Economics is a confusing and convoluted field. There are countless studies on economic subjects that rigorously follow the scientific method and because of this these studies can be quite reliable and verifiable. However you must then ask, how does any individual study relate to the economy as a whole? If I can accurately predict what flavor of hard candy 5 year olds from a single small town in Utah will buy on Tuesday afternoons would that really have any greater meaning in the overall economy?
Our economy is a huge cluster of variables and is one of the most, if not the most, complex systems any human being will ever interact with. This complexity makes it very difficult to approach economics, on the macro scale, with the same kind of scientific rigor that is used to study chemistry or physics or biology. This inability to produce hard and fast answers doesn't mean that economics is an invaluable field of research.
Lets look at the simplest unit of economics, the cost benefit assessment. Everything that we do involves a cost benefit assessment. Start at the beginning of your day, your alarm clock goes off. Do you hit the snooze button and get a few more minutes of sleep? Getting those few extra minutes of shut eye may prevent you from having a second cup of coffee before you leave the house. Is the cost of missing the second cup of coffee worth the benefit of the extra few minutes of sleep? Hitting or not hitting the snooze button depends on the cost benefit assessment you probably didn't even realize you were making. While out shopping you find a shirt for $30.00 that you really like and that would look great on you while you are on vacation the next week. But buying that shirt means you would have $30.00 less to spend on a nice meal while you are on vacation. The shirt, of course, is something you could wear once you got back from vacation while the meal is something you would only enjoy for a short period of time. Vacations though are about splurging and that extra $30.00 could be the difference between a really great meal you would remember and eating the same fast food you eat every day at home. Once again, you are forced to make a cost benefit assessment.
As you can see these assessments we make every day may or may not involve the exchange of money for goods or services, but on a basic level they are all economic decisions. We always want to make the right choice so that we gain the greatest benefit at the lowest cost, it doesn't matter of the cost is money, time, effort, or anything else. It also doesn't matter if the benefit is spiritual, physical, emotional, or monetary in nature, we want to get as much as possible for as little as possible. This is the basis of all economics.
But things start getting complicated pretty quickly. Think back to the $30.00 shirt. When making the decision to buy or not buy the shirt were we thinking about all of the costs and all of the benefits? If we were buying the last shirt in that size on the rack would we force someone else to make a cost benefit assessment on waiting for the store to restock or using their $30.00 to buy something different? If we buy the shirt would our reduced spending while on vacation force a worker at the resort you are going to into deciding if they should buy the name brand or the store brand cereal for their child because you couldn't tip as well? If you didn't buy the shirt would a cashier at the store have to decide what to do when the bonus they would have received for selling their quota in shirts didn't come through? Every cost benefit assessment we make changes the cost benefit assessments that others around us will make. Every single last decision we make creates a butterfly effect that spreads out and effects people in ways we can't imagine.
Of course we can't make decisions if we are hobbled by having to worry about things that we can't predict and so most of the time all we worry about is the personal cost we will pay and the personal benefit we will received based on our decisions, and this is the way it should be. Most of the time. Occasionally though, through personal knowledge or historical evidence we can reasonably predict the ripple effects of our actions. This is why some people choose to pay more for organic produce. This is why some people who enjoy consuming alcoholic beverages choose not to drink. Sometimes the cost or benefit to others, or our society, or to our environment effect our decisions because the cost to us may be greater than just the money we spend on a shirt or the few minutes of sleep we might miss.
This is where you get to the nitty gritty of many of the economic arguments you hear coming out of your TV or that you read in political blogs such as this one. How much do we need to think about the rest of society or the rest of our economy when making decisions for ourselves? Lately it seems that the trend has been to concentrate more on our own personal costs and benefits and ignore how our decisions effect others. Some would even try to deny that their decisions have any great impact on the world around them. Obviously this isn't true even if we don't see the effects our decisions have on others or other parts of our economy. Sometimes ignoring these collateral effects increases our personal costs in the future. Maybe if enough people bought shirts instead of spending their money at a vacation resort they might find there was no one there to serve them or to cook their food or to clean their rooms. This would be impossible to know at the moment you are buying a shirt, but if you could know it wouldn't you take it into consideration?
Economics as a subject of research and discussion is valuable for many reasons, but one of the primary reasons we value it is that it can help predict for us some of the unintended costs of our decisions. Because of this we can make better informed decisions. Well, we can make better informed decisions as long as we are willing to take the available information into consideration. No one can force anyone into considering anything more than their own, personal, short term, costs and benefits if they don't want to. I just hope they can see how it could be to their advantage to consider a broader range of information when it is available to them.
Sunday, January 29, 2012
Wednesday, January 25, 2012
How to not answer a question
In the video above you can see House Majority Leader Eric Cantor not answer a few questions about the 2012 State of the Union address. He is asked if the members of the house and the senate can focus less on their differences and more on the job at hand as we ask our members of the military to do when we send them out on a mission and as President Obama suggested that our elected officials do in his speech. Eric Cantor replied with a statement about supporting our troops.
Eric Cantor is asked if it is fair that Warren Buffet pays a lower tax rate than his secretary and he responds by saying that no one wants to pay taxes and that small businesses are the backbone of our country.
Eric Cantor is the House Majority leader and apparently he is so mentally challenged as to not be able to understand the simple questions asked of him in this interview. We have seen Mitt Romney's tax returns and Newt Gingrich's Freddie Mac contract and I think it is now time that we get to see Eric Cantor's IQ test results. The answer to the question of "is it fair that Warren Buffet's secretary pays a higher tax rate than he does" should be yes or no or even, "it's complicated". The answer can not be "small businesses are the backbone of our country" as that has absolutely nothing to do with the question. It would be like being asked "how are you today?" and responding with the Gettysburg Address. If Eric Cantor can't answer a question as simple as "is it fair" then he should be recalled on the basis of stupidity.
Of course we need to take a look at Charlie Rose as well. Why didn't he, upon not getting an answer to his question, ask the question again? Ask if Mr. Cantor needed the question clarified? Stay on the question until he, and us, got an answer? Our media seems willing to let any politician say anything without challenging them. Guess what, the media's job is to help hold these people accountable and the media, in general, is failing. We have elected officials not answering the questions they are asked and a media more worried about getting the next commercial in on time than they are about doing their jobs as journalists. This is America people, we deserve better than this. At least we used to, now we accept what ever comes through the screen at us without question. Maybe idiotic representatives and lazy journalists are what we deserve these days. God bless America, and God forgive us for letting what we ask you to bless go to hell in a handbasket.
Sunday, January 22, 2012
Biology and the Economy
Global warming, agricultural run off, and nuclear power plant disasters are good for the environment. I have the feeling that you are giving your computer screen a strange look right now, but stay with me for a minute.
As climate change causes warmer temperatures to march northward several species have been able to extend their range up the map without losing any of the Southern parts of their homelands. Armadillos are a perfect example. I can remember seeing armadillos as a child, but only on trips to a zoo or on family vacations into the very deep South. Now I occasionally spot armadillos right here in the Nashville area and scientists have found them living in parts of Illinois, Missouri, and Kansas, quite a bit further North. Global warming has greatly benefited the armadillo and several other species of plants and animals and if you were able to speak with an armadillo I am pretty sure they would be very much in support of loosening regulations on industrial carbon dioxide emissions.
If you are one of those people who is bright green and single celled, you probably love agricultural run off entering our waterways just as many types of algae do. Sure algae can be slimy and look disgusting to our eyes, but it is enterprising and innovative and works hard to take advantage of the situation it is in. We gave the algae agricultural run off and it made lemonade! Not to mention how altruistic algae can be; see it doesn’t just take, it gives as well. It produces oxygen and takes in carbon dioxide (at least during daylight hours). Sorry armadillos, you and the algae will have to work out the carbon dioxide thing amongst yourselves. It allows itself to be eaten by a wide range of critters, and when it dies it breaks downs and puts a lot of those nutrients it used to grown right back into the water so the next generation of algae can continue to prosper. Quite often a massive algae bloom will out compete other plants and cause fish to die off in a large scale, but you can’t blame the algae because the fish hadn’t planned ahead.
Nuclear disasters are one of the greatest things for the environment though. Don’t believe me? Just look at the area surrounding the Chernobyl nuclear reactor. Since this reactor melted down and exploded in the 1980s, there has been an explosion in life around the power plant. Plants and animals are thriving, everywhere you look there are trees and flowers and birds and deer. Rare species like lynx and wolves are finding a pleasant home around Chernobyl, and it is quickly becoming one of the more biologically diverse areas in Europe. Many of the trees there grow deformed and twisted because they can’t figure out which way is up and many of the animals show lots of genetic abnormalities. But hey, it has to be better than living with humans (they were all evacuated at the time of the disaster and it still isn’t safe for them to come back almost 30 years later).
So why do people complain about things like global warming and agricultural run off and nuclear power plant safety? Because, while armadillos and algae and the plants and animals around Chernobyl may have benefited from these environmental disasters, the environment as a whole is damaged by these things. While these species might think eliminating these issues would harm them and they don’t need to be concerned about other species in other parts of the world, we understand that other species, including our own species, are harmed by things like global warming. We understand that protecting the environment means that sometimes individual species might not be favored. This doesn't mean that they will be forced into extinction, but it means a sustainable balance will be met. Now, do me a favor and in your mind replace the word “environment” with “economy”.
Don’t misunderstand me, I am not writing to talk about the environmental impacts of things like agricultural run off. No, I am writing to show the way many people think of the economy today as opposed to how we should think about it. I am writing to think that it benefits all of us to reach a sustainable balance in our economy instead of rigging the system to favor just a few individuals.
In the US we tend to be armadillos. We look at things like government regulations and tax laws as harming us and preventing us from reaching our maximum potential the same way an armadillo looks at a stable climate as being a barrier to colonizing Canada. But while it may be painful to the wealthy to pay a higher tax rate, while Wall Street may chafe under tough regulations, these things benefit our over all economy and in the end help all of us. Some of us are like the armadillos still living in Southern Texas. We may still be in the South, but knowing that other armadillos are making their way North excites us and we don’t want anything standing in our way of moving to Kansas when we get the chance! Sure, we look around and see water levels dropping in our own neighborhood, and food is a bit scarce, but one day we will go North too and we don’t want the see the climate cool off and hurt our chances of being the first armadillo in Greenland.
Sadly global warming might just cause an environmental catastrophe that will not only make it possible for future generations of armadillos to relocate North, but might also make it impossible for the Southern armadillos to survive. Our economy is in a similar situation except that the people who are gaining the most from our broken economic environment are also the ones controlling it. Add to this they have many of us convinced that with enough hard work our own economic situations can move North and so we should support everything they are doing to make themselves richer even if it is hurting us now. Well our economic environment is getting hit with global warming, agricultural run off, and nuclear disasters all at once and while some are most definitely benefiting our over all economy is suffering and may be at risk of collapsing.
We talk about things like redistribution of wealth and a fairer tax system and strong government regulations and many think it is just lazy people wanting to take from the rich so they won’t have to earn for themselves. That’s like an armadillo telling a polar bear to stop complaining and get off his lazy butt so he can build a boat and not have to worry about the ice melting under his feet. This isn’t about hurting the rich or helping the poor, this is about saving our economy from a disaster so we can all survive.
Sure, many think there are other ways of protecting our economy. Strangely it seems that all of their plans revolve around doing what we have been doing that got us into this mess in the first place. Some seem to want to speed up the process. Well if it didn’t work out well for the economy as a whole the first time, why do they think it would now?
We have to stop thinking about the short term, stop thinking about individual aspects of the economy, stop thinking only about how things are going to effect us personally, and start thinking about rebuilding our economy so that it can be prosperous and efficient and stable and beneficial to as many people as possible for as long as possible. Some people claim they are thinking in this way and that’s why they want to cut government spending dramatically. Well if that causes slower job growth or even more job loss, they won’t be protecting their grand kids from government debt, they might very well be giving their grand kids a completely failed economy. Think big, look for the connections. See how what you do effects others, not just how you are effected. Capitalism is a system that requires we work together on many levels. If we are all just in it for our own personal gain, the system will fail, plain and simple. If it fails, you better hope you can live where it is hot, or in a river full of fertilizer, or enjoy glowing in the dark, because only those few who do may be able to survive. No one will be able to thrive. And do you really want to live in a hot river full of fertilizer with a view of a collapsed nuclear power plant?
As climate change causes warmer temperatures to march northward several species have been able to extend their range up the map without losing any of the Southern parts of their homelands. Armadillos are a perfect example. I can remember seeing armadillos as a child, but only on trips to a zoo or on family vacations into the very deep South. Now I occasionally spot armadillos right here in the Nashville area and scientists have found them living in parts of Illinois, Missouri, and Kansas, quite a bit further North. Global warming has greatly benefited the armadillo and several other species of plants and animals and if you were able to speak with an armadillo I am pretty sure they would be very much in support of loosening regulations on industrial carbon dioxide emissions.
If you are one of those people who is bright green and single celled, you probably love agricultural run off entering our waterways just as many types of algae do. Sure algae can be slimy and look disgusting to our eyes, but it is enterprising and innovative and works hard to take advantage of the situation it is in. We gave the algae agricultural run off and it made lemonade! Not to mention how altruistic algae can be; see it doesn’t just take, it gives as well. It produces oxygen and takes in carbon dioxide (at least during daylight hours). Sorry armadillos, you and the algae will have to work out the carbon dioxide thing amongst yourselves. It allows itself to be eaten by a wide range of critters, and when it dies it breaks downs and puts a lot of those nutrients it used to grown right back into the water so the next generation of algae can continue to prosper. Quite often a massive algae bloom will out compete other plants and cause fish to die off in a large scale, but you can’t blame the algae because the fish hadn’t planned ahead.
Nuclear disasters are one of the greatest things for the environment though. Don’t believe me? Just look at the area surrounding the Chernobyl nuclear reactor. Since this reactor melted down and exploded in the 1980s, there has been an explosion in life around the power plant. Plants and animals are thriving, everywhere you look there are trees and flowers and birds and deer. Rare species like lynx and wolves are finding a pleasant home around Chernobyl, and it is quickly becoming one of the more biologically diverse areas in Europe. Many of the trees there grow deformed and twisted because they can’t figure out which way is up and many of the animals show lots of genetic abnormalities. But hey, it has to be better than living with humans (they were all evacuated at the time of the disaster and it still isn’t safe for them to come back almost 30 years later).
So why do people complain about things like global warming and agricultural run off and nuclear power plant safety? Because, while armadillos and algae and the plants and animals around Chernobyl may have benefited from these environmental disasters, the environment as a whole is damaged by these things. While these species might think eliminating these issues would harm them and they don’t need to be concerned about other species in other parts of the world, we understand that other species, including our own species, are harmed by things like global warming. We understand that protecting the environment means that sometimes individual species might not be favored. This doesn't mean that they will be forced into extinction, but it means a sustainable balance will be met. Now, do me a favor and in your mind replace the word “environment” with “economy”.
Don’t misunderstand me, I am not writing to talk about the environmental impacts of things like agricultural run off. No, I am writing to show the way many people think of the economy today as opposed to how we should think about it. I am writing to think that it benefits all of us to reach a sustainable balance in our economy instead of rigging the system to favor just a few individuals.
In the US we tend to be armadillos. We look at things like government regulations and tax laws as harming us and preventing us from reaching our maximum potential the same way an armadillo looks at a stable climate as being a barrier to colonizing Canada. But while it may be painful to the wealthy to pay a higher tax rate, while Wall Street may chafe under tough regulations, these things benefit our over all economy and in the end help all of us. Some of us are like the armadillos still living in Southern Texas. We may still be in the South, but knowing that other armadillos are making their way North excites us and we don’t want anything standing in our way of moving to Kansas when we get the chance! Sure, we look around and see water levels dropping in our own neighborhood, and food is a bit scarce, but one day we will go North too and we don’t want the see the climate cool off and hurt our chances of being the first armadillo in Greenland.
Sadly global warming might just cause an environmental catastrophe that will not only make it possible for future generations of armadillos to relocate North, but might also make it impossible for the Southern armadillos to survive. Our economy is in a similar situation except that the people who are gaining the most from our broken economic environment are also the ones controlling it. Add to this they have many of us convinced that with enough hard work our own economic situations can move North and so we should support everything they are doing to make themselves richer even if it is hurting us now. Well our economic environment is getting hit with global warming, agricultural run off, and nuclear disasters all at once and while some are most definitely benefiting our over all economy is suffering and may be at risk of collapsing.
We talk about things like redistribution of wealth and a fairer tax system and strong government regulations and many think it is just lazy people wanting to take from the rich so they won’t have to earn for themselves. That’s like an armadillo telling a polar bear to stop complaining and get off his lazy butt so he can build a boat and not have to worry about the ice melting under his feet. This isn’t about hurting the rich or helping the poor, this is about saving our economy from a disaster so we can all survive.
Sure, many think there are other ways of protecting our economy. Strangely it seems that all of their plans revolve around doing what we have been doing that got us into this mess in the first place. Some seem to want to speed up the process. Well if it didn’t work out well for the economy as a whole the first time, why do they think it would now?
We have to stop thinking about the short term, stop thinking about individual aspects of the economy, stop thinking only about how things are going to effect us personally, and start thinking about rebuilding our economy so that it can be prosperous and efficient and stable and beneficial to as many people as possible for as long as possible. Some people claim they are thinking in this way and that’s why they want to cut government spending dramatically. Well if that causes slower job growth or even more job loss, they won’t be protecting their grand kids from government debt, they might very well be giving their grand kids a completely failed economy. Think big, look for the connections. See how what you do effects others, not just how you are effected. Capitalism is a system that requires we work together on many levels. If we are all just in it for our own personal gain, the system will fail, plain and simple. If it fails, you better hope you can live where it is hot, or in a river full of fertilizer, or enjoy glowing in the dark, because only those few who do may be able to survive. No one will be able to thrive. And do you really want to live in a hot river full of fertilizer with a view of a collapsed nuclear power plant?
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