This Is What Economists Are Carving Into Their Pumpkins This Year
If you thought economist humor didn't extend beyond the joke about the $20 bill on the ground, you're wrong.
This Halloween, a bevy of PhDs and financial experts took to Twitter to display economics-related Jack O' Lanterns. The results of the exercise in "EconoPumpkins" are amusing, if not quite terrifying.
Justin Wolfers, professor of economics and public policy at the University of Michigan, started the 'EconoPumpkin' trend this year with the below tweet. His pumpkin shows the basic relationship between supply, demand, and prices. Not too spooky.
Economics writer Joe Atikian's used 'the rate of return on capital (r) > the economy's growth rate (g)', put forward by Thomas Piketty in his best-selling book "Capital in the 21st Century." In other words, while the growth pace of developed economies has slowed down, the return on capital is relatively intact — with potentially scary consequences for global wealth equality. If his theory holds true, the inequality cycle perpetuates itself unless the government intervenes by, for example, hiking taxes on the top-income bracket.
The favorite pick of Paul Wojcik, chief risk officer at T. Rowe Price Group Inc., was the Markowitz efficient frontier that shows how to optimize portfolios. In this graph with risk on the X axis and dividend-adjusted return on the Y axis, the hyperbola is the efficient frontier assuming no risk-free asset is available. With a risk-free asset, the straight line would be the optimal frontier.
PhD Candidate in Economics, Julia Norgaard, carved the marginal rate of substitution (MRS), or the amount of one good which the consumer is willing to give up in return for an additional unit of another good — to maintain the same level of total utility, or satisfaction.
This pumpkin depicts a long-term look at returns on invested capital (ROIC) and economic profit (EP), which, according to Todd Houge, finance lecturer at the University of Iowa, are "difficult to sustain in the face of competition." His idea was inspired by McKinsey & Co, which in February 2006 argued that "competition eventually compels most businesses to pass the savings along to consumers."
This one perhaps provides the most insight into how economists see the world. It's the opportunity cost pumpkin. The concept, which is used to compute cost-benefit analysis of an action, refers to what you must give up when you make a certain choice. In a world of scarcity, everything has an opportunity cost, or a trade-off. Another way of thinking about it: you can't have your Halloween candy and eat it (too).
More EconoPumpkins are over here.