Rethinking Economics

Emerging Multi-Nationals

From time to time, I also plan to post links to news articles in the business and economic world that pique my curiosity.  I don't do so to endorse their commentaries on economic theory.  (I trust the reader can separate fact from commentary and conjecture.)  But in Rethinking Economics, I think it is important that this conversation not remain abstract.  Like I mentioned in my earlier post on the book, The Worldly Philosophers, I admire the approach of early economists whose economic theory was motivated and spawned by their honest encounter with the world they lived in.  No reason not to do the same today and stand in front of our world and look at it as it is.

In that vein, here's a link to an article from the Economist about how multi-national companies have been emerging from what we often refer to as developing countries.  It's an interesting read.  Take a look.

Personal Finance 101

As I mentioned in my earlier post, "Renewal", one of the things that motivated me to restart this blog was the discovery of the personal finance blogs (like Get Rich Slowly and Free Money Finance) end of the blogosphere.  There's a lot of great advice out there.  And I figured, I could join the club.  So from time to time I will post some suggestions of things to consider when it comes to personal finances and getting your house in order.

Money carries all sorts of meanings for people.  As FMF pointed out in this great post on how people sometimes think irrationally about money, we struggle with how to properly stand before it.  So much baggage has been placed on top of it, that it is sometimes hard to know how to separate the image from the real.  For myself, money has always been about financial stability.  I grew up in a household where my father worked crazy hours, 7 days a week, because he knew firsthand how fragile the auto industry was (and still is).  An hour that could be worked today for a good wage might not be there  tomorrow.  In turn, he had been shaped by growing up in the household of a father who had served in the Civilian Conservation Corps during the Great Depression.  Needless to say, I don't think it's a shock that money's ability to provide stability is a major motivator for the men of my family.

A happy by-product of that is that I have been naturally frugal most of my life.  I can't be thankful enough for that.  Which brings me to Law Number 1 of building wealth:  spend less than you earn.

I will wait until you stop moaning about my mentioning something so obvious.  No one said that personal finance needs to be complicated.  Of course, just because the rules are simple, that doesn't mean they are easy to live out.  Christianity isn't that complicated at the end of the day:  it is the encounter with a Person who responds to your truest needs and so you follow Him.  But one need only spend a few minutes looking around or in self-reflection to know that that hasn't been easy for most to live out. 

Same goes for finances.  I can't tell you the number of people who I meet -- at all cash-flow levels -- that fail to get this Law Number 1.  See, this isn't a question of getting it intellectually.  Most do.  It's not that hard to get.  It's about getting it experientially.  It's about recognizing that this isn't some abstract rule, but a truth for your life.  And then living it. 

In coming weeks, I'll of course offer suggestions of things that might help one abide by this Law Number 1.  But for now, let's just leave it at the law itself.  And here's an important element.  It offers you a choice.  Unless your income level is incredibly low, you can't look at Law Number 1 and blame others for your situation.  It forces one to confront reality again.  Do you want to develop wealth?  Then what are you doing to make sure you spend less than you earn.  We aren't talking yet about how much wealth, etc.  We are talking about movement.  Are you building wealth, losing wealth, or standing pat?  It's partly why I used the phrase "cash-flow" instead of "income" above.  Your income is really to give you fuel for a cash-flow that can be positive, neutral or negative. 

I know some of you may still be prone to dismiss this post as too simplistic.  But if you do and yet you find yourself in a situation where you spend more than you earn, for example, I must prod: what does that really say about how you are facing your situation?  Law Number One is a fact.  What you do with it is up to you.

The Worldly Philosophers

I know that I have been promising a resumption of this blog for some time now.  I've been a bit busy with some other endeavors, but I have resumed my economic reading.  Of all things, the current presidential campaign cycle, and Ron Paul's emphasis on monetary policy issues, has motivated it.  I find that amusing because I was never all that interested in macroeconomics.  My undergraduate education was focused on micro theory and had I pursued the Ph.D. I had thought about back then, it would have been in the application of cognitive science to economics, a clear micro-economic focus.

But I haven't picked up with Small Is Beautiful just yet.  I've been reading another book recently, Robert Heilbroner's The Worldly Philosophers.  The edition I have is a bit old.  I bought it sometime back in '94 or '95.  It is a wonderful book and a great introduction to the lives and ideas of some of the most influential economists of history.  You would be surprised how few undergraduate economic programs expose students to the writings and original thought of these economists.  While this is a popular introduction, it is a great starting spot and is wonderfully written.

Some have critiqued it for its omissions (famous Austrian or Chicago school economists, for example) and for hints of an author bias towards socialism.  I think the critiques are a bit over drawn.  Only so much can be accomplished in a book like this and hints of the author's leanings are subtle.

What I have found most striking is how differently these economists approached the world than today's.  These economists looked at the world and sought in their economic work to try and explain what they saw.  It was their observation of the world that led to their sweeping explanations through economics.  They certainly made mistakes, but they identified some remarkable things.  (We often forget that we stand on the shoulders of giants and that many things we take for granted today were novel for them.) However, what strikes me the most about this is that the object of their study came first. 

Today's economists also offer up broad and sweeping explanations through economics of the world around them.  But they do it in reverse.  The method -- utilitarian maximization and keynesian economics -- is pre-determined and then brought to bear on the object of study.

It is striking what a difference this makes.  Both are intelligent, but the earlier economists are fresh and philosophical while the later ones are technical and vocational.   I think that is what I find to be the most apt description of the difference.  The early economists were philosophical in their training and nature.  Today's economists appear to be technicians.

Renewal

So I know what you are thinking.  Two and a half years between posts? 

Sorry about that.

Despite the stop-and-start nature of all of my blogging, I thought I would try and rejuvenate this one.  I was actually inspired to do so by Get Rich Slowly.  I recently discovered this blog and other personal finance-oriented blogs.  I have found them all to be overwhelmingly well done (although you should still examine any of the methods they recommend for yourself).  Why did this inspire a restart of Rethinking Economics?  Well, my original interest in economics was quite practical:  I wanted to learn how to make money.  Then I met some economists.  I had to reexamine my motivations. 

You can read more below about the original reasons for creating this blog.  But Get Rich Slowly has reminded me that the practical still is quite important.  So in restarting this blog I have decided to blend its focus.  In addition to the originally planned purpose (and I will indeed be picking up with E.F. Schumacher's book), I will also have posts providing basic tips and suggestions for making sound decisions about saving and investing.  In fact, I think this fits well within the theme of this blog.  Talk to Christians for any length of time and you will find a greater taboo than sex: money.  We don't talk about it, how we should approach it as Christians, yet many of us struggle with sins involving money.  I think some of it is that we don't feel confident about money.  Many of us don't even know the basics on how to deal with money questions.

In any event, look for new posts very soon! 

I promise it won't be another two and a half years.

Who is E. F. Schumacher?

Godspy had a recent article profiling E.F. Schumacher and his book, Small is Beautiful.  Check it out as it may be some helpful background before digging into the book.

An Example Of My Frustration

Before I begin looking at E.F. Schumacher's Small is Beautiful, I thought I would share an example of what frustrates me about today's economic analysis applied to non-traditional fields.

A number of years ago I picked up a copy of the book, The Economics of Life, by Gary Becker and his wife Guity.  For those not familiar with Professor Becker, he won the Nobel Prize for Economics in 1992 and is known for his penchant for applying the theories of market behavior and economic incentives to traditionally non-economic daily life events.

All of this made me eager to pick up the book.  One of the first essays in the book is about religion, where Prof. Becker provocatively argues that having many denominations and sects having to compete for members makes religious groups better.  He writes:

Introduction

    Welcome to Rethinking Economics!

    Several years ago, I started a blog called Integrity (which is now back on the air) and joined the fray in what has come to be known as St. Blog's.  My goals for Integrity were ambitious.  Instead of giving the world my takedown of the day's headlines,  my goal was to create an interactive discussion on the true nature and mission of the lay faithful of the Body of Christ.   On the interactive front, the project was ... shall we say, not a resounding success.

    But what is a man without goals. 

    So begins Rethinking Economics.   As the explanation in the left column says, this will be a collaborative blog focused on exploring economics as informed by a proper understanding of the dignity of the human person.

    I know, I know.  What on earth do I mean by that?  Economics examines human behavior, particularly economic behavior.  It does so, in two fashions:  descriptive and prescriptive.  Descriptive, in the sense that it tries to explain what happens in the world.  Prescriptive, in the sense that it tries to offer a view on how the world should be ordered.  You might have heard the same ideas expressed as positive and normative economics.  (And despite what your economics professor probably told you, few economic problems are ever approached purely from a normative or positive viewpoint.)  Behind both of these viewpoints there are various assumptions about man:  how he thinks, how he processes information, how he values things, and how he makes decisions. 

    When I was in college, these assumptions were what I found most frustrating.  I did not recognize this economic man I was being told about -- with computer-like processing capability, always logical and stridently utilitarian -- as a true portrait of the human person.   It led me to take on psychology (specifically, cognitive psychology) as a second discipline.  At the time I was seen as a maverick and loony for doing so, and the roadblocks I ran into made me change my plans from becoming a professor of economics to law school.  (Ironically, today behavioral economics or economic psychology has a viable presence in some prestigious university departments.)   

    In that same spirit, it is my hope that Rethinking Economics will explore economics, but with the understanding of the ultimate aims of the human person that we know to be true, whether from our Catholic faith or otherwise.  I have invited several friends from the blogosphere to participate, and I look forward to their contributions.

    I also invite you, the reader, to join in.  Don't let the topic scare you off.  A background in economics is not required.  Truth is, most of us know plenty  about economics to explore this subject as amateurs.  And it is too important of a subject to leave just to academics.  In my view, economics (and specifically money) is the overlooked taboo, both in society in general and particularly within the Body of Christ.  Yet, most of us if we are honest will recognize the power it holds over our lives and the influence it has in shaping our society.  And as modern economic analysis grows in its influence -- it has already been exported to fields like sociology, law and politics -- we need to be able to engage it and respond to it. 

    So, whether you approach the topic from the perspective of an economist, a theologian (Catholic or otherwise), or just the average person on the street, I invite you to join in!   Any relevant topic of interest is welcome.  Also, check out the links and resources highlighted on the blog.  Note that they come from all sorts of perspectives, so don't consider them personal endorsements per se.  But I think they are valuable in that they tackle the subject in a way that you may not have experienced in your Econ 101 class.

    As for my part, I am reading one of the books listed in the right-hand column:  Small is Beautiful by E.F. Schumacher.  My first posts will probably be about something that strikes me from that work.