on a brand new vehicle almost immediately. So that's money put back into the economy, right? My Audi certainly was doing the economy no good, though it helped me get around. And a brand new car is good for me and the dealer. It's a win-win. Where's the problem?
There are a few. First, you have to follow the resources, as Rizzo told us in class. If we had turned the car in to have it turned to scrap metal, there would be one less car on the road today. Why not just give a $4500 credit and let us keep the car? Trust me, I loved that car. I would have kept it. Maybe we could have even salvaged it. Then, we would have had two cars instead of one, and the same amount of money in our pocket compared to the turn-in program. So there is the first problem. The second is more long term. Within a month of the car actually breaking down, long after we could sell it or turn it in, we went out and bought a brand new one. So in the long-run, either way we would have bought a new car. Had we bought one then, we wouldn't have bought one later. So in the end, the money pumped back into the economy would have been equivalent at best, though I will argue that it would have been less. There was a cap on the price of the car you could buy using the program's credit. It was $45,000. The car we bought later was more expensive. So, even under Keynesian economics, the net contribution to the economy would have been actually less had we taken advantage of "Cash for Clunkers". And the government did not have to pay a $4500 subsidy on our new car, which saved them money. Simply put, "Cash for Clunkers" was not a stimulative program.
For all those who disagree, let's just look at the end results. "Cash for Clunkers" would have taken the car and junked it, maybe recycling the engine. We donated our car to the local fire station so that they could use it for training, training that will help save them learn how to pull living victims from burning or crushed cars. It is training that will help them save the lives of crash victims. Which is the more useful contribution to society?
Through all the breakdowns and expenses as the car slowly started to fail, I fought for it. My mom wanted to scrap the car. In her opinion it was well past due. With each expense, she became more convinced that we should scrap it. However, she clearly misunderstood the economic reasons why the car was a better pick than any new car off the lot. Firstly, my car was so old that it had no insurance. So we saved plenty there. On to of this, even as the expenses started adding up, there was no way it would reach a sum approaching the cost of a new vehicle. Each repair was an economically justifiable investment with a good return. Besides, we all knew I only drove it around town. Any farther and I would begin to see smoke. Come out of the front. Then again, maybe that is why she was worried. But anyway, a local car was really all I needed, so why spring for a brand new one? As Rizzo said in class today, this would only be beneficial if the car was completely shot, which it wasn't.
If only I had known what I had known today, then maybe I could have saved the car for a little bit longer.
Interestingly enough, I stumbled upon an old blog post on Rizzo's site that talked about the "Cash for Clunkers" program. When the car wouldn't sell, or, to be more accurate, would break down every time we had a deal in the works, we thought about trading it in. If the car were eligible, odds are good that it would have been turned in as a clunker. Unfortunately, it was too old and had too many miles. Essentially, it was too much of a clunker. Really?
But for a moment, let's pretend we traded it in. With the $4500 credit and new need for a car, I can guarantee that we would have shopped around and spent on a brand new vehicle almost immediately. So that's money put back into the economy, right? My Audi certainly was doing the economy no good, though it helped me get around. And a brand new car is good for me and the dealer. It's a win-win. Where's the problem?
There are a few. First, you have to follow the resources, as Rizzo told us in class. If we had turned the car in to have it turned to scrap metal, there would be one less car on the road today. Why not just give a $4500 credit and let us keep the car? Trust me, I loved that car. I would have kept it. Maybe we could have even salvaged it. Then, we would have had two cars instead of one, and the same amount of money in our pocket compared to the turn-in program. So there is the first problem. The second is more long term. Within a month of the car actually breaking down, long after we could sell it or turn it in, we went out and bought a brand new one. So in the long-run, either way we would have bought a new car. Had we bought one then, we wouldn't have bought one later. So in the end, the money pumped back into the economy would have been equivalent at best, though I will argue that it would have been less. There was a cap on the price of the car you could buy using the program's credit. It was $45,000. The car we bought later was more expensive. So, even under Keynesian economics, the net contribution to the economy would have been actually less had we taken advantage of "Cash for Clunkers". And the government did not have to pay a $4500 subsidy on our new car, which saved them money. Simply put, "Cash for Clunkers" was not a stimulative program.
For all those who disagree, let's just look at the end results. "Cash for Clunkers" would have taken the car and junked it, maybe recycling the engine. We donated our car to the local fire station so that they could use it for training, training that will help save them learn how to pull living victims from burning or crushed cars. It is training that will help them save the lives of crash victims. Which is the more useful contribution to society?
Thursday, October 6, 2011
Class Notes 10/5
1. FOCUS: Don't follow the money, follow the REAL resources.
2. Money spent on destruction could just as easily be spent on construction. So how are wars good for the economy? Why not just give every citizen a check?
3. Value is based on scarcity (the difference between demand and supply)
4. Marginal Cost - Change in cost when you make a decision
2. Money spent on destruction could just as easily be spent on construction. So how are wars good for the economy? Why not just give every citizen a check?
3. Value is based on scarcity (the difference between demand and supply)
4. Marginal Cost - Change in cost when you make a decision
Class Notes 10/3
1. Three basic economic principles: One, how people make choices, two, how people interact, and three, how "Economies" work.
2. In a market system there is a constant battle between equity and efficiency, which are generally inversely correlated.
3. "Free" implies no-trade off, which is impossible. (TANSTAAFL)
4. Case study: FDA preventing bad drugs from reaching the market slows good drugs from reaching the market and makes it more expensive to produce new drugs, which is money that could be better spent on development. Which saves more lives, prevention or expediency?
5. Cost (explicit) - Anything that consumes resources
6. Opportunity Cost (implicit) - What you must give up to obtain an item, essentially the net value (benefit minus cost) of the best thing I chose not to do.
Sunday, October 2, 2011
Is Fighting Forest Fires Economical?
Is fighting forest fires economical?
The definition of "forest fires" is pretty self-explanatory, but for this analysis I will only look at forest fires that pose no threat to human existence. Though an economic argument could be made that it might be cheaper to relocate people and compensate them for their loss, it is an argument for a different day. So, here I go. We spend around $2 billion dollars annually fighting forest fires. This is a lot of money, though relatively small compared to our current deficit. But we cut NASA, didn't we? Anyway, over time forests develop thick undergrowth and a layer of brush, naturally built up from falling leaves and any dead material that ends up on the forest floor. This creates a highly flammable surface of dry materials. Herein lies the problem. If we artificially suppress forest fires in areas where they naturally occur, this pile of waste builds up. So the fuel builds and builds, until finally it alights. Because of our fire prevention, this new fire has much more to consume than it would naturally, and is therefore much more severe. According to the Wikipedia page, this has led to the replacement of slow, cool-burning fires with fast, blazingly hot fires which are much harder to control and often cause more damage.
Trees are also living entities. As with all living entities, they eventually die and begin to rot. Forest fires clear these dead trees, creating space for new trees to grow. Dead trees are timber waiting to be burned. If we prevent their destruction, as with the undergrowth, we may be setting ourselves up for worse fires later on. We may also be blocking the path for future healthy growth.
Rizzo likes to say that "the path to hell is paved with good intentions". This may be one example where we would be better off leaving nature to do its work.
Disclaimer: I am not a scientist.
The definition of "forest fires" is pretty self-explanatory, but for this analysis I will only look at forest fires that pose no threat to human existence. Though an economic argument could be made that it might be cheaper to relocate people and compensate them for their loss, it is an argument for a different day. So, here I go. We spend around $2 billion dollars annually fighting forest fires. This is a lot of money, though relatively small compared to our current deficit. But we cut NASA, didn't we? Anyway, over time forests develop thick undergrowth and a layer of brush, naturally built up from falling leaves and any dead material that ends up on the forest floor. This creates a highly flammable surface of dry materials. Herein lies the problem. If we artificially suppress forest fires in areas where they naturally occur, this pile of waste builds up. So the fuel builds and builds, until finally it alights. Because of our fire prevention, this new fire has much more to consume than it would naturally, and is therefore much more severe. According to the Wikipedia page, this has led to the replacement of slow, cool-burning fires with fast, blazingly hot fires which are much harder to control and often cause more damage.
Trees are also living entities. As with all living entities, they eventually die and begin to rot. Forest fires clear these dead trees, creating space for new trees to grow. Dead trees are timber waiting to be burned. If we prevent their destruction, as with the undergrowth, we may be setting ourselves up for worse fires later on. We may also be blocking the path for future healthy growth.
Rizzo likes to say that "the path to hell is paved with good intentions". This may be one example where we would be better off leaving nature to do its work.
Disclaimer: I am not a scientist.
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