Wednesday, April 25, 2018

Economics For 5th Graders

This entry is primarily written for the students of Classtopia.

******************************************

Your teacher asked me to share with you some of my thoughts about economics, which you’re currently covering in school.  She knows that it’s my very favorite thing in the world.  Why do I love economics even more than I love epiphytes?  Well, it’s because epiphytes, and everything else that I love, all depend on economics.

Right now there are several Tillandsia aeranthos blooming at your school.  The reason why these epiphytes are beautifying your school is because you’ve cared for them, and also because I decided to share them with your teacher.  Where did mine come from?  They came from my tree where they had grown from wind-dispersed seeds, which came from plants that I had received from a friend.  Around a decade ago I drove up to Oregon and picked up a big collection of Tillandsias from my friend Dale.  He had a giant greenhouse primarily dedicated to orchids, but thanks to the really excellent air movement, the Tillandsias were taking over.  They were growing on the walls, floors, benches, pots… they were even growing on the orchids.  So I helped “weed” the Tillandsias and he let me have them.  I piled them in the back of my truck and drove them back home.  The Tillandsias, especially aeranthos, were happy in their new home and over the years I’ve shared, sold and traded the extras.

Where did Dale get his Tillandsia aeranthos from?  I don’t know.  Maybe he received them from a friend, or maybe he bought them, or maybe he traded for them.  But I do know that Tillandsia aeranthos originally came from Brazil.  This is where it is native to. 

How Tillandsia aeranthos traveled from the trees in Brazil to the trees at your school in California is an economic story.  It involves many people over the years deciding that it was worth it to spend their time growing this epiphyte.  Each new grower helped Tillandsia aeranthos, as a species, hedge its bets.  This economic story doesn’t end at your school.  Several of you already took some home… and perhaps a few of you have already shared some with other people.

What about your new school?  I’m guessing that it doesn’t already have any Tillandsia aeranthos... is this a problem?  You’ll have to decide whether it’s worth it to try and grow this epiphyte at your new school.  This decision depends on weighing the costs and the benefits.  On the one hand, you’ll have to take the time to water them, but on the other hand, they’ll help beautify the school and make it more interesting.  Plus, they’ll provide food for hummingbirds and shelter for other animals, which would make your school even more interesting. 

There are a few different types of cost… the most important type is known as opportunity cost.  All the time that you spend watering Tillandsia aeranthos is time that you can’t spend doing other things.  Because your time is limited, naturally you want to put it to its most beneficial uses.  The idea that society’s limited resources should be put to their most beneficial uses is known as Quiggin’s Implied Rule of Economics (QIRE).

Let’s say that you determine how much benefit that you’d personally gain from having Tillandsia aeranthos growing on trees at your new school.  What about all the other students and teachers?   According to QIRE, it matters how much benefit they would gain from this, but it’s not like you can read their minds.

Therefore, when it comes to economics, one of the most important things is the communication of benefit.  In order to maximize beneficial behavior, we need to inform others how much benefit we derive from their behavior.  There are two ways that we can express benefit… words and actions.  The main difference is that actions require a sacrifice, words do not.  Naturally we like to use words to communicate benefit but, because they don’t involve any sacrifice, they aren’t very reliable.

I’ll share an economics joke with you.  Two economists are walking along when they happen to end up in front of a Tesla showroom.  One economist points at a shiny new car and says, “I really want that!”  The other replies, “You’re lying”.  This joke is funny because if the one economist had truly wanted the car then he would have walked in and bought it.  Evidently, given that he didn’t do so, the (opportunity) cost was too high for him.  He had more beneficial uses of his limited money.

Here’s one of the most useful passages on the subject…

If a woman told us that she loved flowers, and we saw that she forgot to water them, we would not believe in her "love" for flowers.  Love is the active concern for the life and the growth of that which we love.  Where this active concern is lacking, there is no love. - Erich Fromm, The Art of Loving

It’s easy to say that we love something, or someone, but love can only be reliably quantified and expressed by sacrifice.  The more time that you're willing to spend growing and promoting Tillandsia aeranthos, the greater your love for it.

As an extra credit assignment you can visit Rainforest Flora.  They offer a wide selection of Tillandsias, so you might be as happy as a kid in a candy store.  Walk around the sales area and make a list of all the Tillandsias that match your preferences, and then compare it to the list of all the Tillandsias that you actually buy.  How different are the two lists?  The owners of the nursery might be interested to know all the Tillandsias that you like, but what they are truly interested to know is which Tillandsias you actually love.  The Tillandsias that you genuinely love are the ones that you are willing to spend your money on.  The owners would take this more reliable feedback and use it to try and improve their selection of Tillandsias.  If, for example, you and other customers buy more Tillandsia aeranthos hybrids, then the owners would spend more of their time creating more of them, and this would make the customers happier.  Everybody who visits Rainforest Flora has the freedom to use their money to help grade all the different products.  This is what makes it a market.

What would happen if you asked the owners to simply give you some Tillandsias for free?  Perhaps they might be willing to give you one or two, especially if you buy a dozen.  However, they’ll be much more inclined to give you free Tillandsias if you explain that they will be used to beautify your new school.  It will certainly help if you show them a blog entry that has pictures of the Tillandsia aeranthos that are now blooming on trees at your current school.  You’d inform the owners that you would also use the blog to document your mission to beautify your new school with Tillandsias.

The Tillandsias that are growing on trees at your school are a public good.  But the ones at your home are a private good.  The difference is the amount of people that can enjoy them.  Of course if your Tillandsias at home are in the front yard where everybody can see them, then they would also be a public good.  The same exact good, in this case a Tillandsia, can be a private good or a public good depending on where it is grown. 

Just like the owners of Rainforest Flora are naturally going to be more inclined to give Tillandsias away if they know that they are going to be used to beautify a school, the same is also true of the members of the La Ballona Valley Bromeliad Society

Last Fall the owner of Sunset Valley Orchids, Fred Clarke, was kind enough to donate a big box of orchids to help beautify your current school.  Future blog entries that document his orchids growing and blooming on trees at the school should recognize and acknowledge his generous contribution. 

People are happy to voluntarily contribute to beneficial causes… but our society doesn’t solely rely on donations to pay for public goods.  We primarily rely on taxes.  People are forced to pay taxes because the amount of money that people would donate to public goods would be significantly less than their true perception of their benefit.  It's certainly a problem when spending doesn't reliably communicate benefit.  Yet, everybody's taxes are spent by elected representatives.

Strange as it might seem, there’s no scientific evidence that it’s beneficial to allow elected representatives to spend everybody’s taxes.  It would theoretically be far more beneficial for each and every taxpayer to have the freedom to choose where their taxes go.  Since people wouldn't have the option to spend their taxes on private goods, their spending decisions would reliably communicate the amount of benefit that they received from public goods. Those of us who love botanical gardens, for example, would be able to allocate our taxes to them.  Of course, every school should be a botanical garden!

Unlike Rainforest Flora, our government is not a market.  Neither is Netflix.  Each month each subscriber pays $10 dollars and Netflix decides how to divide this money among all its shows and movies.  What would happen if, all else being equal, each and every subscriber was given the freedom to decide for themselves how they divide their money among the content?  What difference would it make if 100 million subscribers, each one with a unique set of preferences and knowledge, could use their money to help grade the content?  Would the supply of nature shows worsen, improve or stay the same if Netflix was a market?

The reason why people can reasonably disagree about the effectiveness of markets is because there’s a severe scarcity of scientific evidence.  Therefore, reasonable people should strongly agree that it’s imperative to scientifically test different economic systems.  Every experiment is essentially a product, so a better understanding of economics would mean more scientific progress… as well as a better supply of shows, epiphytes and everything else.

Education itself is a bundle of different products.  In school I remember wondering about the usefulness of these products.  Recently an economist by the name of Bryan Caplan wrote a controversial book arguing that many of these products are useless...

Anyone who scrutinizes modern schools with a mildly cynical eye witnesses piles of material students are laughably unlikely to use in adulthood. The fat emerges in kindergarten: history, social studies, art, music, foreign language. By high school, as we've seen, students spend at least half their time on fat. In college, many majors are made of fat: think history, communications, or "interdisciplinary studies." About 40% of graduates earn degrees in comically - or tragicomically - useless subjects. Even the hardest majors burn ample time on high theory and breadth requirements. - Bryan Caplan, The Case against Education

The people who disagree with Caplan's book, which is itself an educational product, inherently agree that educational products aren't equally beneficial.  In order to ensure that students learn the most beneficial things, everybody should have the freedom to use their money to help grade educational products.  This logically makes economics the most beneficial thing to learn.  But it wouldn't be beneficial for everybody to actually become an economist.  With this in mind, I’ll leave you with the most beneficial passage from the most beneficial book…

It is thus that the private interests and passions of individuals naturally dispose them to turn their stocks towards the employments which in ordinary cases are most advantageous to the society. But if from this natural preference they should turn too much of it towards those employments, the fall of profit in them and the rise of it in all others immediately dispose them to alter this faulty distribution. Without any intervention of law, therefore, the private interests and passions of men naturally lead them to divide and distribute the stock of every society among all the different employments carried on in it as nearly as possible in the proportion which is most agreeable to the interest of the whole society.  —  Adam Smith, Wealth of Nations 

67 comments:

  1. Does every single thing we do involve opportunity cost?

    ReplyDelete
    Replies
    1. Yes, everything we do has an opportunity cost...

      "By preferring my work, simply by giving it my time, my attention, by preferring my activity as a citizen or as a professional philosopher, writing and speaking here in a public language, French in my case, I am perhaps fulfilling my duty. But I am sacrificing and betraying at every moment all my other obligations: my obligation to the other others whom I know or don’t know, the billions of my fellows (without mentioning the animals that are even more other others than my fellows), my fellows who are dying of starvation or sickness. I betray my fidelity or my obligations to other citizens, to those who don't speak my language and to whom I neither speak or respond, to each of those who listen or read, and to whom I neither respond nor address myself in the proper manner, that is, in a singular manner (this is for the so-called public space to which I sacrifice my so-called private space), thus also to those I love in private, my own, my family, my son, each of whom is the only son I sacrifice to the other, every one being sacrificed to every one else in this land of Moriah that is our habitat every second of every day." - Jacques Derrida

      Delete
  2. Who in the society decides what resources should be put to there most beneficial opportunities?

    ReplyDelete
    Replies
    1. It depends on the type of economic system. With democracy, everybody uses voting to decide how to allocate resources. With a market, everybody uses spending to decide how to allocate resources. With our government's economic system, elected representatives decide how to allocate resources. These three very different economic systems aren't equally effective at putting resources to their most beneficial uses.

      Delete
  3. If I could choose what show my $10 would go to, I would choose Miraculous:Tales of Ladybug and Cat Noir.

    ReplyDelete
  4. If I could choose what show on Netflix to spend my $10 on I would put in on the show Bunk'd.

    ReplyDelete
  5. If I had my ten dollars for Netflix I would give it to shows about animals

    ReplyDelete
  6. If I could choose what show my $10 would go to, I would choose A Series Of Unfortunate Events.

    ReplyDelete
  7. If I could choose what show my $10 will go to, I will like to see more about Sports.

    ReplyDelete
  8. If I could choose where my taxes go to I will prefer to see more baking shows in Netflix.

    ReplyDelete
  9. If I could choose what show the $10 would go to I would choose more scary and mystery movies.

    ReplyDelete
  10. This comment has been removed by the author.

    ReplyDelete
  11. If I can choose what I want to watch on Netflix. I would put my 10 dollars on more dragon ball z shows.

    ReplyDelete
  12. If I can choose on Netflix what my $10 would go to it would be documentary on how the Holocaust was like.

    ReplyDelete
  13. If I could choose what I would like to watch on Netflix. It would be Miraculous the ladybug and the season to be longer.

    ReplyDelete
  14. If I could choose what show I want to spend my $10 on I would choose more scary movies.

    ReplyDelete
  15. If I could choose where my ten dollars goes I would love to see more shows that consist of anime/action like Naruto or Dragon Ball Z.

    ReplyDelete
  16. If I could choose what I want my $10 dollars to be spent on every month I would pick drawing because I want to be a master at drawing.

    ReplyDelete
  17. If I can choose my $10.00 i would choose it on dog shows and nature shows. nature is nice.

    ReplyDelete
  18. This comment has been removed by the author.

    ReplyDelete
    Replies
    1. I also like The Adventures of Puss In Boots.

      Delete
    2. I also watch scary movies with my brothers. There always scared.

      Delete
  19. This comment has been removed by the author.

    ReplyDelete
  20. This comment has been removed by the author.

    ReplyDelete
  21. This comment has been removed by the author.

    ReplyDelete
  22. This comment has been removed by the author.

    ReplyDelete
  23. If I could choose where my $10.00 go to on Netflix, I would choose for the money to go to the show Miraculous. I would like for the episodes to come faster so I do not have to wait for them to came out.

    ReplyDelete
  24. I like your idea of choosing what our $10 for Netflix goes to.

    ReplyDelete
    Replies
    1. I like the idea to! It is very useful for people to watch their favorite shows without a wait.

      Delete
  25. If I could choose where my $10.00 go on Netflix, I would chose for miraculous ladybug, troll hunters, and home episodes.

    ReplyDelete
  26. If I could choose what show my 10 dollars would go to, on Netflix it would be Miraculous Ladybug.

    ReplyDelete
  27. If I can choose what I would like to see more on Netflix with my $10.00. I would like to see more of something that has to do with nature, history, and gardening.

    ReplyDelete
  28. Thank you because of the new economic terms such as the market, hedge your bet, and private goods and private goods. I learned that my mom and I hedge our bets with our investments. Why do you choose one thing over the other in an opportunity cost.

    ReplyDelete
  29. If I could chose for my ten dollars of what show I would watch on Netflix would be more about Discovery Channel of animals episodes

    ReplyDelete

  30. If I could choose where my $10.00 go to on Netflix, I would choose more shows about animals, music, and dogs. I would want more than 30 episodes and seasons of dogs and more seasons and episodes of Lab Rats, Spirit Riding Free, Veggie tales in the city, The adventures of Puss in Boots and Bunk'd.

    ReplyDelete
  31. What I learned is that most of our parents taxes goes to public places. I also agree that we should choose we our taxes should go.I also learned that what hedge bet means and I think it is very good to hedge your bet because if something get stolen you still have the other some where else.Now I learned a lot about economics

    ReplyDelete
  32. If you could choose what my show I want to see and spent it with $10 in Neflix, I will choose to watch more episodes of Miraculous.

    ReplyDelete
  33. If I could choose for my $10 on Netflix,I would want to see more seasons and episodes of "Alexa and Katie."

    ReplyDelete
  34. I prefer that we choose where our taxes go, so that way we don't just give it to something that we think is useless, just like what we do in Classtopia, where when we auction, we give it to a department that we think needs a little boost for their work.

    ReplyDelete
  35. If I could choose which show my 10 dollars would go to, on Netflix it would be for more Disney movies. My favorite Disney movie is Mulan.

    ReplyDelete
  36. I pay 10 dollars monthly for Netflix. If I could choose where my 10 dollars goes to, I would choose to send my 10 dollars to shows that consist of anime/action like Naruto or Dragon Ball Z.

    ReplyDelete
  37. "What would society look like if everything was a public good?" I think that everything would be less organized. I think that some things need to stay private, like a grocery store. If a grocery store becomes a pubic good, then anyone will just be able to get whatever they want.

    ReplyDelete
  38. If I could choose which show to put my 10$ on for Netflix,the show would be about cheerleading, dancing, soccer,hairstyles,fashion,and puppies. I love PUPPIES!!!

    ReplyDelete
  39. if I could choose were my $10 go for Netflix it would be Pokemon sun and moon, and Naruto.

    ReplyDelete
  40. If I can choose where my ten dollars would go to Netflix, I would like to put it to see Miraculous: The Tales of Ladybug and CatNoir.

    ReplyDelete
  41. I agree that every thing that we do or anything in the world has to do with economics.

    ReplyDelete
  42. I like the fact that you talked about hedge your bet. If someones plant dies someone else still has the same plant and they can give you a piece to start growing again.

    ReplyDelete
  43. What I learned was about our parents taxes and that they go to public places. And also that some people want something they want but they do't buy it when they want it.

    ReplyDelete
  44. I agree that taxes should go where people want it to go.

    ReplyDelete
  45. If I pay $10 on Netflix per month and I could choose where the money went, I would pick comedy shows, technology shows, and Anime shows like Dragon Ball Super.

    ReplyDelete
  46. I agree on what you said about taxes. People should have freedom to give their taxes to any public place like the library or a botanical garden.

    ReplyDelete
  47. Every month on Netflix you pay $10. And if I could pay the $10 for Netflix to watch the show I would choose it would be to watch more Disney shows, Lab Rats, Miracules:The Tales of Ladybug and CatNoir, Pokemon Sun and Moon , Naruto, Avengers, Spiderman, and Spy Kids. If I could choose these would be the shows I wouldve of chosen.

    ReplyDelete
  48. About QIRE : Classtopia decided to create a garden areas around the school. We didn't do a survey to ask the teachers or students what they wanted. We made our own decision hoped that people would "LOVE" it. We think they do because they are giving us compliments and classes are touring the gardens. Some students are picking up trash by the garden. So that shows us that they Love it.

    So as you can see
    Without asking for input on how the school wanted it. What we sacrificed was, time, and energy. But it came out beautiful.

    ReplyDelete
    Replies
    1. What would the garden look like if your teacher hadn't donated any plants? What would your garden look like if the Culver City Garden Club had donated plants?

      When you go to your new school, if you want a nicer garden sooner rather than later, then you'll ask more, rather than less, people for their input. And by "input" I mean donations of plants/money/time. Many hands make light work!

      Delete