Friday, February 27, 2009

Introduction to Economics

As the banks fail and our economy suffers, there are many who think the recession we now find ourselves in will be much worse than any previously for most of our previous histories. Most of us did not live through the Great Depression and this recession has a feel that is closer to a depression than any recession that we all have lived through. What happened?

In many ways it is not hard to explain. I have wondered for years when the house of cards would collapse. But, of course, the economy is much more complex than any simple explanation, but economists thrive upon simplifications. I was trained as an economist, so I will attempt to start with simple explanations.

First, I want to say that I hope to write a series of posts on the economy as an exercise for myself. I hope these posts can be of some benefit to others, but mostly I am trying to formulate thoughts that have been swimming around my mind since I was an undergrad trying to form into a coherent economic theory that I was convinced would explain much of what I experience in the world. I abandoned this pursuit while striving to complete a PhD in economics while in graduate school, partly because I had become disillusioned by the framework within which all PhD in economics are written. When it became obvious to me that my dissertation would not explain much about the anything I was experiencing in the world, I provoked a fight with my advisor that led eventually to me spending the last year of my grad school experience taking philosophy and mathematical courses while nixing economics as a field worthy of further investigation.

The framework in economics has been called the neoclassical theory of economics and usually demands statistical analysis of some segment in the economy with a large enough data set to make some sort of judgment on a particular sector or segment in the economy based upon the neoclassical theory. Although, some will argue that there are alternative theories to neoclassical economics that can be found in graduate programs under the heading of heterodox, these schools still have a neoclassical basis and are some variation of the neoclassical model. Even the behavioralists that have been getting much recent attention merely provoke minor criticisms of the rational actor called homo-economicus by study actual human behavior that demonstrate a more complex and varied human that underlies the assumptions of the neoclassical model. However, these variations in human behaviors have not produced a coherent of workable model for understanding the economy.

I never came up with a theory or model for economics that would have been a better alternative to the neoclassical model used in all university graduate programs in economics. If I could have developed an alternative theory to present for a dissertation it would have never been approved by a committee in my graduate university economics department nor would it have been accepted in any other economic department at any other university in the world. Because any alternative I could have come up with as an alternative to the neoclassical model would have been outside the scope of economics as it is studied in economic departments around the world today, although it may have begun to answer many of the economic questions I came to my graduate studies with.

This series of posts on the economy will be an attempt to work outside the boundaries of neoclassical theory and answer economic questions that I, and I hope others, have had for many years. It will stumble from topic to topic, but I hope, in the end, to have a coherent theory or explanation of our modern economic system and prescriptions for many of the ailments in our economy that have befallen us. And, if not, well…I suppose it will be still fun to try, although it may be painful for you to read. Also, bear in mind, that most of these posts will come unedited and will be the result of the free flow of thoughts as they leave my mind and make their way to my fingers upon the keyboard. The fruitful results, if any, may someday be formed into a more coherent whole. All right, lets begin.

Our economy collapsed or is in the process of collapsing, because we have become a nation of consumers purchasing from a very few select producers often referred to as the corporations. Wait, that is only part of the story (I warned you there were going to be some if not many simplifications). Actually, those suffering from the current collapse are consumers who no longer can afford to purchase from the producers and also large producers who can’t find consumers who will purchase what they produce. How did we get to this stage?

We have to begin by asking what an economy is and what we want an economy to do. An economy is a distribution mechanism. It distributes goods throughout society by some means. One of these means is a market where people come together to buy and sell these goods. Markets are efficient ways to distribute goods. Markets are also human inventions that operate according to rules written by humans. There is no such thing as a free market that operates outside of these written or agreed upon rules. Sometimes the rules are written to be favorable to some groups or individuals. Sometimes rules are written to exclude individuals from participating as either a consumer of producer in a market. Sometimes the reasons behind these types of rules are fair and sometimes they are not. The presence or absence of these rules has no bearing on whether a market is free or not, because, of course, there is no such thing as a free market. Markets would not exist unless they were invented by humans and these inventions require rules of participation and operations.

Sometimes individuals, groups or governments extract a price for participating in the market. There are an infinite variety of rules for the operation of a market and the market for some products requires a different set of rules than the market for other products. The first understanding or notion of an economy that we should begin with is the banishment of the idea that there exists anywhere in the world an entity that could be called a free market. Markets are not free, they are invented. And the people who invent them write the rules. Often the ones who have written these rules write them to benefit themselves. This is human nature and is at the core of understanding market economics. We are all motivated by self-interest, even those who have made the rules for the operation of certain markets.

Again, let’s begin with a simple example, the household. What does the household need from an economy? Lets save that for another post.

Luddite? More Like Sellout

I have this account, now, on Facebook. You might think that’s funny for a confessed luddite. But, its really not that much different than having a blog, accept that Facebook is a bit more interactive (especially when compared to this blog). Although, I admit, I am still faced with the same dilemma with the Facebook account as I was with starting this blog (read the archives). Why? Jesus, I mean, it all seems so goddamn lonely (Don’t cha think?). I imagine all these people out there, sitting before a big screen downloading photographs and trying to create a persona that presents an image to others of who they are. They don’t do this by making connections or even having conversations, it is all about whom they know, or even how many people they know and also how good they can look on a screen (I say “they” and, of course, I mean “I” and “me” amongst “them”).

I feel like an old curmudgeon whenever I start having these thoughts about our modern ways of communication, but it all seems so terribly odd. First of all, I am not the most social person to begin with. I mean, I have some close friends (my cronies) and we have a deep connections to each other that is based on a deep, dare I say, love for one another. I also have a family consisting of my wife and son and a larger family of brothers, sister, mother, father, nieces, nephews, cousins, uncles and aunts (not to forget one remaining grandparent). All these relationships are based upon love and sustained through conversations and face to face meetings. Some of these relationships have some tensions and aren’t always on the best terms, but like most families and friendships you learn to either talk through or around these problems. But, social networking is not my strong point. I am not a good conversationalist at work or in social settings like bars or parties. I have very few close female friends (we can save that conversation for another day). I don’t like to talk about the weather or last nights game with people I don’t feel a connection with – what is the point, I wonder. Sometimes, after much work and exposure, I can find and then develop a relationship with someone who I am in frequent contact with and we will slowly form a friendship that could be considered lasting. The older I get, the harder it has to form these lasting relationships.

Electronic relationships are easier to form, but they are rarely lasting. I happen to have always had a gift for expressing myself on paper or on a screen. I have always found putting words together on paper or on the screen is fun. It’s something I think I am good at and also something that is necessary for my current daytime employment. So, I have developed many relationships over the internet with all types of individuals – male and female – participating in games or on blogs and through email. However, I could not call any of these relationships friendships and neither can I say that any of them have been lasting. Although, they have all been interesting and the best ones were formed within a community that was constantly in flux and changing. These communities were always interesting to watch form and to participate in, but all of these communities ended up either disintegrating or, at least, left to themselves after I became bored with them.

Facebook is different, because many of the “friends” are old and current acquaintances that I once had or am currently nurturing with face to face contact. There are also “friends” (a currently fast growing number) who are listed on my wall who I have only minimal recollection of – from some long distant past, like high school, many metamorphoses ago.

I have also tried to be “friends” with someone I was once close to in the past and striking up a conversation is often difficult and awkward. I have yet, to master the social skills of nurturing these “friendships” on Facebook and am really left with exasperation over whether it is even worth it in many cases. What do you say when someone confirms you as a “friend” or asks to be your “friend?” Do you write on their wall or do you send them a note in their inbox? I have tried both and, I’d like to believe it is not just me, more often then not, this reaching out to someone is met with silence and I am wondering why we both elected to be “friends” in the first place. The successful conversations I have struck up with “friends” on the wall or in the inbox are usually short-lived or abruptly ended because there is no cordial way to end a conversation in email with friends. It is all too business like and the answer to when the conversation is over in an email exchange is something that has and will always elude me, I am afraid.

But, there is still something fascinating about Facebook and I wonder why so many people seem to have placed so much importance upon it. I mean, for Christ’s sake, why? The short answer is that we are all voyeurs and we love to get a glimpse of others’ lives and Facebook not only allows us to do this, but it also allows us to create our own reality TV show on Facebook for others to view us in an image we create for ourselves. We start by finding flattering photos of ourselves and our families. Then we go out and acquire a list of friends. Having a large and eclectic list of friends is an immediate means for showing we are fun and happy with a large contingent of friends at our disposal whenever we need them or come calling. It is all an illusion, of course, and too similar to everything else we have seen on TV or the monitors in front of us.

I am also afraid there is a longer and more complex answer having to do with the loneliness that results from this increasingly electronic world. We witness on TV and Movies what “friends” are and then we go on Facebook and try and recreate what we’ve previously witnessed on the screen, but human relationships are more complex than that and require much more time and effort that can ever be given on a screen “communicating.” Friendships need love and touch and especially conversation with both sides listening. We all know this but yet I think many of us think that we can get this on Facebook. We can’t.

Facebook is not bad and there is a potential for great utility. There truly our many wonderful people from my past who I have forgotten about who I’ve recently reacquainted with on Facebook. I’ve gone out and met a couple of them for beers and really hope that I can keep alive these few reformed friendships by nurturing them with more outings in the future. But, there is still a great loneliness permeating from Facebook that I can not shake. It’s a loneliness at least partly fueled by my inability to get anything lasting out of so many of my so called “friend” listed on my wall. Who are they? I wonder of the majority of them and what do they do? It is also a loneliness that I see whenever I meet real peoples faces as I make my way through my day. A loneliness that I am sure many have tried to cover up with facebook pages they have created for themselves.

Right now I have a list of 47 “friends” on my facebook account and it is a list that is growing. But, my friends know who they are and I see them frequently and we talk. I have never had more than a dozen friends at a time that I would consider close outside of my family. When I die, there will less people at my funeral than listed on my facebook page and that is the way I want it to be, no offense meant to anyone who I may somehow have reached through electronic media.

Notes To My Son

Know that you were, are and always will be loved. You do not ever have to go searching for it. Be brave and courageous in your pursuit to find meaning in your life and love will find you.

My First Guitar

I was born in Little Falls, Minnesota and moved to a suburb outside of Minneapolis when I was two years old. While riding the bus to school in kindergarten, the school children often broke into song.

Marijuana, Marijuana
Mommy makes it
Daddy takes it
Why can’t we?
Why can’t we?

It was 1970, and drugs were not yet vilified by parents – by the parents of our parents? Perhaps, but I grew up during a permissive era in the white American suburbs. We wouldn’t hear about the dangers of drug use until middle school and, by then, we had already formed a fairly high opinion of them. There were teachers smoking in our classrooms in elementary school and our middle schools had a “back 40” reserved for students to smoke cigarettes, too. Before school, children gathered outside of the middle school smoking cigarettes and passing around joints received from older siblings. My first drawings in elementary schools were of hippies smoking joints and holding boxes labeled “LSD.” They were standing before banners saying make love not war and peace symbols were pasted in the background next to the sun. I was not peculiar, but was merely drawing what everyone else in class was drawing.

My parents were not hippies. Before kindergarten, my mom stayed at home. Her stack of albums included artists such as: “Peter, Paul and Mary,” “Simon and Garfunkel,” “John Denver,” “Glenn Campbell,” and “The Carpenters.” She would clean the house as these albums spun on the living room turntable. I learned to sing in perfect key to songs like “Puff the Magic Dragon,” “Feelin’ Groovy,” “Cecilia,” “Sunshine on my Shoulders,” “Rocky Mountain High,” “Like a Rhinestone Cowboy,” and “Sing a song,” just like they were nursery rhymes from Mother Goose. In grade school, I was always picked to sing the lead parts in our chorus performances.

I asked my mother and father for a guitar at a very young age, so I could learn to be like John Denver when I grew up. They did not buy me one right away. It may have been the money or perhaps they thought it was a stage I might grow out of. I remember sitting in the backseat of my fathers Pontiac when I was a young boy. My father was driving and my mother was in the passenger seat. I had recently learned from my music teacher in school that there were only 12 notes on a staff. I pleaded with my parents from the back seat that time was wasting and, if I did not get a guitar soon all the songs would be written before I learned how to play guitar and no more would be left. There were only 12 notes after all and almost every combination had to be used up by then. They chuckled from the front seat, but a guitar did not arrive.

When I was 8 years old, I opened a Christmas present and discovered a ukulele. My parents must have immediately sensed my disappointment. They began telling me that a guitar was too big for my hands and I had to learn how to play a Ukulele first. I could get a guitar after I learned how to play the ukulele. I held it in my hands and ran my fingers along the nylon strings. I sang “My dog has fleas” and turned the tuning pegs till they matched my voice. I went to my room and sat on my bed holding it and plucking at the strings. Then, I got up, opened my closet door, put the ukulele on the back shelf, and closed the door shut tightly.

A few months later, I saw Pete Townsend smashing a guitar on the television. It might have been on the news or perhaps it was a late night show. Or maybe, I just saw a picture of him in a magazine. I opened the closet door, went inside, grabbed the Ukulele and shut the door from the inside. Then, I raised the Ukulele high above my head and brought it crashing down to the floor, shattering the ukulele, sending pieces flying as a loud pinging noise went echoing throughout the house. My mother came running into my room and found me in the closet holding the ukulele in my hands as tears streamed down my face. She grabbed me by my hand and led me to my bed. My pants came down and she wore a wooden spoon out until the welts appeared upon my buttocks. My parents never bought me another instrument and I stopped singing in school and at home. Though my musical training was cut short at this early age, I was being groomed as a rock star from that day forward. I would not buy my first guitar for 10 more years, and punk rock was still a ways off in the future. I got a later start on guitar and, lucky for me, for the purposes of puck rock, that was a good thing. I also learned through my studies in mathematics about powers of 12 and through music listening about time signatures, choruses, verses, lyrics, harmonies, and bridges. In short, I came to realize that availabilities of notes may be limited but the possibilities for songs were infinite, while my oppositional nature and rebellious streak was slowly emerging as I entered my teenage years.

I have found my way back!

I apologize for being away for a year. I took a new job. I am still a bureaucrat, but I no longer work for a municipality. I can no longer post while I am working (internet policy) so I bring you my thoughts via a county Library terminal on the weekend. I am still a luddite after all.

First, let me send a shout out to Richard, one of the rare visitors (can I call him a fan?) to this dilapidated blog who has been popping in periodically to see if I have got it up and running again. Let’s hope he has not completely given up on me and finds his way back.

I really don’t have much to report. I am writing more as a result of the winter duldrums than anything. Actually, this blog should probably be renamed as “The Nightshift,” since most of my posts will be late night creations when I am unable to sleep. You see, I actually think I am a fairly creative individual. Really, I believe we all are creative, but some of us don't find enough time to exercise our talents. As we get older, the we become lazier and lazier often until we eventually find ourselves sitting in front of a monitor or TV laughing at those who are much less talented than our own selves or so we deceive ourselves.

But, I hope to get some thoughts down for the rare visitor and also for my own inspiration to stoke the creative juices. Let’s hope I am able to make a more sustained run of blogposts this time.

I won’t be making daily observations like before from my workspace, but rather posts will come in bunches. Feel free to read them over a span of days rather than take them all in in one sitting. I will have continue with thoughts on my life, the economy, politics and everything else under the sun, including occasional excerpts from stories and more ambitious projects I am currently working on.

Glad to be back, or should I begin this as I once did when I first began “The Dayshift.”


To myself, since I will be the only visitor for some time and some more time to come.