Discussion Questions

June 16, 2009

More like questions that I might want to think about, or remember having thought of, in the future.

1. From what framework and with what assumptions would you be able to argue that suicide is undersupplied by the market? e.g. Can the expected value of QALY be negative for a rational person who is capable of the act?

2. Why is fiat currency worth anything? Also, would it be sensible to interpret housing and other bubble-prone durable goods as fiat currencies? If I knew what a Schelling point was, I’d probably be thinking of something like that. What I am thinking about is the term “store of value” and the coordination of production over time.


3 Responses to “Discussion Questions”

  1. Grant Says:

    2. It’s definitely not sensible to call housing a fiat currency, since the word fiat describes everything a housing currency is not. But maybe you just meant currency, in which case it’s plausible. Certainly we see this phenomenon in gold, which is not an official currency, yet is still widely used as a store of value. I see no reason why the same can’t happen with other durables.

  2. Good point, to call housing or gold fiat currencies pretty much destroys the meaning of the word ‘fiat.’

    Question 2 is supposed to be part of an investigation of how societies choose to produce things over time. One article that I’m thinking of is on funerals in Africa. Apparently the high cost of funerals are destroying the saving potential of Africans. What the heck? How is this possible? If saving is just a claim on future production, why would everyone taking a break this week to have a funeral interfere with future production?

    My motivation in this line of thinking is the good point Mark Thoma makes about how you can’t really transfer resources from the future to the present. So what is the effect of government debt?

    I was writing about currency but what I was really thinking about was how are production decisions made. And I shouldn’t have said ‘fiat.’

  3. Grant Says:

    I think your confusion stems from the ambiguity of the word “saving,” which can be interpreted either to mean mean “investing” or “hoarding currency.” First let’s assume it means “investing.”

    Now, from the standpoint of econ 101, it’s pretty clear that the more money that is spent on some good, the more resources society will devote towards producing it. So, if Africans stopped spending their money on luxurious funerals, and started investing it in productive capital, Africa would have less luxurious funerals and more productive capital. So, in that sense, the Africans from the article truly are trading future prosperity (which more capital would obviously give them) for present, ephemeral, enjoyment. But hey, it’s their choice.

    If we are using the “hoarding currency” definition of the word “saving,” the same exact analysis applies. If Africans hoarded their currency, instead of spending it on funerals, then that means that Africans are spending relatively more on productive capital and relatively less on funerals. It shouldn’t be very hard to convince yourself that this will have the same effect as the last example on production.

    Also, don’t get confused by Mark Thoma’s article. His analysis applies, as he says, only in times of less than full employment where the government is employing only idle resources.

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