The Power of Choice

Welcome to the third installment of Economics for English Majors, which is appearing as a series of standalone essays until my new Dispatch newsletter, Wanderland, officially launches next Monday. (Please do join if you haven’t.) I’m taking advantage of the temporary format to write some longer pieces—the ones in the newsletter will be shorter, usually. But, since there’s no newsletter real estate to take up, for now I’ll go long. 

Another way of thinking about that is that, at the moment, the opportunity cost of writing longer E4EM essays is relatively low. Opportunity cost is one of the three or four most important concepts in economics, especially for non-economists who want to understand economic thinking in the public policy context. It is simple enough, but still underappreciated, in part because we tend to look at opportunity cost from the consumer point of view and forget all about the production side. 

The fundamental issue in economics is scarcity. Scarcity is a fact of life: No matter how rich we become as a society, and no matter how much material abundance we enjoy, there is never enough to go around to satisfy every desire of every person: Some goods are naturally limited (there are only so many Rembrandt paintings), some goods are rivalrous in consumption (if Steve smokes a cigar, Jonah can’t smoke the same cigar), and our desire to consume goods that require work to produce (see last week’s discussion of Say’s Law) conflicts with our practically infinite appetite for leisure time. As much as it may grieve David French, you can’t plant turnips and play World of Warcraft at the same time. You have to choose one. 

That special application of scarcity—“If you want x, you have to forgo y”—is opportunity cost. 

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  • I hope Kevin considers compiling these essays into a book called Economics for English Majors.

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  • A Nashville Gibson is not like the Kalamazoo Gibson that Chuck Berry used to play.

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  • This article is fine ... other than being a total straw man because there are precious few Americans advocating for central planning. Even those who talk about "socialism" are advocating social democracy, ie free markets but with higher taxes to pay for social safety nets. I see nothing in this article about actual progressive politics.

    But thanks for the reminder that the Soviet Union was terrible. ;)

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    1. elizabeth warren has a central plan for that!

      - global minimum tax to eliminate capital competition;
      - central bank digital currency, elimination of paper money, and centralization of credit in the hands of the state, with an exclusive monopoly on lending;
      - stakeholder capitalism;
      - quantitative easing and $9 trillion on the fed balance sheet;
      - green energy subsidy boondoggles

      all dreams of central planner technocrats printing the counterfeit currency of the administrative state with delusions of ignoring market price signals

      where’s the “social safety net?”

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  • "The median house price in San Antonio is six times the median household income, and that is pretty high; but the median house price in San Francisco is about 13 times the median household income."

    Interestingly . . . "The Zebra used Census intel to calculate the price-to-income ratio for Americans in 1960 as well as 2019 and found that in 1960, the median home cost $11,900, while the median income was $5,600, indicating a price-to-income ratio of 2.1. (Feb 2, 2021)

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    1. At least part of the issue is that home size has increased a lot. Average homes in the 60s were somewhere in the range of 1600 sq ft (earliest records the Census has are evidently ‘73, but I’ve seen similar numbers online for the 60s and before), but today they’re around 2600 sq ft. Average price per square foot hasn’t changed a ton since the 70s (source: https://www.aei.org/carpe-diem/new-us-homes-today-are-1000-square-feet-larger-than-in-1973-and-living-space-per-person-has-nearly-doubled/), I can’t tell you what changed between then and the early 70s to increase prices (though perhaps the economies of scale of so many housing tracts being built around that time helped a lot), but it doesn’t look like there’s been a ton of change since then despite massive improvements in build quality, building codes, normal appliances, and so on. Anecdotally, I’ve seen huge differences between 1970s and earlier housing and more modern homes. The amount of space has changed dramatically, as has the number of amenities (see bathrooms, kitchen quality, garage size, etc). I know houses with amenities and sizes that compare more closely to older homes are relatively cheap these days.

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  • Scarcity will be the prevailing theme in the exchange of goods soon enough. And I think that will change the argument from socialist/capitalist to need/want. Maybe some religious dictates about avoiding excess may make their way back into our common discussions and political arguments.

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  • Excuse me but a hydroelectric plant can be a beautiful thing in and of itself.

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  • Well, I can make myself get the turnips planted by promising myself I can play a game after I get it done. I suppose that is a choice, even though I get to have both. One has to precede the other, though. Because there's no such thing as multitasking!

    (There's a logic hole in that illustration, though I in my opinion it doesn't completely invalidate my point.)

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  • Kevin's piece is, as usual (and like Jonah's), both insightful and entertaining. But it contains things that are even more edifying to ponder than is typically the case. To wit, I'm wondering about the difference between pre-Rennaissance Welsh ale and clear ale.  Presumably, Welsh ale was cloudy?  And what kind of unit of measure is an amber?  Is it like a pint?  A pitcher? A keg?

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  • Kevin's piece is, as usual (and like Jonah's), both insightful and entertaining. But it contains things that are even more edifying to ponder than is typically the case. To wit, I'm wondering about the difference between pre-Rennaissance Welsh ale and clear ale.  Presumably, Welsh ale was cloudy?  And what kind of unit of measure is an amber?  Is it like a pint?  A pitcher? A keg?

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