Hume's contributions to Industrial Revolution:
(1)He points out the harm of mercantilism, which has a poor understanding of price system. What matters is the stuff that people produce and consume.
(2)He points out the advantages of trade.
Adam Smith (1723-1790)
He is not an anarchist because he advocates for a good government which can play a role in the market but doesn't control or regulate most economic affairs.
Roles of government:
(1)Provide police courts (protection and supervision)
(2)National defense
(3)Public infrastructures
What ensures that we won't face anarchy and chaos in the laissez-faire market.
(1)Rights to private property and pursue self-interest.
(2)Division of labor exists.
(3)Exchanges are peaceful and mutual, not by coercion.
(4)There is no social privilege.
Adam Smith thinks that the source of wealth is Production and Exchange
He argues that people still have moral obligation to produce more than to satisfy his own need.Even for people who rely on charity, the system works,too.
The essence of trade:Give me that which I want and you shall have this what you want.
Spontaneous order: It's not designed by anybody.
Ferguson (1767) Hayek :Man stumbled upon institutions that are indeed good is the result of our action but not of human design.
Competition works better than any other alternative system because it makes people adjust their own activities to the sort of changes in the society based on self-interest without somebody telling them what to do.
Elements for entering economic life: People are free to choose what, where, when and with whom they wanna trade.
Adam Smith's worry
(1)Public prejudice (Biases)
(2)Power of interest.(Conspiracy and favored groups)
Capitalism is not just the accumulation of capital, it also includes medical treatment, insurance ,technology,which increase people's living standard.
The capitalistic a country is, the smaller the fraction of income comes from capital, the more actually comes from tertiary industry.
Materialism isn't a necessary cost in human progress because capitalism leaves the less inequality than other alternative systems.
9/30/2011
9/29/2011
The drive of export & The mirage of Inflation
Quantity theory of money:money supply has a direct and proportional relationship with the price level.
The reason why some people advocate inflation is based on the fallacy that money is wealth: Each person thinks that as long as he more money at hand, he can certainly buy more goods. People ignore purchasing power.
Inflation will actually benefits a favored group of people in short run; in the long run, it will hurt the whole nation.
Why inflation, once happened,is hard to stop?
(1)The favored group, who have political power, will insist inflation.
(2)The value of money, depends on the subjective valuation of the people who hold it.
Purchasing power cannot improve merely by printing more money. The essence of market is goods exchange and money only serves as a media.
Over emphasis on export actually hurts domestic economics.
(1)We are actually exports goods outside.The consequence is that domestic people cannot have as many goods to choose as before,which will thus decrease the living standard.
(2)Restriction on import will in return cut the choice of goods domestically. For example, we can no longer enjoy the wine in Country A.
(3)Since there's more money floating in my country, the money will depreciate and thus my purchasing power will fall.
(4)When my country give loan to other country, we are shifting our purchasing power to other country and we have to take the risk that the country cannot pay back,which will deteriorate our situation.
The essence of export is to offset import.
The reason why some people advocate inflation is based on the fallacy that money is wealth: Each person thinks that as long as he more money at hand, he can certainly buy more goods. People ignore purchasing power.
Inflation will actually benefits a favored group of people in short run; in the long run, it will hurt the whole nation.
Why inflation, once happened,is hard to stop?
(1)The favored group, who have political power, will insist inflation.
(2)The value of money, depends on the subjective valuation of the people who hold it.
Purchasing power cannot improve merely by printing more money. The essence of market is goods exchange and money only serves as a media.
Over emphasis on export actually hurts domestic economics.
(1)We are actually exports goods outside.The consequence is that domestic people cannot have as many goods to choose as before,which will thus decrease the living standard.
(2)Restriction on import will in return cut the choice of goods domestically. For example, we can no longer enjoy the wine in Country A.
(3)Since there's more money floating in my country, the money will depreciate and thus my purchasing power will fall.
(4)When my country give loan to other country, we are shifting our purchasing power to other country and we have to take the risk that the country cannot pay back,which will deteriorate our situation.
The essence of export is to offset import.
9/28/2011
9/28/2011 Class12
Income=Expenditure
Expenditure=consumption+taxes+investment+government expenditure+international trade
Do we get economic gain by spending more?
Physiocracy: The first modern school that emphasizes freedom and claims that the source of wealth is Production.
Physiocracy emphasizes agriculture.
Mercantilism's source of wealth:
(1)Gold in treasury
(2)Wealth that the king has
(3)Positive balance of trade
Idea:
(1)Wealth is fixed, so trade is zero-sum.
(2)Money is wealth.
(3)Gold is fixed.(It reinforces idea1)
King should control trade and make sure that the nation's export is larger than import.
Irony:
(1) The nation's individual's desire is to purchase but the social interest is not to let money leave. But a society is made up of individuals.
(2) When trade happens domestically, it's OK,but when occurs internationally, no way.
Scottish moral philosophers:
They think that nature people are innately compassionate and generous and good economics is about prudence.
Hutchson: Virtuous activities yield pleasure because they conform some preexisting moral and good notion.
Hume: Anything we do is morally OK.The science of man first established that impressions from senses,and memories of impressions are the foundation of all ideas.Passions are a part of human nature and they rule over reason in determining our actions.Morality is based on necessary actions,those which we would certainly make as a reaction to a certain set of circumstances, and is therefore natural.However,morality is founded on self-interest,which includes the pleasure we find in sensing the pleasure in others.
He thinks that the core of economics is commerce.
(1)Price specie flow mechanism
Monopoly actually raises price and the prices around the world about a certain good should be equal.
If France's sweater is cheaper, then British will go to France to buy, and exchange domestic money to gold. Then the price of sweater in France will rise because of the increasing demand; in contrast, the price of sweater in Britain will drop. This is the change of prices, which the mercantilists failed to see.
Money is neutral, wealth is actually what good and services we can get.If there's a lot of money floating around in the market,money will depreciate and the price will rise, vice versa.
Focus on gold actually has nothing to do with wealth and if a country merely emphasizes export, domestic people actually can buy less commodities and thus the living standard will decrease.
(2)Mercantilists have a poor understanding of the dynamic.
good points of trade:
<1>Competition. Force of innovation, efficiency and improvement.
<2>Learning and innovation: Domestic companies can learn advanced skills and techniques from others and be more efficient.
<3>Division of labor. In mass market, the division of task can be crucial since it can make people more productive.
Expenditure=consumption+taxes+investment+government expenditure+international trade
Do we get economic gain by spending more?
Physiocracy: The first modern school that emphasizes freedom and claims that the source of wealth is Production.
Physiocracy emphasizes agriculture.
Mercantilism's source of wealth:
(1)Gold in treasury
(2)Wealth that the king has
(3)Positive balance of trade
Idea:
(1)Wealth is fixed, so trade is zero-sum.
(2)Money is wealth.
(3)Gold is fixed.(It reinforces idea1)
King should control trade and make sure that the nation's export is larger than import.
Irony:
(1) The nation's individual's desire is to purchase but the social interest is not to let money leave. But a society is made up of individuals.
(2) When trade happens domestically, it's OK,but when occurs internationally, no way.
Scottish moral philosophers:
They think that nature people are innately compassionate and generous and good economics is about prudence.
Hutchson: Virtuous activities yield pleasure because they conform some preexisting moral and good notion.
Hume: Anything we do is morally OK.The science of man first established that impressions from senses,and memories of impressions are the foundation of all ideas.Passions are a part of human nature and they rule over reason in determining our actions.Morality is based on necessary actions,those which we would certainly make as a reaction to a certain set of circumstances, and is therefore natural.However,morality is founded on self-interest,which includes the pleasure we find in sensing the pleasure in others.
He thinks that the core of economics is commerce.
(1)Price specie flow mechanism
Monopoly actually raises price and the prices around the world about a certain good should be equal.
If France's sweater is cheaper, then British will go to France to buy, and exchange domestic money to gold. Then the price of sweater in France will rise because of the increasing demand; in contrast, the price of sweater in Britain will drop. This is the change of prices, which the mercantilists failed to see.
Money is neutral, wealth is actually what good and services we can get.If there's a lot of money floating around in the market,money will depreciate and the price will rise, vice versa.
Focus on gold actually has nothing to do with wealth and if a country merely emphasizes export, domestic people actually can buy less commodities and thus the living standard will decrease.
(2)Mercantilists have a poor understanding of the dynamic.
good points of trade:
<1>Competition. Force of innovation, efficiency and improvement.
<2>Learning and innovation: Domestic companies can learn advanced skills and techniques from others and be more efficient.
<3>Division of labor. In mass market, the division of task can be crucial since it can make people more productive.
9/26/2011
9/26/2011 Class11
What made Industrial Revolution happen at that time in England (not other places)?
Technology improvement makes workers more productive and raise wages.
Why England?
(1)Gradual emergence of national political units in Europe.
(2)Slow decay in religion.
Secular life becomes more important than "life" after death. (Influence of Renaissance.)
Notion of materialism and emphasis on self-interest.
(3)Improvement in scientific inventions and progress.
(4)Peer reflex. Society improved thanks to an agglomeration of novel ideas.
(5)England is an island.Weather good for cotton. Emphasis on overseas trade.
(6)Political institution was good.
Adam Smith claims that the society improved acceptance of giving people freedom to make their own choices.<1>Tolerance. People are more co-operative.<2>Individual freedom. People are free to express themselves.
(7)Transmitting ideology of individual rights in natural law.
New class: Bourgeoisie Pre-industrial revolution:feudal king dominated all
Merchant got respect. Post-industrial revolution:responsibility of one another
Most western countries prior to IR were characterized by a economic system called Mercantilism,which focuses on ruler's wealth, accumulation of gold by restraining imports and encouraging exports.
Characteristics:
(1)Restraints on domestic consumption.
(2)Protectionism.(High tariff)
(3)Exclusive trade with colonies and export subsidies.
(4)Government monopoly.
(5)Price control.(Maximum wages)
Schools against mercantilism
(1)Scottish moral philosophers.
(2)French physiocrats.
Physiocracy:wealth of nations derive mainly from value of "land agriculture"
(1)Natural order by which we live together without losing significant freedom.
(2)Self-interest. System works best when there's a complementary relationship between one person's labor and another's desire.
(3)Private property.
(4)Diminishing return.
(5)Investment capital. Capital starts production and profit stimulates productivity.
Circular flow of economics(introduced by Quesnay)
Household gives labor, capital, land to firms in factor markets for money and firm provide goods and service to household for profit on goods market.
Technology improvement makes workers more productive and raise wages.
Why England?
(1)Gradual emergence of national political units in Europe.
(2)Slow decay in religion.
Secular life becomes more important than "life" after death. (Influence of Renaissance.)
Notion of materialism and emphasis on self-interest.
(3)Improvement in scientific inventions and progress.
(4)Peer reflex. Society improved thanks to an agglomeration of novel ideas.
(5)England is an island.Weather good for cotton. Emphasis on overseas trade.
(6)Political institution was good.
Adam Smith claims that the society improved acceptance of giving people freedom to make their own choices.<1>Tolerance. People are more co-operative.<2>Individual freedom. People are free to express themselves.
(7)Transmitting ideology of individual rights in natural law.
New class: Bourgeoisie Pre-industrial revolution:feudal king dominated all
Merchant got respect. Post-industrial revolution:responsibility of one another
Most western countries prior to IR were characterized by a economic system called Mercantilism,which focuses on ruler's wealth, accumulation of gold by restraining imports and encouraging exports.
Characteristics:
(1)Restraints on domestic consumption.
(2)Protectionism.(High tariff)
(3)Exclusive trade with colonies and export subsidies.
(4)Government monopoly.
(5)Price control.(Maximum wages)
Schools against mercantilism
(1)Scottish moral philosophers.
(2)French physiocrats.
Physiocracy:wealth of nations derive mainly from value of "land agriculture"
(1)Natural order by which we live together without losing significant freedom.
(2)Self-interest. System works best when there's a complementary relationship between one person's labor and another's desire.
(3)Private property.
(4)Diminishing return.
(5)Investment capital. Capital starts production and profit stimulates productivity.
Circular flow of economics(introduced by Quesnay)
Household gives labor, capital, land to firms in factor markets for money and firm provide goods and service to household for profit on goods market.
9/24/2011
9/23/2011 Class10
The cost of sequencing a genome is falling even faster than Moore's Law could predict.
Moore's Law: computer idea that the processing speed of chips to double every 18 months, which means that our purchasing power will increase every 18 months.
We now have fewer dissent than before.The idea that we feel more violence lies in the fact that we now have more information about wars, not because more wars themselves.
What kills people the most in wars? Disease and wound and malnutrition due to starvation.
Now, with better nutrition, improved medical care, and efficient humanism effort , there is less death in wars.
Do we hurt the environment?
In poor areas, yes. But situation can be improved as long as economics and technology keep growing.
Actually, we have relatively more abundant resources than before thanks to improvement in technology, and it is also cheaper.
Do we hurt our psyche?
Research shows that increase in wealth doesn't promise increase in felicity.
But there's also a Easterlin paradox.
Suicide rate doesn't increase or decrease, but considering the fact that the improvement in technology make it less painful and cheaper to suicide, the society is still being better.
Commercial revolution: Transition from stagnation to growth.
For a long time, economic growth was extensive.(People shared)
Now we have translated economic growth to increase in living standard.
Demographic transition:
(1)Classic theory
People use existing resources to produce good and use up increased productivity with more people.It cannot explain why we are now richer.
Malthusian population theory:population growth is at geometric trend while food growth is at arithmetic growth.
Demographic transition:countries experience a change in their birth and mortality rates because of a change in the economic development.
(2)Modern theory:
Continuous growth in technology allows productivity to surpass population growth.
Why does the fertility fall?
(1)Child quantity and quality.
(2)Role of property
(3)Other factors
As productivity grows, our behavior changes and incentive to have children change.
When we are poor:
(1)Marginal child means marginal labor.
(2)When we are old, we can count on them.
When we are rich
(1)Marginal child means marginal burden.(Children don't work but consume)
(2)Problem of bequeath.
(3)We can feed ourselves when we are old.
Questions:
(1)What motivated entrepreneurs at IR period do the sorts of things to lead to IR?
(2)What enabled accumulation of capital at that time?
(3)What allowed family to actually make that child quality trade-off?
Moore's Law: computer idea that the processing speed of chips to double every 18 months, which means that our purchasing power will increase every 18 months.
We now have fewer dissent than before.The idea that we feel more violence lies in the fact that we now have more information about wars, not because more wars themselves.
What kills people the most in wars? Disease and wound and malnutrition due to starvation.
Now, with better nutrition, improved medical care, and efficient humanism effort , there is less death in wars.
Do we hurt the environment?
In poor areas, yes. But situation can be improved as long as economics and technology keep growing.
Actually, we have relatively more abundant resources than before thanks to improvement in technology, and it is also cheaper.
Do we hurt our psyche?
Research shows that increase in wealth doesn't promise increase in felicity.
But there's also a Easterlin paradox.
Suicide rate doesn't increase or decrease, but considering the fact that the improvement in technology make it less painful and cheaper to suicide, the society is still being better.
Commercial revolution: Transition from stagnation to growth.
For a long time, economic growth was extensive.(People shared)
Now we have translated economic growth to increase in living standard.
Demographic transition:
(1)Classic theory
People use existing resources to produce good and use up increased productivity with more people.It cannot explain why we are now richer.
Malthusian population theory:population growth is at geometric trend while food growth is at arithmetic growth.
Demographic transition:countries experience a change in their birth and mortality rates because of a change in the economic development.
(2)Modern theory:
Continuous growth in technology allows productivity to surpass population growth.
Why does the fertility fall?
(1)Child quantity and quality.
(2)Role of property
(3)Other factors
As productivity grows, our behavior changes and incentive to have children change.
When we are poor:
(1)Marginal child means marginal labor.
(2)When we are old, we can count on them.
When we are rich
(1)Marginal child means marginal burden.(Children don't work but consume)
(2)Problem of bequeath.
(3)We can feed ourselves when we are old.
Questions:
(1)What motivated entrepreneurs at IR period do the sorts of things to lead to IR?
(2)What enabled accumulation of capital at that time?
(3)What allowed family to actually make that child quality trade-off?
9/21/2011
9/21/2011 Class9
Through years of development, what actually increases is our purchasing power.
Even with the same amount of money, we today can more stuff cheaply than old men did.
What's the application of the charts which show the increase and redistribution of income?
(1)Risk
The worst part of being poor is living on the edge.(Without security)
In the past, any marginal price increase in necessities would make people starve because they spent a highly amount of money just to survive. But now since we only spend a small proportion of money on necessities, we can cope with the price increase by decreasing leisure expenditure.
(2)Increase in other stuff
We can spend more money on other things. Health care, education, environmental spending all increase and take a significant proportion in GDP.
Elasticity: A general measure of responsiveness that can be used to quantify many different relationships.It's calculated by using percentages.If one variable A changes in response to variable B,elasticity is percentage change in A divided by percentage change in B.
Income elasticity of demand: ratio of percentage change in quantity demanded of a good to the percentage change in price of that good.
We now pay more tax and provide more public goods. As a result, department employees increase.
National defense increases.
Income seriously understates the extent and magnitude of the economic growth.(Purchasing power)
Example: Illuminating hours
What I really care is the services I get, so I just have to turn on the light almost freely, but in the past, workers had to work hard to get a candle.That's the reason why candles are precious.
Limit of human felicity.People in the past couldn't imagine what we achieve today.
Question:Are we better off than 1970?
Example: Cell phones. Not a merely trifling thing.
How does it change the world?
(1)People can cost less to communicate and get more valuable information, which can in return creates profit and wealth.
(2)Literacy increases.
Transition of income wealth: Increase in people who earn more and decrease in people who earn less
People work less and have more leisure time and more happy.
We are also better off due to the increased ability of political decision.
Anti-segregation is helped by commercial increase.
A good economy order can help build a good social order.
Even with the same amount of money, we today can more stuff cheaply than old men did.
What's the application of the charts which show the increase and redistribution of income?
(1)Risk
The worst part of being poor is living on the edge.(Without security)
In the past, any marginal price increase in necessities would make people starve because they spent a highly amount of money just to survive. But now since we only spend a small proportion of money on necessities, we can cope with the price increase by decreasing leisure expenditure.
(2)Increase in other stuff
We can spend more money on other things. Health care, education, environmental spending all increase and take a significant proportion in GDP.
Elasticity: A general measure of responsiveness that can be used to quantify many different relationships.It's calculated by using percentages.If one variable A changes in response to variable B,elasticity is percentage change in A divided by percentage change in B.
Income elasticity of demand: ratio of percentage change in quantity demanded of a good to the percentage change in price of that good.
We now pay more tax and provide more public goods. As a result, department employees increase.
National defense increases.
Income seriously understates the extent and magnitude of the economic growth.(Purchasing power)
Example: Illuminating hours
What I really care is the services I get, so I just have to turn on the light almost freely, but in the past, workers had to work hard to get a candle.That's the reason why candles are precious.
Limit of human felicity.People in the past couldn't imagine what we achieve today.
Question:Are we better off than 1970?
Example: Cell phones. Not a merely trifling thing.
How does it change the world?
(1)People can cost less to communicate and get more valuable information, which can in return creates profit and wealth.
(2)Literacy increases.
Transition of income wealth: Increase in people who earn more and decrease in people who earn less
People work less and have more leisure time and more happy.
We are also better off due to the increased ability of political decision.
Anti-segregation is helped by commercial increase.
A good economy order can help build a good social order.
9/19/2011
9/19/2011 Class8
We are living longer and healthier
cancer diseases decrease ; people are smarter;health gap between men and women,blacks and whites are narrowing;nutrition is increasing and people are getting higher.
Diseases that haunt us today actually hit people earlier a century ago
People who suffer from diarrhea decrease and thus nutrition that people can healthily metabolize increase as well.
Conclusion: People are living better thanks to growth of economics.
Reasons:
(1)Population is growing.
(2)People's value change.
Example:If one's life expectancy is only 30 years old and has to worry about the safety of water,nothing else will matter to him,but if one lives longer and is richer,he will pay attention to cars,or some extreme sports.
When looking at the chart of change in countries' life expectancy and income from 1962 to 2008, the trend is : Income increase and life expectancy increase
Exception:Russia is the only modern industrial country that suffers a decline in life expectancy since Industrial Revolution. African countries don't change much.
USA living standard in the past 100 years
1.Labor market
(1)working hours per week: 60(1900) 39(1950) 34(today)
(2)vacation: 6%(past) 90%(today)
(3)household labor: 12(past) 3(today)
(4)commutes: people spend less time
(5)retirement: no(past) living longer,working longer. more options,get more insurance and security(now)
(6)women: 18% pay work and low status(past) earn more,have less pressure of unemployment than men(now)
2. Household: what we didn't have in the past,we now have them all
3.Health: Cancers hit us because we live longer
Infant death decrease dramatically top10 killers is quite different from before
4.Human capital:ability of human to acquire skills that they aren't born with.
Education : People are more knowledgeable
5.Income:per capita $7000(past) $45000(now)
middle-class in 1940 are poor in modern perspective
How to measure living-standard:How much a typical person has to exert to secure the thing that he wants.
Comparison between nowadays/old people's working hours to get a certain good
Trend:We now use fewer hours to get equivalent good.
Exception:Silver spoon
Reasons: We can use fewer money to get stuff that old people might use lifetime money to get,so we are infinitely richer than old workers. So if we really just want to use a spoon to scoop something, we can use the plastic one, which is free of charge in most of the market. But since silver is more scarce than before, if you really value a silver spoon, you have to pay more because the opportunity cost of silver increases.
cancer diseases decrease ; people are smarter;health gap between men and women,blacks and whites are narrowing;nutrition is increasing and people are getting higher.
Diseases that haunt us today actually hit people earlier a century ago
People who suffer from diarrhea decrease and thus nutrition that people can healthily metabolize increase as well.
Conclusion: People are living better thanks to growth of economics.
Reasons:
(1)Population is growing.
(2)People's value change.
Example:If one's life expectancy is only 30 years old and has to worry about the safety of water,nothing else will matter to him,but if one lives longer and is richer,he will pay attention to cars,or some extreme sports.
When looking at the chart of change in countries' life expectancy and income from 1962 to 2008, the trend is : Income increase and life expectancy increase
Exception:Russia is the only modern industrial country that suffers a decline in life expectancy since Industrial Revolution. African countries don't change much.
USA living standard in the past 100 years
1.Labor market
(1)working hours per week: 60(1900) 39(1950) 34(today)
(2)vacation: 6%(past) 90%(today)
(3)household labor: 12(past) 3(today)
(4)commutes: people spend less time
(5)retirement: no(past) living longer,working longer. more options,get more insurance and security(now)
(6)women: 18% pay work and low status(past) earn more,have less pressure of unemployment than men(now)
2. Household: what we didn't have in the past,we now have them all
3.Health: Cancers hit us because we live longer
Infant death decrease dramatically top10 killers is quite different from before
4.Human capital:ability of human to acquire skills that they aren't born with.
Education : People are more knowledgeable
5.Income:per capita $7000(past) $45000(now)
middle-class in 1940 are poor in modern perspective
How to measure living-standard:How much a typical person has to exert to secure the thing that he wants.
Comparison between nowadays/old people's working hours to get a certain good
Trend:We now use fewer hours to get equivalent good.
Exception:Silver spoon
Reasons: We can use fewer money to get stuff that old people might use lifetime money to get,so we are infinitely richer than old workers. So if we really just want to use a spoon to scoop something, we can use the plastic one, which is free of charge in most of the market. But since silver is more scarce than before, if you really value a silver spoon, you have to pay more because the opportunity cost of silver increases.
9/17/2011
What social science does and doesn't know
Two interesting conceptions
Causal density:number and complexity of potential causes of the outcome interest
Counterfactual: against the truth
I found that experts often use causal density to tarry of the criticism,like the scenario presented in the story.
What I think interesting: Before reading the essay,I thought that social science is not quite accurate because there're so many variables and individuals that it's very hard to use a generalization to hold all the cases.And the article somewhat confirms my opinion.But to my mild surprise,experiments play a significant role in social science.Scaling up the experiments means that the final result can become mathematically accurate.
Questions
(1)What's the relation between nuisance abatement and broken window policing?
This article claims that in social science, results of certain experiments cannot be generalized because every data is unique because of the time, apparatus, space, weather, etc.We can only make the outcome more accurately by replicating the experiments.In social science,few programs work properly in randomized and replicated tasks;it's more difficult to change people than to change incentive;few program can act as a panacea.
Causal density:number and complexity of potential causes of the outcome interest
Counterfactual: against the truth
I found that experts often use causal density to tarry of the criticism,like the scenario presented in the story.
What I think interesting: Before reading the essay,I thought that social science is not quite accurate because there're so many variables and individuals that it's very hard to use a generalization to hold all the cases.And the article somewhat confirms my opinion.But to my mild surprise,experiments play a significant role in social science.Scaling up the experiments means that the final result can become mathematically accurate.
Questions
(1)What's the relation between nuisance abatement and broken window policing?
This article claims that in social science, results of certain experiments cannot be generalized because every data is unique because of the time, apparatus, space, weather, etc.We can only make the outcome more accurately by replicating the experiments.In social science,few programs work properly in randomized and replicated tasks;it's more difficult to change people than to change incentive;few program can act as a panacea.
9/16/2011 Class7
Our feelings are correlated with income and sometimes we don't care about the money spent on seemingly trivial things because we actually enjoy the experience and pleasure.
Before Industrial Revolution: farms pre-machinenary and produced low
How to estimate old time's people's income?
(1)Estimate:estimate how much they produced based on technology at that time and times the price
(2)Critical thinking:We know what a poor country looks like,so we can reason that if people survived in old time,the living standard is similar to today's poor people's.
Fecundity doesn't promise a country's prosperity.(Singapore & African countries)
Production possibility frontier(PPF):graph that shows all the combinations of goods and services that can be produced if all of the society's resources are used efficiently.
Singapore succeeds because of good management and trade while Africa suffers from waste of resources and riots.
Before Industrial Revolution,national income increased, but income per person didn't because serf gave money to lords or noble man,who thus gained wealth and built elephant projects with improved technology.So technology itself can't enhance the economy.
First application of broken window fallacy in the class:People often pay great attention to certain achievement of a certain country and think that the country has a great development,ignoring the living standard of its people. (Opportunity cost)
No previous men can imagine level of wealth and productive potential achieved by modern world
(1)Rising income (2)Living standard (3)Medical treatment (4)Communication and transportation
It seems that modern people have no servants like old kings,but actually we have millions of workers providing us goods and services.
Difference: (1)They also serve others and can be served.(2)They serve not due to mercy,but because of profit.(Fed Ex)
The problem of being poor is that any difficulty can be lethal due to a lack of wealth and security.
Life expectancy is one of the best measures of social progress because it is influenced by income,living standards,health care,safety,nutrition,environmental protection and crime.
Before Industrial Revolution: farms pre-machinenary and produced low
How to estimate old time's people's income?
(1)Estimate:estimate how much they produced based on technology at that time and times the price
(2)Critical thinking:We know what a poor country looks like,so we can reason that if people survived in old time,the living standard is similar to today's poor people's.
Fecundity doesn't promise a country's prosperity.(Singapore & African countries)
Production possibility frontier(PPF):graph that shows all the combinations of goods and services that can be produced if all of the society's resources are used efficiently.
Singapore succeeds because of good management and trade while Africa suffers from waste of resources and riots.
Before Industrial Revolution,national income increased, but income per person didn't because serf gave money to lords or noble man,who thus gained wealth and built elephant projects with improved technology.So technology itself can't enhance the economy.
First application of broken window fallacy in the class:People often pay great attention to certain achievement of a certain country and think that the country has a great development,ignoring the living standard of its people. (Opportunity cost)
No previous men can imagine level of wealth and productive potential achieved by modern world
(1)Rising income (2)Living standard (3)Medical treatment (4)Communication and transportation
It seems that modern people have no servants like old kings,but actually we have millions of workers providing us goods and services.
Difference: (1)They also serve others and can be served.(2)They serve not due to mercy,but because of profit.(Fed Ex)
The problem of being poor is that any difficulty can be lethal due to a lack of wealth and security.
Life expectancy is one of the best measures of social progress because it is influenced by income,living standards,health care,safety,nutrition,environmental protection and crime.
9/16/2011
9/14/2011 Class6
BC5000-1000:GDP per person barely changed,maintaining at a low level.
Technology did improved during that time:discovery of coppers,tools,and existence of primitive selling ship. But technology itself couldn't guarantee the improvement of people's living standard. Extra required points:accumulation of capital and the readiness of pursuing profit(I can imagine slaves could make free market)
1000-Industrial Revolution:middle-class didn't exist Global inequality emerged
Division of labor was low
Before Industrial Revolution,people produce according to experience;then skills came out;in the process of improving skills science came into being.
Since Industrial Revolution,huge economic growth.
Why happened in Britain?
(1)English Revolution. People felt affiliated to the country
(2)oversea trade
(3)success of war against France
(4)quantity demanded increased hugely and the traditional way of supplying couldn't meet,which stimulated people to figure out efficient way to produce
(5)protection of patent,which encouraged people to create
(6)scientific curiosity Newton's discovery Watt's invention Adam Smith's theory
(7)the profit of industrializaion came to entrepreneurs and people rather than to a minority of aristocrats.
How did the revolution change people's life?
(1)People emphasized time
(2)Factories,chimneys were built even in countryside
(3)Lots of people immigrated to the city
(4)Division of labor.Workers could specialize rather than know all the details of a certain product.(The essence of I,Pencil) Market,efficiency
(5)COMPETITION replaced the Middle Age old rule.
If I wanna be rich,what should I do?
(1)I produce more
But that means you will have to produce clothes, cultivate potatoes, raise cows, etc, you will have no idea how to do all these things by yourself. So self-sufficiency is the road to poverty.
(2)I trade with others (best)
Comparative advantage means that I can bear a relatively smaller trade-off than my trader to exchange something I want yet have to have more opportunity cost to get by my own work.
(3)I get donation and money from dead family members.
You will get benefit, but it is a zero-sum game. Maybe it can be applied in a small circle of intimate people, but it is hard to generalize.
Extensive growth:expansion of the quantity of inputs in order to increase the quantity of outputs,not good in the long-run
Intensive growth:help to enhance GDP per person and living-standard per person.
Technology did improved during that time:discovery of coppers,tools,and existence of primitive selling ship. But technology itself couldn't guarantee the improvement of people's living standard. Extra required points:accumulation of capital and the readiness of pursuing profit(I can imagine slaves could make free market)
1000-Industrial Revolution:middle-class didn't exist Global inequality emerged
Division of labor was low
Before Industrial Revolution,people produce according to experience;then skills came out;in the process of improving skills science came into being.
Since Industrial Revolution,huge economic growth.
Why happened in Britain?
(1)English Revolution. People felt affiliated to the country
(2)oversea trade
(3)success of war against France
(4)quantity demanded increased hugely and the traditional way of supplying couldn't meet,which stimulated people to figure out efficient way to produce
(5)protection of patent,which encouraged people to create
(6)scientific curiosity Newton's discovery Watt's invention Adam Smith's theory
(7)the profit of industrializaion came to entrepreneurs and people rather than to a minority of aristocrats.
How did the revolution change people's life?
(1)People emphasized time
(2)Factories,chimneys were built even in countryside
(3)Lots of people immigrated to the city
(4)Division of labor.Workers could specialize rather than know all the details of a certain product.(The essence of I,Pencil) Market,efficiency
(5)COMPETITION replaced the Middle Age old rule.
If I wanna be rich,what should I do?
(1)I produce more
But that means you will have to produce clothes, cultivate potatoes, raise cows, etc, you will have no idea how to do all these things by yourself. So self-sufficiency is the road to poverty.
(2)I trade with others (best)
Comparative advantage means that I can bear a relatively smaller trade-off than my trader to exchange something I want yet have to have more opportunity cost to get by my own work.
(3)I get donation and money from dead family members.
You will get benefit, but it is a zero-sum game. Maybe it can be applied in a small circle of intimate people, but it is hard to generalize.
Extensive growth:expansion of the quantity of inputs in order to increase the quantity of outputs,not good in the long-run
Intensive growth:help to enhance GDP per person and living-standard per person.
9/12/2011
9/12 Class5
Characteristics of I pencil
(1)Impersonality: people don't know who provide them the product,so the workers just work,consumers get the products yet have no idea say thanks to whom.
(2)Self interest:Workers exchange their expertise to profits,so maybe they don't care about what they are producing;instead, they take profit into consideration.
(3)Cognitive issue (I'm confused with this)
(4)Who gives the order? People can cooperate even they hate or don't know each other.There's no coercion,the market runs well under freedom and creativity.
Reasons of the characteristics:
(1)Invisible hand:possibility of people to cooperate without coercion
(2)Tacit knowledge:knowledge others don't know or the one you can use uniquely.
Central planning:government plan stuff and ask people to finish the task
Drawbacks:
(1)The government needs to be omnipotent.It must know all the details and take natural elements(disasters, for example)into consideration,which is almost impossible.Besides,the world is changing so fast that it's hard for planner to predict precisely.
(2)Central planning will make state-owned companies into existence,which may squeeze the profit of private-owned ones and cause inner corruption.
How does the free market work: Price system. No one can set the price.It's determined by the market.
Shortcomings of GDP:
(1)If one spends more time with his family,taking care of his kids rather than hiring a babysitter,the nation will become poorer because there will be no improvement in GDP.
(2)If one has a second child,the per capita of this family will be lowered,but if this family buy a cow rather than breed a child,the per capita of this family will be increased because they can profit from the cow.GDP just cares about growth of production
(3)It doesn't take people's sense of felicity into consideration.People work longer,become more prone to get sick,and spend more money on medical treatment ,thus enhancing GDP,but is this a happy society?
(4)It somewhat neglects the cost in environmental damage.
(5)A lot of fallacy and bad policy will come out.
(1)Impersonality: people don't know who provide them the product,so the workers just work,consumers get the products yet have no idea say thanks to whom.
(2)Self interest:Workers exchange their expertise to profits,so maybe they don't care about what they are producing;instead, they take profit into consideration.
(3)Cognitive issue (I'm confused with this)
(4)Who gives the order? People can cooperate even they hate or don't know each other.There's no coercion,the market runs well under freedom and creativity.
Reasons of the characteristics:
(1)Invisible hand:possibility of people to cooperate without coercion
(2)Tacit knowledge:knowledge others don't know or the one you can use uniquely.
Central planning:government plan stuff and ask people to finish the task
Drawbacks:
(1)The government needs to be omnipotent.It must know all the details and take natural elements(disasters, for example)into consideration,which is almost impossible.Besides,the world is changing so fast that it's hard for planner to predict precisely.
(2)Central planning will make state-owned companies into existence,which may squeeze the profit of private-owned ones and cause inner corruption.
How does the free market work: Price system. No one can set the price.It's determined by the market.
Shortcomings of GDP:
(1)If one spends more time with his family,taking care of his kids rather than hiring a babysitter,the nation will become poorer because there will be no improvement in GDP.
(2)If one has a second child,the per capita of this family will be lowered,but if this family buy a cow rather than breed a child,the per capita of this family will be increased because they can profit from the cow.GDP just cares about growth of production
(3)It doesn't take people's sense of felicity into consideration.People work longer,become more prone to get sick,and spend more money on medical treatment ,thus enhancing GDP,but is this a happy society?
(4)It somewhat neglects the cost in environmental damage.
(5)A lot of fallacy and bad policy will come out.
9/10/2011
$265 Bomb, $300 Billion War: The Economics of the 9/11 Era’s Signature Weapon
What I found interesting in this article is the contrast between the cost of improvised explosive device(IED) and the cost of counter-IED.If we pay attention to the great difference,we can see clearly that it's not that profitable for a country to launch wars against a poorer country,regardless of the potential resources it can get. Some people claim that a war can reconstruct a nation's economy,but when I look at the domestic condition of Iraq and Afghan,I cannot see any resurgence; instead, more American soldiers and local people die or wound,terrorism becomes rampant,and the US government deficit on war is skyrocketing.
9/1/2011 Class2
531000000000 barrels of oil underground
16500000000 average consumption annually
mathematical conclusion: we will use up oil in 32 years
Reality: We will never run out of gasoline
Reason:It will be too hard for us to get the remaining gasoline,and we'll turn to other kinds of resources.
man acts purposely:economics a study of scarcity
So what is scarcity?
Scarcity means people want a certain kind of resource more than it is available. Scarcity is a relative notion, having nothing to do with physical abundance or rarity. So oil can be physically abundant, but since it's so versatile that people really want to use it for better life, it is scarce. When something is scarce, it means people value it greatly.
But the fact that many people want oil doesn't mean people really love oil. If oil cannot heat the house, used as gasoline, etc, people will not want it, just like ancient people treated oil as agricultral nuisance before oil was found useful. So what we buy is not oil, but the services we can get from the oil.
People respond to incentives and should think at margin.
When the oil extraction becomes more costly than the potential profit, what will they do? They will stop extracting the oil and turn to other things.
16500000000 average consumption annually
mathematical conclusion: we will use up oil in 32 years
Reality: We will never run out of gasoline
Reason:It will be too hard for us to get the remaining gasoline,and we'll turn to other kinds of resources.
man acts purposely:economics a study of scarcity
So what is scarcity?
Scarcity means people want a certain kind of resource more than it is available. Scarcity is a relative notion, having nothing to do with physical abundance or rarity. So oil can be physically abundant, but since it's so versatile that people really want to use it for better life, it is scarce. When something is scarce, it means people value it greatly.
But the fact that many people want oil doesn't mean people really love oil. If oil cannot heat the house, used as gasoline, etc, people will not want it, just like ancient people treated oil as agricultral nuisance before oil was found useful. So what we buy is not oil, but the services we can get from the oil.
People respond to incentives and should think at margin.
When the oil extraction becomes more costly than the potential profit, what will they do? They will stop extracting the oil and turn to other things.
9/7/2011 Class3
There's no place for economists in heaven because it doesn't have scarcity.
Conception:Scarcity
Scarcity isn't limits;it's a relative idea.People face scarcity all the time because we always demand more even though the resources are abundant.
Way to deal with scarcity Economize:Comparison between expected benefit and expected cost. Consumers should be rational to compare the value and cost, which are subjective and unique to everybody.
Other things that we care about in economics:(1)the rule of game (2)the belonging of the property (3)cultural laws
Incentive changes result
Example: The increase of profit that captains got changed their attitude toward criminals on the boats and thus ensure them to land on new world to work.
Economic studies prudence & temperance
Definition of Economics:
Study of emergence of order and wealth creation and consequences choices made as a part of standard order of human corporation.
Conception:Scarcity
Scarcity isn't limits;it's a relative idea.People face scarcity all the time because we always demand more even though the resources are abundant.
Way to deal with scarcity Economize:Comparison between expected benefit and expected cost. Consumers should be rational to compare the value and cost, which are subjective and unique to everybody.
Other things that we care about in economics:(1)the rule of game (2)the belonging of the property (3)cultural laws
Incentive changes result
Example: The increase of profit that captains got changed their attitude toward criminals on the boats and thus ensure them to land on new world to work.
Economic studies prudence & temperance
Definition of Economics:
Study of emergence of order and wealth creation and consequences choices made as a part of standard order of human corporation.
9/09/2011
9/9/2011 Class4
Difference between Microeconomics and Macroeconomics.
Micro: focusing on small things: individual,company choices
Macro: global things, aggregation of economy, individual consequences
Incentive can change one's action
Example:Organ sales.If one is offered relatively less than what he gives,he will certainly not sell organs because he gets little and have to maim himself,but if he can get 5 million bucks, he will do it as long as he doesn't die.
Essay"The miracle by which we live" shows that it is trillions of tiny know-hows who actually found the free market and nation;presidents only have a little bit impact in history.
Economic Way of Thinking:
Example Obesity: Is it caused by McDonald's? Nope.
We ourselves choose to be fat because (1)food,especially fast food,is cheap(2)cost of being fat is decreasing[improvement in medical treatment](3)research show that it's better to be mildly fat(I wonder why)
Possible biological Explanation:Ancient people didn't have enough food,especially in winter, due to lack of technology,so people needed fat to survive.
Reasons to study economics
(1)interesting
(2)important to know conception and facts,such as intention isn't equal to result
(3)we need to understand facts. Example:Some people claim to tax more on soda to get rid of obesity but in fact soda only contributes 1% to obesity.
Psychology personality
Type C Scientific reasoning
Type M Emotional
Micro: focusing on small things: individual,company choices
Macro: global things, aggregation of economy, individual consequences
Incentive can change one's action
Example:Organ sales.If one is offered relatively less than what he gives,he will certainly not sell organs because he gets little and have to maim himself,but if he can get 5 million bucks, he will do it as long as he doesn't die.
Essay"The miracle by which we live" shows that it is trillions of tiny know-hows who actually found the free market and nation;presidents only have a little bit impact in history.
Economic Way of Thinking:
Example Obesity: Is it caused by McDonald's? Nope.
We ourselves choose to be fat because (1)food,especially fast food,is cheap(2)cost of being fat is decreasing[improvement in medical treatment](3)research show that it's better to be mildly fat(I wonder why)
Possible biological Explanation:Ancient people didn't have enough food,especially in winter, due to lack of technology,so people needed fat to survive.
Reasons to study economics
(1)interesting
(2)important to know conception and facts,such as intention isn't equal to result
(3)we need to understand facts. Example:Some people claim to tax more on soda to get rid of obesity but in fact soda only contributes 1% to obesity.
Psychology personality
Type C Scientific reasoning
Type M Emotional
8/31/2011 Class1
Introduction of Eco108
Rizzo threw the money to see how students reacted to it.The more money was, the more excited students were.
Key to study economics:Discover how people respond to incentive;what is incentive and how does incentive changes people.
Goals:Understand how individual action results in consequences;get to know fondamental principles of economics and the contrast between actual human behaviour and public view.
Rizzo threw the money to see how students reacted to it.The more money was, the more excited students were.
Key to study economics:Discover how people respond to incentive;what is incentive and how does incentive changes people.
Goals:Understand how individual action results in consequences;get to know fondamental principles of economics and the contrast between actual human behaviour and public view.
Reading Analysis
The interesting part of this article is that it uses a simple pencil to reveal the glamor of invisible hand and free market.Workers don't actually need pencils as their necessity(if the author used a car,he would be challenged because a car is more complex and people long for it),but they produce it because they can exchange profit with their expertise.In article"The Miraculous market",Read claims that"on trillions upon trillions of tiny but complex and interacting creativities, the free flowing of which is, in fact, the free market!"
The article also somewhat praises those millions of tiny yet contributive know-hows.They are actually the founders of market and country,but as I learned in the recitation,"Little we see nature is ours",sometimes we get confused who contributes to our well-being.The answer is,we create the market,we earn the money.
The relatively uninteresting aspect is that there are too many slogans in the last paragraph.They are elaborated,but in the mean time tautology.
I doubt the claim made in the introduction by Reed that"None of the Robespierres of the world knew how to make a pencil, yet they wanted to remake entire societies. How utterly preposterous, and mournfully tragic!"In today's world, science and technology have become so complicated and advanced that there are certainly no people who can elaborate how to make products.Even Einstein said that"An expert is merely a trained dog".Since there's no Aristotle today,why do we urge governors to know how to make certain products?
The second question I want to ask is:If we just let people do all the things at their will,can we achieve maximum profit merely through free market?For example,the price of pork is high now,and thus most of the farmers rush to raise pigs.Since the supply outscores demand,soon the price of pork goes down.Not only are the time and effort in vain,but also the resources are wasted.But if we have the government control,won't we be better?
Brief summary:The author writes the procedures of making a pencil to tell readers that millions of know-hows can create wealth under the invisible hand if all creative energies are uninhibited.
Reason why this essay is assigned:A brief sight of free market;importance of freedom in market;people produce something mainly for exchange of profit
Subscribe to:
Posts (Atom)