It’s the 4th of July, and Joe isn’t as excited as his parents are about the holiday. Gloria mentions that Joe should be excited to live in America because she grew up in a banana republic. The zinger is that Banana Republic is the only store available that she could have shopped at, but a banana republic is a political economy term used to describe a country with an economy that is dependent on a single export. Gloria, originally from Columbia, could also have come from a banana republic.
See more: absolute advantage, Banana Republic, comparative advantage, development, exports, inequality, international trade, political economy, trade
Gloria and Jay have been having issues with Baby Joe’s behavior, so Gloria consults a priest. Gloria seems to think the men in her family have been kissed by the devil, but the priest insists it is the families that shape who children become. This is a great clip to introduce the nature versus nurture debate and also to consider the role of omitted variable bias in determining the parents’ impact on children. Could there be some other factor that Gloria hasn’t considered?
See more: causation, correlation, nature vs. nurture, omitted variable bias
Jay takes Joe out to the driving range and discovers that Joe is a natural. Joe’s natural skill is a form of human capital that gives him the potential to earn a large salary in the future. Human capital is often acquired through years of training, education and hard work. But sometimes, luck gives some people an edge over others. If Joe works hard and practices, he could follow the path of other young golfers with natural talent like Tiger Woods and Lexi Thompson. Jay wants to do all he can to make that happen.
See more: human capital, incentives, income inequality, labor, productivity, tournaments, wages, winner take all
Economists often suggests that competition improves efficiency in markets and Jay seems to agree. He fosters competition within his family to help them achieve their goals. In an earlier scene, we learn that Jay withholds praise to encourage his family, but this year they have all seemingly surpassed his expectations. But are they really achieving those goals? The truth comes out in this clip. It turns out that they’re a family of cheaters and not a family of winners. Jay’s decision to incentivize them with praise has some stark unintended consequences.
See more: cheating, competition, ethics, incentives, moral hazard, motivation, self interest, unintended consequences
Luke is baby-sitting for Gloria. She expects him to care for her son in a responsible way. When Luke posts a selfie on social media, Gloria worries that her son might be in danger. This represents the principal-agent problem. Luke is the agent and Gloria is the principal. Is he acting in her best interest? Of course not! He’s shirking. To cover up his shirking, Luke tells Gloria that he has a series of photographs of her son in dangerous situation but they’re all fake. Now, he needs a series of photoshopped pictures but doesn’t use photoshop. So, he decides to only give Manny something that he wants if he photoshops Gloria’s younger son in to dangerous situations. This represents trade through barter. Luke has a pass that Manny wants. Manny has a skill that Luke needs. They trade because they have a double coincidence of wants.
See more: barter, double coincidence of wants, exchange, labor, moral hazard, network externalities, principle agent problem, social media, trade
Gloria is sick and Cam tries to help around the house. Gloria’s family remedy for colds is a bit smelly and Cam accidentally uses Joe’s cape in the process. Gloria immediately recognizes this will be and issue and points out that Joe has a strict ranking set when it comes to that cape. Joe loves the cape so much more that he even places the cape above his own father. Part of utility theory requires transitivity, which is the ranking requirement of consumption.
See more: preferences, ranking, subjective value, transitivity, utility