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Economics, an epiphany

 
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Mark



Joined: 22 Mar 2007
Posts: 1406

PostPosted: Tue Oct 21, 2014 12:16 am    Post subject: Economics, an epiphany Reply with quote

I listened to a course this year that was a real revelation. I've been interested in many sciences all my life, and I've been listening to several of The Great Courses from The Teaching Company each year for several years, yet somehow I managed to reach almost 60 years of age without ever studying economics.
This summer I listened to "Thinking like an Economist: A Guide to Rational Decision Making" by Professor Randall Bartlett, a short course (only 12 lectures). It was a real eye-opener for me. Most of this post is thoughts inspired by the course, not material in the course.
I encourage anyone who likes audio or video courses and isn't already familiar with the basic principals of economics to check this one out. I also think our society as a whole would benefit greatly from including some basic economics classes in the standard high school curriculum.
I had never really thought about it, but I would now classify most of economics as a specialized sub-discipline within psychology and/or sociology, since it is dealing with questions of what people think and do. There are clearly parts of economics that are not for the innumerate, but quite a lot of economic thinking doesn't require any math at all.
Among other things, economic thinking makes clear to me as never before HOW the US political right is wrong.
The first principle of economics in the course is "People respond to incentives". Laws, regulations, tax structures, social norms, and similar aspects of the human world all provide incentives to individuals and businesses.
Lecture 5 explores "the tragedy of the commons", a phrase I've encountered before but never really researched. A "common" is anything everyone uses but nobody is explicitly required to pay for.
The primary goal of any for-profit business is profit. Governments, NGOs, non-profit businesses, and some people can address problems with commons, but no for-profit business can address commons issues without being at a disadvantage in competition with other for-profit businesses UNLESS a government has created laws and/or regulations that FORCE all businesses to include costs of commons as a routine part of doing business. This is why we need governments that create and enforce controls on (air, water, ground, electromagnetic spectrum, genome, space, etc.) pollution, set and enforce minimum wages, ban (racial, ethnic, gender, gender-preference, national origin, religious, etc.) discrimination, maintain and/or regulate infrastructure (highways, bridges, shipping channels, ports, airports, power distribution networks, etc.), and all the other things that can be viewed or treated as commons.
The lectures explained cap & trade systems in a way that finally let me understand how & why they can work if they are designed right. They also described how the problems of over-fishing can be addressed (and have been in limited areas) by systems of catch rules designed based on rules from economics. Both of these are examples of how well-designed incentives can fix problems.
The shrinking of government by the right-wing from Reaganomics through the Tea Party has led to deterioration of the commons in the USA that is approaching disastrous levels.
Many laws created in the last several decades create "perverse incentives", which lead people to act against their own best interests or against the best interests of society or humanity as a whole. Governments bribing businesses to come to a state or county or city are an example of perverse incentives. Public money goes into the pockets of private businesses, usually ending up costing the region as a whole because promised benefits from the presence of the business were overestimated or overstated.
LOCAL minimum wage laws can be a perverse incentive because they still let some businesses move to locations with lower wages, yet any NATIONAL minimum wage update has been blocked in Congress for many years.
In some ways I'm not surprised that the recent mishandling of the first Ebola case diagnosed in the USA was in Texas, since that is one of the epicenters of short-sighted cost-cutting and anti-regulatory thinking. Years of relentless cutting and curtailing of our national health infrastructure has left us poorly prepared to handle dangerous diseases despite years of warnings from people who looked at facts instead of fantasies.
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Eliza



Joined: 21 Aug 2011
Posts: 1265

PostPosted: Tue Oct 21, 2014 12:34 am    Post subject: Reply with quote

Quote:
The shrinking of government by the right-wing from Reaganomics through the Tea Party has led to deterioration of the commons in the USA that is approaching disastrous levels.
Many laws created in the last several decades create "perverse incentives", which lead people to act against their own best interests or against the best interests of society or humanity as a whole.


This. Exactly. A similar thing in the UK with similar timing from Thatcher through to the Tories. There are a number of books out now about the unraveling of democracy.
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Eliza



Joined: 21 Aug 2011
Posts: 1265

PostPosted: Wed Oct 22, 2014 10:29 pm    Post subject: Reply with quote

On a related topic... "In economics, a monopsony (from Ancient Greek μόνος (mónos) "single" + ὀψωνία (opsōnía) "purchase") is a market form in which only one buyer interfaces with many sellers."

Amazon’s Monopsony Is Not O.K.
http://www.nytimes.com/2014/10/20/opinion/paul-krugman-amazons-monopsony-is-not-ok.html

Which brings us back to the key question. Don’t tell me that Amazon is giving consumers what they want, or that it has earned its position. What matters is whether it has too much power, and is abusing that power. Well, it does, and it is.
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Mark



Joined: 22 Mar 2007
Posts: 1406

PostPosted: Thu Oct 23, 2014 9:39 am    Post subject: Reply with quote

Amazon is just one example of a for-profit business behaving according to its nature, which values a goal of the company's head (market domination) over any human values such as good treatment of workers. In the current dispute, price fixing by Hachette is also just business as usual.
What I realized after listening to the Economics course is that there is little point in deploring such behavior since it is almost required by laws of nature. Instead we need to elect governments that will REGULATE businesses to FORCE them to behave in ways that are better for people. Without the incentives of laws and regulations, for-profit businesses simply can't be expected to include human values in their practices. Businesses that do incorporate human values are exceptions created by individual people in charge of those businesses.
Deregulation and privatization, two of the biggest shibboleths of right-wing politics, are bad for people because expecting them to benefit people literally violates laws of nature (human nature and the nature of for-profit businesses).
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Eliza



Joined: 21 Aug 2011
Posts: 1265

PostPosted: Thu Oct 23, 2014 7:41 pm    Post subject: Reply with quote

One of the key problems, to my way of thinking, is that big business is funding the gov't parties at fault. So it's both that are broken: business and gov't. And guess what? All are still people. The system is broken because of people who care more for money than for other people from various areas. It has become a system of the haves and have-nots.
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Mark



Joined: 22 Mar 2007
Posts: 1406

PostPosted: Thu Oct 23, 2014 9:02 pm    Post subject: Reply with quote

Yes, U.S. democracy is badly broken, with rigid wrong-headed ideologues, tremendously corrupting influxes of money, and a Supreme Court consistently adding disastrously anti-democratic rulings. But all of those failings in government COUNT as failings because our government is supposed to be acting for the people. Any for-profit business acting against the public interest to increase profits does not count as a failing, it is just business as usual. Yes, all the decisions are made by people, but the incentives, frameworks, and goals established by & for government and business are fundamentally different.
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Eliza



Joined: 21 Aug 2011
Posts: 1265

PostPosted: Fri Oct 24, 2014 8:32 am    Post subject: Reply with quote

I think we're on similar pages but coming at this from different angles. To me, big money (business, et al) and government are now practically the same thing. One is more likely to get to a gov't position in the first place only with the backing of big money. And then after having gotten the position, former Congress people later go on to work for that same big money, time and again. The laws and the Court now protect big business/big money interests.

We agree exactly on the broken part.

ETA: I think the Court's decision that a corporation is the same as an individual citizen says it all.
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Mark



Joined: 22 Mar 2007
Posts: 1406

PostPosted: Sat Oct 25, 2014 1:08 pm    Post subject: Reply with quote

My view of some of the ways in which our U.S. democracy is broken includes:
Government has been sold out (bought up by businesses and rich individuals).
Government has been weakened by politicians who don't believe government is good.
Government has been weakened by widespread ignorance or indifference in the population. (Debates among the U.S. founders made clear that they knew a successful democracy NEEDS informed and engaged citizens.)

The course I mentioning in the OP barely mentions politics. It could only cover some basics in 6 hours of lectures. Having listened to the material, many political implications were immediately obvious to me.
I was serious in saying society would benefit from including economics in the standard high school curriculum. (Or does it already? My high school days ended in 1972 and I've raised no children.) More people who understand basic economic principles will mean fewer people who buy right-wing economic BS. I know exposing people to knowledge is never enough because people always filter all input and only accept what fits their previous preconceptions and values. If simple exposure to knowledge always worked, there wouldn't BE any right-wing economists, but there are clearly plenty of people who are capable of ignoring the commons. (There also wouldn't be any deniers of anthropogenic climate change, or flat-Earthers, or moon-landing deniers, or Holocaust deniers, or vaccine fearers, or evolution deniers, or any of the too-many bastions of ignorance in the modern world, but those are topics for other threads.)
The old saw that "knowledge is power" is simplistic, but I do believe we would all benefit from more awareness of economic principles.
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