Tuesday, February 23, 2010

Economics for Dummies (and others who have retained their rationality)

I thought I might discuss a little economics today.

So okay, I knew this would happen if I opened with that sentence -- I just lost 87% of my readers.

Let's see if I can contain myself enough to have one or two make it to the
really excellent economics lesson that comes in the form of a joke at the end of today's blog.

I thought I'd talk a moment about what, in economics, is called a multiplier effect. Let's forget the fed cranking out billions of increasingly worthless dollars that have been a boon to the ink and paper industries but comes
more and more with each passing month at the expense of gross devaluations in your personal savings accounts, your retirements, and your futures. That's division, not multiplication.

And we can forget the ordained ministers of economics with their multiplier-accelerator examples like the "Hansen-Samuelson" model that utilizes a multiplier mechanism from a "simple Keynesian consumption function with a Robertsonian lag" replete with its Ct = c0 + cYt − 1 and It = I0 + I(r) + b(CtCt − 1 equations, formulas, or whatever.

So, wait, "Where's everybody going?!"

Instead, how about the government laying a couple trillion dollars on us out here with the only requirement being we use that money to retire our debts to our debtors and our debtors do the same to their debtors as a wonderful example of a multiplier effect for an economy dying from years and years of debt, the result of Americans over living their means.

So here's a nice example of an economic multiplier in the following piece entitled "Economic recovery." It just leaves Dada giddy, drooling over how we could resolve our nation's soul killing debts, leaving us then able to expand our wars on anybody, anywhere that we damn well please without being thrown into debtor's prison by our foreign creditors. (Of course, with making war on the entire rest-of-the
-world, we still won't be able to afford health care for all Americans, i.e., that's just plain good Economics for Dummies!)

Economic recovery: (a joke....I think)

It is a slow day in the small Minnesota town of Marshall , and streets are deserted. Times are tough, everybody is in debt, and everybody is living on credit.
A rich tourist visiting the area drives through town, stops at the motel, and lays a $100 bill on the desk saying he wants to inspect the rooms upstairs to pick one for the night.
As soon as he walks upstairs, the motel owner grabs the bill and runs next door to pay his debt to the butcher.
The butcher takes the $100 and runs down the street to retire his debt to the pig farmer.

The pig farmer takes the $100 and heads off to pay his bill to his supplier, the Farmer's Co-op.
The guy at the Farmer's Co-op takes the $100 and runs to pay his debt to the local prostitute, who has also been facing hard times and has had to offer her "services" on credit.
The hooker rushes to the hotel and pays off her room bill with the hotel owner. The hotel proprietor then places the $100 back on the counter so the rich traveler will not suspect anything.
At that moment the traveler comes down the stairs, states that the rooms are not satisfactory, picks up the $100 bill and leaves town.
No one produced anything. No one earned anything... However, the whole town is now out of debt and now looks to the future with a lot more optimism.
And that, ladies and gentlemen, is how the United States government is conducting business today.


D.K. Raed said...

OK I was patting myself on the back, trying hard to remain in the 13% bracket. It was a valiant effort, but I hung in there until the dreaded name "Samuelson" appeared ... then all the bad memories came flooding back ... the designated naptime otherwise known as Econ 101 ... the tearing of my brain trying to comprehend what is the pro-argument for guns vs butter ... the ... oh let's just say I was a dismal failure in the dismal science!

Still, I appreciated the "joke" at the end ... trying to figure out the flaw in the joke's logic hurting my brain ... oh wait, I just got it! The hotel owner is still owed $100 which means his grandchildren will have to collect it from the prostitute? So he (and by extension, the american people) is the butt of this joke?

I know I must be missing something. Give me a "D", Perfessor!

Thomas Wark said...

Did you ever TEACH economics. You should. Or at least guest lecture for Paul Krugman's classes at Princeton.

Dada said...

Deke: I thought I was grasping your brilliant conclusion about this serious economic conundrum but then *bingo* it hit me -- the hotel owner isn't still owed $100, is he? I mean, the prostitute settled her debt with the hotel owner and the hotel owner "repaid" the tourist the $100 he'd "borrowed" (after repaying his hotel debt to the butcher) which is really, REALLY a multiplier effect! (I think?) Anyway, the grandkids are in the clear. (I think.)

Thomas: Thank you for your vote of confidence in my economics. Of course, if I were to guest lecture for Krugman at Princeton, there's always the chance, knowing absolutely nothing about the perverted economics of the day, I might be selected by the Nobel committee for a prize. And, from recent precedent (or is that president? - language -- so confusing!), I might be tempted to actually accept it!

('This above all, to thy own self be true.....)

Fran said...

Pigs & prostitutes & economics.... you must have read the Doonesbury comic strip in last Sunday's paper....

"The same preditory geniuses who helped crater the world economy are being paid $20 billion?

Too stupid to fail?
On what planet does this make sense???

Haul 'em all down here for another meeting!

It closed in a frame that went like this:


(Banking pigs dressed in suits & ties, sitting upright @ the boardroom table)





I think Trudeau captured the essence.

Dada said...

Fran: I always read Doonesbury, but your brief synopsis here left synapses unfired, leaving me to go out to the garage in search of last Sunday's comics. Pray it's there or it's out to the big blue recycle bin.

Oh wait, wonder if I could just sit here and surf to last Sunday's strip?

OK, hmm, found it online, but it doesn't seem to align...Could your Eugene paper be out of sync with the rest of the space-time continuum?

If not, picture me rummaging through the old trash bin. Oh well, that'd be good practice for the new economics awaiting us all just over the horizon maybe?