eco 110ha economics for life writing assignment

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Compare and contrast two events motivated by incentives, one where the self-interested behavior was good for society and the other where it was bad.

Terminology for this module:

  • Incentives
  • Self-interest
  • Responsible Stewardship

Invest for Success!

The path to prosperity lies in investing heavily in education. Education, in other words, should not be seen as just an expense, but rather as an investment. In economics, we frequently refer to ‘human capital.’ Just like infrastructure and technology can promote productivity, so can investment in our current and future labor force. Seen in this light, society should demand programs that invest in our future. The problem with demanding quality education is that the cost occurs now, but the benefits are enjoyed in the future.

What are some of the costs of education? Sure we need to pay educators, build classrooms, and buy supplies. But what about the energy and time it takes to train educators, or the energy and time it takes students to prepare for their classes? Remember, in economics when we look at the costs of something, we analyze all costs, both implicit and explicit.

Quite often we all have other pressing issues to attend to and are willing to accept lower levels of education to just get by. But, if we consider what is really at stake, if we look at all the marginal costs and benefits and made a rational decision, we wouldn’t compromise on obtaining a quality education.

Motivation

The right incentives motivate individuals to pursue a certain course of action, and what better incentive than the ability to lead a more productive life? Productivity matters because it promotes economic growth. Economic growth means higher average incomes to be sure, but also the ability to purchase the things we need or desire, the amount of leisure or family time available to us, greater access to sanitation (and consequently better health and longer lives), less civil unrest, and even better environmental conditions.

Job Market

The job market has changed profoundly in the last several decades. We now operate in a knowledge-based, global economy. Higher-skilled jobs are at a premium, while lower-skilled jobs can easily be transplanted to countries with lower wages. We, the developed countries, have a comparative advantage in knowledge-based professions. It is time we see education as the engine for long-term economic growth. In bettering ourselves, we are working towards a better society for all.

Incentives

Incentives are rewards for engaging in a particular activity and are applicable in business and everyday interpersonal relationships. Understanding economics means understanding the incentives that motivate us! Note that self-interest means acting in a way that is most personally beneficial by responding to the incentives that best meet our needs and wants.

Adam Smith famously explained that it is possible to achieve the best economic benefit for all even when individuals tend to act in their own self-interest.

“Every individual… neither intends to promote the public interest, nor knows how much he is promoting it… he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention.”

–Adam Smith, 1723-1790