Readings e Video per l'esame di Lingua inglese (Grimaldi Luisa)

MONETARISM

The great depression of 1930 demonstrated that, in the short term, the market system does not automatically lead

to full employment. Keynes stated that market forces could produce a durable equilibrium with high

unemployment, fewer goods being produced, fewer people employed.

Classical economic theory stated that in the long term an excess in savings would cause a fall of interest rates

and so investment would go up again.

Keynes is skeptical and answers that in the long term, we’ll all be dead, so he recommended government

intervention in the economy to face the business cycle. During an inflationary boom governments could

decrease their spending or increase taxation. During a recession they could increase their expenditure or

decrease taxation or increase the money supply and reduce interest rates so as to boost the economy.

On the other hand, monetarist economists(1950s and 1960s) such as Milton Friedman (he thinks that money

is neutral, so in the long run, increasing or decreasing the money supply will only change the price levels and

won’t have any direct effect on output and employment) argue that the government shouldn’t take action in

the economy because their fiscal measures usually only begin to take effect when the economy is already

recovering, making the business cycle worse. On the contrary, they should try to make sure that there is

constant growth in the money supply.

By the beginning of the 21st century, the idea of an efficient free market and that the government shouldn’t take

action in the economy seemed to be dominant. But with the crisis of 2008 (when the financial institutions

began to go bankrupt) Keynesianism came back. Governments around the world poured huge amounts of

money into the economy. Monetarists were exceeded but continued to argue that this would lead to inflation in

future.

Dan Ariely, how equal do you want the world to be (video)

It would be nice to be objective in life, in many ways. For example, think about something as simple as beer. If I

gave you a few beers to taste and I asked you to rate them on intensity and bitterness, different beers would

occupy different space. But what if we tried to be objective about it?

In the case of beer, it would be very simple. What if we did a blind taste?. Most of the beers will go into one

place. You will basically not be able to distinguish them.

Similarly, we can think about physiology. What happens when people expect something from their physiology?

For example, we sold people pain medications. Some people, we told them the medications were expensive.

Some people, we told them it was cheap. And the expensive pain medication worked better. It relieved more

pain from people because expectations do change our physiology.

So we wanted to think about what is the blind tasting version for thinking about inequality? So we started

looking at inequality, and we did some large-scale surveys around the U.S. and other countries. So we asked two

questions: Do people know what kind of level of inequality we have? And then, what level of inequality do

we want to have?

So let's think about the first question. Imagine I took all the people in the U.S. and I sorted them from the

poorest on the right to the richest on the left, and then I divided them into five buckets: the poorest 20 percent,

the next 20 percent, the next, the next, and the richest 20 percent. And then I asked you to tell me how much

wealth do you think is concentrated in each of those buckets.

Okay, here's what lots of Americans tell us. They think that the bottom 20 percent has about 2.9 percent of

the wealth, the next group has 6.4, so together it's slightly more than nine. The next group, they say, has 12

percent, 20 percent, and the richest 20 percent, people think has 58 percent of the wealth. You can see how this

relates to what you thought.

Now, what's reality? Reality is slightly different. The bottom 20 percent has 0.1 percent of the wealth. The

next 20 percent has 0.2 percent of the wealth. Together, it's 0.3. The next group has 3.9, 11.3, and the richest

group has 84-85 percent of the wealth. So what we actually have and what we think we have are very

different.

What about what we want? How do we even figure this out? So to look at this, to look at what we really want,

we thought about the philosopher John Rawls. If you remember John Rawls, he had this notion of what's a

just society. He said a just society is a society that if you knew everything about it, you would be willing to

enter it in a random place.

And it's a beautiful definition because if you're wealthy, you might want the wealthy to have more money, the

poor to have less. If you're poor, you might want more equality. But if you're going to go into that society in

every possible situation, and you don't know, you have to consider all the aspects. It's a little bit like blind

tasting in which you don't know what the outcome will be when you make a decision, and Rawls called this the

"veil of ignorance."

So, we took another group, a large group of Americans, and we asked them the question in the veil of ignorance.

What are the characteristics of a country that would make you want to join it, knowing that you could

end randomly at any place? And here is what we got. What did people want to give to the first group, the

bottom 20 percent?

They wanted to give them about 10 percent of the wealth. The next group, 14 percent of the wealth, 21, 22 and

32. Now, nobody in our sample wanted full equality. Nobody thought that socialism is a fantastic idea in

our sample. But what does it mean? It means that we have this knowledge gap between what we have and what

we think we have, but we have at least as big a gap between what we think is right to what we think we have.

Now, we can ask these questions, by the way, not just about wealth. We can ask it about other things as well. So

for example, we asked people from different parts of the world about this question, people who are liberals and

conservatives, and they gave us basically the same answer. We asked rich and poor, they gave us the same

answer, men and women, NPR listeners and Forbes readers.

We asked people in England, Australia, the U.S. -- very similar answers. We even asked different departments of

a university. We went to Harvard and we checked almost every department, and in fact, from Harvard Business

School, where a few people wanted the wealthy to have more and the [poor] to have less, the similarity was

astonishing. I know some of you went to Harvard Business School.

We also asked this question about something else. We asked, what about the ratio of CEO pay to unskilled

workers? So you can see what people think is the ratio, and then we can ask the question, what do they think

should be the ratio? And then we can ask, what is reality? What is reality? And you could say, well, it's not that

bad, right? The red and the yellow are not that different.

But the fact is, it's because I didn't draw them on the same scale. It's hard to see, there's yellow and blue in there.

So what about other outcomes of wealth? Wealth is not just about wealth. We asked, what about things like

health? What about availability of prescription medication? What about life expectancy? What about life

expectancy of infants? How do we want this to be distributed?

What about education for young people? And for older people? And across all of those things, what we learned

was that people don't like inequality of wealth, but there's other things where inequality, which is an outcome of

wealth, is even more aversive to them: for example, inequality in health or education.

We also learned that people are particularly open to changes in equality when it comes to people who

have less agency -- basically, young kids and babies because we don't think of them as responsible for

their situation.

So what are some lessons from this? We have two gaps: We have a knowledge gap and we have a

desirability gap. The knowledge gap is something that we think about, how do we educate people? How

do we get people to think differently about inequality and the consequences of inequality in terms of

health, education, jealousy, crime rate, and so on?

Then we have the desirability gap. How do we get people to think differently about what we really want?

You see, the Rawls definition, the Rawls way of looking at the world, the blind tasting approach, takes our

selfish motivation out of the picture. How do we implement that to a higher degree on a more extensive

scale?

And finally, we also have an action gap. How do we take these things and actually do something about it?

I think part of the answer is to think about people like young kids and babies that don't have much

agency because people seem to be more willing to do this.

To summarize, I would say, next time you go to drink beer or wine, first of all, think about what is it in your

experience that is real, and what is it in your experience that is a placebo effect coming from expectations? And

then think about what it also means for other decisions in your life, and hopefully also for policy questions that

affect all of us. Thanks a lot.

Behavioral economics explained (reading)

Behavioral economics combines elements of economics and psychology to understand how and why people

behave the way they do in the real world. It differs from neoclassical economics, which assumes that most

people have well-defined preferences and make well- informed, self-interested decisions based on those

preferences.

Shaped by the field-defining work of University of Chicago scholar and Nobel laureate Richard Thaler,

behavioral economics examines the differences between what people “should” do and what they actually

do and the consequences of those actions.

What is behavioral economics?

Behavioral economics is grounded in empirical observations of human behavior, which have demonstrated

that people do not always make what neoclassical economists consider the “rational” or

“optimal” decision, even if they have the information and the tools available to do so.

For example, why do people often avoid or delay investing in 401ks or exercising, even if they know that doing

those things would benefit them? And why do gamblers often risk more after both winning and losing, even

though the odds remain the same, regardless of “streaks”?

By asking questions like these and identifying answers through experiments, the field of behavioral economics

considers people as human beings who are subject to emotion and impulsivity, and who are influenced by

their environments and circumstances.

This characterization draws a contrast to traditional economic models that have treated people as purely rational

actors—who have perfect self-control and never lose sight of their long-term goals—or as people who

occasionally make random errors that cancel out in the long run.

Several principles have emerged from behavioral economics research that have helped economists better

understand human economic behavior. From these principles,