Friday, March 28, 2008

An Economic Way of Thinking about Romeo and Juliet - Introduction

Next week, the drama department at Collegiate School (where the Powell Center for Economic Literacy is located) will be presenting their production of William Shakespeare's Romeo and Juliet. I am told that it is an updated version with songs written and performed by students at Collegiate. Collegiate has a reputation for fine productions. This should be another in that long tradition.

But the approach of the play got me to thinking about the economics in this drama. On the surface, Shakespeare's romantic tragedy would seem to have little to offer students of economics. And likewise, one would think economics would provide little insight into the story of two teenage lovers – initially separated by family feuds, but nevertheless drawn toward each other.

But economics is, among other things, a study of choice. And the assumption is that we make rational choices. Some of you are now saying, "But the choices made by these two are not rational, they are emotional." I submit that their choices are both – emotional and rational – and as such offer insights you may want to consider. And while some may argue the rationality of the choices, I would say that we need to study the rationale of the principal players.

So this blog will spend time over the next week on an economic way of thinking about Romeo and Juliet. And I hope you enjoy the exercise, and a new way of examining this important part of the Western literary canon.

Our basis for discussion
As we examine this play, we will focus on a few principles from the Powell Center for Economic Literacy’s list of Keystone Economic Principles:
1) People choose.
2) When choosing, people respond to incentives.
3) Choices have costs.
4) The costs of our choices lie in the future.

The first principle, people choose, probably doesn't merit a great deal of discussion. It is fairly obvious. Because we have conflicting (unlimited) wants and limited resources (money, time, talent, etc.), we must choose how best to use our resources in securing our wants. Hence, we choose. What may not be as self-evident, but worth mentioning, is the idea that not choosing is a choice. Basically someone who chooses not to choose is allowing circumstances outside to determine how resources are to be allocated.

The second principle, people respond to incentives when choosing, is very integral to our discussion. The incentives can be natural (instinctive drives and satisfaction) or artificial (cultural, social, or commercial). They can also be positive incentives (designed to promote behavior) or negative incentives (designed to discourage behavior). Any way you look at it, the incentive system in place will help guide our choices. But, it is important to note that the same incentives in place for two people in similar circumstances will not necessarily result in the same choice. The incentives guide, they do not guarantee choice.

Our third principle, choices have costs, speaks to the idea that every choice, by definition means that something has to be given up. It is these costs that are important in economics.

And our final principle, the costs of choices lie in the future, tells us that our choices have effects beyond the more immediate situation. Our choices will affect other circumstances and other resources. Because of this, the costs are not just the immediate "giving up of another option or item," but entails the impact on future choices that we, and others will make.

And starting on Monday, please join us for the unfolding economic analysis of William Shakespeare's Romeo and Juliet. Please feel free to add your thoughts as we go along.

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