Critical Thinking Part 2Critical Thinking Part 2

After the BreakAfter the Break

EthicsEthics

Ethics is one of the three main Ethics is one of the three main areas of critical thinkingareas of critical thinking

Why do we need ethics in Why do we need ethics in economics?economics?• Positive Econ vs. Normative EconPositive Econ vs. Normative Econ

Right and WrongRight and Wrong

We ask our students to grapple We ask our students to grapple with how societies deal with with how societies deal with limited resources.limited resources.

We cannot do this with addressing We cannot do this with addressing our own normative feelings and our own normative feelings and this is part of ethics.this is part of ethics.

Why now?Why now?

Scandals in energy firmsScandals in energy firms Scandals in health-careScandals in health-care Government spendingGovernment spending WarWar and the list goes on forever and the list goes on forever

Justice MattersJustice Matters

We must enforce contractsWe must enforce contracts Private property is needed a Private property is needed a

market economymarket economy Moral codes are a part of everyday Moral codes are a part of everyday

lifelife

Value JudgmentsValue Judgments

Pursuit of self-interestPursuit of self-interest• The butcher, the baker, and the brewerThe butcher, the baker, and the brewer

Supply and Demand intersect at Supply and Demand intersect at this “just right” pricethis “just right” price• but there is an ethical touch to thisbut there is an ethical touch to this

– Mary Poppins equilibriumMary Poppins equilibrium– Any lower price would not be fairAny lower price would not be fair

Or we could look at factor marketOr we could look at factor market• Labor supply and demandLabor supply and demand• the additional revenue from hiring the the additional revenue from hiring the

last worker is equal to the wagelast worker is equal to the wage

• Did equity jump in here?Did equity jump in here?• Can we talk about equity with ethics?Can we talk about equity with ethics?

Wait! Wait! Self-InterestsWait! Wait! Self-Interests

Remember you started with self-Remember you started with self-interestsinterests

You can talk about maximizing You can talk about maximizing utility functions, but that is just utility functions, but that is just greed. Or is it?greed. Or is it?

Self-interest vs. GreedSelf-interest vs. Greed

Greed vs. Self-InterestGreed vs. Self-Interest

We want to be compensated for We want to be compensated for our work. Does that make us our work. Does that make us greedy?greedy?

Some want to be the best. What Some want to be the best. What does that mean?does that mean?

I want a pay raise at least a great I want a pay raise at least a great as inflation. Am I greedy? as inflation. Am I greedy?

Where do we draw the Where do we draw the line?line?

Greed come at the expense of othersGreed come at the expense of others• third party externalitiesthird party externalities• not entitled to itnot entitled to it• money is the only goalmoney is the only goal

Remember that the real world is not a Remember that the real world is not a zero-sum game.zero-sum game.• We all can be better off if we work for our We all can be better off if we work for our

own self-interest.own self-interest.

We must fight the Robber We must fight the Robber BarronBarron

VanderbiltVanderbilt CarnegieCarnegie RockefellerRockefeller GatesGates BuffetBuffet

John StosselJohn Stossel

Price gouging Price gouging

Self-Interest not GreedSelf-Interest not Greed

How does society recognize and How does society recognize and channel legitimate self-interest channel legitimate self-interest while not encouraging greed.while not encouraging greed.

For the most part, we do not need For the most part, we do not need to do anythingto do anything

RadioheadRadiohead

On the web and you pick the priceOn the web and you pick the price no minimumno minimum 40 pounds for CD in December ‘0640 pounds for CD in December ‘06

B, B, & BB, B, & B

Do you think that we will need to Do you think that we will need to call ahead to make sure the Green call ahead to make sure the Green Mill will have food for us?Mill will have food for us?

Will they have it because they Will they have it because they think we need it or because it is think we need it or because it is fair?fair?

UltimatumUltimatum

Ultimatum Ultimatum

If you saw a dollar on the ground If you saw a dollar on the ground would you pick it up?would you pick it up?

If yes, why wouldn’t responders If yes, why wouldn’t responders accept an offer of $1in the game?accept an offer of $1in the game?

How do ethical concerns alter strict How do ethical concerns alter strict logic?logic?

Candy TimeCandy Time

More than 70% of the US GDP is More than 70% of the US GDP is consumer spending: Markets and consumer spending: Markets and prices determine which goods are prices determine which goods are produced and who buys them. produced and who buys them. Then families generally allocate Then families generally allocate scarce goods by rationing.scarce goods by rationing.

Brothers and sisters may fight over Brothers and sisters may fight over goods and use brute forcegoods and use brute force

Pirates and robbers like this Pirates and robbers like this method alsomethod also

Colleges use favoritism based on Colleges use favoritism based on achievementachievement

Colleges use lotteries to determine Colleges use lotteries to determine housing allocationshousing allocations

Restaurants use first-come/first Restaurants use first-come/first servedserved

Some popular clubs only provide Some popular clubs only provide services to the cool crowdservices to the cool crowd