The Young Economist website has been updated to reflect the way that we live and breathe economics every day. Check out the best books for Young Economists on our Read Economics page, or watch a video illustrating the truth about real estate agents on Watch Economics. Listen to a talk by a great economist as you’re running around your room getting ready for school in the morning at Talk Economics. Please leave comments and suggestions!
Apologies for the hiatus in my posts! But immediately after my exams were over, I trotted off to St Paul’s Cathedral in London to attend a lecture from Michael Sandel, who was visiting the London School of Economics. Sandel is publicising his book ‘The Moral Limits of Markets’, and of course this blurry area where economics is often found at the heart of our morality and everyday lives is where the Young Economist was at her best.
Michael Sandel’s recent lecture at LSE on ‘The Moral Limits of Markets’
Here are some of the interesting ways that money has crept into our most personal lives and decisions, but also our society’s achievements and government:
Sandel argues that we are “drifting from having a market economy to having a market society”:
A way of life where everything is up for sale.
On the other hand, he points out, there are still some goods whose purchase corrodes their value. For example, it is possible to pay $149 for a custom-made wedding toast, which will be delivered to you from a website such as this, after you have given information such as where the bride and groom met. For goods such as this, and even friendship in general, it has less value if you have to buy it.
An even more interesting example is a study conducted in a Swiss town recently. The Swiss parliament was looking across the country for a site for nuclear waste disposal, and the Swiss economist Bruno Frey saw an opportunity to examine the motivations of Homo economicus. Obviously having a nuclear waste site in your area is undesirable, but a town somewhere in the country would have to do it. A survey was conducted in a town being considered for the site, and 51% responded that they would take on the nuclear waste. Another survey was conducted on the same inhabitants, asking them if they would accept the waste disposal site if they were each offered $6000 per head to do so; fascinatingly, the approval rate dropped to 25%. Frey theorises that the offer of money crowded out their feeling of civic duty.
Pizza Hut seems to deliver to the International Space Station…
But at the same time, they are instances where we unfairly place burdens on other people, but feel better about doing so if we recompense them for it. For example, Israeli daycare centres began to levy a fine on parents who arrived late to collect their children in order to reduce the number of latecomers; the unexpected result was the opposite, as more parents simply paid the fine and collected their children later.
Contrary to normal price theory (price goes up, demand goes down; price goes down, demand goes up) attitudes changed when money was exchanged. Each of these different effects illustrate one thing: money and the price mechanism for allocating goods are no longer instruments for this purpose. They actually affect the resultant value of that good. I think this is incredible economics; money is not just a vehicle to take where you want to go, and the lack of it sometimes stopping you from going to some ‘destinations’- it actually changes where you think you want to go. I hope you enjoyed this post; for more on Michael Sandel’s book, read this column in the New York Times, which in a tongue-in-cheek spirit is called ‘This Column Is Not Sponsored by Anyone”.
In a recent article Tim Harford, the famous Undercover Economist, explores the difficulties of winning a prize offered by Lord Wolfson, a British Eurosceptic.
Lord Wolfson is offering £250,000 to an economist who can explain how to break up the euro painlessly. I had addressed how a Greek default is intertwined with the issue of a Greek exit from the euro in an earlier article, but Harford goes one step further to show that Greece’s exit is inextricably linked with the fate of the entire euro. Enjoy!
A painless death for the euro?
There were two important pieces of news about the Arab Spring revolts this week. One the one hand, the National Transitional Council in Libya have claimed victory in libya after the death of Colonel Muammar Gaddafi. On the other hand, a report published by Geopolicity shows that those same protests have brought devastation to their economies, while regimes that have suppressed protests have prospered.
Remember those Greek plays you always had to go see at school that always ended in tears? Neither do I. After three hours of woe, I had usually fallen asleep. That’s the problem with Greek tragedies; we just let them run on, and on, and on.
Surveying the Financial Times’s special page on the Greek debt crisis, you would be forgiven for thinking, as I did, that there must have been a glitch stopping news from the last six months being shown. But no. The dates of the headlines show the sad truth that over the last six months nothing has changed. General strikes are still hitting Athens, people are still worrying that austerity is killing growth even as more cost-cutting measures are being pushed through Parliament like a sumo wrestler through a needle.
At first, I just didn’t get it.
“So you pay real money for… fake money?”
“No- well kind of- you pay real money for virtual money which can be used to buy real goods.”
“Uh-huh.” Bitcoins, the new internet phenomenon, now made a bit more sense to me, but I was still confused. Where did they come from? What’s wrong with real money? How on earth does someone just ‘invent’ a currency, with all the complex problems that go with it?
I love Le Pain Quotidien (its a worldwide cafe chain). I’m always at their London branches. Which is why I was pretty shocked to hear this podcast from Freakonomics Radio, which gives a detailed economic analysis of an incident in a New York branch where a dead mouse was found in a customer’s salad! Easy to follow and a masterpiece of economics presenting, I fully recommend this podcast to everyone.
http://freakonomicsradio.com/mouse-in-salad-2.html
Still, not as bad as this guy’s story: eek! A Brit found a mouse baked into his bread. This doesn’t end in such a happy ending economically-speaking as in the one for Le Pain Quotidien; here the company is fined. What I have to wonder for the latter story is how it got to court; wouldn’t the extra bad press be worth settling out of court? Or did it make economic sense- the £16,000 fine and the drop in business would be worth it if they could not pay the much larger settlement out of court? It’s just fascinating; the economics of finding a dead mouse in your food.
This will be a short but sweet post for those who, like me, have a love of both football and economics- with the aim of drawing attention to a shift in the international trading pattern of footballers. So us Brits are used to international players on the field- commentators sound positively relieved when they can actually pronounce the name of the player in possession. But it seems we’re about to see a lot less of them- or at least, of Brazilian ones.
Should I stay or should I go?
How do we know when a country is ‘developed’? What does ‘developed’ really mean- rich, good average income, low inequality, or just happy citizens? Or even how many McDonalds restaurants it has?
The darker the blue, the more 'developed' is the country (according to the UN's HDI)
The textbook definition of economic development is: ‘the sustained, concerted effort of policymakers and community to promote the standard of living and economic health in a specific area’. Personally, this feels like a bit of a letdown after the wide scope my earlier questions opened up. For something that is supposed to be lifting hundreds of thousands out of poverty every month, this way of measuring development just seems a bit… boring. When I think of developing countries, like the BRICS (Brazil, Russia, India, China and newly joined by South Africa), and what’s happening to them, I think of construction sites, traffic on new roads, cities, suits, schools- in the words of one author, you can see development in the bartenders suddenly learning to make mojitos. I think of the bustle I saw when I recently visited India, and the hungry demand for education visible in the adverts on buses, boards, posters (“94.6% on leaving!”).
People have been trying to measure development ever since they figured out it was any good for countries and their citizens. The well-known Human Development Index, produced by the UN, was first put together by Mahbub ul Haq and Amartya Sen, a famous Indian economist, and now weights together life expectancy, mean years of schooling and Gross Net Income per capita to create one number. Since then, others have stepped up to try and improve upon their efforts.
Economists often describe a human being buying and selling in the free market as a Homo economicus; a rational and self-interested economic agent. This leads me to wonder whether the members of other species could also be classified as Homo economicuses. Could economics be something inherent to nature? Or is it a phenomenon limited solely to man?
Is there economics in vampire bats?
Perhaps you’re wondering what this has to do with ‘Vampire economics’; maybe you’re a Twilight fan accidentally lured on to this site with promises of vampires. It’s an idea discussed by Richard Dawkins in his book The Selfish Gene. It’s a book I would recommend even if, like me, science is not your first instinct. Among other things, he shows that interactions between animals are selfishly motivated, just as how we assume economic interactions between humans to be.
follow: RSS Tweet with me