Celebrating 125 Years of Publishing
Celebrating 125 Years of Publishing
Using the characters of The Simpsons and their lives in the town of Springfield, this chapter outlines the fundamental concepts of the economic way of thinking. Economics is built on a core set of principles that must be mastered before meaningful economic analysis can be performed. Ten principles are outlined that provide the starting point for basic economic reasoning. These principles are then illustrated with numerous examples drawn from the actions and interactions of Homer, Marge, Bart, Lisa, Maggie and the rest of the residents of Springfield.
This chapter uses examples from The Simpsons to further illustrate the supply and demand sides of the market, with special emphasis on the market as a process. The most basic lessons of economics are that incentives matter, information about the value of scarce resources is necessary, and accurate feedback is required for individuals to make prudent decisions. Property rights are important because they produce incentives, prices provide information, and profit and loss accounting gives feedback to decision makers. The competitive price system steers economic activity via the structure of incentives and the flow of information so that dispersed individuals within a society will coordinate their plans, and they will do so in such a way that in the limit all the gains from exchange will be exhausted and all least-cost methods of production will be utilized.
Public policies have unintended consequences and can sometimes actually be counterproductive. In some cases, public policies hurt exactly the people a policy is intended to help. The Simpsons episode "King-Size Homer" illustrates how policies have unintended consequences—and how people respond to incentives—by telling us the story of how Homer Simpson ballooned up to three hundred pounds in order to take advantage of disability regulations. Furthermore, this episode shows how changing incentives might cause people to make more self-destructive decisions in the short run. The episode illustrates a number of important economic principles, including trade-offs, marginal analysis, the role of incentives, and the law of unintended consequences.
This chapter presents a discussion of the functions of money and its evolution in the United States using examples from The Simpsons. Money is something that is generally accepted as a means of payment for goods and services. It functions as a medium of exchange, a unit of account, and a store of value. Milhouse fears that he will be used like "currency" in juvenile hall in the episode "Trilogy of Error." Actually, Milhouse does not possess the properties that would make a good candidate for money. Money arises from commodities that are widely valued, portable, divisible, and durable. In "Half-Decent Proposal" Homer laments that he cannot print his own money. Homer is 100 percent correct, but it's not only the government that can print money. In fact, private banks create the majority of new money in the United States economy.
This chapter employs numerous examples from The Simpsons to explain the calculation of economic profits and highlight the role of said profits in society. The importance of the opportunity cost concept, often ignored by Homer Simpson, is emphasized throughout the chapter. The differences between accounting costs and economic costs are discussed through examples in which Homer fails to recognize opportunity costs and refuses to recognize other costs associated with operating a business. The critical function of profits and losses in a market economy are explained, with special emphasis on the signals that economic profits and losses provide for market participants. The chapter ends with a brief discussion of the impact of barriers to entry on economic profit and profit opportunities.
This chapter introduces and discusses the theoretical and empirical body of research on entrepreneurship. The occupational, structural, and functional approaches to the study of entrepreneurship are discussed and illustrated using many thoughtful entrepreneurial experiences from The Simpsons. In addition, the meaning of entrepreneurship as judgment, alertness, innovation, adaptation, and coordination or leadership is demonstrated. Finally, the difference between productive, unproductive, and destructive entrepreneurship is distinguished. The chapter is intended as an introduction to the vast entrepreneurship literature and its many approaches, theories, and interpretations.
Modern economists have identified four main types of market failure: monopoly, public goods, asymmetric information, and externalities. This chapter takes a closer look at the first three types of market failure and, using examples from The Simpsons, illustrates how market mechanisms can overcome those market failure problems. Coolsville Comics, a competing comic book store, destroys the Android's Dungeon's monopoly for comic books in Springfield. Elinor Ostrom, the recent Nobel Prize winner in economics, has illustrated that local self-governance institutions can overcome public goods and commons problems. Efficiency wages easily overcome moral hazard problems that result from asymmetric information problems, such as Bart shirking on the job. Finally, gossip and brand names, such as Duff Beer, overcome adverse selection problems in Springfield and the real world.
This chapter will deal primarily with illustrating the concept of externalities in economics by drawing upon examples and lessons in The Simpsons. The objectives will be to (1) distinguish the types of spillover effects that separate social and private benefits and costs from those that do not; (2) explicitly demonstrate the property rights problem generating the externality; (3) demonstrate the different ways in which policies and individuals try to resolve these problems; and (4) introduce the public choice critique of government solutions, especially regulation.
This chapter presents the government failure (or public choice) perspective as demonstrated in The Simpsons. The public choice perspective is the application of the principles of market economics to the analysis of government. Any differences that arise between individual choices in a market versus a government setting occur because of differences in the institutions that constrain individuals in the market versus in the public sphere. Choice in a public setting is channeled through political institutions such as elections and the voting system. The elections of Sideshow Bob as mayor and of Homer as sanitation commissioner illustrate the problems with choice in a public setting. It is the institutions rather than the motivations that differ in both settings. Like any market agent, public officials in The Simpsons are presented as self-interested. Crucially, they are also presented as being as good as any alternative. There are no superhumans in The Simpsons.
Like many people throughout history, Apu Nahasapeemapetilon's decision to migrate from a poorer place (India) to a richer one (Springfield) was in part an economic one. This chapter uses Apu's situation in the episode "Much Apu About Nothing" as a case study to demonstrate how economists study migration. As the standard models suggest, Apu receives benefits and incurs costs as a result of migrating. The impact of a large migration on an economy is analyzed using the great wave of Ogdenvillians who came to Springfield in The Simpsons episode "Coming to Homerica." The chapter further examines the effect of immigration on wages, taxes, and government spending.
This chapter presents an overview of labor markets through the lens of The Simpsons. Differences in salary across professions and locations are explained using examples drawn from the popular show. Utilizing the perspectives and techniques of labor economics, the following questions are discussed: (1) How can a Joe Sixpack guy like Homer Simpson afford a four-bedroom house with a two-car garage in a world with horrible greedy bosses? and (2) What can people do to earn more money in a market system? In the course of the discussion, the chapter outlines the many things that Homer does to afford his lifestyle, such as earning a compensating differential, searching for a better job, signaling his abilities, and engaging in entrepreneurial activity.
The rise in health care costs over the past few decades and the recent passage of major health care legislation has brought health economics to the forefront of current policy discourse. By satirizing issues in health care faced by many Americans, The Simpsons provides a mechanism by which to relate health economics to our daily lives. This chapter provides an overview of several of the main concepts in health economics, connecting each concept to its illustration in a particular episode of The Simpsons. In doing so, the chapter focuses on the economic issues considered especially unique to health care markets, including the demand for and production of health, asymmetric information and physician agency, incentives surrounding third-party payers, and the interactions between government and the health care sector. The chapter shows that all students of economics, including consumers and health care practitioners, have something to learn from The Simpsons.
In The Simpsons episode "Homer vs. the Eighteenth Amendment," Springfield enforces a prohibition on alcohol and a wide variety of economic consequences follow, including organized crime, violence, bootlegging, moonshining, and speakeasies. Homer becomes a successful smuggler and moonshiner and is dubbed the Beer Baron. In this chapter, Springfield's experience with prohibition is discussed in light of the literature on the economic effects of prohibition. In addition to finding that the economic results of prohibition are predictable on the basis of economic theory, prohibition is found to be counterproductive to the goals of prohibition and detrimental to freedom. This chapter also explores similarities to the War on Drugs.
The Simpsons episode on casino gambling titled "$pringfield (Or, How I Learned to Stop Worrying and Love Legalized Gambling)" aired in the early 1990s. Yet it highlighted some of the controversial issues related to casino economics that are still being debated today. The chapter examines some of the key controversies over the economic and social impacts of legal casinos. On the benefits side, the chapter addresses tax revenues, employment effects, and the consumer benefits from the expansion of legalized gambling. On the cost side, the discussion addresses pathological gambling and related behaviors, social costs, negative externalities, and moral objections to gambling.
Behavioral economists study the ways in which people act irrationally (that is, at odds with their objective long-term best interests), and behavioral economics research has identified and characterized a number of consistent biases in decision making. An interesting feature of the characters in The Simpsons is that they illustrate many of the specific biases that behavioral economists study, including time-inconsistency, loss aversion, bounded rationality, and susceptibility to framing effects. Despite these "human" characteristics, however, none of the characters can be viewed as purely rational or irrational, and this feature contributes to the relevancy and longevity of the show.
The belief that American middle class economic well-being has stagnated, if not declined, is commonplace in the media and among many pundits. However, the economic data on what sorts of goods are actually in the households of American families suggest that life has never been better, both for the average and poorest American families. The chapter presents some of those data, focusing on basic household appliances and technology. Twenty years of The Simpsons illustrate these changes through the improvements in their standard of living. From TVs to cell phones to computers, even as the Simpson family remained solidly "upper-lower-middle class," the rising buying power of Homer's wages and the falling cost of production combined to bring them consumption possibilities their earlier selves did not have.