Equilibrium Issue 01

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Apr.2014

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A perfect fusion of Economics and Art. We are a publication produced by students, for students.

Our goal is to make economics more accessible to young people.

From the Editor I am delighted to present to you our first issue of the Equilibrium. It all started from pure interest into Economics, which was soon followed by the frustration that all of the economics magazines were too difficult to understand and engage into as a student. They were full of complex terms while none of them had an easy explanation. Then, I started searching for teenage magazines, but failed to find one that was interesting enough, which made me think why I couldn’t make one myself. This was about last November. So, while I was thinking of a way to make economics much easier, as an IB visual arts student, I realized that combining economics and art, which is more accessible, would make the magazine much interesting. And from that tiny idea, the very first issue of the Equilibrium has been produced. Although we are yet small, we have a strong vision on what we wish to become, an economics and art fusion magazine that delivers accessible economics to students, and plan to develop and grow bigger.

I hope you enjoy the issue.

Sincerely, Diane Jung, Editor-in-Chief.

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Adam Smith, the Father of Economics Writer/Justin Yun Artist/Eun Jin Lee

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dam Smith is best known for the book ‘An Inquiry into the Nature and Causes of the Wealth of Nations’(1776), usually abbreviated as ‘The Wealth of Nations’, which is considered his magnum opus and the first modern work of economics. Smith is cited as the ‘father of modern economics’ and is still among the most influential thinkers in the field of economics today. It is not an exaggeration to articulate that all logic behind economics has its root in this book

by Adam Smith. The economists before his appearance, in other words, the economists of the first generation, were generally theologians or philosophers. Later on, they strongly experienced the need to establish the ethics of economic order in the rapidly changing society, as the introduction of the market economy brought confusion to the moral values of the people. In the previous society, rights and obligations composed the core of the value system. However, along with the arrival of the market economy, thoughts such as the importance of material success were raised.

The ‘invisible hand’ of the market is a metaphor conceived by Adam Smith to describe the self-regulating behavior of the marketplace. Individuals can make profit, and maximize it without the need for government intervention. The exact phrase is used just three times in Smith’s writings, but has come to capture his important claim that individuals’ efforts to maximize their own gains in a free market may benefit society, even if the ambitions have no benevolent intentions. Nonetheless, Smith’s argument ‘pursuit of self-interest’ must be carefully interpreted. It is commonly misused to represent one’s interest prior to the other’s interest. To simplify the concept, it is not because of the kindness of a baker or a butcher that we buy food from the market, but because each individuals work for their personal profits. He emphasized that the market economy relies on the pursuit of selfishness, not on merciful hearts. Individuals have no intention to enhance public interest, and they 1only pursue private profits unaware of their contribution to the market. In fact, Smith contended that they enhance the public interest during the procedure

Economist | Adam Smith of pursuing their private interests more effectively than intended attempts of enhancements.

However, when business people gather together, they are looking out for themselves.

Here is where the ‘invisible hand’ and the functions of its price mechanism appear. Smith explained the function of the price mechanism into four separate factors; signaling function, incentive function, and rationing function.

Price changes send contrasting messages to consumers and producers about whether to enter or leave a market. Rising prices give a signal to consumers to reduce demand or withdraw from a market completely, and they give a signal to potential producers to enter a market. Conversely, falling prices give a positive message to consumers to enter a market while sending a negative signal to producers to leave a market. For example, a rise in the market price of ‘smart’ phones sends a signal to potential manufacturers to enter this market, and perhaps leave another one. Similarly, the provision of ‘free’ healthcare may signal to ‘consumers’ that they can pay a visit to their doctor for any minor ailment, while potential private healthcare providers will be deterred from entering the market.

In terms of the labor market, a rise in the wage rate, which is the price of labor, provides a signal to the unemployed to join the labor market.

An incentive is something that motivates a producer or consumer to follow a course of action or to change behavior. Higher prices provide an incentive to existing producers to supply more because they provide the possibility or more revenue and increased profits. Whenever resources are particularly scarce, demand exceeds supply and prices are driven up. The effect of such a price rise is to discourage demand and conserve resources. The greater the scarcity, the higher the price and the more the resource is rationed. This can be seen in the market for oil. As oil slowly runs out, its price will rise, and this discourages demand therefore leading to more oil being conserved than at lower prices.

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Writer/Jean Hyung Park Artist/Diane Jung

Obama Care, The Dilemma of Populism

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old treatment worth 100$, ambulance worth 1000$... USA was always notorious for its massively expensive health care and treatments fee. This extremely expensive health care cost was always a crucial disadvantage for low-income and middle-income citizens, whom cannot afford, due to their low income. In order to solve this inconvenience of health care, which is unilaterally disadvantageous to ordinary people, president Barrack Obama has introduced a populist new health care policy; ‘patient protection and affordable care’, commonly known as Obama care.

Simply speaking, main targets of Obama care are almost identical to‘국민건강보험’of South Korea. On both policies, governments and companies burdens health care cost instead of the citizen (around 50%), also making every single citizens to register the service. By enforcing the Obama care, people are predicting that standards of living and health status among middle and low income household will significantly improve, which will eventually contribute to narrowing the gap between rich and the poor.

This is mainly because of the current healthcare system of USA; where vast majority of citizens rely on private health care programme provided by company that they work in.

However this health care service cannot benefit lots of black people; because they mainly work in informal sector, where these programmes aren’t provided. This social ‘disadvantage’ is directly reflected on the life expectancy statistics; white American in average lives about 4 years longer than black American. Therefore by benefiting every single citizen regardless of their working sector, it is also expected this subtle ‘racial’ gap will also decrease. In addition to these kinds of financial subsidy, Obama care is also promising that varieties of examinations- such as colorectal cancer or breast cancer-will be free of charge.

However, it is also predicted that Obama care will also have serious side effect on American society.

One of the most serious problems is, obviously, financial aspect of the US government. During

Debate | Obama Care recent 5 years, USA government constantly suffered from massive debts, which currently takes over 107.5% of the GDP. For instance on 2011 (right after the proposal of the Obama care), the total debt were around fourteen trillion dollars which was near bankruptcy, but narrowly escaped with the aid of congress’s urgent resolution. Considering this economic instability of the US government, Obama can be viewed as risktaking policy which slightly excludes economic aspect. In fact, Obama care is expected to spend around 2 trillion dollars in next 10 years it is quite a substantial amount of expense. Moreover, due to the fact that Obama care ‘Forces’ citizens to register for the service, citizens of USA, who prioritizes their individual freedom is opposing against this policy Indeed, the CNN survey have shown 62% of USA adults oppose Obama care..

“President Barrack Obama has introduced a new populistic health care policy; ‘patient protection and affordable care’, commonly known as Obama care.”

Nevertheless, predicted future of Obama care isn’t that bright. Currently, USA government is suffering due to significantly increased debt around 16 trillion dollars. Another issue is over small business of USA. According to Obama care policy, US government is giving tax reduction for companies with less than twenty five employees. Therefore lots of companies are shifting their formal workers to informal workers, which will eventually result in growth of ‘Underground economy’ and decrease of governmental income.

According to lots of economic experts, they criticize Obama care as ‘populistic’, unrealistic policy which have no consideration about economy. On the other hand, more than half of low-class US citizens are showing immense support to Obama care, advocating their right to be properly treated in cheap price. No one, except the upcoming future knows the ending of this controversial policy.

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Mathilde, and the

Necklace

Economics in Storytales | The Necklace

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he Necklace> is one of the well-known works of Guy de Maupassant. The story starts with Mathilde Loisel, a young charming lady getting an invitation to a formal party hosted by the Ministry of Education. The invitation is brought by her husband who is a lowly clerk in the Ministry of Education. Unlike her husband’s expectation that Mathilde will be delighted, she falls into a great misery and resentment, realizing that she has no jewelry or beautiful dress that can help her shine amongst the crowd of wealthy guests. After a deep consideration, she decides to get help from her wealthy friend Madame Forestier and borrows from her a diamond necklace.

However, after the party, Mathilde notices the absence of the necklace. She and her husband hurriedly look around any possible stores to find a similar necklace to the one borrowed, and finally discovers one. However, they realize that it is unaffordable.

They borrow money from any possible acquaintances and buy the diamond necklace. Finally, they give it to Madame Forestier. However, this turns out to be the start of the agony as they now have to pay off all the debts.

Poor Mathilde finally pays off all the debts after ten years. She then meets her friend Madame Forestier while walking down the street, and tells her all about how tragic her life has been the last decade. The novel ends with Madame Forestier confessing that the necklace was just an imitation of the real one.

This truly frustrating story contains several important economic ideas. Let’s start with the ‘Band-Wagon Effect.’ This is a term which refers to a social behavior where people tend to buy certain products as they see all the others buying them. It is a key factor in this novel that pushes poor Mathilda into the swamp of misfortune. This beautiful lady, although she was well aware of her financial situation, desperately desires expensive jewelry and a dress to fit in at the ball.

The Band-Wagon Effect is one of the most common phenomena that occur among consumers. Many companies should thank this effect as it plays a significant role in their business.

For example, do you remember the North Face jumper which was extremely popular in Korea

few years ago? Teenagers started buying North Face jumpers after watching celebrities wearing them. More and more students bought North Face jumpers and in the end, almost all students had the jumper. The small snow ball made by the North Face advertisement rolled and rolled around innocent teenagers and finally end up as a humongous snow mountain.

Let’s move on to the ‘Demonstration Effect.’

This theory states that people buy products to impress or stay on the same level as other people. This is depicted through Mathilde’s desire to get people’s attention by maximizing her beauty and charm with an elegant dress and a fancy jewelry.

We can find many Mathildes in Korea. Korean women, particularly those in their 20s or early 30s, are obsessed with brand bags. Some devote all of their money to a single Chanel or Gucci bag. There are many reasons behind the strong insistence towards those bags but one of the biggest reasons is to show off. People want to show off to others, not only that they are wealthy enough to buy such a costly bag, but also that they aren’t behind the fashion trend.

Sorry to those Chanel or Gucci lovers, but here’s one funny truth: Junho Jang, a director of the Shinsegae International, classified the customers who buy Louis Vuitton bags with a clear big logo right in front of the bag, as amateur Brand Bag buyers. He stated that consumers who are really wealthy, like the ‘Cheongdam-dong’ costumers, never buy products from well-known brands like Louis Vuitton but rather visit unique brands that only the Brand experts know.

So, going back to the story of Mathilde. It is now clear that her desires and decisions didn’t happen for the single simple reason that she wanted to look good in the party. There were all these important economical ideas behind every decision she made and every intention she had.

Well, it seems like we all need to make sure that we make the right economical judgments and avoid these “Band-Wagon Effects” and “Demonstration Effects” pulling us into Mathilde’s situation.

Writer/Ji Won Moon Artist/Eun Jin Lee 8

Creative Economy

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reative Economy”, nowadays this idea of economic achievement through creativity is given attention by people. You can listen to a lot of politicians offer pledge such as “We noticed the importance of creative economy, and we will work for the revival of creative economy”.

However, not many people understand the concept “creative economy”, but simply that it must be related to creativity.

Initially, what is “creative economy”? According to Howkin, who initiated this concept, creative economy comprises advertising, architecture, art, crafts, design, fashion, film, music, performing arts, publishing, R&D, software, toys and games, TV and radio, and video games. Basically, it is something that requires creativity from the industry. Indeed, some people consider the education industry and public services also as creative industries.

This concept of “creative economy” was introduced by Howkin in 2001. He published a book called “The Creative Economy: How People Make Money From Ideas”. As you can infer from the title, Howkin thought people making money from their ideas or knowledge were practitioners of creative economy.

Then, why is Korea so interested in creative economy? Looking back to the ‘Creative Economy Report’ by UNCTAD (2010), they claim creative economy as the main next-generation growth power.

As a consequence of this, the government’s attention to creative economy is inevitable, although Korea’s creative industry is relatively small. Indeed, employees in the creative industry numbered only 1.04 million in 2008. Especially, Korea’s cultural industry is only half the size of those in other major OECD countries. Despite this fact, such interest in the creative economy creates a good chance for the government to increase the employment rate through creative economy.

Economic Idea | Creative Economy nesses and export have reached their limits, and that it is time for service businesses to be developed and to contribute to economic growth and employment expansion.

The new Korean government is concentrating on ICT as a nucleus of the creative economy. For the development of ICT and a growth in industry, a bill known as the ICT Special Law started from February 14th. Accordingly, until 2017 about 8.5 trillion subsidies will be given to the R&D business. Also, the government have decided to subsidize venture businesses for twice the original amount and make venture businesses more active.

Even though, already one year has passed since the new government, but it is very meaningful that the new government’s main bill is being carried out earnestly. In addition, I think that the government has successfully chosen the creative economy. While the limit of a creative economy is that it is unable to be exported, the government has chosen ICT, which Korea excels in and is easy to export.

In conclusion, currently, people are very much interested about the creative economy and are talking about it. However, actually not many people know what it specifically is except that it is based of two words: “creative” and “economy”.

I hope many people have understood this new concept of ‘”creative economy” through this article and can be more familiar about the bills or campaigns on creative economy carried out by the government.

Writer/Seung Eun Lee Artist/Eun Jin Lee

Since the end of the Korean War, through the basis of manufacturing businesses, Korea has developed miraculously, reaching a GDP of 10 thousand dollars in 1995. However, since 2000 manufacturing businesses and the increase in export have not been able to expand employment.

As a result, from 2004 to 2010, the manufacturing workforce decreased by 143 thousand, while workers in the service industry increased by 167 thousand. This shows that manufacturing busi-

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Join our crew for the next issue.

Editor-in-Chief: Diane Jung NLCS Jeju Y12 Editor: Diane Jung NLCS Jeju Y12 Writers: Ji Won Moon NLCS Jeju Y11, Justin Yun NLCS Jeju Y11, Jean Hyung Park NLCS Jeju Y11, Seung Eun Lee NLCS Jeju Y11 Art Directer: Eun Jin Lee NLCS Jeju Y11 Artists: Eun Jin Lee NLCS Jeju Y11, Seong Joo Lee (cover art) NLCS Jeju Y12, Diane Jung NLCS Jeju Y12 Marketing Director: Nick Oh NLCS Jeju Y11 Supporting Staff: Mr.Taylor NLCS Jeju, Mr.Maher NLCS Jeju, Mrs. Monaghan NLCS Jeju

Contacts equilibriummag@gmail.com 010. 2054. 2892