Does trade deficit lead mean debt?

Partially true wen comes to fed. gov't. Any real deficit? No.

Trade accounts always in balance. Aren't we indebited to foreigners/. How true?

$10 equipment from China; China won't buy back-->comes back in investments.

-buildings -stock -purchase debt

Possible Concern: debt Chinese/JapGerm investment

Amer gov't securities, gov't spends more than taxes

Chinese business, gov't can buy US debt, know get return

OK as long as $ used productively

BUT concerns are vastly overblown

Irony: worry China holds $1 trillion US debt build highways, steel, wood, wire

-no problem if buy goods directly

Political borders have no reasons if trade benecial or harmful Compare NY and MA or US and Canada

ex: 2 states secede, merge trade deficit, has anything changed? No.

Trade statistics are not meaningful entities. 

"Buying Local"

100 mile radius, can source locally?

Result: 20 artisans, required 500 man hours to produce one suit

Costs $10,000 to produce locally, 8% of suit had to cheat (if worked 1 1/2 yrs could have been totally local)

-->compare global separization

Who Counts in Trade?

Forget political borders; look beyond US

What makes trading w/ local people more virtuous than non-local

ex: cost savings if fire lots of people (at the x-mas party! ah!)

outsource jobs in whirlpool in tennesee

-each job goes to India, devastated former employees

Job loss $100,000 per person

(including health benefits, pensions) increased divoreced rates alcoholism

Why do this? Save $?

--> lower price to consumers, $2 cheaper per product

-60 million customers -> $120 mill paid

==> $20 mill richer!

How Does One Det. what way to go?

(how Rizzo sleeps with himself at night)

-Moral Intuition: awful to destroy a job for $2, human cost too much

Consider: where draw the line? Boundary where trade matters?

What if jobs went to Ohio? What if town was enviro. friendly?

Is there an acceptable amount of money?

-->no way to be concrete, what standards?

What if product was life savings drugs?

Imagine if possible for every product, back to buying local! 

So expensive! Poor quality!

Consider: Benefits of Indian employers

-->help  poorest ppl on earth, they now have jobs, less divorce

-not considered by American poor

Protectionism uses poor as pawn

-Poor India helped more than hurt poor in US

Amnt satisfaction gained swamped by happiness lost

- how much each value $1, $2 

Consider: slavery

-1863 more slaves than slave owners, benefits spread more thinly

Do the benefits of abolition outweigh the costs? 

Obscene! no one makes that argument 

1) congress impose $1 head tax on every man woman and child

  -->imagine 1 big check distributed to Rizzo; make 1 person rich (hello new econ school)

2) Nothing unique about interna'l econ. trade

trade = simply non-technical form or product (e-books lost prints, vaccines prevent surgeons)

What About Trade Adjustment Assistance?

1)

2)

3)

Other countries will lower enviro/labor standards

-->wouldn't Us have to lower enviro/labor stand.

Nations w/ highest enviro. standards attract more investment

-advanced high-standard indu. econ

-Only 2% of costs environment

imagine no enviro stnad

->political institutions, poor electricity, poor infrastructure, weak protection of rights/property, power productivity of workers

==> where sensible to invest?

Trade helps

1) more enviro concious

2) produe w/ less resources, less erosions; don't ruin land in Maine  trying to grow wheat

Remember what trade does:

-make stuff cheaper, more slices of pie

-->pay to camp! Go to nat'l park, more income, can spend more on enviro

Low-Wage Exploited Labor

China collect adv. b/c of "slave labor"

-slaves effective way to run manfu. plan

why not China more productive under Mao than today

1) Smithonian Nations: when specialized, spend less time learning generalize (Rizzo spends time reading econ, now chem)Knowledge and applied capital

2) Ricardian: diff skill knowledge, access to resources

-what giving up to do something less than if 

Transactions Costs; physical imagine pre

 

Technology taking over helps most people but...

...what about the American teenager?

Teens are typically the ones who take over the menial jobs. They pour your coffee, load your groceries, guide you in the concert parking lots, scoop your ice cream and lead you to an empty dressing room. Many students rely on these jobs to help prepare for college, pay for gas in their car or simply become independent in their spending. The crappy jobs that are being replaced with "automatic"-thing or "digitalized"-that are important to a major part of the population who has to start somewhere. Somewhere, on the bottom of your resume or the back of your memory is the shitty job that gave you the opportunity to say, yes I grilled hamburgers, but I do have work experience.

The American teenager is busy with high school, how can they become specialized to compete? I was lucky enough to become trained as a life guard and that gave me skills no computer could replicate. But what about my friends whose parents could not afford the life guard, first aid and CPR/AED training? (Trust me, it ain't cheap). I know we can't anticipate the future jobs, new needs are always created but typically those new jobs require degrees and sophisticated understanding.

Perhaps high school will have to teach more than Shakespeare, how to balance a chemical equation and how to play Pomp and Circumstance; if students are going to stay vital in the workforce, they will have to prove useful. If all the cashier jobs are someday lost, it will be interesting to see what that first "crappy" job will become.

Favorite Assignment!

I'll admit it, I really did enjoy the material of this assignment. (not to take away from other assignments, they're alright I suppose) But I was impressed with Mike Rowe's presentation on work and people's interests in their jobs. It reminded me of what jobs are truly for, to make a living (not make a dream come true). I thought of my grandparents while he discussed raw labor that people commit to. My grandmother left high school and home at 16 to work in a mill during the Great Depression. The job was long and tiresome, but she was happy to have it because she was able to send money home to her family who needed it desperately after her father passed away. My grandmother proudly tells me of her success working as a bank clerk, or of the times she was a nanny to a family. To be a young woman with a job in those times was a remarkable feat period.

Perhaps today people don't just want jobs, they want jobs they'll enjoy. Well, that's a nice thought but it doesn't sound sustainable. In the end, people can enjoy "more slices of pie" and have better living standards at home by finding a job that fills a need for consumers. I agree with Jill Erber of the cheese shop that protectionist measures remove the freedom of choice and can lead to a "slippery slope" that hurts consumers and producers alike.

In the end, watching/listening to the 3 clips, I am left with the question, who are we to judge other people's occupations? There are some things that we can't understand until we've filled that person's shoes. Although I do not endorse child labor, I can see that the children who were poor and needed money benefitted from the cigar rolling job because they learned more about current events than their more wealthy peers. In the end, I think that filling basic needs first, like finding a stable job will lead to long term happiness in other areas of life. (Lord knows, I HATED my job as a lifeguard at one pool club, but the money I saved allowed me to go shopping or out to eat and enjoy other things later on)

What Goes Around Comes Around

Technology costs job, but no one bans technology
-incr. of hourly manufact. wage in China
-absolute and comparative advantage

 Wages / Marginal Product of Labor = how much stuff we get if work more

China: $8 / hr per 4 units of labor = $2 / unit
USA: $30 / hr per 20 units of labor = $1.50 / unit

Wage & ability to produce AND consider opportunity cost
-What else could a worker be doing instead? 
 -->Is relative cost/output higher or lower? Must consider other jobs, outcomes

What Else Costs Manufacturing Jobs?
-Energy tax    -Total manuf. jobs around the world going down

Do Trade Surpluses Create Jobs?
U.S. increases exportation of food every year
...BUT why decline of farming jobs? Despite growing population, despite funding, less farmers
Answer: No.

Is There Proof That Trade Doesn't Destroy Jobs?
-Employment is dynamic
-Trade: pay for imports with exports
-When specialize, get richer
  -->Income effect; fewer resources used to make goods
Wealth = more consumption, more jobs!

Ex: "Gift economy"
Imagine every American accepts a gift of a free car from Korea annually
--> infinitely large trade deficit & would ruin the auto industry
BUT still have some auto sales, some people would still be willing to pay
Believe imports steal jobs, so does technology
-all sectors have more jobs because more $ to spend in them
"Ricardian"
Free gift of cars =
-Incr. of labor that supplies Korea
- In US incr. of $ saved goes to buy other stuff

ex: infinitely large trade deficit with Wegmens; roundabout way of paying
Rizzo sells us lectures, gets $ back and uses it at Weggies
-Rizzo has a trade surplus w/ Rochester

Farm: more food at lower prices with fewer workers
-frees budget to do other things

Trade: peaceful, cooperation, interdependence

Then...what IS related to Trade Deficit?

Capital Account Balance

-surplus, why? American assets

-buy corp. stocks, bonds

-allow to consume more than product

  -->stay attractive to investors

$ Rizzo spends on another country comes back!

ex: Rizzo buys $10 of toys from China

China buys $5 worth of classes

-->$5 deficit, what to do with the money?

1) buy more American goods

2) Bank account; buy treasury bond stocks

  -->circum. on financial asset of Amer. NO trade deficit

  a) ruin the dollar!! (cue Rizzo ripping up a dollar and front row gasping)

     -->reduced money supply raises its value!

3) Buy other foreign goods; stuff from Germany

  -->Germany might buy stuff from U.S. or Ameri. assets

Capital Account & Current Account graphs = mirror of each other

Trade Your Crappy Job for a Better One!

Does trade result in less jobs? NO WAY!

Consider U.S. exports; amount vs value (yes, lots of corn, scrap, soy BUT $$ is in cars, medicine, industrial parts)

Jobs "leaving" are the ones that are easily mechanized.
-Recall potato chip quality checker, what a miserable position
-New jobs specialized, more intelligent and require important skills

Year 1900 we were all poor; there was no way to predict that factory jobs disappearing would be replaced with jobs today! (Imagine, folks didn't think the car would amount to much) nuclear engineers, website design, DNA mappers

Common Concerns: Outsource jobs
ex: Get rid of registrar and give job to workers in India
-People who lose jobs from trade are often the ones who benefit the most from them
--> 1/3 of econ class is international, we would need less registrars if less international appeal

Remember, self-sufficiency is the road to poverty!

What to do?

Subsidize?  Keep jobs and raise cost? Trade adjustment assistance?

--> Have done trade adjustment assistance 6 times in history...all fail

    -No evidence of long term gains in jobs

    - Few people in training program even get jobs

    -Is it sensible to have lower paid workers contribute to training of people who make more $

    - Don't these workers have choices?

 ex: Rizzo left banking for stability of education; if job at risk wages capture that risk!

-Rizzo aware of outsourcing

Let's pretend "Trade costs jobs"

-Why spend $ and time on job

-Technology actually replaces jobs

-Recall in NYC, guy's job in elevator to open the door; now it's automatic

No one avoids elevator on principle of man who lost his job! ATM replaced the bank teller, BE CONSISTENT

There is no shortage of things we want (and can obtain) from each other

-No fixed # of jobs out there!

-Job was essentially created for Rizzo; persuade others that you are useful!(Here's Rizzo's incentive to continually improve, it keeps him vital and in a position)

Trade Statistics

Stuff we sell vs. what we buy (think trade deficit, surplus, density)

Lesson: Trade Statistics are MEANINGLESS!

US Trade Balance measured in goods

--> We buy lots of stuff from China (BUT it doesn't show services)

-We buy more from abroad than they buy from us

What Can Deficits Tell Us?

Assume that less jobs because Amer. not creating product
-BUT continued increase of employed Americans
     -On the graphs, the only dips of employment were due to economic recessions

Trade may move jobs but the deficit does not affect the amount of jobs

Trade affects the type of jobs
1976-1998, not much change of manufacturing jobs size; '98-Now steady drop
-Consider, manufacturing share of total employment has been dropping for 40 years before the deficit

America Does Create Goods
Increase of manufacturing output (today 8% below peak b/c of recession)
We actually do produce more stuff than China: $3.5 trillion per year of output
-->Produce more stuff with fewer people
How: better educated, more sophisticated techniques, healthier
Globalization has actually reduced losses

What used to be considered progress is now a "problem"
Why yes, we have lost the switchboard operators, toll collectors, auto workers

Are we choosing profits over people?

Well the profits don't just go to the owners; competition and lower costs lead to lower prices and consumers benefit!
Result: higher living standards
-Cheaper to make food/clothing => $ to spend on more of what we want; more choices!
-->Rizzo saved $ on electricity, will spend it on a new iPhone, new car, new lap top. Hello new jobs!

Good economics = Sustainable

-Obama said atms cost jobs but wait...with more atms come more tellers
-Machines haven't replaced people they complement their positions
-More changes, some jobs and technology go together
-->new laser doesn't replace the surgeon, it makes him better at his job
-incre. of higher educated; tedious tasks are replaced

Comparative Advantage

Roch. has absolute advantage then Cornell at making wine.
Roch. has abs. advantage at making cameras too!

Who's More Efficient At Making Each Good?
Price = what is traded off to do something
-Who incurs smaller tradeoff at making each? What is sacrificed?

	Rochester	Cornell
Cameras	5 cameras “cost” 10 wine à 1 cam = 2 wines Pc = 2 wines	4 cameras cost 3 wines à 1 cam cost ¾ of wine Pc = ¾ wine
Wine	10 wines “cost” 5 cameras 1 wine costs 2 cam à Pw = ½ cam	à Pw  = 4/3 camera

--> Compare tradeoffs: Rochester students better at making wine; lowest opportunity cost per bottle of wine

Rochester has a "comparative advantage" in making wine over Cornell

-Ability to produce something w/ less sacrifice

-No producer can have comparative advantage at producing everything

Notice Cornell more efficient not because they can make more but because they can make it cheaper!

--> relative efficiency

	Rochester	Cornell
Initial	10 wines 0 cameras	0 wines 4 cameras
Trade	3 wines to Cornell	3 cameras to Roch
Final	7 wines 3 cameras	3 wines 1 camera

Society is richer! Trade leads to economic sustainability. 

Get more without using more resources; more output for same input

How Able to Know If Exchange (trade) Makes Sense?

The cost is cheaper

-Willing to agree on price

-Sell for more than costs to make it and the consumer buys for cheaper than it costs him to make it

(Roch. realizes $$ to build camera, buys cheaper from Cornell; Cornell sells at higher price than it costs them to make it)

Relatively better at something because opportunity costs matter

Rochester exported/imported, consider exchange rate of wine & cameras
*Pay for imports w/ your exports*
-Better off if specialize & engage in global community
   -Self sufficiency is the road to poverty

Everyone worries about population; Fear that China will produce everything more cheaply
-->Imagine if it actually was reduced
1) impossible for country to be good at everything
2) function of relativity
   -what matters is not different in prices across countries, but the relative prices within a country
   -make whatever you're better at
   -policy that discourages exchange causes problems
3) Policy that restricts trade makes people poorer
   -fear: poor countries take all the jobs & everyone becomes poor
Free movement of goods makes us richer
4) Service jobs= more pleasant, pay more, safer..

Principles Lecture In My Words

Cooperation can be achieved in a variety of ways. The two that Rizzo outline include succeeding in a common goal by working together, or achieving different ends by cooperating through trade. This reminded me of my collaboration to survive my environmental homework. My engineering friend was happy to help me on the technical problems of our assignment after I shared some of my research for an analytical problem. We checked each other's work and both benefitted by receiving a higher grade.

Rizzo's notes also emphasized the fact that property is grounded in natural rights that relies on justice. Without that confidence in ownership, innovation and the economy would suffer. I think it's interesting he repeated that point because it is true, we are a society obsessed with justice. Media covers big trials, Americans have several crime television shows (Law & Order, Criminal Minds etc) and every American is entitled to a fair and speedy trial. Fairness plays a large role in trade and is protected by laws. It is interesting that in class, we hear that "freedom" is so key to an effective market, yet there must be some regulation to ensure confidence of investors and entrepreneurs.

Trade Creates Wealth

Trade creates wealth: strange b/c nothing new created at all
*Recall last example, Kirby Puckett =>"black box" => complete set
Trade = non-technical form of production
-some goods only produced when good exchanged across the globe (China's precious metal)


What exchange does: make cake or laptop with the goods swapped, now can sell for $

How Trade Can Make Us Richer In True Sense

* Mike and Rich have identical properties

	Mike	Rich
Weeding	80 min	120 min
Mowing	40 min	120 min
Total Yard Work Time	120 min	240 min

*Rich offers to weed 3/4 of Mike's yard if Mike mows Rich's yard

	Mike	Rich
New Labor Deal	+40 min to Mow Rich’s yard +40 min to mow own +20 min to weed rest of own yard	+90 min to weed Mike’s yard +120 min to weed own yard
New Total Yard Work   Time	100 min	210 min

*BOTH have less time doing yard work

Efficiency: getting more from stock of resources

Production Possibilities Frontier: Amount one can produce given resources, technology and knowledge

Properties of PPFs

1) All Points on/in = achievable

2) Absolute Advantage: Raw sense, one person/company better at producing a product than another

 ex: Rizzo better at making coon hats, but Mrs. Rizzo better at jibbiets

3) All points NE are NOT achievable

4) Points on the PPF are "productively efficient"

  --> key: produce stuff that people want at lowest cost; consider making the right amnt for demand

5) Slop; negative/downward; captures tradeoff

  -produce more of one, then must produce less of the other

6) Change in slope = "Law of Diminishing Return" 

 -aka law of increasing opportunity cost

 - lower quality when want to expand

7) Economic growth

   1- Resources (created or discovered)

   2- Technology

   3- Trade

Comparative Advantage

Rochester Grads vs. Cornell grads; who better at making wine and/or cameras?

Equality Matching Oops

On the website, Bandcamp (http://bandcamp.com/) musicians have the ability to sell their music online to fans. Often, many bands allow users to name their own price to purchase the music. And I have to admit, I did not utilize "equality matching"when I downloaded a recent ep. In the back of my mind, I realize that I could spare a few dollars, especially because I'm aware this music wasn't free, this band is made of college students like me who paid for the instruments and used valuable time to put together the music I put into my iPod. Still, as someone who has to plan for study abroad costs, and because it wasn't convenient to take the 30 seconds to use my card, I opted to pay $0. What is interesting is if I was presented with a physical EP priced for $5 I would have been more than happy to pay it to these guys. But the transaction was impersonal and if I don't have to use extra time/money on something, I won't. Basically, this is an example of me failing to think economically until after the fact. (Maybe I can make it up to the band and my conscience by buying a ticket and a t-shirt at their next show)

Trade Creates Wealth

Trade creates wealth: strange b/c nothing new created at all
*Recall last example, Kirby Puckett =>"black box" => complete set
Trade = non-technical form of production
-some goods only produced when good exchanged across the globe (China's precious metal)


What exchange does: make cake or laptop with the goods swapped, now can sell for $

How Trade Can Make Us Richer In True Sense

* Mike and Rich have identical properties

	Mike	Rich
Weeding	80 min	120 min
Mowing	40 min	120 min
Total Yard Work Time	120 min	240 min

*Rich offers to weed 3/4 of Mike's yard if Mike mows Rich's yard

	Mike	Rich
New Labor Deal	+40 min to Mow Rich’s yard +40 min to mow own +20 min to weed rest of own yard	+90 min to weed Mike’s yard +120 min to weed own yard
New Total Yard Work   Time	100 min	210 min

*BOTH have less time doing yard work

Efficiency: getting more from stock of resources

Production Possibilities Frontier: Amount one can produce given resources, technology and knowledge

Properties of PPFs

1) All Points on/in = achievable

2) Absolute Advantage: Raw sense, one person/company better at producing a product than another

 ex: Rizzo better at making coon hats, but Mrs. Rizzo better at jibbiets

3) All points NE are NOT achievable

4) Points on the PPF are "productively efficient"

  --> key: produce stuff that people want at lowest cost; consider making the right amnt for demand

5) Slop; negative/downward; captures tradeoff

  -produce more of one, then must produce less of the other

6) Change in slope = "Law of Diminishing Return" 

 -aka law of increasing opportunity cost

 - lower quality when want to expand

7) Economic growth

   1- Resources (created or discovered)

   2- Technology

   3- Trade

Comparative Advantage

Rochester Grads vs. Cornell grads; who better at making wine and/or cameras?

Trade Trade Trade!

Rely on rules when unsure how to act; socially optimal outcome

"blow off rule of law" -->extra kids in class
-able to predict with certainty
-some rules not economic
 --> class enrollment piece of legislation that

Bus example: not clear whether he should stop

imagine world where have to get to airport
-call brother, ask stranger, taxi; which most confid way to get there?

ex: send legal document, used FedEx
-why Rizzo not worried about his important stuff?
==>imagine how many things that could go wrong! (throw out, open..) Why content?
CONFIDENCE!
-Compare other ways of doing business (Imagine giving package to total stranger on street)
-Compare time to get there, the cost, reputatio

Feedback Loops: exist to ensure performance
-Consequence for failure

FedEx hires honest people, fires people who lose packages, rude

Why Bother Keeping Reputation Intact?

Customers damage competition

-> Rizzo more confident in Fed Ex

Feedback works well when people feel guilty about doing a bad job

*Areas most satisfied/that work => more feedback loops

Trade and Exchange (Must understand what property is and ethics of a just exchange)

1) What should get produced?

2) How Do We Decide to Produce?

3) Allocation System; how get from producers to consumers?

Inputs => "Black Box" => Stuff

Factors of Production

1) Land

2) Labor

3) Capital

-->basic resources available to society

Land: Nat. resources, preexisting phys. objects (minerals, trees)

-Something doesn't become a resource UNTIL we give it value

Labor: # of bodies, phys/mental ability born with

Capital: something that must be produced in order to produce something else

2 types here

  -physical: used for something else (crow bar used to change tire)

  -human: all augmentation people 

2 Ways to Exchange in Production Process

Self Sufficient  <------    ------->  Specialization & Exchange

1) Specialization 2) Exchange 3) Discovery

What does it meant to have economic activity?

PSST = Patterns of sustainable specialization & trade

-Getting other people to voluntarily do things for you

Work By Yourself --> reduce economic activity, less GDP

Dynamic Discovery; techonology growth, new patterns of PSST

Possible for Undiscovery

-Dark Ages "undiscovered" urban living

-Econ. slumps traced to undiscovery

Rapid change of technology -> possible reason behind Great Depression

Prices awesome, adjust BUT in real world sometime people don't care?

Just remember, TRADE IS GOOD!

 Why Do People Produce? -> Acquire wealth

 What is Wealth? -> sometimes material stuff

ex: What Buddha's wealth was: wanted nothing! Yay, wealthy! 

Nat. incr. production of thing but incr. production of wealth growth happens when inputs and stuff move apart

Voluntary Exchange:NOT exchange of equal value; People trade/cooperate to gain what each values

ex: exchange of baseball cards, money value not sole reason

Let's Teach the Silver Rule

Golden Rule = Knowledge problem

Mao’s China

·      During the great leap forward, more people starved than previously thought

·      10-20 million deaths? More about 45 millions people died unnecessarily from starvation

Our culture doesn’t elevate…?

·      Self interested actions in a market setting are frowned upon, but things like spending more time for yourself or working out everyone agrees are good things

·      Rizzo teaches us economic which is a good service

·      A person who goes jogging is virtuous but who sells the jogger the shoes is evil

Reciprocal Altruism

ex Tony needs a kidney, Tina anonymously donates her kidney

·      10 years later: Tina struggles with her mortgage, Tony randomly gave her $20,000

·      If you shrink the distance and time and place, two altruistic actions turn into Tony buying Tina’s kidney which is “morally horrific”

·      Which societies are the greediest? Wall Street made up of corporation, when they buy and sell they do it greedily

·      We don’t view extreme couponing as greedy though, or Lebron James who sells his labor for a huge price

o   Its not just selfishness that motivates people

o   We’re motivated by love of family, motivated by wanting to do a good job, we don’t want to be bored, we’re anxious about how other people perceive us, etc…

Self interest is to pursue the projects that interest you

·      Mother Teresa was very self interested bc she wanted to pass along a message of peace, so was Jack the Ripper

The Golden Rule doesn’t work in a big society or with the knowledge problem

 ex: The bus shouldn’t stop for Rizzo

·      What decisions do the bus driver have to make to make an objectively good choice?

o   Figure out what Rizzo’s modus operandi is? Is he going to save someone or is he going to bomb a bank? How would the bus driver know?

o   The people sitting on the bus matter, you will be delaying all those people, Our behavior today changes our long run incentives (waiting first 5 minutes of lecture ends up wasting 2.5 lectures total)

§  Lateness in Ecuador caused 4% of GDP per year!

o   Must follow the rule of law

o   The ethics of a market system must be more than intimate system

o   Silver rule= Do not do to others what you would consider unfair or unjust if they did it to you

Imagine you have a struggling business, you have marginally productive workers like interns. Should the CEO let you go or should he let you stay?

ú  Its okay to be charitable with your own money, but impermissible to be charitable with someone elses money

Running a good business requires that you use “soft” values

The Most Unusual Day
 I think this is an interestingly example of how incentives can lead to unexpected outcomes and "unintended consequences". Even the author, who admitted he wasn't a huge supporter of the policy, was eager to work the system to his benefit to gain the "Baby Bonus". Hospitals were unprepared for the rush of expecting mothers and had to use extra resources, space and employees to keep up. I wonder if mothers-to be had some sort of influence physically on delaying the birth (they say that people can delay dying until after the holidays) I agree with the author's idea to implement the policy the day it is announced to the public if the government wishes to save money (and the hospital staff).

Academic Episode
  I really enjoyed reading this article. Initially, I thought the idea of challenging one's superior was a great idea. In high school, I recall friends would compete with other students for the highest chair in band or orchestra. Competitions could be made at any time, and it motivated students to practice aggressively. Still, it quickly became clear why the majority of universities do not use Seguira's methods. Once again, unexpected results are worse than the original issue.

Example of Law

I live on my sorority's floor and there are a few understood rules that keep 24 girls in the same dorm same.
For example,
-If you leave your food out in the lounge, it's fair game. Don't want to share, don't leave it out.
-Each suite on the floor rotates on the duties of cleaning the lounge
-It's acceptable to turn up the music at night, but not during the day
-If you leave your stuff out, it will end up in the lost & found box with the other random clothes

None of these rules are actually written down anywhere. And obviously, some of the rules are more enforced and respected than others. But having a general understanding where "everyone is treated equally" and because the "laws are general, not specific", this semester has run pretty smoothly.

It's Ok That Markets Aren't Perfect

Product Value, Worth -->Profit opportunity; wage close to productivity
ex: produce $25/hr but wage only $15/hr
Consider Marxism: Abolition of private property

• If no priv. property, no relation btwn pay and production
• Free distribution
• Exploited if realize that you have right to $ to productivity
• Marxism is paradoxical

-Markets are a good way to organize economic activity

ex: Dismantling Utopia->effects of no price system; 

Shoe disfunction: Type, size, color size

-Price gives important info, sensors to consumer needs

Econ Principle: Markets often don't work well

1) Lack of existence

2) Institutions

ex: willing to pay a lot to get rid of Rizzo; Rizzo willing to accept a little

-options, competition

Class of Problem (Don't take models seriously)

-Certain situations, one party in transaction has more info than other, will skew market

ex: Insurance Markets

Insurance does research, avg % of bad disease; 

      -Lack of ability to interact causes problems

• $100/month covers illness; prepared for prob. Consider: good genes vs. bad genes
• WE know our stress levels, what we eat, how much we exercise
• $100 is more than I'd need to pay over the course of my life
• RESULT: Pool of people who get insurance becomes unhealthy, then more unhealthy
• Price of premiums rise-->Willing buyer, but market doesn't offer the price
• Gov't can fix or someone can step in and profit

*If markets were always successful, there would be no need for entrepreneurs, no profit opportunities

What is the Goal of Economic Policy? Bigger Pie

Efficiency

            What People Want <---------                       ---------> At Lowest "Possible" Cost

Efficiency is not "end all be all"

Market Processes Destructive

-1% of stuff that works is really great. lose trial-error, lose good stuff that follows

Institutions: formal & informal mechanism we use to live together

-social construct

-allows us to live peacefully together

ex: 1) Soviet Union fell, we go & tell them to have markets! -> Now, they're poorer today

-beautiful store fronts empty

-problems with property rights --> can't make decisions, share the space

2) Institutions: good gov't, legal system, courts, no corruption

ex: put stuff down on seat, anyone ever move your stuff and sit there?

-ridiculous to pass legislation to uphold htis

Good Societies

-legislation reflects what is believed to be law

-Speed limit "real law", but we drive speed everyone else is driving (unless you're from CT...)

Rule of Law when try to make legal legislation (formal/informal) 

1) everyone treated equally

2) laws cannot be arbitrary

3) must be general, not specific

 -predictable before enter situation

 - custom not a surprise and can plan lives around it

 - key to success of a market

3) Institutional Structure

Compare N & S Korea, similar people, resources, etc BUT different instit. -->N. very poor and hungry

4) Some poor countries, customs that prohibit customs for markets to work well

When get institution right, extremely fast improvements to living standards

-But there are upfront costs to install institutions

Inflation: general increase of all prices in an economy

-compare two periods of time

-caused by: too much money around 

   --> econ. prosperity should not matter on $

Ethics of Markets

Hume: self interested, scarcity -->must cooperate, rules of justice

• Free societies work best when people are honest
• value self interest over interest of others

Ex: Pursue own interest inferior...to...what

-Rizzo teaches b/c he wants $; inferior to activity that promotes int.

-->society based on Golden Rule: produce to satisfy others first, self second

"We are a materialistic society"

-->Who is the moral authority?

People want good, high paying jobs yet recall the Golden Rule

-Thoughtful action: do unto others as you would want them to do unto you

-hard to actually apply

The Class of Extraordinary Examples

More Basic Economic Principles
ex: 1914, U.S. banned drugs --> ends up increasing the potency, incr. hypdermic needles -->AIDs epidemic
ex: Social Security, when installed only had to cover a few people. Later, it as people lived longer, incentives changed, seniors get a check each month, why bother saving?

Law of Unintended Consequences
-Failure when simple rules try to regulate a complex system (even physical systems)
-People have problems with: limited information, time matters (ex, reelection). little feedback, poorly aligned incentives
-Not restricted to gov't
  -> fire suppression, make forest fires more likely and damages more serious
-When regulation pushes against incentives, incentives will push back
  -->Never know how people will respond
ex: Protect People w/ Disabilities
-decrease in amnt of disabled workers
-->employer may be concerned whether able to discipline or fire later b/c worried taken to court from discrimination
-effort to protect fails


*Trade is not zero sum
-One side doesn't "win" at the expense of the other
-"pie fallacy" -> thinking of fixed amnt of wealth in the world
-gains from trade actually aren't thrilling

successful transaction = no one hurt, both sides benefit

Almost axiom: market selfish; price on everything ? fragmented society
-we are selfish and greedy
-no one plans, runs system -->still, people see the market as a way to dominate

Commercial Prudence Based- civilizing; post Commercial Revolution, true explosion of trade

Consequence of Pie Fallacy
1)Retards economic growth
2)believes losers, believe poor oppressed
3)penalize work, risk taking, innovation
4)often invokes notion of power

Wealth vs. Income, Stocks and Flow
Are we Poorer Because Bill Gates Is So Rich?
-Gates didn't take, he PRODUCED that stuff
-Compare to Cong. get loads of $ have WAY more $$ than Gates
-Don't like Windows? Don't use it. Don't like policy? Vote against it if you can..

ex: The Beatles on Ed Sullivan
-imagine all the viewers had $1 worth of pleasure from watching performance
-today, worth $4.4 billion. JUST that one show
-Beatles each captured only a fraction of the wealth they created for the US