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Did Amazon Just Unveil a Keynesian Smartphone?

June 21, 2014 in Economics

By Christopher Westley


Amazon’s new Fire phone is generating much buzz since being announce this week, and for good reason because it appears to be simply the latest impressive product a very impressive company has offered to consumers seeking to “alleviate the felt uneasiness” in their lives (to borrow a phrase from Mises). Will the Fire phone become as ubiquitous as the Kindle?  We’ll see.

Yet it already has detractors.  Bloomberg blogger Matt Levine disparagingly called it a “weapon of mass consumption,” which, if true, would seem to make the phone a far better contributor to civilization than nukes stockpiled by insecure nation-states.  Levine is cautious about one amazing feature of the Fire phone: the ability for brick-and-mortar shoppers to point the phone at a product to buy it from Amazon instead.  But is this such a bad thing?  The resulting downward pressure on prices will prove to be glorious for consumers, offering them relief in a persistently sluggish and uncertain economy.  Will the Fire phone provide yet another impetus for Mrs. Yellen to heat up QE to previous levels?  (Don’t think the idea has not already crossed the minds of the managers of our monopoly money.)

Still, Levine is worried:

[S]hopping convenience may come at a high cost for some people. The more removed people are from purchasing with cash the more they tend to overspend, behavioral finance experts say. Research shows that when people pay with plastic they can spend 20 percent to 30 percent more than when they use cash, says Denise Hughes, a financial coach based in San Carlos, California. Casinos use chips, behavioral experts note, to also remove the regulating “pain of paying.”

Levine’s post goes downhill from there, with the predictable Dan Ariely quote and a puritanical warning from the head of the Center for Internet and Technology Addiction that the phone may provide “an instant conduit to gratify yourself”—as though using it can lead to dirty actions that, in another context, you might confess to a priest.

So silliness abounds.  Still, it seems to me that consumers making emotional decisions in the market pose much less of a social problem than (say) voters making emotional decisions in elections, although the behavioral economists and nudge theorists appear to be much less concerned about the latter.  But hasn’t the whole point of New Keynesian monetary and fiscal policy since 2008 been to penalize saving and increase consumer demand?  If the Fire phone actually …read more


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Do Video Games Teach Economics?

June 21, 2014 in Economics

By Matt McCaffrey

Many teachers know that encouraging interest in the dismal science can be difficult because students often find economics abstract and, well, dismal. It’s basically a truism then that if economists want to engage students, we should use interesting and relatable examples. And more often than not, this means mining pop culture for teaching moments from music, TV, and film. Along these lines, I suggest economists begin to look to video games for inspiration as well.

In the last few years, there has been an explosion of interest in the economics of the video game industry, and especially in the digital economies that emerge within games. Whether we look at social interaction and trade, or money and inflation, it’s obvious that as games become more complex, they increasingly illustrate the principles of economics. The most common examples come from Massively Multiplayer Online (MMO) titles like World of Warcraft and EVE Online, but I think games incorporate economic ideas in more fundamental ways as well.

I’ve discussed in a recent article how games imply economic behavior, and how making decisions within a game highlights the fundamentals of human action. The basic idea is that virtual worlds, like the real world, present us with a series of choices. Games impose digital scarcity, obliging players to weigh the benefits of different courses of action, make tradeoffs, and incur costs.

Good examples are found in the role-playing game (RPG) genre, where players face tough choices between different specializations and skill trees. To take one universal example, brute strength often comes at the expense of nuance in magic or persuasion, and alternative skills are not equally useful. Note also that obliging players to make difficult decisions highlights the opportunity cost of choice, not the money cost. Sure, you might use a lot of XP or in-game currency to buy skills, but gamers are intimately aware that the true cost of their choices are the skills they forego. In this sense, acquiring virtual skills is not unlike acquiring human capital; in fact, in some cases, they may even be the same thing.

Games also encourage players to think entrepreneurially: to take risks and sacrifice scarce resources in order to profit. Entrepreneurs specialize in a kind of creative problem solving in the marketplace, and gamers do much the same in the virtual sphere.

Choice, cost, and entrepreneurship are just a few of the economic concepts that games illustrate. But there are …read more


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Why America Must Choose Its Partners Wisely

June 21, 2014 in Economics

By Jennifer Keister

Jennifer Keister

President Obama has called for increased U.S. assistance to the Iraqi government to deal with escalating instability and a violent Sunni insurgency. But Iraq’s resurgent violence and vulnerability to the threat of radical rebels cannot be divorced from the sectarian policies of Prime Minister Nouri al-Maliki. The current debate about the extent, form, and limits of U.S. military aid highlights the challenges of even limited foreign internal defense (FID) assistance to help other states tackle their security problems.

Iraq is emblematic of a larger challenge. At several points, President Obama’s West Point address last month emphasized the role of “partner countries” that could leverage U.S. assistance to counter security threats within their own borders and regions. But the president’s speech and subsequent debate about it have largely failed to provide criteria for selecting these partners.

Iraq is emblematic of a larger challenge.”

Iraq’s headlines join others over the past year: the Boko Haram kidnappings in NigeriaAl-Shabaab’s siege of Westgate Mall in Kenyaunrest in northern Malicontinuing instability in Libya, the list goes on. All of these cases have produced calls for U.S. assistance or intervention, or highlighted the role of existing or past American aid and debated increasing such aid. Iraq is somewhat unique in the wealth of information the American public and policy makers have about it, but these other cases share some of the risks identified in Iraq.

Helping others defend themselves” sounds more attractive than “defending third parties from one another,” particularly while facing a fiscal and domestic political reality that limits the prospect for direct intervention. However, how do we tell the difference between states we can “partner” into effective and self-sufficient stability, versus those that risk pulling the United States into local quagmires or exacerbating security problems?

For partnerships to be effective, they generally require effective partners. To be sure, U.S. engagement may aim to improve these states’ capabilities, but a policy based on partnerships still needs a litmus test to sort out good partners from potential risks. Choosing good partners requires information. While some states refuse U.S. assistance, others pursue American aid and then seek to use it for unrelated purposes.

The current Iraq debate highlights Maliki’s sectarian policies as contributing to ISIS’s success, and questions whether aid might inadvertently facilitate such policies. Assistance to other possible partners requires similar information about the political, social, and …read more

Source: OP-EDS