Learning Economics Through Poetry by Marjorie Howard, May 8, 2015
Learning Economics Through Poetry by Marjorie Howard, May 8, 2015
Because e-quil-i-bri-um is the perfect end to Haiku
Because time slows to a discount rate
at the asymptote of an hour glass
Because I am color blind to shades of gray
Because I like to tell bedtime stories to a captive audience
Because marginal costs are like shooting stars
when it counts
Because there are exactly seven colors in a rainbow
Because self interest is like a cockroach
Because there is always a right question to the wrong answer
Because my worry lines give me away
Because I approach the limit of creativity but never reach it
Because a rational mind needs a pillow
Because the market for astronauts is too small
Because numbers are like words and functions are like stanzas
Because efficiency is the pay dirt of a lazy mind
Because a fortune cookie told me to ‘be practical’
and so did my advisor.
By Mary Davis
Although a sequel is never quite so clever, I can’t help but give the economics of love a second chance. As spring love fades like a wet t-shirt in the hot sun, I’m compelled to reflect on the shallow pool of love connections in America – online dating. Because let’s be honest, if we can turn human affection into a tradable revenue-generating commodity, neoclassical theory knows no bounds. Economists – 1, romantics – 0! By the grace of modern technology, we can all rush to make guilt-free snap judgments of other human beings with a mere click of a mouse. Gone are those inefficient hours wasted ‘getting to know the person,’ replaced by a science of algorithms that fits neatly into our modern day culture of multi-tasking. I smile to think how Shakespeare might have twisted Match.com into his plot…’What’s in a username? That which we call rose128496046 by any other name would smell so sweet.’ Of course he would have mixed it up with a few appropriately placed emoticons along the way, but you get the picture.
Now that we’ve succeeded in putting love on a shelf next to our Cheetos and bottled water, let’s spin this pole dance into a useful lesson in economics 101. As with all my exposés, it really boils down to a single unifying concept. In this case, we can relate the benefits and costs of love as a commodity to a single market failure – information bias. When markets don’t provide sufficient information on a product or service, consumers can’t make rational decisions. And as we all know at this point, rational decision making is the keystone to neoclassical theory; without it, let the love dominos fall where they may!
Wide scale access to information is one of the major economic breakthroughs of the internet. If I had all the time in the world, I could in fact avoid buying environmentally friendly products that suck…but clearly, some obstacles remain. On the surface, we remove the information barrier by turning love into a tradable (and easily searchable) commodity. We are able to filter thousands of potential mates in a single swoop of passion’s net. As an example, I imagine true love’s kiss might have turned out a bit differently for Maleficient if she had someone other than that a-hole Stephan to turn to. But as usual, I digress…
So the general idea is that information is power, and power translates into rational decision making. Not so fast… It’s not just any information, but accurate information that matters. From an economic perspective, it’s comparable to the 57% growth rate Enron reported just before it went bust. But what was illegal practice for Enron is accepted culture on the internet. Anyone who’s dipped but a pinky toe in the online dating world can attest to this fact.
It’s not that this propensity to lie, cheat, and steal is new to online dating. Researchers have been beating themselves up for years over the so-called self-reporting bias, or propensity of study subjects to misreport their key physical traits on a survey – age, weight, etc. It doesn’t speak well to human nature that the only real solution to the self-reporting bias is to measure people directly and remove the opportunity to fudge the truth. So from the perspective of rational decision making, if everyone lies, and everyone knows that everyone lies, can’t we somehow account for this as love consumers? In other words, might we tighten the net so to speak and adjust our criteria to match the deceit? For example, in the online dating world, a woman who self-reports as ‘about average’ could reasonably be assumed to be ‘full-figured’, or for a man that self-reports as 6 foot, we can reasonably assume that this represents his height in 10 inch heels on a good day. But this introduces another well known conundrum in economics, which is best described as a ‘race to the bottom,’ whereby we all converge to 22 year old blond Olympic surgeons.
A good friend and fellow Tufts professor gave me the best advice yet about online dating. She is an expert in the field, with the truth in the pudding – she married her OkCupid match. Her advice was simple…you have to be willing to kiss a lot of frogs before you find your prince (or in my case, princess). That is to say, there is no substitute for the human connection. The only way to weed through the pile of potentials is to get out from behind your iPad pedestals and start kissing frogs. So my advice today for single students looking for love is simple – Pucker Up and Carry On! :*
Ahhhh summer. A time for dusting off those bikinis and bike pants, with most of us still looking like Count Dracula in the daylight and sporting ripples that only a winter coat can hide. It’s the season of barbecues, vacations, school breaks, and for a tenth of the adult population each year, the high school reunion! This rite of passage is like the flux capacitor that hurdles us back to our shallow teenage roots, and a mass convergence towards societal norms. As I approach my 20th reunion in a few short weeks, I can’t help but explore the economics behind this pimply ritual, with the added bonus lesson of better preparing my graduate students for the world.
So there are a number of ways I could twist the high school reunion into an economics lesson. To name a few…irrational expectations, perverse incentives, competition, and self selection bias. However, all of these stem from the common denominator of what we perceive as ‘value’ in society. For example, we develop irrational expectations of ourselves and others based on the value we place on certain achievements or personality traits. We compete based on this value system to outshine our peers, and we self select into reunion attendance based in part on our ability to project those values (falsely or not) to others.
So what do I mean by ‘value’ exactly? In economics, value is typically defined as the benefit you get from something, such as a good or service. So if you perceive something to be more valuable, you are willing to pay more (or do more) to get it. To understand what I mean by value in the case of reunions, let’s rewind back to high school ‘notables’. As a class, we assigned value based on certain desirable character traits such as ‘most likely to succeed’, ‘cutest’, ‘funniest’, etc. Fast forward to the reunion, and similar awards are often handed out to those perceived most ‘valuable’ among the class alums.
This leads me to the heart of this lesson – the ‘paradox of value’. The paradox identifies the apparent contradiction that things necessary to sustain and support life are often valued less highly than things we don’t need, with water and diamonds as the classic example (also referred to as the diamond-water paradox). From a neoclassical perspective, we can explain the mechanics of this paradox with a simple supply and demand graph. But it doesn’t disguise the point that our perception of value, if by value we mean things that really matter, is indeed fundamentally flawed.
Going back to those notables and awards, how about we take a moment to shake it up a bit? Because really, if you are good looking and successful now, chances are that your parents were also good looking and successful. Research shows that the dice are clearly loaded in favor of genetics and intergenerational transfers. Why not assign value based on the actual level of difficulty of life challenges and skip the popular preppies altogether? We might top the list of notables with ‘most kids out of wedlock’ or ‘most divorces’ or ‘longest time spent on unemployment’. Why not value our life challenges and differences as highly as those determined by circumstance and social norms? We might all learn something by dropping the silver spoon awards and taking a moment to truly look at our peers.
And so I challenge us to celebrate our differences, instead of exaggerate our likenesses. To support this cause, maybe we could all wear our weaknesses on our sleeves, literally. Why not add a dose of reality to our name tag…under ‘Hi, my name is Mary’, something like ‘I’m skinny because I’m too nervous to eat’ or ‘I’m a struggling single parent’ or ‘I barely survived divorce’ or maybe just ‘Haters, kiss my ass’ right next to a big rainbow sticker.
So that is my lesson for today in the paradox of value, high school reunion style. As for me, I can’t wait to rock the 90s with many old friends equally flawed as myself and not afraid to show it. Go Blue Devils!
My economics 101 lesson for today is not to my students, nor to the future policy makers they will one day become, but to the people that ‘make stuff’. Not the industry of people who sell or market the stuff that other people make, but to the designers, engineers, and scientists who create it. Because quite honestly, my students won’t be able to do their job and save the planet if you keep falling asleep on yours. And so the lesson begins…
I’m at the grocery store the other day doing a regular round of single mom speed shopping. I send my oldest to get scotch tape while the others finish a game of tea ball in Aisle 9. Much to my consternation, my son returns with double priced fancy tape. Of course my gut reaction is to impart a lesson in frugality and send him back for working class tape. But before I begin the perennial ‘money doesn’t grow on trees’ speech, I notice that this tape is marketed as ‘greener’. Assuming that this justified the double cost and seeking to impart a different lesson on my son that day, I agree to buy it and we enjoy a teaching moment in the importance of saving the earth one step at a time. With the exception of the angry woman who caught a tea ball to the head on Aisle 9, we left the grocery store with a self satisfied glow of doing our part. That is until we get home and figure out that the damn tape is worthless. It won’t stick, and it won’t stop when you pull it out. Pretty much the two things you need tape to do. So as we make a quick run to CVS to purchase the real stuff, I catch myself complaining to my son about the expensive worthless tape. At this point it dawns on me…the real lesson I imparted to my son that day is that environmentally friendly products suck.
Don’t get me wrong, I’m a reduce, reuse, and recycle kind of parent. But the tape debacle really got me thinking, and I started taking an inventory around the house of all the environmentally friendly products I have that suck. For example, those G diapers that my youngest defecated straight through as an infant…$100 investment in diaper infrastructure down the toilet. Or all those organic fruits and vegetables tossed directly in the compost because they went bad the day after I bought them, or maybe they just didn’t satisfy the taste buds of my environmentally unfriendly children. Or what about that toilet paper that scratched up everyone’s nether regions…now that was a nightmare. Or those double priced eggs I buy just to know that the poor chicken inmate is designated ‘cage free’, as if there is anything free about being an egg laying chicken.
So here is my economics lesson for the day… A rational consumer such as myself won’t be duped for long. We all make decisions every day and balance our choices and opportunity costs to maximize our well being, or utility in economics lingo. I show my preferences towards the environment by regularly purchasing green products. I’m convinced…’save the earth’, ‘buy green’, etc. etc. I believe in toxin free environmentally friendly products, and I’m willing to pay more for them. But that is not enough, and I have my limits. If the earth is made better off by these products, so too should be the people who purchase them. For goodness sake, make tape that sticks! Throw a single mom a bone and make a product that lasts for more than a day. Or eventually someone is going to catch on to this ruse and start a ‘shit on green’ campaign, and I just may be their first donor.
My young prodigies have all flown the coop…happy to move on with your A’s and B’s, bubbling with the self-satisfaction of having learned all you’re required to know about economics (or just plain happy you didn’t fail). As you enjoy a late New England spring before beginning unpaid internships in exotic locations like Framingham, I couldn’t help but draw you back into the fold for an important twilight lesson in economics 101. Or maybe we should call this economics 102, since you have all successfully completed the first phase of neoclassical indoctrination.
The lesson for today is love, sweet love! So hypnotically appealing, flush with irrational exuberance, love tips the fulcrum of neoclassical behavior to the dark side. As I write this, I’m reminded of the perennial Disney favorite, Bambi. Young Bambi and his pals Flower and Thumper make a pact to stick together, no doubt an old skool version of ‘bros before hos.’ Yet they fall like dominoes, ‘twitterpated’ to the sound of an annoying little songbird and the on screen appearance of a single hotty of their species. They don’t even bother to shop around before ditching their playmates! Now of course in the movie, they all have cute little babies to show for their excellent mate choices. But what’s to say that Miss Bunny doesn’t turn into a certifiable ‘bunny boiler’ in Bambi II (to get that reference, fast forward to Fatal Attraction).
Herein starts our twilight lesson… Economics is all about human behavior. We theorize about what people will do using a set of very important axioms. We need these basic assumptions so that we can tuck your behavior neatly into a little black box and say, ‘I predict you will do this’. We’ve already provided some examples on this blog…What will you do when I tax your Cheetos? or What will you do when I steal your bottled water? or How can we incentivize people towards better manners? The answers to all of these questions hinge on our ability to accurately predict human behavior.
So what makes love so different? Your behavior under the intense weight of twitterpation is 1) irrational, and 2) made with imperfect information. I will hold today’s lesson in market failure to these two neoclassical assumptions, although we could certainly use the love gun to blow holes in many others. Regarding the first, rationality assumes that you are able and willing to make the decision that is in your own best interest. Given that half of all marriages in the US end in divorce, I’m going to go out on a limb and say we aren’t very good at rationally selecting a mate. Part of this problem is certainly due to broken assumption #2. Everyone has an incentive to put their best foot forward to find a mate, and to hide their less desirable qualities. Kind of like a love toupee of sorts, except less obvious. In economics we call this asymmetric information…there’s a divergence between the information you have about someone and what you really need to know before you ‘make that purchase’. If you want to take it to the extreme, the only neoclassical conforming part of love is the breakup, because only then do you have the information you need to make an informed and rational decision.
So the old adage is true…people do crazy things for love. My socialist leaning students (of which there are many!) will be happy to know that your predictably unpredictable behavior flies in the face of neoclassical theory. Maybe your Solidarity Economics or New Economy theories have a better explanation, or maybe not. But coming from someone who has written enough love poems to qualify for a Master of Fine Arts, I will join you in accepting the fact that economic theory has its limitations. Love is blind, so feel free to keep rockin your rose colored glasses.
So now that we’ve shed light on the bottled water crisis at Tufts, I’d like to address yet another important externality on campus. This one literally smacks me in the nostrils every time I exercise at the Tufts gym…anonymous flatulence. I don’t want to point a finger, but since I’m the only person over 25 working out at this gym, I’m going to suggest this nasty lapse in etiquette is specific to Millennials. So it is to you, my stinky Millennials (you know who you are), that I share my Economics 101 lesson of the day.
How can we possibly connect gym wind to economics? Simple…it’s clearly a negative externality, in that your stink invades my personal space and you fail to account for the external costs of your actions when you light the area on fire. Those of us hard at work on the treadmill or elliptical can’t move to avoid you, and we can’t stop breathing for the 30 seconds needed for your externality to pass. Gym wind also has aspects of a certain market failure we refer to in economics as ‘moral hazard’. This is when someone does something bad or risky because they know they can never be held accountable for their actions. In terms of gym wind, the anonymity affords the culprit a level of protection from public disapproval. If we could somehow force these anonymous wind breakers to reveal themselves, we could conceivably charge them a gas tax. The gas tax would deter wind breaking to a socially optimal level by forcing them internalize their behavior, i.e. fart less. But unfortunately for those of us that suffer through your air pollution, it is impossible to identify you in a packed gym, hence this market failure remains intractable.
That leaves us with only one plausible solution…a public education campaign. In this aspect, Tufts could go a long way towards teaching our next generation leaders to be stewards of their environment. For example, Tufts could devote a series during orientation to proper gym etiquette. This campaign will also require a continual stream of friendly reminders throughout the year with optimally placed signage at the gym, lest our Millennials forget their manners. ‘Be a friend, stop gym wind!’, ‘Be hip, don’t let it rip!’ Pass it along my friends, figuratively and not literally, so that we can all enjoy our externality free public spaces!
Let me start by saying, I am an Aquarius and I love water. I love everything about water. My body is made up mostly of water, and I drink it all day long. In addition to loving water, I also love the Earth, which like me is made up mostly of water. I reduce, reuse and recycle water, and enforce a strict family water policy at my house – if it’s yellow, we let it mellow. I am an affiliated faculty member in the Water Systems Science and Society program at Tufts (although maybe not after my water rant goes live). Whenever I’m given the choice, I will pick clean tap water over bottled water every time. But sometimes I don’t have the choice, and sometimes it’s my fault…there are times when my overworked brain forgets the reusable water bottle at home. But dammit, I’m still thirsty!
Now that we’ve established that I’m a forgetful steward of water, my personal story of water conflict begins… I’m at the gym the other day, opportunistic exerciser that I am, and I forgot to bring my reusable water bottle. I need fluids to workout, and running back and forth from the treadmill to the water fountain didn’t make a whole lot of sense. So I made the perfectly rational decision to purchase a bottle of water. There are two vending machines at the gym full of beverages, but to my surprise, no water. So I begrudgingly settled for a sports drink, which left me overflowing with electrolytes and a zero sum calorie burn (not that I’m counting). I made a note to myself to tell the gym staff to re-stock their water, which of course I forgot.
Later that week, I was running late to class and had again forgotten my reusable water bottle. To be fair, I had remembered that precious piece of equipment in the days since the gym incident. So I hightail it to the campus center to grab a bottle of water. The first store was heavily stocked with the luxuries of the gym vending machines, but no water. The second store had all of the above, yet no water. Frantic for water and late for class, I ended up purchasing a plastic soda fountain container for $1.25 so that I could fill it with, yes, tap water!
A few Google clicks confirmed that the absence of water was in fact a conspiracy against absent-minded professors led by the student group TAP, which stands for Tufts Agua Police (or Tufts Against Plastics depending on your perspective). So it is to TAP that I share my Economics 101 lesson of the day – in substitutes and unintended consequences.
Lesson 1: Your misguided environmentalism forced me down the opportunity cost ladder to the next best substitute available to me – a sugary sports drink. You didn’t stop a market transaction from occurring, because you can’t stop me from being thirsty. In fact, you banned the one and only healthy option available to me. Any rational human being will choose to satisfy their thirst with what is available to them, first choice or not. So next time, take your thought process one more step and imagine what I might do when you take the healthy option away.
Lesson 2: Not only was that second best choice less healthy, it was also more environmentally damaging (more bulky PLASTIC Gatorade bottle) – hence the unintended consequences. So you in fact increased my environmental footprint AND my wasteline in a single swoop from your ivory tower. In this case I needed my water on the go, so a stationary water fountain was not a viable substitute. But even so, water fountains just aren’t prolific anymore…the ubiquity of bottled water has made sure of that. And all you need to see is one guy hock a loogie in the fountain, or even better, watch a child lick the dispenser, and you will forever avoid even the most convenient and well intentioned of water fountains.
Lesson 3: This is my bonus lesson. When you have a negative externality like plastic bottle consumption (water or not), assess the problem on a comprehensive scale. Explore the range of equally damaging substitutes available, and whatever you decide to do, do it across the board. In some really important public and environmental health cases, this may require a ban. Ban toxins in children’s products – I agree. Ban DDT in pesticides – again, I agree. Ban water at the gym – really? In this case, a more reasonable choice would be to assess a tax or fee on each plastic bottle sold (water or not) that raises the price and forces consumers to internalize the environmental damage of their actions. When I forget my reusable bags at the grocery store, do they force me to shop the candy aisle? Not unless the manager is a TAP grad. However, they may in fact charge me a plastic bag fee. Food for thought…
Regardless, dehydration is not an optimal strategy to draw support for your cause. So for Poseidon’s sake, give me back my water!
Something amazing happened in today’s economics class. Class ended but no one got up to leave. For the first time in my 10 years of teaching college, the papers weren’t rustling, book bags weren’t being filled, and students weren’t vying to be be the first out the door. I didn’t let it go unnoticed…I said, ‘you know everybody, time is up?’ After a brief moment with hands still up in the air and eyes intent on continuing the conversation, we kept at it well past the bell.
What, might you ask, could be so interesting in an economics class? Civil liberties with a dash of salt! Yes, the hotly debated snack taxes. Eating is such a basic component of human survival, where individual tastes, culture, access, and so many other factors influence our choices about what (and how much) to dish up on our plates. If we eat too much, we get sick. If we eat too little, we get sick. If we eat the wrong thing, we get sick. The list goes on.
Fundamental to the debate over snack taxes is whether obesity is an externality – if you eat too much does it negatively impact others around you? Stated a bit differently, is your private decision a public problem? Certainly one can make a case for increased health care costs, and there is plenty of evidence to show that being obese has a range of high cost consequences. But why stop there? In fact, the health consequences of being too skinny are equally damaging. Just to be fair, shouldn’t we balance it with a ‘skinny tax’? Fat chance…our society inflates the value of the anorexic model at the expense of the overweight mom. This highlights the value judgement that is so essential to what we determine a behavioral externality to be in America. As a married lesbian, I paid an inflated share of income taxes because my family was considered an externality, or a ‘public’ nuisance of sorts. I guess the idea was to tax me straight, or to death, whichever happened first. Lucky me, the government has recently changed their mind…I now enjoy the full rights of US citizenship as of last year (as long as I don’t leave the state of Massachusetts of course). Small technicality. How about sleep? I didn’t get a lot of that last night. It certainly impacts my performance at work, and no doubt my health over the long run. Tax my sleep, please! Maybe I will get more of it, because I really need the added push to collapse in bed at night.
But I digress… Assuming we believe that private eating habits are in fact a public problem, then economic theory suggests that a tax might indeed right that wrong. This is called the Theory of the Second Best. Using this logic, your consumption decision is manipulated by increasing the price of snack foods, with the intended effect of making you lose weight because the government has helped ‘nudge’ you in the right direction. Life of course isn’t always so simple. In one study where healthy food was subsidized to encourage people to spend more on non-junk items (essentially the reverse of the snack tax) people used the extra cash in their wallet to cross the aisle and buy Doritos. Talk about a waste of government resources! In much of the research, the snack tax is not generally projected to make a large dent in the obesity problem.
So if it won’t end up making people skinnier, which was the point of the whole exercise, then why tax snack food? Simple. To generate tax revenue. Using our economics terminology, the demand for snack food is relatively inelastic, which means that people aren’t super responsive to changes in price. From a tax perspective, this is ideal, because if people actually responded to the tax by buying a lot less snacks, then they won’t pay the tax, meaning the government gets nada. If this is starting to sound like a rambling conspiracy theory, you may be on to something. The government is going to set a tax to help ‘guide’ you into making the right decision about food, at the same time they make a killing off the fact that small increases in price won’t actually change your behavior all that much. The argument that these funds would be used towards a public education campaign is even more convoluted, because the money used to fund the campaign would be tied to the success of people not learning anything from that campaign. If they did in fact change their behavior and stop buying snacks, there would be no more money to fund the campaign.
So who pays this so called ‘fat tax’ that relies on people staying fat to fund programs to stop people from being fat? Well, that would be the 99.9% of the US population that buys snack food. We all pay more to fund this ‘program to nowhere’. But who really bears the burden? Snack taxes are highly regressive, meaning that the poor pay a disproportionate share of their income than the wealthy. Not a great solution if you favor equity. But what’s worse is this regressive tax is founded within a growing understanding about the presence of food deserts in this country. Believe it or not, research shows that there are many places where access to healthy food is extremely limited, and we aren’t talking about Mitt Romney’s neighborhood. People of color and low income populations, people without access to a car, these are the people that live in snack food havens.
I for one prefer not to slide down this slippery slope. Educate me, don’t tax me. Label food properly so that I know what I’m eating…seems like common sense. Subsidizing healthy foods might work if I trusted our government not to base subsidies on special interest corporate agriculture. And don’t forget, I can still use my spare change to purchase Cheetos. Unless of course the government bans snack food outright, in which case I will be the first to join the lucrative bootleg culture and set up a black market for snacks in my professor’s office. As for tonight, I’m going to kick my feet up, watch some Breaking Bad, double fisted with a bag of barbecue corn chips and a coke, just because I still can.