TCS Daily


The Benefits of Thinking Economically

By Kate Smalkin - September 24, 2007 12:00 AM

Transaction costs. Externalities. Pareto superiority. Sound daunting? Imagine a young woman, just months out of university and having spent the last four years wandering, wide-eyed, through the worlds of Dostoevsky, Steinbeck, Voltaire, and Gide. Suddenly she finds herself in beautiful Bozeman, Montana, plunging headfirst (with no helmet) into the classics of political economy, amongst a handful of brilliant scholars. Economic terms work their way into her daily conversations. She dreams of free markets and Adam Smith's invisible hand. Is this really the same girl who once cast aside economics as the truly dismal science? It may come as a surprise that the mystery heroine in this tale is me, and the setting is my summer internship at the Foundation for Research on Economics and the Environment.

One of the first texts I encountered this summer is the late theologian-economist Paul Heyne's introductory economics text The Economic Way of Thinking. Right out of the gate, Heyne makes his methodological objective in teaching beginning economics quite clear: "It is economic theory that gives to economics almost all its predictive or clarifying power. Without theory, we must grope our way blindly through economic problems, conflicting opinions, and opposing policy proposals." Marginal costs and average variables aside, Heyne presents economic theory in a manner perfectly palatable to the non-economist.

Heyne conceives of economic theory as "a set of concepts designed to bring out the implications of one fundamental presupposition: All social phenomena emerge from the choices individuals make in response to expected benefits and costs to themselves..." My primary goal here is to show non-economists that you do indeed make such self-interested choices in your everyday life.

Your weekly trip to the supermarket is a hotbed of costs and benefits. Your costs include not only the final total at the register, but also the time you spend shopping. As the old saying goes, time is money, i.e., it has value. The economist sees your time as a scarce resource, and when you spend it doing one thing, the cost is all the other things you could have been doing—like working, having coffee with friends, playing with the kids, or even cleaning out the garage. Foregoing these other activities are costs, what economists call "opportunity costs." All costs are really opportunities lost. We forego opportunities constantly to take up others perceived as more beneficial to us—and most of us would gladly sacrifice many activities to feed our families.

Another economic concept that sneaks into your everyday life is marginal analysis. Paul Heyne offers a straightforward example of this grand-sounding term. Suppose your significant other (with whom you are quite enamored) phones you the night before an important exam. He (or she) would like to come by for a few hours of quality together time. The decision you face is a marginal one: what are the costs and benefits of my options in this particular case? Although a few hours of QT usually wouldn't hurt, in this situation a few hours of fun may result in a less than satisfactory grade. Alas, you realize that, on this particular evening the costs of a typically welcome interruption do not outweigh the benefits of extra cram time. Quotidian examples such as these help illuminate the economic underpinnings of our everyday activities.

My theoretical ambitions revolve around communicating to my peers, through examples like those above, that economics is much more than a collection of graphs and equations. According to our scholar-in-residence Professor Steven J. Eagle, one must remember that economics is not about money at all—it is about "choices made in a world of scarcity." Not only does this way of looking at our life activities make a great deal of sense, but it is a way of thinking that neatly bridges the gap between economists and their less economically-minded fellow citizens. If we all begin to think of ourselves as economic actors, new ways of seeing the World will open for us, and many intractable problems (environment, war, etc.) might be better attacked. If a young future theologian can benefit from the economic way of thinking, so too can you!

Kate Smalkin is at Yale Divinity School pursuing a M.A.R. in Social Ethics. This summer she was an intern at the Foundation for Research in Economics and the Environment, in Bozeman, MT.
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72 Comments

Charity vs welfare
Compare the economic benefit of charity with the economic costs of welfare.

Compare the economic benefit of harvesting organs from poor people unable to pay for care
with the economic costs of treating them.

Apparently
you're too illiterate to understand that anyone with half a brain or more knows that keeping a poor person alive and healthy so that s/he can become more productive is far more economically beneficial to all than "harvesting organs", which seems to be a pet obsession of yours.

You also stated, whether you meant or not, that poor people cannot afford to pay for their own organs, which is an absurdity (but at least you made me laugh). Did you mean that the poor cannot afford the health care or the nutrition to keep themselves alive? If that's the case, then the solution is to make it so they can afford those things, which in case you didn't notice is what is being discussed at TCS Daily every day.

We have been trying to teach you that one of the two legitimate purposes of government is to protect people from violence from other people. If somebody is trying to harvest somebody else's organs without their consent, that does constitute violence, and they will be prosecuted.

Why are the poor in the USA so fat?

My question is how did you like studying in Bozeman?
The whole valley is a pretty cool place! I happen to really enjoy the Museum of the Rockies among the many other MSU-related activities in the town. But, mainly, did you find the learning enviroment to your liking?
Just wondering.

Diet
Poor people live on heavy processed pasta and carbs and high fat meats. this is because they are the least expensive fillers.

Exercise
Most poor people live in less than stellar neighborhoods. Going out for a jog, or to play in the park, is running an obstacle course of muggers and druggies. Most can't really afford gym memberships.

genetics and attitude
Many of "the poor" also come from parents and grandparents who were bigger or even obese.

Part of the reason for this is that many were raised to "eat everything on their plate" for several generations and have passed along the attitude of overeating. If you've ever spent any time wondering when you will get your next meal, you learn to eat what you can, when you can. When the meals start coming regularily, that compulsion doesn't end.

So you think investing in people is a good idea? Great!!! So do I!!
but do the math. you have an inner city someone, call him T, brought into the hospital with a gunshot wound. They have no education and no prospects. Their prospects are for a life of under or unemployment (using public services) or a life in prison, at $60 or more a year taxpayer expense, after they recover from the $15,00-25,000 emergency treatment at taxpayer expense. Surely the economic thing to do is to harvest organs and recover all the wasted money.

I bring this up not to seriously suggest that it be done, but to show the limits of "thinking economically." My views are that if we as a society were serious about investing in people, T. would have a good shot at going to a good college and making a contribution instead of being thrown out in the trash dump. And blaming T or his parents really doesn't help: we're paying anyway. Why not pay for good results?

>We have been trying to teach you...
Instead of "teaching me," why not try to argue your case with facts and without stupid snide comments?

you think that the only possible way to "invest" is by force, through govt.
people who are capable of rational thought disagree with you.

Beans and rice
Many in the the third world do very well with beans and rice. They are filling and can be quite nutritious and CHEAP.

Many SW Indians who strayed from this diet became fat and diabetic.

People can't leave?
In winter, malls open for people to walk. Walking is great exercise.

Attitude
Ignorance and apathy are two biggies.

As long as the welfare keeps coming in, why not eat what tastes good instead of what's good for me?

T doesn't WANT to go to college
Ever ask T what he wants to do?

The best investment in people occurs in K-12.

Yet the 'progressives' oppose most efforts to improve public education. Vouchers and charter schools have proven themselves, but are violently opposed by 'progressives'. What kind of progress do they want?

Maybe the US is COMPLETELY different
Or perhaps the prejudices are just the same.

http://www.spiked-online.com/index.php?/site/article/3674/

not the only way, but a way.
and I don't think anyone capable of rational thought disagrees.

T doesn't have to, but yes, education is investment
And I don't know anyone who is against the idea of charter schools. Vouchers are different issue.

Exactly right
but mac & cheese is just as cheap in many cases and much easier to prepare. Also, things like "hamburger helper" make a $6 meal for four using two bads, fatty meat (hamburger) and pasta.

Malls???
Alas, no, they don't see that alternative and moving is never cheap.

How many malls are there in south-central L.A. (for example) and for many, the two to four mile walk to the mall would be all the exercise they need. But, again, getting out is a time for caution, not taking a quick walk for enjoyment or exercise.

More like stretching those food stamps
Don't even try to blame this on "welfare". The option for a better diet isn't that simple. Yes, as I pointed out, apathy is one issue, but it isn't that significant by itself.

NEA opposes charter and vouchers.
And anything that would lessen their power.

"option for a better diet isn't that simple."
Why not?

The 'bads'
The bads are really sugar and starches. Anything that causes your blood sugar to spike. These include bread, potatoes along with most softdrinks.

But every person is different depending upon what part of the gene pool his ancestors came from. Some do better on high starch other on meat and milk.

then take it up with them
I'm not a member.

You don't know any teachers?
"And I don't know anyone who is against the idea of charter schools. Vouchers are different issue."

Mule

I know teachers, including some who teach in charter schools
But go peddle your libertarian cure-all elixir to the suckers.

This was a lie?
"Name: Lemuel
Subject: T doesn't have to, but yes, education is investment
Date/Time: 25 Sep 2007, 8:24 AM

And I don't know anyone who is against the idea of charter schools. Vouchers are different issue."

Are your charter school teacher freinds in NEA?

All I know is what my friends tell me
They teach in charter schools. I have no idea what organizations they are or are not members of. If you have an issue with the NEA, why not go take it up with the NEA?

But for your personal edification, here's the NEA official statement on charter schools
Do you ever check your facts before you shoot off your mouth???

Charter schools are publicly funded elementary or secondary schools that have been freed from some of the rules, regulations, and statutes that apply to other public schools, in exchange for some type of accountability for producing certain results, which are set forth in each charter school's charter.

NEA believes that charter schools and other nontraditional public school options have the potential to facilitate education reforms and develop new and creative teaching methods that can be replicated in traditional public schools for the benefit of all children. Whether charter schools will fulfill this potential depends on how charter schools are designed and implemented, including the oversight and assistance provided by charter authorizers.

continued at:

http://www.nea.org/charter/index.html

Again, right on
but that is the situation. Lets see, lucky charms for breakfast, Mac & Cheese and a Coke for lunch and spaghetti and cool aide for dinner. A little light on the starch, but plenty of fat, carbs/pasta and sugar.
BTW, my sister is a diabetic and pasta is as bad, or worse, for her than a potato. About the only thing that isn't a potential fat producer is lean meat, fish or poultry. (emphasis on l-e-a-n with all three).

But you hit the nail on the head, genetics plays a huge part.

Have you ever really known anyone who is living on food stamps?
Some do make out like a bandit, and I don't understand just how that works; but most don't. The reason is that food stamps are only suppose to be a "sumplement" for your food budget. But a true "welfare mommy" has a zero budget for everything. Thus, when she is trying to get what she needs for the month, the food stamps often come up short. Now, granted, if the lady would buy the base ingredients for bread, oatmeal instead of sugary cereal, don't buy soft drinks, etc. she might be able to stretch those food stamps to cover her food expenses.

Really, who does that these days? How many even know how to cook from scratch (besides me)?

She will buy loaves of bread, buy the sugary cereal and buy the other cheap, quick foods; she will do this because it is what she knows how to do. She will also do this because it is cheap compared to fresh vegetables, fruits and lean meats and easier to prepare. She may also do this because she can't afford to keep the power on and these things can be eaten without cooking.

These (and the things I've listed above) are just some of the reasons poor people get fat at a much higher rate than the rest of the population.

There are some very cheap vegitables...
...carrots are cheap and do not need to be cooked, mustard and collards are very cheap but are mostly eaten cooked. Some clover and other weeds are good to eat, as my grandmother from Sicilly showed taught me. Bannanas are cheap. Being fat may make it difficult to make more money. Also wealthier people demand more health and thus are thinner. But IMHO what seems more likely than anything else is that whatever causes people to be poor, even though they live in the USA, also causes them to be fat. I lived in Honduras and poor people there are never fat. Even when I was a kid some poor people here in the USA where skinny becuase they could not get enough food to be fat. You rarely see that kind of paverty here anymore.

This can be blamed on both poor criminals and poor policing
"Most poor people live in less than stellar neighborhoods. Going out for a jog, or to play in the park, is running an obstacle course of muggers and druggies. Most can't really afford gym memberships."

I think that if poor neighborhoods where safe people would not mind liveing there at all!

Many of the poor in this part of the country are rural....
...plenty of room to walk around the mobile home but to me they still seem to be fatter on average than middle class and rich people. I will have to look and see if there is reseach on weight and rural verses urban.

I'm sorry, I guess I missed your admission that you were totally wrong about the NEA position
Or maybe you just figure, since you're wrong about so many things, it's no big deal.

Found this need to look for more...
http://www.ruralhealthresearch.org/staff/350/
National Study of Obesity Prevalence and Trends by Type of Rural County
Author(s): J. Elizabeth Jackson, Mark P. Doescher, Anthony F. Jerant, L. Gary Hart
Research center: WWAMI Rural Health Research Center
Citation: Journal of Rural Health, 21(2), 140-148
Date: 2005
To estimate the prevalence of and recent trends in obesity among US adults residing in rural locations, the authors analyzed data from the Behavioral Risk Factor Surveillance System for 1994-1996 and 2000-2001and found that in 2000-2001 the prevalence of obesity was 23.0% for rural adults and 20.5% for their urban counterparts, representing increases of 4.8% and 5.5%, respectively, since 1994-1996. The highest obesity prevalence occurred in rural counties in Louisiana, Mississippi, and Texas; obesity prevalence increased for rural residents in all states but Florida over the study period. African Americans had the highest obesity prevalence of any group, up to 31.4% in rural counties adjacent to urban counties.

Maybe but here is the other side...
http://www.econtalk.org/archives/2006/09/the_economics_o_5.html
http://online.wsj.com/public/article/SB115634907472843442-NmcS19APt4UJABCJbnvmngnOK1c_20070824.html
"Darius Lakdawalla writes: Without a doubt, obesity rates and body weights are higher among the poor than the rich, as they have been for decades. However, weight has been rising just as rapidly for the rich as for the poor. The "equal opportunity" spread of obesity points to causes that affect all groups in society, causes like cheaper food and more sedentary activities. Data from the CDC's National Health Interview Survey -- one of the primary sources of information about trends in American health -- illustrate how the growth in weight has cut across class lines in America. From 1976 to 2001, a 5-foot-10 high-school dropout would have gained 16 pounds, but a college graduate of that height actually gained slightly more. Moreover, during this period, the rate of obesity doubled among high school dropouts (growing from 12% to 25%), but it tripled among college graduates (rising from 5% to 17%). Today, more than one in six college graduates is obese."

Oh my!
I had no idea that my little piece would generate such vigorous discussion!
I would like to address Lemuel's point concerning the limits of "thinking economically." I would be quite frightened if any reader of my article did not acknowledge the fact that economic thought, or ANY kind of thought for that matter is indeed limited. From a pragmatic standpoint (think W. James in particular) limits and absolutes pose huge threats to technological progress and scientific advancement.

My point is that encouraging people to think of themselves as economic maximizers is in no way a "cure-all elixir." My piece is simply trying to highlight the benefits of realizing one's economic autonomy. If, perhaps, T were not brought up in a system where government is seen "in loco parentis" with a tax code that even the code-makers cannot understand, then it is quite probable that he would be able to CHOOSE among more options than simply prison or "underemployment."

In light of this, we need not pontificate about a hypothetical person to whom (most likely) none of us can relate on any REAL level. Instead let us choose our investments wisely (k-12 ed.)--or let us bombard the streets of DC demanding a flat tax!
I appreciate everyone's comments, it is quite an honor to read them!

I was sure you were not taking it to extremes
But the background: this website quite frequently pushes an ultrahard libertarian line that the marketplace - economic considerations - can and will automatically and infallibly create a just and free society if government just gets out of the way. I know you don't subscribe to this kind of thinking but my comments were aimed at those who do.

Then the poor get fat because they don't care?
Everyone can eat well, even the poor on food stamps, if they choose to.

NEA lets the state organizations do the dirty work.
"A lawsuit filed by the state’s largest teachers union against more than 30 public school academies was dismissed by an Ingham County Circuit Court judge. If successful, the Michigan Education Association’s suit could have displaced more than 10,000 students who attend public school academies authorized by Bay Mills Community College.

"The MEA has long opposed charter schools, and made no bones about the fact that they wanted to close down all BMCC-authorized schools," Bay Mills Community College President Michael Parish said after the ruling. "Perhaps this time the MEA will finally comprehend what thousands of Michigan families have known all along – that charter schools provide valuable educational alternatives, and that educational choice is here to stay.""

http://www.educationreport.org/pubs/mer/article.aspx?ID=7620

MA teacher's union opposes charter schools as well.

Then take it up with them
The national position is as I stated and quoted.

Questionable
But I would need to look into it, mainly I would like to see the criteria for "Rural". In my little neck of the woods this is certainly untrue.

I would venture that 55% of adults (myself included) might qualify as "overweight" (if you include all adults 18-104 and anyone with over 20% body fat), but only about 15% qualify as "Obese". In fact, those numbers are roughly the same among children here as well, with notably fewer qualifying as overweight (about 30%), but about the same number who might be considered obese (10%).

In the western states I find this to be pretty consistant with truly rural, farm-economy areas (towns of under 5,000 in areas with a population density of under 5 people per square mile). I also find that number climbs as population rises. A town of 10,000 might be up five points, one of 50,000 is certainly up another 5% or more. On most scales these are still considered rural. The question really is why?

My guess is the easy availability of cheap fast food joints and other like commodities. In the town of 800 where I live you have to drive 60 miles to get to the nearest McDonalds or Wendy's. There are no Baskin Robbins or Dunkin' Donuts within 100 miles. You simply cannot be sitting around watching a movie and pick up the phone to order a pizza from Dominos. Thus, people here don't eat out much and don't tend to over eat or snack too much. But it doesn't stop some. Even here we have people who buy and keep on hand entirely too much store-bought junk. It is pretty easy to tell who many of these people are. (But not all, genetics again! Some people live on this crap and lose weight!)

As I said originally, diet, exercize and genetics are the reason people get fat. McDonalds and Dunkin' Donuts aren't to blame, but ready availability of this type of eating options plays a part. When I go to the nearest town over 50,000 population it shows. The working poor are often easy to spot and the middle class is getting bigger every year (not because there are more of them). And the big ones just keep getting bigger!

I don't see that in my home town. The number of overweight people is about the same as it was when I was a kid here. I tend not to look too closely at those under 10, they are always chunking out a bit, then shooting up a bit. We have about 120 teens in this school, and only 5 or 6 are noticably obese. We have about 60 adults 18-30, and I know of three that are probably obese. We have about 300-350 adults 30-60ish and about 10%-15% of those are reaching the obese level (with the percentage going up with age). The rest are retirement age and around 20% or so of those are obese.

While there is little doubt that obesity, and especially morbid obesity, is growing in all age groups, I wonder if the fact that more people are living longer, and the fact that the population is getting significantly older on average, plays a part as well.

Limits
Economics doesn't just describe human limits - it prices them. That's why politicians hate economics and fear the economy, as both describe the limits of their power, and worse, are beyond their control regardless of the compelling gravity of their spin.

No politician wants his Utopian schemes priced, much less declared beyond the limitations of rationality. That's why economics is called the dismal science by those who want to have their cake and eat yours too, that is, politicians and those who want to believe that politicians can lead the way to the Promised Land on the backs of the plundered.

Take a close look at the Bible for economic principles. You'll find them in abundance there. You'll also find that it describes human limitations but prices them differently than we do. The reason is that our assessments of value are keyed to death and scarcity, pleasure and pain, etc. even though we are offered the gift of abundant life free of both. Isn't it odd, then, to price this gift in material terms, applying to it assessments of value it transcends? To know good and evil is to understand them as offsetting components of some utility contrary to first choosing life.

Thinking -- but who is the thinker?
I'm sure that the person whose organs might be harvested thinks about the matter very differently from someone whose job is to find and distribute organs!

Whose economics are to be served? That decision transcends economics. It brings us back to the unalienable rights of life and the pursuit of happiness.

This deserves attention from a clearer thinker than I.

Show me ...
a government that can and will automatically and infallibly create a just and free society if the market just gets out of the way, le Mule, and I'll come over to your side. This website quite frequently resists this ultrahard kind of socialist thinking. I know you subscribe to this kind of thinking, which is why my comments are aimed at you.

Estates
An American is free to leave his property to whomever he likes once he dies. This decision he makes while alive. The choice is his just as his property is his. Can it be any other way?

Yes. Others may make this choice for him, deciding who gets his property once he's dead. But what do you suppose he'll do with his property while alive if he disagrees with the choices others will make for him once he's dead? The same question applies to taxes because people have to create wealth before it's taxed.

Regarding organs, who owns your body while you're alive? If you do, then why should your choices regarding its ultimate fate once your dead be superseded by others? So what do you suppose will happen once the state/society supersede your choices regarding the fate of your body after you die? Of course, the state/society will take an interest in your choices regarding the fate of your body when you're alive, namely, no drinking, no smoking, no fat, no sugar, and regimented exercise. After all, what you do while alive affects the rights to your body after you're dead.

automatically and infallibly??
we're talking human beings. we aren't automatic, and we aren't infallible. We make lots of mistakes. Government, as a human institution, makes many mistakes. The market is a human institution too. You want to turn off thought and just say, the market will take care of it, government always stay out, won't help. That isn't thinking at all, it's blind faith. And calling me an inaccurate name ('socialist') doesn't make it seem smarter.

Takes faith to believe in government
Ever wonder why the most successful animals on the planet are bacteria?

They are very simple, reproduce very quickly allowing them to adapt to rapidly changing conditions.

Free markets are successful because millions of people are making independent decisions every day in their best interest. Of course not every decision will be the correct one. But with millions made every day, by millions of people, MOST of them will be correct.

Government makes decisions FOR millions of people every day. Assuming their odds of making the wrong choice is the same for each person, any wrong decision will affect millions, while an individual wrong decision will only affect THAT individual.

If you believe that nature has been successful, then you must believe free markets for they operate the same way.

But maybe that's why you think you can and must save the planet. You believe man is above nature, above God.

It doesn't take faith to believe in markets. It takes faith to believe in government.

Rights to your body
After socialized medicine, the right to your personal property, yourself, will be diminished.

The state, to control costs, will have to force people to eat 'right', stop drinking, stop smoking, stop illicit drug use.....

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