Inspired by this year's Edge question ("What scientific term or concept ought to be more widely known?"), Bloomberg columnist Noah Smith enumerates five economic concepts that we would be well-served to familiarize ourselves with: "Endogeneity" (when you don't know whether something is a cause or effect); "Marginal versus average" (something can be good on average, but so bad at the margins that it's a net negative); "Present value and discounting" (how much would you sacrifice today for the promise of something great tomorrow?); "Conditional versus unconditional" (you can hedge a prediction by adding a condition: "Assuming Donald Trump loses the election, the biggest crisis we'll face is a continued transfer of wealth from the poor to the rich"); "Aggregate" (differentiating global effects from local ones: borrowing money reduces your personal net worth, but increases some one else's, so you're getting poorer, they're getting richer and in the aggregate, it's a wash -- governments need to think in aggregate, voters need to think in particular).
• Present value and discounting
Things that we will get in the future have value today. Stocks, bonds and other financial assets are the obvious cases, but there are many more. For example, working at Alphabet Inc. (Google) might not pay more than other companies, but the knowledge, skills and resume burnishing that you get from the job could lead to higher earnings down the line. Present value means trying to figure out how much some long-term thing is worth today. To find present value, you have to use discounting, which means you have to decide how much less you value things that come far in the future. The more you want things right now, the higher your discount rate is, and the lower the present value of things like college degrees or business investments that take a long time to pay off.
5 Economics Terms We All Should Use
(via Naked Capitalism)
(Image: Economics Books, Genericface, CC-BY-SA)
Alibaba subsidiary Taobao has given rise to “Taobao Villages” — 18 villages that were once among China’s poorest places, where former peasant farmers have attained prosperity by working in factories that produce a single class of goods (for example, Daiji township, a remote town in Shandong where most working age people have moved away, is […]
In a new analysis of the World Income Database published by the National Bureau of Economic Research, Thomas Piketty and colleagues from the Paris School of Economics and UC Berkeley, describe a “collapse” of the share of US national wealth claimed by the bottom 50% of the country — down to 12% from 20% in […]
Ha-Joon Chang, an author and reader in Political Economy of Development at the University of Cambridge, opens his interview about the problems of neoliberalism with Truth-Out by quoting Gore Vidal: Neoliberalism is “free enterprise for the poor and socialism for the rich,” where “the rich have been increasingly protected from the market forces, while the […]
Python is immensely popular in the data science world for the same reason it is in most other areas of computing—it has highly readable syntax and is suitable for anything from short scripts to massive web services. One of its most exciting, newest applications, however, is in machine learning. You can dive into this booming […]
Learning new skills is a great way to improve your resume and stand out from other candidates. Especially in a workforce in which many job-seekers have a wide variety of qualifications. With lifetime access to Virtual Training Company, you won’t have to choose a specific focus. You can pick up new expertise whenever you deem it […]
Instead of throwing out all the empties after your next party, why not transform them into some new DIY glassware? Cut back on waste and add some home ambiance with the Kinkajou Bottle Cutter and Candle Making Kit.The Kinkajou is designed as a clamp-on scoring blade to make precise cuts. Just slide a bottle in, tighten […]