Archive for the 'Scarcity' Category

Feb 20 2017

Some thoughts on educating students for “success” and “happiness” in the 21st century

Today we returned to work after a relaxing week of holiday-making for a day of “professional development”. The day kicked off with our school’s director sharing some information about a recent audit of our school’s parent community, which revealed that there is great anxiety among the parents at our school about their children’s experiences in school today, mostly relating to how well they will achieve on their examinations and whether their levels of achievement will assure them entrance to the top universities to which they (both the parents and the students) aspire.

The ultimate source of this anxiety, it would seem, is not the immediate importance of exam scores or even college acceptances, rather the deeper concern among parents that their children may grow up to be less successful than they themselves have been in their careers. I am sure that this anxiety is one experienced by nearly every parent in the history of mankind: from our primitive ancestors who stressed over their children’s abilities (or lack thereof) with a bow and arrow to blue collar workers of the 20th century who worked 80 hours a week to be able to send their children to state colleges where they may learn a skill that would raise their lot in the future. The parents of my students today likewise fear that their own children may grow up to be less successful in the fields they believe to be worthy of their children: business, finance, law, technology, management, and so on.

In fact, the parents whom our school serves are some of the most successful people in the world in their respective fields. They have risen to the top levels of management in multi-national corporations. They sit at the pinnacles of global financial institutions. Many are successful entrepreneurs or investors who have proudly raised their children in a world of luxury. The very fact that they send their children to our school is evidence of their own career accomplishments (we are a very expensive private school in one of the richest countries in the world).

It is for this reason that I believe nearly all these parents’ should be very anxious about their children’s futures. It is natural for parents to want their children to achieve what they have achieved (or greater!). It is natural for parents to desire for their children to be able to enjoy the living standards they have been afforded thanks to their own accomplishments in business, finance or law. As I have said, every parent in history has wanted as much for their children.

But is it realistic for a major league pitcher to wish for his son to grow up to throw a ball 105 miles per hour? Certainly not.
I believe that today it is less likely than it has been for generations that a child growing up at the top of the socioeconomic ladder will, in fact, achieve the level of professional success and the resulting income and living standard that their parents achieved. These parents’ anxieties are 100% justified and they have very little reason to believe their children will someday earn the incomes they enjoy today.

Here’s why: The entire trajectory of the global economy has shifted since my students’ parents embarked on the career paths that led them to where they are today. Globalization and technological change have displaced (or replaced) many of the blue collar jobs that Europeans and American counted on for a decent living standard in the 20th century, and these same processes have already begun to affect the white collar careers on which many of my students imagine their future paths taking them. The knowledge and skills we teach in schools today will be increasingly devalued in the future.

Knowledge will become a free good as artificial intelligence and other information technologies reduce the barriers to acquiring knowledge to zero. Likewise, the gaps in global skill levels and productivity that allowed the growth of incomes in Europe and North America to exceed those in the rest of the world throughout the 20th century have already begun to narrow, evidenced by a decade of low or no growth in the rich world and nearly 5% growth in the rest of the world. This means the pool of skilled workers of which my students will eventually be a part will be vastly broader and deeper than that in which their parents competed.

The knowledge and the skills we teach our students in school today will only continue to be devalued in the future, meaning students whose future aspirations are based on the assumption that such learning objectives will assure them a high income and living standard will find themselves drowning in a labor pool in which they have less economic value than they ever have in history.

Stated simply, value is a function of scarcity, and as skilled and knowledgeable workers become less scarce, those whose only assets are what they “learned in school” will find themselves far less likely to achieve the levels of income that those of earlier generations did.

The implication of technological advancement and globalization (both the defining forces of our century) for education is that unless we begin teaching something NEW and DIFFERENT than what was taught in the last century, our students will almost certainly not achieve what their parents (educated in the last century) have been able to achieve with their educations.

So this begs the question: What can students learn in school today that WILL help them achieve the levels of success and happiness to which all parents aspire for their children?

I think the answer to this question also came up in this morning’s speech by my school’s director. He closed by sharing a quote from a student who recently graduated from my school in which the student reflected on what he learned on a school trip to Nepal during his last week before graduating (as part of our “classroom without walls” experience). After spending a week with the orphans of Kathmandu and in a Buddhist monastery in the Himalayan foothills, this student returned to Switzerland with a new understanding of what happiness meant. He realized for the first time in his life that happiness was not measured by how many material things we surround ourselves with, but by the relationships we have with others in our community and by our connection to both other human beings and the natural and spiritual worlds.

My question (and concern) is: Why did it take until this student’s last week of school before he came to this important understanding? Is this not the most important lesson he could possibly learn? Should only those students lucky enough to spend a week in the Nepalese slums come to such important understandings about life, happiness and success?

I wonder if it would relieve our parents’ anxieties if we shifted our focus in school today to place less emphasis on a pre-determined set of rapidly depreciating knowledge and skills and more emphasis on relationships, connections with the community and the environment and spiritual self-awareness.

I wonder what our parents would say if we told them that our school’s focus were shifting from providing their children with information and skills that will earn them the best examination results to instilling in them an awareness of and an understanding that happiness is measured not by what you have, but by what you are able to live without.

Will parents understand that their children’s pursuit of a high paying job based on the same knowledge and skills that they learned in school will prove fruitless in an era where knowledge and skills are no longer scarce?

Will they agree that what matters is not their children’s future success as measured by their income and material well-being, rather their future happiness?

I wonder whether my students’ parents realize how justified their anxieties are. And I hope they understand that if or when their children do not succeed on the paths they envision them pursuing, it won’t be their own faults; rather, it is the inexorable outcome in an era where knowledge and skills are continually devalued by technology and globalization.

Henry David Thoreau, who shed the burden of materialistic pursuits for a simple life in the forest, once said, “A man is rich in proportion to the number of things which he can afford to let alone.”

The happiness of being able to do without material things is that to which our education today must aspire. The path my students’ parents followed will become increasingly narrow and unattainable for the next generation. Therefore, a rethinking of what we teach and, in fact, value, is necessary to achieve happiness for our students in the future.

Many schools have embraced the alternative path to happiness envisioned by Thoreau and others throughout history. The awareness that true happiness is not attained by the pursuit of money and status, rather a connection with our community, the natural world and our spiritual selves and an embrace of simplicity over complexity is nothing new. The Buddha new it, Jesus knew it, Emerson and Thoreau knew it.

The question is, do our students know it? Do their parents know it? Heck, do I know it? And once we’re aware of this truth, how can we begin to redesign our schools’ learning objectives so that our students leave school with a truly attainable path to happiness and success, perhaps of a different kind from that imagined by their parents, but one that will certainly be more achievable and just as valuable in a future in which the spoils of global economic activity will be more evenly distributed between the world’s people than it has ever been in history.

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Aug 24 2015

The tragedy of the commons in the Arizona desert

A common access resource is one that is non-excludable but rivalrous: anyone can access it and use it but doing so reduces the benefits the resource can provide to others in society. Common examples are pastureland that is shared by cattlemen, fish in the open ocean and the atmosphere itself, which the more it is used as a sink for toxic air pollutants, the worse human health becomes.

In the American West, examples of common access resources abound, leading to several tragedies of the commons, the problems arising from individuals over-using a common resource for their own gain at the expense of others in society whose ability to benefit from the resource is diminished.

Lately farms have been popping up deep in the Arizona desert. Not because there is lots of water in the desert, which of course, there is not; rather because the water that lies under the desert floor is not managed by anyone and is a pure common access resource. Anyone is allowed to use as much of it as they want without any regulations regarding its use!

The story below from Marketplace sheds some more light on this story.

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Aug 24 2015

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!

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Feb 25 2015

Art, meet Economics

Here’s a great story about the importance of getting an education in both Art and Economics: ArtNet News – New York Times Exposes Peter Lik Photography SchemeGive it a read before reading the rest of this post.

Lik

There’s a lot of interesting Microeconomic applications of this story. Lik makes 995 prints of a photograph, sells them for cheap at first, but as they become more “scarce” the price rises. If the prints were, in fact, becoming “scarcer” then there might be a justification for their prices rising, and it is this illusion of increasing scarcity that tricks his (apparently un-art-educated and un-economics-educated) buyers into being willing to pay a much higher price for the final few prints than was paid for the first several prints sold.

In fact, the prints don’t become scarcer as more are sold, rather, the quantity supplied remains constant at 995. In most markets, to sell additional units of a product, the price typically has to decrease (since those who are willing to pay the most will buy first), but in the market for Lik’s photographs, those willing to pay most are the LAST buyers of the good. He has managed to reverse the rationale behind consumer behavior by creating an artificial sense of increasing scarcity, and thereby tricking his buyers into believing they are investing in an asset that increases in value over time rather purchasing a good that only loses value once it leaves the gallery.

Assuming demand for a particular print is fixed in a period of time, there really should be a single price as long as the quantity supplied does not change (which it doesn’t!!). But by making his buyers think the scarcity is increasing (by implying that the more are sold, the fewer the there are available to buy), demand actually rises as more prints are sold and the the price correspondingly increases. There is no actual change in the quantity supplied, only demand, and the reason demand is increasing is the belief that the rising price signals increasing scarcity, thus the ability to sell the art for an even higher price in the future. Art can be an investment, like gold, which people demand more of when the price is rising, because of the anticipation of future price increases (and thus the ability to make a profit on the purchase and future sale of the asset). As it turns out, the secondary market for Lik’s prints is tiny and few buyers have ever turned a profit on their purchase of a Lik print.

The fact that the prints’ prices are rising is evidence only of Lik’s monopolistic, price-making power, not a real increase in the market value of a Peter Lik print. Lik himself reveals this ruse when he says about his art, “”It’s like a Mercedes-Benz, you drive it off the lot, it loses half its value.”

The moral of this story: If you don’t study both ART and ECONOMICS in school, never pretend to be a skilled art collector, because you’re only being tricked by scam artists (and savvy businessmen!) like Peter Lik!

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Aug 18 2014

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.

 

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