The story of the grasshopper and the ant
contrasts two ways of making decisions over time. The ant
way is captured in the permanent-income hypothesis, which
economists says is the rational way for people to behave.
The grasshopper way is to focus only on the present and to
ignore the future. Economists tend to think that this
approach to spending is irrational and have worried about it
for at least a century. The original Aesop's version (found
here)
is only a few lines long. The Disney cartoon
version
stretches it to over 8 minutes and gives it a happy
ending. There is still a moral to the story, but not the
same as the original.
Do you think the Disney version
improves on the original story, or does it miss the point of
the original? Justify your answer.
Here
is the song from this clip sung by Shirley Temple. In the
1930s movies featuring the rich were very
popular.
In this clip,
Milton Friedman compares incentives when you spend money on
yourself and when you spend other people's money on other
people. Can you draw the matrix he is suggesting and explain
how he see the incentives in each cell?
A short clip with some cute graphics that explains why crowding out and policy lags reduce the effectiveness of fiscal policy.
This clip explains the broken-window fallacy, which is an argument from Frédéric Bastiat, a French economic writer of the 19th century. The original point that Bastiat was trying to make is that when you
ignore opportunity costs, you end up arguing for ridiculous things, such as breaking windows improves society. Here his argument id being used to explain the importance of crowding out when discussing fiscal policy. The clip shows that the crowding-out argument is based on the concept of opportunity costs.
