10 Principles Rap

Hear the 10 Principles of Macroeconomics- Rap Version

Source :

Demand, Supply - Rhythm, Rhyme, Results ( Click for full version including all 10 Principles below)

10 Principles of Economics: Gregory Mankiw, Brief Principles of Macroeconomics 5th edition

1. People Face Tradeoffs. To get one thing, you have to give up something else. Making decisions requires trading off one goal against another.

2. The Cost of Something is What You Give Up to Get It. Decision-makers have to consider both the obvious and implicit costs of their actions.

3. Rational People Think at the Margin. A rational decision-maker takes action if and only if the marginal benefit of the action exceeds the marginal cost.

4. People Respond to Incentives. Behavior changes when costs or benefits change.

5. Trade Can Make Everyone Better Off. Trade allows each person to specialize in the activities he or she does best. By trading with others, people can buy a greater variety of goods or services.

6. Markets Are Usually a Good Way to Organize Economic Activity. Households and firms that interact in market economies act as if they are guided by an "invisible hand" that leads the market to allocate resources efficiently. The opposite of this is economic activity that is organized by a central planner within the government.

7. Governments Can Sometimes Improve Market Outcomes. When a market fails to allocate resources efficiently, the government can change the outcome through public policy. Examples are regulations against monopolies and pollution.

8. A Country's Standard of Living Depends on Its Ability to Produce Goods and Services. Countries whose workers produce a large quantity of goods and services per unit of time enjoy a high standard of living. Similarly, as a nation's productivity grows, so does its average income.

9. Prices Rise When the Government Prints Too Much Money. When a government creates large quantities of the nation's money, the value of the money falls. As a result, prices increase, requiring more of the same money to buy goods and services.

10. Society Faces a Short-Run Tradeoff Between Inflation and Unemployment. Reducing inflation often causes a temporary rise in unemployment. This tradeoff is crucial for understanding the short-run effects of changes in taxes,government spending and monetary policy.

Mankiw: H1N1 and the Spontaneous Order?

This post by Mankiw raises some questions I'm not sure I can answer.This involves allocating scarce resources(vaccine) given the constraints imposed by population genetics and epidemeology as they relate to the virus.

The following example ( although unrelated pathology) shows how markets work in the livestock industry in this regard. With beef cattle, a producer has every incentive to optimize vaccination of his calves prior to shipping ( to prevent shipping fever). Markets work. Typically calves preconditioned for health prior to shipping do better, and can often earn a price premium.

In crop production, there have historically been requirements for Bt biotech crops not to exceed 90% of total corn acreage. That implies leaving a 10% refuge. ( although there are some products out there that now meet the standards for a 5% refuge). This regulatory constraint was imposed to prevent selecting for Bt resistant pests.Without the constraint, enough producers might plant 100% Bt, selecting for resistant insects, leading to a population of resistent pests. This would create a negative externality imposed on producers in that area. Some literature has indicated that 10% could be to strict, or perhaps even a market based permit or quota system would work but the principle still holds. Would a producer have incentives without the regulatory constraint to plant the optimal acreage of Bt corn?

But what about controlling H1N1 in the human population? Would market prices ensure that people at the greatest risk ( determined by epidemiological evidence) get treated? For every low risk person that takes the vaccine, would the market price reflect the opportunity cost of a high risk person not getting it? Would the price rationed distribution of vaccine across the population also be the epidemiologically optimal distribution- would it result in minimizing the effects of H1N1 across the population?

I would say yes if A) those that were high risk were aware of the fact that they were high risk and they were able to outbid all low risk consumers. Eventually the price would reach a level that only informed high risk consumers would be willing to pay. High risk individuals would be identified via the price mechanism, and resources would be allocated accordingly.

Would it matter if people were poorly informed about their risk status and everyone assumed that they were high risk ( regardless of Media and public service announcements) and they bid for the vaccine accordingly? Wouldn't these people bid just as intensely as those that were truly high risk?

How would markets work in this instance?

(Sustainable) Food For Thought

When we think of sustainable food production, we may often think about niche markets like local or organic, although there is some bickering among producers about which is more sustainable. See the Marginal Revolution: for a look at this in terms of food miles, or here from Environmental Science and Technology, with more discussion about this research here in National Geographic.

While niche markets are emerging as one way to address the general public's concerns about sustainable food choices, we often forget about the technological improvements that family farmers depend upon for their livelihood, but also make our foods more sustainable. We often get the idea from the media that our food industry has been taken over by industrial farms, but the numbers just don't support those notions. Family farms make up 98% of all farms in the U.S. and according to the USDA ERS (2007) non family corporations make up less than 1% of the total number of farms in the U.S. and have accounted for only 6-7% of farm product sales in every census since 1978.

Family farms probably rely most heavily on products like biotech Bt corn and glyphosate resistant corn and soybeans. A good review of the environmental benefits of biotechnology in crop production can be found here. Many niche local and organic producers are catching on and are pushing for adoption of exceptions for biotechnology to be included in organic production ( See Science and the Boston Globe for more)

We've also seen great strides in the improved sustainability of milk ( video) and beef ( video). With a little better understanding at the farm gate level,I think many people will be surprised just how many sustainable food choices we really have!

Additional Information:

Structure and Finances of U.S. Farms: Family Farm Report, 2007 USDA ERS

The Environmental Safety and Benefits of Growth Enhancing Pharmaceutical Technologies in Beef Production
By Alex Avery and Dennis Avery, Hudson Institute, Centre for Global Food Issues.

Capper, J. L., Cady, R. A., Bauman, D. E. The environmental impact of dairy production: 1944 compared with 2007. Journal of Animal Science, 2009; 87 (6): 2160 DOI: 10.2527/jas.2009-1781

New York Times Don't Cry Over rBST Milk June 29, 2007

MSN Health and Fitness Bovine Growth Hormone

Dr. Harlan Ritchie, Michigan State University. How safe is our product Beef?

Doyle et al., Institute of Food Technologists, “Antimicrobial Resistance: Implications for the Food System” Comprehensive Reviews in Food Science and Food Safety, Vol.5, Issue 3, 2006

Sandiego Center for Molecular Agriculture Foods from Genetically Modified Crops ( pdf)

Sustainable Milk

In a nutshell, buy your milk from Kroger and kill 25 trees, but buy your milk from Wal-Mart and that's like planting 25 trees!



Why is it that Kroger is OK with adopting modern technology like automated checkouts, but they deny their milk producers similar technological advancements?

References:

Capper, J. L., Cady, R. A., Bauman, D. E. The environmental impact of dairy production: 1944 compared with 2007. Journal of Animal Science, 2009; 87 (6): 2160 DOI: 10.2527/jas.2009-1781

Politics and Science

In a past post I made note of the following quote from an issue of Nature Biotechnology:

"Obama is clearly a science buff, and is really, honestly, into knowing the facts, having them laid out, and then making the best choices that can be mustered," says a policy watcher who was close to the transition team but is outside the federal government. "It is a whole different approach compared to the 'How can we spin this information?' approach of the [Bush administration]. Back to 'honest-to-goodness' curiosity, which is, yes, incredibly refreshing."

Farmers, other business owners, and entrepreneurs, acting in their own self interest often promote the interests of society. Just think of the adoption of biotech crops as an example. This is often referred to as the 'invisible hand' or a 'spontaneous order' by economists. ( or often in the case of agriculture the 'invisible green hand') As a result, market decision makers are the one's that truly embrace science and make the best decisions based on an earnest effort to obtain all of the facts.

Most public choice economists will agree that like farmers, politicians also make decisions in their own self interest, typically maximizing their power and the influence of their ideology. The difference is that farmers have a vested interest in science. Yields and costs depend on it. Corn hybrids either yield or they don't.

Politicians on the other hand have a strong incentive to pick and choose their science. If embracing evidence tends to increase their power and serve to further their political ideology then they take an 'honest to goodness curious' approach. If their policies and ideology flies in the face of decades of evidence, then they shift gears to 'how can we spin this information.'

Public choice economists will hold that this is not a matter of being a republican or democrat, or a conservative or liberal, moderate, or independent. It is inherently a funcion of government. It is naive to think that democracy, or an election that replaces one set of politicians and bureaucrats with another will usher in a new age of enlightenment.

We have seen this most recently with the bailouts and stimulus policies that rejected over 60 years of macroeconomic research. Further examples in agriculture involve the infatuation politicians have with 'fat taxes' on soda, despite little scientific evidence connecting soft drinks with obesity, and the research that indicates that to be effective, these taxes would have to be in the range of 1200%.

Most recently we have heard that despite having any evidence to support their case, our current politicians are wanting to restrict antibiotic use in livestock. It's politics not science.