Microeconomics Archives - Page 2 of 2

RE: Does Technology Lead to an Existential Crisis?

I recently ran across a post on /r/philosophy by /u/_pseudointellectual that I couldn’t help but respond to.

The thread has since been removed, but you can read the original posters thoughts here.

There has been a lot of buzz in the tech community for some time now about the impending robotic revolution. This, for the most part, hasn’t bothered me, progress is progress. But I recently stumbled across this video on r/all and near the end, Elon Musk raises an extremely interesting question about meaning in life.

Now, this isn’t a post in which I want to start a discussion on our meaning (or lack of) in life. I’m interested in exploring the soon to be realities of those who don’t bother to even question existence but merely ‘get on with it‘ as if it’s a chore. Because this is a place we’ve gotten to in our modern capitalist society. Living, for a lot of people, has become almost a burdensome routine which main focus is situated on employment. So, what happens when those people lose their jobs?

Assuming Musk is right, that a Universal income is implemented and we end up having an almost socialist-like society; the majority of humanity being supported by a Government of some kind. Will this push people into an existential crisis? And possibly even be the cause of many suicides? A situation like this brings us all back to that wonderful -and albeit overused- Camus quote “there is but only one serious philosophical question and that is suicide. Judging whether life is or is not worth living amounts to answering the fundamental question of philosophy”.

Of course, as someone with a keen interest in philosophy, this prospect does in some ways delight me, I’m also struck with a chord of sadness for those that simply do not want to confront this reality yet.

What happens when people don’t know what to do with themselves?

EDIT: Also, what would this do to educational institutions? Will people bother getting an education anymore? How about business ventures, if the majority of the world has the same individual amount of wealth and that will suffice, does that entail mass apathy?

My response:

I can speak from an economic lens as that’s what I study, but it does have philosophical importance.

In the past, the economic importance of human labor was mostly the physical aspect and we were all employed with physical labor. i.e. farming, hunting, building

As those got pushed away due to technology, we shifted to a service economy. Most people today are employed providing some sort of often mental service to others. Financial advice, medical advice, being a philosopher, being an economist, writing, and organizing various aspects of society.

Some of these will be replaced by technology again if technology can produce as good or greater output at the same or lower cost. If we employ technology to it’s utmost peak we will be left doing things that robots can never do. Theoretically these things will be those concerned with what is unique to human experience manifesting themselves in art and creativity. This leads to a creativity economy instead of the manual labor economy or the service economy. Kevin Kelly said on an episode of the freakonomics podcast that the last job that robots will take from us is comedy.

As to your question on educational institutions, there are two perspectives on their utility relative to production. One that they grant us skills that we can use, and second that the fact that we have a degree or any form of educational accreditation is information for others to use in deciding if they want to hire us or relate their own choices to us in some way. However, education may also be consumed in the sense that if education is a value on its own, it will be pursued regardless of productive utility. Both this consumption use and possibly the second productive use of education will still exist post-AI totality.

How’d I do? Other thoughts? Thoughts on basic income?

Photo Credit to http://www.chilloutpoint.com/featured/human-and-robots-visions-of-the-future.html

Economics and Plot: Vol 3, Genres

If you have not yet read Vols 1 and 2, do so before reading this article.

This volume will cover multiple different genres or approaches to writing a narrative, and how the
applications of economic theory can be understood within and complement each style of storytelling.

Historical Accounts & Non-Fiction

It is difficult to think of historical accounts as being an art form, but in fact if plot has real artistic value than what is history, but a series of events, characters, and actions that took place in the real world. It is quite harder for one to come up with a plot hole when writing a piece of nonfiction, because there are no plot holes in history. Because we are so confident of the economic integrity of historical accounts these stories can also be used in the greater discipline of economic theory and the study of choice. Historical examples are used to support or refute theories as long as the sources can be trusted because it can be held that those past events follow true economic laws.

Fiction

The realm of fiction is where a lot of the skill of an artist comes in formulating a plot. Anything can be made up to fit the story that the author wants to portray. This comes as a freedom for the writer but also a trap with which they can easily make mistakes in. Historical accounts are almost by necessity relatable to the real world because of both the economic laws found in them and the real events that relate to the present world. For fiction writers, the author must be incredibly careful to have the plot follow proper economic reasoning or else the connection and meaning of the work will have little effect. The only limit of a fiction writer is their imagination meaning that they can create any premise from which to start their plot. This gives them an incredible range with which to create plots that convey a meaning and is likely why most works that are considered with artistic or literary merit do not limit themselves to non-fiction. This may also have to with the fact that many facts in history are unknown while a fictitious story can have every single detail filled in by an ambitious writer.

Allegory

Allegory may be a somewhat synthesis between the real world non-fiction plot and that of a fictional story. In an allegory, the author creates a fictional story with a plot that includes many plot events, characters, and actions that exist in the real world as well. It is a way that an author can write the non-fiction story while being able to fill in all necessary plot gaps, and also use their freedom of fiction to accentuate scenarios that they see as important or want to emphasize. Allegory uses the plot to not only bring in connotations from the possibility of those choices within it’s own plot, but also to raise connotations from the non-fictitious plot of the real world. After those connections are established the author may further their own plot into how they believe real choices and their consequences will be within their own fictitious model of non-fiction.

Fantasy & Science-Fiction

It may seem initially inane that the problem that a knight has while battling a dragon can have any relevance to attributing meaning to any problems in the real world, but often fantasy and science fiction are cited as some of the greatest works of literary achievement. It is easy for a creative writer to design a dragon or a spaceship that does not exist in reality, but it is very difficult for an author to create a plot that does not follow economic law. Even wizards evaluate means and ends, and in one way or another try to maximize their utility. Markets still function in the same way even if they are for space widgets rather than earth widgets. Fantasy and Science Fiction are used often with allegory to create a fictional world in which fantastical creatures and aliens are exaggerations of the real world things which they represent. It is difficult to use other scientific possibilities to represent reality, and the use of fantasy and science fiction are an incredibly powerful shortcut for writers to use in connecting their fantastical fictitious world to the real one.

Games

A game is typically not thought of as a plot, but in fact might be the best example of one. In a game the rules and setting are the economic environment, the players are the characters, and the various choices they have throughout the game are the determinants of the plot. This may not apply to certain abstract games such as puzzles. The only thing that game designers choose are the rules and the design of the game pieces. The rest is left up to the choices of the players, and the rolling of dice. A game designer may use the theme of a game to allow players to realize the connection between the choices they are making, and what they are valuing to a real world example of someone in that situation.

The goal of these posts was to synthesize the understanding of what makes a plot work and how choices are made in the real world. The validity or relevance of a plot being based on the having its plot points connected to economic law is the same as the validity of a painting having its colors be within the range of the light spectrum that can be seen by the human eye. Different genres function similarly to different strokes of a brush. Games are analogous to the painter being able to draw themselves and others into their painting. If we can consider a painting beautiful because of the connotations that it draws the viewer to because of its masterful combination of color, then we can consider a plot beautiful because of the connotations that it draws the reader to because of its masterful combination of economics.

Picture credit to http://www.holyworlds.org/blog/?p=1494

Two Christmases and a Birthday Worth

There is a lot of economics in Christmas, and I’ve been waiting to post this article since I first saw a recent episode of South Park. South Park just recently finished up its 20th season in which they commented on a wide range of topics as they usually do. However, one particular joke in one particular scene stuck out to me.

Did you catch it? When Cartman’s laptop, iPad, and iPhone are being destroyed he pleads to the boys by saying “This is like two Christmases and a birthday worth of stuff!” Imagine if Cartman had been perhaps a 30 year old man. He very likely would have cried out, “This is like 3000$ worth of stuff!”. Kids, especially before they’re teenagers, are in a very different economic situation than most people, but they still function alongside many of the same basic rules.

Money is used for many different purposes, one of which is that it functions as a unit of account. This means that when we try to measure value between items we refer to how much money we would be willing to spend on it to give our desire a numerical value. Since money is divisible, transferable, and valuable it lends itself to this use. However, it is only useful to this purpose from a perspective where you are actually using money regularly.

Children rarely buy a majority of their own needs with money, but they still spend something. When an adult spends money on something their cost is an opportunity cost. They lose the opportunity to buy the next best thing for the same amount of money. Kids often make a list of things that they want for Christmas, and they also often order their list. When children ask for the top present for Christmas or their Birthday they lose the opportunity to ask for the second thing on their list. Thus to children, Christmases and birthdays function like a unit of account allowing Cartman to say that his electronics are worth to him Two Christmases and a birthday. Gift-giving occasions are still not money as they can’t be exchanged, spent on anything, or saved up over time, but they offer a route for children to receive one of the many societal benefits that we gain from a currency system.

METALLICultural Costs

When I first Metallica Concert listened to Metallica it changed my life. Before a certain point I would have told someone that asked about my musical tastes that I outright didn’t like music. After Metallica, and the subsequent dive headfirst into headbangerdom I would proudly call myself a metal-head. Recently, Metallica released a new album, Hardwired…To Self Destruct, so I thought it appropriate to write about an idea that I got from experiencing Metallica myself and delving deeper into the history of thrash metal culture. What makes Metallica, thrash, and metal unique to other more popular genres of music is that the music is directly tied to a greater culture, and that culture incurs certain costs. Metallica just so happened to be born in the right place at the right time.

Firstly, we need to actually define what a culture is. The way I want to organize this is by designating culture to a special kind of utility. Cultural utility is unique from other kinds of utility in that cultural utility is the satisfaction gained from a good or activity because it is shared with others. You cannot have culture with only one person. On my own, I can listen to Metallica in my room or in the car, but at that moment I am not gaining cultural utility. The cultural utility of Metallica comes when I go to a concert, or when I talk to a fellow fan and we share the bond that the music creates. A more grounded example would be with the way that we use the road. If there were no other cars on the road, driving on the left or right side, would be largely indifferent to most people. However, since the road is usually filled with many cars, the cultural utility of us all driving on the right is great as it prevents accidents. None of us really have ever made the explicit choice to drive on the right side, but the government recognizes that a law like enforcing driving on the right provides cultural utility.

So with every culture, there are two necessary costs. One is the cost of producing that specific good or service which is shared. The other, since we’re dealing with multiple people in culture, is communication or transaction costs. So if either one of these two costs is high, a culture may have a difficult time taking root, and when they are low new cultures have the opportunity to spring up. The most basic example of communication and transaction costs being low is when people live very close to each other. It’s not too hard to yell at someone across the street, or to make a short distance phone call. This is often why we like to think of cultures in terms of ethnicity or country.

Now that we have this theory, we can apply it to Metallica and the Bay Area Thrash culture. Thrash metal bands are known for mostly coming out of the San Francisco Bay area, but Metallica actually originated in Los Angeles. Los Angeles was saturated by glam metal bands, which were the opposite of everything that Metallica stood for. However, record labels would only pick up glam bands, as they were the ones who made the money. Thrash bands didn’t have a way to produce their music on a massive scale. However, during this time the costs of recording studio equipment were falling, and a new record label Megaforce Records popped up to sign Metallica. The still prevalent Metal Blade Records opened to sign other bands like Slayer. The recording costs in this case are the same as the costs of producing the shared good, the music.

But only producing music would not have created the cultural explosion that it did. It needed an easy way to communicate. For thrash, it was cassette tapes and metal magazines. Cassette tapes allowed thrash fans to easily reproduce the music and spread it to friends anywhere in the world. Magazines allowed them to talk to each other, and consolidate information on bands such as tour-dates or album releases. These both contributed to the ease with which the thrash culture was able to grow, and how Metallica was able to be as dynamic and wild as they were when they finally reached San Francisco.

So thrash was built on the backs of not only talented musicians, but savvy entrepreneurs who built the thrash metal culture and studios, tapes, and magazines. There may be out there cultures who are not dependent on communication costs or the costs of producing the cultural good. If you can think of any more interesting examples that either confirm of break this theory, leave a comment. Regardless, Metallica is still super metal. \m/

Photo from http://marklange.typepad.com/blitzkrieg/2013/08/metallica-returns-after-20-years.html

Information from Metal Evolution Episode 6: Thrash

Democritus’ Atom of Economics

The Greek philosopher Democritus pioneered a theory in physics that all matter is made up of indivisible, invisible, and homogeneous particles called atoms. All of the laws of physics were based upon the properties of atoms. Modern physicists do not believe that atoms have these exact properties, but that they are made up of further particles, electrons, neutrons, and protons, which are made up of even further particles. However, physicists can draw on some fundamental truths which function to modern physics the way that the atom functioned to Democritus’ view of the natural world. Namely, these truths are that matter and energy exist and have certain qualities that interact to create the physical world. All of thought that is in light of these two truths is what we call physics. Why matter and energy exist in the way that they do is left to other fields such as philosophy, theology, and perhaps even math. For every field of study there are fundamental principles upon which it is based. For math, these might be self-proving theorems such as 0=0 or 2<3. For biology, these are the existence of cells which interact in various ways to create life. This is all related to the question which I want to answer today. What is the “basic particle” or “Democritus’ Atom” of economics (I think I know the answer I just wanted to go through a few things first).

Economics students first learn that people deal with utility. Utility is the value that something has in light of the goals of the actor. In that sense, isn’t the entire economy made out of utility? At every single level of the economy, with every single step, we encounter utility. Does this make utility our basic particle? I don’t think so. The nature of utility doesn’t explain why the economy is the way that it is, in the same fashion that the laws of energy and matter explain the entire physical world. Utility merely functions similarly to how potential and kinetic energy function in the physical world. It keeps goods flowing through the economy as it gives those goods reasons to move and their actual motion.

So what about the resources? Could the goods that hold the utility be our basic particle? Utility is just a quality that various goods and services hold in the eyes of actors. Goods and services are at every level and step of the economy along with utility. All market transactions involve some form of goods whether it be labor, money, or other physical goods. It would be hard to imagine an economy without goods and services. As with utility, their ever-presence does not make them a fundamental principle. Again the various qualities of the goods do not explain why they are where they are in the economy, or again why they have as much utility to various people as they have.

Alright enough screwing around. In physics what is being studied is the interaction of the qualities of matter and energy to create the physical world. In economics, it is the interaction of finity and decision-making (sometimes rational, sometimes irrational). Every interaction of energy and matter results in a physical event, and every interaction of finity and decision-making results in the phenomenon which we call scarcity and an economic event or economic choice. We then come to the already accepted definition of economics; the study of choice.

Being that this is a playground, let’s play around with this. Suppose neither finity nor decision-making existed. This world has infinite possibilities and no way to discern between them. There we cannot perceive economics. Suppose only one existed. If there were finite material yet no decision-making agents, then there is only so many possibilities yet again no one to make choices between them, and they play out on their own. The situation in which there are decision-making agents yet infinite material is the same as the famous question, “What is the economy of heaven like?” The answer is that there is no economy in heaven. The decision making-agents already have all that they could possibly perceive as valuable and therefore have no need to make choices.

So there we have it; the economic choice is our economist’s Democritus’ atom. The other proposed ideas of utility and goods are very core properties of economic study, but are still emergent from the economic choice. Utility exists because there are agents which have goals to which they assign utility, and the resources have utility because the agent is trying to manage around their scarcity. This fundamental object of the economic choice is what separates economics from other disciplines even though it is still dependent upon other fields such as physics and psychology. The more that economics focuses on its own base particle, the more confident we can be in a new economic idea.

Physics Proofreading credit to Amartya Banerjee

Photo Credit: http://www.iep.utm.edu/democrit/

Exclusive Interview with a Candy Market Broker

I haven’t yet mentioned my career before starting this website, but I used to work for my family’s candybroking business in the BMCE (Bryn Mawr Candy Exchange). Today I conducted an interview with a close associate of mine from my candybroking days, my sister, Miriam Shera.

Q: So Miriam, How have you been?

A: I’m doing fine. Our parents have been doing fine. They’re still alive. They want you to call more.

Q: Can you discuss the unusual spikes in price that occurred in the mid-Fall quarter of the candy market.

A: It’s referred to as the All Hallow’s eve effect. Our market analysts have been unable to explain why it occurs only that it is a constant trend in late October, in which suburban candy demand skyrockets as a result of costumed marauders threatening locals with a war chant of “Trick or Treat”. The demand here is really one for security.

Q: Can you describe these costumed marauders?

A: They seem to wear a wide variety of costumes making it unable to track their origin. Costumes tend to focus around figures in popular culture or more traditionally horror themed. Some of them seem to be nonthreatening, but since there is no way to know where they come from, no one is willing to take the risk. They seem to be attracted to pumpkins like moths to a light, and some have had success at deterring gangs by merely turning their house lights off.

Q: How does this affect your candy trading?

A: Honestly, it gives us a big boost. This period is consistently a bull market as most candy firms tend to raise their prices to adjust for the newfound utility of candy, crime deterrence. Many insurance companies also subsidize candy buying in order to prevent having to pay for property damages.

Q: This season have there been any particular trends that you noticed.

A: There are a few industry standards such as the consistent success that candies like Kit-Kats and Snickers have, but this year we were willing to take a risk and invest in Almond Joy.

Q: Has anything come of that?

A: I can’t reveal too much information, but it appears to have been somewhat of a bubble as a majority of the stock that we accumulated inexplicably disappeared after the bag was left open near Dad’s desk.

Q: Other than that how profitable have you been this year?

A: We’re weighing in at about 1500g of sugar, up from our down round last quarter.

Q: Where is the market going as you see it?

A: Two words. Fun Size.

Q: Is there any advice that you have for prospective candybrokers?

A: You really need to know the products you’re working with. You can’t make in this business without getting your hands sticky. And you have to be prepared just because you’re on a sugar high doesn’t mean the sugar crash isn’t coming soon.

Credit to David Shera for the idea.

Can Philosophy be Specialized?

I’m better than you at X, and you’re better than me at Y. This seems fairly intuitive, but is a really important concept in economics called the Law of Comparative Advantage. Basically, if I engage in X I’m giving up less productive time in engaging in Y, and if you engage in Y you’re giving up less productive time in engaging in X. It’s a bit more complicated than the way that I describe it here, but that’s another lesson for another time. The important thing is that this results in the phenomenon that we call specialization or the division of labor. These are things in the economy that most people take for granted such as the fact that there are certain people who specialize in medical work and we call them doctors, and there are those of us who specialize baking cakes and we call them bakers. The division of labor makes people more productive, and therefore people have an incentive to behave in this way making specialization a cornerstone of our economy.

There are certain things that might pose a problem to the productive efficiency of specialization. Perhaps, some things, if specialized, lose a part of their value. When you specialize you are placing the production process upon someone else. So are there goods that derive a part of their value from the production process? When we engage in creating an idea, the production process is the various logical gates or hoops that must be jumped through to come up with a valid idea. In the case of philosophy, a philosophical idea is produced when one creates a set of proofs that have true premises and a valid argument which would lead to a true conclusion. To understand what makes this good valuable, we need to consider why anyone would engage in producing a philosophical idea. If it is only so that they have the final product, the conclusion of the argument, to guide their actions buy, then anyone could go to the philosophy store and pick up a package of conclusions to valid arguments. However, this isn’t entirely true. A large portion of the reason that we engage in philosophy is not only to know what conclusions to act by, but also to understand the process by which they are arrived at in order to make ourselves feel more secure on the conclusions that we live by.

“Believing things on authority only means believing them because you’ve been told them by someone you think trustworthy. Ninety-nine per cent of the things you believe are believed on authority. I believe there is such a place as New York. I haven’t seen it myself. I couldn’t prove by abstract reasoning that there must be such a place.”

-C.S. Lewis

Taking things on authority is not a bad idea as Lewis states, but just because it is okay to believe people in whom you trust does not mean that this is true of all ideas at every level. If Immanuel Kant was to approach me today and tell me that I should not murder, am I now to trust him and not murder? My trust in him is based mostly on the fact that he is well established and reputable philosopher, and many people revere his work so I can trust that his argument behind “Thou shalt not murder” is sound. If I live my entire life based on true conclusions of philosophical arguments, one could say that I am acting morally, but did I gain the full utility of philosophy?

A large reason that we can’t take philosophical conclusions based purely on authority is that in the real world, even if a philosopher is reputable they may be wrong, and we want to do our own proofreading of their argument. There are many opposing conclusions out there, and we need to do our own processing of the arguments behind each to figure out which one we believe to be most true. If we were to take a conclusion based purely on authority than we are leaving ourselves vulnerable to a situation where another conclusion is proposed to the problem we are trying to solve by an equally reputable source as our previously held conclusion, but since we cannot tell the difference between the validity of either argument we are left in a philosophical limbo where we now have less knowledge than we had before.

Does this mean that philosophy cannot be specialized? Let’s imagine a world in which no philosophy is specialized. Everyone does their own philosophical proofs starting from cogito ergo sum. This would take incredibly large amounts of time, and if every person was to do all of the other activities of their life in addition to creating their own philosophy then no one would get very far in life, philosophy or otherwise.

In real life, we have come to a consensus. The kind of specialized philosophy that I have been describing could be called perfectly specialized philosophy, in which there are designated people called philosophers who produce a philosophical conclusion which are accepted on authority and directly applied to the life of the consumer for an ambiguous amount of utility. In reality philosophy is specialized, but not to this perfect degree. The philosopher creates arguments and conclusions and puts them into the world for people to either accept or to criticize and modify to something that they believe is more accurate to live by. Perfectly specialized philosophy may occasionally create individuals who do the morally correct thing, but it does not give the consumers the personal comfort of additional confidence in the good they are using nor does it allow them to distinguish from other philosophical ideas.

To put this into more economic terms, we could consider the perfectly specialized philosopher to produce consumer goods. The philosophical conclusions are the part of philosophy that we directly apply to our actions so that we derive more utility from our life. People cannot really choose an action based on its actual utility, but act on how much utility they expect to gain from it. A philosophical conclusion in and of itself does not communicate to its adherent how much utility they might gain from it. Therefore, what the real life imperfectly specialized philosopher does is create the various productive such as factors and relevant premises that they analyze and organize for their followers to produce conclusions from themselves. At the very least they show the entire process, and allow the public to understand and consume them at some degree.
So in fact many things that seemed perfectly specialized may in fact not be. Even the baker who makes the cake to the very end does not lift the fork to the diners mouth. The basic Law of Comparative Advantage still holds true in light of the productive complications that philosophy holds. There are those of us who are better at engaging in the activities that are useful for philosophy, and therefore those become philosophers as they are more productive than if those same people became construction workers.