Adam Smith Quotes and Metallica

One of the famous lines from Adam Smith's Wealth of Nations, "It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self interest." 

As an economics professor, I feel it is my duty to at least raise awareness of one of the seminal works on economics. I offered my students to just fill in the "B" words of the statement. Many got it, but I believe some were too fatigued to recall the various essential Scottish professions of the late 18th century. In their dilemma, the following humorous attempts resulted, and kept it clean:

"It is not from the benevolence of the butcher, Beekeeper or the business professor...

"It is not from the Bang of the buck,

"It is not from the benevolence of the butcher, Ballot or bureaucracy

"It is not from the Butcher of the beef,
"It is not from the Bakery of the breadmaker,

Some had a little creativity in imagining relevant professions in Elizabethan times
     It is not from the benevolence of the:

• Banker, barber, businessman, 
• builder, bureaucrat, basket weaver, 
• butter producer, bartender, banker, 
• butler, broker, bricklayer

A few more...
"It is not from the Bread of the baker

"It is not from the Boredom of the Board, breathren (sic), or the business

"It is not from the Butcher of the Bull, the bagboy or the ...

My personal favorite, channeling Metallica,

"It is not from the Belly of the Beast, the brewer or the baker, that we expect our dinner, but from their regard to their own self interest."

 

Learning What to Call Things I Already Know How to Do

It is Fall semester, and I have cranked up my teaching to 21 credit hours. One wonders if I have enough new knowledge to disseminate 21 hours a week. However, one particularly interesting aspect of teaching is that I ask better questions and learn new things.

I have learned two terms in the last week that caught my interest. The first is rational ignorance. This was brought up to describe why individuals become passionate about some things and less passionate about others. With voting, it might take a lot of effort to evaluate the different candidates platforms and how they relate to the issues compared to their impact on your personal well being. It can be applied to a variety of other things as well. In the case of recruiters, it is very costly to evaluate every person who applies for the job. In consumer products, laptops have so many attributes it is difficult to decide which laptop is best for you. In response to these dilemmas we rely on heuristics (small pieces of observable information that can be related to  to unobservable information) to help with our decision. Heuristics are also low cost. With political candidates, it is their political party; with job candidates, it is their GPA and university; with laptop candidates, it is the brand or memory space.

Another term is zero based budgeting with 3 million results. That's right, this business professor has never heard of zero-based budgeting. Basically, instead of taking last year's budget for your department and adding 1%, departments are now required to build their budget from zero, then justify the entire budget with some contribution to a metric of value.

Here is why I am upset. Rational ignorance and Zero-based budgeting are terms that describe marginal analysis (one of my favorite topics). Marginal analysis evaluates the extra benefit from doing something to the extra cost. If the marginal (not the total) benefit exceeds the marginal cost, you are making a good decision. Any time I am evaluating something (financial decision, parenting problem, conversation engagement) I have the following image in my head. I just can't help it, because it is how I see the world. So when I hear about the term rational ignorance, I think that the marginal cost of learning about the candidates is greater than the marginal benefit of learning about the candidates. When I hear about zero-based budgeting, I think the department's budget is its total cost, which is where marginal benefit equals marginal cost (or when Net Benefits are maximized). This is something that everyone should be doing all the time! Why is it now "very hot" for companies to explore this "new and unknown" strategy? I think it is because college graduates have memory attrition, and probably why they come back to get their MBA. You could also just ask your former professor.

The Puns Continue in Economics

As you get older, the allure, or the capability, or the necessity, of running increases. So, several of my economist colleagues jog, and some even compete in marathons.
I argued that economists should not do this, because of famed economist Keynes' warning, "In the long run, we're all dead."

Market Manipulation in the Classroom

I talked about differentiation in markets. In particular, the music industry is best defined by horizontal differentiation, since consumer tastes for music varies based on a variety of variables independent of price. I indicated that while I prefer the Black Keys to the Black-Eyed Peas, if the price difference is high enough, it could induce me to switch my preferences (or not buy anything at all).

Trying to sound "hip" by liking a contemporary band can be risky. First, they may not be popular anymore, reducing your "hip" factor. Second, they may not be popular with your specific class. Lastly, you might be called on your bluff: "What is your favorite song?" To which you respond, "Uh, the latest one?" is not a good response. (Tighten Up, Nova Baby, and Aeroplane Blues if you must know).

An unintended consequence is that my announced preference for The Black Keys actually reduces the preferences of my students. In other words, by adopting something that is popular, it becomes unpopular because too many (or the wrong type) people adopt it. This was characterized by Malcom Gladwell's Cool Hunt.

So, my announcement probably reduced their popularity, lowering prices, making me happier. In other words, students' tastes for music is dependent on professors' tastes. I have to think of some other brands I want lower prices for.

However, this is bad for the label and the band, and current album holders. In actuality, they should pay me to not like them, or at least not to announce that I like them. This famously occurred with Abercrombie and Fitch and the Jersey Shore cast.


We could also extend this to decisions to release information about public traded companies to manipulate the price. Fortunately, there are laws regulating some of this. There are none concerning brand preferences, so I expect a tidy sum to show up in the mail else I continue to profess my excitement for the band.