Class Ten

1.       How safety is? How much has our living standard changed. Are we happier or not?

Other interesting trends:

i.                     Improvements that are hard to quantify: human rights

ii.                   Mechanical Power

iii.                  Computational

iv.                  More than half of the world’s population lives in cities.

*3D printing:

The application of technology does not necessarily make country rich: most innovative inventions have already appeared before it make country rich. Here we ask two questions:

i.                     What leads to the innovation’ appearance in that very country?

ii.                   What helps them became commercially beneficial?

Other trends:

l  The costs of sequencing a Genome are falling even faster than predicted by Moore’s law.

l  War and the “Great Pacification”:

Why do less people die in a war? Shoot less? Or better medical care?

The abundant resources today are cheaper, even makes global inflation.

2.       Whys:

i.                     The resources we dedicated to environment skyrockets with those we dedicated to medical care, education. Because we CAN, we can AFFORD it.

ii.                   Suicide rates remain the same: why? We’re happier! Economists ask what changed. The benefit of killing yourself is increasing.

3.       What changed?

People say: industrial revolution, which is not correct. We use “commercial” revolution, the transition from stagnation to accelerating growth.

*Real economic success is measurably by far more than dollars and cents.

*Lucas and demographic shift

 The Demographic and Economic “Transitions” : why so long? Why not globally?

4.       What happened? Consider 2 theories of production:

i.                     The Classical Theory:

We “use up” our increased productivity with more people.

ii.                   The Modern Theory:

Continuous improvements in technology, knowledge and human capital allow productivity to outpace population growth

Class Nine

1.       How we better off today?

i.                     What are we buying? The brush? The candle?

*No, we are buying their functions, say cleanup, light.

*Lighting is 43,200 times cheaper

“How much is a car?”------no, it is: how much miles we take for the same amount of money.

*Something got more expensive. What happened?

ii.                   Leisure and work

The time spent doing household work has plummeted

What has happened to people’s income?

1790 to 1900:

90% on necessities to 72% on necessities (vacation and health care appear)

To 2005

Much lower percentage on necessities (and diverse parts on the pie graph)

*What’s more? When we compare 1790 with 2005, we are not taking apple to apple. The houses in the two pies are actually different. Even though, the percentage decreased.

2. Why do we care about poverty?

i.                     What happens if food price double?

In the past, with 75% income on food, you die, you are on the edge.

But now, you can bear more risk.

ii.                   Then what? Where’s the extra budget we gain from the decrease: healthcare, education. What else?

iii.                  In other words, all this “free up” wealth also buys……bureaucrats, bombs(military spending) and bailouts.

These are all result of the improvement of living standard.

3.       Reflecting on these Divergence:

i.                     Income seriously understates the extent and magnitude of economic growth: How much should I pay u to let u back to the past? Although you are rich, you cannot do what you want like now.

ii.                   Commodities themselves do not matter; it is the services provided by the consumption of them.

iii.                  Real economic growth is underestimated by up to 1.4% per year.

iv.                  Is happiness a red herring? Is health care a good deal today?

*What our living standard measures miss: availability, quality, capability, convenience, safety of goods and services:

i.                     Product Proliferation

The cell phone: no more trifling luxury, and changed the world.

Risk: We bear much less risk today: trifling of food price from starvation to decrease in iPod download.

ii.                   Income and wealth

Class Eight

*Health Trends- Life Expectancy

From year 0 to industrial revolution, the life expectance increased only 3 years.

Life expectancy is the best measure to social economic project.

*Health Status

Less rate of diseases from 1910 to date.

*Health Trends- Cancer Incidence

Despite cancer incidence increases, the mortality decreases.

*Nutrition

Daily Avg. Per Capita Caloric Consumption increased for 50% for 2 reasons:

i.                    Limited kind of food to diverse food which enhance the quality of diet.

ii.                  Exercise make out body size

Of all the people in human history who ever reached the age of 65, half are alive now.

* Intelligence

Increase in Average IQ

*So what? Do we care about this?

Murphy and Topel-Valuer of health improvements worth appx. $3 trillion per year.

WHY?

We are getting richer, life became more attractive.

*American Living Standards, Past 100 Years (How important economic growth is.)

1.      Labor Market

2.      Household Amenities

No one had them then, everyone has them now

3.      Health-“I Love Cancer!” We died from cancer because we don’t die early/young for other diseases.

4.      Human Capital

5.      Income, Revisited

*Productivity Multiples (What I care is what my money can buy)

If you think about the functionality of the product, our standard of living will be much different.

What Social Science Does-and Doesn't-Know

Outline:

In this article, the author primarily examined the development of the methods economists, or social scientists, experiment their theories.

1.       The innate difficulty of social science: why we need controlled experimentation:

i.                     We wouldn’t know which economists were right even after the fact.

ii.                   We have no reliable way to measure counterfactuals-that is, to know what would have happened had we not executed some policy-because so many other factors influence the outcome.

2.       The beginning of scientific experimentation:

i.                     The distinction between empirical observation and experiment: control. Firstly widespread in physics and chemistry.

ii.                   Controlled group experimentation then went into the field of medicine: the famous Scurvy test.

iii.                  Since the number and complexity of potential causes of the outcome of interest, it became difficult even to identify, never mind actually hold constant, all these causes. Thus, the method of randomized field trials (used by social scientists.) appears.

3.       The problem of generalization, the Achilles’ heel of any experiment.

i.                     The even more complexity within social science.

ii.                   The failure of randomized field trials in social science.

iii.                  The success of randomized field trials in business: the concept of replication of field experiments can be pushed much further than most social scientists had imagined.

4.       What do we know form the social-science experiments that we have already conducted?

i.                     Few programs can be shown to work in properly randomized and replicated trials.

ii.                   Within this universe of programs that are far more likely to fail than succeed, programs that try to change people are even more likely to fail than those that try to change incentives.

iii.                  There is no magic: those are programs that do work usually lead to improvements that are quite modest, compared with the size of the problems they are mean to address or the dreams of advocates.

5.       Conclusion:

At the moment, it is certain that we do not have anything remotely approaching a scientific understanding of human society. And the methods of experimental social science are not close to providing one within the foreseeable future. Science may someday allow us to predict human behavior comprehensively and reliably. Until then, we need to keep stumbling forward with trial-and-error learning as best we can.

What’s interesting: The most interesting part I found in this article is about the innate difficulties within social science, which, as the author argued, come from the impossibility of examining whether certain theory work. However, I do realize that there was an era during which economists, or in other words, pre-Adam Smith “economists”, post their own economic and political theories on an extant social entity, hence making significant contribution to human civilization: The ancient Greek. With no doubts, the best way to examine an economic theory is to place it in a real society, and compare the outcome of that theory with that of another country. However, given the impact of this behavior in modern world, this approach is definitely impossible. Hence, the only ways economists organize their own theories, in my opinion, are limited into two categories: Math and History.

Question: Why there’s so many economists arguing about problems that have already been settled in a mathematical graph? Like, the sunk cost, the influence of a tax on a society, and the problem of monopoly?

Annotation: I believe the function of this article will gradually emerge in my future study of economic. It teaches me not only how to think as an economist, but also how to experiment as an economist. 

EWOT Three

On this Wednesday, I watched the Daily Show with Joe Stewart, in which Stewart talked about the new tax policy increasing the tax on the rich to generate fiscal income to offset the deficit of the U.S. By comparing the different impact on the rich and the poor when taxed the same amount of money, Stewart threw a gauntlet on the fox’s argument that the government should increase the tax basement to include more poor in the tax system. What made me feel this question interesting is the goal of this governmental action: will the tax really benefit the economy?

Admittedly, in the short run, the 2% increase in income tax on the rich will generate 700 billion dollars federal income, which can be used to offset the huge federal deficit insured by the American government. But, since economists not only consider the short term outcome on specific group, but also explore the long term impact of a policy on the society as a whole, we should also consider what will happen after the government solved its ongoing deficit problem.

People response to incentives. The increased tax rate, with no doubts, posts a negative incentive on the rich. How will they response to the comparative shrinkage of their wealth? Will they cut the expense on luxuries like the private jet? Absolutely NO! We know that in the society, people act purposely. In other words, people‘s action are out of their own self-interest. Will the rich lower their standard of living because of their shrinked income? No, they will raise the price of the commodities or service their companies offer to the customers to generate more income in order to maintain their current level of living.

What’s the problem here? The tax burden on the rich has been transferred to the customers, or generally the poor. We can also draw a supply-demand graph to see what will happen to the society if the government charges more tax. Since the government places a longer tax wedge between the supply curve and the demand curve, both the consumer surplus and the producer surplus shrinked, resulting in more deadweight loss within a society. What’s more, Since, in the U.S., the top 1% people controlled over 30% of the nation’s wealth, the bottom 51%, the poor, have no other choices than to purchase their daily necessities from the rich, while the rich can easily transfer their capital to other industries or the investment in other countries, the demand curve is comparatively less elastic. The less elasticity of the demand curve thusly result in more tax burden bored by the poor

Based on the discussion above, the mere action of increasing federal income is not a final solution to the ongoing recession in the U.S. The only way to get out of the recession is not to deliberately distribute the extant wealth of the nation, but to give the bottom 51% American more opportunity to produce their own wealth by the power of education and social equality. 

The worldly philosophier

Outline of the article:

1.       The ways to organize the society.

In this chapter, the author firstly presented us an eternal trade-off for human being, the trade-off between self-centered-ness and cooperation: on the one hand, human beings are self-centered so make sure the maximum of individual share of interests; on the other hand, under stringent environment, people need to secure their own existence by cooperating with each other. Hence, gradually, human society spawned three ways to balance this trade-off:

i.                     Organizing the society around tradition, handing down the tasks according to custom and usage.

ii.                   Using the whip of authoritarian rule to see that its tasks get done.

iii.                  Market System: an astonishing arrangement in which society assured its own continuance by allowing each individual to do exactly as he saw fit.

2.  Why economics was totally unnecessary in the past

By illustrating stories of the bygone worlds, the author argued the reason why economics had not yet appeared in the past for 2 reasons:

i.                     The idea of the propriety of a system organized on the basis of personal gain has not yet taken root.

ii.                   A separate, self-contained economic world has not yet lifted from its social context.

Then he explained these two reasons by declaring:

i.                     The idea of gain is a relatively modern one, and the social sanction of gain is an even more modern and restricted development.

ii.                   Markets, as a mechanism for sustaining and maintaining an entire society, have not been generally realized by the public in medieval world：The salability of land, capital, and labor.

3.  The born of market system:

After illustrating the revolution inspired by Adam Smith in France and England, the author summarized the forces could have been sufficiently powerful to smash a comfortable and established world and institute in its place this new unwanted society:

i.                     There was the gradual emergence of national political units in Europe

ii.                   The slow decay of the religious spirit under the impact of the skeptical, inquiring, humanist views of the Italian Renaissance.

iii.                  The material changes that eventually make the market system possible.

iv.                  A rise in scientific curiosity.

4.  The idea needed a philosophy:

*The human animal, it is repeatedly said, is distinguished above all by his self-consciousness. Hence every age breed its philosophers, apologists, critics and reformers: the importance of the wealth of nation by Adam Smith

What’s interesting: The most interesting part in this article is the argument that the idea of gain is a modern one. For a long time, I believe that the pursuit of self-interests is embed in the instinct of all human. However, as argued by that author, it seems that people in the past don’t have these kinds of ideas. WHY? From my perspective, this vagary existed for two reasons: the lack of education and the absence of incentives. Without education, farmers, worker, handicraftsman have no idea what to do with extra money, all they know, or they could know, is to maintain their pure subsistence; without incentive, since they were all working for the lords and the products they produced doesn’t even belong to themselves, people, especially farmers, have no incentives to expand their production since they gain noting from extra efforts.

Questions:

Suppose that, a modern economist returns to the medieval world with a time machine. Will his knowledge of market system promote the transformation of society? Or will he find himself totally unnecessary and thus died miserably?

Annotation: The most remarkable element connecting the courses in this article is its illustration of the development of economic society. Here, the author illustrated why economists, or economics, are totally unnecessary in the past, the born of market system, and the vary linkage between them, presenting us a whole picture of how the world has evolved to its modern style.

EWOT TWO

Once again, while having dinner with my friends in the Wilson commons, I got some ideas when I saw the advertisement of the fat free milk. Actually, I was just going to take a bottle of milk purely to reconcile my thirsty. However, when I see the label of “fat free”, I immediately turned my hand from 2% milk to fat free ones. WHY? People response to incentives. That advertisement of “fat free” posts an incentive to me, thus changing my purchasing behavior.

But the problem doesn’t end here. What kind of incentive did it post to me? Some may say that “fat free” means healthier. Really? Actually, I didn’t know what “fat free” is! I had no idea whether fat free really mean scientifically healthier or it is just a word the retailers used to attract customers. Why did I change my behavior for a word I don’t really know its meaning?

Here, I thought about the 2 ways advertisement attract consumers:

i.                     As I suggested, if I am a food engineer with various knowledge about food, I definitely know the meaning of fat free. Then I’ve changed my behavior because I know how the commodity is better than others.

ii.                   However, unfortunately, I’m just a student majoring in economics who knows nothing about the divergent scientific data of foods. Why did I buy that fat free milk rather than normal milk? Because I believe it makes me slim. In other words, the words fat free represents a picture of healthy life and slim body figure, which conveyed me a feeling that it is better than other milks. It showed me a picture, no matter whether it will really come true or not, that I’ll have better body figure by drinking fat free milk.

Class Seven

1.       The world is much richer. The rich got richer, and the poor got better. The prices of products, when compared to the incomes, are lower.

What’s the right kind of inequality to focus on?

l  Fuctional inequality

l  Height and health (which difference is decreasing faster than income)

l  Cross-country vs. within country

2.       Last class, we mentioned that it takes 15 years for the world GDP to double. How can we begin to know these data (as I shown you)?

Technique one: We use our own standard to value the staff in the past.

Technique two: If sb.’s really rich in the past, we should have known it. Eg. People like Herodotus should have written it down. Look the poorest country today.

3.       What of Those incredible Ancient Achievements?

Until the start of IR, almost no individual got better off although population tripled. But the upper class, limited elites, concentrated the wealth, thus making the foundation of these achievements possible.

*What about the Godd Ol’ Days?

What about the recent Good Ol. Days?

Would you be the king of the world in 1700? NO

People, however powerful, rich, died easily in the past

The living standard, no matter for the rich or for the poor, became much better than before.

Class Six

1.       In the beginning: Income and wealth

We were all miserably poor…forever

Stone Age apx. 500,000 years ago: human had almost no advance at all for over 490,000 years. It was not until recently that living standards (wealth per capita) changed rapidly.

*What events gave rise to our modern world?

The Industrial Revolution:

A.     Income, population, and health trades over time

B.      How was property been shared?

C.      Broader and deeper measure of property, and look within recent history

D.     What was the simple good life really like?

E.      How did this happen?

F.      Can we do it again?

*The change of rate of GDP can reflect the big change of condition of people’s life

*Rules of 72:

72/1%, 72/2%，72/3% huge differences, although numbers are small

2.       Population problem (the skyrocketing of population after IR): the more people, the poorer?

*To analyze whether we got poorer, we need to find out how to be rich. There are only three ways to make people rich:

i.         Produce more yourself. People find ways to produce, then they don’t make other poor by increasing population

ii.       More people, more trade. Specialization. Trading with others. (comparative advantage)

iii.      Have your family take care of you.

Thus people get rich and don’t make others poor.

3.       Singularities:

i.                    Agricultural revolution

ii.                  Industrial revolution

iii.                A POSSIBLE SINGULARITIES in the future

It took thousands of years to double the GDP, but Industrial revolution changed a lot, now 15 years.

Could it happen again? Is that possible?

Only 15% product we consume today is produced

*How much population can earth hold?

A trillion: space

Little people cannot produce the same amount of products as larger population does (Who’ll the product be sold to?)

*The growth of GDP doesn’t mean people are richer, maybe the growth is due to the increase of population.

Extensive growth: the growth of GDP just due to the raise of input

Intensive growth: the growth of GDP just due to the raise of input

*Population is the measure of success of species

Class Five

Class Five:

Continue the three reasons why study economics:

Why getting facts right important? Economics help you understand certain facts, make a base line and then make better judgments (Have we spend enough on environmental protection?)

*It’s good to have different opinions, but you need to at least get close. You need to at least get some basic things right.

1. Economics is not complex, economic systems are.

*One reason we have trouble with the data and cannot engage in the debate:

We like to put drama or intentions in where it just doesn’t exist. (The wealth distribution is not done by any specific man.)

Drama and intentions are interesting, but it’s not where you start you economic analysis. Your need a starting point first.

*People have two types of brains:

i.                     Type M: more analytical, think about the consequence of things. “Why?”

ii.                   Type C: “What happened?”

Sometimes you need to apply both.

2. Social cooperation and “ORDER”.

Case. Coffee (full aspects of the process of getting me the coffee)

i.                     Impersonal (I don’t know any guy’s name, although millions engaged)

ii.                   Self-interests (Why they do it)

iii.                  Cognitive issues (Nobody know what they are actually doing)

iv.                  Nobody directed (no mastermind)

This whole process is what we mean by “Order”

The story illustrates two things:

i.                     “Invisible Hand” not always works, but help us understand which it works

ii.                   “Tacit Knowledge” something that other people will never get it right

*What’s allowing this process to work?

Price system, the only way that we can make the society unorganized in this organized way. 

Reading analysis of i,pencil

Leonard E. Read, in his famous work I, pencil, talked about the production of a pencil and many economic phenomena and economic theories behind the simple process of production. He metaphors himself as an ordinary pencil and then presented us the whole picture of the production of it, or him: the chain of the whole industry. From my perspective, what the author was trying to emphasize in the article is the amazement and wonder of the invisible hand of market and of the order of society.

After reading the article, the most interesting and impressive sentence for me is: millions of tiny know-hows configurating naturally and spontaneously in response to human necessity and desire and in the absence of any human master-minding Notice the two words spontaneously and naturally. Where does that spontaneous trend come from? In his wealth of nation, Adam Smith mentioned that everybody in the market is making decisions out of their self-interest, and thus formed an order, which is considered the invisible hand of market. In the whole production process of a pencil, various people in divergent fields have participate in the production of that pencil, but almost no one of them, including miners, lumberjacks, those who put them abroad ships and so on, has ever awarded of what they are contributing to. What the miners or the lumberjacks are thinking about is more likely like: “God, when I finish this work, I’ll have enough money to raise my children or to pay for my car.” They don’t care for the pencil at all! But it was just their nonchalance that formed a social order governed by the invisible hand of market and finally made the pencil come to the world. That’s why I found it interesting: the production of this little, simple pencil, is a miracle of free trade market.

Question:

i.                     The author argues that a government should “let society's legal apparatus remove all obstacles the best it can” and “leave all creative energies uninhibited”. This argument definitely works well in most situations, but there are some circumstances we may find it hard to apply these principles, such as: the sale of drug and weapon, the selling of body. How do we response these dilemma? How could the idea of free trade be used to solve these problems?

ii.                   We’ve seen the effectiveness of the natural order of market in the article. But what if there’s a monopoly in the market, which controls the amount of raw materials like trees or graphite. How would the production of the pencil response to that change? Will the production still be “spontaneously” and “naturally”?

Annotation:

In my opinion, the main point of this article is that people act purposely and freely out of their own self-interest in the market and then unconsciously contribute to some achievement they’ve never thought about, and that government should leave the market running spontaneous since governmental interference thwarted the creative energy of society. These points of view are definitely related to our course that man acts purposely, that people response to incentives: the reason why miners and lumberjacks work is that the wages are incentives that push them to work, that we economize in daily life: the workers compare the expected benefit and expected cost of their work, thus decide whether they work as miners or others, and that people pursue interests.

EWOT One

Several days before, I was having dinner with some of my friends in Danforth. When we finished the dinner I found that he had left many foods. Thus I joked: “Waste is a crime.” He then respond:” Waste helps increase the GDP.” Really? Is the waste of food really helps increase the GDP in a form of “extra” consumption? When I look it from the standpoint of economics, I don’t think it’s the truth.

Admittedly, the waste of food definitely provokes the growth of food industry. Since the workers have to produce more food to make sure that there’s enough to waste than to just ensure there’s enough to eat. Furthermore, the other industries which relate to the production of food, for example, the producer of plates, forks, or knives, also benefit from the extra consumption of food. Then the growth of these industries will generally result in more employment, new factories and more advertising, which are all factors that contribute to the increase of GDP.

However, the numerical increase of GDP sometimes cannot be called an “increase” at all. Let’s assume that one person bought an apple for 1 dollar and then didn’t want to eat it thus wasted it. It seems his waste just contributed 1 dollar to the GPD. But we should notice that his spending of 1 dollar on the apple also means exactly that much less he could have spent on other products. He may be able to buy a pen with the money, which behavior also contributes exactly 1 dollar to the GDP. Thus, the increase of GDP contributed by the apple is actually a diversion of human spending,.

Let’s see something behind the apple. I’ve mentioned that the general waste of food may result in more employment and new factories, which all seems contribute to the GDP. Nevertheless, we should also notice that we live in a world of scarcity: the more employment and more new factories in food industry, the less employment and factories in other industry. People who argue that waste provokes the GDP actually fail to consider the “unseen” GDP loss of other industries. Since people who waste food have hardly got any benefit from the food they wasted, resource, or capital, is being used in a more inefficient way than otherwise situations, making the economic outcome far away from its best consequence. Thus, the numerical increase of GDP resulted from the “waste economy” may actually suggest a decrease of it if we put the unseen losses of the GDP of other industries in consideration.

Class Four

1．The definition of economics:

It’s 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. (The definition that captures how we deal with scarcity)

*What does “the extended order of human cooperation” mean? What are the “consequences”?  

i. Scarcity vs Abundance

Most definition focuses on the idea of scarcity. (How would that change over time.)When we need sth., we have to give up sth.,since our time is not infinite.

ii. But some people now believe that some aspects of our life are not characterized by scarcity anymore but by abundance: the population who work on farms from 90% to 2%, and much better, much easier. We’ve learned how market deal with Scarcity problem, we need to understand how market response to a situation where we have lots of abundance.

iii. In daily life, most problems have some economic component: health care,etc.. In this class, we don’t tell you how to think about them, but find the starting point to think about them. Example: the heath care problem.

2. The two fields of economics:

Micro: we analyze the choices individual choosing agent made.

Macro: It takes the individual decision and asks how it passes to society as large, the study of price theory.  (no reason to separate the two)

*Why definite them like this?

---It avoids us fell in a trap of thinking somebody is out there allocating resources and determining everything (the president can do very little to economy)

Case. Macro insights: Selling body parts:

It’s illegal in U.S. How would the incentives change in people. Some people want to sell it for 100,000, but it’s against the law, so people won’t sell it and then got nothing. Thus there’ll be less kidneys; we also see the effects on people who want kidney. We ask potential buyers and potential sellers respond to incentives, and WHAT’S THE CONSEQUENCE OF THAT?

Case. Obesity problem:

How we deal with this problem? We see the data and found that obesity had increased in U.S. WHY? How do economists start this enquiry? We think about how incentive changes:

i.                     The cost of eating, or everything has decreased (a typical U.S. family only spend 10% of their income on food now).

ii.                   Better medicine means it’s getting cheaper to eat unhealthily: you can easily fix your body.

3. Why do we study EWOT?

To be a good economist, firstly we need to know how economy works when it’s working WELL.

*What’s amazing: There’s no farm in NYC, but nobody has worried that there’ll be no food in NYC.

*Three reasons to study economics:

i.                     The amazement and wonder in it (and around the world).

iii.                 Get certain concept right: Intention (reason for lots of confusion in the world) doesn’t equal result.

iv.                  Get facts right for certain things: People need to understand certain important facts. (why the understanding of economic numbers and data important: 10% increase means a lot, then our behavior will change. It makes sense to understand the numbers)