Monday, January 29, 2007

Food for thought...

Some answers to your questions...or maybe just more questions to your questions to lead you in the right direction to find your own answers...or questions to your questions to make you questions my question to make you think about your answers...

Hmm. I think I just confused myself.

Anywho -

Questions on ppc’s that you asked (sorry, I didn't write down who asked what questions):

i have a question: in class, a point outside the production possibilities curve was inefficient because it was an over use of resources, but according to the chapter, hte point is infeasible because it cannot be reached with the scarce anount of resources available. i'm wondering, which is it? or can it be either?

Me: (Because purple is cool...)

A point outside can be reached for short periods of time. For example - a person can work 80 hour workweeks if they are uber-workers, but most people couldn't handle that for short periods of time. As pointed out, it's an example to show an opposite to under-utilization of resouces. You can also reach that with trade.

Question, the production curve, can you really over utilize the resources? Would you not have the curve along the maximum amount of usage to show maximum production? Or is this another curve?

Me: If you are doing aggresive strip-mining, you are overusing resources. Or...cutting down rainforests (or any forest) without replanting. Or forcing overtime. Or...anything that makes it so that you are being inefficient as you use the resources. It can be a judgment call - what might seem like overuse to you might not seem like it to others. If it were on the national exam, they would make it very clear that they considered it inefficient.

Another curve would be finding and/or using new resources. Drilling in the Alaskan wildlife refuge, technology advances, discovering how to access the oil reserves in the Gulf of Mexico, a large population explosion - all will move the curve out. The opposite - a large population destruction (war, famine, holocaust), a government that forbids the use of resources or technology - would move the curve in.

dan,in response to your first question, i don't really think the point beyond the curve is actually realistic. Any country wouldn't have enough resources to exceed effeciency, or the points along the curve. Perphaps economists put this point on the graph as a contrast to the underutilzation of resources (which is possible)

Me: Right - but it IS fully accessible with trade. You can easily consume beyond your PPC with trade with someone else who specializes in production.

I am also posting to get my little address out there as well. But while I am here I would like to make a question. I understand that civil war can cause capital and consumer goods production to decrease, but I always thought that war was supposed to be good for the economy. Sure, there are going to be less people making things, but there is also going to be a higher demand for products, especially machinery. So couldn't a civil war also increase the production? Or is that only a war between nations?

Me: Interesting! A war is good for the economy in the sense that it sets people to work on government goods even if consumer goods are rationed or not necessary. So, it increases GDP (what's being produced), increases employment rates, and usually helps level off inflation (this is all macro stuff, so we won't be getting into it too much). What' s really important to remember here is that this is assuming (a) that we are talking about a relatively stable government, (b) this almost never happens in the case of a dictator, and (c) this is almost always in the case of a market or mixed (socialist) economy.

If you think to the US civil war, it causes a problem. Want a history lesson? Mr. Schwedrsky will tell you that I'm a Civil War buff and a Southern sympathizer, to boot. :) The South was much less developed economically at the time of the Civil War, and this caused problems. All heavy machinery was in the North. So - I would say that the Northern economy flourished while the Southern economy plodded along. (Not to mention that there was no stable currency, no recorded GDP, etc....) Anyway - in general, (my opinion, nothing to back this up but knowledge of economic theory...I dont' feel like researching it right now...) - because civil war today encompasses total war - as in, it hits all sectors of a country, economic, social, political - I think that it would not help an economy. Most modern warfare involves guerrilla tactics, so they have to be supplied somewhere - most guerrilla armies are supplied from non-domestic sources. Because terrorist attacks and bombings are usually done on economic centers, that would hurt it more.

So - a long answer to your short question. A civil war could increase production, but I dont' think that's a hard and fast rule. How's that for being indecisive?

Other questions you had:

My second question is about market intervention. How does effiency and equity contribute to market intervention?

Me: Efficiency is the idea of using all resources to their best and full capacity. Equity answers the question - is that fair?

So, if we use all of our resources to "make people better off", and in Congress' opinion that means that they will make sure that the government guarantees a minimum living wage of $20,000 a year, that might be efficient. Is it fair? What incentive does that give to work? If you knew that no matter what you did, the government would guarantee that you received a wage equal to up to $20,0000...well, lots of people would stop working. That was the problem with welfare. There was no incentive to get off of it. Now, in WI, there is - W-2 (Wisconsin Works) sets it up so you can only stay on welfare for x number of months before you have to show that you are looking for/training for a job.

Market intervention - the government will often look at efficiency (mostly the right-leaning), while at the same time trying to determine equity (mostly the left-leaning). But - in determining equity...should every one be equal? Should you make the same as a high school student that I make as a person with a masters' degree? Should I make the same as a doctor, or as Tiger Woods, or even as Scotty Nguyen, the great Texas Hold 'em player? :)

In a market economy, we must look at equity because markets are not fair. They don't favor one person over another, but they do allow for equality in the sense that we all have the same options. I can buy or not buy. I can spend or save. I can go to Vegas in April or I can use that money to pay off some bills. There are incentives to do different things. Is it fair that I'm going to Vegas when some of you can't even get money to go to Madison? I don't know. Is it efficient? I'm not sure. But - we all have that chance with a market economy.

Did that make any sense?

And finally, one last question:

So, Mrs. McDaniel... What is the most sucessful type of economy?

Me: I'm going to be difficult here and depends on what you determine as "success". If success is that government stays out of your lives, then market would be your answer. If success is making the most money possible, regardless of others, then market would be your answer. If success is being able to go to college for free, mixed/socialism would be your answer. If you are concerned with equity (all being equal), then command is your answer.

I'm difficult, I know. Success is a relative term. I think history has proven that there cannot be a command economy that works efficiently. There are people in Russia who would love to see communism return, because at least under communism, they had food. They had a job. They didn't have to worry about where basic necessities were coming from. The movement from command to market economies is brutal.

I think markets have proven to work. I also see great value in mixed/socialist economies, but that is very unlikely to shift here in the US - even though the idea of free college and healthcare might appeal to some, the taking of such a huge percent of our incomes is VERY unpopular. People complain over the government taking 30%...imagine if they took 70% - or 80%. Yikes!

I've talked enough. I'm going home. :)


Ashley said...

Efficiency vs. Equity

Our economy should strive for more efficiency instead of equity. By setting a minimum wage, the econmy is not enforcing efficency. Why work extremly hard if im guaranteed a minumum wage? Obviously business owners need some sort of check, employees can't live off of a dollar an hour, but simply put...efficiency is (in my opinion) what makes a great economy. If you work harder and are more efficient than the person sitting next to you, shouldnt you make more???

kfbare said...

Totally agree... but how could a process to measure how hard an individual works be set up?? I think that it would be impossible to set a "standard" for quality of work with the millions of different jobs out there. I think that promotions and raises work to reward those who work harder, or have more talent, than the person sitting in the cubicle next to them.

ianr said...

no minimum wage would create more problems than it solve. although we are just paying anyone 6.50 for any lame job lowering that would only give more greedy employers an excuse to lower the wages. this would really harm people just entering the work force like immigrants or teen workers.

Kate said...

i agree whole heartedly with ian. no minimum wage would create enormous economic havoc. Though I do agree that sweat shops that pay their workeers minimally have a purpose in devloping world, there is a reason our country can afford to pay our employees a healthy amount and also offer benefits.

champion said...

At the same time, I'm getting pissed off that some people are like, "We should raise the minimum wage by $4!" I think it should be adjusted for inflation but nothing more. Always raising the minimum wage is just reducing money's buying power.

Ashley said...

I agree with Beth. That's kind of where i was going with that. I realize that there has to be a minimum wage..but it should be just that, a minimum wage. If your qualified for the job you will atomatically start higher, and if you do an excellent job you will get a raise..proving that efficency is more important that equity.