EWOT #7

I know that Obama is beginning to implement a new system where it will be easier for us to pay off our loans. As a college student who has taken out loans, I am excited about the new loan pay off system. In this  article it highlights how this is going to effect our economy and change it hopefully for the better. It's an interesting concept that I found interesting. 

Paul Krugman Analysis

First, looking at Ricardo's Difficult Idea, highlights the arguments against Free Trade. While showing how completely untrue the majority of the arguments against Free Trade are we can see how many people are given false information about Free Trade and therefore without understanding the economic concept properly just outright reject it.

The main idea of comparative advantage is that trade between two nations normally raises the real incomes of both. It's interesting that a concept so simple can be misunderstood by so many people and challenged by 'new' economists.

Paul Krugman also looks into cheap labor and why he is in favor of it. He says, "More importantly, however, the growth of manufacturing and of the penumbra of other jobs that the new export sector creates has a ripple effect throughout the economy. The pressure on the land becomes less intense, so rural wages rise; the pool of unemployed urban dwellers always anxious for work shrinks, so factories start to compete with each other for works, and urban wages also begin to rise. Where the process has gone on long enough in South Korea or Taiwan, average wages start to approach what an American teenager can earn at McDonald's." Although in this article everything points to cheap labor being favorable, we can't condone women and children working for extremely low wages because it is for OUR benefit, this is something that we either need to re-think or change so that we can begin to see how this labor helps their economies and ours.

Finally, Krugman looks at the "berry outbreak", which after the fact Clinton asked for legislation to ban food imports from countries that do not follow adequate sanitary standards in agriculture. But doesn't this create a double standard? "Intellectual opponents of globalization gleefully noted a double standard: We're willing to seize shipments of foreign berries to protect yuppie consumers (the sort of people who eat raspberries out of season) from inadequate foreign sanitary standards, so why aren't we willing to protect U.S. workers from inadequate foreign labor standards? Isn't it the same thing?" Krugman goes on to show us that it's not the same.

Through these articles Krugman raises some very controversial issues in economics, that really shouldn't be controversial if you look at the facts. Yes, the wages may be very very low and unacceptable for our standards the facts show that cheap labor is improving Third World countries. There is more that needs to be understood and investigated before people make judgements and begin to oppose economic principles when they don't fully understand the outcomes.

Class Summary 10/26

The miracle of trade is figuring out how to make the goods we want with as few resources as possible. 

Many people believe that trade has decreased jobs within America, however that can be shown completely unfounded. We produce more now than ever before and any other country.  We're the fourth largest economy on Earth. We've lost manufacturing jobs but our manufacturing output has increased. An individual now produces $3,000 worth of stuff, therefore we've become more productive with less people working.

Although, many people who lose their jobs blame trade, but they were only in that job because of trade.

Now, jobs that are being created seem to only be an advantage to educated people with a specific set of skills (e.g. Now stock traders have to be physics gurus). It is not trade that is creating the growing gap between classes.

Class Summary 10/24

NOBODY CAN HAVE A COMPARATIVE ADVANTAGE IN EVERYTHING!

In class, we created graphs, which showed that Rochester has an absolute advantage in producing cameras in comparison to Cornell. Rochester also has an absolute advantage at making wine over Cornell. 

We also computed opportunity cost, where we saw that Rochester has the least opportunity cost, making them the most "efficient". So we say that Rochester has a comparative advantage over Cornell. 

When we ask who is more "efficient" we are really asking who sacrifices the least when producing goods. Therefore, who can provide wine for a lower cost? Here, price is nothing more than a trade-off. 

When we talked about trade and specialization we saw that it makes all parties better off. What matters for trade are relative price differences within each country. Also self-sufficiency is that way to poverty. Policies that restrict trade will make you poor. Restricting trade is costly. You pay for your imports with exports, every export is used to buy an import, there is a circular flow. 

EWOT #6

Since we've been talking about how ads can play to our emotional side, like the milk that says the farmers "care" about you, or for that matter any product that says they "care" about the customer reminded me of the All State Insurance  commercials. They play directly to our emotional side, and I'm sure many people like their commercials and feel like the company "cares" about them. 

Class Summary 10/21

"People co-operate to get more of what they want."

• What's the sole purpose of production? CONSUMPTION
• Trade produces more wealth in other countries. 
• Even if exchange doesn't create any value its a pre-requisite for creating products that we do value. 
• Good trade is where the gains are shared equally (Rizzo's yard work example)

This all leads to Production Possibilities Frontier (PPF), a chart that shows all the possible combinations of products we can produce with current resources and technologies. 

Class Summary 10/19

What is it about Fed-Ex that gives you the confidence to ship valuable goods?

-Feedback loops

-There are serious consequences if Fed-Ex fails

-Competition is one of the reasons feedback loops work

-When Fed-Ex fails, they have to care about failing, their workers need a moral conscience, therefore it is in Fed-Ex's interest to hire a trustworthy person. 

Trade & Specialization

-We don't just trade goods we trade "property"

What's the point of economic activity?

-World has scarcity

-We want "stuff"

How do we decide what to provide society? The Economic Challenge

-Production Questions

-Allocative Questions

What is economic activity?

-The second you decide to not do something for yourself is economic activity, spending transaction in the market. 

Three Aspects to Spending:

1. Specialization

2. Exchange

3. Discovery

Class Summary 10/17

THE GOLDEN RULE

People would probably like society if it followed the golden rule, do unto others as you would have them do unto you. Sure, it'd be nice, however the golden rule only works in small settings, not necessarily large, interconnected, and impersonal ones.

The golden rule fails, not because of us, but because people don't like organizing themselves by the principle of other people. It can't work in a large society because we have a knowledge problem, not an honesty problem.

Why is our thinking about self-interest so colored?
Interesting how we idolize people who have the self-control to workout and eat healthy for themselves. We celebrate most self-interested actions, but there are some that we condemn (e.g. creating your own business) The person who goes jogging is virtuous, the person who makes the shoes so you can go jogging is evil and self-interested.

It seems that instead of the golden rule, the more appropriate rule may be the "silver rule". Do not do to others what you would consider unfair or unjust if they did it to you.

"The Case of Contamination"

This article talks about people's identities being challenged and cultural identities becoming challenged because of global economy. Why do they feel threatened? Because the world is changing. One example of this is the pull of the global economy, for Asante farmers if chocolate prices happened to fall like they did in 1990 they might have to find new crops to grow, new sources of livelihood and they don't necessarily like that idea. Underlying all of this change is the fact that relationships are changing. Not too long ago a father could expect to pass a long a farm or a business to his sons and family, nowadays everything is changing.

"Cocoa prices have not kept up pace with the cost of living. Gas prices have made the transportation of the crop more expensive. And there are new possibilities for the young in the towns, other parts of the country, and in other parts of the world."

However looking deeper into this article if everyone in the world is slowly moving towards more consumerism, less traditional values it is going to create somewhat of a "utopia" which is what we should be afraid of. With everyone becoming the same it will then become difficult to get different cultural opinions, and different view of products, markets, institutions, and what makes our world go 'round. We shouldn't be afraid of what capitalism is producing, we should be afraid of this "utopia".

The article also talks about decision making and how often our decisions are not made by logical and time-consuming thinking, they are instead made at times irrationally and almost always immediately. This type of thinking is what we have been talking about in Rizzo's class. We can't predict how everyone or even one person will react to something. Economists can't know it all.

EWOT #5

The other day I drove past a Blockbuster and was surprised to see that it was still in business. This got me thinking about all the competition and technological advances that have occurred in the past ten years even! With new companies like Netflix constantly being created it must be challenging for businesses to continue to innovate. It made me wonder if this is creating new jobs within specific markets? I know that Blockbuster is now working on updating it's business to keep up with Netflix, but how hard is it actually to cross technological boundaries once your company has been "established" and will loyal followers continue to follow? And how does this all effect the economy that we live in today?

Class Summary 10/14

MARKETS

People's income should have nothing to do with what you produce. (Marxist View)

• Market transactions tend to produce positive outcomes. 
• Markets are often "wrong". 
• Institutions MATTER
• "Lack of Markets" 

One of the goals of economic policy is "efficiency"
-We want to make sure economic system is producing what people want and at the lowest feasible cost.

You can't have market unless all of the other institutions in society are working correctly (institutions matter). There are generally accepted ways of how to act within a society. "Rule of Law" means that laws have to apply equally to EVERYONE. Laws should not be arbitrary.

If you get institutions "right" you can grow remarkably fast. Institutions are not rivalrous. No corruption, trust, good churches. All of this sparks good processes.

Class Summary 10/12

UNINTENDED CONSEQUENCES

When cost of something changes it is going to affect someone's behavior. 

-You can pass a law banning something but we'll use our ingenuity to get around the law. 

Incentives change, while unintended consequences are "implemented"

(e.g. When drugs were made illegal, drugs became more powerful, needle-drug injection began, which led to the spread of AIDS in the 1980s.

Why does this keep happening?

We have two worlds we live in: Simple VS. Complex Systems

You get unintended consequences when you try to fix complex systems by simple rules. Can't use the "simple" limited information  to rule a complex system.

American Disabilities Act raised the stakes of hiring a disabled person due to people suing for being fired in the future. Therefore hiring of disabled people decreased considerably. 

"Pie Fallacy" is that there's a fixed amount of wealth in the world. If Steve Jobs never created Apple we would be richer. 

Pie fallacy says that by getting wealthy all you're doing is stealing from other people. Consequences of following this pie fallacy is that by supporting these policies are created that stop entrepeneurialism, free trade, and other positive influential programs. While we don't want vast inequality can't stop individual businesses. 

Class Summary 10/7

"Everyone should have healthcare!"

Now looking at this statement, you agree, but what is healthcare to you? Healthcare is relative to what we have been taught by society for it to be. If healthcare was just a bandaid for a cut, then healthcare could be provided to everyone. Is healthcare a bandaid? No. 

Looking at the idea of relativity we can also relate it to scarcity. When comparing teachers and athletes salary does it seem that we value athletes more because we pay them more and give them more monetary value? yes, but this is relative scarcity. Teacher's skills are more frequent than a famous athlete's skills are. Therefore famous athletes are more scarce. If you take 200 athletes out of the NBA, it would deplete, but if you take 200 teachers out of school it wouldn't be detrimental because there are so many other teachers. However, if the world had to re-build itself and only an athlete and a teacher were there to re-build, the teacher would be far more valuable to society, and is far more valuable to society now. 

We don't necessarily care about resources, we care about what the resource are giving us. 

"Value Arises From Human Interpretation." 

Class Summary 10/5

"Broken Window Fallacy" 

1. I wouldn't have bought the roof (i.e. consumer product)
2. Before the storm I have $1,000 and a roof. Post storm I have $0 and a roof.
3. But.... what if roofers were idle/unemployed/we're in a recession? 
4. Costs are subjective, the value you place on options is the cost you make on decisions.
5. Marginal thinking "little bit" 

Looking at consumer preferences you did NOT want the roof before the storm, so did you want it after? NO. When you think logically about what the world looks like before and after destruction it is clear that destruction is NOT good for our economy. Although there are arguments against this...
-We're willing to trade jobs today and look at the future later.
-The government itself has no ability to create resources.
-After destruction, although we create jobs today, we are destroying jobs of tomorrow.

TO THINK ABOUT: How was WW2 good? Yes, GDP increased, but 15 million people died, how is that good? The same argument can be made for Hurricane Katrina and Tsunami in Asia. War and destruction is NOT good for economies! 

Class Summary 10/3

Three Basic Economic Principles:
1. How People Make Choices
2. How People Interact
3. How "Economics" Works

What follows Scarcity?
-People make trade offs
-Opportunity costs
-Thinking at the margin
-People respond to incentives

MAIN EXAMPLE:

If the FDA spends a lot of money testing drugs and a lot of time testing drugs, the longer the process takes the more lives are taken.  The fact that life saving drugs are still being tested and are not in use are causing deaths. For every $50 million we get 20 new drugs, 10 of which are probably life saving. What is the incentive structure of the FDA? They do not let a drug out if there is even a very small chance that a drug is dangerous. However, FDA makes more money when they make bad decisions than when they make good ones... 

EWOT #4

Why do people care so much about material goods? Yes, there are some goods with intrinsic value and we have heard Rizzo say that when he buys his daughter earrings, he's not buying the earring he's being quality time with his daughter and the good is enhancing this. But what has really made me think is when you don't have enough money to even clothe, or support yourself or your family why do you care about having a nice phone? I have seen many "poor" people with nice touch screen phones and it just makes me wonder, why spend your money on a mobile phone when you could be buying other things. I'm sure for these people there is intrinsic value and it may make them feel more in with society. It just goes to show that what sometimes you don't really understand why a good is purchased by an individual if you think about intrinsic value and what that good may mean to that person you could justify many many purchases that seem unnecessary.

"Are Happiness & Income Related?"

DOES MONEY BUY HAPPINESS?

Justin Wolfers, first says he is an empiricist and shows many graphs which show the high correlation between happiness and income relative to twenty-five countries. For many of his empirical information it seems that there is a high correlation between income and happiness, however correlation does not always prove causation.

Robert Frank argues that while money can buy happiness it does not buy it to the extent at which we think it does. Frank argues that in one hundred years we will all be saying that Charles Darwin is the founder of economics. I found this very interesting, Frank continued to argue that Darwin's "survival of the fittest" theory shows through within economics in relation to competition. He also states that the brain from the Darwin point of view is supposed to not just be happy, but it's main job is to get you to do what it takes to pass your genes to the "next round". Your brain does this however by prompting negative feelings which get you to a position to get your genes further. Frank says that pleasure and happiness is the fleeting when you move from discomfort to comfort; it is not our goal to maximize pleasure through life.

I found both arguments very persuasive but found myself leaning more towards Frank's point of view than Wolfers', which was surprising because I feel I would normally lean towards empirical information. Frank's theories seem to make sense within many societies and his examples highly illustrate this. I still am unsure as to whether money really does buy happiness and if so to what extent but this has prompted me to do more research and look into the theory of Darwin creating economics, not Adam Smith and the Invisible Hand. Overall I found this debate very interesting and eye-opening in many ways for me personally having lived and visited in many different countries. This definitely sparked my interest.

Class Summary 09/30

WHAT DOES TRADE CREATE?

According to Hume...

1. Competition, which drives firms to innovate

2. Imitation, Learning

3. Division of Labor, which is import because it splits up job tasks and creates more goods.

ADAM SMITH

-Said you don't need the government to control and regulate everything 

-"Laissez-faire" 

-Three important things, Police and Courts, National Defense, "Public Goods"

*If these three ideas are met then parties in the market should be free to sell and buy, entry into different trades should be open to anyone, everyone has the right to buy and sell, and ANY attempt to suppress this is suppressing the price system. 

For Smith our source of wealth comes from our ability to produce and exchange peacefully. If someone is poor you want to ask, what is stopping your ability? Unless you appeal to other people's interests you're not going to get very far.

Commercial society emerged on its' own. Order in society is possible without conscious design. We consciously try to make effort to improvement but NOTHING was planned.