Class Summary 9/28

Mercantilism, was an economic system tied in with the feudal system.

-There were heavy restraints placed on individuals
-Practiced protectionism; support of craft guilds
-Heavily licensed and many large government monopolies
-Import & export regulations; severe restrictions of the free movement of people.
-Limits on domestic production; price controls were controlled by centralized third parties; wages were controlled "maximum wage".
-Blended with the feudal system because that's just how the world seemed to work.

"You didn't expect the government to do things for you, you expected them to do things to you."

Know differences between what Physiocrats, Mercantilists, and Scottish Moral Philosophers thought about the SOURCES OF WEALTH.

David Hume

Argued that the laws of economics can stand on their own through time, through peoples changes, internally and externally. 

Identified "commerce" as the engine that drives improved living standards.

Argument against Mercantilists

"Price-Specie Flow Mechanism"means prices rise in your country you go somewhere else for the good (Law of One Price). 

Money doesn't matter! Money is neutral! What matters is purchasing power! 

Class Summary 9/26

Basically, there are TWO population theories:
1. Classical ("High Fertility")
2. Modern ("Low Fertility")

• Adam Smith & Karl Marx thought that the world worked with the classical population theory that when families have a little more money and resources they don't make their families richer, they make their families bigger.

• The modern theory is the idea that the fertility rate is fixed throughout society, therefore families save money and create more "high quality children".

We want to know what caused this shift from Classical Population Theory to Modern Population Theory.

We don't have any idea what caused the shift but some important questions we can ask are:

What motivated entrepreneurs to start industrializing?

What is the engine behind all this progress? 

What caused families to make the shift between "quantity children" and "quality children"?

EWOT Goggles #3

A Rough 10 Years For the Middle Class

This article really made me think about what Rizzo has been lecturing about recently. Have our living standards really improved? 

Yes, I know that we have seen lots of data that has been linked to our rising living standards, but this article seems to highlight the issues of the class system within America, and also the specific issues of the middle class.

Although after learning about economic biases and how more often than not articles and biases are produced based upon fiction not fact it is still hard to believe that living standards are improving when articles like this are continually published and seem to prove what we've been learning wrong. 

What Social Science Does and Doesn't Know

This article is about how to use scientific experiments in the social science field. And whether or not this would help mainly the field of economics in creating a more clear picture of how economics works within a society. The use of scientific proven facts in a field like economics would help other people understand what is going on in the world and in their society and how they could potentially change and shape their economic environment. 

One part of the article that I found particularly interesting is the success of Capital One and their reliance as a company on experimentation. Capital One was founded as an application of experimentation directly to business. Everything from product design, marketing, credit lines, and many more aspects of the company are all subjected to testing using thousands of experiments. Therefore the success of Capital One can be mainly attributed to the participation of consumers in experimentation.

This idea to me is astounding that it first, actually works and is successful, and second that it can be applied to something as amazing as a large company. As time goes on I think that this idea should be taken further and applied to not only large corporations but small businesses as well.  As our economic growth continues to build, and our economic society continues to change form, this experimentation should continue to advance and change with the times.

Moving away from how experimentation effects how businesses should be run and over-looked, could this method also be applied to more of our society? 

Class Summary 09/23

Population Growth Stimulates Economic Growth- We Are Better Off Than Ever Before.

• Recently everything is healthier, cleaner, and safer. EVERY resource is now more abundance and cheaper than when we were born. All of this is improving because of population growth and economic growth. 
• Standards of living are also improving greatly. There are more people on Earth than ever before and we are being nicer to each other, although it may not seem that way at first glance. 

Standards of Living Improvements: 

Freedom for Minorities

-Markets are made for minorities

Freedom Itself

-Commerce is also important for freedom itself.

-Advances in liberty (Racial Segregation, Immigration) were helped by media and commercialization.

Question to Think About:

Does money and being rich make you happy? Has all of this economic growth and need for "stuff" ruined our psyche?  

Class Summary 09/21

The Two Main Points:

1. Today, we don't buy a product, BUT we buy the service the product provides.                                 (e.g. When we purchase a lightbulb we are not buying the glass that the lightbulb is made out of we are buying light, the ability to read a book, and many other uses.) 
2. We are also NOW at LEAST 14 times richer today than compared to 1790. 

Class Summary 09/19

Economic Biases: 

1. The percentage of the population of the world that is poor is growing. 

"The rich have indeed gotten richer, but the poor have done even better." 

• The graphs in Rizzo's powerpoint show that if you look from the years of 1970 to 2006 there has been an 80% reduction in the absolute number of people that are poor. 
• Today there are less than 200 million people making a dollar a day. At the start of the chart 27% of the world lived on less than a dollar a day. 
• The numbers of the poor have decreased significantly. The poverty rates in Korea, Japan, and China have fallen by 98%.
• Chine RIGHT NOW is ten times richer than they were ten years ago.

 Overall the World, as a whole, has become richer than they have ever been in the past. This fact can put to rest this ONE economic bias. 

Another question we can ask ourselves after hearing this lecture is where do these economic biases originate from when there is hard evidence that is stating the opposite of the bias? 

EWOT Goggles #2

This weekend I drove up to Saratoga Springs, as I was driving along the highway I was noticing and admiring all the trees and fall colors. It made me think though, people keep saying we're cutting down trees all over the world and not taking of the Earth the way it was "made to be taken care of"but if you still stop to appreciate the little things, like the fall colors of the trees or the ocean breeze you can also appreciate the goods that nature gives to us now. As Rizzo said, no resource will ever run out if there is always a demand. Seeing all of the trees reminded me of this and how rumors like "There are NO trees left" expand throughout society when obviously these rumors are false. If people stopped and took a second to think about the world around them, the rumors being spread about economics, job opportunities, natural resources depleting, they would see that we are in a great economic state and should be thankful for all of the opportunities that surround our society. 

An Interview with Deirdre McCloskey

Capitalism- an economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state.

• McCloskey has many interesting points about how capitalism works within our society and about how economics works within our society. 
• McCloskey echoes Rizzo's points about how economics is a tangled web of individuals' choices; therefore economics is always changing and growing as society grows and changes. McCloskey says we can look at the economy as two different stories. One as a story of "brutal greed" the other "as a story of cooperation, we celebrate it and the working lives it is made up of." 
• Later in the interview McCloskey says, "A capitalist at her pretty good best is humble." He then goes on to talk about McDonald's and Wal-Mart which are two cooperations that many people are hostile towards. McCloskey says that these hostile opinionated people "...do not have the tight budget that goes so much further at McDonald's or Wal-Mart." I connected this with Rizzo's points about how the poor in America today are better off than the rich in history. Although poor, there are many cheap food options now and McCloskey argues that capitalism is in favor of the poor. 

This article made me think about how everything and everyone plays a part in the economy which is now presented to us as a society.  Politically there are many sides that people look at economy from, McCloskey in particular criticizes the left wing, but this got me thinking that many people don't think about their individual impact on the economy. For example, by purchasing trifling goods and enjoying the benefits that come from not just the purchase but the emotional benefits is something that has completely transformed our society and economy as we know it.

McCloskey's line, "Lovers leave, friends move away, riches get spent. And then what? If your life plan consists of accumulating SUVs and antique houses and young lovers, what is the point?" got me thinking, what is the point? What do my trivial purchases and opinions say about me as an individual, and most importantly what is the point? What do you think the point of all of this is?

Class Summary 09/16

For this lecture Rizzo focused on Standards of Living: 

• What do we mean when we say standard of living? 

It is your ability to command goods and services. 

• Many people e-mailed about economy and our need to buy "trifling goods" BUT are these goods really trifle? 

The measured increase of our consumption correlates well with everything that is not trifling in our society. Our measured income has shortcomings but it is improving our standards of living. 

Do we get pleasure from the ACTUAL trifling good? No, we get pleasure from the stream of benefits that connect us to the goods. IT's not the good that matters it's the stream of services you receive that matters. 

(e.g. Rizzo's earring example) 

The general idea of this lecture that Rizzo was trying to expose us to was that NOW we are better off poor, than the richest person in the 1700s. Although we seem to believe that we are worse off now than ever before in human history there are no hard facts that support this theory. Looking alone at the technological and medical advancements of today it is clear that the poorest NOW are "richer" than the richest person in the past. 

Class Summary 09/14

What is GDP? What is Rizzo Talking About?

To begin the lecture Rizzo gave a standard definition of what GDP actually is: 

GDP is a dollar value of all the goods and values offered in a society. GDP is a measure of wellbeing.

Then we learned that there are a lot of things that do not actually enter into GDP statistics; Only about 15% of what we consume is actually produced. 

For example, Rizzo's lecture is being consumed but it is not being produced literally, however this lecture still goes into GDP and is counted. 

After learning about GDP, we started questioning population growth and how that effects population income and wealth. The general consensus is that population growth is BAD and is hurting our economy; people say we're running out of space to live comfortably and running out of money and economic opportunities for the world population. Rizzo then CHALLENGED this:

We would take 0.47% of the Earth for comfortable living space for all of the people on the Earth and use the rest of the space for whatever we wanted. Would we want to do that? Probably not. 

World population has increased by a factor of 7, but world income has risen by a factor of 65. 

Maybe at some point more people are good? 

Population growth seems to create more wealth; more products are bought.

FINALLY it was said that, human progress always has enemies in one sort or another. People attack population growth for creating poverty within the world, however population is in some ways showing off to the world, it should not be viewed as something negative. 

Class Summary 09/12

Economics is not complex, but economic systems are.

Psychologists say some people have an analytic brain “Type C” and some of us have a “Type M” brain which is the part of our brain that uses empathy which helps us fit in, in a social situation.

Sometimes when people are in control of things there may seem like there is “order”. However, we only recognize “order” when something goes wrong. 

• What Adam Smith spoke about the “Invisible Hand” he meant that there’s a possibility that through each of us doing our own social thing, something good may come out of it. 
• The importance of “Tacit & Dispersed Knowledge” means that there’s a mechanism inside each and every one of us where we may appreciate something but are not able to vocalize or articulate the feelings to someone else.
• In economic terms, you on the farm may have the intuition about certain products that cannot be articulated to a third person.

“I, Pencil” in relation to the production and distribution of coffee (Rizzo's Economic Example) :

Impersonal- one common bit of nostalgia in older citizens is how personal everything USED to be. We should think more about the process and the people who are involved in the process.

Self Interest- Every part of this process is people exchanging skills for efforts and money.

Cognitive Issues- Everybody knows how to pack and distribute goods, but how come no one else tries? It only takes 40 cents to bring a kiwi from New Zealand to the United States, but no one else can bring it over than the people specialized to bring the fruit over.

No One Directed- no one was directed in bringing you these goods like coffee, but somehow there is always pizza made on Friday night, bagels on Saturday morning, and coffee whenever you want it. You never call someone to direct them on when you will want coffee or a bagel or pizza but the goods are always there. Everyone is somehow part of the “bigger picture”.

The record of command of economics illustrates the importance of “Tacit and Dispersed Knowledge”. We want to understand what are the things that exist in an economy that allows this process to work. What is the thread that ties everything together, to make tacit knowledge work in our society? 

The thread that makes this all possible is the price system. 

Class Summary 09/09

Understanding Economics: 

What is Economics? 

Economics is the study of the emergence of order and wealth creation and the consequences of the choices made as part of the extended order of human cooperation.

There are two broad fields within economics: Micro and Macro.

What do we mean by that? 

• Generally Micro is the study of the trees (small details) we analyze the choices individual choosing agents make. You as a CEO, as a religion, as an individual. 
• Macro in some sense is an aggregate; we look at the choices of many and then see what effect is on society. We can look at the impact of individual choices on society. 
• Microeconomics is properly the study of price theory.

 Why Study Economics?

1. It helps you appreciate the wonders of where we live. We should have a sense of wonder about the world.

2. There are important concepts. Every action we take involves a consequence. “The road to hell is paved with good intentions.” Intentions do not equal results.

3. People need to understand certain facts. Get facts correct instead of relying on other people. 

EWOT Goggles

TOILET PAPER ROLL COVER COMMERCIAL

THIS is definitely the dumbest product ever created. (Roll Cover Commercial)

This really makes me wonder:

• How much energy does it take to create this useless product?
• How many resources are we depleting to create this product? 

There are so many products in the world and I wish I knew why some of them were created and what audience or consumer market the creators are trying to reach.  Clearly these products are bought or else they wouldn't be able to continue creating useless products, like jibbits, or toilet paper roll covers. It makes me wonder what compels people to buy these products, and how these consumers compare the benefits and costs of these products. Clearly there has to be logic and thinking in a more economic way has made me look deeper into every commercial and how it must effect someone in a way that I may never be able to understand, but maybe thinking in an economic mindset will lend some insight to why people make the choices they do.

i, Pencil

"i, Pencil," an essay written by Leonard E. Reed at face value describes how a pencil is made. Before reading this piece I never thought about how a pencil was made, or how many skills go into making something so simple. A pencil is an item used everyday and not often thought about therefore this item is perfect for exposing the heart of economics, the ideas behind central planning, and division of labor. 

• "i, Pencil" shows how the creation of something so simple cannot be planned centrally. There are many parts that have to played and considered. This makes the individual questions how economics and the economic system should be planned; by ONE authority, or MANY individuals? 
• Also, this essay alludes to the idea that as a humankind we have lost faith in the power of the individual, they use the example of distribution of mail, which is organized and distributed by the government to show how humans and individuals can move so much more than mail but we fail to see the relationship. Therefore we have begun to believe that we can't get anything done without a company, or the government, or a governing force. This essay made me ask myself why have we lost faith in the power of the individual? What has led us to begin thinking that we need a governing force? Also how can we gain more faith in the individual and how would that change our economy? 

Class Summary 09/07

What is Economics? Where Does it Start? 

Economics starts ultimately with the fact that "Man Acts Purposefully" every single time you make a decision you choose with a purpose. The main question for social scientists is why do we do this? 

• Economists would say we do this because we live in a world of scarcity. 
• The only reason we have to make a choice is because we live in a world characterized by scarcity, which is a condition under which we have to choose. 
• If you make a choice you have to give something else up to do it. 

HOW DO WE DEAL WITH SCARCITY?

We economize. We are always comparing two things, expected benefits and expected costs. 

Non- economists sometimes assume that there are clear benefits that are obvious to everyone. Some people assume that the value is what a product is worth. but the point is values are costs are not OBjective, they're SUBjective. 

Cultural norms and mores also dictate how we economize. People often don't understand that at it's heart economics is relevant to people. 

Class Summary 09/02

Responses to Incentives as Both Producers and Consumers:

At the beginning of the class we were given data that stated we would run out of oil in 32.2 years, later we found out that this information was actually found in 1970; THEREFORE we should have run out of oil in 2001. TODAY we have triple the amount of oil recorded in 1970, and we are also consuming twice as much oil as in 1970. We haven't run out of oil, nor will we. 

WHY? 

Because, if you're a producer of oil and the price continues to rise, then you want to sell more and more oil to make more money. Your incentive as an oil producer is to make more, and find more oil. We would see more development of oil, and technology expanding to find and create more oil. 

AND CONSUMERS?

We respond to the incentive too. Some people may drive less, keep the house colder, they may even move. The point is we ECONOMIZE. Our incentives change. Because this happens we will eventually all walk away from oil and find other alternatives. 

Class Summary 08/31

People respond to incentives. 

Incentives is the overlying idea of these next few lectures. We have seen time and time again that everything that one does is responding to an incentive or a choice. This is where economics comes in. 

• Profit opportunity motivates effort. 
• Incentive structure motivates all social phenomenon.  
• There are unintended consequences of an intended action. 
• We want to look at the relationship between individual choices and the patterns that emerge when all of us make choices. 
• We want to learn what the small changes are that make harmony or discourse.
• Economics is as much about cultural/individual/aesthetic values than it is as much about monetary values. 

So far we have found that this is not a course about opinions or interesting ways about looking at the world. We look at the way our daily life and behavior interacts with different cultures and institutions and how in some way every decision effects economics.