A collection of distilled sarcastic wisdom, numerous photographs, discussions of books and stuff to learn and more stuff to think about from a retired economics professor turned blogger and photographer.
Here is a list of the main topics and terms that beginning economics students often failed to grasp, learn, recite, explain, in Econ 110:
Supply. A real toughie. That's how much stuff you supply. The more you get paid for it, the more you're willing to supply, right? So which way does the supply curve slope?
Demand. How much stuff you want to buy. Surprise. The cheaper stuff is, the more you want to buy. So if price is on the vertical axis and quantity demanded on the horizontal axis, which way does the demand curve slope?
The intersection of supply and demand curves. This is really advanced. What happens at this point? Quantity supplied equals quantity demanded! Wow!
Price elasticity. Now students zone out here because the term seems too, too complicated. Think rubber band. If price goes up a bunch and you buy the same amount as before, stuff is inelastic. Think insulin. If price goes up a bunch and every body bails out and buys other cheaper stuff, think elastic. Now was that so tough?
Total spending in the economy. C + I + G + NX. Wow! an Equation! I don't do equations, you say. C is consumption, the biggest chunk of Gross Domestic Product, I is investment, small % but mighty, G is government spending, and NX is net exports. The sum of all this spending is Gross Domestic Product. Was that so hard? And yes, kiddies, a dollar spent on government spending has just as big an impact on the economy as a $ spent on a hamburger. $1 = $1. Politics don't matter. A dollar is a dollar. But try to convince the general population to whom $1 of G is $1 down the drain. Oh my.
Principle of Diminishing Marginal Utility. Utility is satisfaction. Diminishing is getting smaller. If utility is diminishing, lo and behold, you get less satisfaction. Or, for my slower students, just remember if you eat too many bananas, eventually you will barf. I get this recited back to me by students who took my class 30 years ago. They all watch the number of bananas they eat at once.
That covers our first month of econ 110, and you have mastered it in less than 5 minutes. Yes, you do need to know this stuff for the exam. Yes, you do need to know how to draw a supply and a demand curve. Even on the same graph. Yes, you do need to know that you should add C+I+G+NX to get GDP. No, you cannot be excused from the exam to go deer hunting, get married, go home to take your laundry, play video games, go skiing, take a nap, or anything else. If you have an appendectomy that day and you can prove you didn't fake it, you'll be excused. If you left your textbook in Pocatello Idaho where you went for the weekend, tough. If you think economics is just a bunch of hot air and not relevant to your blossoming career sorting debits and credits, your big mistake. If your dad and your mom both took my class 20 years ago, just time enough for you to be born and get old enough to be a freshman, and they both told you econ was really, really tough and the worst class they ever took in college, more's the pity. The general electorate hasn't shown a whole lot of promise in having a clue about basic economics. If the lovebirds in the back row want to keep fooling around, please go out in the foyer. For the rest of you, we will have a quiz tomorrow so if you spend your night playing intramural football and get 10 stitches in your head as a result, I expect to see you here bright and early at 8:00 a.m. I promise to have a new joke to tell you then. And no, you won't get a course evaluation form to fill out until the end of the semester.
Of course, I would have to retire from teaching economics after 45 years and miss all the fun of the new century. A whopping recession, a near banking collapse, political bickering of irrational proportions, a deficit that could strangle generations, blame enough to go around for decades, and now, whoop-de-doo a selective spending freeze. Oh where did all my years of graduate studies in economics and all of my years of reading economics textbooks and teaching economics go wrong. Just as the government is the lender of last resort, a fact missed by many who would like to sink the Fed, the government is also the spender of last resort. When the economy sinks, unemployment goes through the ceiling, consumer spending dries up, tax revenues fall, and everyone claims they are madder than you know what and aren't going to take "it" any more, whatever "it" is, we now may try to put the brakes on the spender of last resort. People who haven't studied economics are still going around whining about tax cuts being better than spending increases, no matter that Econ 110 teaches on about day 3 that spending increases carry far greater clout than tax cuts. Shades of Herbert Hoover. But maybe it won't turn out all that bad. Bush 1 wasn't all that successful with his "spending freeze," either. But alas, I have no classes of 400 students to pontificate over these matters with. All I have is a handful of blog viewers who probably will be ticked off at what I write. But such is economics. And life. As the old saying goes, "good economics is rarely good politics." And politics is all about staying in power, regaining power, sinking those who are in power, and blaming everyone else for whatever is perceived as going wrong. Economics teaches on day 1 that positive economics is the analysis of "what is"; whereas normative economics is the analysis of what people think "ought to be". Since "ought to be" is value-laden, no objective analysis is possible of normative economics. And people often could care less about the results of positive economics, or the analysis of "what actually is." Exam on Friday. Bring a bluebook.
Procter & Gamble (PG), a bellwether of consumer spending, has shifted tactics in the chase for bargain-hunting shoppers with price cuts, promotions emphasizing value, and even a shakeup of its famed laundry business.
Absolutely amazing. P&G takes lesson out of day 3 of Econ 110 and applies law of demand: Prices inversely related to quantity demanded. Lower price, people buy more stuff! Amazing! Didn't anyone ever take Econ? Many business mistakes and lack of opportunities occur because no one took or remembered elementary economics.
TO listen to President Obama’s speech on Wednesday night, or to just about anyone else in the health care debate, you would think that the biggest problem with health care in America is the system itself — perverse incentives, inefficiencies, unnecessary tests and procedures, lack of competition, and greed.
Continued and growing deficits registered by the U.S. Postal Service suggest that the Postal Service of the future may be vastly different from the Postal Service as we know it today. Beset by growing inroads of electronic communications through increasingly sophisticated technological changes, the Post Office has become a victim not only of electronic media, but also of its own appalling lack of attention to basic economics. So far, the only solutions in sight are to cut service and raise postage stamp prices. The dilemma here is that everything the Post Office does to try and trim costs and raise rates will likely also drive postal customers away. Earlier research has shown that the price elasticity of demand for postage is inelastic for first class mail (1% rise in first class postage has little effect on first class postage stamp sales) but sharply elastic for business and bulk mail (1% price rise leads to sharp fall in business and bulk mail postage sales). And analysts say that the future of the Postal Service depends on increases in business and bulk mail.
Has the Postal Service ever hired any economic analysts and economic advisers to help them devise a strategy for cutting costs, increasing efficiency, and increasing the volume of postal customers? Recent experience in multiple post offices suggests limited windows open, long lines and waits, and absurd delivery methods aimed, presumably at increased efficiency. If I mail a letter to the person next door in St. George, as I understand it, and I could be wrong, the letter first goes to Salt Lake City to be sorted and then sent back to St. George. One summer it took three months before we could straighten out the address change from St. George to Salt Lake City.
The Post Office will never be able to implement efficiency criteria in many instances, such as overcoming the necessity of continuing to maintain heavy fixed costs of providing postal service to isolated places with virtually no population. But even in these cases, the continued expansion of broadband internet services to even the smallest rural locations and isolated areas offers the alternative of instant communication and bill paying in contrast to an uncertain wait of several days or longer.
I am at a loss to suggest what the Post Office can do to attract customers. Stores like WalMart and Costco cut prices, continually offer new products, and search for innovative incentives for buyers. Given the financial situation of the Post Office, it is unlikely to start offering better window service and shortening customer lines and, instead, is threatening to cut off Saturday delivery and eliminate post office locations. These moves will drive more customers away from the Post Office and to electronic media, FedEx, UPS, and other delivery modes.
The Curmudgeonly Professor does not profess to be a Post Office expert, and some of my observations may be dead wrong. I grew up on an RFD route seven miles from the nearest post office, which wasn't much bigger than a large telephone booth. Rain or shine, Ezra the faithful mailman delivered our mail. That was about the best mail service I ever remember. Now I dread going to the Post Office, dread buying postage stamps for the few items we do have to mail, dread the long, slow lines, remain aggravated at how long it takes letters to get some places even very close to where I live, and wish I had Ezra and Joe Bob, the Garland Postmaster, back once more. Joe Bob was even kind enough to read all of our postcard messages and to comment on them for us. But the more the Postal Service imposes penalties for users rather than provide some kind of incentives, the shorter will be the life of the Post Office as we know it today. We may have to opt for either rain or shine, not both.
We most likely will have to face up to the idea that a streamlined Postal Service will never break even again, and that it must be considered a public good, generating public benefits that must be paid for, in part, by the federal government.
The Curmudgeonly Professor is merely a defunct economics professor who toiled in the vineyards of hostile freshmen econ students for over 40 years. He did go to school in Ann Arbor, where he heard a great deal about the auto industry, and he once was sent by the U.S. Treasury Dept. to Detroit from D.C. to meet with tax counsel for the five or so automakers, all of whom were towering giants with gold chains across tailored dark vests. Since I had on my K Street seersucker suit, I might have felt out of place, but these people knew that the Treasury would potentially be handing them out huge plates of tax reduction goodies and they also knew I would be reporting back to the Deputy Assistant Secretary of the Treasury who would be reporting to the Assistant Secretary for Tax Policy who would be reporting to the Secretary of the Treasury. So I was treated with far more respect than a green-as-grass 28 year old near-Ph.D. staff member deserved.
I did get the idea then, as I have had ever since, that the administration of the auto industry was rather clunky and fossilized. George Romney was smart enough to start peddling his tiny little American Motors cars as a precursor to what the more apt and innovative Japanese auto producers were about to unleash on the country, but the ruts for the auto industry were deep then, and they have not become any more shallow in the ensuing years. Having spent much of my professional life reading and teaching books about how set-in-cement encrusted tradition and blinders destroyed giant company after giant company, not to mention a whole batch of little companies, I came to have a healthy skepticism about the future of the auto industry. A few innovative and clever moves seemed to be continually out balanced by neanderthal repitition of things that obviously didn't work. What did all of those bright MBAs and Ph.D. consultants and armies of executives, planners, and designers spend their time doing all those decades? And was it a matter of not listening to the people with ideas, or being so entrenched that ideas were dead before they left the brain?
At any rate, it comes as no surprise that the American auto industry is in the dumps. The Chevies and Plymouths and Fords that were once the beacons of the American highways atrophied, dwindled, and almost perished while other more innovative, cost-cutting, planners and designers and manufacturers strangled the ultimate growth potential of the Big 3 automakers. But my question is this: Why do we think that the same people who screwed up the auto industry now will have a sudden revelation, a flash of light on the road to the Damascus of federal bailout money, and do a quick repentance and thereby come up with something that people want to buy in preference to foreign autos? The death of the auto communities is truly an American tragedy, the excising of decades-old family dealerships sad song for families and communities across the country, the folding of myriad linked companies, and the lack of confidence in America's ability to engineer, produce, and market cars that peoople want will haunt us for decades. The days when we sang, along with Dinah Shore "See the USA in your Chevrolet" and then went to our Chevy dealer and bought our Chevrolet and then used to see the USA are gone forever. The market system was never meant to be kind to economic change as hundreds of defunct companies that were a major economic force in the early 1900s were buried in the economic graveyard. We can hope some resuscitation can occur in the auto industry. But the programs under way thus far rely more on faith than potential to produce the necessary progress. But, what does the Curmudgeonly Professor know? He is merely indulging in the luxury of free expression instead of watching a hated rerun of a Matlock episode. Perhaps three or four people will read my cogent analysis.
The Curmudgeonly Professor has waxed eloquent heretofore on Blood's Law of Modern Technology, to wit:
Nothing ever works.
If it does work, it won't work very long.
If it quits working, no one can fix it.
We might add a few additional observations. If, after a few months, you need to order parts for something, you discover these parts are no longer made. A new model has just come out, making your six-month old model obsolete, obsolescent, not working, and disgustingly useless.
To illustrate, here are a few examples of worthless POC the Curmudgeonly Professor has dealt with lately.
We replaced the heat pump on our air conditioner in St. George in about ten years. Cost: $2,300.
Our furnace and air conditioner in Salt Lake are about seven years old, and used only half-time. We find now that both the furnace and air conditioner may have to be replaced, costing around $8-$10,000. The warranties, of course, are miniscule and long since expired. No one is willing to stand behind their products any more. The contractor installed units were clearly marginal.
I went to Staples today to get a red ink cartridge for my Canon i9900 photo printer. Sorry, Canon no longer sells that cartridge through retailers. Just a few years ago, the Canon i9900 was the top-rated consumer large format photo printer on the market. I was told there were less than 100 of them running in the country today.
Our dishwasher quit working after about three years.
Two years ago, I ordered three successive Dell computers, none of which worked, and ended up buying a Mac.
My Mac computer glitched 2,300 photos, and 5,000 photos were wiped out in some mysterious way. Moreover, the memory cannot be increased.
Sadly, quality control has gone down the drain. The reason American car makers are in deep trouble is because people don't want to buy the cars they make in large enough numbers to remain profitable. My seven year old Toyota Avalon has required replacing one directional signal blinker light in all the time we have had it. The last Maytag washer we had lasted 27 years. The last fridge we had lasted 22 years. The furnance we had in our last house lasted 20 years and was still going strong.
Now the strategy, apparently, is planned obsolescence. Make it the cheapest way possible from the cheapest possible materials and the minimal quality parts. Make the parts and replacement components obsolete in a few months so that nothing can be repaired. The age of modern technology is, indeed, a marvelous age. But it is also an age that borders on fraud and incompetence in producing and monitoring the quality and durability of the goods we buy. If we had more confidence in the appliances and goods and services that we buy, we may be more willing to help strengthen the economy by buying more goods. As it is, I am waiting for my nearly-new appliances to breathe their last gasp, run their last washer load cycle, freeze their last batch of ice cubes, and vacuum their last lint ball from the floor. And I am mortally afraid of buying anything new. How will I know how long it will work? Even though, at my age, I am clearly out of the 20-30 year cycle, it would be nice if I didn't have to haul it to the dump or dispose of it in some other way two or three years down the road. We have become accustomed to electronic goods such as computers, printers, software, digital cameras, and the like, becoming true throwaways--use it until it breaks or collapses or until the next innovative product hits the market and then toss it in the electronic junk pile.
The Curmudgeonly Professor just wishes people would pay more attention to durability and quality and repairability of consumer goods so we didn't have to feel continually like we have been suckers taken for a ride.
The Curmudgeonly Professor has prepared a pop quiz for all members of the financial community who contributed to the current financial meltdown. Please answer the folloowing questions truthfully.
Do you know how to add, subtract, multiply, and do long division?
Do you know the difference between right and wrong?
Did you ever appraise a property more than you knew it was worth so you could give an inflated loan to a borrower?
Did you ever approve a loan without doing a thorough credit, income, and background check on a borrower?
How much money have you made by earning commissions and fees on risky and subprime loans?
Can you sleep at nights?
As a supervisor, did you supervise the work and risk levels of the loans the people you supervised were making?
Do you think Martha Stewart was more guilty for fibbing about insider trading than you are for lying about the appraised value of homes and the loan-worthiness of new borrowers?
Do you think Bernie Madoff, who dwells in a penthouse, is worthy of living in luxury while Martha Stewart was sent to jail?
Do you understand the term business ethics?
Do you know how to assess appropriate and prudent levels of risk?
Since you got us all into this mess through your ineptness and lack of attention and care for what you were doing, how can we rely on you to get us out of the sinkhole you have put us in?
How many of the stupid loans that you made have resulted in home foreclosures and people losing their homes with nowhere to go?
As a borrower who received a subprime mortgage, did it ever occur to you that you had no economic basis for living in a megamansion in la la land?
If you were a government regulator, did it ever occur to you, once you knew the banking and financial and mortgage industries were skating on thin ice, that you ought to do something about it before it was too late?
Are you an honest person?
Please list all of the things you know you did wrong. Please explain why you did these things.
Dear Blog Readers: I know, some of you think I have gone bonkers. Some of you pity me for not being in the minority of Utah voters who rate Dubya's favorable performance level above 50%. Others have expressed ire that I have cast aspersions on that giant of objective reporting, Rush Limbaugh. My sisters think, our poor brother. Why has he gone to the dogs? Some have abandoned my blog because of heresy and a dangerous liberal tint.
This last episode of economic history, the economic stimulus bill, was just too good and monumental of a topic to just sit by and wave at. Too much is at stake. Besides, writing, debating, arguing, and discussing this stuff is what I love and what I spent 40 years doing. So hold on, and I will remove this noxious content out of your sight and you will need not be subjected to it unless you deliberately float over to my business and economics blog. Thank you for your patience.
Send for the fire engines! Call the EMTs! Sign your last will and testament! Update your powers of attorney! Cancel your newspaper subscriptions! Don't bother watching the Super Bowl! Go ahead and eat hot dogs, nachos, Big Macs, Triple Whoppers with Bacon and 4 layers of cheese! Clog your arteries! Yes, fellow citizens we are doomed! Doomed! The Book of Lamentations has nothing on us. Job was in paradise compared to us. Even Daniel in the Lion's Den had better odds than we have to make the grade. Buy three cases of beer, turn off the lights, and wait in your recliner chair for the bitter, bitter, end.
Yes, we have new revelation today warning us of the dire consequences of the fiscal stimulus bill, a revelation heretofore hidden and only now brought to light in time to scare the you know what out of us and rally around the revelator. You will never sleep soundly again. You might as well abandon your home, pack up your Cadillac Escalade, and head for the hills
Here dear fellow citizens is what we have just learned today. Be prepared.
RNC Chair Mike Duncan has warned that the Democrat's goal is to
"indoctrinate a generation of American children to the gentle comforts of the nanny state."--according to Alex Koppelman in Salon.com's War Room.
Furthermore, as quoted by Koppelman, Senator Jim DeMint (R-S.C.) has gone one better with this scary, scary, scary thought:
"The stimulus bill . . . is the worst piece of economic legislation Congress has passed in one hundred years. Not since the passage in 1909 of the 16th Amendment . . . which cleared the way for a federal income tax. . . has the U.S. seriously entertained a policy so comprehensively hostile to economic freedom, nor so arrogantly indifferent to economic reality."
I know I'm really scared now. Are you? On the other hand, we are living in a truly landmark, historic moment once we get our teeth into the knowledge that the stimulus bill is the worst piece of economic legislation since paving the way for the federal income tax! How can you get any worse than that? The economic history books will add a new chapter to memorialize the egregiousness of this legislation. Reminds me of our neighbors in a community we once lived in who brought a suit in federal court twenty or thirty years to declare the federal income tax unconstitutional. Or the man who once interviewed me for a teaching job whose claim to fame was the authorship of a master's thesis titled "Twenty Nine Evils of the Progressive Income Tax." And certainly the last thing we want is for our children to grow up in a nanny state.
The real problem in our economy is that we don't have many choices. Ordinarily, we could pull ourselves out of a recession by lowering interest rates and thereby raising the money supply and total spending. With interest rates effectively about zero, lowering them further is no longer an option. So how do you pump money into the economy? Lower taxes, for one thing. But tax reduction has an anemic track record in recent years. Increase government spending. Such increases demonstrably have a larger impact, dollar for dollar, than tax reduction, but how soon? And spend on what?
Then the question emerges, who will pay for the new flood of cash? Three choices: (1) raise taxes. Not likely. (2) sell bonds. Assumes someone will buy them. or (3) print money. I owe you $10, I print a ten spot and hand it over. It's called monetizing the debt. And magnificently inflationary, thereby wrecking the economy possibly beyond repair if carried out more than in relatively small amounts. But we're talking about gigantic, humongous amounts here, not a few piddling billions.
Probably the most difficult strategy to achieve in an economic crisis is to instill confidence and optimism once more in the economy by generating a sense of forward motion that delivers food on the table and a roof over heads. And apparently we haven't quite figured out whether we are serious about wanting to do that, or even to try seriously to achieve this goal, even if we have to fix continually the method or methods we start out with.
Warning: Do not read if this topic seems Toxic. Can be irritating and aggravating.
Chalk one up in the annals of economic and political history. The Republicans voted in lockstep disciplinary order yesterday against the so-called "economic stimulus package." There is, of course, much to grouse about concerning this stimulus bill. No one knows exactly how such a shotgun scatter approach and dribbling bits here and pieces there will all come together to produce jobs, help needy business and households, and start jazzing up the economic indicators again. And certainly no one knows how long it will take for bureaucrats and lobbyists and opportunists to dispense, spend, and acquire their share of the goodies. Some economists believe that we should have no stimulus package, that we should let the poor suckers sink, giving them time to cleanse their souls, change their greedy and ill-chosen paths of ignorance, and shape up.
Problem is, if the financial sector sinks, we all sink, and not just those who reaped $18.4 billion in bonuses last year while many of their employees were canned and didn't even have a bowl of gruel. After all economists still do not totally agree on what caused the Great Depression eighty years ago, let alone what they should do to heal a sick economy today.
But enough of this blather. Here is the multiple choice exam.
The Republicans voted 188 nays and 0 yeas on the stimulus bill because: (mark all that apply).
Rush Limbaugh told them to vote nay and they don't want to tick the King of talk radio off and then have to apologize to stay in his good graces.
They can't stand Nancy Pelosi and they don't like the idea of her telling them what to do.
They misunderstood the word "bipartisan."
They didn't like the free drinks they got at the White House the night before the vote.
They can't stand Keith Olberman or Rachel Maddow.
They are worried about irritating their constituent base back home since 100% of the House is already campaigning for reelection two years hence.
They believe the fundamentals of the economy are fundamentally sound.
They are hacked at being in the minority and want to present a united front to gain power again.
They couldn't come up with a serious alternative proposal except to provide more tax cuts, which are less stimulative than government spending, rather than more government spending.
They still believe that government spending is evil, despite the meteoric run-up of government spending during the past eight years.
All in all, observers, analysts, cable news, media, people who have lost and are still losing their jobs, corporations and businesses of all sizes and all kinds who have gone bankrupt or shuttered their windows or who are about to do so, are having a field day arguing, calling each other names, and trying to figure out where another loaf of bread or bottle of pills is coming from. It does make one wonder whether enough money can be raised to do anyone any good except provide a band-aid when what is needed is a massive transfusion. And a massive transfusion is not likely to come.
The Curmudgeonly Professor has explained the topic of why economics is called the dismal science previously, but in the interest of bringing everyone up to date, here is the explanation again. Most students think economics is known as the dismal science because they say that it is boring. Picture a class of 400 students, eyes glazed over, eyes closed in slumber, visiting with their neighbors, texting, Googling, or whatever else they can do to kill time until class is over. Even when I see students years afterward, I get comments like "I liked your jokes, but economics was sure boring."
No, no students, economics is not called the dismal science because it is boring. It is called the dismal science in recognition of the theories of Parson Thomas Malthus a whole bunch of years ago. Parson Malthus opined that population grows geometrically (2, 4, 16, etc.) while resources and the food supply grow arithmetically (2, 4, 6, etc.). So the result is obvious: humanity is doomed. No hope exists for survival. We will all perish. The good reverend, however, overlooked the possibility of technological growth in resource use and food production so, except for global warming in the midst of a cold and disastrous winter, we are still kicking. So to speak.
Thus, economics is concerned with why human beings want more stuff than they can produce with limited resources. To repeat a story I told before, the first semester I taught at BYU a Mormon nerd raised his hand and said "The Bible says there is enough and to spare, so you said resources are scarce, and that is unscriptural, and so we should not be required to take economics." (See Luke 15:17 : "And when he came to himself, he said, How many hired servants of my father's have enough and to spare and I perish in hunger?") I said something to myself like, "Holy cow, a true Mormon nerd. But this ingenious trouble maker overlooked the fact that he was the one who could perish in hunger, and he had better as heck study economics if he wanted to survive.
The Dismal Science actually began centuries before Malthus, when Adam and Eve were expelled from the Garden of Eden. The unemployment rate was 100%, and there was no government bailout plan, no social security, no FDIC, just a mean and dreary world which they were expected to figure out how to live in. God got really ticked off at everyone a bit later so He drowned everyone except Noah and some of his family and a boat load of stinking animals. But the people turned out just as wicked afterward anyway, so what good did it do?
The first agricultural government storage program began with Joseph in Egypt, and we have had government support of agriculture ever since since we are worried that if we don't bribe the farmers they will quit producing beans and such and we will starve to death. But you think about it: almost everything in the world is tied to economics, so economics is the root discipline of all mankind and all learning. Greed and jealousy caused Cain to slay Abel and away we went. No one was ever satisfied with one bowl of gruel, or one color TV set, or one country, or one pair of socks. No, everyone wanted more, patterning themselves after Oliver Twist.
Well class I can see that I have divulged enough material for today. Read the next fifteen chapters by tomorrow and we will continue from here. And there will be a quiz. There is a lot of food for thought here.