Monthly Archives: July 2014

More on Substitutes and Complements

In a previous post, I discussed substitute goods (things you buy instead of each other) and complementary goods (things you buy as well as each other)*.

This way of thinking is useful in working out how price changes affect different goods. For an example of substitute goods, imagine beef becomes more expensive. People may stop eating McDonald’s hamburgers and substitute KFCs instead. For complementary goods, this price rise might mean less hamburger buns get sold.

I wanted to apply this way of thinking to some bigger issues:

Taxes: Imagine the government raised taxes. Suddenly, an hour of work isn’t worth as much to you. You might decide to cut back on overtime to spend more time with the family or on the golf course. That is, you would substitute more leisure for work. We think of leisure being something you do instead of work. This effect would be the substitution effect of higher taxes.

However, you might decide to work harder to maintain your standard of living, now you earn less per hour. This is the income effect of higher taxes. Whether the substitution or income effect is larger than the other determines whether higher taxes reduce people’s incentives to work or not.

Automation: One of the longest trends in economic history has been using machines to do more and more things that people once did. We can think of this as machines being a substitute for people in the workplace.

Undoubtedly this has been a good thing overall – someone transported from the Middle Ages would be astounded by the huge numbers of different things we can buy after a few centuries of industrialization, and how much healthier, varied and fulfilling our lives are because of economic and scientific progress. But it can be painful for the people who lose their jobs due to technological change. Think of the Luddites in the early 1800s who broke into early factories to smash machines. Think today of the taxi drivers who protested against the Uber app.

If you want to protect yourself against future technological change, try not to be a substitute for a machine, but a complement. Don’t pick a career that a robot or computer may be able to do in a decade’s time. Better, be the person who creates and uses technology to make themselves more productive.

Immigration: People often worry about immigration because immigrants ‘take our jobs’**. The degree to which immigrants take our jobs depends on whether they are substitutes or complements to British workers.

If they are a good substitute for your job, then employers will ‘buy’ their labour rather than a native’s. A Polish factory worker or a Pakistani taxi-driver might be a good substitute for a native worker, then they are more likely either to take a British job or bid down wages.

But they can also be complements – that is when an employer employs the immigrant, they have to employ more Brits. The Romanian builder might allow more homes to be built, giving work to British electricians and plasterers. The Indian programmer may allow for more software companies to be created, giving work to British accountants and managers.

This raises a difficulty, though. People are more comfortable with immigrants ‘like us’, who speak the same language and mix with us. But these people, being more like British people, are more likely to substitute for British jobs. The immigrants people dislike more will be those, who being more different, will take jobs Brits don’t tend to do.

Who’s more likely to take a native’s job: the Australian barmaid or the Bangladeshi curry chef? But which one is more likely to integrate? Yet another of those pesky trade-off we bump into all the time in life.

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The A – Z of Music: P

I was quite tempted to choose a recent hit, with a video featuring plenty of chaps and chapesses dancing about how ‘Happeeeee’ they are. Since, however, you have to be mad or a cretin to be happy during this vale of tears, I can’t endorse that sentiment.

Instead, here’s a great song and drinking game‘Roxanne’ by The Police.

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One Giant Leap for Mankind

Moon Landing

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All New Younger, Girlier Cabinet!

I read the news today, oh boy! It seems Prime Minister David Cameron has been up to a bit of butchery with his Cabinet reshuffle. The main news seems to be that middle-aged men are out and younger women are in:

Daily Mail Cabinet Reshuffle

In a breaking exclusive, I’d like to introduce some new members of the cabinet.

Young Girl 1

This young lady is Clara Ffossington-Ffossington-Smythe of the Suffolk Ffossington-Ffossington-Smythe’s – who were given their estates when Clara’s great, great, … great-grandfather got blotto with George IV and won a bet. She becomes the new Secretary of Education. She promises to look into the strike laws, after she’s got to grips with counting to 6 and using the potty. 

Young Girl 2

Slightly more mature is the new Environment Secretary, Beth Trellis. She thinks the environment is, like, really cool and important and stuff, and we should, like, do more to protect it. Yup. She vows to work really hard in between taking her SATs and going round her friends’ houses.

Despite the younger, more female Cabinet, David Cameron is still open to criticism that it’s too… human. In an attempt to deflect this charge of ‘species-ism’ he attempted to see if Paul the psychic Octopus would become Minister Without Portfolio – no doubt his predictive skills would come in handy – but, alas, that fine Cephalopod shuffled off this mortal coil some years ago.

Unfortunately, despite the greater diversity in age and gender, there will be little diversity in competence. All the Cabinet will be equally useless.

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The Youth of Today

I mentioned in my last post an elderly member of the church bemoaning some of the looser, modern attitudes. Such attitudes are not uncommon among elderly members of churches (and not always unwarranted) – and not uncommon throughout history.

O tempora o mores

– Oh the times! Oh the customs!

Cicero

I have just happened to browse  a column from my MP in the local free paper – and it rather brilliantly brings together some historical quotations of people despairing of the youth of the day:

We live in a decaying age. Young people no longer respect their parents. They are rude and impatient. They frequently inhabit taverns and have no self-control.

It could have been spoken today, but it actually comes from an inscription in a 6,000 year-old Egyptian tomb. Here’s another:

Our youth now love luxury. They have bad manners, contempt for authority; they show disrespect for their elders and love chatter in place of exercise; they no longer rise when elders enter the room; they contradict their parents, chatter before company; gobble up their food and tyrannize their teachers.

That one is from Socrates, the great ancient Athenian philosopher.

Such quotations are always good to have up your sleeve the next time your grandparents tick you off.

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Dishwashers, Subsititute Goods and the Decline of the Nuclear Family

Returning back to economics, the latest chapter of my worked solutions mentions that different goods can be classified as substitutes and complements.

Now, as any fule kno, substitutes are players you bring off the bench halfway through a footy game, and complements are what you give to pretty ladies to make them like you. Er, hang on…

Well, in economics, substitute goods are things you’d buy one instead of another. Fried chicken or a hamburger, a motorbike or a car. Complementary goods are things you tend to buy with each other. Tomato ketchup with hamburgers, a spare tyre with a car.

Now,at the risk of with the certainty of being controversial, I’d like to suggest an unlikely pair of substitute goods, the dishwasher and a housewife.

(left) A housewife? (right) A dishwasher

(left) a housewife ? (right) a dishwasher ?

Now, I’m not trying to be a troll here, but to grab your attention while I make a serious point… that labour-saving domestic appliances such as dishwashers, washing machines, vacuum cleaners et al have helped contribute to the decline in the ubiquity of the nuclear family, and led to a society where there are more single mothers, and people divorcing and remarrying and having different children with different partners.

Here’s the logic. For the longest time, there was a strict(ish) division of labour between men and women in the family. Men earned the money, while women brought up the children, cooked and looked after the home. Women had domestic value, but very little market value. They were completely dependent on their livelihood for men – no wonder then that they had little rights to their own property and couldn’t divorce. Economics necessitated the stable, nuclear family – there was no other choice.

As the 20th century wore on, things began to change. Labour-saving domestic appliances became available: washing machines, tumble dryers, dishwashers, ovens etc. These were essentially substitutes for the services women provided in the home. Women’s domestic value was being reduced.

Luckily, women’s market value was increasing. More oportunities arose for women (who presumably had more free time with all these devices) to find work and earn a reasonable wage. The experience of two world wars, where women had to work in the factories while men were conscripted. The growth of a service economy, with jobs in retail, health, education and administration, which didn’t require manly brawn like the older manufacturing and  mining sectors. All these things lead to more women joining the workplace.

Women were no longer economically dependent on men. If a relationship didn’t work out, or was abusive, women could now walk away. They had much more ability to make their own choices in their relationships as well as in their careers. “Liberation for women. That’s what I preach, Preacher man.”

Eventually laws, customs and attitudes came to reflect the changed economic system. Women could have property of their own. Divorce became easier. The variety in the types of family reflected the greater economic freedoms.

I remember sitting in a bible study with an elderly member of the church who had once been leader of the City Council. He said, if he was ruler of the world for a day, he’d ban divorce. He’d worked in the family courts as a lawyer, and disliked how families broke up. As a Christian and social conservative, I guess (and I am guessing – putting thoughts in his mind) he saw divorce as an individual and moral failing. If people would only try harder. If only our laws and attitudes had not become so permissive. No wonder we’d become ‘Broken Britain‘…

I’m not here to take sides in that debate. But I just never guess it had occurred to him that changes in morality and attitudes and family arrangements had technological and economic roots as much as moral and legal ones. Indeed, while much of our study of history at school seems concerned with how great battles and monarchs shape our destiny, I suspect that technological change – such as our humble dishwasher – has far more affect on how we work, live and love.

P.S. I realise this is a gross simplification of only part of the story. For example, another technological breakthrough – the contraceptive pill – had a huge effect on sexual habits. I just think that we underweight technological and economic factors on things that don’t seem technological or economic, but personal and moral.

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Awesome Archimedes

Whilst working on a new project (about which more in future), I’ve had cause to look into the life of Archimedes, the ancient Greek mathematician, engineer, physicist, inventor and probable all-round good egg.

Archimedes is famous for shouting the phrase “Eureka!” – “I have found it!” – as he leaped out of his bathtub and ran through the streets naked. The word sums up that light-bulb moment when you figure something out.

Archimedes shouting "Eureka!" in the bath tub

The king at the time, King Hiero II, suspected that his crown was not pure gold, as intended, but had some silver substituted in its place. He wanted to know if this was the case.

Gold and silver have different densities – how much stuff is packed in how much space, or more formally, mass divided by volume. If you know the mass and volume of the crown, you can work out its density. You can then compare this with the density of gold (which was known). If they match, you know the crown in pure; if not, it has been doctored.

It was known at the time how to work out something’s mass – a pair of scales will suffice – but volumes of oddly-shaped objects were another matter. Archimedes figured out when taking his bath, that as you get in the water, you displace your own volume of water. That is, the water will rise up by the same amount of space that your body takes up.

All the King had to do was put the crown in a tub of water and figure out how much extra space the water took up to find the crown’s volume. Then he could calculate the density and find out if he had been deceived.

Archimedes also explained how levers work. The moment, or torque, provided by a lever is just the force applied times the perpendicular distance that force is from the pivot:

Moment = Force × Distance
Moment = Force × Distance

So if you apply 5N of force to a 20cm spanner (a fifth, 1/5, of a metre) to turn a screw, the torque you apply is:

Torque = Force × Distance

              = 5N × 1/5m

              = 1 Nm

With a lever, the moments either side of the pivot are equal. In the diagram below, a man applies a force of 10N to a lever, at a point that is 2m along the lever arm from the pivot. The lever is used to lift a load at the other end which is 1m from the pivot. I want to work out what force the lever applies to the load.

A lever is used to lift a weight

 The moment the man applies is:

Moment = Force × Distance

        = 10N × 2m

                 = 20 Nm

The same moment applies to the load:

Moment = Force × Distance

   20 Nm = Force × 1m

So the force applied on the load is:

     Force = 20 Nm / 1m

                         = 20N

By standing double the distance from the pivot than the load, the man has doubled his 10N force to 20N. If he had stood three times further, the lever would apply three times the force. Four times further, four times the force. Et cetera. Et cetera. Et cetera. With the force applied a large enough distance from the pivot, any weight could be lifted:

Archimedes levering the Earth
“Give me but a firm spot on which to stand, and I shall move the earth.” – Archimedes

Archimedes also developed a screw pump and reportedly focused the Sun’s rays to create a heat ray which set enemy ships on fire. You have to admit, he was one awesome dude.

 

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