Class Summary #19 for 10/17/11

Today in class, we learned about the Golden Rule (do to others what you want people to do to you) and its place in economics.

Prof. Rizzo started off class explaining that many people think it would be nice if the world worked based on the Golden Rule. According to Prof. Rizzo, the Golden Rule works in certain conditions, but in a commercial society (buying/selling), or in other words a very impersonal interaction, this rule doesn't work. It's great when you're dealing with people you know, but the bottom line is that there are countless examples that prove the Golden Rule fails in commercial systems.

It fails not because of selfishness on that part of others, but rather, because we are not omniscient (do not have complete/unlimited knowledge).

Here are a couple examples Prof. Rizzo taught us in class:

1. From 1958-1963, China mandated that farmers work to feed people in society, rather than to make profit. What happened? Millions of people died.
2. Every single time in history when we've tried to produce for people as opposed to profit, we've starved people.
3. Imagine Prof. Rizzo is a school boy trying to catch a bus in NYC. Rizzo is late, and the bus is about to leave. If the bus driver follows the Golden Rule and stops for him, this is what may potentially happen, which outlines how following the Golden Rule can be harmful in a market system:
1. Other people on the bus may be late because the bus driver stops. Let's say 55 people are on the bus and all of them are late. Maybe they miss their transfer and can't get on to the subsequent bus they need to catch.
2. How does the bus driver even know that Rizzo is worth of being picked up? Maybe Rizzo is a criminal trying to commit a crime, thus by picking him up, the bus driver will be causing more harm than help.
3. Finally, the bus driver probably doesn't consider this, but Rizzo points out that he probably should: If all of the people are on the bus are late to work because the bus driver waits for Rizzo, let's say the people on the bus are all 5 minutes late to work. If the bus driver does something like for 1 month out of the year, people are losing 5 min X 31 (days of work) = 155 minutes worth of work time which could definitely cause less production.
4. In short, one could claim that by stopping for Rizzo, the bus driver is actually arrogant to pick up Rizzo. How can people plan for when to get on the bus when the bus driver is doing things like this? To catch the next bus, people might need to get on the earlier bus to make up time for this to happen.

Thus, Prof. Rizzo explains, a commercial society operates on the Silver Rule. 

• Definition: Do not do unto others what you would consider unfair if they did it to you. It's important to only use this rule when working with strangers, not against family/close acquaintances. 

Prof. Rizzo also discussed how people have a skewed vision of self-interest and greed. Economics define self-interested motivation as: we're encouraged to do things that benefit our own self.

Some of these things include going back to college to get a degree, exercising to lose weight, quitting smoking. 

It is very weird how it is applauded to do this as a person when people look down upon self-interested people. That is the irony in all of this. Self-intersted actions are applauded when benefits are felt by the person, but not applauded when other people are involved. I.e.- Jogging is applauded by people, but selling sneakers at high price is not. It's the same thing- both actions are looking out for self-interest.

Finally, we learned about Reciprocal Altruism.

Tony: receives a kidney to save life

Tina: Her mortgage is under water. She receives $20,000 donation from church and gets house fixed

Same type of behavior but looked differently upon. Or consider the Coupon Show on TLC- people are applauded for great savings in stores. For example, one guy bought $300 worth of food for $18 all due to coupons. He was applauded for this. But why? This was self-interested on his aprt. Why isn't he considered greedy? Why are certain self-interest actions applauded while others aren't? The man basically took a lot of money away from the business. Isn't this the same as the business trying to over charge us for an item and take away money from us?