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.