He talked about markets and government (the two players in economics). He talked a little about Lehman and stuff (I mean, how could he not?) and said there's a de/regulation pendulum -- that things go bad and we develop regulations to ameliorate that, and then people chafe under the regulations and insist and so we loosen the regulations, and I kind of winced at this implication that regulation was the "better" way.
I mean, I'd been skimming Megan McArdle -- Obama goes for the jungular [15 Sep 2008 05:49 pm], What should Bush have done [16 Sep 2008 07:36 am], Rethinking regulation [16 Sep 2008 02:19 pm], Hindsight regulation [16 Sep 2008 04:44 pm].
He talked about the pursuit of happiness and how there's spiritual and material happiness, and economics of course deals with the latter. He spent really too much time talking about spiritual happiness. After it was over I could see the trajectory, but surely one could have done it more succinctly.
Basically: you have the desire for a satisfaction of (infinite) wants and you have limited resources for production (land, labor, capital, entrepreneurship); hence, scarcity.
One way to combat scarcity is to reduce wants. He said this is the approach taken in much of the Eastern Hemisphere. This assertion made me cringe, 'cause I thought, "China and Japan are growing economic (super)powers; they did not get that way by cutting down on their wants." He mentioned Buddhism, and okay that I can understand.
He talked about spiritual happiness and mentioned that the top best-selling books throughout time have been stuff like the Bible.
There's one student in the front row (who codes as somewhat genderqueer -- hi, you are of my people!) who said a number of smart things throughout class. Said student point out that you can believe in spiritual things without necessarily being made happy by them.
The prof said a lot of people who are not materially very well-off still seem to be happy.
One student said, "I hear that poor people have a lot of sex."
I facepalmed. Literally buried my face in my hands, muttering, "I can't believe you just said that." I suspect I looked like a prude who just didn't wanna talk about sex, but that was not it at all.
Twenty minutes into the first class session! Usually it takes until at least the second class session for something so monumentally fail-boat-y to be said.
Anyway... you have to prioritize wants, hence choices, hence trade offs (opportunity cost).
A student asked about oil. I had difficulty hearing a lot of this conversation, but one student talked about how extraction costs are high (e.g., black sands) but as the price of oil goes up, those costs become less prohibitive relatively speaking.
The prof said there are hidden costs of growth -- sacrifice leisure time, etc.
SmartStudent said something about how harvest time is kind of a lot of work.
The prof said something about meaningful leisure time. I'm not entirely convinced.
The prof said people aren't always rational -- for example, people get married. I rolled my eyes. I think I've complained about this before.
Market failure -- e.g., gum under desk . . . an individual acts in their own self-interest, but the result isn't actually in society's self-interest.
Examples of market failures:
- negative externalities (secondhand smoke, noise pollution) -- technically positive externalities would be a market failure, too (distribution of goods and services would be inequitable -- one of the big things I remember from the reading was the concern with maximizing efficiency and equity)
- systematic discrimination (inequality of income)
- asymmetric information
This is totally my favorite. I mean, okay, it sounds bizarre to have a "favorite" type of market failure. [Thursday, I was reading "The Allure of the One-Stop Shop: The real reasons why people go to the E.R. when they shouldn't." by Zachary F. Meisel and Jesse M. Pines | Posted Friday, Sept. 12, 2008, at 7:06 AM ET on Slate, and when I hit the phrase "asymmetric information" I squeed a little. And apparently I have been hanging around Certain People too long, because I also got squeeful at "changing the incentives." -- And honestly, incentives are a really interesting behavioral thing . . . they're just often wrapped up with other stuff I don't really care about. Though I voluntarily read a paper on salespeople gaming an incentives system, so maybe that "I don't care" is a lie, too.]
The prof said that market failures show that the market isn't the best system for distributing resources. SmartStudent commented that it could be the BEST system while still being imperfect. The prof responded: You can improve by removing market failures. I feel like that's somewhat of a semantic quibble. "An entirely free market is not the best system for allocating resources -- a properly regulated free market is the best system." Because regulation is never going to be perfect, and you're still using the same foundation of a basically free market.
(Other market failures include: monopoly, and instability.)
- Specialization helps to increase productivity (allocation of resources, competitive advantage). Also, exchange
- The standard of living of a nation depends on the productivity of its resources.
- Greater supply of money increases inflation. Trade off between inflation and unemployment (Phillips Curve relationship).
Sidebar: I was blogsurfing the next day, and clicked over to MarginalRevolution.com and actually got the title. (Decisions occur on the margins, marginal productivity, etc.)