Fallacy of Composition: Income vs. Leisure
Economists are sometimes confused
between friends and foes. For instance, Gregory Mankiw proposes “the Trade-off
between Work and Leisure” (Principles,
Ch.18): Alas, one of the three capitalized words is misplaced. As far as the
rest of us understand, “Trade-off” is a choice between two competing benefits or two opposing costs.
Are
Work and Leisure competing? Sorry, we don’t think so: With no hesitation at all,
we do unanimously vote for “leisure.” See, work is a “pain” while leisure is a “pleasure.”
According
again to Gregory Mankiw, incidentally, “The Cost of Something is What You Give
up to Get It” (Ch.1). “Something” being beneficial, the Cost must accompany a Benefit.
Eureka, a benefit and the cost are friends! On the flipside, we cannot eat the
cake and have it too. Eureka, a pleasure at present and another in the future
are foes.
21) The Income-the x Good Model
The
ordinate represents the collective
household income and the abscissa for the quantity of an individual good, say, the apple. Yes, they are foes but…..
First
of all, the budget for all the expenditures is indefinitely larger than the
individual budget for apple. This means that the so-imagined “budget line”
is infinitely far away from the origin. Incidentally, we already know that indefinite,
infinite, irrelevant and impertinent are close cousins if in science. Yes,
there is a limit but there is no limit.
Second of all, the demand for apples must be limited to a dozen or so per week as the accounting period of grocery shopping. This means that for the sake of eating the units after 12 would suddenly vary from benefits to costs; by definition in economics, you’ve gotta consume what you buy in the given period of accounting. In effect, apples shall fall down below the abscissa from the 13th marginal unit and on. Huh, no indifference curve of “income vs the apple” will touch the budget line ante crossing the abscissa, the Axis of No Return.
Yes, the income and the apple compete
but they do not compete.
Where
is the Equilibrium, at any rate? Well, not until “we are all dead.” Thou when in
Here shalt never make company with equilibrium. “Don’t Worry, Be Happy!”
Names
beneficial to remember: Life (home+ away), time (24 hours a day up to 125 years;
home+ away), economy (efficiency in consumption+ production), consumption
(home+ away; goods+ services), goods (apple+ orange+ potato+ meat+ venison+ so
on), services (movie going+ skiing+ “leisure”+ rest aka “indolence”+ sleep
& cetera), production (home+ away), monetary income (working away from home),
firm (vehicle of households for efficiency of production away), demand (away in
the market), supply (away in the market).
With
the above said: What is the relationship of “income” to “leisure”? Please
choose one:
① Friends,
② Foes, ③ One subordinate to the other, ④ The relationship intertwined,
⑤ Identical twins, ⑥ Siblings, ⑦ Second cousins once removed, ⑧ On the pedigree,
⑨ 500
miles afar, ⑩ None of the above, ⑪ Don’t know, ⑫ Never mind
By way of closing, we quote from J.S.
Mill (1861):
It
is only those in whom indolence amounts to a vice, that do no not desire excitement after an interval of repose;
it is only those in whom the need of excitement is a disease, that feel the tranquility which follows excitement
dull and insipid, instead of pleasurable in direct proportion to excitement
that preceded it. (Italics added)
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