Economics 103
Lecture # 22
Candide
A last chance to preach.
Do you remember on the first day when I said:
This will either be the best or worst course you
ever take.
Because it is a course about thinking
like an economist … not a course about economics.
I hope you agree that I was telling the truth.
Economics is a systematic way of looking at the world, and
interpreting what is around you.
You have to think about the world some way. There’s no such
thing as an open mind.
Suppose you thought
If you saw 10 of 11 swans, and
All swans were white.
they all were white, you would
take this as evidence confirming your
belief.
You would believe very strongly that the 11th swan was white.
But suppose you believed there is always one black swan.
When you see
ten white swans, you are convinced
the next one will be black!
Same evidence, but each draws a different
conclusion based on their beliefs.
So it is with social science. We interpret
the world around us anyway …
… we might as well use the right way.
Another example, punctuate the following words:
woman without her man is a savage
Did you write:
Woman, without her man, is a savage.
Or did you write:
Woman! Without her, man is a savage.
How you approach a problem hinges on what theoretical background
you bring to that problem.
Many years ago I was interviewed in a magazine and said the
following:
“Economist Doug Allen reports that the
Canadian welfare rate structure increases
the probability of single parenthood,
births out of wedlock, and divorce. `What
is perhaps most surprising here,’
commented Prof. Allen, `is not that women
… would respond this way, but rather
how sesitive this response is to relatively
minor changes in benefits.’ … an annual
increase of $1000 would result in an
increase of about 100,000 Canadian
women on welfare.”
The following week there was a letter to the editor:
“Your Feb. 17 cover story, and the
poor bashing expert referred to in it,
were an insult to all persons possessing
compassion and intelligence. For
miserly so-called “economic reasons”
you vilify the welfare-recipient for
claiming his birthright. You and your
fascist, bigoted, poor-bashing moan
about a piddling amount of money as
though it were some great wasteful
expense. Shame on your economic
myopia and lack of sensitivity. It’s
perfectly obvious that increasing
welfare rates can only help the
economy. I dare you to stop using
welfare recipients as economic
scapegoats.”
Did I miss something?
The point is that the assumptions we make are important.
I’ve argued all semester for seven ideas:
1. Maximization: all motivated by greed.
2. Substitution: everyone has their price.
3. Diminishing Marginal Value: you like things less at the margin, the
more you have.
4. Opportunity Cost: the value of the next best alternative.
5. Diminishing Marginal Product: output increases at a falling rate.
6. Rate of Time Preference: people are impatient.
7. Optimal Organization: we design exchange and production to
minimize cheating problems.
I’ve tried to show you that these ideas apply to absolutely anything
Economics is about life.
Master them and you too could be
An economist!!
But why do I have you read Candide?
First, I think you need to come to grips with the Panglossian Dilemma
Voltaire is criticizing the likes of Adam Smith, and other
18th century “optimists”.
“In spite of pride, in erring reason’s spite.
One truth is clear, whatever is, is right.”
Alexander Pope.
But this sounds like the Coase theorem,
the $500 bill idea, equilibrium, maximization,
etc.
Is an economist just another Pangloss?
Technically no. We say the world is efficient, not the best.
This isn’t the best of all possible worlds, but it ain’t worth
fixin’ either.
So I would say in spirit, we are Panglossian … so what.
“Some men look around them and
ask why. I dream of things that
could never be, and ask why not!
JFK
What’s wrong with asking why?
If you want to play “why not” just don’t
do it with an econ hat on.
Second I think you should be able to find economic applications anywhere
Here are some of my favorites.
`Gentlemen,’ said Candide modestly, `I
deeply appreciate the honour, but I haven’t enough
Money to pay my share.’
`People of your appearance and merit, Sir, never
pay anything,’ said one of the men in blue;
`aren’t you five feet five inches tall?’
There’s no such thing as a free lunch.
Those who have never seen two well-trained armies drawn up for
battle, can have no idea of the beauty and brilliance of the display.
Bugles, fifes, oboes, drums, and slavoes of artillery produced such a
harmony as Hell itself could not rival. The opening barrage destroyed
about six thousand men on each side. Rifle-fire which follwoed rid this
best of worlds of about nine or ten thousand villains who infested its
surface. Finally, the bayonet provided `sufficient reason’ for the death
of sever thousand more. The total casualties amounted to about thirty
thousand. Candide trembled like a philosopher, and hid himself as best
he could during this heroic butchery. P. 35.
-prisoner’s dilemma.
- red/blue uniforms, lines, etc.
The King laughed. `I don’t understand your European taste for our
yellow mud,’ he said; `but take all you want, and much good may it
do you. P. 83
Law of demand or DMV.
`This noise,’ said Pococurante, `can give half an hour’s amusement;
but if it lasts any longer it bores everyone. P. 119.
Same thing.
Small as the estate was, it bore heavy crops. There was no denying
that Cunegonde was decidedly ugly, but she soon made excellent
pastry. Pacquette was clever at embroidery, and the old woman took
care of the linen. No one refued to work, not even Brother Giroflee,
who was a good carpenter, and thus became an honest man. P. 144.
Comparative Advantage and gains from specialization.
`How much do you want,’ Candide asked him, `to take me to Venice
directly? There’s myself, my servants, my luggage, and those two
sheep there.’
The captain suggested ten thousand piastres, and Candide agreed without
hesitation.
`Oho!’ said the prudent Vanderdendur to himself. `This stranger is ready
to give ten thousand piastres all at once, is he? He must be pretty
rich.’
So he cam back a moment later and intimated that he could not leave
for less than twenty thousand.
`Very well,’ said Candide. … `Bless my soul,’ said the captain, under
his breath, …’ So he came back once more …p. 88
Price discrimination requires information.
`Yes,’ said Martin, `but theirs is another kind of folly. You realise
of course, that these two nations are fighting over a few acres of snow
on the borders of Canada, and that they spend more money on this
glorious war than the whole of Canda is worth. P. 110.
- sunk costs.
`But surely,’ exclaimed Candide, the French admiral must have
been just as far from the English as the English admiral was from the
French!’
`True enough,’ was the answer; `but in this country we find it pays to
shoot an admiral from time to time to encourage the others.’ p. 111.
-incentives in light of incompatible ones!
After supper, the Marchioness took Candide to her private room and led
him to a couch.
`So you are still devoted to the Lady Cunegonde?’ She asked?
`Yes, madam,’ answeed Candide.
The Marchioness replied with a tender smile:
`You answer me like a young man from Westphalia. A Frenchman would
have said,`It is true that I once loved Lady Cunegonde; but on seeing you
madam, I find I love her no more.’’
`Very well, Madam,’ said Candide, `I will answer as you wish.’
`Your passion for her,’ continued the Marchioness, `started from the
moment you picked up her handkerchief. Be so good as to pick up my
garter.’
`With all my heart,’ said Candide, picking it up.
`And now I shall be glad if you will replace it for me.’ said the lady; and
Candide replaced it for her. P. 105.
Substitution.
“If you can’t be with the one you love.
Love the one you’re with.”
They spent a month at the palace, but not a day passed without Candide
saying to Cacambo: `It is quite true, my good fellow, that the house
where I was born won’t bear comparision with the mansions of this
country; but still, I shall never be happy without Lady Cunegonde, and
I dare say you have some mistress or other in Europe. If we stay here,
we shall be no different from anybody else; but if we go back to the old
world with a mere twelve sheep laden with Eldorado stones, we shall be
richer than all the kings of Europe put together. We shall have nothing
to fear fro Inquisitors, and we shall easily rescue Lady Cunegonde.p 82.
- maximization if ever there was any.
Which leads me to the following.
(Wall Street).
``In the countries wehre it has been my fate to wander and in the inns
where I have worked I have met a vast number of people who detested
their existence, but I have met only twelve who have voluntarily put
an end to their misery. … Just to amuse yourself, persuade each
passenger to tell you his story, and if you find even one who has not
often cursed his life and told himself that he is the most miserable man
alive, you can throw me into the sea head first. P. 57.
Maximization does not imply happiness.
Maximization does not imply justification.
We use the principle of maximization because it is good at
explaining behavior.
Economists are not saying greed is good by itself.
Sometimes greed leads to good things … more trade.
Sometimes greed leads to bad things … “lovin’ the one
you’re with.”
Perhaps this is what Voltaire is meaning when he closes the
book with “Till your own garden”.
As you go about your life as a maximizer, perhaps you should
ask yourself if you’re happy?
-why are you at SFU?
-why do you want to be an accountant?
-What is your Lady Cunegonde?