Intuitive Econ Challenge
By Bryan Caplan
In a recent post, I posed a challenge:
State any proposition in basic economics in the comments, and I’ll make it intuitive in a follow-up post.
Now I’m back to keep my promise. Fortunately for me, many of the 55 comments don’t require a response because they (a) didn’t take up my challenge, (b) overlapped, (c) stated false propositions, (d) went beyond basic econ, or (e) answered their own challenges. But I’ve still got my work cut out for me. Here goes:
Counterintuitive claim (falls under the strict labor market regulation claim, but even more counterintuitive):
Restricting private employers from paying employees below an
arbitrary point is bad for the average worker and growth because it
inhibits the number of possibly available jobs.
Intuitive version: Average workers are going to have to pay higher taxes to provide for the low-skilled workers who aren’t worth hiring at the minimum wage. That clearly hurts average workers, and growth will probably take a hit, too.
claim: A steady flow of around a million immigrants per year taking
jobs in the United States doesn’t increase the unemployment rate of
natural born Americans.
Intuitive version: We grow a lot more food per person than we used to, but it doesn’t mean that we let grain rot in the fields. It means that grain gets cheaper. The same goes for immigrants. They may reduce wages for (some) natural born Americans, but there’s no reason for them to cause unemployment.
I’m in desperate need of an intuitive explanation of Gresham’s law : good money drives out bad, except with legal tender laws.
Don’t you mean “especially with legal tender laws”? In any case:
Intuitive version: If merchants can’t tell good money from bad – or if the law forces them to pretend they can’t see the difference – people will pay their debts with bad money, and squirrel good money away.
Motives don’t matter, competition does.
We are better of as consumers if selfish people compete with each
other who will get to be of service to us rather than being served by
altruistic person who doesn’t face competition.
To be honest, I’m not convinced this is generally true. I give my kids much better service than the market ever has. But I’ll try to restate what you’re getting at.
Intuitive version: With competition, selfish people can’t get ahead unless they make their customers happy. And unless you’re lucky, the most competent person who loves you won’t do as good a job as the most competent person who wants your business. After all, billions of people want your business, and you’re lucky if ten people alive love you.
Counter-intuitive claim (paraphrased from Adam Smith):
“The ultimate goal of economic activity is not production, but consumption.”
I’ll outsource this to greenish:
Which would you rather do:
1) Bake a pie, and not eat it
2) Eat a pie, and not bake it
Claim: during a recession it is _not_ a good thing when natural
disasters give the government a reason to hire people and build things
to replace what has been destroyed.
Intuitive version: If there hadn’t been a disaster, the government could have taken that money and paid people to make something new. And where did the government get that money in the first place?
Counterintuitive Claim: Commodity speculators reduce volatility and cannot drive prices to their advantage.
Intuitive version: Speculators’ goal is to buy low – which keeps prices from falling even more – and sell high – which keeps prices from going even higher. And while a speculator can try to drive prices to his advantage, other speculators are usually around to meddle with his plan.
Joe Cushing writes:
Counterintuitive Claim: Eliminating jobs by increasing productivity
is a good thing. Likewise, creating jobs by reducing productivity is a
bad thing. –Usually the part about productivity is left out of the
political discussion but I wanted to be clear where I was coming from
Intuitive version: Higher productivity means that the same number of people can produce more stuff – and the people who lose their jobs move on with their lives and eventually find something better to do. If we didn’t let productivity “destroy jobs,” we’d still all be farmers.
Claim: The division of National Insurance Contributions into Employers
Contributions and Employees Contributions is bogus. [he also has a refined version, but I think it goes beyond basic econ]
Intuitive version: If the government passed a law requiring your boss to give you free football tickets, what do you think he’d do? He’d cut your pay – or at least your raises – to make up the difference.
Counterintuitive claim: Regulation of drugs can have negative effects on our health.
Intuitive version: If you delay a drug that saves 10,000 lives a year for 7 years, how many people did regulation kill? What is 7 times 10,000 again? Right, 70,000.
1. coase theorem
2. paradox of thrift
I don’t think the paradox of thrift is even true, and in any case it’s far from basic econ. The Coase Theorem is on the border of basic and advanced econ, but I’ll take a stab at it anyway:
Intuitive version: If finding and making deals cost neither money nor time, whoever cared the most in dollar terms would pay everyone else to give him his way.
Self-interest: By acting in their own self-interest, individuals without intending to do so, serve the interests of others.
See my reply to Artturi Björk, above.
Interpersonal comparisons of utility are not possible.
Since I think interpersonal comparisons of utility are possible, I can’t help you. 🙂
Counterintuitive: Limits on foreign ownership makes a nation poorer.
Intuitive version: Some owners run businesses better than others. Limits on foreign ownership are affirmative action programs for domestic business owners who couldn’t make it on their merits.
OK, I’m done. How’d I do?
P.S. My apologies to anyone who feels overlooked.