Econ. Lecture 2

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Economics Week 1/ September 15, 2020 Parkin and Bade Chapter 1 Lecture 2: Humans Are Social Animals  In economics the major social science disciples are: - Psychology: focusing on consciousness and social behaviour - Sociology: culture and social behaviour - Political Science: power and social behaviour  Economics is distinct from the other social sciences because of its focus on understanding how the economic system influences economic (optimizing) decisions and the resulting social behaviour.  Systems can be deterministic or chaotic What is a chaotic system?  In a chaotic system, minor changes can have enormous impacts on the path of a systems development  These minor causes can magnify into larger impacts overtime  This results in “instability” of any complex system that is chaotic, which makes it difficult to predict trends of the chaotic system Human societies have some elements that resemble chaotic systems:  Ex. war and financial crisis might have chaotic elements in which small changes to initial conditions are rapidly magnified.  Something such as the stock market may also be considered chaotic at times, however they are actually not- economists regards this as a “random walk”. Although the stock market cannot be precisely predicted, small changes to the initial conditions don’t typically drastically change the price path. This is an example of stochastic processes (random) that follow statical law. If humans’ systems are typically ordered, how can we understand the underlying order, purpose and adaptivity?  Humans are social animals; we can look at bee systems as a similar comparison  Ultimately evolution is the result of how purpose, order and adaptivity has shaped social behaviour and systems  Natural selection chooses social behaviour that increases reproductive fitness (AKA mating behaviours?). Reproductive fitness is therefore the purpose of evolved social behaviour (when natural selection chooses the elite features to pass on). - This result in adaptivity and order is due to the processes of Natural Selection : the process through which populations of living organisms adapt and change. - Evolution of these advantageous traits allows for societies to evolve and overcome barriers such as climate.. etc. and pass these traits onto other societies - The most successful individuals outcompete less successful individuals and reproduce more successfully. - Over time, individual with more successfully adapted traits replace individuals with less successful traits. Pro-social Traits/Altruism  In bee colonies, the process of natural selection chose Pro-social traits over the individual drive to survive and reproduce- influenced collective survival over individual survival (became hardwired in their DNA)  This pro-social trait is also known as Altruism : refers to behavior that benefits another individual at a cost to oneself.  The bees will basically sacrifice their life for Pakistan and the queen  These social behaviours and structures can be understood as the result of evolved instinctive altruism Human Societies

 Human societies are not only purposeful, ordered and adaptive, but are also much more diverse , complex and successful than any other social species on earth  Humans success and/or ability to adapt and transform most ecosystems on earth + their accelerating population growth = species extinction, air and water pollution, ecosystem stress and collapse, global warming and stratospheric ozone layer depletion  Human successes have also led to many diverse societies. However, these successes are also uneven- some human societies have thrived, while others have stagnated or declined = war and social conflict  Sustaining human social success is becoming increasingly difficult - Therefore, it is becoming increasingly important to mitigate the costs associated with growth and social change. - To do this, we have to understand the forces driving social change and how human society is adapting  What makes human societies so successful? - Similarly, to bee colonies, humans exhibit traits of altruism/concern/care for others- “humanity” - An absence of humanity is pathologized as sociopathy, while an abundance of humanity is universally praised as virtue Altruism in Society  For many, altruism is the essential factor behind successful societies in which individuals flourish.  The ideals of a “good life” and a “good society” are strongly associated with altruistic sacrifice (self-interest is frequently associated with corruption of human society)  However, bc human social behaviour is frequently driven by consciously selfish acts, the very opposite of instinctive altruism- making it v hard to achieve the ideals behind a “good altruistic society”  There are arguments where people believe that altruism is key to social success- individual sacrifice for the group belief - The Spanish Inquisition, the Holocaust, the Soviet Gulag, the Great Leap Forward and the Cultural Revolution all stand as particularly horrific examples of failure, despite claims of progressive, pro-social intentions. - Violence and terror seem to be somehow linked to extreme altruistic commitment to a cause- as well as the sacrifice of individual autonomy (free-will)  So were did the pursuit of ‘altruism” go wrong? - The idea behind the “hive mentality” into human society is usually presented as a special type of horror. - On one hand ppl believe that altruism is key to successful society but on the other hand they also believe that autonomy is also key to that as well- this can be problematic AKA loosing yourself or having blind faith in a cause isn’t the answer either  So if altruism isn’t the answer and cannot replace selfishness, then what is? Reciprocity! - Both ppl benefit from this transaction - Economist believe that reciprocity is the key to most social interactions- both altruistic or of self-interest - “Transactions are generally motivated by the rational pursuit of self-interest ” Purpose  Human society seems to find motivation through increased or improved prosperity, sustainability, discovery, understanding etc.  Humans are divine by their conscious choices in pursuit of desires not always in association w reproductive fitness Order

 Individuals main focus isn’t always for the purpose of reproductive fitness, simply for self-interest most times  Social systems are characterized by extraordinary complexity and diversity- especially human communications as it’s become more popularised through different streams (radio, telephone, delivery etc.)  Coordination of this system is mainly regulated through larger institutions such as private firms or state- technology also makes transactions much easier Adaptivity  Although natural selection is an evolutionary process, our general accelerating population growth is working faster than the process of natural selection in different communities. So if natural selection aint doing it what is?...  Instead of unsuccessful communities literally dying out, we observe that unsuccessful communities are able to grow as they imitate the strategies of successful communities.  Therefore, economists and other social scientists have looked beyond evolution to explore how societies function and how and why they change (this fast pace of globalization) Economist  An economic society puts a price on things, their driving force is motivated my self-interest. It is largely a selfish order rather than an altruistic order. - What influences the choices over the transactions (social action) made by individuals, firms and government? - What roles do market prices, the state, other institutions, and other social values play in coordinating transactions (social actions)?  Economist use models to solve these answers. These models are able to explore causation : how one variable may influence another (not always the obvious variable causing the changes) Models and Abstractions  Economists use economic theory to develop economic models that provide a simplified simulation of an economic system- this research mainly looks at historical records to find the factors that may have the most influence over social systems and outcomes  Stochastic models and stochastic processes : "Stochastic" means being or having a random variable. This type of modeling forecasts the probability of various outcomes under different conditions, using random variables. - can be estimated to discover how changes to critical independent variables influence dependent variables (social outcomes) while holding all other things constant ( ceteris paribus ). - ceteris paribus: when your only focusing on the relationship between the 2 variables in question (no other outer variables included that could affect the model)  Abstractions : ideas not actual events (theory)  These theory-based models cut out a lot of the extra details to reveal the main underlying relationships that would otherwise be hidden  They don’t need to be realistic, they DO however need to explain and predict well  Abstractions should be as simple as possible ( Ockham’s razor ), but there is always a danger of oversimplification.  * Ockham’s razor: of two explanations that account for all the facts, the simpler one is more likely to be correct  Abstract models help us: - understand the critical variables shaping society ( Positive Economics ) - design a better society ( Normative Economics ) Common mistakes when trying to unlock Causation:

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 Post-Hoc Fallacy (post hoc ergo propter hoc): an informal fallacy that states: "Since event Y followed event X, event Y must have been caused by event X”; since an event occurred before another, then the first event caused the other. - Ex. "Every time that rooster crows, the sun comes up. That rooster must be very powerful and important!"  Fallacy of Composition: what is true of part of the whole must be true of the whole - Ex. "This tire is made of rubber, therefore the vehicle of which it is a part is also made of rubber." - Paradox of Thrift. Total saving may fall because of individuals' attempts to increase their saving, and, broadly speaking, that increase in saving may be harmful to an economy. - What is good for GM is good for Canada - What is good for the postal workers union is good for Canada Lecture 2 Questions: (wrong EDIT!!!!!!!) 1. Is the relationship between CO2 and global temperature deterministic, chaotic or stochastic? - Dertminitsc equilibrium pathw s tochatic path 2. What is the direction of causation? What is the independent variable and what is the dependent variable? Can this relationship be understood purely scientifically? - The direction of causation follows an increasing positive relationship. The independent variable is the global temperature and the dependant variable is the atmospheric carbon dioxide emissions. no 3. Economic development has caused an increase in the use of carbon-based energy (coal, oil, natural gas, etc.), which in turn has led to an increase in atmospheric CO2. Rising CO2 is expected to cause environmental change throughout the world. Will environmental change alter natural selection and will these changing evolutionary forces alter the path of human society? - Environmental change can greatly alter natural selection which could alter the path of human society. An example of this could be potentially seen in the recent thick wave of smoke spreading across the US from the California wildfires. A biological shift is like in those who have lung or breathing related health concerns, disadvantage- reproductive fitness. A sense of altruism and consideration for environmental change is a development as well, we can already see this with the growing trends in veganism and zero waste living being popularized in an effort to reduce the use of carbon-based energy in mass- producing industries. 4. Is natural selection the only force that will influence this path? - Not necessarily, if society begins to adapt, then unsuccessful communities can potentially grow by imitating strategies of successful communities and strategies that can reduce the environment degradation which is resulting from the use of CO2 emissions. 5. What would happen to CO2 emissions if there was a price for CO2? Can you provide a graph that models this relationship? - I believe the relationship would still remain positive, as a result of demand due to population growth. However, the relationship could potentially increase at a much slower rate. 6. If humans were more altruistic would we able to solve global warming? - If humans were more altruistic then global warming wouldn’t be catching up to us as fast as it is, however, no matter how altruism our society is the mere complexing and exponential growth of diverse societies would ultimately lead us an environmental crisis at some point in time. Altruism behaviour could possibly mitigate the issue for a longer time. 7. Does human selfishness make it impossible to solve global warming? - Yes 8. Can natural science solve global warming? - Cannot solve, but can mitigate

9. What is distinctive about how economics approaches the problem of global warming? - If were looking at consumerism, many companies may use the environmental crisis to popularise the use of “clean products and production”, as this becomes more popularized in our current society, economists are essentially able to make a transaction out of the promise of “eco-friendly production” to exchange price and profit with current social values revolving around the need to “do better as a society”.

Econ. Lecture 2

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