Economics in Action

28-year-old Jess Bachman is not only an excellent graphic designer but also has a great understanding of numbers. His site WallStats showcases his work making detailed, colourful charts about economics and politics, including the Fall of General Motors and the Current Financial Crisis. The Evolution of the Household 1950 to today is nearly ten thousand pixels tall and traces the evolution of style as well as lifestyle. He is most proud of Death and Taxes which illustrates US Federal spending in incredible detail.

Priceless? Free? Surely it differs on what you buy your true love? And why would you try to put a price on it?

Photo by spud on Flickr

The 12 days of Christmas, a popular Christmas song, begins with the line ‘On the first day of Christmas my true love sent to me’. An American investment group PNC Wealth Management compile a Christmas Price Index (CPI) every year. Taking the meaning of the song quite literally they calculate the cost of true love.

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Photo by Gaetan Lee on Flickr

Each choice that you make as an individual is decided by a society of billions: namely, the billions of neurons that populate your brain. Economics, being the science of choice, has until recently treated the human being as a black box rather than looking inside. That has changed with the advent of neuroeconomics, a branch of science which examines what those cells are doing when people are making choices.

Neuroeconomists have studied blood-flow to find where the brain measures uncertainty; measured hormones in subjects’ saliva and their effect on impulsive decisions; and worn conductive caps to measure brain activity while they make a purchase.

The questions thrown up by neuroeconomics include whether we are really rational, or destined to be biased, and whether it will be possible in the future to read off someone’s preferences with a powerful brain scan. In an article for Slate and a recent programme on BBC Radio 4, Tim Harford discusses the potential power of this emerging discipline.

Tim Harford writes both the ‘Undercover Economist‘ and ‘Dear Economist‘ for the Financial Times.

Add contemporary art to the long list of topics that have been illuminated by economics research. Don Thompson of York University, Toronto has studied this market and in his new book, “The $12 Million Stuffed Shark”, examines why art prices reach such staggering heights. Just weeks ago, Damien Hirst auctioned his “Beautiful Inside My Head Forever” collection for nearly two hundred million dollars: enough to buy 272,108 metric tons of rice. Professor Thompson graciously agreed to an interview:

Photo by diametrik on Flickr

What made you study economics in the first place?

It was probably one of those undergraduate surprises; I took a micro course, enjoyed it, took a course in European Economic History and loved it, took a macro course, and launched on a career.

Has being an economist changed the way you appreciate art?

No, you still lust after art that touches your soul that, you want to live with and wake up to. However, knowing the prices of art affects how you look at it, particularly in a contemporary art museum. The “if one like that sold for $20 million there must be something there I haven’t seen, I’ll look harder and reach hard” syndrome is hard to avoid.

Is the economics of contemporary art like other areas of economics, or did you have to build it from the ground up?

I spent a year working on The $12 Million Stuffed Shark because I did not understand how artists got selected to rise to the highest levels (being sold in Sotheby’s or Christie’s evening contemporary auctions), or why prices were 10 or 100 times what seemed reasonable in the absence of scarcity. And because of my profession and personal curiosity, I wanted to learn more.

Money seems to be disappearing. The value of homes has gone down and the banks are in huge amounts of debt and have to be bailed out by the government. But where has all of the money gone?

Money consists of two main elements.

The first is cash (notes and coins). The total amount of cash in the UK is just over £50bn, with about £43bn circulating outside the banks and £7bn in banks’ safes, tills and cash machines.

But cash is a relatively small proportion of the total amount of money. So what is the rest?

Read More: Where has all the money gone? John Sloman

This week Princeton University economist Paul Krugman was announced as winner of this year’s Alfred Nobel memorial prize in Economics (PDF link, YouTube video). He is well known for his work on currency markets, including his advance prediction of the housing bubble and current financial crisis (YouTube link). However, this prize recognises earlier work in which he advanced our understanding of international trade.

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We find out via Marginal Revolution that, amongst other things, Krugman has used economic arguments to explain why British food used to be so bad.

An early paper by Krugman applies serious economic analysis to the admittedly silly topic of interstellar trade. Trade between star-systems poses special problems; for one thing, because of the huge travel times even for near-light speed freight vessels. Because of Einsteinian relativity, humans or aliens would experience time differently on the journey to those financial backers who remain on the home planet, so it’s not obvious how interest should be calculated. Those working on these problems, admits Krugman, are a small band, “but the Force is with us.”