“economics”
59 posts under this tag.
For my sister, Alex, who will start her Economics major this July
Economists are philosophers of human action.
They’re close to psychologists, neurologists, sociologists, anthropologists, and ethicists.
But psychologists focus on the mind behind the human action, neurologists focus on the underlying brain, sociologists on the surrounding society, anthropologists on the enveloping culture. Ethicists focus on the aesthetics of human action, on what human action should be.
Economists, on the other hand, focus on the actions themselves, on trying to understand them in their own terms. They ask questions like:
What patterns does human action follow? What different kinds can we usefully distinguish? Why are these actions taken? What are the goals behind these actions? What would the consequences be of these actions? Why do these actions have these consequences? In other words, what is the interplay between goals, conditions, actions, and consequences? If someone took these actions what actions are others expected to take? How will these actions affect others? What are the best actions to take given these goals? How best to organize and coordinate human action? What are the limits of human action? How to improve human action?
Free trade is when a trade doesn’t need the consent of anyone but the traders.
A trader is an owner of property to be traded.
The above definitions after this inspiring but somewhat muddled definition of free trade. I particularly like the second, satellite definition because it safeguards the first: If you want to contort a party into a trade and still call it free, having to specify exactly what it is this party owns can make the contortion clearer—all sorts of patronizing, noble-sounding words can be used to camouflage deception, but to own is a very strong word that makes us pay attention and rightly so.
It’s claimed that government is a legitimate party in sex trade (say, prostitution) because it has to defend public morals, clients and prostitutes, but what is it that gov’t owns? Clients’ and prostitutes’ bodies and money? Public morals? Gov’t is also claimed a legitimate party to international trade (say, immigration) in the name of protecting domestic industry, but what is it that gov’t owns? Domestic industry? Employers’ or employees’ time and money?
Human beings are not just more mouths to feed, but are productive and inventive minds that help find creative solutions to man’s problems, thus leaving us better off over the long run… Every time a calf is born, the per capita GDP of a nation rises. Every time a human baby is born, the per capita GDP falls?
Julian Simon
For those armchair observers of the breathtaking world of quants and structured finance, as myself, Technology Review’s current issue carries a wonderfully didactic and gripping introduction, The Blow-Up: (pesky but FREE registration required).
“How many think spreads will widen?” she asked.
The hands of about half the smartest people on Wall Street shot up.
“And how many think they’ll narrow?”
The other half—equally smart—raised their hands.
“Well,” she said. “That’s what makes a market.”
If they didn’t know, nobody could.
Focused only in securitization, When it goes wrong, from The Economist (YubNub’s “eco“), is also a good overview and glimpse:
..it is hard to overstate the effect that securitisation has had on financial markets. Until the early 1980s, finance hewed to an “originate and hold” model. Banks generally held loans on their balance sheets to maturity; some debts were sold on loan-by-loan, but this market was small and lumpy. This began to give way to an “originate and distribute” model after America’s government-sponsored mortgage giants issued the first bonds with payments tied to the cash flows from large pools of loans.
Wall Street built on this innovation, and securitisation took off soon after, then paused before exploding in the 1990s.. It was given a lift by America’s savings-and-loan crisis, which encouraged mortgage lenders to jettison their riskier loans, and by new technologies, such as credit-scoring, that facilitated loan-pooling. Around 56% of America’s outstanding residential mortgages were packaged in this way, including more than two-thirds of the subprime loans issued in 2006. Thanks largely to securitisation, global private-debt securities are now far bigger than stockmarkets.
Answers.com (YubNub’s “a“), btw, is invaluable in navigating jargony fields like finance.
What structure would you give to Mexico’s 2006 GDP, the wealth it generated in a year? Just gather your prejudices, take a guess, and try to put it into numbers.
Mexico’s 2006 GDP Structure
A fairly unique thing about democracy and capitalism is that —as opposed to, say, monarchy or theocracy— both are formal systems for collective decision making, both specify clear rules for obtaining and aggregating the ends of differing individuals.
As such systems, they both necessarily hinge in what we shall refer to as ballots. Usually the paper in which votes are cast, we will here use the word ‘ballot’ to mean ”an external expression of preference.” The key part is ‘external’. Externality has problems all its own but is also our only hope of finding out what others think—telepathy, guessing, and revelation are our other options.
In democracy, votes are the ballots. In capitalism, it’s money. In democracy, a clinic will be built if the majority of voters vote in its favor. It will keep in operation as long as people don’t vote it out of existence. In capitalism, a clinic will be built if enough people pool the money for its construction and it will keep in operation as long as it makes a profit—that is, as long as it ends up receiving more money than it gives away.
Seeing votes and money as instances of the same concept begs an intriguing question: How then do they differ? How is a vote different than a buck? What specific changes do you need to make to a vote ballot to turn it into a money ballot?
...Is how Peter DruckerWP drives it home. “It” here was not originally the free market, though what a great defense for it it makes, no? Drucker was illustrating, rather, his brave belief that strong people always have strong weaknesses, that it is foolish to concern oneself with what a man cannot do instead of what he can, that the man who “leaves least to be desired” is invariably the mediocrity, that one builds on strengths, not on weakness. Moreover, that making strength productive and weaknesses irrelevant is “the unique purpose of organization.” A great short book, The Effective ExecutiveAM.
And enjoy it you should. If you’re not a thief or a politician you earned it, which, being clear about it, is just a handy way of saying that you did stuff that Other People voluntarily value enough that Apple is willing to exchange an iPhone for your stuff (confident that it can then exchange it with Other People for what it itself really wants). The iPhone is yours and yours alone to enjoy. You earned it. You owe nothing to anyone—not, particularly, guilt.
What is more, both you and Apple, by freely exchanging only for how much each could get from each other, are subtly but importantly cementing the worldwide enterprise that has made it possible for the output of 4 Hindu villagers to seem tiny by comparison.
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