Is this good or bad for the economy?

hmkpoker · #1 06-15-2006, 04:04 PM

A certain man owns a small business. He works five days a week, and makes $50,000/year.

After a few years, he decides that he would much rather take Fridays off. He values the time to sleep in, have fun and enjoy life for another day of the week more than the $10k/year that he makes working Fridays.

He takes Fridays off and now makes $40k/year. He makes less money, but enjoys his life more. Other consumers can no longer shop at his store on Fridays, but this also helps the competition.

Is this singular instance (however minute) good or bad for the economy? If good, why? If bad, what should be done about it?

tomdemaine · #2 06-15-2006, 04:06 PM

It's good for manufacturers of beds sheets and pillows.

OneForTheMel · #3 06-15-2006, 07:43 PM

If there is no change in the money spent (all the customers he lost go to another store, pay the exact same amount, and travel the same distance to get there) and the amount of money he loses directly correlates to the work he misses, there is no up or down side. But if this anyway decreased the total amount of money spent by the customers, the economy is being hurt.

MrMon · #4 06-15-2006, 07:49 PM

In purely monetary terms, it's a negative, as he has chosen to work less, which is a negative for the economy. But, economic decisions are never purely monetary, he has valued his leasure time more than he values the income, so one could argue in terms of total ecomonic satisfaction that the economy is better off.

Nielsio · #5 06-15-2006, 08:20 PM

Who or what is 'the economy'?

hmkpoker · #6 06-15-2006, 11:44 PM

[ QUOTE ]
But if this anyway decreased the total amount of money spent by the customers, the economy is being hurt.

[/ QUOTE ]

Let's say it does.

What should be done?

bunny · #7 06-15-2006, 11:47 PM

[ QUOTE ]
[ QUOTE ]
But if this anyway decreased the total amount of money spent by the customers, the economy is being hurt.

[/ QUOTE ]

Let's say it does.

What should be done?

[/ QUOTE ]
I think "the economy" should be serving people, not the other way around. So I dont think anyone should be forced to do something for the good of the economy - I think that's backwards. If he wants the day off, he should be free to take it off, regardless of any economic impact.

hmkpoker · #8 06-15-2006, 11:48 PM

[ QUOTE ]
I think "the economy" should be serving people, not the other way around.

[/ QUOTE ]

When he takes his day off, fewer people are being served.

/devil's advocate

bunny · #9 06-16-2006, 12:31 AM

I think he may be facing an ethical problem in that he is valuing his day off more than the well-being of others (which I personally think is an ethical thing to do in general). I dont think the economy is relevant though - I dont think there is any inherent moral obligation to act in the economy's interests.

Daisydog · #10 06-16-2006, 01:00 AM

We need to first define what "the economy" means. I'll take that to mean the GDP (value of goods and services produced in the country). All else equal, if he works less, then he produces less. This lowers GDP.

What should be done about it? That depends on what our objective is. Is our objective to maximize GDP? Or is it to maximize our happiness? I think most people would say it is to maximize happiness. This may be very much in alignment with maximizing GDP but as we get more wealthy there is probably more of a divergence between maximizing happiness and GDP. So if our goal is to maximize our happiness, then we should do nothing. Presumably he is already doing this. He knows best how to maximize his own happiness, and he has chosen to do that by taking Fridays off.

If we really want to maximize GDP with total disregard for everything else then we probably need to create a stronger incentive for this person to work on Fridays. Right now he is at the point on his utility curve where the marginal happiness (utility) he gets from the money he earns on Friday is less than the marginal happiness he gets from another day of leisure. To maximize GDP we would have to change this to get him to work on Fridays. We would probably need to reduce taxes so the "payoff" he gets from working on Fridays is more than it is currently.

Another possibility we could consider is that we somehow force him to work on Fridays. I'm not going to get into details but I think this will in effect be allocating resources in a way that probably does not maximize GDP. So, I don't think this is a good idea, even from a purely economic perspective.