Aug 14 2012

My first Economics lesson – Scarce Chairs!!

The following lesson is a great way to start an IB or AP Economics class for the year. I just tried it this morning for the first time and it went great!

Instructions:

• Before your Econ students arrive for their first full class meeting, remove chairs until there are only half as many as you will have students. I stuck mine in the library, well out of view of the students coming to my class.
• Tell students that the custodian removed the chairs for repairs, or they were taken to another room for a presentation or something. Anyway, you don't know when they'll come back and it may be a couple of weeks.
• For now, we are stuck with this many chairs, and we have to figure out a way to resolve this problem!
• Tell the students it's up to them to decide how our limited number of chairs will be allocated. Have them brainstorm solutions out loud while you write their suggestions on the board.
• Try to come up with 6-10 possible solutions, then have the students vote on the one they would like to see enacted. They can only vote once! Write the tallies next to each option on the board.
• If there is a tie for #1, have the whole class vote between the two or three options you've narrowed it down to until there is one clear winner.
The Economist's Solution:
• Once the students have voted on their favorite solution, share with them the economist's favorite solution. It is known as a sealed-bid auction.
• Give each student a slip of scrap paper and have him write two things: 1) His name, and 2) the maximum price he would be willing and able to pay each class period to have a chair to sit on.
• Collect the results, and in front of the students, organize their bids from highest to lowest. If there is a tie on the margin, have the students whose bids were identical bid again, writing their highest price on the back of the same slip of paper, then re-rank.
• The students with the highest bids will get a chair! For example, I had 17 students, and only 8 chairs. The highest bid was \$10, while three students were not willing to pay anything. Four kids were willing to pay \$1, but there were only two chair left at that point. When they re-bid, one was willing to pay \$2, one \$1.75, \$1.25 and \$1.20. Therefore, the two remaining chairs went to the students willing to pay \$2 and \$1.75.
• Finally, tell the winners that they can take a seat, and that everyone else must stand! At this point, of course, you can send the lowest bidders out to fetch the missing chairs and begin your debrief.
Economic concepts illustrated by the Scarce Chairs exercise:

Scarcity exists:

• When something is limited in supply and in demand, it is scarce.
• Everyone wants to sit, but the chairs were missing… chairs were scarce.
• Scarcity is a function of both demand and supply. The greater the demand relative to supply, the more scarce something is.

• Because scarcity exists, we must make choices about how to allocate our scarce resources
• We had to choose between competing systems for allocating the chairs

Rationing systems:

• When faced with scarcity, a system must be decided upon to ration the scarce items.
• The systems we decided upon ranged from a lottery to first come first serve to a merit-based system.

Something that is scarce has value:

• Everyone wanted a chair, yet they were limited. Because the chairs provide us with benefit, we value them, and are therefore willing to pay to have one.
• Value is a function of scarcity. The scarcer something is, the more valuable it becomes (gold), while less scarce items are less valuable (drinking water).

Consumer surplus:

• Consumer surplus is the difference between what you are willing to pay and what the price is.
• Sofia would have had lots of consumer surplus if she only had to pay \$2 , because she was willing to pay up to \$10.

Equity versus Efficiency:

• Equity means fairness, while efficiency requires that resources go towards their most socially optimal use, so that those who value something most end up getting that which they value.
• The tradeoff between equity and efficiency is a major theme of the IB Economics course.
• What is most efficient (an auction to determine who is willing to pay the most for the chairs) may not be equitable (or fair).
• When the richest students end up in the chairs, those with lesser ability to pay feel that they’ve been treated unfairly.
• A lottery in which names would be drawn from a hat to determine who gets a chair is certainly more equitable, but is actually less efficient, since those who get the chairs may not be those who place the greatest value on having a chair.
• Auctioning the chairs assures that those who value them the most will end up getting them, therefore resources are allocated most efficiently.

Aug 21 2011

Thoughts on Scarcity and the big questions of Economics

What is scarcity? In Economics, we say that scarcity is the basic economic problem. Because there are only limited resources available in the world, but humans' wants and needs are practically infinite, we run into a problem, how to:

• decide what will be produced,
• how it will be produced, and
• who will get the stuff that's produced.

Any economic system must answer these three simple questions. Today I started off a new year of AP and IB Economics with a lesson in scarcity (the full lesson plan can be viewed here). Students were faced with a classroom with only half as many chairs as there were students. In the face of the scarcity of chairs, students had to decide who would get a chair and who wouldn't. The suggestions from this morning's class ranged from rock, paper, scissors, to musical chairs, to first come, first serve, to a Hunger Games style fight to the death. Ultimately, students decided that I, the teacher, should create a rotating schedule of who would get the chairs, to assure that they would be allocated fairly and no particular student would get to sit in a chair more often than any other.

It was of great interest to me that the students settled on this solution. Sure, it seems fair if a schedule is set by the teacher. But why was this their preferred solution? I asked them if this is how seats in movie theaters are allocated, or seats in top universities, or beds in hospitals? They agreed that, in fact, other scarce chairs are rarely allocated in the manner they settled on, a rotating schedule assigning seats to different people on different days in a way that assure everyone gets to have the chairs equal numbers of times throughout the year.

Of course, this is NOT how seats at top universities are allocated, nor in movie theaters. Upon reflection, we determined that university spots are typically allocated in the following manner:

1. By merit (based on academic achievements in secondary school), and
2. By price (based on who is able to afford tuition at the best universities).

Of course, in many cases, those who may be most qualified to attend the top universities may not be able to afford the tuition, so ultimately, university spots are allocated by price.

Once we had decided that price was an important factor in allocating the scarce chairs out there in the real world, we decided to try out a price system in the classroom. Each student was asked to write down on a piece of paper (confidentially, of course), the price they would be willing to pay each day to have a seat in my class. Once I collected the “bids” I organized them from highest to lowest, and those who were willing to pay the most ended up getting chairs, while those willing to pay the least had to stand.

Is the price system fair? During our debrief I asked students whether they believed our price system for determining chair allocation was fair. Instinctively, they said it was NOT fair. Their reasons were that those who could afford to pay the most (e.g. the richest students) ended up getting chairs, while the students with less disposable income ended up standing. But what makes this unfair?

Upon further discussion, some students pointed out that in the real world, those who are able to pay the most for scarce goods (university spots, high quality health care, nice cars, big houses), have probably worked the hardest and therefore earned higher incomes than those who cannot afford these nice things. In this regard,the price system makes sure that those who work hardest and are most productive end up enjoying a higher standard of living since they can afford to consume more and nicer products.

Or is the price system unfair? On the other hand, those who cannot afford to pay the prices of lots of nice things may not be able to do so because they have not worked hard enough (either in school or in the labor market). But how, then do we explain the fact that many factory workers, miners, fishermen, farmers and others who obviously work incredibly hard, cannot afford to buy lots of nice things (and get their kids into the best universities).

The questions we struggled with today in class are some of the most fundamental questions that the field of Economics deals with, and which we will study in great detail in my classes over the next two years:

• What is scarcity and why does it exist?
• What are some scarce resources in the world outside of school?
• How should scarce resources be allocated between competing wants and needs?
• Who should get the stuff that scarce resources go towards producing?
• What is fair? And what is efficient?
• What kind of system for allocating scarce resources is both efficient and fair?
These and many other questions form the basis of the field of Economics. In the coming months my students will explore the answers to these questions in  their Economics classes!

Aug 18 2011

Welcome all new Econ students! Time to start thinking like economists

One of the questions I like to ask my student during the first week of class every year is “What is Economics?” The answers are always interesting to read, because unlike many other high school classes, Econ is one of those subjects students sometimes have no idea what it's all about when they sign up for the class. Below are some of the definitions of “Economics” students shared in their first day survey this week:
• “Economics is the study of money flow between either countries or individual companies.”
• “My definition of Economics is the control of money by a person, organization or nation.”
• “Economics is a complex system that determines and justifies global prices, currency values, and ultimately the success of a nation.”
• “I'd say Economics is the study of how humans use resources including income, investments, taxes and the economy.”
• “I think economics is the study of investments and money. Especially income and outcome, and taxes in the government.”
• “The study of the distribution of wealth and how human beings tend to handle wealth.”
• “A bunch of old men moaning about all of the potentially free lunch oppurtunities they had missed in their youth, passed off as the behaviour of markets.”

As you can see, most students do not yet have a clear definition of the subject in their heads when they start the course, which is perfectly understandable! So I thought I'd start the year off by sharing my definition of economics. Please read the following introduction to Economics then answer the discussion question that follows.

So what IS Economics, anyway? Well, look around you. What do you see? From here in my classroom at Zurich International School, I see five new condominium buildings being built. I can count eight yellow cranes swinging their arms hauling construction materials around their respective sites. Beyond the cranes I see a beautiful forest stretching up a hillside with green sheep pastures and quaint farm houses scattered here and there. I see a church steeple and the rooftops of the businesses down in the village below school. I can just see the tops of cars racing along the A3 highway to and from Zurich and the other cities of central and eastern Switzerland.

Now ask yourself, how did things get to be this way? Why are new condos going up in the midst of Europe's deepest recession in decades? Why are farmers still able to graze sheep on hillsides when 100 square meter condos are selling for a million francs just below their fields? Why are the ancient forests of the Sihlwald still standing even as development has encroached into most of the region's  forests and natural ecosystems? How do normal people make enough money to live comfortably in this expensive country? Where do the things we buy come from? Who built this computer I'm typing on and what will I be doing for a living in twenty years?

One of my favorite quotes that to me sums up what economics is all about comes not from an economist, but from the civil rights leader Martin Luther King. In 1967 King wrote:

Did you ever stop to think that you can’t leave for your job in the morning without being dependent on most of the world? You get up in the morning and go to the bathroom and reach over for the sponge, and that’s handed to you by a Pacific islander. You reach for a bar of soap, and that’s given to you at the hands of a Frenchman. And then you go into the kitchen to drink your coffee for the morning, and that’s poured into your cup by a South American. And maybe you want tea: that’s poured into your cup by a Chinese. Or maybe you’re desirous of having cocoa for breakfast, and that’s poured into your cup by a West African. And then you reach over for your toast, and that’s given to you at the hands of an English-speaking farmer, not to mention the baker. And before you finish eating breakfast in the morning, you’ve depended on more than half the world. This is the way our universe is structured, this is its interrelated quality.

Economics is about all the questions I posed above and it's about all the interactions King describes. Economics is about solving one major problem faced by all human societies going back thousands of years. Economics is about the problem of scarcity. Scarcity is the natural phenomenon arising from the fact that all the world's resources are physically limited in quantity.

Limited resources alone would not pose a problem if it were not for one characteristics of human beings that makes us truly unique in the animal kingdom. The fact that we have desires and wants beyond our basic physical needs. In the face of humans' practically unlimited desires and wants, the limited nature of the earth's limited natural resources gives rise to conflicts regarding the allocation of those resources. Economics is the social science that deals with the allocation of earth's scarce resources among the competing wants and needs of society. Economists provides society with various tools and techniques for efficiently allocating our scarce resources.

Discussion question:

1. Scarcity of resources has given rise to countless conflicts among and between societies throughout history. Identify one conflict from the past or present that you think the problem of scarcity gave rise to.
2. Some say that many of the environmental problems our world faces to day can be solved by economics. If that's the case, then they must have to do with scarcity. Identify one environmental problem and explain how it relates to scarcity.
3. Time is one of the scarcest resources. Explain how the decisions you make regarding your limited time in and out of school can be considered economic decisions.

Aug 29 2008

Free markets and free societies may not go hand in hand

Capitalism and democracy: friends or foes? | Free exchange | Economist.com

How Capitalism Is Killing Democracy – Foreign Policy (abstract only)

“Why is FREEDOM so important in a market economy? If people in society are not free, can a market economy truly succeed?”.

Friday's class discussion focused on the different answers to the basic economic questions offered by centrally planned versus market economies.

The question I left them to ponder over the weekend had to do with an apparent paradox visible in China today: that of a free market economy seemingly thriving in a society where political and social freedoms are severely limited by the communist dictatorship. It has long been claimed that free markets will be followed closely by political freedom, and vis versa. The two are thought to go hand in hand. According to the Economist.com's blog, Free Exchange:

The late Milton Friedman emphasized that economic freedom promotes political freedom and is also necessary for the sustainability of political freedom over time. His underlying logic is that competitive capitalism separates economic power from political power. One could point to Chile, Taiwan and South Korea as examples where Friedman's logic seems to hold.

So if, as Friedman said, free markets lend themselves to free societies, then how has China's thriving market economy not resulted in a freer society, even after 30 years of economic liberalization? Robert Reich, writing in the Foreign Policy Journal examines the issue in some depth:

Conventional wisdom holds that where either capitalism or democracy flourishes, the other must soon follow. Yet today, their fortunes are beginning to diverge. Capitalism, long sold as the yin to democracy's yang, is thriving, while democracy is struggling to keep up. China, poised to become the world's third largest capitalist nation this year after the United States and Japan, has embraced market freedom, but not political freedom. Many economically successful nations ”from Russia to Mexico” are democracies in name only. They are encumbered by the same problems that have hobbled American democracy in recent years, allowing corporations and elites buoyed by runaway economic success to undermine the government's capacity to respond to citizens' concerns.

Of course, democracy means much more than the process of free and fair elections. It is a system for accomplishing what can only be achieved by citizens joining together to further the common good. But though free markets have brought unprecedented prosperity to many, they have been accompanied by widening inequalities of income and wealth, heightened job insecurity, and environmental hazards such as global-warming.

What can explain the recent divergence of capitalism and democracy in countries like China, Russia and Mexico? The Free Exchange blog explains:

The cause of this divergence, Mr Reich contends, is that companies seeking an advantage over global competitors have invested increasing amounts of money in government lobbying, public relations and bribery. This process of corporations' writing their own rules has weakened the ability of average citizens to have their voices heard through the democratic process.

So it appears that as capitalism and free markets have flourished, freedom of the individual has been trumped by freedom of the corporation to lobby and thus influence government into creating favorable environments for investment and growth, often times at the expense of society's health and the best interests of the public as a whole. We will learn a term for this kind of activity in AP and IB Economics: rent-seeking behavior.

As firms grown larger and industrial and commercial power becomes concentrated in powerful multi-national corporations, the priorities of governments seem to be shifting away from individual freedoms and civil rights and towards the interests of the corporate world, whose money and influence run deep through the veins of the world's governments.

So perhaps I was wrong. Maybe Milton Friedman was wrong too. Perhaps the 21st Century has bred a new relationship where free market capitalism is wed not to democracy, but to a new kind of corporatocracy, a term used by Noam Chomsky, in which governments bow not to the will of the people they govern, rather to the pressures from corporate entities. Freedom and justice for all (firms, that is). Gives you something to think about, huh

Discussion Questions:

1. Do free markets lead to free societies?
2. Is political freedom a prerequisite for a successful market economy?
3. Has “corporatocracy” surpassed democracy as the dominant influence in the rich, developed countries of the world?
4. In what ways could economic strength come at the expense of individual freedom?

Apr 09 2008

Enter the age of inflation…

Rising inflation in Asia stings in the West – International Herald Tribune

I hate bad news. But this is bad news. Just as the US economy is about to officially enter its long-dreaded recession triggered by falling home prices and weak investment and consumption, it looks like inflation will continue to accelerate as wages and commodity prices skyrocket across Asia.

“Inflation is the major threat to Asian countries,” said Jong-Wha Lee, the head of the Asian Development Bank's office of regional economic integration.
It is also a threat to Western consumers because Asian exporters, even in very poor countries, are passing their rising costs on to their customers.

Now Americans are in big trouble. While the dollar plummets, making imports more expensive, wages and input prices in Asia are climbing, leading to autonomous increases in the price levels overseas.

That puts American consumers in a double bind, paying at least some of producers' higher costs for making their goods, and higher prices on top of that because the dollar buys less in those countries.

So where lies the hope for relief? Is there any? What are the possibilities that input costs will fall in Asia, offering relief to consumers in the West? Daniel Altman, the International Herald Tribune's economics blogger, has this to say:

On the labor question, there is some precedent for relief. When wages rose in Japan and Korea, production of cheap consumer goods and electronics shifted to Hong Kong and Malaysia. When wages there rose, it moved to China and Vietnam. With higher wages in those countries, it could shift to poorer nations in Africa, Central Asia and Latin America – provided those nations are stable enough to do business with foreigners.

There is no relief in sight for energy and commodity prices, however. Demand is simply too great. New technology could provide some answers with time, though it’s not clear how it can solve problems like the lead and copper shortages. In the short term, we may simply have to accept that living standards, judged by our material consumption, will not rise as quickly as they have in the past couple of decades. It was a nice ride while it lasted, eh?

Globalization and free trade have led to huge improvements in access to affordable manufactured goods for Western consumers. The hope that cheap imports will drive our consumptive lifestyles into the future, however, is waning as the basic economic problem of scarcity rears its ugly head in labor and commodity markets.

Discussion Questions:

1. Is global inflation today primarily demand-pull or cost-push? How do you know?
2. What implications do rising wages in China have for less developed countries such as those in Africa and Latin America?
3. As commodity supplies dwindle, how can the world's economies continue to grow? Can they? Will the world ever reach a point where continued growth is impossible and a period of contraction begins?

Jan 14 2008

When markets work…

Michael Munger, Bosses Don’t Wear Bunny Slippers, If Markets Are So Great, Why Are There Firms: Library of Economics and Liberty

The other day when we introduced our unit on market failure, we began by revisiting the concept of free markets as mechanisms for allocating scarce resources efficiently. As I was reading blogs tonight, I stumbled upon this blog post by Michael Munger, professor of political economy at Duke University, where he shares an anecdote he uses when introducing the allocating power of markets through the price mechanism:

When I teach political economy, I start with the neoclassical theory of consumption, and then cover production. And I show students how miraculous is it that the actions of millions of people who have never met can be directed by prices. Resources move toward their highest valued use, and consumption goods are delivered to the consumers who want them.

For example, the United States promoted ethanol as an auto fuel. This sharply increased the price of corn worldwide. As Brazilian reporter Kieran Gartlan put it: “Higher prices are leading Brazilian farmers to plant more second crop corn this year, and the country's modest corn exports are expected to expand [from 42 million tonnes to 48 million tonnes, an increase of 230 million bushels.]” (DTN, March 2, 2007, emphasis mine).

No one directed the Brazilian farmers to shift to corn production. The article puts it perfectly: “Higher prices are leading farmers….” The leadership comes from the prices themselves! The farmers may have had no idea why the price of corn had increased, to \$4.00 per bushel. (After all, Brazil uses sugar, not corn, to produce its ethanol.) But Brazilian corn production increased within a year, by nearly 15%. No one made the farmers switch; they made choices. Other corn producers, in Argentina, Mexico, and several African countries, followed suit. No one talked about it, no one gave any orders; prices led them.

The reason I post this excerpt from professor Munger's blog now is that it serves as a great response to a student who on the first day of our market failure class posited that perhaps the government could do a better job of deciding what goods and services and how much of them should be produced in an economy.

Yes, markets fail, and for many reasons: a concentration of power among a few large firms, an underallocation of resources towards goods that have spillover benefits, the over-provision of goods that have spillover costs, the failure of the market to provide public goods: these are examples of how market fail.

But when markets work, they really work! The efficiency of resource allocation that results from free, competitive, markets is unrivaled by any central planning agency. Munger's example above is a simple illustration of this allocative power of markets and prices.

Oct 23 2007

WTO – a podcast introduction, continued…

Introduction to the WTO, continued…

May 30 2007

The Hegemony of Neo-classical Economics

Two heterodox economists respond to an article I blogged about last week, Hip Heterodoxy, published in the Nation, written by Chris Hayes.

Challenging Orthodox Economics â€“ Part I | TPMCafe by Thomas Palley

Economics Outside the Mainstream | TPMCafe by David Ruccio

As our year winds down and we begin getting our materials and lessons in order for our next batch of AP Econ students, it's unlikely we'll pause to ask a rather important question: “Is the economics I'm teaching my students the correct and immutable truth?”

After all, isn't economics still a young science? It's only been a few generations since Smith, Riccardo and Locke laid the groundwork for what has become the mainstream, neo-classical/neo-Keynesian theory that makes up every major economics text and principles course out there. Who's to say that in another one hundred years these views, products of the late 20th century themselves, will still be considered the correct solutions for dealing with the economic problem?

As mentioned in a previous post “Keynesian vs. Neo-classical Economics – and what is Heterodox Economics?”, the field loosely described as “heterodox economics” raises difficult questions of human behavior and thinking that challenges the neo-classical view of perfectly rational actors and the efficiency and perfectibility of free markets (the view that we teach in AP Economics). David Ruccio, econ professor at Notre Dame, laments on mainstream economists:

All reasonable arguments are accepted in the marketplace of ideas. Except they (mainstream economists) never read any heterodox economics, and have no idea how the hegemony of their favorite theory shuts out all other ideas…Thatâ€™s the situation that heterodox economists are trying to change. By using economic theories other than those of the mainstream… By forming journals and associations apart from those of the mainstream (in which their ideas never get aired). And by challenging the mainstream conception of the discipline itself
(including its notions of what science is, and what it means to â€œthink like an economistâ€).

We do heterodox economics, or what some refer to as political economyâ€”as against economics (which, as Chris correctly argues, has become identified with a tiny number of theoretical approaches). We write about rates of exploitation and the role of power in increasing inequality and the existence of patriarchy and structural racism. Not only do we want to argue that economic actors are sometimes irrational or guided by norms and values; some of us also want to analyze economic institutions and events without even starting from individual actors. Or efficiency. Or constrained optimization.

So, do you feel guilty yet about teaching only the mainstream view in your course? Don't fret, even Professor Ruccio has to teach his students the neo-classical approach; here's how he deals with the status quo in his courses:

In all honesty, I mostly prefer not to read maintream economics these days. Either it says nothing of interest, or it gets me very angry. But I teach it, and I teach it in a way that is more rigorous than my mainstream colleagues. Because I teach its basic assumptions (and not as a kind of common sense) and because I present alternative views, heterodox economics. And then I read and do heterodox economics, independently of the mainstream. Because if we spend all our time worrying about mainstream economics, attempting to do mainstream economics (with a tweak here and a changed assumption there), weâ€™ll never get around to developing alternatives.

Professor Ruccio makes an important point here. Before students can become agents of positive change, aware and capable of making the world a better place (and the field of economics a better science) they must first know what needs fixing. I know as much as any AP Econ teacher how rushed this course is, how little time is really left for discussions beyond the basic principles in the syllabus; but in the future, I think I'll challenge myself and my students to take a little time and find out what alternative approaches to the economic problem are being researched, published, and put into action out there. Technology, the web, blogs: these are the tools that will enable us to easily connect our students to alternative, heterodox economics despite the hectic pace of our AP course. And if your school has access to online journal databases, here's a few suggestions for economics publications that give a voice to heterodox economists like Professor Ruccio:

The Review of Income and Wealth, the Cambridge Journal of Economics, the European Journal of Comparative Economics, Research in Economic History, Industrial and Corporate Change, CES Ifo Economic Studies, the Eastern Economic Journal, the BNL Quarterly Review and The Economistâ€™s Voice.

May 27 2007

Keynesian vs. Neo-classical Economics – and what is Heterodox Economics?

Hip Heterodoxy

I just found a link to this long and interesting article about a fledgling field called “heterodox” economics. Heterodox is defined as “not in accordance with established or accepted doctrines or opinions, esp. in theology; unorthodox.”

In the case of heterodox economists, what they don't believe is the
neoclassical model that anchors the economics profession. Classical
economics refers to the theories laid out by Adam Smith and David
Ricardo in the eighteenth and nineteenth centuries, which emphasized
the power of the “invisible hand” of the market to promote the division
of labor and economic growth. Smith famously summed up the recipe for
prosperity as “peace, easy taxes, and a tolerable administration of
justice,” with “all the rest being brought about by the natural course
of things.”

There's a lot to digest in this five page article from the Nation. I think I'll have to blog it in a few separate posts. This will also be a great article for use in my AP Econ course when we compare the neo-classical version of the vertical Aggregate Supply to the Keynesian horizontal AS curve, and the implications therein regarding use of monetary and fiscal policies to achieve macroeconomic stability.

One line that jumps out at me right now is:

Indeed, the cradle for much of our policy discussions can be found in
the first chapter of just about any introductory economics textbook,
where the basic precepts of the neoclassical framework are described
under the rubric of “thinking like an economist.”

Again, I continue to come across evidence that an education in Economics is absolutely crucial to understanding important issues in all realms of society today. As I continue digesting this important analysis and history of competing economic ideologies, I will continue to think about how to use this in my class next fall, and blog any ideas that come to mind. If you have the time and interest, give this article a read and post your comments here!

May 11 2007

Why learning Economics is SO important!

Here's a fascinating article about the importance of learning economics in order to overcome our innate, perhaps genetically ingrained understanding of human exchanges as a zero-sum game, where one person's gain comes at another's loss.

Paul H. Rubin – Evolution, Immigration and Trade – washingtonpost.com

Rubin finds several fascinating links between evolutionary biology, psychology, and economics.

“Our primitive ancestors lived in a world that was essentially static; there was little societal or technological change from one generation to the next. This meant that our ancestors lived in a world that was zero sum — if a particular gain happened to one group of humans, it came at the expense of another.”

“Economists have argued for more than two centuries that voluntary trade, whether domestic or international, is positive sum: it benefits both parties, or else the exchange wouldn't occur.”

This ingrained belief of one person's gain coming at the expense of someone else leads to dangerous policies such as protection and trade barriers, which as we know limit an economy's growth and improvements in standards of living. Therefore, learning economics is as important to society's progress as learning to read is to an individual's education. Rubin concludes with this interesting insight:

“A useful analogy is between speech and reading. All humans growing up in a normal environment learn to speak, but reading must be taught because it does not come naturally… A deeper understanding of economics is like reading — it must be taught.

America's success in lowering its barriers to outsiders shows that we can and do learn. But like reading, we must teach each generation anew.”

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