In Homer Economicus a cast of lively contributors takes a field trip to Springfield, where the Simpsons reveal that economics is everywhere. By exploring the hometown of television's first family, this book provides readers with the economic tools and insights to guide them at work, at home, and at the ballot box.
Since The Simpsons centers on the daily lives of the Simpson family and its colorful neighbors, three opening chapters focus on individual behavior and decision-making, introducing readers to the economic way of thinking about the world. Part II guides readers through six chapters on money, markets, and government. A third and final section discusses timely topics in applied microeconomics, including immigration, gambling, and health care as seen in The Simpsons. Reinforcing the nuts and bolts laid out in any principles text in an entertaining and culturally relevant way, this book is an excellent teaching resource that will also be at home on the bookshelf of an avid reader of pop economics.
|Publisher:||Stanford University Press|
|Product dimensions:||9.00(w) x 6.10(h) x 0.80(d)|
About the Author
Joshua C. Hall is Associate Professor of Economics at West Virginia University. Formerly an Economist for the Joint Economic Committee of the U.S. Congress, he is a co-author of the widely-cited Economic Freedom of the World reports and author of over 50 articles in journals. Hall has taught principles of microeconomics throughout his career.
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The Simpsons and Economics
By JOSHUA HALL
Stanford University PressCopyright © 2014 Board of Trustees of the Leland Stanford Junior University
All rights reserved.
SCARCITY, SPECIALIZATION, AND SQUISHEES
The Simpsons as Homo Economicus
Anthony M. Carilli
THROUGHOUT THE PAST TWENTY-ODD YEARS we have turned to The Simpsons for irreverent humor, mindful distraction, inside jokes, and, it turns out, lessons in basic economics. The Simpsons is a perfect vehicle for illustrating basic economic concepts. Economics is the study of choice and its consequences, both intended and unintended. Of course, dealing with human beings unraveling the complexity of these consequences can be daunting. While there is never any doubt about Homer's intentions, ever ("Mmm ... beer" or "Mmm ... donuts" or "Mmm ... porkchops"), somehow, Homer can't ever seem to anticipate or predict the longer-term consequences of his choices. In fact, no matter how many times he's been burned, Homer doesn't even consider that there might be unintended consequences to his choices, yet there always are. It wouldn't surprise us, as viewers, to see Homer sit down at Moe's one night to enjoy a Duff Beer, somehow resulting in Maggie not going to college. As the nineteenth-century French political economist, statesman, and author Frederic Bastiat taught us, economics is about the seen and the unseen; good economics traces out not just the seen but also the unseen consequences of any choice.
Bastiat demonstrates the lesson of the seen and the unseen by using the famous example of the broken window. Suppose Bart dares Milhouse to throw a brick through the window of the Kwik-E-Mart. Imagine that as Apu rushes out to catch the boys, a crowd gathers. As the crowd laments the terrible act of vandalism, Mayor Quimby instead extols the boys' virtue. Far from being hooligans, Milhouse and Bart are, in fact, heroes because they have created a series of jobs for Springfield. Mayor Quimby assures the townspeople by reasoning that the broken window will create economic benefits for the community, because a glazier must be hired to fix the window and will earn an income from the repair of the window, which he will in turn use to buy a new pair of shoes from the cobbler, thereby creating work for the cobbler. The cobbler will receive an income and perhaps buy a new suit, thereby generating income for the tailor. The tailor will use the income to ... and so on and so on.... However, Apu had intended to purchase a new Squishee machine, not a new window, and as he listens to this dramatic reversal of his fortunes, he knows that he will not be able to purchase both. The Squishee machine salesman has lost his commission, which he had planned to celebrate with a Duff Beer at Moe's; Moe loses the income he would have earned from selling the beer, Duff produces less beer and therefore hires fewer employees. In the end, what really happens is that Apu has just a window instead of a window and a new Squishee machine.
The lesson is that a good economist looks at not only the short-run consequences but also the long-run consequences of actions; at not only the visible effects of actions but the subtle invisible effects of actions. "In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them. There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen." The Simpsons does that, exactly. Every episode shows us what Homer sees and what he doesn't see. The Simpsons offers a humorous look at the choices its characters make and the consequences that follow wherever they may lead. Economics, like The Simpsons, is about everyday life.
The intended consequences are, of course, less interesting in many ways than the unintended. When Homer chooses a Duff Beer at Moe's we know his intentions: "Mmm ... beer!" Mr. Burns intends to produce nuclear power. The intended consequences are interesting because it is the intended action of the individuals that leads to the more interesting and nuanced unintended consequences. Homer doesn't intend to forget Marge's birthday when he is drinking Duff Beer, nor does he intend to provide Moe with a living. Mr. Burns doesn't intend to make it easier for Apu to make a living by providing cheap reliable electricity to the Squishee machine, but he does. The Simpsons is an exercise in exploring the consequences of the decisions made every day by the people of Springfield; The Simpsons is about economics because economics is about, well—everything. The purpose of this chapter is develop some simple economic concepts with the help of Homer, Marge, Mr. Burns, Apu, Lisa, Lenny, and, of course, Bart.
Economics is based on the simple premise that individuals choose or act; that is, they apply means (resources) to ends (goals) according to ideas. When Homer wants dinner, he knows (has the idea) that pork chops (his means) will alleviate his hunger (his end). The limits to Homer's ends seldom reveal themselves, but his ability to use means to satisfy his goals is limited by the scarcity of the means and by Homer's ideas about how the means can be connected to the ends. Homer's ends are rarely in doubt, but his choice of means often doesn't prove an effective or efficient way of bringing about his ends. Frequently, Homer finds his access to means limited by his budget, whether it be monetary means or physical ability or mental ability (nah ...) or lack of foresight or whatever. At its most basic level, every episode of The Simpsons is about economics; the consequences of choice within some sort of constraints. The foibles of Homer and Bart are basically about choice and its consequences within the confines of a budget constraint, which is just fancy economist talk for whatever people have to spend. Homer makes decisions in reaction to the trade-offs he perceives within the context of the constraints he faces. The brilliance of The Simpsons is in the tracing out of the consequence of their choices, both intended and unintended. Unlike some other animated shows, they rarely let the fact that they are not "real" prevent them from being "realistic."
Ten Basic Concepts
The Simpsons is a great device for demonstrating the basic introductory ideas in economics. While economics really is a way of thinking as opposed to a list of concepts to be memorized, there nonetheless are some basic concepts that make up the core of the economic way of thinking, and The Simpsons provides many examples to demonstrate all of these concepts. I will list ten basic concepts that all students of introductory economics should appreciate, briefly explain each one, and provide examples from The Simpsons for each concept. The basic concepts are
Scarcity necessitates choice.
The opportunity cost of an action is the value of the next-best alternative that must be sacrificed to take the action.
Efficiency is best understood as a relationship between ends and means.
To economize means to allocate available resources in a way that yields the most value to the economizer.
Pursuing comparative advantage means sacrificing that which is less valuable for the sake of something more valuable.
Specialization is another word for
pursuing one's comparative advantage.
the division of labor.
producing at a comparably lower opportunity cost.
The "law of demand" in economic theory asserts that people will purchase less of a good when its price rises, and vice versa.
A market is a process of competing bids and offers.
In an informed and uncoerced exchange, both parties receive more in value than they give up.
Economic growth entails an increase in the rate of production of wealth, and wealth is what we value.
Nearly all introductory or principles of economics texts have similar lists. For example, Mankiw includes, among others, people face trade-offs, the cost of something is what you give up to get it, rational people think at the margin, people respond to incentives, trade can make everyone better off, markets are usually a good way to organize economic activity, and so on. Gwartney and colleagues have "Eight Guideposts to Economic Thinking," which are trade-offs must be made, individuals choose purposefully, incentives matter, individuals make decisions at the margin, information is costly, beware of secondary effects, value is subjective, and the test of a theory is its ability to predict. Frank and Bernanke call their first chapter "Thinking Like an Economist" and include the scarcity principle and the cost-benefit principle as two of the basic building blocks of economics. Again, economics is the science of choice and its consequences, both intended and unintended. While each author has his unique approach, they all focus on the choices made by individuals in the face of scarcity.
Scarcity Necessitates Choice
Homer's wants are limitless, but his means to attain them are not, so he cannot have everything he wants and he must choose which ends to satisfy. Life is full of trade-offs—that is, forsaking one thing to choose another—and Homer runs into this brute reality over and over again. In "The Tell Tale Head," Homer talks to Maggie about a bowling ball from the Bowl Earth Catalog being the best use of his $50 of gambling winnings. In "There's No Disgrace Like Home," Homer decides the family needs to go to counseling and, after looking at all the counselor commercials on television, decides Dr. Marvin Monroe is the best (and at only $250!). The scene is an economic lesson on trade-offs (and how value is subjective), since Marge is concerned about the cost of therapy while Homer is willing to give up the kids' college fund. Then after realizing the college fund only had $88.50 in it, Homer is willing to make the ultimate sacrifice and pawn the family TV. Unwilling to give up the TV, Marge offers her engagement ring, only to be reminded by Homer that they need to pawn something worth at least $250.
Trade-offs imply opportunity cost. The act of choosing is, at the same time, the act of setting aside. Homer can't have his donuts and eat them too. The cost of choosing is the value of what has been set aside or not chosen. That is, the value of what has been traded off by choosing one thing over another is the opportunity cost. Closely related to opportunity is the concept of sunk cost; a sunk cost is a cost that cannot be affected by the individual's choice and should therefore be ignored. While the concepts of opportunity cost and its evil twin sunk cost may appear to be straightforward, together they are most often the most difficult concepts in economics to apply consistently. The difficulty in applying opportunity cost theory is that it lies squarely in Bastiat's realm of the unseen; the opportunity cost of any action or choice is the value of what is not chosen and therefore not experienced or seen. Opportunity cost represents a hurdle to choice, but once the choice is made the "loss" cannot be experienced. The misapplication most often manifests itself as the denial of the most basic tenant of scarcity: "There ain't no such thing as a free lunch."
Since cost is related to action and choice, if there is no action or choice there is no cost. Or, more succinctly, "no verb, no cost." Different actions toward the same object have different costs; in other words, "different verb, different cost." So the cost of holding something is different from the cost of obtaining it and is different from the cost of using it. Since only one action or choice can be made at the same time, the opportunity cost of action is the value of the action not taken.
Typically, the confusion lies in misunderstanding the relevant choices. Imagine Marge gives Homer a ticket to the Springfield Isotopes versus Shelbyville Shelbyvillians game for his birthday; does it cost him nothing to go the game? The answer, of course, is no, Homer does in fact have to bear a cost to attend the game. Suppose the game was for the coveted Lemon Tree Trophy, and when Homer shows up to the game, Fat Tony, who is scalping tickets, offers Homer $1,000 for the ticket. If Homer goes to the game, he just paid $1,000 for the ticket; as he mulled over his decision, Homer had one hand on the $1,000 and one hand on the ticket—he had to let go of one of them. The cost of attending (verb) the game was $1,000 (plus the value he places on not disappointing Marge because the $1,000 would have helped pay for Lisa's braces). It doesn't matter what he paid to obtain the ticket because that is not the relevant decision now, the relevant choice is attend or not attend the game.
The opportunity cost of the therapy with Dr. Marvin Monroe is the value of receiving the education that will be foregone because Homer has raided the college fund. The concept of time preference is also present in this decision. Homer, like everyone else, has a positive rate of time preference; he would, other things equal, prefer to have things now rather than later. A significant part of the charm of Homer is his very high (childlike) rate of time preference. Homer regularly discounts the future very heavily, meaning he places very little value on it and therefore places a high value on the present.
Homer's motto is carpe diem. In "The Way We Was," when Homer joins the debate team he is faced with the resolution, "The national speed limit should be lowered to fifty-five miles per hour." Homer's response recognizes immediately the opportunity cost of such a proposal when he notes that while there will be fewer deaths, millions of people will be late. In "Tree House of Horror," while Homer is trying to convince Marge that the haunted house is worth the purchase by telling her it's a fixer-upper and therefore worth the low price, Marge counters that the savings are not worth living in a house of evil. The exchange recognizes that value is subjective. To Homer, trading a little evil is worth the money; to Marge, the opportunity cost is too high. Opportunity costs are the constant obstacles to Homer's choices that not even he can ignore.
Efficiency is best understood as a relationship between ends and means. The idea of efficiency means nothing absent a goal, which is to say that things cannot be more or less efficient. Choices can be more or less efficient. Given a set of means, efficiency is choosing the most valuable ends, or, given an end, efficiency is choosing the cheapest means to bring about that end. Even physicists recognize that efficiency is inherently an evaluative term when they define it as work out divided by work in; that is, how much of the energy put in comes back out as useful energy. Since useful means the extent to which the end is accomplished, efficiency is an evaluative term. A choice is efficient if the benefit from the decision is greater than the cost in prospect. To put it another way, a decision is more efficient if, given a cost, that choice yields a greater benefit than the original or if, given a benefit, the cost is lower than the original choice.
Homer's choices are ripe with implications about efficiency. Someone who has a rate of time preference as high as Homer's frequently makes choices that don't appear to be efficient. This is especially the case after he experiences ex post regret; that is, he discovers that he was wrong in his estimation about the future cost or benefit. In the opening scene of "One Fish, Two Fish, Blowfish, Bluefish," Homer's incredibly high rate of time preference is on display when Marge tells him his meatloaf will be ready in eight seconds and he wonders if there is any way it can be cooked faster. It is further displayed when, disappointed that it is meatloaf night again, Lisa tells Homer that he is always trying to get them to be adventurous and live richer lives, to which he responds that she doesn't know what she's talking about as no one in the family is trying to teach that lesson. Homer can't be troubled to think far enough ahead, that is, to lower his time preference enough, to think about his daughter's future.
Excerpted from HOMER ECONOMICUS by JOSHUA HALL. Copyright © 2014 Board of Trustees of the Leland Stanford Junior University. Excerpted by permission of Stanford University Press.
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Table of Contents
Contents and Abstracts
1Scarcity, Specialization, and Squishees: The Simpsons as Homo Economicus
Using the characters of The Simpsons and their lives in the town of Springfield, this chapter outlines the fundamental concepts of the economic way of thinking. Economics is built on a core set of principles that must be mastered before meaningful economic analysis can be performed. Ten principles are outlined that provide the starting point for basic economic reasoning. These principles are then illustrated with numerous examples drawn from the actions and interactions of Homer, Marge, Bart, Lisa, Maggie and the rest of the residents of Springfield.
2Where the Invisible Hand Has Only Four Fingers: Supply, Demand, and the Market Process in Springfield
This chapter uses examples from The Simpsons to further illustrate the supply and demand sides of the market, with special emphasis on the market as a process. The most basic lessons of economics are that incentives matter, information about the value of scarce resources is necessary, and accurate feedback is required for individuals to make prudent decisions. Property rights are important because they produce incentives, prices provide information, and profit and loss accounting gives feedback to decision makers. The competitive price system steers economic activity via the structure of incentives and the flow of information so that dispersed individuals within a society will coordinate their plans, and they will do so in such a way that in the limit all the gains from exchange will be exhausted and all least-cost methods of production will be utilized.
3A Pile of Krusty Burgers Embiggens the Fattest Man: Obesity, Incentives, and Unintended Consequences in "King-Size Homer"
Public policies have unintended consequences and can sometimes actually be counterproductive. In some cases, public policies hurt exactly the people a policy is intended to help. The Simpsons episode "King-Size Homer" illustrates how policies have unintended consequencesand how people respond to incentivesby telling us the story of how Homer Simpson ballooned up to three hundred pounds in order to take advantage of disability regulations. Furthermore, this episode shows how changing incentives might cause people to make more self-destructive decisions in the short run. The episode illustrates a number of important economic principles, including trade-offs, marginal analysis, the role of incentives, and the law of unintended consequences.
4Twenty Dollars Can Buy Many Peanuts! Money and The Simpsons
This chapter presents a discussion of the functions of money and its evolution in the United States using examples from The Simpsons. Money is something that is generally accepted as a means of payment for goods and services. It functions as a medium of exchange, a unit of account, and a store of value. Milhouse fears that he will be used like "currency" in juvenile hall in the episode "Trilogy of Error." Actually, Milhouse does not possess the properties that would make a good candidate for money. Money arises from commodities that are widely valued, portable, divisible, and durable. In "Half-Decent Proposal" Homer laments that he cannot print his own money. Homer is 100 percent correct, but it's not only the government that can print money. In fact, private banks create the majority of new money in the United States economy.
5Thank You, Come Again: The Pursuit of Profits in Springfield
This chapter employs numerous examples from The Simpsons to explain the calculation of economic profits and highlight the role of said profits in society. The importance of the opportunity cost concept, often ignored by Homer Simpson, is emphasized throughout the chapter. The differences between accounting costs and economic costs are discussed through examples in which Homer fails to recognize opportunity costs and refuses to recognize other costs associated with operating a business. The critical function of profits and losses in a market economy are explained, with special emphasis on the signals that economic profits and losses provide for market participants. The chapter ends with a brief discussion of the impact of barriers to entry on economic profit and profit opportunities.
6They Have the Internet on Computers Now? Entrepreneurship in The Simpsons
This chapter introduces and discusses the theoretical and empirical body of research on entrepreneurship. The occupational, structural, and functional approaches to the study of entrepreneurship are discussed and illustrated using many thoughtful entrepreneurial experiences from The Simpsons. In addition, the meaning of entrepreneurship as judgment, alertness, innovation, adaptation, and coordination or leadership is demonstrated. Finally, the difference between productive, unproductive, and destructive entrepreneurship is distinguished. The chapter is intended as an introduction to the vast entrepreneurship literature and its many approaches, theories, and interpretations.
7I've Got a Monopoly to Maintain! Market Failure in The Simpsons
Modern economists have identified four main types of market failure: monopoly, public goods, asymmetric information, and externalities. This chapter takes a closer look at the first three types of market failure and, using examples from The Simpsons, illustrates how market mechanisms can overcome those market failure problems. Coolsville Comics, a competing comic book store, destroys the Android's Dungeon's monopoly for comic books in Springfield. Elinor Ostrom, the recent Nobel Prize winner in economics, has illustrated that local self-governance institutions can overcome public goods and commons problems. Efficiency wages easily overcome moral hazard problems that result from asymmetric information problems, such as Bart shirking on the job. Finally, gossip and brand names, such as Duff Beer, overcome adverse selection problems in Springfield and the real world.
8Will You Stop That Infernal Racket!?! Externalities and The Simpsons
This chapter will deal primarily with illustrating the concept of externalities in economics by drawing upon examples and lessons in The Simpsons. The objectives will be to (1) distinguish the types of spillover effects that separate social and private benefits and costs from those that do not; (2) explicitly demonstrate the property rights problem generating the externality; (3) demonstrate the different ways in which policies and individuals try to resolve these problems; and (4) introduce the public choice critique of government solutions, especially regulation.
9Mayors, Monorails, and Morons: Government Failure in The Simpsons
This chapter presents the government failure (or public choice) perspective as demonstrated in The Simpsons. The public choice perspective is the application of the principles of market economics to the analysis of government. Any differences that arise between individual choices in a market versus a government setting occur because of differences in the institutions that constrain individuals in the market versus in the public sphere. Choice in a public setting is channeled through political institutions such as elections and the voting system. The elections of Sideshow Bob as mayor and of Homer as sanitation commissioner illustrate the problems with choice in a public setting. It is the institutions rather than the motivations that differ in both settings. Like any market agent, public officials in The Simpsons are presented as self-interested. Crucially, they are also presented as being as good as any alternative. There are no superhumans in The Simpsons.
10Coming to Homerica: The Economics of Immigration
Like many people throughout history, Apu Nahasapeemapetilon's decision to migrate from a poorer place (India) to a richer one (Springfield) was in part an economic one. This chapter uses Apu's situation in the episode "Much Apu About Nothing" as a case study to demonstrate how economists study migration. As the standard models suggest, Apu receives benefits and incurs costs as a result of migrating. The impact of a large migration on an economy is analyzed using the great wave of Ogdenvillians who came to Springfield in The Simpsons episode "Coming to Homerica." The chapter further examines the effect of immigration on wages, taxes, and government spending.
11Donut and Dimed: Labor Markets in Springfield
This chapter presents an overview of labor markets through the lens of The Simpsons. Differences in salary across professions and locations are explained using examples drawn from the popular show. Utilizing the perspectives and techniques of labor economics, the following questions are discussed: (1) How can a Joe Sixpack guy like Homer Simpson afford a four-bedroom house with a two-car garage in a world with horrible greedy bosses? and (2) What can people do to earn more money in a market system? In the course of the discussion, the chapter outlines the many things that Homer does to afford his lifestyle, such as earning a compensating differential, searching for a better job, signaling his abilities, and engaging in entrepreneurial activity.
12Paging Dr. Hibbert: What The Simpsons Can Teach Us About Health Economics
The rise in health care costs over the past few decades and the recent passage of major health care legislation has brought health economics to the forefront of current policy discourse. By satirizing issues in health care faced by many Americans, The Simpsons provides a mechanism by which to relate health economics to our daily lives. This chapter provides an overview of several of the main concepts in health economics, connecting each concept to its illustration in a particular episode of The Simpsons. In doing so, the chapter focuses on the economic issues considered especially unique to health care markets, including the demand for and production of health, asymmetric information and physician agency, incentives surrounding third-party payers, and the interactions between government and the health care sector. The chapter shows that all students of economics, including consumers and health care practitioners, have something to learn from The Simpsons.
13At First I Thought Prohibition Was a Good Thing: The Economics of Alcohol Control
In The Simpsons episode "Homer vs. the Eighteenth Amendment," Springfield enforces a prohibition on alcohol and a wide variety of economic consequences follow, including organized crime, violence, bootlegging, moonshining, and speakeasies. Homer becomes a successful smuggler and moonshiner and is dubbed the Beer Baron. In this chapter, Springfield's experience with prohibition is discussed in light of the literature on the economic effects of prohibition. In addition to finding that the economic results of prohibition are predictable on the basis of economic theory, prohibition is found to be counterproductive to the goals of prohibition and detrimental to freedom. This chapter also explores similarities to the War on Drugs.
14Mr. Burns' Casino: The Economics of Casino Gambling
The Simpsons episode on casino gambling titled "$pringfield (Or, How I Learned to Stop Worrying and Love Legalized Gambling)" aired in the early 1990s. Yet it highlighted some of the controversial issues related to casino economics that are still being debated today. The chapter examines some of the key controversies over the economic and social impacts of legal casinos. On the benefits side, the chapter addresses tax revenues, employment effects, and the consumer benefits from the expansion of legalized gambling. On the cost side, the discussion addresses pathological gambling and related behaviors, social costs, negative externalities, and moral objections to gambling.
15Homer Econonomicus or Homer Sapiens? Behavioral Economics in The Simpsons
Behavioral economists study the ways in which people act irrationally (that is, at odds with their objective long-term best interests), and behavioral economics research has identified and characterized a number of consistent biases in decision making. An interesting feature of the characters in The Simpsons is that they illustrate many of the specific biases that behavioral economists study, including time-inconsistency, loss aversion, bounded rationality, and susceptibility to framing effects. Despite these "human" characteristics, however, none of the characters can be viewed as purely rational or irrational, and this feature contributes to the relevancy and longevity of the show.
16From Rabbit Ears to Flat Screen: It's Getting Better All the Time
The belief that American middle class economic well-being has stagnated, if not declined, is commonplace in the media and among many pundits. However, the economic data on what sorts of goods are actually in the households of American families suggest that life has never been better, both for the average and poorest American families. The chapter presents some of those data, focusing on basic household appliances and technology. Twenty years of The Simpsons illustrate these changes through the improvements in their standard of living. From TVs to cell phones to computers, even as the Simpson family remained solidly "upper-lower-middle class," the rising buying power of Homer's wages and the falling cost of production combined to bring them consumption possibilities their earlier selves did not have.