Staying alive with Kangaroos - an exercise in decision-making
WHY ECONOMICS SHOULD BE INTRODUCED AT A SECONDARY SCHOOL LEVEL
and made mandatory at A levels.
I was chatting with Jing Yong & we were talking about how financial literacy should be made compulsory (not just for poly students, but pretty much everyone), and I was thinking, Economics should be made compulsory too.
I’m an Economics tutor, so you will really have to judge for yourself whether my opinion is a biased one.
I would first point out that I don’t think I’ll ever teach Economics at a secondary school level.
IN A WORLD DROWNED OUT BY INFORMATION, A SKILL TO CHALLENGE & TAKE ON FAKE NEWS
We live in a world where information is disseminated freely and such information can at times, be fake & pushed out by those with an agenda.
There are those who believe that everything they read on Facebook must be ‘real’. This include health supplements with ‘magical benefits’, ‘free iPhones’ giveaways & of absurd and bizarre events that happen around the world.
They take what they read to be on Facebook to be ‘informational’ and ‘enriching’.
This is a widespread problem and does not just apply to those who are more elderly. The young can be duped, too, by reports that are ‘supplemented’ with many ‘facts’ & ‘figures’ to push across certain points.
IN ECONOMICS, THERE ARE A FEW THINGS THAT WE LEARN THAT HELPS US BETTER NAVIGATE A WORLD OF FAKE NEWS
1. Is the data reliable? Where does it come from? Does it come from a biased source? Does the writer have an agenda?
2. Do I know how the data should be used? Is the data being used in a correct way?
The recent Oxfam report on income inequality is an example. We should be tackling income inequality but those who use the Oxfam report to support their case just show they don't quite know what they are talking about.
STUDENTS WITH ECONOMICS KNOWLEDGE WILL KNOW THAT
- Income inequality is a measure of the income disparity between the high income and Low income
- Measurement of income inequality is typically GINI Coefficient
- But a country with increasing GINI coefficient does not mean that the poor is worse off over time
- If country X has a lower GINI coefficient than country Y, it does not mean that the poor in Country X is better off than Country Y
- That it is important to look at both GINI coefficient before government taxes & transfers as well as GINI coefficient after government taxes & transfers
PS: do you think many Malaysians actually know what is the truth on what is going on with the recent airspace and Port limits disputes? Or they are just blindly believing what they are choosing to believe and not looking at facts to understand the issues going on?
UNDERSTAND THAT SOMETIMES, THE BAD CHOICE IS ALREADY THE BETTER CHOICE
In economic policy making, sometimes, choices are not quite binary. We don’t live in a straightforward world where things are either “good” or “bad”. It may be a choice of a bad choice vs a worse choice and that there are no good choices, thus you just have to work with the constraints you are given.
LET’S BRING IN THE ISSUE OF A MINIMUM WAGE.
Should we or should we not have a minimum wage
Those who argue for a minimum wage are that
- Minimum wage gives the lower income workers a ‘living wage’ and allows them to survive
- Productivity levels can go up if you increase the wages of workers (the logic here argued is that when you pay people more, there is an increased performance level as workers will work harder to keep their job since there is more incentive to do so)
HOWEVER, IT IS NOT TOO HARD TO SEE FROM AN ECONOMICS STANDPOINT WHY A MINIMUM WAGE CAN BE BAD AS WELL
- For firms with the market power, what will they do? Simply pass on the costs to consumers in terms of higher prices - resulting in inflation
- For firms with immense retained supernormal profits and have a sizable labour pool and will face higher costs eating away at profits what will they likely do? - automate, mechanism and remove the need for repetitive tasks & Low-skilled workers. So what happens - in an already fast-changing world where technology is eating jobs for breakfast, this happens faster as firms have a greater incentive to do so now
- For firms with no pricing power, higher labour costs may eat into their profitability, they make losses, shut down and die.
These are all potential negative outcomes associated with a minimum wage. Perhaps that is why in Singapore we are reluctant to institute a minimum wage.
In Economics, we are trained to ask questions, and even if we don’t have the answer to all of these questions, it helps us consider options better.
AS AN ECONOMIST, IF YOU ASKED ME WHETHER WE SHOULD INDEED IMPLEMENT A MINIMUM WAGE IN SINGAPORE, I WOULD CONTINUE ASKING THE FOLLOWING QUESTIONS
1. If we implemented a minimum wage, would it threaten Singapore’s competitiveness, if so by how much?
2. If we implemented a minimum wage, would we want to apply such a law to only locals or foreigners too? If we apply this to only locals, would firms choose to hire only foreigners, and if we apply this to both locals & foreigners, what would it do to firms’ labour costs?
3. Is there a better way than implementing minimum wage? Can we afford to expand existing schemes so they can achieve the same positive impacts that a minimum wage aspires to do, while avoiding the negative consequences to firms?
4. As a country driven by exports and foreign direct investments, can we afford to see a rise in labour costs?
5. If labour costs go up, causing higher prices, would people be willing to pay more for goods & services? If so, by how much?
Never say never, but ask questions, debate, find as many answers you can.
DEVELOP A FRAMEWORK TO MAKE BETTER DECISIONS IN ALMOST EVERYTHING
In Economics, we talk about making rational decisions. We say we use a framework, but really the framework is just mostly using common sense.
Of course, most of us are already doing that on a daily basis, starting with:
“Do the benefits, outweigh the costs?”
You usually proceed when the benefits far outweigh the costs.
But, it really needs to be more than that. Here are other issues I’ll urge you to consider.
1. Do you have all the information necessary to make an informed decision? Have you done your research? Is your list of costs & benefits comprehensive? Is someone better at making this decision and should you outsource this decision to somebody else?
2. Have you considered only what is obvious? What about “unintended consequences” of making that decision. Would your decision affect / involve others?
3. Have you considered both the short term & long term consequences of your decision? Will your decision be beneficial in the short term but detrimental in the long term?
REAL WORLD SCENARIO #1
If you own a home, and has taken a mortgage, every year or 2, you will need to decide whether to go for a ‘refinance’. If so, whether to pick a ‘fixed rate’ package and ‘floating rate’ package.
This seems like a straightforward decision - I can assure you, it’s a little more complicated than that.
Here are a few factors to consider
1. Should you refinance? (the answer is usually yes), but you have to account for calculations like legal costs, cost of refinancing, admin charges (if any)
2. Should I pick a 1 year, 2 year or 3 year package (this really depends on how far into the future you have a certain expectation for, as well as what are the interest rates offered)
3. Should I pick a fixed rate or floating rate? (In times where you are expecting interest rates to rise because of Fed/ECB action, the fixed rate MIGHT be more attractive. When QE is being practiced and I/r is likely to fall, pick the floating rate)
REAL WORLD SCENARIO #2
You are in Australia, you are driving within specified speed limits, you have 2 young kids on board and carrying your extended family as well. You are in the middle of nowhere and its around 200km away from civilisation as you have decided to visit a desert. The road is narrow, and there are trees / bushes at the side of the road. There’s no lighting.
Two kangaroo jumps towards your car. It’s too sudden, the distance is too short & you can only do the following things. What do you do?
1. Hit the emergency brake?
2. Restrained braking as much as you can, and prevent family members from ‘flying’ if they are not belted
3. Swerve to avoid the kangaroos.
HERE’S WHAT MIGHT HAPPEN BASED ON YOUR CHOICES
1. If you hit the emergency brake and brake hard, your younger son who is 9 months old, who might not be properly belted because your wife might have been feeding him. He might ‘fly’ and get injured. Also, you don’t know if all of your family members are properly belted
2. If you carry out restrained braking, the kangaroos are almost certain to die (if they don’t jump out of the way in time)
3. If you swerve, you may lose control of the vehicle, you may hit a tree / there’s no light so there’s no way to know what you are going to hit on the sides. In the case you hit something, your family might be injured
Which do you pick? The one thing to learn about the above scenario is that no matter what you choose there are going to be potential tradeoffs. At the point of decision making, many factors remain uncertain and it's hard to know which choice would have eventually been the best. You make the best decision you think you can but you might be wrong. If you are curious to know my answer, you can PM me.
WRITE BETTER - BECAUSE CLARITY IN WRITING IS REFLECTIVE OF CLARITY IN THINKING
Many brilliant students I have, write poorly. You ask them questions in class, they can answer. You debate with them, they can give you appropriate responses.
However, when you get them to write, their thoughts can be quite messy, all over the place and you can’t quite get what they are trying to articulate.
I only realised in recent years, that the skill of writing coherently in a structured fashion is an important one that has to be put to practice and deliberated over.
Students who can write well, tend to do well in Economics as well. At least, from my teaching, I see a correlation. Thus, these days, I try to focus more on essay-writing.
But why is it important to learn to write better?
Here are a few things that I teach my students with regard to writing.
1. Writing an introduction - one of the things that I tell my students, is that the ‘definition’ matters, because how you define key terms and parameters in your essay may broaden or narrow the scope of your essay accordingly. Taking the effort to write a proper introduction also helps you stay on-course and not write ‘out of point’. You also need to state your stand, and provide a summary of the key points you have to talk about.
2. 3-4 Major Points - I also tell students, don’t write a million points and have no substantiation. Don’t be too excited, and write down everything you’ve learnt. Read the question, understand what you need to answer, and just provide 3 major points with great depth, substantiation, than to provide many points but no depth and no substantiation.
3. Evaluation - Value add on your points. Provide an opinion. Think critically on the issue and write beyond ‘theory’
Learning how to write an essay, helps you
- Organise your thoughts
- Learn to answer a question that is phrased with specific requirements rather than to ‘empty’ your brain on the subject matter
- Think critically about issues, from multiple perspectives.
It's getting harder to survive or even understand the complex world we live in and it's not going to become any easier.
Learning economics, if done rightly, may help us student to develop rational and critical thinking or actually - just what I think is common sense (a rare commodity these days it seems)