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- [Tyler] Now Socrates -- I actually disagree with him --
he said the only true wisdom is in knowing that you know nothing.
So I'm an economist.
I'm not a philosopher.
So what does the economist say?
The economist does not say that he or she knows nothing.
The economist says "I know one thing --
maybe it's only one thing, but it's one thing.
And that one thing is
that the demand curve slopes downward."
(audience laughing)
And I know some of you are thinking
what about Giffen goods?
But there are no Giffen goods,
certainly not in wealthy, modern, contemporary America.
We have at least one thing to teach and in my imaginary lesson
or I just have someone, and they're paying attention,
first thing I tell them is the demand curve slopes downward,
and then I would discuss for awhile how many applications of economics
are really instances or generalizations of this principle:
If something becomes more expensive, you do less of it.
So I just came here from Montreal,
and originally my wife and I were going to spend the weekend
in Montreal before what I was doing there,
my event there.
She went to Orbitz and she saw that the price
of flying to Montreal was about $800,
and I said, "Oh, come on, go anyway," and she didn't do it.
Her demand curve sloped downwards.
It's very, very simple.
So that's like what we do know,
and what we don't know is
well, the world changes in many ways.
There are a lot of effects going on that are not just price effects.
People may change their tastes or their expectations, right?
Then you're not always sure how the law of demand applies there
in a simple way.
Another set of things we don't know --
we don't always know what is the real price?
So if you go to the store --
say, you need to buy ping pong balls.
You know the price, right?
They're pretty cheap.
It's not really a very ambiguous decision.
You buy the ping pong balls or you don't -- the price is clear.
Economic theory applies very well to this kind of circumstance.
But say you're dealing with one of your children.
You're trying to get your daughter to do the dishes --
this is something I've written about --
and there are different ways
you could incentivize your daughter to do the dishes.
You could pay her.
You could threaten to punish her.
You could make the discipline tougher.
There are costs or prices to all of those decisions.
Or maybe you could try to win an argument with your daughter.
And then you would ask, well, I can win that argument with her --
I'm older, I'm bigger, I control her money,
I control her life, right?
But you know there's a price to winning that argument,
and when you try to think through
what's the real price of that course of behavior?
I think it's pretty hard to figure it out.
Let's say you want to get educated.
The real benefit, the real price of that --
much more ambiguous than just buying those ping pong balls.
We as economists, we do best when price is unambiguous
like those ping pong balls.
But if you're doing economics of the family --
well, the demand curve does still slope downwards.
But what's price, what are people maximizing,
much trickier, much more complex
so we're much less certain about economic knowledge
in, say, the area of the family than we are when it comes
to the ping pong balls, and that's fine,
but it's a way of helping people see how the pieces fit together.
So a lot of the ambiguity of our knowledge,
and how economics relates to the other social sciences,
which all of our students are learning, right?
They're like well, how does what you're telling me relate
to what I get in my sociology class or history or anthropology?
Some of the other social sciences are about people trying
to figure out what the real price is,
and that's important.
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