Showing posts with label economics. Show all posts
Showing posts with label economics. Show all posts
Monday, May 10, 2010
Monday, July 13, 2009
Those Who Can't Do Sometimes Really Do Teach
A young friend of mine is taking an on-line course in macroeconomics at the local community college. He recently sent me a note quoting one of his midterm exam topics with a request for my thoughts on it.
The topic was
11. The presence of market failures implies that:
A. money is not an effective tool for exchange in a market system.
B. there is an active role for government, even in a market system.
C. individuals and firms should strive to be self-sufficient rather than specialize.
D. command systems are superior to market systems in the allocation of resources.
My friend's dilemma was knowing the distinction between the correct answer--as in what his professor wanted him to select--and the correct answer--as in the truthful one. That the truthful answer was not even an option made this dilemma all the more annoying.
The professor, of course, wanted answer B: "The presence of market failures implies that there is an active role for government, even in a market system."
While my friend knew that he could simply select B and claim the point on the exam, he boldly decided to protest on principle.
He sent the professor an email saying
In their telephone conversation, the professor explained how fiscal policy can correct market failures, and when my friend took him to task on this, noting that there are alternate approaches to the issue.
One thing that he could have mentioned (and I don't know if he did do so) is that the only time that a change in fiscal policy can correct a market failure is when when bad fiscal policy in the first place disrupted the economy and caused the market failure, and the new fiscal policy is a good or at least better one.
What people call "market failures" are really "market adjustments," whereby the market retools itself to operate under new conditions. Through the Federal Reserve System, the government attempts to boost the economy with its monetary policies, but in doing so creates the "boom" that leads to the "bust" in the "boom-bust" cycle. Then the government blames the bust on the market and says that it (the government) needs more regulatory power over the market in order to protect the people from market failure.
Since most people don't understand how markets work and how fiscal policies disrupt the market and force it to readjust to new conditions, they accept the government's/politicians' line. The politicians who tote the line do so either because
After several minutes of debate, my friend's professor fell back to "Well, yes, it depends what school of thought you are from" (obviously not the school of thought that warns against ending a sentence with a preposition).
With this statement, my friend knew that he had drawn blood, for it forced the professor to accept that it was possible that all choices on the topic could be wrong (depending, of course, upon your school of thought--e.g. Keynesian or Austrian).
However, instead of conceding the point, the professor came out with "OK, so you get marked down one point if you get this wrong, big deal."--to which I am near to exploding with rage.
Hell yes it is a big damn deal. It may only be one point on an exam, but the issue here is that this guy is forcing students to select incorrect answers if they wish for a good grade. If a professor at a medical school taught that bloodletting was the best option for curing influenza, and then required students to answer accordingly on exams (or risk losing points and earning lower grades), then this guy would be tarred and feathered by the media, the courts, and the medical school.
If my friend's professor wanted to phrase the topic fairly, he would have said, "According to the Keynesian school of thought..."
However, doing so would have suggest that there are alternate schools of thought. Inquiring students might then look into those schools of thought and agree with them. Not wishing for this, the professor worded the topic as he did, and for that he is dishonest. Even if the professor believes that government intervention will protect markets from failing (and I'll wager that he does believe this), this doesn't get him off the hook--it merely makes him a dishonest fool. He's so unequipped to refute his opposition that he pretends as if his opposition doesn't exist.
My friend was more polite than I would have been. When the professor gave his "It's only one point" excuse, my friend only said, "I know what answer you want me to choose I just think the question gives students the wrong idea."
The professor said, "OK is that all?"
"Yes," I said.
"Then have a nice day."
What an a-hole.
The topic was
11. The presence of market failures implies that:
A. money is not an effective tool for exchange in a market system.
B. there is an active role for government, even in a market system.
C. individuals and firms should strive to be self-sufficient rather than specialize.
D. command systems are superior to market systems in the allocation of resources.
My friend's dilemma was knowing the distinction between the correct answer--as in what his professor wanted him to select--and the correct answer--as in the truthful one. That the truthful answer was not even an option made this dilemma all the more annoying.
The professor, of course, wanted answer B: "The presence of market failures implies that there is an active role for government, even in a market system."
While my friend knew that he could simply select B and claim the point on the exam, he boldly decided to protest on principle.
He sent the professor an email saying
I don't believe any of these choices are correct. If the intended answer is B, which I think it is, I believe that would be a matter of opinion and not fact. First, "market failures" may not simply be attributed to the market itself and even so, this would not imply [necessarily] that the solution would be the government taking an active role. I just found the question to be misleading and the answer selections to all be false. If I was misled could you please offer some clarification.The professors replied "CALL ME ASAP" (yes, in all caps).
In their telephone conversation, the professor explained how fiscal policy can correct market failures, and when my friend took him to task on this, noting that there are alternate approaches to the issue.
One thing that he could have mentioned (and I don't know if he did do so) is that the only time that a change in fiscal policy can correct a market failure is when when bad fiscal policy in the first place disrupted the economy and caused the market failure, and the new fiscal policy is a good or at least better one.
What people call "market failures" are really "market adjustments," whereby the market retools itself to operate under new conditions. Through the Federal Reserve System, the government attempts to boost the economy with its monetary policies, but in doing so creates the "boom" that leads to the "bust" in the "boom-bust" cycle. Then the government blames the bust on the market and says that it (the government) needs more regulatory power over the market in order to protect the people from market failure.
Since most people don't understand how markets work and how fiscal policies disrupt the market and force it to readjust to new conditions, they accept the government's/politicians' line. The politicians who tote the line do so either because
- They are ignorant of how markets function and naively hope that their well-intended policies will make things better.
- They are ignorant of how markets function but arrogantly assume that they know better for producers and consumers than producers and consumers themselves.
- They are informed of how markets function but can use "market failures" as opportunities to enhance their own power and prestige.
After several minutes of debate, my friend's professor fell back to "Well, yes, it depends what school of thought you are from" (obviously not the school of thought that warns against ending a sentence with a preposition).
With this statement, my friend knew that he had drawn blood, for it forced the professor to accept that it was possible that all choices on the topic could be wrong (depending, of course, upon your school of thought--e.g. Keynesian or Austrian).
However, instead of conceding the point, the professor came out with "OK, so you get marked down one point if you get this wrong, big deal."--to which I am near to exploding with rage.
Hell yes it is a big damn deal. It may only be one point on an exam, but the issue here is that this guy is forcing students to select incorrect answers if they wish for a good grade. If a professor at a medical school taught that bloodletting was the best option for curing influenza, and then required students to answer accordingly on exams (or risk losing points and earning lower grades), then this guy would be tarred and feathered by the media, the courts, and the medical school.
If my friend's professor wanted to phrase the topic fairly, he would have said, "According to the Keynesian school of thought..."
However, doing so would have suggest that there are alternate schools of thought. Inquiring students might then look into those schools of thought and agree with them. Not wishing for this, the professor worded the topic as he did, and for that he is dishonest. Even if the professor believes that government intervention will protect markets from failing (and I'll wager that he does believe this), this doesn't get him off the hook--it merely makes him a dishonest fool. He's so unequipped to refute his opposition that he pretends as if his opposition doesn't exist.
My friend was more polite than I would have been. When the professor gave his "It's only one point" excuse, my friend only said, "I know what answer you want me to choose I just think the question gives students the wrong idea."
The professor said, "OK is that all?"
"Yes," I said.
"Then have a nice day."
What an a-hole.
Tuesday, May 02, 2006
Gas Price Addendum
I wanted badly to rail on those silly e-mails about how to fix the gas prices by boycotting one or another company or by filling up only slightly or by asking the government to intervene--which is, by the way, the dumbest damn thing you can do (see stories of the gas shortages and lines at the pump during the late '70's).
The following are links to some essays/articles that express better than I can this principle. There is more to read, but you can pretty much get the picture from articles at www.mises.org and www.lewrockwell.com. Mises.org is an especially wonderful source, and (if you like its essays) you can sign up to receive them daily.
If you feel strongly about the gas-price issue, please take the time to read at least some, better most, and best all of the following articles. A reading of Henry Hazlitt's Economics in One Lesson would also do a copious amount of good.
These first few are pretty simple.
http://www.slate.com/id/2140848/?GT1=8190
http://www.mises.org/story/1191
http://www.mises.org/story/451
http://www.mises.org/story/389
These are more "academic."
http://www.mises.org/story/2008
http://www.mises.org/story/1942
http://www.lewrockwell.com/french/french15.html
http://www.mises.org/story/1936
http://www.mises.org/story/1894
http://www.mises.org/story/1801
http://www.lewrockwell.com/rockwell/ghoultank.html
http://www.mises.org/story/1520
http://www.mises.org/story/2129
http://www.mises.org/story/2128
http://www.mises.org/story/2026
http://www.lewrockwell.com/rockwell/gas.html
http://www.mises.org/story/2028
http://www.mises.org/story/1962
http://www.mises.org/story/1322
http://www.mises.org/story/1276
http://www.mises.org/story/718
http://www.mises.org/story/678
http://www.mises.org/story/454
http://www.mises.org/story/398
The following are links to some essays/articles that express better than I can this principle. There is more to read, but you can pretty much get the picture from articles at www.mises.org and www.lewrockwell.com. Mises.org is an especially wonderful source, and (if you like its essays) you can sign up to receive them daily.
If you feel strongly about the gas-price issue, please take the time to read at least some, better most, and best all of the following articles. A reading of Henry Hazlitt's Economics in One Lesson would also do a copious amount of good.
These first few are pretty simple.
http://www.slate.com/id/2140848/?GT1=8190
http://www.mises.org/story/1191
http://www.mises.org/story/451
http://www.mises.org/story/389
These are more "academic."
http://www.mises.org/story/2008
http://www.mises.org/story/1942
http://www.lewrockwell.com/french/french15.html
http://www.mises.org/story/1936
http://www.mises.org/story/1894
http://www.mises.org/story/1801
http://www.lewrockwell.com/rockwell/ghoultank.html
http://www.mises.org/story/1520
http://www.mises.org/story/2129
http://www.mises.org/story/2128
http://www.mises.org/story/2026
http://www.lewrockwell.com/rockwell/gas.html
http://www.mises.org/story/2028
http://www.mises.org/story/1962
http://www.mises.org/story/1322
http://www.mises.org/story/1276
http://www.mises.org/story/718
http://www.mises.org/story/678
http://www.mises.org/story/454
http://www.mises.org/story/398
Monday, May 01, 2006
Tanks A Lot
All this talk about how gas is more expensive than it should be is uninformed. There's simply no such thing as price gouging. No company can charge more for its product than what that product is worth to consumers, lest consumers boycott the product and/or seek alternatives.
I'm not "happy" about gas prices. They have cost me money. Since I drive an SUV, current gas prices have cost me dearly indeed. Still, I have refrained from anger (which is really odd, since I tend to get really angry at things), and I have not echoed the populist rhetoric about some conspiracy between oil companies and the Bush administration. If this is your opinion about the situation, then I'm willing to bet that your "knowledge" of the situation involves not even a basic tinge of market economics. In fact, I'll go so far as to suggest that the bulk of your knowledge comes from one, some, or all of the following sources: the mass media (e.g. TV, radio), the "water cooler," (e.g. some guy at work who acts like he knows everything--and yes, at my work I am that man), or "intuition" (i.e. what you feel but don't really know or remotely understand). Yet another possible "source" of this knowledge is the willingness to blame George W. Bush for everything that's bad. That's why I hate this. It's gotten to the point that I've got to defend a fascist like George II.
Still, even I talk about it, and I am not a so-called expert. However, allow me to state what I know before you dismiss me. I would appreciate any informed criticism of my analysis.
When we talk about prices, we're really talking about value. Prices equal dollars, and for most people, dollars equal a certain amount of time spent laboring in exchange for those dollars. In this sense, money equals time. Since time equals life (that's how we measure it, in years), the price of a given good or service equals a certain amount of your life (in a way, that is--I admit, it's a bit of a stretch, influenced mostly by Thoreau).
With that said, most people discriminate in the market. They buy only those things which they need and want badly. Needs are fixed. Among them are food, water, and shelter (clothing is a form of shelter). Contrary to popular opinion, medical care is not a universal need.
Wants include anything that we seek but do not require for survival. This can include material goods such as jewelry, cable television, computers, or even specific types of goods that might otherwise fall under the "needs" category (e.g. if you live in Michigan, you might need shoes in the winter, but you don't need Timberlands).
Prices for any given good reflect its value, and value is determined by the quantity of the given good or service (i.e. supply) and the intensity of consumers' desire for the given good or service (i.e. demand).
When a good or service is in high demand but in short supply (e.g. an autographed copy of Mark Twain's Tom Sawyer), it commands a very high price on the market. This makes sense. There are very few of these available, but many people would love to get their hands on one. Therefore, the price is very high. This way, the seller maximizes the value of his or her product.
Prices go down only if the supply of a good or service is increased (in excess of any long-term increase in demand) or if the demand for a good or service declines (in excess of its supply).
Therefore, a free market will fix this gasoline "problem." If the price is indeed beyond market value (i.e. where supply and demand meet), then people will consume less gasoline over time (those e-mails about skipping gas stations on Wednesdays or only filling up a quarter of a tank at a time and such are nonsense). People consuming less gas will lead to a decline in the value of gas, and thus a decline in the price of gas.
Also, if gas prices are high for a long enough period of time, people will turn to alternate modes of transportation. Whether this mode is hybrids or buses or anything else is yet to be determined. But if left to the market, it will reflect what most consumers want.
Right now, we feel that gasoline is a need--not a want. That's B.S. I can't tell you how many times my lazy butt has jumped into the car to go a half-mile to the 7-11 for a Slurppee. If I lived closer to my job (and perhaps I will soon, if fuel prices continue to rise), then I can walk to work.
The bottom line is--and I'm here because I've been rambling and it's late; not because I've said all that I can say--stop bitching about gas prices. Either pay for gas or don't. If you do, then you validate the value of the gas and have no business complaining about it and advocating some insane socialist measure to curb the costs.
I'm not "happy" about gas prices. They have cost me money. Since I drive an SUV, current gas prices have cost me dearly indeed. Still, I have refrained from anger (which is really odd, since I tend to get really angry at things), and I have not echoed the populist rhetoric about some conspiracy between oil companies and the Bush administration. If this is your opinion about the situation, then I'm willing to bet that your "knowledge" of the situation involves not even a basic tinge of market economics. In fact, I'll go so far as to suggest that the bulk of your knowledge comes from one, some, or all of the following sources: the mass media (e.g. TV, radio), the "water cooler," (e.g. some guy at work who acts like he knows everything--and yes, at my work I am that man), or "intuition" (i.e. what you feel but don't really know or remotely understand). Yet another possible "source" of this knowledge is the willingness to blame George W. Bush for everything that's bad. That's why I hate this. It's gotten to the point that I've got to defend a fascist like George II.
Still, even I talk about it, and I am not a so-called expert. However, allow me to state what I know before you dismiss me. I would appreciate any informed criticism of my analysis.
When we talk about prices, we're really talking about value. Prices equal dollars, and for most people, dollars equal a certain amount of time spent laboring in exchange for those dollars. In this sense, money equals time. Since time equals life (that's how we measure it, in years), the price of a given good or service equals a certain amount of your life (in a way, that is--I admit, it's a bit of a stretch, influenced mostly by Thoreau).
With that said, most people discriminate in the market. They buy only those things which they need and want badly. Needs are fixed. Among them are food, water, and shelter (clothing is a form of shelter). Contrary to popular opinion, medical care is not a universal need.
Wants include anything that we seek but do not require for survival. This can include material goods such as jewelry, cable television, computers, or even specific types of goods that might otherwise fall under the "needs" category (e.g. if you live in Michigan, you might need shoes in the winter, but you don't need Timberlands).
Prices for any given good reflect its value, and value is determined by the quantity of the given good or service (i.e. supply) and the intensity of consumers' desire for the given good or service (i.e. demand).
When a good or service is in high demand but in short supply (e.g. an autographed copy of Mark Twain's Tom Sawyer), it commands a very high price on the market. This makes sense. There are very few of these available, but many people would love to get their hands on one. Therefore, the price is very high. This way, the seller maximizes the value of his or her product.
Prices go down only if the supply of a good or service is increased (in excess of any long-term increase in demand) or if the demand for a good or service declines (in excess of its supply).
Therefore, a free market will fix this gasoline "problem." If the price is indeed beyond market value (i.e. where supply and demand meet), then people will consume less gasoline over time (those e-mails about skipping gas stations on Wednesdays or only filling up a quarter of a tank at a time and such are nonsense). People consuming less gas will lead to a decline in the value of gas, and thus a decline in the price of gas.
Also, if gas prices are high for a long enough period of time, people will turn to alternate modes of transportation. Whether this mode is hybrids or buses or anything else is yet to be determined. But if left to the market, it will reflect what most consumers want.
Right now, we feel that gasoline is a need--not a want. That's B.S. I can't tell you how many times my lazy butt has jumped into the car to go a half-mile to the 7-11 for a Slurppee. If I lived closer to my job (and perhaps I will soon, if fuel prices continue to rise), then I can walk to work.
The bottom line is--and I'm here because I've been rambling and it's late; not because I've said all that I can say--stop bitching about gas prices. Either pay for gas or don't. If you do, then you validate the value of the gas and have no business complaining about it and advocating some insane socialist measure to curb the costs.
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