Tyler Cowen's Idea #3: Gains from Trade

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- [Tyler] Next general principle --

and if after my two words,
"incentives matter,"

if you give me another three words

I'm going to say
"gains from trade."

Key idea in economics.

It's how things happen.

It's why markets,
at least when they work,

it's why they work well,

that there are gains from trade,

both parties benefit.

Maybe I give up my money,

and Walmart gives up
its ping pong balls.

Indirectly, China is giving up
those ping pong balls.

I would rather have
the ping pong balls.

Walmart and China
would rather have the money.

We're both better off.

Of course the story
is not always that simple.

But the general point
that within systems,

and I include communist systems,

but within systems of any kind
there is a big incentive

for people to try
to reap gains from trade,

to be better off is, again,

a centrally important
economic insight.

So the food we buy and consume,
the clothes we wear,

the homes we live in,
the apartments we rent,

the cars we drive --

whatever it is
in the commercial sphere --

if you want to try to unpack
how does that market work,

you need to have
centrally in your mind

this idea of gains from trade.

And one thing I've done
as a kind of hobby

on my economics blog,
"Marginal Revolution" --

for 15 years now,
I've compiled instances

of people reaping gains from trade

that you wouldn't
actually think exist.

And I call these
"markets in everything."

If you go to the Search function
of my blog,

and you just type in
"markets in everything,"

you'll see a full list
of hundreds of these examples.

Let me just give you a few
that have popped up recently.

There is a plan in Japan to offer --

I think this is for the wealthy --
fake meteor showers.

That is, you send up a satellite
with little pebbles,

and to celebrate a birthday,
if you want --

it's not really fake, actually;
it's a purchased meteor shower --

you can buy a meteor shower.

There's a company called Casper.
They sell beds and sleepwear.

Probably a lot of you know them.

They're opening up
a new service in New York,

in their New York store.

You can walk in
and you can take a nap.

Forty-five minutes, $25.

Gains from trade, right?

They've shut it down now --
there was, in the Bay area

something called "monkey parking."

And that's an app where

when you're giving up
your parking spot

the app puts you in touch
with someone who wants to take it,

and you wait there till they arrive
and they pay you $5.

[audience laughter]

Again, you don't have to think
it's a good idea,

but if you're trying to understand
the logic of why this happens

it's, again, gains from trade.

There's a market in something
called a "surprise vacation."

You sign up, and they don't tell you
where you're going to go,

but they make sure
it's all taken care of for you.

And the vacation is a surprise.

But just the power of markets,
for better or worse,

to try to bring about
gains from trade.

And I think it's important
to recognize

some of these cases,
maybe many of these cases,

people will find morally
or ethically objectionable.

So in an economic model,

allowing people
to buy and sell kidneys

may be a good idea.

From the point of view
of people's morals or ethics

or maybe religious views,
it may not be a good idea.

But I think studying economics,

one thing it does
either for you, or to you --

I'm never sure
what the right word is there --

I guess it does it to you.

But I think it makes people
more sympathetic

to voluntary exchange,

even if we realize
it can be problematic.

But non-economists very often
will only see exploitation,

repugnance of the transaction,

immorality.

Economists, they may hesitate
at the last moment

to approve or want to legalize it,

but they will indeed
see gains from trade.

And that tends to push them

toward at least considering
more of this to happen.

In China you can buy --

It's called a virtual reality
death simulation.

They simulate your death

and put you through
a virtual reality experience

of your own funeral

so you can see
what it's going to be like.

Is that weird?

There's a dog clothing designer.

His best outfits go for $15,000.

Is that a wrong way
to spend your money?

We're not going
to address that here,

but some people think it is.

But, again, it's this idea
of gains from trade.

Oh, last example --

Bloomberg, one of my employers --

they just ran a whole series called
"Honeymoons for Billionaires,"

and all the different things
that go on.

So, according to Bloomberg,
a lot of billionaires,

when they go on honeymoons,

they invest thousands of dollars
in having meat shipped around.

If they need kosher or halal meals,
but they want to go somewhere

other than a country that will serve
what it is they need,

and there will actually be a person
who travels around with them

carrying the meat,
getting the meat through customs,

preparing the meat and so on,

and that too is gains from trade.

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