The Economic Way of Thinking

The Premium I Place on Entertainment Value

I never reward entertaining answers on exams with extra points, but I sure do enjoy the break they provide from the monotony of grading.  Here are two of my favorite answers from my Public Choice exam:

"Oh s*%t.  I'm out of time."

"Who is John Galt?"

Finally, here's a swine flu/H1N1 question I asked and an excerpt from the most entertaining answer I read:

Question: "In clear and concise language, explain the market failure arguments for why government--maybe even a world government--needs to be involved in the swine flu pandemic.  After explaining clearly the role for government in this crisis, now explain how the market could 'solve' the swine flu problem." 

Answer: "Well, I suppose if the flu got bad enough, entrepreneurs would set up little bubble communities.  They would regulate who could enter and exit the communities.  You would pay higher prices to go to the best communities.  Their success would depend on them being effective in keeping the flu out.  Any flu cases at all would be really bad for business...It's kind of like what that one lecturer was saying about the porn industry--STDs and AIDS are bad for business, so the industry takes extra steps to be clean." 

People and Their Response to "Free" Stuff

Oprah Winfrey has fueled a chicken run across much of the Southeast.  (Maybe the promotion is Oprah's way of indirectly paying back the beef industry for her defamation incident from many years ago.). 

At our local Kentucky Fried Chicken restaurants in Macon, cars were lined up into the street, stores were temporarily closed, and the wait time for one $4 meal was often in excess of one hour (more about the Macon run here).   

In a non-scientific poll last night on the late news, nearly 20% of respondents said they would wait an hour or more for their $4 meal!

I'm An Anarchist, You're An Anarchist, He's An Anarchist, too

I'm a libertarian anarchist when I'm optimistic and apolitical when I'm pessimistic.  Most of the time I'm pessimistic.  Nevertheless, I've called myself an anarchist here on the blog, on my Facebook page and also over at The Austrian Economists blog.  I'm quite sure my close friends and colleagues over there haven't used the "anarchist" term to describe their own political stance, nor have they done so on their Facebook sites. I wonder why. 

Is it a career-killer to state you're an anarchist explicitly on a widely-read economics blog?  Might it alienate family and friends to call yourself an anarchist on Facebook?  I'm ultimately asking rhetorical questions.  Why the hesitation?

Name That Economist

"The entities whose decisions economists are engaged in analyzing have not been made the subject of study and in a consequence lack any substance.  The consumer is not a human being but a consistent set of preferences...Exchange takes place without any specification of its institutional setting.  We have consumers without humanity, firms without organization, and even exchange without markets."

EWOT Question Of The Moment

I recall President Jimmy Carter's argument that our 17% inflation rate in the late 1970s might very well be self-correcting.  It went something like this:

Consumer spending has grown too high.  Their rising demands drive prices up and causes inflation, but those higher prices will eventually cause consumer demand to fall, which in turn can lead to lower levels of inflation in the future.

Carter's argument is entirely fallacious.  Can you explain why?

Auto Maintenance Optimization Question

Ignore for a moment yesterday's rant about the word optimality long enough to help me solve an always perplexing problem: How much should I invest in my car? 

You see, my car is 4 years old and near 60,000 miles.  At this point in its life, it's one helluva of a car that has presented no problems so far.  But, on my last oil change, I received this print-out with a bazillion things the manufacturer thinks I should do on my next visit.  For example, my manual transmission is in need of servicing; my tires should be rotated; my drive belts need inspecting and adjusting; my cabin air filter should be serviced; etc.; etc.  The list is long, and the prices are greater than zero. 

Given the fact that I'm simultaneously aiming to maximize the life of my car, the quality of the driving experience, and minimize maintenance costs, is there a good rule of thumb to follow when it comes to auto maintenance? 

What Is Freedom?

Recall Scott's post on Monday.  A claim is raised that "you are born into this world 100% absolutely free" but the State attenuates that freedom.  I say that the "100%" freedom used by the author must have nothing to do with the empirical existence (or nonexistence) of the State, but has everything to do with existential freedom.  (I'm bracketing the question of whether or not existential freedom really exists.)  He fails to understand that his own claim rests on a distinction between two very different concepts of "freedom."

It seems to me that the author's own notion of "100% free" must be an existential freedom.  What else can it mean to be born "100% absolutely free"? 

If you agree with me that the author's argument rests implicitly on a distinction between the two types of freedom, are you prepared to depart from the author's own conclusion and argue if one is really born"100% absolutely free" he remains absolutely free regardless of the actual political liberties and constraints he faces?

What Word Would You Scrap?

I can remember Richard Wagner of George Mason University once making a good argument for why economists should stop using the word "rationality."  Following in Wagner's footsteps, I'm going to toss out the word "optimality" as a word we should abandon in economics.  If we must keep using the word, I beg people to always and everywhere use "subject to that person's preference set" after saying "optimal."   

To illustrate my point, here are a few examples of people using optimal in a way that makes me want to throw my EWOT textbook at them:

(1) "The optimal time to have children is X."

(2) "The optimal size of a person's 'emergency' or 'rainy day' fund is X."

(3) "The optimal size of our university is X." 

(4) "The optimal amount to be putting in your retirement account each month is X."

(5) "The optimal number of children to give birth to is X."

Looking back at this post, I suspect it's exceeded the optimal length...

The Economics Of Congestion

No, not nasal congestion.

When roads and other publicly-owned property are "congested," the blame is almost always placed on a growing population.  But that same population uses a variety of privately owned goods and services from movie theatres and dude ranches to "necessities" such as grocery stores and healthcare. 

Yes, sometimes even the private suppliers face "congestion," such as the latter.

Why is it that we tend to explain "congestion" and "scarcity" as a result of a growing population when that same population demands a variety of other goods and services without the lack of physical space, without lines and shortages?  In short, why, in the economic way of thinking, is the growing population argument in itself an unsatisfactory explanation of the facts that we witness daily?  Go back and think about roads, such as the highway system around Los Angeles or the roads in Mexico City or New Delhi.  Can you think of a better explanation?

This Is Jason Osborne Speaking

...at a Tea Party (Part 2 of his speech is available here) in Defiance, OH, which is a city that I've always assumed to be radically libertarian and out of an Ayn Rand novel.    

My favorite lines from Osborne's speech: "...you were born into this world 100% absolutely free.  The government is that institution that takes that from you and expects you to wave a flag to celebrate.  I say, 'No, thank you.'"

Algorithms I Like, #3

MovieLens is a movie recommendation algorithm that I have been quite impressed with for the last few years.  Two of the most recent gems that it has brought to my attention are The Secret Life of Words and No End in Sight.