Armchair Economics | The Armchair Economist | Current Macroeconomic Situation

Armchair Economics test post

noreply@blogger.com (John Williamson) — Thu, 18 Nov 2010 23:27:00 +0000

Check out our site on armchair economics.

More to come soon.

So What Do I Stand For, You Ask?

noreply@blogger.com (John Williamson) — Tue, 20 Apr 2010 02:01:00 +0000

A very brief overview of what I stand for:

Free markets
Capitalism
Entrepreneurship
Economic competition
Civil liberties
Methodological individualism
Marginalism
laissez-faire
Personal freedoms
Freedom of choice
Freedom of expression
Free trade
Completely privatized educational system with a "voucher"-type program and the localization thereof
Parental control of and responsibility for all funds expended for their children's education
Property rights
Free-market, privatized banking
More social and economic freedom
Fiscal conservatism
Abolition of minimum wage laws or at least the lowering thereof
Abolition of the current Social Security and Medicare systems in favor of voluntary, privatized systems, or at least the ability to opt out of these tax-financed systems.
Abolition of tax-financed subsidization of political candidates or political parties
Abolition of our "welfare state"
Auditing of the Fed and SEC
Privatized "charity" and "welfare" institutions
Privatization of all "public" works and goods
Smaller government - limited government intervention
Governmental protection of individual rights, liberties, and property
Governmental adjudication of legal disputes
Governmental provision and protection of a legal framework upon which the free market rests
Governmental control over the immigration of those who could potentially threaten or infringe upon health, security, or property
Voluntary assumption of personal risk
Virtually no governmental subsidization of any business, labor, or interest group
Free-market-governed industry
Free-market-governed health care
Political antitrust laws
Individual responsibility of retirement planning and income security
No governmental interference or arbitration in the labor market
Less concentration of power
True, representative democracy
Right to bear arms
No ridiculous import tariffs or quotas
No ridiculous inflationary monetary policies
No ridiculous "entitlements"
No ridiculous "bailouts"
No war on drugs, in favor of the potential subsidization of drug education as opposed to imprisonment
Adherence to the original Bill of Rights
Adherence to the original Constitution
No limitation, suppression, or misinterpretation of the original Constitution
Bring all our troops home
Limited or no international interventionism without an invitation/request
Get government out of our wallets
Less taxes and a simpler tax code
Abolition of our ridiculous income tax system to be replaced by a simple national sales tax.

You will notice that many of these reflect Libertarianism, with some minor differences, which is why, even though I dislike labels, I consider myself a Liberty Republican (Republitarian).

Best,
Tyler

10 Disasters of the 2009 Obama Administration

noreply@blogger.com (John Williamson) — Tue, 20 Apr 2010 01:50:00 +0000

In no particular order:

1. Cash for Clunkers
2. War escalation in Afghanistan
3. Giant government health care expansion bill
4. Post Office loses money
5. Economic Stimulus package
6. Expansion of "state secrets" doctrine
7. Increase in unemployment
8. "Bailout" Geithner as Treasury Secretary
9. Skyrocketing federal spending
10. Huge federal deficits

Check out 10 disasters of the 2001-2008 Bush Administration.

10 Disasters of the 2001-2008 Bush Administration

noreply@blogger.com (John Williamson) — Tue, 20 Apr 2010 01:46:00 +0000

In no particular order:

1. Cash for Car Companies
2. War in Iraq
3. Giant Medicare expansion bill
4. Post Office loses money
5. Stimulus "rebate" checks
6. PATRIOT Act
7. Increase in unemployment
8. "Bailout" Paulson as Treasury Secretary
9. Skyrocketing federal spending
10. Huge federal deficits

Check out 10 disasters of the 2009 Obama Administration.

Armchair Economics - The Failure of the American Education System and the Ultimate Solution

noreply@blogger.com (John Williamson) — Thu, 08 Apr 2010 22:35:00 +0000

One of the biggest issues we hear about all the time is the failure of the American education system to produce successful passing rates and actually give our children a quality education within a quality environment and facility. The main problem is that the government subsidizes the producer, not the consumer. In this case, the producer is the school, and the consumer is the student. Let me explain.

When the government pays for public schools, they generally provide the minimum amount of funds necessary to build the school, which is why you see schools that are basically dumps on the nightly news. The system demands that a child attend a particular public school based on where he or she resides, disabling them from being able to choose to go to another school for a potentially higher quality of education.

If government subsidized the consumer side of the market for education, if they gave money to the student, he or she would be able to choose where to go to school. Obviously the child and the parents thereof would want to choose the best quality school with the best teachers and the best facilities; this would create competition. Schools would compete to meet the needs of the student in the best way. Quality and quantity would be ensured across the board, as subsidizing the student would provide an incentive for schools to work to outdo the other schools. As such, prices would be forced down as low as the competition would allow, and the quality of schooling would skyrocket consequently.

This form of system would also enhance credentialism and meritocracy for teachers and students, which would further improve the quality of the education and learning environment provided. The current educational system causes many students to drop out before even completing high school, thus condemning them to low-income jobs and an overall lower standard of living. Everyone in society is worse off as a result. Illiteracy is widespread. For this reason, the educational system should be largely privatized. The parents and their kids must be free to choose the school, not the other way around.

A privatized educational system would also significantly reduce poverty by allowing the poor and those in parts of town that are forced to go to the 'inferior' school to achieve better quality schooling than they currently receive. Some parents still hold that their child's public school is "good," but that's simply because they don't know the alternatives, or because we've lowered the standardized rating of test scores across the board. But when the real test, the international test, is implemented, the truth comes out. When put up against 41 other countries, American students do just as well...up until the 4th grade. Then, from the 5th grade on, American students score far less than the other countries that spend much less on education than we do.

Privatizing education would also increase the salaries of teachers who try hard - credentialism and meritocracy, again. In terms of basic principles of economics, it's all about incentives. Pay would be based on productivity. That is, a great teacher will be paid more than a poor teacher, or the poor teacher will simply be fired to be replaced by a more qualified teacher. This gives the teachers an incentive to further their own education and qualifications. If the teachers know more and are better at teaching, the students learn more, and are able to ascertain higher paying jobs that require more skills, which the students will then have as a result of their higher quality of education, thus society as a whole becomes better off. Do you see the pattern here?

If the school is autonomous, it is free to hire and fire and choose and try out new things and experiment to get the best results possible. One myth is that the schools are "underfunded." That's all we hear nowadays. But with an average annual spending of $10,000 per student, which results in about $200,000 per classroom of 20 students, 3 or 4 teachers could be hired! Per-pupil spending has more than doubled in the last 30 years, while test scores and graduation rates remain flat.

It has been shown time and time again that private, alternative, charter, and independent schools do far better and cost far less than the highly bureaucratized government schools. Private systems like Sylvan Learning flourish. Public schooling cause some parents to go to the black market for their child's schooling and break the law by falsifying their residential address just to attempt to get their son or daughter a better education. The aforementioned countries that beat America in the international tests do allow the parents and students to choose, and they do much better and get a much better education as a result. Those countries don't leave any child behind, while America leaves many behind.

People have choices in many other areas, like what cell phone plan to get, or what food to buy, or what brand of computer to buy. Why not allow the same choice for education? The highest level of dissatisfaction and the subsequent inefficiency occurs at monopolies and government institutions, like motor vehicle departments and post offices, where there is really no incentive for the producer to 'perform.' Without competition, nothing really gets done. This concept applies to the education system just as much.

Teachers all across the board get paid the same independent of whether or not they are good teachers. The unionized teachers' contracts make it nearly impossible to fire most teachers, so they get away with many things that society and parents frown upon. Unionized monopolies ultimately fail. The education union does not allow the necessary changes to occur, and students suffer greatly because of it. Competition increases quality, quantity, and sustainability, and makes everything better.

Stick around for more at Armchair Economics.

Best,
Tyler

The REAL Cause of The Great Depression

noreply@blogger.com (John Williamson) — Thu, 08 Apr 2010 20:48:00 +0000

Nine out of ten Americans seem to believe that the Great Depression was caused by the failure of private business or an excessive concentration of wealth of the elite profiteers and that it was necessary for government to step in and fix the free market. This could not be further from the truth. In fact, quite the opposite is true. The Great Depression was caused by the failure of government and the failure of the Federal Reserve.

How did this unbelievable myth become so widespread? Simply put, the free market and private enterprise have no press agents, whereas the government and the Federal Reserve have many. The Fed simply didn't want to admit a mistake of controlling currency and overextending credit.

Stick around for more on Armchair Economics.

"Price Gouging" = Nonsense

noreply@blogger.com (John Williamson) — Thu, 08 Apr 2010 02:32:00 +0000

Washington loves to condemn "price gouging," whatever that is... A great example lies in the aftermath of Katrina, when prices for gas and water in the area rose sharply. Politicians were quick to bad-mouth the gas stations and water sellers for acquiring "excess profits" and wanted to immediately implement anti-"gouging" policies. If you want to punish the seemingly mean, greedy profiteers, then these laws would appear to be a good thing. But if you're one of the people that the laws attempt to "protect" from this "price gouging" thing, you're not going to be very well off. Allow me to explain.

Let's pretend for a second that you were a Katrina victim that is in desperate need of water. You go to the store to buy a bottle of water for $1, but there's a problem: all the water's gone. Everyone's already bought it all up. So you continue your quest until you run into the infamous monster known as the Price Gouger, who is charging $20 per bottle for his water that was only $1 just last week. You pay the $20 to survive and enjoy your water as you go on your way.

You hate the Price Gouger, but if he hadn't "gouged" his prices, he'd have been all out of water, and you would have died. His "gouging" saved you because he was looking out for himself, because he was trying to make a profit. I cannot stress this point enough, as it seems to permeate all my articles. One man's profiting allows everyone to profit. You are now better off (alive) because of the Price Gouger's seeming malevolence. Everyone else was out buying water before you were. Everyone stocked up, thus every store's water supply diminished. Only the Price Gouger had a small supply of water, because his seemingly high price allocated the water, a scarce commodity in this example, to those who wanted and needed it most.

A price is the best, most efficient way to allocate a scarce resource, which is one of the most basic principles of economics. Politicians don't seem to understand this. They think those who are helping society are actually hurting it by being profiteers. Sure, some may give out of the kindness of their heart, but we can't depend on benevolence. As Adam Smith once said, "It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest."

See, it's all about supply, demand, and opportunity cost. Why would the carpenters and roofers and electricians and plumbers leave their homes in some other state to go all the way to New Orleans to work if they couldn't make more money than they were already making at home. It would make no sense. If they couldn't, they simply wouldn't go to New Orleans. Politicians just don't understand basic principles of economics. Sure, you may have the would-be heroes who want to come help for a low price, but as I said, we can't depend on benevolence week after week. Those people have to eat too, ya know.

These anti-"gouging" laws are just another form of a price ceiling. If you force prices down, you force suppliers out. If you let the free market work, suppliers are plentiful, and the prices are guaranteed to be as low as the competition allows. As such, it is the "price gougers" who provide the water, gasoline, carpentry, and the like when necessary. The "price gougers" save lives.

"Caring vs. Uncaring"

noreply@blogger.com (John Williamson) — Wed, 07 Apr 2010 19:55:00 +0000

Nothing is more beautiful than a flawless, concise illustration of a particular concept. This is exactly what I ran across many years ago in an article by Dr. Walter Williams titled "Caring vs. Uncaring." The article and the argument therein perfectly corroborate my post about capitalism and its benefits. This post is somewhat of a summary of the article.

As I have argued and will continue to argue, capitalism and the free market system make for the most efficient outcomes, specifically the most efficient allocation of scarce resources. It leads to the best outcome for every individual in society. But let me suspend this belief for a moment to entertain an alternative proposition. What about the seemingly selfless Mother Theresa or the admirable work of the Red Cross or The Salvation Army or charities?

"In December 1999, Stephen Moore and Julian L. Simon wrote an article titled "The Greatest Century That Ever Was," published by the Washington, D.C.-based Cato Institute. In it they report: Over the course of the 20th century, life expectancy increased by 30 years; annual deaths from major killer diseases such as tuberculosis, polio, typhoid, whooping cough and pneumonia fell from 700 to fewer than 50 per 100,000 of the population; agricultural workers fell from 41 to 2.5 percent of the workforce; household auto ownership rose from one to 91 percent; household electrification rose from 8 to 99 percent; controlling for inflation, household assets rose from $6 trillion to $41 trillion between 1945 and 1998. These are but a few of the wonderful things that have occurred during the 20th century."

How did all these things come about? Hopefully the answer is pretty obvious. These things came about not because of selfless donation, but because of capitalism and its principles. People weren't concerned for others. They looked out for number one. People's attempts to profit allowed everyone to profit. I use my computer just about every single day. Do you think the laborers in Japan or China or wherever it was made simply wanted to make me happy? Or that the manufacturing company just wanted to help the world by providing affordable computers? No! They make sure that I can enjoy my cheap computer because in doing so they make sure that they themselves are better off. Essentially, in terms of the basic principles of economics, an increased producer surplus means an increased consumer surplus.

As such, all those wonderful things that came about during the 20th century were the result of humans pursuing profits. The unfortunate fact is that bureaucracy has rendered "profit" a dirty word, whereas "nonprofits" appear righteous and morally whole. I get so tired of hearing statements along the lines of "So-and-So is a nonprofit organization." Ok, does that mean they are completely selfless and righteous? Absolutely not. It is for this reason that privatized charities and such and more efficient. Well, really, most of the time, privatized everything is more efficient.

The politicians and liberal media have caused the word "profit" to have extremely negative connotations simply because most people don't understand the purpose and importance of profits. Think of it this way. Which sort of institutions produce the greatest amount of consumer satisfaction, grocery stores and computer manufacturers and clothing stores and the like or things like public post offices and motor vehicle departments? I think everyone can agree that it is the former. The survival of those institutions depends on profiting and in turn pleasing the average, everyday consumer like you and me. The latter examples do not.

Obviously markets don't always produce perfect results, "but they're the closest we'll
come to perfection here on Earth."

Read more at Armchair Economics.

A simple, concise explanation of libertarianism by John Stossel

noreply@blogger.com (John Williamson) — Wed, 07 Apr 2010 14:23:00 +0000

What Am I? by John Stossel on Creators.com - A Syndicate Of Talent

The Racist Tax

noreply@blogger.com (John Williamson) — Tue, 06 Apr 2010 02:19:00 +0000

One of the creative constituents of the new health care bill that has been the recent topic of conversation is the 10% tax on tanning. Tanning salon owners are outraged, and feel they are being unfairly targeted by the tax. While that is true, there are a few slightly more significant effects to consider.

To cite some basic principles of economics, the tax will raise the price of tanning to the consumer significantly, thus demand will decrease and the result will be a significant decrease in the number of mutually beneficial voluntary transactions. In doing so, the tax is detrimental to the welfare of society overall. Both parties suffer. The salon owner's profits shrink (his or her employees may also see a reduction in pay), and the consumer is forced to shell out more money for each visit to soak up some rays.

The main purpose of this post, however, is to reiterate the notion that Doc Thompson recently pointed out - that the 10% tax is the most fundamentally racist policy constituent Washington has ever produced in our twenty-first-century society.

“Why would the president of the United States of America - a man who says he understands racism, a man who has been confronted by racism - why would he sign such a racist law?”

See, dark skinned people have no use for tanning beds, therefore only whites are taxed as a result. This upsetting example of racism calls to attention the other hidden taxes we pay and often forget about, such as taxes on gasoline, travel, and fishing. Isn't it comforting to know that for every $1.00 you spend on a jar of peanut butter you pay $1.43 in import taxes?

The tanning tax is one of the many examples of government policy that defies the framework of the Constitution. Apparently all men are not created equal.

Enjoy the rest of Armchair Economics.

Best,
Tyler

Armchair Economics - Why the Minimum Wage Hurts Everyone and Causes Unemployment

noreply@blogger.com (John Williamson) — Sat, 03 Apr 2010 23:10:00 +0000

Proponents of a higher minimum wage ignorantly believe it will help teenagers and minorities. In fact, the opposite is true. This post is a somewhat brief overview of why and how the minimum wage and the raising thereof actually hurts low-skilled workers in terms of unemployment.

On the surface level, raising the minimum wage increases the cost of labor across the board and makes it more expensive for firms to hire workers. At first glance (the only glance Washington ever takes), raising the minimum wage is very attractive to the average person and to politicians. It'll put more money in the pockets of a low-skilled laborer, they say. Upon analysis using some basic principles of economics, however, the proposition seems the opposite of beneficial.

The laws of supply and demand dictate behavior in society whether we want them to or not, folks. As one of my economics professors once said, the basic principles of economics are always at work. This concept is just as much armchair economics as it is technical jargon. When the minimum wage is raised, employers look for employees with more skills that are more productive to offset the increased cost of that labor. Thus, they hire less low-skilled workers. You see, in essence, a minimum wage law is effectively an example of a price floor. In terms of economics, it creates an immediate shortage of jobs and a surplus of potential laborers. What is even less obvious is the fact that the more the minimum wage is raised, the more attractive a minimum-wage-rate job becomes to a previously unemployed high-skilled worker, decreasing the amount of available jobs even further.

Yet another effect that is unnoticed is a possible slight increase in prices. Most companies will most likely choose to not go this route, but some will. People tend to forget that the money to cover the increased wages must come from somewhere; it does not just magically materialize from nothing. Washington often forgets this fact as well. As stated, some companies may choose to raise their prices which offsets the costs to the consumer, thus the total utility (benefit) to society is decreased. Employers, if the minimum wage is raised high enough, may even go so far as to outsource labor to foreign countries, hire illegal immigrants, or pay their employees under the table. As such, the only groups I can think of that would actually benefit from a raising of the minimum wage is illegal immigrants and workers in foreign countries.

Another group that would benefit is politicians, but hell, they benefit from virtually every policy they put into effect. They and their respective voters and supporters seem to believe they are on some moral high horse, stating that they want to help teens and minorities. This is ignorance at its best. Not only do they say one thing and do another, but they almost always don't even understand the ramifications of what they do.

Humans respond to incentives. Raising the minimum wage gives more people the incentive to disregard pursuing a valuable education. In doing so, young people set themselves up to 'live poorly' in the long run. And no, minimum wage hikes do not decrease poverty. Sure, previously poor families that experience a pay raise may escape poverty, but previously non-poor families will eventually fall below the poverty line in accordance with the aforementioned incentive effect, thus a minimum wage hike hurts everyone in society in the long run.

I would even go so far as to argue that in theory there should be no minimum wage, and that wages in most fields (obviously there would be exceptions) should be allocated based on the productivity of the employee. This occurs in the field of sales with a thing called commission. This system would allow the most productive workers, essentially the hardest workers, to earn the most money. If I were an employer, I would absolutely implement this system in every way possible. I believe this system would make employers more profitable as well, which is again a good thing for society. After all, we do live in a world surrounded by meritocracy and credentialism, for the most part. It's fair, as high pay rates are reserved for those who want and need it the most. How's that for morality and economics!

But Tyler, how will people live? Let the government subsidize education, internships, housing, or food (they already do much of this), and encourage low-skilled workers to become educated so that they can achieve higher paying jobs. This would also effectively decrease the number of low-skilled workers and increase the number of available minimum wage jobs, thus helping teens and minorities even more.

If you are a relatively productive worker, present this idea to your employer; your rate of pay may increase if he agrees. If not, however, do everything you can to keep the concept under wraps, as you will probably see a reduction in pay or get fired when he or she recognizes the extremely fallible system.

Below is a video featuring Milton Friedman, one of the most knowledgeable, most respected economists in history, and his take on the minimum wage.

Armchair Economics - Why Social Security and Medicare Comprise the Largest Ponzi Scheme In History

noreply@blogger.com (John Williamson) — Fri, 02 Apr 2010 01:02:00 +0000

Unless you've been living in a box for the last 5 or so years, you've heard all the complaints thrown around about Social Security and its inevitable failure. The government forced upon us this entitlement that we don't ask for that's supposed to provide us with some money when we get old. This is a brief overview of the utter failure of this unwanted entitlement.

Many people I've talked to don't even understand how this horrible system works. They seem to think that the money you pay in FICA goes into some "account" that you have access to later in life. This could not be further from the truth. Essentially, Social Security and Medicare comprise the largest Ponzi scheme the world has ever seen, in which the youth of today are supposed to pay for the retirement of the current elderly, as well as wars, welfare, and corporate bailouts. The problem that has been pointed out recently is the fact that life expectancy, as well as the American population, has increased drastically, and will continue too. People aren't dying, and we can't afford to pay them anything. The government refuses to pay anything because they've spent it all. The more victims that get sucked in, the larger the entire Ponzi scheme becomes. The system takes in more than it can pay out. Currently Medicare is responsible for a $36 trillion unfunded liability, and Social Security's is $8 trillion.

Do not fear, however. The brilliant Democrats have a plan! In a nutshell, their proposed solution to avert insolvency is to dump more money into the failing system, thereby increasing its magnitude. They want to tax the youth until the economy crashes further, and, if not, they'll just print so much money to where it's not even worth the paper it's printed on.

If he answered honestly about the system, I can see President Obama shrugging and borrowing the words of Bernie Madoff: "The money's all gone."

A bit from FBN about this issue:

Armchair Economics - "The Iowa Car Crop"

noreply@blogger.com (John Williamson) — Thu, 01 Apr 2010 23:41:00 +0000

Landsburg's beautifully-painted metaphorical summary of the flawless argument of David Friedman illustrates politicians' and the general public's widespread ignorance and economic illiteracy, and simplifies a seemingly complex issue with some basic principles of economics.

Politicians and government officials hate technology. What? Yes, they hate technology in that they view international trade and its subsequent act of importing as being bad. International trade is simply a form of technology that is a product of a free market economy. I will try to do a longer post or two in the next few weeks on international trade, this one is just a simple illustration of one of the most significant basic principles of economics.

Everyone knows that we manufacture cars in the United States in factories, but most people don't realize that we also produce cars in fields in Iowa. We plant seeds from which the cars grow, a few months later the seeds turn into wheat which we harvest and load onto ships that disappear into the horizon of the Pacific Ocean. A few months later the ships reappear with brand new Toyotas.

International trade is merely a form of technology that allows us greedy self-interested Americans to get what we want. This is a good thing. The country of Japan and their factories and workers are all factors irrelevant to the welfare of individuals in America. The concept is as simple as wheat being converted into cars. As such, policies that prefer the first form of technology over the second are essentially policies that favor the manufacturers in Detroit over the manufacturers in Iowa.

Thus Detroit and Iowa are competitors, and a free market system allows production to be allocated to the most efficient producers when their marginal costs are equal, which results in a maximization of efficiency as well as a maximization of benefit to the consumer (individuals). Now obviously there are those that prefer an Impala from Detroit over a Corolla from Iowa, but essentially that is irrelevant here as well.

This example illustrates an important concept: Trade theory dictates that if you attempt to protect domestic producers in a particular industry from foreign competition, you must hurt domestic producers in other industries. And in doing so, their is a net loss of total efficiency and total utility (benefit).

Next time someone asks you about your Toyota, explain to them how and why it was manufactured in Iowa and not in Japan.

Best,
Tyler

Armchair Economics – Capitalism, Consumerism, and Narcissism

noreply@blogger.com (John Williamson) — Wed, 31 Mar 2010 22:23:00 +0000

Some people propose that today's youth and humans in general in this society comprise the most narcissistic, self-centered population the world has ever seen. On the other hand, some conclude that we are merely seeing a change or shift in norms and values over time. Many like to give humans the benefit of the doubt and assume the latter, when in fact the former is true. Needless to say, one of the main areas in which this selfishness and seeming narcissism can be seen is advertising. And not only can this selfishness be seen in advertising, but it is quite possible that the advertising itself inspires it. As an armchair economist, I believe some basic principles of economics and capitalism play a role as well.

Proponents of this generalized idea of an evolutionary shift of norms and values usually deny the presence of this apparent societal selfishness. Their seeming laziness encourages them to simply shove the issue aside, either to deal with it later (perhaps in future generations when it really becomes a problem) or not at all. Journalists like Raina Kelley, however, choose to take the road less traveled and observe the present-day fundamental facts of society to correctly conclude that this population is comprised of some of the most self-centered individuals the world has ever seen, suggesting that we are experiencing “a narcissism epidemic.” How or why does she make this bold, absolutist conclusion? Well, honestly I do not know, but I choose to take the less traveled road with her and observe things myself, and there are indeed many factors that support her (and, agreeably, my) opinion. There are also many approaches that can be taken when considering the selfish-or-not dichotomy, the first being scientific.

British neuroscientist Sarah-Jayne Blakemore is able to conclude without a doubt that the present-day population indeed quite selfish. Specifically, she observed MRI scans of the brains of teenagers and adults after asking them specific questions. She demonstrates with her own study on the areas of the brain that when making decisions or choosing a course of action, teenagers largely do not use the part of the brain responsible for empathy and understanding, meaning that they think “less about the impact of their actions on other people and how they are likely to make other people feel.” This region is known as the medial prefrontal cortex. Blakemore claims that instead of using this region, teenagers use an area in the back of the brain called the superior temporal sulcus, which is responsible for the perception and imagination of actions, as well as the prediction of outcomes based on those actions. In other words, Blakemore is saying that teenagers immediately imagine the effects of their current choice and how it will affect them and virtually ignore the consideration of the possible impact on others. This concept is very important in that it provides a biological explanation for a specific behavior, namely a predisposition for teenagers to behave a certain way: selfishly.

How did this lack of empathy and understanding come about? And, if our grandparents and ancestors did consciously think about the effects of their actions on others, how or why did our brains evolve so drastically to become so seemingly selfish in nature, as Blakemore illustrates? Well, perhaps we should instead investigate the nurture aspect of the situation. In other words, I would argue that this evolution of the brain has stemmed from environmental factors, the primary factor being advertising. Psychologists and sociologists are all the time investigating whether a certain effect is born of nature (biological factors) or nurture (external, environmental factors). Sometimes they are even intertwined, as I believe the case is here. The nature-versus-nurture argument is vast and is applicable to almost any observable situation or exigency in society, but here I believe the external factor of advertising through media has, over time, caused an evolutionary shift of the human brain. Perhaps the fact that we are constantly to exposed to so much individualistic, self-based advertising, our brains began to recognize the advertisements as the status quo, the normal ways of life, therefore our personalities reflect those fundamentally selfish ideals without us even consciously realizing it. Perhaps we are too caught up in our selfishness to recognize our selfishness, or perhaps we just don't want to. Or perhaps we enjoy the selfishness. I know I do, and I believe most economists would agree.

Samuel J. Scott takes a societal approach, pointing out that a major factor of self-absorption is of economic origin. He believes that it is currently impossible to move up the societal and economic ladders due to the past generations' disinterest in retirement and the current situation of the economy. Scott says that all we can do to pass the time is strive to obtain degrees and “choose to have fun, travel, and live life for ourselves.” Scott's assessment definitely seems relevant with the current economic conditions and the fact that it supports the claim that this generation is self-centered. Another important fact is that our economy here in the United States is based around consumerism. We are a self-interested society that consumes things in vast amounts, this consumption essentially being fueled by our ever-present selfishness. Thus, sales-driven companies exploit this selfish consumption by constantly finding different ways to appeal to us through advertising. Furthermore, the concept of whether or not this selfishness is purposeful is irrelevant in Scott's analysis in that he puts the blame largely on the current economic situation. Although I agree with Scott up to a point, I cannot accept his overall conclusion that it is currently impossible to move up the societal and economic ladders. I think he is simply making an extremely pessimistic generalization about society and the American population in order to further enrich his opinion and the persuasiveness thereof. That said, his argument does emphasize and corroborate the notion that external factors are pushing us to behave this way and to “live life for ourselves.” I would argue that perhaps our grandparents and ancestors are and were not as selfish as we are either because they simply were not exposed to the present-day individualistic forms of advertising, or because opposing ideals were implanted in their brains early on in their lives.

An important concept must be considered here though. Economics dictates that humans are rational and self-interested. We accept this, but for some reason society views this self-interest, as well as capitalism, consumerism, and profit maximization, as a bad thing, when in fact it is a great thing! I will explain more on this a little later. For now, let's consider some advertising as an illustration.

All advertising is targeted toward a specific demographic and usually attempts to appeal to the emotions and fundamental ideals of that particular demographic in order to evoke Scott's living-for-ourselves ideal. A successful, knowledgeable twenty-first-century marketing team can effectively persuade anyone to do almost anything these days. Moreover, advertising almost always encompasses a sense of individualism (as opposed to collectivism), usually in terms of self-improvement and self-help, which seem to be the primary, self-centered goals of humans nowadays. For example, consider the infamous weight loss supplement advertisements that guarantee that you can lose a thousand pounds in a matter of hours by simply taking a pill, all while relaxing in your leather armchair with the television remote in one hand and a Coke in the other – armchair economics at its best.

Consider the reader's perception of the product in the aforementioned type of advertisement. I can see it now. The marketer would probably throw the ad for the weight loss supplement on a page in a popular magazine targeted toward women, like Cosmopolitan or People, for example. They would slap a picture of a beautiful young woman wearing a bikini with a body that probably took years to sculpt in the top left corner, and perhaps even put some before-and-after-type shots to emphasize the product's seeming effect. The marketing team would also probably opt to put some outrageous statistical claims in bold-face print with phrases like “99.9% effective!” along with a few seemingly falsified endorsements from celebrities, doctors, and/or fitness experts. Sound familiar? I'm sure it does. That is because these types of ads work. They convert into sales. The owner of a marketing firm knows this; an expert economist knows this also, but he or she knows it is true because of the fact that humans are rational and self-interested.

Now let's look specifically at the tactics the marketer used here to grab the attention (and probably the money) of the reader. First, the ad appealed to the senses and drew on the emotions of a perhaps overweight female audience desperately wanting to be thinner. The second tactic is a logical approach through which the advertiser puts flashy, captivating, too-good-to-be-true statistics on the page to almost guarantee its effectiveness. Humans, being rational in nature, love when things make sense logically. Lastly, they usually pay famous people or experts to say something good about the product in question to emphasize its popularity and the fact that the reader is missing out on a great product. You can find several, if not all of these types of tactics in nearly every type of advertisement for any type of product or service. It has become the norm for marketers to both create and then subsequently exploit these fundamental senses of self-centeredness, self-betterment, laziness, and individualism, among other things, in the target audience.

What about the “narcissism epidemic,” though? Well, I would be slightly reluctant to casually throw around the term narcissism in describing the present-day population in that I do not exactly believe that we consciously and blatantly disregard the feelings of others; perhaps that is merely subconscious byproduct of the ad-induced self-interest. Either way, hopefully now Kelley's opinion rings a bit truer than it originally did.

Sometimes the advertiser's approach is direct and straightforward in that you know exactly why and how they are attempting to persuade you, and you are able to actively approve or disapprove of a specific advertisement or product. Other times, however, the effect is subliminal, and we do not consciously realize that our viewpoints, opinions, and essentially our brains, are being warped. Advertisers recognize and make use of this subliminal capturing of the target audience. It does not matter whether the ad is in a commercial, magazine, poster, newspaper, or whatever else; they all use the same approaches to achieve the same effect – sales.

In that sense, I would like to propose a seemingly abstract concept based on a somewhat replicative structure. I believe that advertising creates selfishness because the manufacturers doing the advertising are selfish. What I mean to say is manufacturers and entrepreneurs are merely rational, self-interested humans in a capitalist society surrounded by consumerism. In a free market economy, self-interest and its consequent selfishness and individualism are what create the general welfare of the individuals in society. The common man is able to buy microwaves, cell phones, and computers because of the original inventor's profit-driven self-interest, and this concept will always be true of a society with a free market economy. Politicians are quick to cite profiting as some sort of crime or negative act, when in fact it is beneficial and absolutely necessary for the welfare of the individuals of society.

On the other hand, if the inventor's original intention was helping others and allowing others to “profit,” then perhaps the subsequent advertisements of his or her product or service would focus on collectivism and the genuine desire of the happiness of the target audience. This idealistic collectivism and seeming altruism is very rare, though, if it even exists at all. Although the emotional effects of advertising may seem of concern to only a small group of individuals, it should in fact concern anyone who cares about the future and welfare of our society. Profit maximization, in relation to capitalism in a free market system, is both our savior, in that it provides us with a means by which consumption and subsequent satisfaction can occur, and our enemy (society's and politicians' viewpoint, NOT mine), creating and inspiring this aforementioned selfishness of society's individuals that everyone views as being a negative attribute. I would absolutely conclude that it is in fact, however, a very positive selfishness. I believe what is born of self-interest is self-interest, and that's what makes the world go 'round. Capitalism is one of my best friends, and I'll stick by it 'til the end.

Armchair Economics - Mutually Beneficial Voluntary Transactions in a Free Market Economy

noreply@blogger.com (John Williamson) — Sat, 27 Mar 2010 19:34:00 +0000

My last post outlined the cause of the current financial crisis. This post has more of a conceptual subject, if you will, while it maintains very realistic application. If you've taken any sort of economics course, you've probably heard the phrase mutually beneficial voluntary transactions. As I will continue to say, however, you don't need a degree in economics to understand what they are. Essentially they are the foundation of a free market economy. They are what makes the world go 'round. As usual, I will let a concrete example do most of the explaining. Through the years, I have found that generally this is the easiest way to understand the basic principles of economics.

Ok, so let's say I go to the grocery store and buy a gallon of milk for $4 (I actually bought 2 gallons yesterday). I don't know the exact market price of milk, and I'm sure the demand curve is not likely to shift drastically anytime soon, so I rounded to an even $4. When I check out at the register, putting tax aside, I hand the cashier $4, and take my gallon of milk with me. Now, why did the transaction take place? Simply put, I valued the gallon of milk more than the $4 while the cashier or the grocery store itself values my $4 more than the gallon of milk. Each party stands to gain something from the transaction, thus it is considered mutually beneficial. This concept explains why there are always two thank you's exchanged at the register. A slightly less obvious but equally important idea here is that all of these types of transactions are voluntary, meaning each party actively engages in it and it is not forced. These concepts are the definition of a free market economy in which transactions are not forced. Obviously one of the largest, most meaningful examples of a mutually beneficial voluntary transaction is international trade in regards to imports and exports.

The last thing I want to touch on in this short post is the determinant factor of the number of transactions that take place in any particular free market economy. That factor is price. Let's assume that on any given day at any given grocery store, the price of of a gallon of milk is $5. At this price, 20 people are still willing to buy the milk. As price increases, quantity supplied increases, so the grocery store, wanting to increase their profit, produces 40 gallons of milk. Since the demand for milk at the price of $5 is only 20 people, however, only 20 transactions will take place. This situation is known as a surplus, because quantity supplied is greater than quantity demanded. Remember that these are mutually beneficial voluntary transactions. On the other hand, if the grocery store for some reason lowered the price to $3 per gallon, more people would be willing to buy milk at that price (we'll say 40 people) but the grocery store would lower the quantity supplied to 20, so only 20 transactions would take place. This situation is called a shortage in that quantity supplied is less than quantity demanded. Thus the maximum number of transactions occurs at a price of $3, called the equilibrium price.

Congratulations, you now have a better understanding of mutually beneficial voluntary transactions than politicians and the United States government...

Best,
Tyler

The current macroeconomic situation and the global recession: the cause of the current world financial crisis.

noreply@blogger.com (John Williamson) — Wed, 24 Mar 2010 21:21:00 +0000

Last time I discussed some introductory economics. This post, while somewhat of a tangent, is a product of the fact that I am sick and tired of hearing and seeing completely untruthful information about the current macroeconomic situation in the US and the global recession in regards to the cause of the current world financial crisis. Thus I felt this post was immediately necessary.

For the past few years many people (noneconomists) have thrown around all sorts of phrases and economic and financial jargon like supply and demand, inflation, money supply, GDP, etc. that they heard a reporter rattle off on the nightly news (as if those things actually mean something) as causes of the current world financial crisis and the current economic situation in the United States (as well as the global recession). Yes, those terms are important, but only in other contexts! They are not causes of the financial crisis at all. Keep reading and you will see why.

In short, the primary root cause of the current recession and economic crisis was the huge increase in the issuance of subprime adjustable-rate mortgages and the CDO's (collateralized debt obligations) that they made up. The amount of subprime mortgages issued in 2005 and 2006 increased drastically, while the issuance of prime mortgages actually decreased. Basically, banks loaned money (more than ever before) to people who would obviously default on those loans. People bought houses with these loans expecting housing prices to increase, but that didn't happen.

Mortgages are securitized by the American government; they are pooled together and sold off in sections, which obviously spreads the risk and uncertainty to those who take part in purchasing them. This created a large, widespread web of risk, if you will, in that the securities are dependent upon their underlying subprime mortgage values. The value of the CDO's and their securities decreased and were miscalculated to begin with. Ratings agencies could not accurately determine their value, thus more uncertainty existed. This is why so many Americans lost their retirement, which was largely based on these mortgage-backed securities.

Worst of all, the federal government encouraged the purchasing of these securities without knowing the underlying risk involved. The web of risk was not limited to the US; it was worldwide (and still is). Major corporations like AIG, Citi, Chase, Bear Sterns, etc. held many of these risky CDO's and when they failed, everything that depended on them failed (many aspects of society).

If all this helps at least 1 person, then this post will have been worth writing. I have a feeling that it will clear up some things for many of you. I hope it gives you a better understanding of the current macroeconomic situation in the US and the global recession in terms of the cause of the current world financial crisis. Feel free to comment or email with any questions.

Best,
Tyler

Some introductory economics for the armchair economist...

noreply@blogger.com (John Williamson) — Thu, 18 Mar 2010 06:28:00 +0000

I feel like Armchair Economics needs somewhat of an introductory post so that some basic principles of economics can be established from the start which can be seen, either directly or indirectly, in every topic on this site, as well as in every topic regarding economics for that matter. Most of the content in this post will probably seem boring to most, but the introductory economics are absolutely necessary if you want to have any understanding of things I plan to talk about on this blog. Also, in an effort to make this blog and its posts as authentic as possible, I am going to write every post from my leather armchair.

What is Economics?

The US economy? The UK economy? Gross Domestic Product? International trade? Finance? Well, yes and no, but mostly no. Look at it like this: These things are based on economics, not the other way around. Simply put, economics is about rational human beings making choices, and the how and why behind those choices. Economics can also usually answer the other interrogatives as well (who, what, when, where, and how much). I agree with Landsburg in stating that the world “is full of mysteries” that spark curiosity, and that economics is about recognizing this and attempting to solve those mysteries in a manner that is consistent with the assumption that humans behave a certain way for a reason. In certain cases, this can be called sociological economics or psychological economics. Attempting to solve these mysteries is made easier with the use of assumptions and models. Again, there may never be an absolute solution to a particular mystery, but proposing some ideas doesn't hurt.

A real-life example that illustrates the answering of the aforementioned “interrogatives”

Yesterday, I bought some Peanut Butter M&M's (my favorite candy) at CVS.

Who? Me, obviously. Unless I paid them or provided a service for them, what incentive would someone else have to go buy me candy?
What? Peanut Butter M&M's. The M&M's cost the same as a Crunch bar, but I benefit more from the M&M's because I enjoy them more.
When? Around 2:00 PM. Up until that time, the benefit of eating the M&M's didn't outweigh the cost walking down to CVS to get them. Thus I didn't have a high enough demand for them until 2:00.
Where? CVS. There, the M&M's cost $.79. At Harris Teeter, they cost $.99. The obvious benefit is a savings of $.20. This is, of course, ignoring the fact that Harris Teeter is about 2 miles from my house whereas CVS is right down the street, thus CVS is even more beneficial.
Why? Simply put, the benefits of receiving and eating the M&M's obviously were greater than the cost of acquiring them.
How? I walked to CVS. I could have driven my truck or ridden a bike, but for me the cost of walking was less than that of driving or pedaling.
How much? 1 pack. I bought 1 pack instead of 2 because the marginal benefit of the second pack of M&M's was not greater than its cost.

Assumptions

Included in these basic principles are simple propositions that economists call assumptions. Assumptions allow us to simplify the seemingly complex world in which we live and make certain aspects of it easier to understand. Essentially, they simplify situations or issues and make problem-solving easier and more approachable. For example, if we wanted to approach or understand international trade, we could assume that there are only two countries in the world and that each country produces only two goods. While quite unrealistic, the assumption simplifies the concept and we can have a better understanding and a tighter focus. Assumptions comprise the framework of economics, and everything and anything related to economics is built upon certain underlying assumptions.

Models

In third grade, I made a model of the solar system by attaching painted styrofoam balls to some clothes hangers. Similarly, economists use models like diagrams and equations which are built with assumptions. Just like my model in third grade simplified the solar system, economic models attempt to simplify reality in order to better understand it.

I suppose I'm getting a bit long-winded here, time to wrap things up I suppose. I'll do so with several final introductory propositions. The applicability of the theories and laws and basic principles of economics is vast. Landsburg, and any other economist for that matter, uses economic reasoning when observing human behavior. Moreover, when the range of that applicability is in question, he “always prefers to risk error in the direction of being overly inclusive.” It definitely makes things a bit more interesting (especially in terms of introductory economics), and you will soon see why.

Best,

Tyler

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The foundation of Armchair Economics

noreply@blogger.com (John Williamson) — Wed, 17 Mar 2010 21:18:00 +0000

Armchair Economics is based largely (but certainly not solely) on Steven E. Landsburg's The Armchair Economist. this site acts as both a summary of concepts from the book and a presentation of concepts with roots elsewhere that are unrelated to the book. If you're bored, I encourage you to buy the book in its entirety for about $10 on Amazon.

Now for somewhat of a disclaimer...

I would love to tell you that politics, specifically government policy, will not be discussed on this blog and is not related to economics. Naturally, however, both of these relationships are inevitable and ~~sometimes~~ oftentimes necessary, especially if the goal is to help the average person (a noneconomist) understand a concept from an economic perspective, that concept essentially being the product of some of the core principles of economics. This is the fundamental purpose of Armchair Economics. ~~I say this because the last thing I want is for this blog to become a source of unsavory argument and political debate in the form of comments and hate emails.~~ That said, I do welcome your comments if they are relevant to the post in question. For the most part, bipartisanship and its constituents are largely unimportant to me as well as to the topics within this blog (I believe it is unimportant to the welfare of our nation's citizens, too, but that's another story altogether). ~~I will never refer to myself as a Democrat or a Republican or a Libertarian or a member of any particular political party for that matter.~~ I will simply attempt to address things from an economist's perspective, interested in the overall welfare of individuals.

I also want to address one last preliminary concern: My posts are meant to be mere presentations and proposals of ideas, concepts, and principles, and obviously examples thereof. They are not to be taken as declarations of absolute truth or as flawless solutions to national and world issues. They are simply meant to spark interest, curiosity, thought, and perhaps action, all while helping you become an armchair economist.

Whew. Ok, so if you can accept and understand all that, I sincerely believe you will enjoy following my blog and reading my posts. Now, go (or stay, rather) and enjoy Armchair Economics.

Best,
Tyler