Diatribes - Computer, Economic & Political

This blog is really just for me. If you find something interesting on it, leave me a comment. If you disagree with something, let me know what and why. In this blog I am just putting some of my thoughts for computers, the economy, politics, and other topics in writing.

01 March 2006

Politicians Should Stay Away From Economics

I have wondered, for a long time, about public views on economics. I wonder that they are so backwards, and I wonder why there are so backwards. It seems to me that, for the most part, people stay with what they know. I don't argue physics with the physicists, linguistics with the linguists, or philosophy with the philosophers. I expect that they know their respective subjects better than I, and if I want to disagree with them I had better educate myself first.

I studied economics in college. That doesn't make me an expert, but I have a reasonably good idea of what I am talking about. Economics unfortunately brands me with the business people, but much to the surprise of many, economics is predominantly a descriptive behavioral science. We make fun of the vocational Bsuiness students as much or more than most because we are so different, yet seen as the same. Finance is about money, economics is about human behavior. Since the study of how we spend money seems to be the most lucrative and demanded work of economists, it is what others see the most.

Back to my original point. Why does everyone seem to have an opinion on economics? One answer is: because it affects us all, we all ought to be involved. My counter argument is as follows. Everything that we study matters, if it didn't matter no one would study it. Anyone who thinks that literary theory doesn't matter wouldn't care if deconstruction is taught as the primary means of interpreting literature in elementary school. Anyone who thinks high level physics doesn't affect us needs some serious brain food. If all study affects everyone (or at least affects all those purporting some economic knowledge), why don't they have as vociferous opinions on everything else?

I really don't know a good answer to this. Perhaps people perceive economics as a 'soft' science (which it may be), and as such my opinion is as good as the opinion of anyone else. That is baloney, take any econ class and suggest a poorly-thought-out theory. The professor will tell you exactly why your theory isn't the case. If you insist it is a matter of preference, he/she may take the time to construct a graph, a mathematical model, or do some econometrics to show that your theory is demonstrably untrue. However demonstrably false opinions are rampant in the public view of econ, and though they can be (and often are) refuted this doesn't seem to slow their propagation.

Adam Smith never said that profit was the end all motivation. He said that the drive for profit drives efficiency. Efficiency increases welfare, we will have more disposable income to give to the United Way, or buy an XBox. He was a dedicated moralist who saw economics as a way to increase welfare, not "strangle some small developing nation." He was a descriptivist not a prescriptivist.

The same kind of misinformation goes on with all the emphasis on sweatshops. Are the conditions horrid? Certainly. Should we encourage better conditions? Without a doubt. [2] But as Themla Young said "foreign factories… shouldn't be [shutdown]. When companies shut down… many workers are forced into even less desirable situations." Boycotting Thai goods hurts the Thai people, not Nike. No one addressed the issue of preference. Developing nations seem to prefer to work in sweatshops to other work. [3] Americans, though we would like to dictate to them our morals, certainly prefer cheap sweatshop goods to expensive ones. [4]

Perhaps you are wondering when I'll get to my point. I was going to call for changes in linguistics; I would try to get more than one linguist. Linguistics is something I know next to nothing about (short of taking a single 200 level class), so I haven't formed ill-advised (or otherwise) opinions, I would need to seek out experts. Were I to develop incorrect linguistic opinions they would probably be as caustic and misinformed to linguists as what most politicians say about economics is to me.

[2] Perhaps we should look into the good things globalization is doing as well. Microcredit, for example, for one is raising thousands from poverty.

[3] Many tree-huggers say 3rd world workers are 'forced' into sweatshops because there is no other choice. What did these people do to survive before globalization? If they had a sustainable way of living before, why did they abandon it to work in a sweatshop? Because they prefer it (or prefer the benefits it pays).

[4] If everyone is so passionate about helping sweatshop workers, why don't they start companies (such as a lady who owns a restaurant in Salt Lake who doesn't have set prices, people pay what they think the meal is worth) which produce goods paying a 'livable' wage? If alternatives do exist, why aren't they more visible, if this is what Americans really prefer.


Blogger jambarama said...

Yeah I don't have a foot note #1. Sorry about that.

01 March, 2006  
Blogger jambarama said...

My brother suggested a theory. Initially he suggested that economics is 'words' and finance is 'numbers.' Given that econometrics (and micro) is VERY math intensive and people veer away from discussing 'wordy' subjects such as philosophy; I think this idea doesn't hold. But this suggested another idea.

Some things are hard to understand, like economics (ie what is the effect on domestic prices for factor inputs, in the specific factors model, when there is a positive exogenous supply shock to X - it takes some thinking).

So economists (and others), to help people understand simplify things. So people now feel like they understand it. Philosophers (which is what economists started as) don't seem to bother - ever see any "Kant for dummies" books? With resonably advanced Physics (anything more recent than relativity and duality of particle theory that is), no one can simplify it enough for people to feel competent. It is an interesting idea.

01 March, 2006  
Anonymous Anonymous said...

I'm sick of Democrats and Republicans. Their ideologies fly in the face of what our forefathers stood for. And it was and is our duty as Americans to continually strive for a "more perfect union," getting better as the years go by, continually progressing and making a freer America. But we are going the other way.

The two major, corrupted parties think they are remarkably different. They are not. Both love big government. Both parties want government to clean up after them, control morality, control money, deny liberties, spy on citizens, become a socialist and/or totalitarian nation, start expensive wars using money that isn't theirs and on and on. It's called liberty, people. "That government is best which governs least." People have the right to live their lives how they want, spend their money on what they want, and they have the right to own property. None of these freedoms are allowed to us anymore. America is no longer a free nation. America no longer stands for what our forefathers had envisioned. She has forsaken her birthright.

02 March, 2006  
Anonymous billyswong said...

There is only one thing I don't agree with in this page, that is the footnote #3. Although I haven't study Economy before, I think I can answer a little bit of your question, "If they had a sustainable way of living before, why did they abandon it to work in a sweatshop?"
It is because they lost their old jobs. Let say you were a farmer there. In the past, you sold your crops and earn a living. Suddenly one day, cheap food rushed in from foreign countries. They are so cheap that their selling price is cheaper than the cost of growing them yourself! To stand a chance of competition you need to know advanced technique and buy expensive machines, which is unaffordable to you. You tried to switch job. You went to the town and sought chances there. But you have no special skills other than farming! At last, you are "forced into sweatshops because there is no other choice."

21 March, 2006  
Blogger jambarama said...

Thanks for your comment Billy, there is merit in your thought. There are a lot of issues with people losing agrarian jobs.

If they were subsistance farmers, than they don't rely on the world price for anything, so cheap goods can't bankrupt them. I assume you are talking about people who raise 'cash crops' like tobacco they can't consume but rely on for income. I'm not sure of the ratio of cash croppers to subsistance farmers and I'm not so much interested in looking at real world prices for crops, but I suspect the workd price for most goods has increased over time.

You hear a lot that the United States can't compete with cheap foreign labor. I'd like to know who this labor is that is putting rich countries like the US out of business, as well as poor sweatshop countries. But lets assume there is some country that can do it. Not that I would advocate this, but countries can always put tariffs on incoming agrarian goods to 'protect' their workers from competitors.

So in your scenario the problem isn't the cheap goods, it is that the poor can't compete because they don't have enough capital (human or machine). The fix is simple there, rich countries need to invest. Rich countries do invest, in stable 3rd world countries, an insane amount. The rich guys get great returns on their income, the poor guys get access to capital they might not otherwise have had.

Maybe a more likely story is that 3rd world countries are more prone to upheaval and war - both of which displace agrarian workers and ruin their lands (with explosives or land mines). So countries with lots of war are pushed to the cities. So the question is - What do we do about this? Is their standard of living decreased by the move?

I'll address this in a future post, but it is worth thinking about.

21 March, 2006  
Anonymous Anonymous said...

One of the problems with expertism is that the experts want to keep the peons ignorant and one needs to know almost as much as the experts to figure out when they are leaving out information.

Economists talk about GDP, Gross Domestic Product, quite often and imply the increase in this figure is economic growth. What they very rarely mention by comparison is NDP, Net Domestic Product. This takes depreciation of capital goods into account. The cars purchased by a car rental company wear out and must eventually be replaced in order for the company to stay in business, so the depreciation of the cars is an expense and can be filed with the IRS. The economists subtract this depreciation to compute NDP.

But hold on a minute, the cars purchased by consumers got added to GDP. Those cars wear out just like the machines purchased by the car rental companies. Don't they depreciate too and shouldn't they be subtracted. NO! They economics profession has defined depreciation as applying to capital goods only not consumer goods.

The economics books don't point out this little anomaly.



09 April, 2006  
Blogger jambarama said...

Maybe some experts want to keep 'peons' ignorant, but I certainly wouldn't call politicians 'economic experts.' So if it isn't the politicians keeping people economically ignorant, it must be a vast conspiracy among economists.

If I understand you right, you are suggesting some sort of elitist group of experts manipulates everyone. If what you claim is true, why doesn't the truth spread? The only reasons (I can think of) that it wouldn't spread is the stupid idea that is that people prefer false information, a totally untenable conspiricy idea, or your theory about experts is false. If people prefer false information, we might as well give up - no one will get truth and if they do it won't spread, so we might as well all give up.

If it is a conspiracy, but people prefer truth, there would have to be 100% collusion among experts. That is ridiculous. If the knowledge held from the public was valuable (I assume it is, otherwise why withhold it?) and if one of the experts offered the secrets for a very nominal price - the dissenting expert would make a lot of money (or prestige or fame et ceterag). So why isn't this happening?

Growth of GDP is economic growth or at least the nearest we can measure it. It measures the current year's production not some amalgamation of all past production. We don't use NDP because it has lots of problems. 1st - Measurement is difficult. Capital depreciation is easy to measure (though accouting depreciating isn't often close to true market depreciation), but consumer decpreciation is impossible to measure. You can't apply the same accounting standards, and how do you keep track of EVERYTHING bought by consumers? You are right, there is consumer depreciation. This should affect to GDP, but we can't measure it.

Another issue with consumer good depreciation is exemplified in your car analogy. If people replace a car every year, they don't just throw away the old one. The resell it (resale, as you know, doesn't count in GDP). So someone is still getting value from the car, at least equal to the price they paid. When the car is finally dumped in the junkyard, it is because the value it could provide with repairs, aren't worth the cost of repairs. The car isn't dying because the car manufacterers made it breakable. Everything breaks and depreciate. Gears loose teeth, cylinders wear out, metal corrodes. It isn't a car-maker conspiracy. There is no cost-effective light bulb that will last forever. If there was a substantially more reliable car/lightbulb a company could make it, earn a fortune, then once everyone in the entire world had one they could close up shop. Unless of course more people are born or more houses are made, then they've still got a market. There is no conspiracy.

You are right to be concerned that GDP is a lousy measurement, there are good reasons to think this. Accumulated savings and debt are not taken into account, so countries that are in debt overstate their well-being and countries that save a lot understate their well-being (assuming debt is bad and savings are good). Another reason to be concerned is that GDP counts work that produces no net change. Meaning if your house burns down and you rebuild it, the rebuilding goes into GDP. GDP doesn't measure surplus either - if you pay $100 for something that is worth $150 to you, you have a $50 surplus and your welfare goes up more than if the item had only been worth $100 to you.

Most problems are data problems - how can you tell if a car you bought is just replacing an old one (no net change) or in addition to the one you have? How can you find out how much an item is really worth to someone? You really can't measure this accurately. GDP is NOT a measurement of utility or production, it is a measurement of consumption. You may be looking for something like the GPI, General Progress Indicator. But like any other measure it has major problems too.

I think the only elitism going on here is from people who are prescriptivists. In the article you took all your thoughts from the author asks why we need new cars. I don't know, but people want them. Have we all been brainwashed? I doubt it. If people get some utility out of a new yearly variation of a car (even though it has essentially stayed the same for the last 50 years), who are you to tell them they shouldn't? Why do your morals trump theirs?

Another dangerous thing is to claim that consumers aren't rational. If you believe that consumers can't be trusted to make their own decisions about consumption, who should make them? Can a central government do it better? The USSR seems to suggest they can't. China, who only now is starting to gain some wealth, suggest that letting consumers decide is the most effective way we have thought of so far.

Perfect markets and perfect competition depend on perfect information. Good markets/competition only depend on good information. So long as information is available and cheap/free, markets work well. So markets depend to a large degree on education and information. To claim that consumers have lousy information is to claim that consumers are irrational. If information has benefits, people will seek it out. Nowadays there is more information than ever available through - the internet, magazines, books, libraries, radio, and on. If consumers have lousy information now, how is it that markets have worked so well in the past (when we had less information)?

You seem like a smart fellow - you don't have to "discover" something or have a hobby horse to prove that to others. Wealth in the world is growing in aggregate. Consumption/production is not a zero-sum game. GDP has lots of problems, but so far it is the best we've been able to do with the realistic limitations we have. There is no conspiracy.

10 April, 2006  
Blogger jambarama said...

I'd also like to emphasize that GDP includes capital depreciation.

10 April, 2006  
Blogger psikeyhackr said...

Economists involved in a conspiracy? Actually I don't think they are smart enough to pull one off.

But it is 37 years after the moon landing. There were planes flying around at 400+ mph in WWII. Is it conceivable planned obsolescence is going on in cars? Have you heard any economist mention this since John Kenneth Galbraith in 1959?

Is there something stopping you from checking any and all economics books to see what economists say about how much Americans lose on depreciation of automobiles each year? You don't hear the crashing sounds of millions of cars thrown on the junk heap each year. Whare does that depreciation go?

No it's not a conspiracy, it's stupidity.



04 April, 2007  

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