Malthus Responding to Adam Smith

On first glance it seems that, for once and for all, Dr. Adam Smith has answered the question: why do we see that wages are lagging? However, while one argument may contain truth, it is very rare that it will contain in it the whole truth, so that there is nothing more to discover from deeper inquiry. To that end, I have concerned myself greatly with Dr. Smith’s article, and I believe that I have come across an error in his assertion that, as we continue forward in time, employers will naturally raise wages to keep their laborers employed. Here, he has made an erroneous assumption given the state of the market today, as I will address in the following paragraphs.

Dr. Adam Smith explains in his article how workers will move from one job to another if they can find an employer who pays higher wages for their work. Due to this threat, employers will raise their laborers’ wages so as to keep them satisfied with their current job. Surely, this seems to be most true; indeed, under normal circumstances, it is an undeniable trait of markets. If these mechanics hold today, it follows that wages will rise as the unemployment rate ceases to fall.

But this assumption simply does not hold in today’s market. A man stranded on a deserted island will not attempt to find shore on a piece of driftwood, even if the conditions of the island deteriorate. Similarly, while a worker will be driven to find new work given the positive incentive of greater funds, he will surely be hesitant if the market proves instable.

Given the current economy, many workers fear that if they are to leave their jobs, they will be not find new employment. Such fear hardly seems unwarranted given the violent vicissitudes of today’s market. If Dr. Adam Smith is correct in his analysis of why employers raise wages, and there is little doubt that he is, it follows that employers aware of their laborers immobility will find no reason to raise their wages. Therefore, despite the leveling of the unemployment rate, it is very likely that with our current fears, we will see no rise of wages in the near future.

Adam Smith on the Natural Rising and Falling of Wages

It appears that, given the recent discourse regarding the appearance of a lack of increase in the wages of labor, it would be imperative to clearly state the conditions under which such an increase would be made possible. I intend here to consider these conditions, and to illustrate why they are not met at present.

The average wage paid to the laborer, who administers his work to physical or mental tasks, seems to be in a constant state of rise, fall or stasis. These changes, or lack thereof, are determined by the wage for which the laborer is willing to work and the wage his proprietor is willing to pay. These amounts, in turn, correspond to fluctuations in the general supply and general demand of the laborer’s produce. To begin, I will detail the ways in which the relation between the employer and his laborers affects wage, before moving on to how this relation is determined by the larger market. This will, hopefully, make evident the cause of the lack of wage increase seen in today’s market.

The ambition of the proprietor is to employ a quantity of laborers, so as to make the greatest capital gains possible. As a rule, therefore, a manufacturer or landowner will pay his laborers the lowest wage for which they will agree to provide their work. This wage will rise if the laborers can find another employer who will pay them a higher wage for the same amount of employment. If the proprietor wishes to retain his laborers, he will no doubt match the wage offered by his competitors. If the laborers cannot support themselves enough to work with the wages they are given, the wage will also rise to accommodate the laborer’s needs. However, as the wage a proprietor will pay for labor will be taken from his own funds, the wage he pays his laborers cannot increase to be greater than his profits. These profits are, in turn, reliant on the labor he can gain, which will depend on the quantity and skill of his laborers.

We have, indeed, seen a decrease in joblessness since the Great Recession, or an increase in the number of those who are willing to work. As the supply of labor rises, so does, in proportion, the competition between laborers looking for hire. An employer will, no doubt, hire a laborer willing to work for a lower wage more readily than one who demands the manufacturer or landowner pay him a great portion of his funds, and for this reason, laborers will be hesitant to demand higher wages. It follows, therefore, that the average wage of the laborer should be falling.

However, as the market for jobs increases, so does a similar competition between firms. As the market’s recovery allows for the possibility of great labor, employers will be anxious to hire laborers after having been forced to fire their employees due to a lack of funds. A laborer given the choice will no doubt work for an employer who offers him greatest wage. Thus, manufacturers and landowners will offer more of their funds in the form of wage, so as to regain a proper quantity of laborers. In this case, we see that the average wage of labor should rise. It is due to these two forces, the one which occasions a rise in wage and the one which occasions a fall, that wages remain in equilibrium.

Such stagnation in wage is thus attributed to the recentness of the market’s beginning recovery. It is of no doubt that, as the market returns to its natural state, employers must become more competitive so as to hire laborers. We can, therefore, expect a rise of wages to naturally occur.

Adam Smith on Anacostia’s Dwelling Problem

The problem about the District of Columbia land allocation is, without doubt, the government repayments and transactions for laborers in low income and even in some higher income regions, despite the fact that any place with subsidies would necessarily lead to an increase in dwelling rents overall. For example, I recently toured an area in the South East region of Washington, DC known by locals as Anacostia. In Anacostia, there is, therefore, only a limited number of residential units one can let. There was, at the time I observed, no land to construct additional accommodations in Anacostia. Areas in the South Eastern quadrant are lower income, therefore the District of Columbia government finds it imperative to create affordable dwellings by subsidising the market, thereby interfering in the orderly functioning of said market and having the effect of increasing the rent of housing overall.

Suppose, that if there are only 3 dwellings in Anacostia and only 3 potential residents, each one of whom desires to reside in each one of these dwellings, there is no real qualm over rents. The demand for land allocation would therefore be equal to the supply, therefore permitting the sellers and buyers in the market to levy and achieve a mutually agreed upon price, accessible to those who desire to reside there. However, if the government removes one of these dwellings off the market and reserves it only for potential inhabitants with lower wages, there would only be 2 residences for 3 potential residents. The government has therefore minimized the supply while the demand for living quarters stays the same. When there are 3 domiciles for sale and 3 potential residents, the rent of residences will not be prohibitively high because the supply is equivalent to the demand. When one habitation is removed, the rents will get significantly higher because potential residents are willing to disburse more on a dwelling due to the overall lack of dwellings. I observed that human desires are without limit, but there is a limited quantity of material goods accessible to satisfy such desires, thereby creating scarcity. Thus, the amount of dwellings at one’s disposal has no effect on one’s desire to inhabit District of Columbia, which will remain consistent no matter the accessibility of residential property and since residences in the Anacostia region is already restrained, and with no significant ability to increase available lots, the local government should not create further scarcity by sponsoring housing rents.

I predict the rent of housing in the Anacostia region to experience an aggrandizement base on my observations when I visited New York City. When I observed the Chelsea Neighborhood in Manhattan, New York, in 2009, the High Line rail park had recently been constructed. In Anacostia, the government has the intention of erecting a bridge park alike that of New York. The rent of habitation in Chelsea saw a distinct proliferate in land rents because of the new and attractive view that the High Line fabricated. Based on my observations, the government should be undertaking a venture similar to High Line Park. Instead, private industry should be accountable for the construction of the park, therefore generating more demand for labourers and eventually, prosperity in the economy. New York, even more so than the District of Columbia, has a wide variety of government supported dwellings, including rent controlled apartments. Rent control will unfailingly have a negative effect on both the middle class and the proprietor of said residences. The proprietor, because he will not be able to keep pace with the ever evolving and competitive market, will be rented out of his residential property when he can no longer provide capital for the increased tariffs on his increasingly valuable land and the expanded rents of labour to sustain the habitations given his stagnant, artificially depressed rents. The middle class will also, therefore not be able to keep pace with rents, unless they are fortunate enough to already reside in a rent control apartment, there will be fewer residences available on the market, thereby increasing the rents demanded for them, absent government pronouncement.

Similarly, the impoverished people of the District of Columbia will not have to panic about dwelling fees because of the large quantity of subsidized residences. The prosperous people of the District of Columbia will also be free of panic because they can supply capital to inhabit any region despite enlarged rent. The middle class, however, will not be affluent enough to have the capital inhabit in the prosperous regions, nor will they be impecunious enough to inhabit a housing projects. In order to make housing prices cheaper in the Anacostia region , the government should no longer support impecunious dwellings. The construction of the park should be done by free enterprises and not supported by government involvement.

One last post…

As the school year closes and our EconDiaries blog shuts down, I wanted to share some final thoughts on this grand project. When I first came up with the idea to write as historical figures I was trying to engage the three seniors in my very tiny Honors Economics class in two ways, first to have them connect to history and second to have them think critically about the policies and decisions that shape our world-the world of their future.

Too often I have found that students avoid reading the great philosophers in the discipline they study, many are more concerned with the theories as they stand. The writers of economic thought all wrote on multiple subjects from politics to sociology, mathematics and even literature. The theories we use in economics today are the culmination of over two hundred years of analysis. We would not have the debate in the discipline without the writings of Smith, Ricardo, Marx, Mill or Keynes. For that reason, as it is an honors class, it was important that the dive into the past to figure out how we got to the present, and create a map for the future.

In working through this project our bloggers did not read all of The General Theory of Employment, Interest and Money or Capital; instead selected chapters were chosen that best related to current events in Macroeconomic theory. The individual chapters helped to give my students a glimpse into the type of readings they would be doing in college while exposing them to authors of the past. Overall the students learned to appreciate the intelligence, craftsmanship and research that is required to compose an academic argument.

Following the nine weeks of Economic Diaries postings we were joined in our Honors class by another student and entered a period of focus on Microeconomics. All blog posts from the past 18 weeks started with a view of the individual or organizations role in the economy. This project at the end of their Senior year made economics personal again. With topics from art and antitrust to wages and welfare, the students dived into many topics in an effort to connect the material back to their own experiences.

As we close the year all four of our bloggers will be entering college in the Fall; and while I hope they will continue their studies in economics, my wish is that they learn from this year and this project that economics is all around them. The fundamental questions of scarcity, opportunity cost, satisfaction, and utility are central to the questions of what it means to be an adult independently moving through and thriving in today’s modern globalized world.

 

Best wishes for a fruitful summer;

~Ms. B

 

A Fond Farewell

As my final day as a high school student comes to an end, I cannot help but reminisce about the great many memories from economics class which have been so big a part of my life for the past two years. With every day spent, another lesson was learned, and with every blog post created, another idea expressed. While I am sad to see my high school career come to an end, I eagerly await what the future brings with it. No matter where I end up, I know that I will carry with myself the knowledge gained sitting in a classroom listening to the calming sound of an expo marker gliding across a whiteboard, leaving behind it the demand and supply curves which have to say the least, been engrained within my soul. With that, I believe there is no better way to end my year as a writer for Econ Diaries than to write a final blog post, reaching on a breadth of current economic issues, where I discuss the facts and give my opinions about them, and possible solutions, so here goes.

IMMIGRATION

Issues:

Immigration (uncontrolled and illegal) is one of the most pressing issues faced by our country today. The United States, a “promised land” for those seeking a better life than that which can be found within their own countries, has for years now been burdened by an influx of illegal immigration. Illegal immigrants cause an unnecessary drain on the US economy; they take jobs from hardworking Americans as employers seek to cut costs by hiring workers who are wiling to work below the minimum wage.

Not only is there an issue with immigrants taking jobs for lower wages, thus increasing unemployment, but there is also a major issue with how the government treats these illegal immigrants. No longer, it seems, is deportation the immediate response to illegal immigration, now, many people, both immigrants and Americans, are speaking out for amnesty. Hundreds of thousands of people a year, manage to successfully cross into the United States through legal means, and now, people are speaking out in support of giving citizenship to those who broke our laws by entering illegally in the first place. Not only is it a moral issue about whether or not to give citizenship to those who are here illegally, it is an economic issue as well. Those who enter illegally, more often than not, end up on social welfare systems, financed by the US taxpayer. The fact is, the more illegal immigration into the US is allowed, the higher the tax rate will be for employed US citizens.

Solution:

What better solution to the immigration issue exists then to become more strict when it comes to immigration laws. There should be no question that when a person is found to be here illegally, he/she should be deported, no questions asked. If a man comes into the country illegally, he understands that deportation is the penalty. The fact that deportation is frowned upon by many, is ridiculous; laws are laws, and are in place for a reason. The more lenient our nation becomes on the issue of immigration, the more jobs our citizens will lose to people who come here illegally and are undeserving of the work they find. Not only should those found to be here illegally be punished, but their employers should face more strict consequences as well, to discourage further employment of undocumented persons. If those who seek to come here illegally find that it will be impossible to find work, they will be less likely to attempt entry into our borders.

HEALTHCARE

Issues:

Healthcare has been at the forefront of news for months now. The reason? The Affordable Care Act, ACA, most often referred to as “Obama Care.” This an aging population, a decline in the labor force participation rate, as well as the increase in the discouraged worker effect caused by the recession, the money paid into the healthcare system has seen a notable decline in recent years. Not only has funding gone down, costs have gone up. With the enactment of the ACA came the disastrous overhaul of the healthcare system. The president’s dreams of a more universal healthcare system gave rise to HealthCare.gov, an over half billion dollar website which was supposed to simplify the processes for applying for healthcare, which ended up seeing fewer than expected signups, months upon months of delays, and millions of lines of code which most experts deem excessive. Today, while the healthcare.gov website is finally operational, the issue is far from resolved; many people are still without insurance, money paid into the healthcare system does not equal money paid out, and a large portion of the nation is calling for either the repeal or relaunch (with more clearly laid out plan) of Obama’s legacy legislation.

Solution:

The solution to the nation’s failing healthcare system is not as simple as the solution for immigration reform. I personally believe, and so do most Americans, that healthcare should be accessible to all members of our society. However, I believe, as polls show many Americans do as well, that a universal system of healthcare is not the best approach for our nation. Not only is a required government run healthcare system seriously stretching the elastic clause of the constitution to its limits, but it also doesn’t work for a nation like the United States of America. For one, we’re too populous to control everyone from a central government program, not to mention the fact that our aging populous means higher and higher costs for the working class, should current population patterns continue. The solution is, I believe, to revert back to the system which was in place before the enactment of the ACA, and to fix the flaws within the system, which is easier than trying to make a new untested system work on a rushed timeline. While the previous system had its flaws, they were more easily correctable than the flaws that have arisen with the new healthcare system.

EDUCATION

Issues:

Having myself just finished my last day of high school, I can personally attest to fact that the US education system is severely flawed. Although the US federal government spends over 11,000 dollars on elementary through high school students, on average, it is evident that we clearly do not preform at the level of our counterparts in many other nations. Being Finnish myself, and frequently visiting Finland, I know first hand what a well run education system looks like, and what we have in no way resembles this. While the government spends hundreds of billions of dollars a year on education, the fact of the matter is, most of that money goes to waste. With teachers unions ruling the public education industry with an iron fist, it is no wonder that our students are not preforming as well as our european counterparts. Unions make it nearly impossible to fire bad teachers, thus forcing students to deal with sub-par instructors and learn less and less every year. It is no wonder that so many parents are moving their students from public schools to private and charter schools, where a poorly preforming teacher can be terminated more easily, thus ensuring a higher average level of educational instruction. A nation is defined by its youth, and as long as our youth is not educated at the highest possible level, our society will continue its decline among the nations of the world.

Solution:

I believe the solution to this flawed system is quite simple. If the money which is currently used to pay for these poorly preforming teachers were to be used instead for mandatory performance reviews, which each educator would have to pass to be allowed to continue teaching, then the power of teachers unions to keep in place sub-par teachers would be lessened, educators would have to start performing, and ensuring their students do as well, and the end result would be a higher quality education for all our nation’s youth. With a simple yearly performance review, it could easily be seen which teachers should continue to teach, and which ones simply don’t make the cut. I’m personally tired of going to Europe where I’m seen as the “dumb” American student and have to prove myself to everyone I meet. Only with a strong educational foundation can the US continue to provide the planet with the most intellectual minds of our generation. Education is the key to continued prosperity.

Thank you to all our loyal readers,

I’ll be spending this summer on a small island off the coast of Finland. There I will spend my days chopping wood with my trusty Fiskars ax, swimming and boating with my cousins, and waiting with great anticipation for my college days to begin. This will be my last post.

-Andre

A Goodbye to my one true love, Economics.

What is Economics? While it is the study of scarcity, to me, it has become more than that. If you ask my current economics professor, Robyn Burnett, she will tell you that it is a philosophical study with numbers, and I am inclined to agree with her on that. To many students, economics is that one required class at school that will completely destroy all hope and love of learning. Many consider it a contract that entails you can never have any fun, but these are sadly all skewed views that give economics a bad name. If I was to try and explain what economics has done for me I would be here for a while, but my time, like everyones, is limited, so I will keep it short. Despite only taking economics for two years, it has changed my view of ordinary activities, books, and philosophy, in a way that no other subject could do so.

When I began economics I entered with many preexisting notions, one including that it was the greatest thing to ever happen.  Luckily I was not disappointed, learning supply and demand charts and opportunity cost equations was not fun to all, but to me it was an enjoyable experience. With my newly learned knowledge of graphs I went throughout the school year weighing every option with an opportunity cost equation and made sure every decision I made added up. To say the least it turned the remainder of school into a very easy process. After turning my life into a living economics question I decided it was time to turn my studies to the dark side of economics, Macro.

Depending on your economics preference my last statement may seem a tad drastic, but to me Macro is just a big ole mess of theory. While I love theory as much as the next person, there come a point where I just believe it is nothingness. Despite initially not enjoying Macro, I was turned onto a book called Prelude to Foundation written by Isaac Asimov, and over time my outlook on Macro began to change. Isaac Asimov may not have known macroeconomics well, but his idea of psychohistory was a technical version of macroeconomic equations. Through trying to predict the future with math Asimov was using macroeconomics. Macroeconomics today predicts the forecast of general trends in an economy and for Asimov this is what psychohistory did. After discovering a new way to look at macroeconomics my outlook on the subject and other pieces of literature changed.

With my view on literature changing I turned to more scholarly writings that hit more of the philosophical side of economics. Beginning with Utilitarianism by John Stewart Mill, I jumped into the philosophy aspect of economics. Contrary to popular belief economics is not all mathematics, it is actually a lot of fantastic theories that closely relate to Philosophy. When I continued my research into economics and philosophy I began to realize that the optimizing individual is not always moral. Again I   found myself in macroeconomics/ microeconomics,  but this time I was talking about the thought of Anti-Trust and its pros/ cons.

To begin my adventure into anti-trust I picked up a few books and threw them open and just devoured three pieces that gave me a formal understanding of the subject. Personally I recommend Balance: The Economics of Great Powers from Ancient Rome to Modern America, not only does this book brush upon great powers, but it also indirectly touches upon the Anti-Trust issues that our countries face. The only reason I bring up the topic of Anti-Trust is because if this problem is actually destroying our country. Through means of undermining competition illegally and creating monopolies in industries that would not have had monopolies, they are destroying once competitive industries. I will now step off my soapbox to move onto my next topic of social programs and their macroeconomic effects.

Despite just finishing complaining I will try and keep my next section of this beautiful look back, complaint free and mostly factual. Now another issue facing our country is growing debt that no one has an answer for. While both sides love pointing fingers there are a few problems that both sides need to address. No matter how many people say we should stop spending on military the true spending does not come from military it comes from social programs. Programs such as welfare and social security have been increasing at an exponential rate and it does not seem like it is going to slow down anytime soon. Due to an aging generation of baby boomers who are all going to be withdrawing from social security and people living longer, the system is currently at a breaking point. Many Economic Professors believe that raising the age of retirement would fix this and I am inclined to agree with them. If they were to take pressure off of the system it would have more time to grow and once again be able to support the people that need it. There are also many other ways that the system could be relieved, but the point of this post is not meant to talk about welfare so I will not go into more detail.

Since the beginning of my time at Oxbridge I have always had a hankering for knowledge, but until I found economics my thirst was always left unquenched. To say economics covers a wide range of disciplines would be an understatement. As I travel into the future and approach new challenges and meet new people, I will never forget the academic and life lessons economics has taught me. No matter where I find myself in life I will always remember Hari Seldon, John Stewart Mill, Anti-Trust, supply and demand, and opportunity costs, and with that economics will always be close to me and for that reason I will always believe economics is a vital part of learning. Because no matter how much I learn, economics has left a pice of itself with me.

Recap: Econ and The Future

 

I still remember the first day I sat down in Econ class this year. The reputation was that if you made it out alive, you were a winner. I remember shrinking into my chair and praying that the class didn’t eat my up and spit me out. I never imagined that it would become my favorite class nor did I think I would continue on to the second quarter for Micro Economics. Regardless, Economics with Ms. B taught me hard work, dedication, a foundation for economics and gave me a love for the subject. 

We began our Economics class my studying a foundation of economic principles. I remember writing ferociously in my composition book struggling to copy down everything that was going on the board and trying to wrap my head around the concepts. We studied supply and demand, opportunity cost, monopolies etc. and spent hours white boarding graphs and having competitions to see who could catch the idea the fastest. It was these moments that allowed me to understand a background for subject and develop an understanding for the work I would do later on in the year. I remember making note cards, studying until late hours of the night and early hours of the morning before each test. They were no doubt the most difficult tests I have ever taken but the more I took, the better I became at understanding the material. Each day I walked into the classroom more confident and less afraid of the material approaching. This rigorous workload and difficult material prepared me for the road ahead. It certainly will make studying in college easier. I know I can confidently walk into a lecture hall and handle any workload and test that a professor throws my way. Though I loved the foundation and was happy with the challenge, this is only a fraction of what made me fall in love with my Economics class. 

As the year went on, the foundation we learned was applied to things other than tests and note taking. We started having vigorous debates on anything from grade inflation to the price of college to the market system in China. We participated weekly on an online group discussion paste where we could read current events articles, qualify them and even challenge each other. We made info graphics on money supply, made group presentations and even analyzed economic authors and their books. It was in these moments that the subject really started to come alive for me. One of the surprisingly favorite assignments was analyzing the economics in well-known movies. We watched Monsters Inc. and Charlie and the Chocolate Factory and I had never before imagined that cartoon and animation pictures could have any type of economic lesson. Yet, the more I payed attention and the more I analyzed the movies, I understood the key concepts that had been drilled into my head all year. It made me realize that economics really is a part of our every day lives. These type of hands on, group activities are a great preparation for my future in college. It is one thing to be able to take notes and regurgitate information; but to synthesize it is whole different story. Whether it was class debates or online discussion, I was finally able to really dive myself into the subject and use the material I learned for more than just a test. These kind of skills will help me with discussion and presentations in college. It is important to not only be able to know the information but to apply it as well. Besides college, this type of skill is a valuable for my life in general. 

Towards the end of the first semester, we wrote an at length research paper on efficiency. I wrote about the efficiency of education. I spent hours researching, taking notes and writing my paper. I was engrossed in my topic that I did not even realize it was homework. As a class, we also prepared a group presentation on efficiency in general. We presented it to faculty and to our teacher. Both the paper and the presentation, will help me in college as for almost every class at least one major paper is required. These type of research skills and writing practice will come in handy in the near future. As for the presentation aspect, it has beyond well prepared me for any speaking feat I face in the future. Not only did I have to work with my team to prepare a cohesive presentation but I had to speak about my ideas and thesis at length in front of an audience. Since I desire to work in International Relations, this type of collaborative effort and speaking ability will assist me in my line of work even years after. 

As I transitioned into second semester, the class environment changed to a small, four person class centered around debate and Microeconomic concepts. My class began learning about businesses, firms, elasticity, trade between firms and so much more. Each week we wrote a post on our EconDiaries blog and in months we had readers from every continent in the world. We would write about anything from pirating to discrimination in the workplace. The limits were endless and we sparked ideas off of each other’s interests. The class has been an upbeat, engrossing place ever since. I cannot imagine not being in Econ this year. If you told me my first day of class that this would have been my experience, I would have never believed you. I hope what ever business and economics professors I have in the future know that they have large shoes to fill. Even so, just the fact that I know I will take more economics classes in the future is all because of the one class that changed my perspective on what Economics is. 

final econ post

After taking three semesters of econ, I can say I have a much better understanding of the subject matter. I believe I have improved as an econ student over the past year, and will be readily prepared to take it in college. First semester I took macro econ where the other students in the class and I, delved deeper into the subject. One of the first really neat projects was on the money supply in the economy. We created an infographic on the different parts of the money supply, and presented it to the entire class.

One of my favorite projects was the entire concept of the econ diaries. The first assignment we were given, was to create blog posts in the viewpoint of famous economists. The three students in the class and I wrote about economical topics, but in the voice of the well-known economist. I’ve written blog posts in the voices of Thomas Malthus, John Stuart Mills, Karl Marx, and many others. In order to get a better understanding of the thought process of each economist, I would read excerpts of their work. I would try to analyze the writing styles and viewpoints of the authors. After getting a better understanding for each point of view id find a modern topic such as foreign policy, to write on and write my blog about how each economist would feel about that topic. I feel as if one of the strongest topics I’ve written about was in the view point of Thomas Malthus on population.

After the first semester of macro econ was over, Micro soon followed. After taking econ 101 last year, I thought taking honors seminar micro would be a breeze. Little did I know how in depth and complicated micro really is. Micro heavily focuses on math related problems, and graphs. Over the course of a couple months we prepared for the national economics challenge and the AP Microeconomics exam. I took my exam last week and felt pretty prepared for it. Now since all the exams and tests are over we have been watching Lord of the Rings. It is one of my favorite movie trilogies, and I haven’t seen it in years. There are a lot of lessons to learn in the movies such as the power of alliances, friendship, and strength. I first saw this movie when I was 8 when my babysitter brought it over. I was mesmerized by the plot, set, and characters. My first childhood crush was Orlando Bloom pre pirates of the Caribbean Days. I suppose you could relate economics to lord of the rings. In lord of the rings the two towers the supply is lower than the needed demand for weapons, which essentially means there is a shortage of weapons.

Now when I watch movies, I think of how it relates to economics. Surprisingly almost every movie has topics that can be related back economics. Last year we watched movies such Monsters Inc. And Charlie and the Chocolate Factory, which both had topics relating to economics. Some other topics I learned a little more about was college budgeting, and inelasticity in relation to college prices. The demand for such prestigious colleges generally seems to be highly inelastic. Schooling in general is usually inelastic because the price gets higher but the schooling or education stays the same. As time went on upper level education has steadily increased in price creating mountains of debt for students. The problem in many of the universities is quality of education has not increase only the price has. The government has increased the demand for higher-level schools, but the supply has not been able to match the demands.

One project, that was really unique was the art auction project. Art is a medium that is so valuable and important to every society. Whether it is Van Gough or Picasso each work of art has a meaning and story. The purpose of the project was to find value for art, and find the retail of how much some famous works of art would cost today. I researched famous artists such and Jackson Pollock and Andy Warhol. Some of their most famous works were worth in the upper millions of dollars. I really enjoyed researching and looking at famous works of art. The really cool aspect of the project was having a collaboration with the Art class. Unfortunately we never got to hold our art auction, but my class still learned a lot.

I had a great time in economics class and would not trade that experience for the world. I have a fantastic teacher (ms.B) and can’t wait to take econ in college. I feel like this class has really prepared me for my future. I think I am prepared for college and I cant wait to embark on my next adventure. I believe Boston is the perfect city for me and I think I will excel in all of my future endeavors because of this class and my amazing teacher Ms. Burnett.

 

Short Term Rationality…Not so Easy

Rationality can be defined as acts in accordance with reason and logic. In our everyday lives, people try to act rationally and make decisions that will best suit them. The reality however, is that many decisions we make day to day are on a whim: spur of the moment decisions that we only think about for the short term. Many times these decisions are brought upon by a lack of self-control and desires. We would like to think that that we have control over our desires, but psychology and behavioral economics tells us differently.

What behavioral economics suggests is that the long term self is more rational than the short term self. Thinking logically, this argument makes sense. When making a decision where time is permitted to weigh benefits and costs, people are able to make choices that benefit them more. Take college for example. When deciding on a college to attend, students generally have ample time to weigh the decision. They take into consideration not only the sticker price of the school but the benefits that go along with it: the utility that school will provide, the ability of students from that school to get high paying jobs etc. In this case, students are able to make a more rational decision using long-term cost/ benefit analysis.

            In many cases, people are forced to weigh the immediate costs and benefits and the future costs and benefits are less considered. Dieting for example is a prime example of this. Although a person may want to lose weight and look their best, decisions to stay on a diet are often short term. Their rational self tells them to diet and exercise but when placed next to a greasy hamburger or cake, their short term self clings to their pleasure sensors. This type of short-term decision-making extends to a majority of our life decisions. When people choose to buy a new car or go on a shopping spree, they find themselves weighing the opportunity cost for the short term only. They make decisions that bring them happiness or utility. Most people realize later on that that they should have saved more and that they really didn’t need that extra purse or new Ferrari.

            Although people beat themselves up over their impulses and lack of self-control, the reality is that making decisions for the long term isn’t true to human nature. People behave for the present because that is the way we think psychologically. Thinking of events in the far off future that may or may not occur is abstract and hard to contemplate. Most people think optimistically. In other words, they should indulge and spend their hard earned money now because who knows, they could be blessed with a job promotion in the future. Many people think about retirement and the future seldom. They focus on the more realistic present that is easy to grasp and understand. The problem with this is that it often hard to make rational, reasoned decisions when the big picture is not always easy to see. Regardless, the near future has a big influence on our decision-making process and although it may be irrational, it is, a part of our natural tendencies and human psyche. 

Prices at College Dining Halls

 In today’s economy, colleges and universities have a high price tag and many students find that they are struggling to afford things as simple as a meal plan. Most college meal plans are several thousand dollars each year and many students choose not sign up in an effort to save money. The major issue with this is that students and the universities argue over the cost of meals that is rebated when a student does not sign up. According to most administrations, schools should only have to rebate the marginal cost of food alone, lets say, $1.25 per meal. Yet students argue that the marginal cost should include more costs, such as the saved space from fewer students using facilities and the reduced labor expenses on food preparation. This would raise the marginal cost to $6.00. What I contend is that with the price of college tuition at a constant high, colleges should be more conscientious of setting their dining hall prices and should consider the cost to students.

 

In my opinion, the students have a valid argument worth significant consideration. By having fewer students in the dining hall, universities have fewer expenses. There is less to put out for labor, capital and whatever other expenses are associated with food preparation. By logic, the money that colleges collect to invest into food preparation should be rebated to students who choose not to use dining services.

 

On the other hand, colleges argue, especially those that are private, that they have the right to charge what they choose and rebate a specific cost. They feel that they still need the labor expenses for other students and that the students who get rebated should only be rebated the cost of the actual meal. However, colleges should consider that when planning the initial plans of the dining hall they should at minimum, define the line strongly between costs of food and what the student will receive back. There should be one price for both the cost of food they charge for students and the price the students will receive back. This way the students will feel that the rebate price is fair. Colleges should also consider building the dining hall at a certain size initially, not too big. This way they can gauge how many students actually continue the dining plan all four years and leave room to grow so that they are not paying overhead costs for a smaller population.

 

But consider this, if $1.25 is what colleges figure as a person eating, how is it justifiable to charge students who choose the dining hall plan $6.00 for the cost of their meal. Many colleges argue that this cost includes the cost of hiring chefs, electricity for the dining hall, silver wear, clean up workers and even the water bill. Although this makes sense, there needs to be a modification of the way colleges charge students. If they are to charge $6.00 for a meal then colleges should rebate the same price back as to avoid confrontation with students.