Homer Economicus

The Simpsons and Economics

Joshua Hall

• Publisher: Stanford Economics and Finance
• Year: 2014
• ISBN:
  9780804791823
• Edition: 1
• Topic: Economics
• Subtopic: Microeconomics
• Index: Economics

In Homer Economicus a cast of lively contributors takes a field trip to Springfield, where the Simpsons reveal that economics is everywhere. By exploring the hometown of television's first family, this book provides readers with the economic tools and insights to guide them at work, at home, and at the ballot box.

Since The Simpsons centers on the daily lives of the Simpson family and its colorful neighbors, three opening chapters focus on individual behavior and decision-making, introducing readers to the economic way of thinking about the world. Part II guides readers through six chapters on money, markets, and government. A third and final section discusses timely topics in applied microeconomics, including immigration, gambling, and health care as seen in The Simpsons. Reinforcing the nuts and bolts laid out in any principles text in an entertaining and culturally relevant way, this book is an excellent teaching resource that will also be at home on the bookshelf of an avid reader of pop economics.

PART I

THE ECONOMIC WAY OF THINKING

1

SCARCITY, SPECIALIZATION, AND SQUISHEES

The Simpsons as Homo Economicus

Anthony M. Carilli

THROUGHOUT THE PAST TWENTY-ODD YEARS we have turned to The Simpsons for irreverent humor, mindful distraction, inside jokes, and, it turns out, lessons in basic economics. The Simpsons is a perfect vehicle for illustrating basic economic concepts. Economics is the study of choice and its consequences, both intended and unintended. Of course, dealing with human beings unraveling the complexity of these consequences can be daunting. While there is never any doubt about Homer’s intentions, ever (“Mmm . . . beer” or “Mmm . . . donuts” or “Mmm . . . porkchops”), somehow, Homer can’t ever seem to anticipate or predict the longer-term consequences of his choices. In fact, no matter how many times he’s been burned, Homer doesn’t even consider that there might be unintended consequences to his choices, yet there always are. It wouldn’t surprise us, as viewers, to see Homer sit down at Moe’s one night to enjoy a Duff Beer, somehow resulting in Maggie not going to college. As the nineteenth-century French political economist, statesman, and author Frederic Bastiat taught us, economics is about the seen and the unseen; good economics traces out not just the seen but also the unseen consequences of any choice.¹

Bastiat demonstrates the lesson of the seen and the unseen by using the famous example of the broken window.² Suppose Bart dares Milhouse to throw a brick through the window of the Kwik-E-Mart. Imagine that as Apu rushes out to catch the boys, a crowd gathers. As the crowd laments the terrible act of vandalism, Mayor Quimby instead extols the boys’ virtue. Far from being hooligans, Milhouse and Bart are, in fact, heroes because they have created a series of jobs for Springfield. Mayor Quimby assures the townspeople by reasoning that the broken window will create economic benefits for the community, because a glazier must be hired to fix the window and will earn an income from the repair of the window, which he will in turn use to buy a new pair of shoes from the cobbler, thereby creating work for the cobbler. The cobbler will receive an income and perhaps buy a new suit, thereby generating income for the tailor. The tailor will use the income to . . . and so on and so on. . . .³ However, Apu had intended to purchase a new Squishee machine, not a new window, and as he listens to this dramatic reversal of his fortunes, he knows that he will not be able to purchase both. The Squishee machine salesman has lost his commission, which he had planned to celebrate with a Duff Beer at Moe’s; Moe loses the income he would have earned from selling the beer, Duff produces less beer and therefore hires fewer employees.⁴ In the end, what really happens is that Apu has just a window instead of a window and a new Squishee machine.

The lesson is that a good economist looks at not only the short-run consequences but also the long-run consequences of actions; at not only the visible effects of actions but the subtle invisible effects of actions. “In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we foresee them. There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.”⁵ The Simpsons does that, exactly. Every episode shows us what Homer sees and what he doesn’t see. The Simpsons offers a humorous look at the choices its characters make and the consequences that follow wherever they may lead. Economics, like The Simpsons, is about everyday life.

The intended consequences are, of course, less interesting in many ways than the unintended. When Homer chooses a Duff Beer at Moe’s we know his intentions: “Mmm . . . beer!” Mr. Burns intends to produce nuclear power. The intended consequences are interesting because it is the intended action of the individuals that leads to the more interesting and nuanced unintended consequences. Homer doesn’t intend to forget Marge’s birthday when he is drinking Duff Beer, nor does he intend to provide Moe with a living. Mr. Burns doesn’t intend to make it easier for Apu to make a living by providing cheap reliable electricity to the Squishee machine, but he does. The Simpsons is an exercise in exploring the consequences of the decisions made every day by the people of Springfield; The Simpsons is about economics because economics is about, well—everything. The purpose of this chapter is develop some simple economic concepts with the help of Homer, Marge, Mr. Burns, Apu, Lisa, Lenny, and, of course, Bart.

Economics is based on the simple premise that individuals choose or act; that is, they apply means (resources) to ends (goals) according to ideas. When Homer wants dinner, he knows (has the idea) that pork chops (his means) will alleviate his hunger (his end). The limits to Homer’s ends seldom reveal themselves, but his ability to use means to satisfy his goals is limited by the scarcity of the means and by Homer’s ideas about how the means can be connected to the ends. Homer’s ends are rarely in doubt, but his choice of means often doesn’t prove an effective or efficient way of bringing about his ends. Frequently, Homer finds his access to means limited by his budget, whether it be monetary means or physical ability or mental ability (nah . . .) or lack of foresight or whatever. At its most basic level, every episode of The Simpsons is about economics; the consequences of choice within some sort of constraints. The foibles of Homer and Bart are basically about choice and its consequences within the confines of a budget constraint, which is just fancy economist talk for whatever people have to spend.⁶ Homer makes decisions in reaction to the trade-offs he perceives within the context of the constraints he faces. The brilliance of The Simpsons is in the tracing out of the consequence of their choices, both intended and unintended. Unlike some other animated shows, they rarely let the fact that they are not “real” prevent them from being “realistic.”

Ten Basic Concepts

The Simpsons is a great device for demonstrating the basic introductory ideas in economics. While economics really is a way of thinking as opposed to a list of concepts to be memorized, there nonetheless are some basic concepts that make up the core of the economic way of thinking, and The Simpsons provides many examples to demonstrate all of these concepts.⁷ I will list ten basic concepts that all students of introductory economics should appreciate, briefly explain each one, and provide examples from The Simpsons for each concept. The basic concepts are

• Scarcity necessitates choice.

• The opportunity cost of an action is the value of the next-best alternative that must be sacrificed to take the action.

• Efficiency is best understood as a relationship between ends and means.

• To economize means to allocate available resources in a way that yields the most value to the economizer.

• Pursuing comparative advantage means sacrificing that which is less valuable for the sake of something more valuable.

• Specialization is another word for

• pursuing one’s comparative advantage.

• the division of labor.

• producing at a comparably lower opportunity cost.

• The “law of demand” in economic theory asserts that people will purchase less of a good when its price rises, and vice versa.

• A market is a process of competing bids and offers.

• In an informed and uncoerced exchange, both parties receive more in value than they give up.

• Economic growth entails an increase in the rate of production of wealth, and wealth is what we value.

Nearly all introductory or principles of economics texts have similar lists. For example, Mankiw includes, among others, people face trade-offs, the cost of something is what you give up to get it, rational people think at the margin, people respond to incentives, trade can make everyone better off, markets are usually a good way to organize economic activity, and so on.⁸ Gwartney and colleagues have “Eight Guideposts to Economic Thinking,” which are trade-offs must be made, individuals choose purposefully, incentives matter, individuals make decisions at the margin, information is costly, beware of secondary effects, value is subjective, and the test of a theory is its ability to predict.⁹ Frank and Bernanke call their first chapter “Thinking Like an Economist” and include the scarcity principle and the cost-benefit principle as two of the basic building blocks of economics.¹⁰ Again, economics is the science of choice and its consequences, both intended and unintended. While each author has his unique approach, they all focus on the choices made by individuals in the face of scarcity.

Scarcity Necessitates Choice

Homer’s wants are limitless, but his means to attain them are not, so he cannot have everything he wants and he must choose which ends to satisfy. Life is full of trade-offs—that is, forsaking one thing to choose another—and Homer runs into this brute reality over and over again. In “The Tell Tale Head,” Homer talks to Maggie about a bowling ball from the Bowl Earth Catalog being the best use of his $50 of gambling winnings. In “There’s No Disgrace Like Home,” Homer decides the family needs to go to counseling and, after looking at all the counselor commercials on television, decides Dr. Marvin Monroe is the best (and at only $250!). The scene is an economic lesson on trade-offs (and how value is subjective), since Marge is concerned about the cost of therapy while Homer is willing to give up the kids’ college fund. Then after realizing the college fund only had $88.50 in it, Homer is willing to make the ultimate sacrifice and pawn the family TV. Unwilling to give up the TV, Marge offers her engagement ring, only to be reminded by Homer that they need to pawn something worth at least $250.

Opportunity Cost

Trade-offs imply opportunity cost. The act of choosing is, at the same time, the act of setting aside. Homer can’t have his donuts and eat them too. The cost of choosing is the value of what has been set aside or not chosen. That is, the value of what has been traded off by choosing one thing over another is the opportunity cost. Closely related to opportunity is the concept of sunk cost; a sunk cost is a cost that cannot be affected by the individual’s choice and should therefore be ignored. While the concepts of opportunity cost and its evil twin sunk cost may appear to be straightforward, together they are most often the most difficult concepts in economics to apply consistently.¹¹ The difficulty in applying opportunity cost theory is that it lies squarely in Bastiat’s realm of the unseen; the opportunity cost of any action or choice is the value of what is not chosen and therefore not experienced or seen. Opportunity cost represents a hurdle to choice, but once the choice is made the “loss” cannot be experienced.¹² The misapplication most often manifests itself as the denial of the most basic tenant of scarcity: “There ain’t no such thing as a free lunch.”

Since cost is related to action and choice, if there is no action or choice there is no cost. Or, more succinctly, “no verb, no cost.” Different actions toward the same object have different costs; in other words, “different verb, different cost.” So the cost of holding something is different from the cost of obtaining it and is different from the cost of using it. Since only one action or choice can be made at the same time, the opportunity cost of action is the value of the action not taken.

Typically, the confusion lies in misunderstanding the relevant choices. Imagine Marge gives Homer a ticket to the Springfield Isotopes versus Shelbyville Shelbyvillians game for his birthday; does it cost him nothing to go the game? The answer, of course, is no, Homer does in fact have to bear a cost to attend the game. Suppose the game was for the coveted Lemon Tree Trophy, and when Homer shows up to the game, Fat Tony, who is scalping tickets, offers Homer $1,000 for the ticket. If Homer goes to the game, he just paid $1,000 for the ticket; as he mulled over his decision, Homer had one hand on the $1,000 and one hand on the ticket—he had to let go of one of them. The cost of attending (verb) the game was $1,000 (plus the value he places on not disappointing Marge because the $1,000 would have helped pay for Lisa’s braces). It doesn’t matter what he paid to obtain the ticket because that is not the relevant decision now, the relevant choice is attend or not attend the game.

The opportunity cost of the therapy with Dr. Marvin Monroe is the value of receiving the education that will be foregone because Homer has raided the college fund. The concept of time preference is also present in this decision. Homer, like everyone else, has a positive rate of time preference; he would, other things equal, prefer to have things now rather than later. A significant part of the charm of Homer is his very high (childlike) rate of time preference. Homer regularly discounts the future very heavily, meaning he places very little value on it and therefore places a high value on the present.

Homer’s motto is carpe diem. In “The Way We Was,” when Homer joins the debate team he is faced with the resolution, “The national speed limit should be lowered to fifty-five miles per hour.” Homer’s response recognizes immediately the opportunity cost of such a proposal when he notes that while there will be fewer deaths, millions of people will be late. In “Tree House of Horror,” while Homer is trying to convince Marge that the haunted house is worth the purchase by telling her it’s a fixer-upper and therefore worth the low price, Marge counters that the savings are not worth living in a house of evil. The exchange recognizes that value is subjective. To Homer, trading a little evil is worth the money; to Marge, the opportunity cost is too high.¹³ Opportunity costs are the constant obstacles to Homer’s choices that not even he can ignore.

Efficiency

Efficiency is best understood as a relationship between ends and means. The idea of efficiency means nothing absent a goal, which is to say that things cannot be more or less efficient. Choices can be more or less efficient. Given a set of means, efficiency is choosing the most valuable ends, or, given an end, efficiency is choosing the cheapest means to bring about that end. Even physicists recognize that efficiency is inherently an evaluative term when they define it as work out divided by work in; that is, how much of the energy put in comes back out as useful energy. Since useful means the extent to which the end is accomplished, efficiency is an evaluative term. A choice is efficient if the benefit from the decision is greater than the cost in prospect. To put it another way, a decision is more efficient if, given a cost, that choice yields a greater benefit than the original or if, given a benefit, the cost is lower than the original choice.

Homer’s choices are ripe with implications about efficiency. Someone who has a rate of time preference as high as Homer’s frequently makes choices that don’t appear to be efficient. This is especially the case after he experiences ex post regret; that is, he discovers that he was wrong in his estimation about the future cost or ...

Table of contents

• Cover
• Copyright
• Title Page
• Contents
• Preface
• Acknowledgments
• Part I: The Economic Way of Thinking
• Part II: Money, Markets, and Government
• Part III: Applied Microeconomics
• The Contributors
• Notes
• References
• Index