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Lecture (Online) - The Economic Way of Thinking — Transcript

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0:01Welcome to ECON 2330 microeconomics at
0:04Cedarville
0:06University. This is the second lecture
0:08of the course. The objective of this
0:10lecture is to explain the economic way
0:14of
0:17thinking. In this class, we will present
0:20and use the economic way of
0:23thinking. We use the economic way of
0:26thinking to evaluate the world around
0:28us.
0:30The economic way of thinking is using
0:33the tools of economics to analyzing
0:36human
0:37behavior. The economic way of thinking
0:40provides a framework to answer certain
0:42questions about the world around
0:45us. Throughout the rest of this lecture,
0:48I will present foundational principles
0:50of the economic way of thinking.
0:56However, before we present these
0:58principles, we should take a step back
1:01and ask what is
1:03economics? Because it will be unhelpful
1:06to describe the econ economic way of
1:08thinking if we do not know what
1:11economics
1:12is. To do this, we will use the
1:15following definition of economics.
1:18Economics is a social science studying
1:21the choices of production and exchange
1:23made by individuals in a market given
1:27scarcity and limited and dispersed
1:30knowledge. How markets
1:32coordinate government's influence and
1:35the unintended consequence of those
1:40choices? Now you might ask first what is
1:43a social
1:44science? A social science is a
1:48discipline that studies human behavior
1:51rather than the natural world. For
1:54example, political science is also a
1:57social science just like economics
2:00because in both disciplines we study
2:03human
2:05behavior. Marine biology on the other
2:08hand is a physical science. It studies
2:11the physical world not human behavior.
2:17A market is a network of relationships
2:21that emerges from the process of
2:23exchange between consumers and
2:27producers. If that is too verbose for
2:30you, we can simplify and state that a
2:33market is where exchange occurs. And I
2:36want to be clear about that because
2:38often times anymore when people hear the
2:40word market, they think of capitalism.
2:44Sometimes those words are used
2:45interchangeably, a market economy or
2:47capitalism. But when I use the phrase
2:50market, it almost always means simply
2:53where exchange is
3:01occurring. From this definition, we can
3:04divide economics into two broad
3:06branches. Now, there are many subd
3:09disciplines in economics.
3:11for example, public finance or economic
3:15development. But economics in general
3:17has two broad branches from which these
3:20subd
3:21disciplines come
3:23from. The first broad branch is
3:27microeconomics which is what we are
3:29studying in this course.
3:32Microeconomics is the branch of
3:35economics studying the choices made by
3:37individual
3:38units, the factors that affect those
3:41choices, and how those decisions affect
3:46others. Individual units include
3:50individuals like a consumer and
3:55firms. The second broad branch of
3:58economics is macroeconomics.
4:02Eco210 at the King's College is our
4:05course in
4:09macroeconomics.
4:10Macroeconomics is the branch of
4:12economics that studies the movements and
4:15trends in the aggregate economy. The
4:18aggregate economy is just a fancy way of
4:20saying the economy as a
4:27whole. Like any system of analysis,
4:31economics starts from core assumptions
4:34about
4:35reality. In economics, we have three
4:39core
4:40assumptions. The first assumption is
4:43that economists start with individual
4:46decisionmaking to explain social
4:49phenomenon.
4:51Individuals are the unit of analysis
4:55because only individuals are able to
4:57acrue costs and acrue
5:02benefits. This does not mean that
5:05individuals cannot be influenced by
5:08their environment or by a
5:10group only that it is up to the
5:13individual to make a decision. Often
5:17times we may use nomenclature like the
5:19government did X or company Y did A. But
5:24it is more precise to acknowledge that
5:26people in government or people within a
5:29company decided to take a particular
5:32action because the cost and benefits of
5:35those action occurred to the individual.
5:41While this may sound semantic, this
5:44distinction is also
5:47important. Focusing on the individual
5:50allows the economist to narrow his scope
5:53of
5:54analysis. Also, this distinction allows
5:58the economist to assign blame or to
6:01assign praise to a person, not an
6:05entity.
6:07For example, the media has recently
6:10reported that the bank Wells Fargo
6:13engaged in a multi-year scam where they
6:16registered customers for accounts that
6:19the customers did not
6:21want. However, not every employee
6:25working at Wells Fargo engaged in this
6:27illicit and illegal activity. Some
6:30employees rejected the practice and
6:32there was even some
6:34whistleblowers. Therefore, since some
6:37employees engaged in illegal behavior
6:39while others did not, it is unhelpful to
6:42say that Wells Fargo itself committed
6:45the scam. You cannot send Wells Fargo to
6:49jail. What you can say is that certain
6:53employees operating within certain
6:55constraints and reacting to certain
6:58incentives engaged in illegal behavior.
7:02That's why it is helpful to start with
7:05the
7:07individual. The second assumption
7:09economists make about
7:11reality is that economists assume people
7:14act with
7:15purpose and they act rationally.
7:20Now, economists use rationality in a
7:23specific way and it's different than say
7:27how a psychologist would use
7:32rationality. To an economist,
7:35rationality means that individuals
7:39pursue their best outcome or their
7:42perceived best outcome. Now, it's true
7:46this outcome may not actually be the
7:48best outcome for the individual from
7:50someone else's
7:51perspective or it might not be the best
7:55outcome in the long run. But as long as
7:58the person believes it is their best
8:00outcome and acts
8:03accordingly, economists consider that
8:05person as acting rationally.
8:09Economists assume people are trying to
8:11maximize utility or more informally
8:14their well-being. And we assume that
8:17firms are trying to maximize
8:21profit. The third assumption economists
8:24make is that all resources are scarce.
8:28So every decision will have a
8:32tradeoff. Let's consider scarcity in
8:36more detail.
8:41All of society's resources are scarce.
8:44And they are scarce for two
8:47reasons. First, resources are scarce
8:52because they are finite. Now, some
8:54resources are more finite than others,
8:57but they are still all
8:59finite. For example, there is only so
9:03much time in each day. And if we lived
9:06through the day, each of us lived the
9:09same amount of
9:12time. No one got more time. And if we
9:15made it through the day, no one got any
9:19less. Second, resources are scarce
9:23because individuals have unlimited
9:26wants. Now, to be clear, these wants do
9:30not have to be materialistic.
9:33For example, we could wish for more time
9:35in a day or we could wish for more peace
9:38in our
9:39lives. The point though is that we have
9:42wants that are unlimited.
9:45When you combine these two reasons, when
9:48an economist says that society has
9:51scarcity, what they are really saying is
9:54that people cannot have all that they
9:56want of every good in service at all
10:00times and at any price. There are
10:04choices that we must
10:07make because of scarcity. Because people
10:11have to make
10:14choices. People make choices between
10:16competing needs and desires. And
10:19therefore, every choice will have what
10:21economists call an opportunity
10:24cost. The definition of opportunity cost
10:28is the value of the next best
10:31alternative when making a choice.
10:35In other words, what is the value of the
10:38choice you would have made rather than
10:40the choice that you did
10:43make? For
10:45example, considering the following
10:48choice, say
10:50studying or some sort of leisure
10:52activity like
10:56golf. Instead of studying, suppose the
10:59next choice that you would have made is
11:01a round of golf.
11:03What this means is the opportunity cost
11:05of one more hour of studying is one
11:10fewer hour of playing
11:13golf. Well, consider listening to this
11:16lecture. What else would you be doing if
11:19you were not listening to this
11:21lecture? The value of what you would be
11:24doing is the opportunity cost of
11:28listening to this lecture.
11:32In summary, because there is
11:35scarcity and because we have to make
11:38choices and because there is opportunity
11:41cost, there is no such thing as a free
11:45lunch. I don't actually mean a lunch
11:48there. I'm using lunch
11:51metaphorically. What this means is that
11:53with every decision, there is a cost to
11:57somebody. There is always an opportunity
11:59cost and no decision faces zero
12:04costs. This is all because resources are
12:12scarce. With these three assumptions, we
12:15can now build the framework for the
12:17economic way of thinking.
12:20The first part of the framework is that
12:22economists consider the incentives and
12:24constraints people face when they make
12:29decisions. As the incentives and the
12:31constraints
12:33change, people's actions and behavior
12:37change. For example, think of how you
12:40treat an automobile you would rent
12:42versus one that you would
12:44own. Would you change the oil for a car
12:47you are renting? If you are like most
12:50people, the answer is no.
12:54Why? Well, the reality is is that you
12:56are not concerned about the car's long
12:58run performance. You are simply renting
13:00it for a short period of
13:03time. However, when you own the car, you
13:07care about the car's long run
13:09performance and would act accordingly.
13:12your incentive and your constraints have
13:14changed and therefore you have changed
13:17your
13:19behavior. It is also important to
13:21recognize that the choices people make
13:24can have both short and long-term
13:27consequences.
13:29Some of these consequences might even
13:32be. Consider the following example from
13:35Chile to better
13:37understand the short and long run
13:39consequences of a policy change as well
13:42as the unintended
13:45consequences. A few years ago, Chile
13:48implemented a law requiring employers to
13:50provide working mothers with child care.
13:54The objective of the law was to make it
13:56more convenient for mothers to work.
14:00Seems like a good
14:01objective. However, one of the
14:04unintended consequences through time was
14:07that firms started to pay women less.
14:11Now, why did this happen? This was not
14:13the objective of the
14:14law. Think about it from the perspective
14:17of an employer.
14:19An employer cares about the total cost
14:22of employing a person, not necessarily
14:26individual costs. So if you think about
14:28when you're hired, your cost to a firm
14:31is not just the wage they pay you. It
14:33also includes the benefits and the
14:36training that they give
14:37you. So what the law did was it made
14:41women more expensive to employ.
14:44At one margin, the firm had to provide
14:48some sort of
14:50uh payment for child
14:53care, but the firm responded by cutting
14:57renumeration to that person on another
14:59margin to keep the total cost the same.
15:03So that's just an example of how
15:07changing the incentives and constraints
15:10could lead to short and long-term
15:13consequences which may not have been uh
15:17intended. This quotation from Thomas
15:20Soul, an economist and popular economics
15:23writer summarizes the importance of
15:25incentives and constraints well. To
15:29understand decisions in general requires
15:32understanding the incentives and
15:33constraints confronting the particular
15:35decision makers in particular kinds of
15:39institutions, right? The environment
15:41that they're in who cannot simply choose
15:43to do whatever they wish without regard
15:46to the cost of their decisions to
15:51themselves. Costs and benefits,
15:54incentives and constraints matter.
16:00The second part of the framework of the
16:02economic way of thinking is economic
16:05thinking is thinking on the
16:08margin. Thinking at the margin means
16:11thinking about how the next action
16:14changes cost and
16:16benefits. How cost and benefits change
16:19with an action will determine how an
16:22individual will behave.
16:25Analyzing decisions at the margin also
16:29focuses the scope of
16:31inquiry. For
16:33example, if I wanted to know if you
16:36would eat the next slice of pizza, I do
16:40not need to know what your total utility
16:44is from eating
16:46pizza. All I need to know is what your
16:51benefit would be from eating the next
16:53slice of pizza.
16:55versus the cost of the next slice of
17:00pizza. The marginal is more important
17:03than the total in making a
17:08decision. The third part of the
17:10framework of the economic way of
17:12thinking is that economists weigh the
17:15marginal benefit versus the marginal
17:17cost of an action.
17:19The marginal benefit of an action is the
17:23additional utility a person receives
17:26from consuming or producing one more
17:29unit. Another way of saying this is that
17:31the marginal benefit represents the
17:33additional benefit a person receives
17:36from taking an
17:37action. Consider the pizza example from
17:40a moment ago. If you ate one more slice
17:43of pizza, how would this change your
17:46happiness level?
17:49It is likely that the first slice of
17:51pizza increases your happiness level
17:53more than the eighth slice of
17:56pizza, even if your total happiness
17:59increases when you eat the eighth
18:01slice, because you're hungrier when you
18:04eat the first slice of pizza compared to
18:07when you eat the eighth
18:09slice. The marginal cost of an action is
18:12the additional cost of consuming or
18:14producing one more unit. For example,
18:18consider a firm. As a firm increases
18:21production, they may need more land,
18:24they may need more labor, or they may
18:27need more capital to increase
18:29production. It's possible they need all
18:32three. Each additional person they hire
18:35or each additional machine they rent or
18:38each additional acre they purchase will
18:41increase the firm's cost at the margin.
18:45If the marginal benefit of an action is
18:48equal to or greater than the marginal
18:51cost of the action, a rational
18:54individual should take the action since
18:57the person benefits at least as much as
18:59the cost.
19:02If the marginal cost of a proposed
19:04course of action outweighs the marginal
19:06benefit of the proposed course of
19:07action, a rational individual should not
19:11take the
19:13action. Often these marginal benefits
19:16and marginal cost are not fully known at
19:19the time of the action because the
19:21future is uncertain.
19:24However, a rational individual will make
19:28reasonable assumptions about future cost
19:31and future benefits and will act
19:35accordingly. The fourth part of the
19:38framework of the economic way of
19:39thinking is that economists ignore sunk
19:44costs. So, what are sunk costs? A sunk
19:48cost is a cost incurred because of a
19:51past decision and these costs are
19:56unreoverable. If any part of the cost
19:59can be
20:00recovered, that cost is not a sunk
20:04cost. Therefore, how do sunk cost play
20:08into our decision-making? or I should
20:11say how should sunk cost play into our
20:14decision-makings of a rational
20:18individual. Sunk cost should be ignored
20:21by rational actors and should play no
20:24role in making a new decision because
20:26the actor cannot recover the sunk
20:29cost. Consider the following example.
20:33Suppose you go to a movie theater to
20:35watch a movie. You purchased the ticket
20:37before you watched the movie and you
20:40bought the ticket because you believe
20:41that the entertainment benefit you will
20:44receive from watching the movie is
20:46greater than the cost of the movie
20:49ticket.
20:50However, suppose halfway through the
20:53movie you realize you are not enjoying
20:55the
20:56movie. The decision you must now make is
21:00whether it is worth your time to
21:02continue watching the movie or whether
21:04you should leave.
21:06The price you pay for the ticket should
21:08have no bearing on your decision to stay
21:11or to leave because you are unable to
21:14recoup the ticket price whether you stay
21:17and finish the movie or whether you
21:19leave the movie early. Now, if you can
21:22recover some of the movie ticket, that
21:25part of the movie ticket is no longer
21:27sunk. So, that part will play a role
21:30into your decision to stay or to leave.
21:33But in this simplified example, we're
21:35just assuming like in most cases, once
21:38you buy the movie ticket, you're not
21:40getting it back. They're not going to
21:41give you a
21:43refund. Therefore, the decision whether
21:46to stay or to leave is dependent on the
21:49marginal cost and the marginal benefit
21:52of staying versus leaving the theater,
21:55right? What's the opportunity cost of
21:58staying and what's the opportunity cost
22:01of leaving?
22:03It is important to understand that sunk
22:06cost are about past decisions whereas
22:11marginal benefits and marginal costs
22:14including the opportunity cost of a
22:17decision are about future decisions
22:20where choices matter.
22:26The fifth part of the framework of the
22:28economic way of thinking is that
22:31economists assume cost and benefits are
22:35subjective, not
22:37objective. Why is this the
22:40case? We all value goods and services
22:44based on how they satisfy our individual
22:49subjective preferences.
22:52Since people have different preferences,
22:55people value goods and services
22:58differently. Consider the following
23:01example. Suppose we go and visit an
23:04amusement park. On a scale of 1 through
23:0710 with 10 representing maximum pleasure
23:11and one representing minimal pleasure, I
23:14may rate a visit to an amusement park at
23:16a seven. And you may rate the same visit
23:19at a six.
23:21Can we then conclude that I enjoyed my
23:24day more than you did because I enjoyed
23:27it at a seven and you enjoyed it as a
23:30six? The answer is no. Because my seven
23:35may not be higher than your six. We
23:39cannot compare utility between people.
23:44meaning that cost and benefits that we
23:46place on the visit to the amusement park
23:48are also not comparable. Cost and
23:52benefits are
23:53subjective, not
23:58objective. The sixth part of the
24:01framework of the economic way of
24:03thinking is that economists typically
24:05judge outcomes according to efficiency.
24:10In general, efficiency is a relationship
24:14between ends and means and considers
24:17whether fewer inputs could be used to
24:21achieve the same level of output.
24:24Policies and exchanges that are more
24:27efficient are preferable to policies and
24:31exchanges that are inefficient.
24:34Now economists have more precise
24:37definitions of efficiency and later in
24:40this class we will define efficiency
24:43with regards to mutually beneficial
24:45exchanges and dead weight loss. However,
24:49for today understanding the general
24:51notion of efficiency is good
24:57enough. Even though economists use
25:01efficiency as a way to judge an outcome,
25:05there are two considerations we must
25:07consider regarding that. First, no
25:11outcome is perfectly
25:14efficient. Believing so is to commit
25:17what economist Harold Dempits called the
25:20Nirvana
25:21fallacy. Since no outcome is perfectly
25:24efficient, the question before the
25:26economist is to determine what is the
25:29least wasteful or least bad outcome. Not
25:33comparing a perfect world to an
25:36imperfect world and saying, "Well, the
25:39exchange is slightly imperfect,
25:42therefore we shouldn't do it." That
25:45would be the Nirvana fallacy. We have to
25:47judge between realistic options and
25:51determine which is the least wasteful.
25:54The least wasteful in that case would be
25:58efficient. Judging an exchange or policy
26:01against an unrealistic ideal has limited
26:07appeal. Second, efficiency is not the
26:10only way to judge an outcome. For
26:13example, we could judge an outcome
26:16according to
26:18justice. Therefore, economist must
26:22concede that moral philosophy, theology,
26:26and ethics, for example, play a role in
26:29judging an
26:31outcome. For example, consider the
26:34activity of legalizing
26:38prostitution. From a purely economic
26:41perspective, legalizing
26:44prostitution may make sense because it
26:47makes the activity less dangerous
26:50because the activity would be regulated
26:52instead of in the shadows and the income
26:55earned would be legitimate and taxed
26:58rather than laundered.
27:02However, even though legalizing
27:04prostitution might be
27:07efficient, from a biblical
27:09worldview, it would not be just. A
27:13biblical worldview teaches that
27:15prostitution, whether it be legal or
27:17illegal, dehumanizes the participants,
27:21both the prostitute and the John.
27:25So in this case it may be more
27:28appropriate to keep the inefficiency of
27:31prostitution illegal rather than make
27:34the exchange
27:36efficient. The point is is that
27:39efficiency is one way of looking at an
27:42outcome but not the only way. The reason
27:46economists use
27:47efficiency is it helps narrow our focus
27:51and because it is what we are trained
27:53best
27:58in. The last part of the framework of
28:02the economic way of thinking is that
28:04many economists make a distinction
28:06between positive and normative
28:09statements in their analysis.
28:12For
28:13example, many economists would make the
28:16following claim. And this is how I was
28:20taught in my years as an undergraduate
28:23economics and even in grad school.
28:27Consider this
28:28claim. Positive statements are
28:31statements of fact describing what is.
28:35Positive statements are falsifiable,
28:38meaning they can be logically capable of
28:41being proven false. Positive statements
28:44are
28:46valuefree. On the other hand, normative
28:49statements are
28:50opinions describing what ought to
28:53be. They are
28:55nonfalsifiable and they depend on value
29:00judgments. To many economists, there is
29:03a firm dividing line between positive
29:06analysis and positive statements
29:09compared to normative analysis and
29:11normative
29:18statements. However, there are numerous
29:21problems with drawing such a sharp
29:24distinction between normative and
29:26positive statements.
29:29First, opinions can be factual or
29:34non-factual. For
29:36example, suppose it is my opinion that
29:39the sky is
29:41blue. Now, we can scientifically
29:43determine if the sky is blue or if the
29:46sky is another color. My opinion does
29:50not change the fact of whether the sky
29:53is blue or not. While we can debate
29:56whether all opinions are equally valid,
29:59it is untrue to state that all opinions
30:03are equally
30:06factual. Second, normative statements
30:10can be tested. Therefore, they are
30:15falsifiable. Consider the following
30:17statement. You ought to study for an
30:20exam to improve your grade. I phrase the
30:23statement in this way to make it an
30:26ought statement making it a normative
30:29claim. However, we can clearly test if
30:33my statement is correct or not. Right?
30:35In other words, we can see if it's
30:37falsifiable. There is an assumption
30:39behind the statement that you should
30:42study for an exam because studying will
30:45improve your grade. We can test that.
30:49Give you an exam without studying. give
30:51you an exam with studying and see what
30:55you did better on. So, normative
30:57statements can be tested and therefore
31:01are
31:05falsifiable. Third, positive statements
31:09derive from assumptions about
31:11individuals and are not
31:14philosophically or morally neutral. It's
31:17important to understand that statements
31:20do not occur in a
31:22vacuum. For example, consider one of the
31:26core assumptions about economics that we
31:28talked about earlier that people are
31:32rational. This is clearly not a morally
31:36neutral assumption. We are making a
31:38specific claim about how people act and
31:43that claim is resting on assumptions
31:47about what people
31:49do. So positive statements, unless
31:52they're just some simple statement of
31:54fact, often rest on some
31:59philosophical or moral assumption.
32:05Lastly, the difference between value
32:07judgments and value free statements is
32:11often
32:12unclear. Take for example the following
32:16phrase. Income inequality causes
32:21harm. Now we could take this phrase as a
32:24value judgment. That is there is
32:27something wrong with income inequality.
32:29Income inequality does cause some harm.
32:33Or we could take this statement as a
32:36valuefree statement. Income inequality
32:39causes harm in some objective fashion
32:42whether we want it to cause harm or not.
32:46However, notice that if we make it a
32:50valuefree statement, we need to define
32:53what we mean by harm. And to define what
32:56we mean by harm means we have to make a
33:00value judgment.
33:02Harm is not a neutral
33:05term. So the difference between a value
33:08judgment and a value free statement at
33:11times can be
33:14unclear. So in summary, it is not clear
33:18that we can simply divide statements
33:21between positive and normative.
33:25Nor is it clear if dividing such
33:27statements is helpful when we consider
33:31the world around
33:36us. While the economic way of thinking
33:39is powerful and is useful in evaluating
33:43reality, it suffers from five
33:45weaknesses.
33:47First, it is a poor substitute as a meta
33:51narrative and it relies on other
33:53disciplines to provide a fuller picture
33:56of reality. Think back to the situation
33:59with legalizing
34:01prostitution. We're discussing justice
34:05versus efficiency
34:06there. Or another
34:09example, the economic way of thinking
34:12does not explain why God acts or why
34:14anything exists. It doesn't provide an
34:17answer to the purpose of life. By the
34:20way, neither does the scientific
34:23method. Now, that doesn't mean there's
34:25anything wrong with the economic way of
34:26thinking or the scientific method. It's
34:28just that they can't be our meta
34:30narratives. They leave too many
34:31questions
34:33unanswered. Notice that a biblical
34:35worldview provides answers to these
34:37questions. What is the meaning of life?
34:40How are we to act? Why does God act? The
34:43biblical worldview provides answers
34:45whether you like the answers or not.
34:47That's not the question. It's just that
34:50everybody faces the same questions and
34:53has to provide answers to those
34:55questions. And going back to the first
34:57slide, our world
34:59view will depend or sorry our worldview
35:03will determine how we answer those
35:06questions.
35:08Second, the economic way of thinking
35:11often treats decisions as
35:13transactional. The problem with this is
35:16it dehumanizes
35:17people. People have inherent value and
35:21people have inherent dignity because of
35:24what God has done for
35:26them. People are more than inputs into
35:30the production process. Often times the
35:34economic way of thinking loses sight of
35:38this. Third, economists assume the goal
35:42of an individual is to maximize
35:45utility. Now, economists do that to
35:49simplify the
35:51analysis. However, there are two
35:54problems with this.
35:56The first one is that economists are
35:59often unclear about what definition of
36:02utility we should use. Do we mean
36:05individual utility? Do we mean total
36:08utility? How do we define this
36:10utility? Is it just a hedonism or is it
36:14something more?
36:17The second problem is that the idea that
36:20people are simply utility maximizers
36:23runs counter to the biblical notion that
36:25we are to serve God, serve others, and
36:28to steward the rest of
36:30creation because those responsibilities
36:34are part of God's design.
36:37Completing those
36:39roles may and will maximize our utility
36:43in the long run. But that is not the
36:46same thing as saying the ultimate goal
36:48of life is to maximize
36:55utility. Fourth, while value and price
36:58are similar, they are not the same.
37:02specifically when prices are not
37:05attached to
37:08alternatives. Consider the following
37:10quotation from Paul
37:13Hayne, the late economist from the
37:16University of Washington.
37:19The fact that one person was willing to
37:22pay a higher price for a good than
37:26another does not prove that the first
37:29person valued the good more
37:32highly. The first person may simply have
37:36valued money less than the other at the
37:39margins.
37:41Notice we're talking about marginal
37:42benefit, marginal
37:43cost, which means given the relative
37:47amounts of money and other goods that
37:50each commanded when making the
37:53decisions. The point is is while prices
37:58and value are similar, they are not the
38:02same and treating them as the same is
38:05problematic.
38:08The last weakness of the economic way of
38:12thinking is that the pursuit of
38:15efficiency while good while helping
38:18overcome
38:19scarcity can lead to thin communities
38:23where transactions are
38:28impersonal. Many of our transactions
38:31today are impersonal which is a radical
38:34departure from transactions of the past.
38:37Consider the following example, which is
38:40an example I've used even pre the COVID
38:4419
38:46isolation. If you wanted to, you could
38:49have all your food
38:51delivered either from a restaurant or a
38:53supermarket or a box store. You could
38:56deposit your paycheck via direct deposit
39:00or use an ATM or take a picture from
39:02your phone.
39:04You could have almost all of your wants
39:06and needs delivered to your house, maybe
39:09via Amazon
39:10Prime. You could work from home. You
39:13could
39:14telecommute. You could watch a church
39:16service from home on a computer. You
39:19could pay all of your bills via the
39:22internet. All of these technologies are
39:25good and they have lowered the cost of
39:27conducting
39:28exchange. And again for many of us
39:32during the coid9
39:34pandemic this is how we had to live our
39:37lives. We had to do church virtually. We
39:40had to work from
39:42home. We had food delivered. We did more
39:47online shopping.
39:50However, what we noticed is that our
39:55life was now much more impersonal and in
39:59a lot of ways less
40:02meaningful. When you are making zero
40:05substantial or meaningful relationships
40:07with anyone beyond a relationship of
40:11exchange, you are making your community
40:14thinner.
40:16You are not directly reliant on anyone
40:18in
40:19particular. In a sense, you are treating
40:22others as simply inputs into the your
40:26consumption or into your
40:28production. This is what Hayne means by
40:32thin
40:34communities. So the argument here is not
40:36that efficiency is a bad thing.
40:39Efficiency is a great thing. It helps us
40:42overcome scarcity.
40:44But there is a cost to pursuing too much
40:49efficiency. We lose the human element,
40:53the human interaction, the social
40:55interaction that makes us who we are.
40:59And so there may be times when we should
41:02prefer a little bit of inefficiency if
41:06it makes things a little bit more
41:08personal.
41:10It is my hope that you now better
41:13understand the economic way of thinking.

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