Class summary 10/12

Econ 10/12/11

Simple vs complex systems (Intended Consequences) 

Trade is no zero-sum (“pie fallacy” : The fallacy is we think that the amount of wealth in the world is fixed.)

People get rich by trading with others

Transactions benefit both

People misunderstand what the true economy power is.

Any group of individuals will have problems dealing with complex systems:

a. limited information

b. Short amount of time, focus on short term results rather than the long run effect

c. Little feedback

d. Wrong incentives

Unintended consequences happen any time when a simple system tries to regulate any complex system, not only restricted to government regulations. This unintended consequence is not an accident. When regulation tries to control incentives, incentives will push back. So when we regulate the system. We need to think who all the parties are and how people respond to incentives.

Market are commonly viewed as immoral as oppressive

If you get a reputation for discriminating in the market, people won’t deal with you-Trade created a trust explosion.

Consequences of fallacy

If you believe wealth is fixed you will stifle

Economic growth invokes notion of power people or business have

No power over you so they lie to persuade you to buy things