I noticed my brain started to work a little differently when I hit 30 or 31.  Ideas that had been abstract started to form with more clarity, and theories started to connect.  My brain worked better.

In a culture that highlights youth and prodigy, it’s interesting to realize, personally, that my twenties were hardly my good years.  I couldn’t think then as clearly as I can now, and my emotions dominated.

This is, in part, about building a basis of knowledge.  I really started reading the newspapers when I was 22 or 23-  that was the start of the foundation.  But it was hard then-  they weren’t particularly interesting, since I didn’t have the enought relevant connections formed.

Now, I have to force myself not to read the papers.  I cut back on them a couple years ago, as I could see how dramatically the news was affecting my mood.  I still stay informed, but try to focus on broader viewpoints- via books or more in-depth reporting.

Suffice to say, I look forward to the next several decades, intellectually.

***

So, on to the topic.  Paradigm shifts. Or rather, paradigm shifts in perspective.  Three things, to be covered over three posts:

1. money. is it real?
2. health. do you trust other people’s opinions?
3. power. is it ethical?

Let’s start with MONEY.  

I’ve been reading a book called Madmen, Intellectuals, and Academic Scribblers by Wayne Leighton and Edward Lopez. It’s a breezily written interpretation of the intersection of moral philosophy, economics, and political systems, is a synthesized overview of how moral thoughts have influenced political structures over the past hundreds of years. Early on in the book, I was looking for the political slant the authors were writing from.  I’d first thought it might be pro-socialist, but the authors dismiss Marxism and Communism in less than a page. (european socialism and communism are not the same- but they have the same roots.)

As the authors explain, the “labor theory of value” – on which Marx bases his work- assumes that the value of any product or good is, in the market, exactly the cost of making the good.  Meaning: the markets value a widget at exactly the cost of making the widget. ( In a sense, this is accurate, but that’s because we now all assume that margin must be built in to a price. But-  margin, as a concept, hadn’t been fully realized during Marx’s time!)

Since the laborers are not paid that full amount of the price of the widget, Marx would say, they are being exploited-   ignoring the role that managers, financiers, entrepreneurs, marketers, salespeople, and others contribute to the success and distribution of any product.  Further, Marx is writing before the concepts of supply and demand and margin are understood-  hard as it is for modern people to conceptualize, these ideas were developed later in the 1800s and early 1900s (but somehow left unconsidered in the Russian revolution & Chinese civil war.)

Supply and Demand, and Margin are ideas that seem so fundamental, like gravity, it’s strange to think that they were “discovered” –  and so recently, at that.  The book describes the Marginal Revolution-  linked most closely with the economist Alfred Marshall- as really a “devastating critique of one of the key tenets of Marxism”  –  due to Marx’s “technical errors.” (p. 44-45)

There’s a popular blog out there called Marginal Revolution.  Good reads.

The first half of the paradigm shift about money is understanding how supply/ demand/ margin play an important role in determining value.

Communist and socialist theory have always seemed really rather like emotional plays to me-  the assumption behind them being that the vast majority of people do not have the time or interest to educate themselves on the more complex aspects of how economies function, and will prefer any outcome that promises universal benefit-  but the people will generally not consider whether that universal benefit is possible through said method.

Now really, I shouldn’t even be referring to communist theory as existing currently.  China is not economically communist.  The only extant planned economies are North Korea and Cuba, though Cuba is moving towards market economy. (ref, ref)

Keynesian thought is linked to historical communism/ socialism by the belief that the government can effectively plan-  or interfere- in the economy. (ref, written by a Keynesian)

I favor the Austrian/ Chicago school of economic thought over the Keynesian one, because it comes down to the question of whether or not a government (or powerful individuals) can intelligently interfere in the markets and the financial systems for the benefit of all. (see Thailand and the attempted rice corner, currently.)

Markets, especially now, are exceedingly complex and are generally built around some combination of perceived value and real value.  The US dollar only has value because we, the people of the world, collectively believe that the US economy will continue to succeed unhampered by its extensive debts and obligations.  (When the US debt and the US government obligations in pensions, social security, medicare/ medicaid and other future paying programs are combined, the resultant debt/ obligations owed is around 100 trillion dollars, a massive number compared to the relatively less mind-boggling 17-odd trillion in pure debt.) (refref)

From that level of debt-  $100 trillion when the annual GDP is $17 trillion, but the US government annual revenues are $2.8 trillion- is not unlike having a $100k in debt when you make $2800 a year, i.e. hard to pay down. We are all living under a mass hallucination about money, and especially the dollar.  But, the dollar being so deeply linked to every other economy, it’s enough to say we are all living under a big ol’ experiment in Keynesian thought (though, we left out Keynes’ recommendation that governments be real careful on their debt obligations…) (ref)

When the US left the gold standard, during Nixon’s era, the incentive for freeing the dollar from the restriction of gold was the belief that our US economy could grow faster- as compared to other economies- simply based on the global belief in the US economy. This proved true. (refref)

And it’s continued to prove true, even though the entire wealth of all tangible assets in the US-  land, houses, minerals, etc, is probably only about $50 trillion. (ref)

Gold, while in still some ways a mass hallucination-  (unlike food or shelter, it has no intrinsic value)- is at least a finite resource- the amount of gold available in the world is relatively predictable, and thus discourages inflation. (ref)

coming up next:  what did the US economy do when money was linked to gold, rather than pure political power?

And no, I’m not suggesting it would be realistic to go back to a gold standard, I’m simply pointing out the illusionary quality of the dollar today.

****

My reading and research always comes back to a few personal foundation points, which I aim to untangle through the economic/ political research:

1. freedom is the most important thing, and only through freedom do you get moral human beings
2. morality can’t be legislated no matter how much you try
3. large systems, developed by people, break easily.

To quote again from Madmen: “Hayek’s view of economic knowledge supports a biological rather than mechanical view of the economy…This fundamentally different view of the economy casts grave doubt on the vision of Keynes and Samuelson to centrally plan economic life.”

(p 68)

***

I’ll be following up in the coming weeks with parts two and three.

Posted by:brook delorme

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