Cam and Mitch are having a nice breakfast with Jay, but it turns out jay only invites them to breakfast because he has to meet a club minimum in order to keep his membership. We learn that Jay also buys people gifts from the club shop so that he can help his balance and even offers to get Cam and Mitch some spa services. This incentive mechanism by the club ensures that people aren’t just joining the club for the golf perks, which have relatively low profit margins.
See more: altruism, gift giving, incentives, self interest
Cam and Mitch have decided to get Jay and Gloria a special gift for Gloria’s impending birth. Jay and Gloria have both created a registry of gifts they would like, but Cam has decided to go “off registry” because he believes Jay and Gloria don’t really know what they want. Mitch seems concerned that they will not appreciate it.
One of the issues with gift giving is that the parties have imperfect information about what the other will value the gift at. Economists love to focus on the inefficiency of gift giving and often suggest just exchanging money.
See more: altruism, gift giving, imperfect information, irrationality, rationality
Luke and Manny’s class is having a yard sale to benefit UNICEF. When Mitchel doesn’t want to donate Cam’s pants, Luke tries to re-frame the charity attempt to guilt his uncle into donating more money. Framing is one tactic to get people to do something they may not have done under the original design.
See more: altruism, behavioral, charity, framing, incentives, inequality, poverty
Luke and Manny’s class is having a yard sale to benefit UNICEF. Manny thinks the point is for them to learn about global altruism, while Luke thinks to point is to beat the other class. The teachers have used the incentive of a pizza party in order to encourage their classes to do their best in raising money. Jay is unhappy with this method and would prefer to write a check instead.
See more: altruism, charity, donations, incentives, self interest
Phil finds gift certificates to a spa that he and Claire had won in a charity auction in a drawer, but they expire that day. He wants Claire to use them because otherwise their money just goes to charity, but Claire doesn’t know how she will find the time to be able to go. Phil is falling victim to the sunk cost fallacy, while Claire is thinking in terms of the additional costs and benefits of using the certificates before they expire.
See more: altruism, irrationality, opportunity cost, rationality, sunk cost, tradeoffs
Pam’s ex-boyfriend is back in town and wants to get back together. Mitchel is all in favor of the reconciliation, but Cam is against it. Why is Mitchell so eager for her to move out? As long as Cam’s sister is in the apartment upstairs, they aren’t able to rent the apartment out and earn extra money. While Cam is trying to be generous for his family, Mitchell sees the missing dollar signs.
See more: altruism, cost of capital, implicit cost, opportunity cost, personal finance, rental income, tradeoffs
Cam convinced Mitchell that he needs to be kinder so Mitch invites a messy colleague who is going through a breakup to spend the night at their place. Unfortunately, she takes him up on it. Determined to keep their beautiful, brand new, designer white sofa (their one nice thing) in mint condition, they give up their bed for her and sleep on the floor. In this clip, they wake up and discover that she has moved onto the couch. This couch is more expensive than one from Rooms to Go and so it counts more towards GDP. Owning an expensive couch is an indication of Mitch and Cam’s high standard of living. Yet, does a high standard of living mean a higher quality of life? Robert Kennedy didn’t think so:
[GDP] counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman’s rifle and Speck’s knife, and the television programs which glorify violence in order to sell toys to our children. Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans.
–RFK, Speech at University of Kansas, March 18, 1968.
Another perspective on this clip: resources are scarce. At its heart, economics is about how we choose to use those resources. Purchasing this couch moved Mitch and Cam on to a higher indifference curve than before they purchased it so their utility is higher than it used to be. But could they have been on an even higher one if they chose to buy a cheap couch and spend their money on something else? Traditional economics says that Mitch and Cam are rational and made the best decision. Is it possible that they could have made a mistake? What if they incorrectly estimated the cost of maintaining the couch. Could this also demonstrate time inconsistency?
See more: altruism, GDP, gross domestic product, luxury goods, opportunity cost, positional good, quality of life, risk, risk aversion, standard of living, tradeoffs
Mitch is working on a big case about the rights of vulnerable workers. In it, he argues that a company is preying on the lack of options available to people who are homeless and hiring them for extremely low wages. He believes that this is a violation of labor laws and tries to get the notice of the press. At the same time, Cam is stealing the spotlight as a successful high school football coach who is openly gay.
Traditional economics holds that trades which are voluntary (such as employment) are mutually beneficial. As such, some might argue that the company isn’t taking advantage of its workers since the workers benefit from the employment opportunity. Political economics suggests that you cannot ignore the power inequality between the company and the workers. When a large power imbalance is present, exploitation is possible.
A second use of this clip comes from the role of spouses in the household production model. The happiness of each individual party is important, but the other partner’s utility enters the utility function of each individual. This interdependency is important because it explains why some partners may opt for a decision that doesn’t maximize their own utility, but instead do so because it maximizes their partner’s utility.
See more: altruism, externalities, income inequality, interdependent utility functions, labor law, living wage, negative externalities, political economics, private benefits, social costs, specialization, structural unemployment
The Dunphy’s call Phil’s parents in the sweaters they were given as gifts. The call goes awry when Claire sees what looks like a cigarette burn in the sofa. In her anger she calls the sweaters ugly while still on the phone with Phil’s dad. One of the issues with gift giving is that the receivers wouldn’t purchase the items they receive for the same price that the buyers paid for the item. On top of the inefficiency from an exchange point of view, there are psychic costs associated with acting like you enjoy the gift as well.
See more: altruism, gift giving, irrationality, preferences, rationality