By J.D. Seagraves, on July 28th, 2008
Conservatives talk about how great America’s “free market” is, while those on the political left are critical of the “free market’s excesses.”
What are they talking about?
We have nothing even closely resembling a “free market” in the United States, and the latest news surrounding Fannie Mae, Freddie Mac, and the Federal Reserve underscores that point.
People are generally confused about Fannie and Freddie: Just what or who are they? Well, let’s start with Fannie: Fannie Mae is the nickname given to the Federal National Mortgage Association (FNMA), an agency created four years after the Federal Housing Administration (FHA), which was one of FDR’s New Deal programs. The FHA, born in 1934, sought to “standardize” mortgages by insuring loans that conformed to government guidelines. The FNMA (Fannie Mae) would then buy these mortgages from the originators and pool them into marketable securities – i.e. financial assets that could be bought and sold by investors. An FNMA security might contain 100 mortgages, for example, and that way, if five of those mortgages failed, investors would only lose out on 5% of their investment. In this way, the government sought to lower the “credit risk” premium of mortgages and make homeownership more affordable to average Americans.
Sounds good, right? Well, there’s always a catch. But first, let’s continue with Freddie Mac.
In 1970, the government gave Fannie Mae the authority to purchase and securitize any mortgage – not just those that adhered to FHA guidelines – and created the Federal Home Loan Mortgage Corporation (FHLMC – “Freddie Mac”) to do Fannie’s old job. Now the government had it’s hands in virtually every kind of mortgage imaginable – though exactly where this power was enumerated in the Constitution is unclear.
Of course, Fannie and Freddie aren’t truly government agencies. In rejecting socialism, the government opted for fascism: government partnership with business. Fannie and Freddie are “privately owned” publicly traded stocks on the New York Stock Exchange, so their profits are privatized…but their losses are always socialized.
Since the mortgage meltdown – created by the Federal Reserve’s inflationist monetary policies – Fannie and Freddie’s stocks have been in the toilet. Over the past couple of weeks, each of the firms has lost billions in market capitalization. On July 10, Fannie closed at $13.20 and Freddie at $8 – the 52-week highs for the stocks are $70.57 and $67.20, respectively. During the next day’s trading, Fannie and Freddie hit session lows of $6.68 and $3.89.
And then the Fed intervened.
Chairman Bernanke announced that the Fed would stand by to bail out the firms, and the stocks – down as much as 40% for the day – rebounded, closing at $10.25 and $7.75, respectively.
Think this isn’t a big deal? Consider this: The swing from $6.68 to $10.25 for Fannie Mae represented a change in value worth nearly $3.5 billion, and Freddie’s swing from $3.89 to $7.75 was worth $2.5 billion. In all, $6 billion changed hands on Friday, all based on a few words from the Fed chairman. The investors who threw in the towel, recognizing that, in a free economy, Fannie and Freddie would be done-for, were suckers. Those who stepped in to buy the stocks at that point, confident that the government would intervene, profited by billions.
And they call this a “free” market?
Just imagine if some investors might have had some advance knowledge that Bernanke would make those comments.
By Greg Beatty, on July 27th, 2008
As anyone fond of “truthiness,” humor, or television knows, long time Daily Show member Stephen Colbert has, since October 2005, had his own show: The Colbert Report.
Where Daily Show anchor John Stewart plays it in some ways more conservatively, holding to a tradition of fake news and riffing on the real news that’s been part of comedy for a long time, Colbert’s a bit further out there. He’s constructed an entire seamless persona, one he calls a “well-intentioned, poorly informed, high status idiot.” In other words, he’s only half a twist further along the spiral of self-parody from half a dozen talk show hosts who take themselves seriously (and don’t know they’re parodies of themselves).
On June 23, Colbert hosted Barbara Ehrenreich. You can watch the entire episode online here. (And if you just want the Ehrenreich segment, you could go here.)
Ehrenreich came on to promote her new book This Land is Their Land, an analysis of the extreme economic divide in America. Ehrenreich’s message is familiar to those who have read her work before. For years she has been advocating for greater social and economic equality, investigating circumstances that go underreported (often through living them), and analyzing the social forces at work.
Despite Ehrenreich’s practice skill and focus, it is Colbert’s willingness to play the fool during their exchange that exposes so many of the economic attitudes coursing through the American body politic. Most people express them in a shaded or hesitant form, coding them, or leaving them implied.
Colbert does not. He flatly asks what is wrong with a divided country, with massive inequality, and why the poor can’t work harder. He even suggests that the lottery be embraced as a way of tricking the poor into thinking they have a chance, so they’ll get back to work.
His bald satire is shocking. It made me wince. And yet, and yet, and yet…he’s only saying directly what a lot of other people are insinuating. He’s trotting out free market aphorisms at their most social Darwinist.
And, again, yet…for all that Ehrenreich was very clear about what she thought was wrong with the situation, the solutions she mentioned during this encounter were…dubious. Taxing the rich was the main one articulated, but that was suggested without much more context than Colbert’s satire.
Perhaps solutions are proposed in more detail in This Land is Their Land. Perhaps her sound bite solutions were the result of the sound bit situation. And perhaps the situation is so complex that identifying any working situation is simply very difficult.
By B.P.T., on July 27th, 2008
When many people think of the arts and the economy, they would expect a pretty fairly coordinated response between a strong economy and strength in arts programs and, conversely, a struggling economy and weakened arts. It makes sense since funding for the arts is often the first to go in tight economic times, the wallet gets squeezed when the price of gas and food are steadily increasing and donations tend to head toward food banks and other social service organizations. However, the correlation between a pained economy and theater attendance is not so clear-cut.
Many organizations, of course, will feel the painful impact of the slumping economy. Touring companies may cut back on the number of stops. Tourist-based destinations may have fewer travelers. Nonprofits may have state and local funding cuts from municipalities. In Washington, D.C., the Helen Hayes Awards reported a decline of 1.9% in overall theater attendance, a decrease of nearly 37,000 attendees from a year ago. This makes the fifth year in a row attendance is down in D.C. area venues. Helen Hayes, the CEO and President of the organization who conducted the study, said, “In an uncertain economy, art is often among the first things to be eliminated from discretionary spending.”
In the academic theater realm, the University of Mississippi in Oxford has reported low attendance woes as well. The faculty believes a lack of funding for advertising is one of the most pressing issues. With a lack of money to get the word out, a self-perpetuating cycle is created. Since much of the program’s funding comes from ticket sales, poor attendance makes the situation worse, particularly when word of mouth is an important component. Free ads in local newspapers are the primary means of getting the message out. Students and faculty are exploring alternative methods of generating buzz, including enhancing publicity and increasing attendance among certain student groups, such as sororities and fraternities.
Other Factors
However, even with the expected economic pains affecting theater ticket sales, other factors are often at play as well. The Orlando Fringe Festival, a 12-day event held each May, reported a slight decline in ticket sales. The festival offers a variety of venues for a wide range of live performances and is attended by over 20,000 audience members. The 2008 festival did have a decline of ticket sales by about 7.5% over the 2007 numbers; however, the festival itself blames the lower sales on the lower number of venues and shows available this year rather than directly on fewer overall ticket sales.
In New York City, the theater hub of the U.S., Broadway itself has experienced a dip in sales, albeit relatively slight. The Broadway League has released its annual end of season numbers, which run from May of 2007 to May 2008; 12.27 million attendees saw shows, compared to 12.3 last year – a decrease of only .2%. In Broadway’s case, the Broadway League attributes the measly drop not to a shrinking economy but to a 19-day stagehand strike that occurred last fall.
In fact, tourism officials in New York City expect the wounded economy to potentially bolster theater and tourism in the Big Apple. Why? In the first quarter of 2008, the number of visitors to New York was up by a million people compared to 2007, with an attending $700 million more in money spent. According to a CBS News report, George Fertitta, head of the NYC tourism office, said, “Faced with an expensive euro and tighter budgets, Americans who might usually choose a trip to Europe are more likely to take a shorter trip to New York.”
Theater attendance is also highly influenced by local forces. In Bloomington, Illinois, the Bloomington Arts Center has seen a boom in attendance. The Bloomington Center for the Performing Arts (BCPA) has recently undergone a $15 million renovation; as a result, live performances in a variety of genres are available nearly all week long. Furthermore, the center has created a partnership with local schools, resulting in over 10,000 student attendees this year.
European Arts
Across the pond, theater attendance is mixed as well. In London, a wave of reality TV shows has generated a flurry of interest in live theater. The concept of choosing the next musical theater star through a televised competition has created a large interest in seeing the final staged product. Shows such as Andrew Lloyd Weber’s productions of Grease and Joseph and the Amazing Technicolor Dreamcoat have drawn in television viewers from the living room to the theater, with musical theater attendance up a startling 10%.
On the flip side, the Vienna Opera has had its own troubles. Not affected by the euro or other economic forces per se, the Opera has had to contend with a force all its own – soccer. The Euro 2008 soccer matches were held in Vienna at the same time as the famed opera house staged a Verdi production; the opera believes its fans were avoiding the stampedes of crowds in the city and have taken steps to avoid future conflicts.
While an economy in recession may have a direct impact on some arts organizations, it is clear that many will not suffer deeply. Local forces and other outside factors play into the way a theater and its audiences respond to economic changes. Both in the U.S. and Europe, pop culture, local facilities, venue changes and publicity factor into ticket sales; it is not just a tightening wallet.
By J.C., on July 27th, 2008
Despite the advances of “Going Live” that I wrote about previously, there are some areas of the health system where a computer cannot replace the presence of a human doctor. In medicine the sacred territory of the doctor is the “physical exam” – the physical examination of a patient. This is the Holy Grail of medicine – the most powerful thing that allows doctors to be doctors – the diagnostic intuition that impresses upon them after they examine a patient. From this exam, the physician with his wealth of knowledge and years of experience can get a sense of exactly what is going on with a patient. Nothing can substitute for a good physical exam.
Despite the “physical exam” being the secret magic that allows doctors to be doctors, it is also the main hindrance to the one advance that would truly make the healthcare system more efficient. If you don’t know what I am talking about, I am referring to medicine in which the doctor does not actually have to be in the room. Telemedicine is where the doctor is actually not physically in the room but is seeing the patient through a video screen. Another variation of this is robotic medicine in which a robot with a live video camera cruises around the hospital floor going from room to room visiting patients. On the other end is a physician seeing the patient through his video monitor.
Why is this so important? If you think about all of the possible areas to improve efficiency in medicine, the actual practice of medicine – the seeing of patients to diagnose and treat them – is the most time consuming and thus the most costly for the healthcare system. Have you ever wondered what doctors do all day? Well, they go around and visit their patients in the hospital – they “round on their patients.” They also see patients in clinic. The remainder of time is usually spent discussing patient care issues or continuing their education through lectures or talks. Thus making this more efficient of a practice would save enormous amounts of time and money.
Imagine being able to see patients and diagnose their diseases from a different place. Expert physicians could do consultations from across the globe. Physicians could efficiently see more patients. Video files would document all examinations. The physician would not actually need to go to each and every hospital location. How great this would be!
There are many layers of resistance to this movement. Patients, in their state of need, actually want to see a doctor face to face if they have the means to do so and if there is someone available not too far way. Physicians, with their intuitive minds, have gotten the sense that if they could be replaced by computers then they would not be in high demand. If any patient could see another doctor by logging on a computer with video camera and clicking on a button then many doctors would go out of business. Perhaps most importantly, healthcare systems and their prudent risk managers worry about liability issues with telemedicine.
As information technology continues to transform the healthcare system, it will undoubtedly continue to transform the way we practice medicine. Someday probably not too far off, we will be able to do a physical exam via telemedicine. Some of us can’t wait to be accessible to the vast worldwide patient population that awaits.
By Greg Beatty, on July 26th, 2008
An interview with George Soros appeared in the June 2008 edition of Money magazine. Though brief, the interview was both fascinating and useful, as Soros explained why the current financial crisis is so bad and what it means for, well, everyone.
What’s striking, though, is a phrase Soros introduces midway through the interview. He says that since the eighties, “the global financial system has been dominated by an ideology I call ‘market fundamentalism.’” Soros goes on to explain what he means by this—the idea that markets run perfectly, that government interference will always impair them, and so on. In short, he uses it to refer to a consciously committed laissez-faire capitalism.
It’s a beautiful phrase because it damns the position in two words. Just as no one would doubt the commitment of religious fundamentalists but might doubt their grasp of history, scripture, etc., so no one would doubt the commitment of market fundamentalists. However, one might well doubt how well-informed they are, if their interpretations are based on reality rather than ideology, and so on.
And of course, the term cries out for a counterpart, something like market Satanism or, to be kinder, market atheism: a range of positions held by some on the left that all hinge on the belief that market forces cannot solve social problems and that government solutions are always better (and necessary). Both positions fire at one another or, rather, past one another during debates over things like minimum wage laws. Do they ever find a shared reality? Do they ever look for one?
Thank you, Mr. Soros, for this fine phrase.
By J.D. Seagraves, on July 26th, 2008
Fannie Mae and Freddie Mac have been in the news a lot recently. But just what are these entities? Are they government agencies or private corporations? It seems that few media pundits or even politicians really know. But what everyone does seem to know—or at least, opine—is that we can’t let these institutions fail.
Why not?
To answer that question, we have to first establish just what Fannie and Freddie are, and what kind of impact they’ve had, on the economy in general and the housing sector in specific, since their inception.
Appropriately, the recent mortgage meltdown, which many experts see as a leading indicator of an emerging depression, has its roots in the Great Depression and its cousin, the New Deal. In an effort to increase home ownership, the FDR administration created the Federal Housing Administration (FHA) in 1934. The FHA set mortgage guidelines and offered federal insurance on mortgages that adhered to its criteria. The purpose of this was to “standardize” the terms of mortgage contracts so they could be easily “bundled” into securities.
Here’s what that means: if I, as a private investor, had today’s equivalent of $300,000 to invest in 1920, I’d have a few options. I could go into the stock market. I could buy commodities. I could invest in bonds. Or I could—theoretically, at least—purchase a mortgage from a bank. If I bought the mortgage, then I, and not the bank, would receive the monthly mortgage payments from the mortgagor; and I, not the bank, would have a claim on the property if the mortgagor failed to pay.
This could be an attractive investment to some people who wanted a good yield and a gradual return on their principal rather than semiannual interest payments with the principal repaid in one lump sum at the end of the loan, as most bonds work. However, the risk that an individual mortgagor would not repay the loan was great, and thus, prospective homeowners would be expected to pay a substantial premium, in terms of a higher interest rate, to compensate their lenders for the potential of total loss. Even if 99% of people repaid their mortgages dutifully, to the one investor in 100 who put up $300,000 and had his mortgagor skip town, the loss could be devastating.
Where It All Began
Enter the FHA. By offering an incentive to standardize the terms of a mortgage contract, large financial firms could “bundle” several similar mortgages together, and then sell debt instruments backed by those mortgages. Instead of investing in 100% of one mortgage, an investor could invest in a piece of ten or 100 mortgages. Not only would the default risk be spread out but so would the pre-payment risk—the risk that the borrower would repay the loan too quickly, thereby wasting the lender’s time. Thus, the premium lenders needed to charge on mortgage loans dropped, and homeownership became more affordable and widespread.
Sounds great, right? Well, the problem is that private companies did not step up to the plate and bundle these FHA-insured mortgages. The fact that they didn’t should have indicated the plan wasn’t so sound, but like most government programs, the FHA led to the creation of yet another government program: the Federal National Mortgage Association, FNMA, or cutely known as “Fannie Mae.” Fannie Mae was, at first, a government agency empowered to purchase FHA-insured mortgages, bundle them and sell the resulting debt instruments to the public. If these debt instruments went bad (i.e. if there was widespread default by the mortgagors), then it was always implied that the federal government would step in and cover them.
Between 1938 and 1968, Fannie Mae had a virtual monopoly on the secondary mortgage market. This should have come as no surprise as government has the monopoly on creating monopolies. But in an effort to inject competition into the market, Fannie Mae was privatized and empowered to buy any mortgages—not just FHA-conforming ones—and a second cutesy GSE (government-sponsored enterprise), “Freddie Mac” (the Federal Home Loan Mortgage Corporation or FHLMC), was created to compete with Fannie.
Where We Are Now
Fast forward another forty years and the chickens are finally coming home to roost. Both Fannie and Freddie are essentially bankrupt and their stock prices were headed to zero, kept afloat only by the implied government bail-out that was all but guaranteed to come. In one day, as Fannie and Freddie hit their all-time lows, a few words by Fed Chairman Ben Bernanke sent the stocks soaring, and $6 billion in market cap was added to the ailing GSEs. Republicans and Democrats, with very few exceptions, all agree that these firms must be “saved” and “not allowed to fail.” But the Austrian take on the matter is that these institutions have been positively disastrous to the freedom and prosperity of Americans.
There can be no doubt that the existence of the FHA, Fannie Mae and Freddie Mac has made homeownership more widespread. Most people take it as a given that this is a positive thing. But is it really? There are plenty of costs that come with homeownership versus renting—homeownership is not an unequivocal good.
Economic conditions in the U.S. and around the world have been destabilizing communities. Mobility is king now. People do not work at the same job for fifty years and then retire with a gold watch, proverbial or otherwise. By making homeownership artificially cheap, millions of Americans have been lured into buying when they should have been renting. This is one of the causes of the mortgage meltdown, as people who’ve lost their jobs and need to move can’t get out from under their upside-down mortgages.
The problem with government intervention into the economy is that, even if it seems to work in the short-run, it never takes the long-run into consideration. It can’t. The free market is dynamic and responds to change. If politicians who say they value the free market are true to their claims, they should at least consider allowing Fannie and Freddie to fail.
For arguments in support of increased government regulation on Fannie Mae and Freddie Mac, read G.L.C.’s blog post, “Fannie Mae & Freddie Mac: When Will the Government Learn?”
By G.L.C., on July 26th, 2008
In December 2007 a federal judge in Oklahoma threw out a lawsuit against a statewide law that forbids hiring illegal immigrants. According to the Greater Oklahoma City Chamber of Commerce, the local businesses now have to deal with the fallout on the economy. It estimates that 20% of the city’s construction labor force – about 2,000 workers – left the city in the four months since December 2007. More than 70 businesses closed in the first two months of 2008 because many of their employees left the state.
When the government gets cracking on illegal immigrants, the main opponents of the government action are the human right activists and other immigrant rights associations. Local law enforcement authorities generally crack down on illegal immigrants in their jurisdiction and the businesses that employ them. Business caught hiring undocumented workers generally have their licenses revoked. Now businesses have started resisting the government attempts to crack down on illegal immigrants.
Businesses and the government have benefited handsomely from the present flow of illegal immigrants into the U.S., but they refuse to reimburse local and state authorities and taxpayers for the related costs. Undocumented workers illegally hired by U.S. businesses contribute more than $8 billion to Social Security and $2 billion to Medicare. All Social Security Administration projections and budgets include, and rely heavily on, the billions in annual contributions from undocumented immigrant workers. Social Security would have a significant solvency problem without this revenue.
There is now fierce political pressure from business lobbies, immigrant rights groups, and members of Congress. This has resulted in a steady retreat by the government from workplace enforcement in the 20 years since it became illegal to hire undocumented workers in this country.
Arizona has some of the nation’s most rabidly anti-immigrant politicians and enacted some stringent employer punishments last year. But a business group has succeeded in gathering signatures for a ballot initiative that could soften some of the stringent punishments.
Riverside, New Jersey, is a perfect example of how the crackdown on illegal immigrants has adversely affected local businesses. In July 2006, the Riverside Township Committee unanimously passed the Illegal Immigration Relief Act, which made hiring or renting property to an illegal immigrant punishable by a $2,000 fine and jail time. Since then, town officials estimate, as many as 2,500 immigrants, or nearly one-third of Riverside’s population, have fled. Downtown merchants and restaurateurs report declines in revenue of as much as 70%. The ordinance was never actually enforced. It was almost immediately tied up in court after 62 Riverside business and property owners filed a lawsuit claiming that the Illegal Immigration Relief Act was unconstitutional and improperly superseded federal authority.
Without the cheap labor of the illegal immigrants, the local economy in many towns and cities would virtually collapse. The irony is that while the nation requires the immigrant’s cheap labor, the nation does not want the immigrant.
By Evelyn Black, on July 25th, 2008
On July 8, oilman T. Boone Pickens launched a personal initiative to promote wind power as a primary renewable energy source for the United States. Pickens wants the next U.S. president to lead the nation to 20% wind power by 2018 by tapping a “wind corridor” that runs from the Northern Midwest all the way through Texas. Pickens himself has invested in wind energy in Texas.
Why would an oilman take on this kind of public environmental project?
A better question is, why wouldn’t Big Oil take on this kind of project? It’s clear that alternative and renewable energy is a big part of America’s future, and oil is already fast becoming a much smaller part. Pickens points out at his website PickensPlan that in 1970 the U.S. imported 24% of its oil; now we import nearly 70%. This dependence on foreign oil, while lucrative in the short term for the oil companies, has resulted in the greatest outflow of money from the U.S. to the rest of the world in history.
Though most of our oil is imported from Canada, much of this lost U.S. wealth is flowing to nations with which we have very troubled relations: Iran, Iraq, Saudi Arabia, and Venezuela. The painful result is that the U.S. economy is currently experiencing a contraction the like of which has not been seen since the Great Depression. When a country has to import its most basic energy resource at great cost, that country is in trouble economically. We cannot compete effectively in a global economy when we have to spend that much money just to get a business running. We are rapidly losing ground on the world stage.
While Big Oil may have made some big short term profits in recent years, those profits have greatly lowered the average American’s standard of living. They have destroyed any kind of positive feeling consumers might have ever had toward Big Oil. How many people do you know (outside of actual oil company employees) who do not hate the oil companies? No ad campaign showing waving fields of corn and pristine oceans can counteract the rancor that currently exists in the hearts of most Americans for Big Oil.
Poverty is radical; wealth is conservative. No one changes course while being deluged with money. So it’s not surprising that innovation is not exactly the middle name of the CEOs who lead successful corporations, unless they happen to be working in the field of information technology, where innovation basically is the product. Most other corporations just hire big publicity departments to spin what is already working to make it palatable to the public at large. In fact, if the corporations are doing well enough, they don’t even care that much about the consumer; they care about the stockholders.
But one thing big corporations do understand is profit. CEOs understand it keeps them in their overpaid jobs. Stockholders understand that it makes them money.
As the graphic above shows, the U.S. is, Pickens puts it, “The Saudi Arabia of Wind Power.”
All we have to do is invest in infrastructure to tap that power.
Big Oil can stay on its current course, winning the enmity of the world and destroying the environment and the political peace, or it can lead the way to energy independence and thereby nearly monopolize the profits that will come from renewable technologies. Wind and solar are often pooh-poohed because they take significant initial investment before they pay off. But so does oil. Without refineries, crude oil is nearly worthless, and we have not built any new oil refineries for over 30 years because of the huge cost.
Instead of investing even more money in oil, why not invest it in renewable energy? When corporations start to see the potential for profit in these technologies, no amount of Congressional oversight and bumbling will be able to stop corporate investment in them. We won’t be looking for ways to promote renewable energy, we’ll be looking at anti-trust laws to make sure the profits are being properly shared amongst the prospective players.
Pickens will no doubt be the butt of much cynical critique from pundits who note the potential for big profits down the line for Pickens. So what? The market works or it doesn’t. Right now it is working by showing us corporate failure after failure; profits without product, policies so self-serving and harsh they’d be despicable even if they worked. But they don’t work!
Big Oil should back renewable energy because it works, because the potential for profit is enormous, because it is what the future has in store for us if we do not fail entirely. They will want to be on the cutting edge, not left behind. Forward thinking is not their strong suit. But we’re only talking ten years forward here.
Even I know how to make a ten year plan. My job at a regional bank is pretty shaky right now. Anybody out there need a renewable energy CEO?
By Stephan Zimmermann, on July 25th, 2008
For more than a hundred fifty years, economics has been feared by students, lay people and economists themselves. Not the least source of this fear has been the fact that economics has been labeled as “the dismal science.” The study of economics has been living with its moniker ever since English philosopher Thomas Carlyle ascribed the incorrect predictions of Robert Thomas Malthus concerning overpopulation and the eventual lack of the world’s food as “dreary, stolid, dismal, without hope for this world or the next.”
Malthus’ fears ultimately were far from justified. Technology and science in the intervening century more than solved worldwide starvation. Unfortunately, economics remains the “dismal science” to this day. Harvard’s Walter S. Barker Professor of Economics recently released his book The Dismal Science: How Thinking Like An Economist Undermines Community. The book not only repeats the unfair moniker but misses the point made by thousands of economists, which ultimately leads novices to shy away from the study of economics in general.
The problem lies largely in the assumption that economics is a “science” just like biology or basic logic. It’s not. Economics is just another method of trying to solve the age-old question of what, how and to whom to distribute finite resources. As such, economics is just as much subject to debate as psychology.
The Science of Assumptions
Ever since Adam Smith, the foundations of economics have been presented as scientific fact. The facts presented as economics are really two: an assumption regarding the nature of man as well as a strict belief and usage of logic. Unless someone can show an alternative to thousands of years of developed logic based on fact, we should be able to live with that assumption. More difficult, of course, and subject to endless debate is the assumption regarding the nature of mankind.
Unfortunately, most beginning studies in economics merely accept without questioning the classical economist’s assumption that mankind is greedy and selfish or wants mainly material things. Whether true or not, without stating or questioning that assumption, economic studies immediately delve into the mathematics of graphs and charts and formulas. Some even create the impression that the movement up and down a curve or graph actually makes the economy move! Nothing could be more absurd.
For whatever reason, only a few simple paragraphs and no more might be devoted in a textbook to logic and fallacies in thinking. Some beginners in economics might readily recognize the confusion between facts or values. It is, however, much easier to settle back, comfortable in accepted beliefs, rather than learn why those beliefs first developed. Nearly everyone can recognize the post hoc, ergo propter hoc syndrome, or the difference between “positive” and “normative” economics, after one or two courses in economics. But even professional economists quickly fall into the trap of simple assumptions regarding the nature of man.
Dialogue vs. Mathematics
Perhaps it would dispel once and for all the notion of a “dismal” science if we divided basic economics into two: a discussion of mankind’s nature in its non-quantifiable form as well as a strict mathematical quantification of material things based on fact.
At the graduate level, the latter is known as econometrics. That study, of course, already assumes that you have a reasonable outlook on the nature of mankind through psychology, politics, sociology or religion. Econometrics should be especially suited for those with a mathematical bent rather than those who prefer to focus on lengthy philosophical discussions.
The key for all these “soft sciences” – including economics as we practice it – is that they are all subject to change with the current vogue. Was Karl Marx writing essentially about economics or a solution to political problems? Although basic logic has propelled western civilization forward since the Age of Reason, other societies have chosen different routes, especially in value systems.
Most of economics really depends on a “positive” rather than a “normative” assessment of society’s problems. Whether government or private individuals should make the crucial decisions about resources is virtually irrelevant. It is more a question of politics. The major concern depends on your own view. The questions are the same, as are the quantifiable economic answers.
Economics can be fun, especially when one can illustrate and question the nature of mankind through examples of watching people’s behavior at a local Wal-Mart on a given day.
Too many would-be economists in graduate school or beyond may never really have had asked themselves about the fundamental nature of man.
Once we understand and accept the essentials of mankind, bolstered with valid facts, we should be able to look at the “dismal science” with a much brighter perspective.
By Jennifer Bunn, on July 25th, 2008
There has been much written and spoken recently about antibiotic resistant organisms, nosocomial infections, and the rise in the incidence of these. MRSA (Methicillin Resistant Staph Aureus), VRE (Vancomycin Resistant Enterrococcus) and other infections like Clostridium Difficile have been increasing in alarming numbers, leading to rising costs in caring for the patients infected by these “super bugs” and numerous patient deaths. Nosocomial infections account for approximately 20,000 deaths each year, and about 1 in 10 American hospital patients can expect to get a hospital-acquired infection each year.
In hospitals all over the country, patients routinely share rooms with one or more other patients, a practice that is proving deadly. They also share nurses, and all too often there are not enough of them to go around.
Evidence has shown that the number of people infected by these bugs can be greatly diminished in two ways: First, by every patient having their own room with their own bathrooms, and secondly, by having enough nurses available so that uninfected patients are not cared for by nurses who have been caring for infected patients. Additionally, having enough nurses available helps in infection control measures, as nurses are often the ones who implement these measures.
If this is known, why is more not being done? Although the cost of revamping currently existing hospitals to make all the rooms private would be astronomical, so is the cost of caring for the 10% of patients who require extended hospital stays because they contracted a nosocomial infection in the very place that was to help them get well. And we cannot discount the 20,000 deaths caused by these infections each year.
In at least 42 states, efforts are underway to counteract the problem. The American Institute of Architects has called for 100% private rooms as the minimum standard for some units in general hospitals in their document “Guidelines for Design and Construction of Health Care Facilities.”
This is definitely a step in the right direction, and it is likely that the remaining states that have not adopted these guidelines will do so, as people become more aware and concerned about this issue.
Source:
Nicholas Kohler, (2008). Death Traps. Maclean’s. p.40
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