Knowing and Making

Several old political problems turn out to be based on the same underlying question. Here are some examples. Should we tax the rich more? The "yes" argument says rich people need the money less (that is, poor people's utility from wealth is higher), and wealth partly arises from luck and therefore is a legitimate target for taxation. The "no" argument says that if people expect to be taxed when they're rich (and receive handouts when they're poor) they have less incentive to earn wealth, and therefore less wealth will be produced by society. Should we pay higher unemployment benefits? The "yes" argument: people are unemployed through no fault of their own; their spending will support the economy; it's moral to share resources with the poor; if it happened to you, you'd want benefits too. The "no" argument: it gives people an incentive not to work; it requires confiscation of resources from hardworking people to pay those w...

Startups have really been in the news for the last few weeks. We had the David Cameron-endorsed launch of StartupBritain , then Smarta launched (after a year or two in development) its Business Builder online package , the UK and US governments have both announced " Startup Visa " programmes, and tonight the prizes will be awarded to the winners of the Telegraph's Startup 100 competition. Anyone would think there was something good about starting a new business. Governments love new businesses, because they feel like pure economic creation - new jobs, new investment, new products and services being offered in the economy, new tax revenues - and at no cost to anyone except the entrepreneur and their financial backers. Economists like them because they provide a positive externality - new ideas - which other people can benefit from as well as the entrepreneurs themselves. And customers like them because they offer new services which might not have been available before, ...

A surprising article on the BBC today, explaining How to get off a busy train . I guess the BBC does have an educational mission. But however obvious getting off a train might be, reading the article prompted a few ideas. The article is mainly about how passengers should behave, but acknowledges the role of the train's design in influencing that behaviour. And some of those design choices are very reminiscent of the "choice architecture" discipline we know from books like Nudge. But this is a problem we wouldn't normally associate with economics at all. It's a product design - or even an architecture - question. So is the domain of Nudge really economics? Or is it in fact design, ergonomics or something else? The stuff of economics is normally about how we allocate our wealth and material resources; about how we respond to incentives; how we trade and deploy limited amounts of capital and labour to produce maximum utility. Design problems, on the other han...

Imagine you have saved up £550 and you're ordering a new iPhone. The supplier is short of stock, so you'll have to wait a while. It is going to be despatched by post in 30 days and will arrive with you the next day: a 31 day delay. Then, at the checkout screen, the site offers you an express delivery option. For an extra £20, they can deliver it by courier so you'll get it on the 30th day. Would you pay £20 to have it one day earlier? Now imagine you're ordering it from a different store and they have plenty of stock. It's going to be dispatched this afternoon and will arrive tomorrow. You see the £20 courier option: Is it worth £20 for courier delivery to get it in your hands in one hour? Alternatively, if you could travel to the shop and pick it up right now (which will take an hour or two out of your afternoon), would you do it? I haven't done the experiment, but I'd bet you a lot more people would say yes in the second scenario than the first. Equiva...

Just a hypothesis here, suggested by Chris Dillow's reference to Baran and Sweezy: ...tends to generate ever more surplus, yet it fails to provide the consumption and investment outlets required for the absorption of a rising surplus and hence for the smooth working of the system. Since surplus which cannot be absorbed will not be produced, it follows that the normal state of the monopoly capitalist economy is stagnation (p108). The essence of the market is that surplus goes to those who produce it: this is a stable situation because it gives the producer an incentive to produce more surplus. But perhaps modern economies of scale and scope lead naturally to ownership, or at least control, being concentrated in the hands of a small number of people: control can't be spread more broadly because of the rational ignorance of the crowd. Sharing a growing amount of wealth among a smaller number of people means that - as Baran and Sweezy suggest - those in control are no longer sign...

A scenario from the pub tonight: My friend ordered a Paulaner. The waitress brought a Staropramen by mistake. She was about to take it away and replace it, when he offered to pay half-price for it to save the cost of throwing it away. What decision should she make? Accept the offer and avoid the wastage, or bring a new beer and charge full price? The considerations are surprisingly complex.  A simple one is the cost of the beer. If gross margins are low - that is, if beer costs the pub more than half of what it charges the client - it is more profitable to sell the Staropramen at half price and at least get some revenue than to throw it away. On the other hand if beer is very cheap then it's more profitable to chuck the old one and charge full price for the new glass. Note that the consideration here is the wholesale price of the Paulaner which would need to be poured, not  the Staropramen which would be thrown away - that has already been poured and is a sunk cost. Ass...