here is your third Socratic forum assignment. Please read the two articles below and watch the short youtube clip first. Then, engage in Socratic debate by telling us two things you agree with (like) and one thing you disagree with (dislike) and why (from both articles, not each). Please share with us one example of how you see key economic concepts/ideas as discussed below play a role in your personal life.
Article 1:
Life is not about what we want. It is about the choices we make. Many of us are familiar with this old saw, but how many know that it is more than merely a life lesson, that it is in fact the central core of economics?
Matthew Hennessey’s new book, Visible Hand: A Wealth of Notions on the Miracle of the Market, explains how this is so, and in so doing he shows that economics need not be intimidating to the man on the street. In fact, as someone who confesses to have known nothing about economics before age 30, Hennessey, who is currently an opinion editor at the Wall Street Journal, reveals that we intuitively understand it even when we do not realize it.
Take the notion of “opportunity cost.” Hennessey notes that we all face choices about where to spend our time, energy, and money. In high school, for example, Hennessey mentions he had the desire to both act in the school play and go out for the baseball team, but because they overlapped with one another, he had to choose between them. If he chose the play, he had to give up baseball, and vice versa.
As it happened, he chose acting. Losing the chance to play baseball was thus an “opportunity cost” of that decision. And it was not the only one. Indeed, choosing the play meant foregoing opportunities to work, study, or spend time with friends, all of which were viable options before he made his decision. The point, then, is that we live in a world where resources (including time) are scarce and yet our wants are unlimited, meaning that there are no “solutions” to satisfying all of our desires, there are only alternatives, and choosing among them always entails opportunity costs.
Thus, if “scarcity” is the first lesson of economics, one consequence is that our decisions are made on the margin, or relative to whether we want more or less of something. To see this, consider the choice between water and diamonds, also known as the “diamond-water paradox,” which befuddled economists for nearly a century. Even though water is essential for life and diamonds are not, if given the choice (and assuming all things are equal), we would choose to have diamonds over water.
Why?
The answer is that when we make a choice, we are not choosing between all the diamonds in the world and all the water in the world, in which case we would choose to have water for our survival. Rather, we are choosing between having more water or having an additional diamond. Given water’s relative abundance, having more of it provides little added satisfaction; conversely, because of their relative scarcity, having an additional diamond provides considerable satisfaction, or “marginal utility,” compared to water.
From here, Hennessey adds the common sense notion that the more we have of something, the less we tend to want it, which economists call “diminishing marginal utility.” He illustrates this with a brilliant example that may be the most memorable in the book. Imagine, he says, you are at a local fair and that you have not eaten all day. As you peruse the food options, you and your friends decide to buy a childhood favorite, cotton candy. “The first bite,” he says, is delicious.”
Everybody smiles with their eyes as it melts in their mouths. The fun and laughter build toward the second bite, but the thrill peaks immediately. Maximization has been momentarily achieved. It hangs like a punted football in the air. At the third bite, the fun is over. Everyone is disgusted with themselves. You and your friends wish you could turn back the clock and skip the cotton candy altogether.
If marginal utility is the satisfaction we receive from having the cotton candy compared to alternatives, the dwindling satisfaction that comes from each additional bite of cotton candy constitutes the concept of diminishing marginal utility. As Hennessey puts it, “each bite of cotton candy yields less pleasure, less benefit, less satisfaction than the one before.” The takeaway? Our decisions are always made in a relative sense–whether to have the next bite of cotton candy or not–and not in an absolute sense–whether to have every bite of cotton candy or no bites at all.
This is an essential economic lesson our politicians would do well to learn. After all, because people make decisions at the margin, an income tax rate that is too high can discourage people from undertaking additional income-earning opportunities, meaning that high taxation ends up reducing well-being, even when it may not seem obvious (see, for example, economist Greg Mankiw’s personal testimony of this here). Yet politicians seldom acknowledge this fact when they bluster about all the goodies their heavy tax and spend policies will provide.
Furthermore, Hennessey points out that the relationship between “supply” and “demand” is not as confusing as it often seems, because they are in fact two sides of the same coin. That is, supply is demand, and vice versa. He helps the reader see this by using the example of a Lego company his son likes. When the Lego company sells Legos to consumers, its employees turn around and spend money on groceries, gas, and entertainment. Thus, the “supply” of Legos constitutes the “demand” for other goods and services in the economy.
Nevertheless, the book is replete with lessons like this that are eminently relatable, and it is written in a way that is both accessible to and fun for the non-specialist. Most importantly, perhaps, the reader will come away from it knowing that while life comes down to the choices we make, economics does too.
source: https://fee.org/articles/visible-hand-a-guide-to-help-you-better-understand-economics/amp
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The story of how I became an economist is its own odyssey: I started college as an English major, intending to hone my creative writing skills, and hopefully to drop out after I wrote the first book of an extremely long, best-selling fantasy epic. The winds of fate blew in other directions and I found myself fascinated by economics: here was a way to describe the world plainly and powerfully. Even when I found flaws large and small with the analysis of economists past and present, economics just made sense to me. It gave me a powerful analytical framework and vocabulary to describe the social world. I was lucky to have great teachers, including one who would eventually become my doctoral advisor, who described economics as “the scientific study of all aspects of the social world,” which hooked me from the beginning. Like most of my students, I had initially thought of economics as being in some sense closely connected to money, a study that never appealed to me. I was wrong. Although I changed my field of study drastically, I was never interested in anything other than what it means to be human and live among humankind. The big questions which motivated the greatest poets and storytellers are still what give life to my work.
Unfortunately, many people are introduced to economics as a branch of applied mathematics having mostly to do with solving optimization problems of one kind or another. This never had any appeal to me, and appeals to virtually no students. When I teach economics, I try to impress from the first day that economics—like anything worth studying—is about understanding what it means to be human. Ideally, it might even help us make a better life for ourselves and others. Literature has the same function.
Homer’s Odyssey is one of my favorite stories filled with many truths about these fundamental questions. For all the truth it conveys, though, poesy lacks the analytical precision that the economic way of thinking affords. That said, students are often ready to believe that great stories have a lot to say about the human condition while they are skeptical that economics can do the same. Talking about the Odyssey with my students lets me explore economic concepts with them and demonstrate how examples of how these concepts are at work in various themes of the epic.
Strategy and Game Theory
- “Nobody—that’s my name. So my mother and father call me—and all my friends.” Odyssey Book ix.
Odysseus is a master strategist, a cunning tactician. In game theory, a strategy is a plan to choose among various options where the actions taken by both you and other agents matter for the outcome.
The Odyssey contains myriad examples of Odysseus employing strategic thinking to achieve his goals. A perfect example of strategic thinking is in the cyclops’s cave. Odysseus knows that even if he could kill the cyclops, he could not move the boulder in front of the cave. Even if he were a great fighter who could defeat the cyclops, that path would lead to death for the entire trapped crew. So, instead of slaying the cyclops, Odysseus blinds him, and he and his men sneak out in the morning, when the boulder is moved so the cyclops’s sheep can exit the cave to graze.
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Comparative Advantage
- “Each man delights in the work that suits him best.” Odyssey, Book xiv.
- “The gods don’t hand out all their gifts at once,
not build and brains and flowing speech to all.
One man may fail to impress us with his looks
but a god can crown his words with beauty, charm,
and men look on with delight when he speaks out.” Odyssey, Book, viii.
One of the main themes of The Odyssey is the value of cunning over brute strength. Odysseus recognizes throughout the tale that, unlike the great Achilles in The Iliad, he lacks the requisite strength and martial prowess to reach his goals by fighting. This recognition leads him to employ his mind whenever possible. He is “a man of twists and turns.” His cunning is really what makes him a compelling character from a storytelling perspective, and within the story this gift is what makes him of such interest to the gods, especially Athena.
It is not that Odysseus is not a great fighter or lacks strength. He is, after all, the only man strong enough to string his famous bow. He has spent years fighting and leading men in battle and against the elements. His heroism, however, rarely comes from any application of his strength.
….
In economics, an economic agent is said to have a comparative advantage when he can produce some output at a lower opportunity cost than another. Comparative advantage is an important principle for establishing the importance of trade. We gain by trading and cooperating with one another because when we focus on our comparative advantages, we are able to have more total output even if no one improves through specialization. Odysseus is good at many things, but has a comparative advantage when it comes to cunning. For most of my students, comparative advantage is seen as a counter-intuitive concept. Developing an understanding of it requires the persistent application of as many examples as I can think of.
Trade-0ffs and Subjective Value
- “There is a time for many words, and there is also a time for sleep.” Odyssey, Book xi.
- “So then, royal son of Laertes, Odysseus, man of exploits,
still eager to leave at once and hurry back
to your own home, your beloved native land?
Good luck to you, even so. Farewell!
But if you only knew, down deep, what pains
are fated to fill your cup before you reach that shore,
you’d stay right here, preside in our house with me
and be immortal. Much as you long to see your wife,
the one you pine for all your days…” Odyssey, Book v.
The pervasiveness of tradeoffs is one of the fundamental realities of human life. The concept of scarcity describes the condition where choices have to be made. Unfortunately, economics textbooks often describe all this as an optimization problem. The sharp-minded student of economics recognizes that each person’s tradeoffs are different because each perceives costs and benefits in a unique way.
For Odysseus and his crew, home and family serve as a primary motivation for all the action of the book. At several junctures, the heroes have the opportunity to give up on the quest and make a new home. Odysseus even has an opportunity to live an immortal life with the beautiful and powerful immortal nymph Calypso. He chooses his wife, Penelope, and his home, Ithaca, over an immortal life of divine luxury, and the audience is meant to think of this choice as noble.
It can be hard for students to understand the decision to choose domesticity over divinity, but in life, motivations are complex. Every person responds to his or her own incentives, and we each respond in different ways. When teaching economics, it is easy for students to believe that economists see human beings as automatons that respond in entirely predictable ways, just as they might in a homework problem. I use The Odyssey to show that beauty is in the eye of the beholder. What is valuable to a person is entirely individual.
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“Great stories help us better understand ourselves. Economics does the same.”
Economics also comes with its own technical vocabulary for describing the world and the actions of the people in it. As a teacher of economics, I have often found that students assume that economics only has applicability in the modern world of markets and impersonal, optimizing agents. The examples in this essay should not only be helpful to economists looking to emphasize the timeless and universal relevance of the economic way of thinking, but also to teachers of literature who want to show how the story includes all sorts of practical lessons for understanding people today.
source:https://www.econlib.org/library/columns/y2022/gochenourodyssey.html
*Zachary Gochenour is a Lecturer in Economics at James Madison University. He uses economics to write about politics, law, and history. He received his Ph.D. from George Mason University in 2014.
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A short movie: Odysseus Story and Self-Discipline Odysseus and the Sirens – YouTube
