Financial Survival Kit

What do you need to be prepared for the future financial turmoil? How can you survive?

Should I Buy Gold?

It seems like everyone is a gold bug these days, but is it the right thing for you?

What Are The Chances?

With all this "end of the world" hype going on, maybe we should consider the chances. What are the chances of a civilization threatening event?

How Much Insurance Do I Need?

Insurance is an extremely broad topic. Hopefully this generalization on the different types and amounts will help straighten things out a bit.

Iraqi Dinar: Scam or Scoop?

Some say it's an easy way to make a million bucks! But do you understand currency markets enough to take advantage?

The financial world we live in is just as wild, if not more, than the mountains and woods we walk through. We are told that the fundamentals of our economy are strong, but we can feel that something is wrong. My unique financial background and survival passion make Financial Survivalist and excellent place to learn and share.

Wednesday, October 30, 2013

Marshal and the Neoclassical Synthesis

Marshal And The Neoclassical Synthesis
By Benjamin Bowman

Marshal had a very interesting childhood. Although, I would guess Marshal would describe it as torture. As a young child, his father often drilled him on his schoolwork until midnight. Though it may have seemed as torture at the time, I’m sure it made college seem like a breeze. He turned down a scholarship to Oxford, and being too poor to pay for college, his uncle funded his schooling at Cambridge. In his younger years, his father forbid his two passions, math and chess. I can’t imagine those things being forbidden by any parent I know, but it was a different time then, and it sounded like his father wanted him to be a minister. At Cambridge he was able to pursue these passions. By tutoring math, he was able to repay his uncle for the cost of school.
Like many of his predecessors, Marshal did not train to be an economist. In fact it seemed that he had other pursuits and stumbled upon political economy while trying to justify the inequalities of his day. After walking through some of the poorest neighborhoods he could find, he seemed to confirm his desire for political economy and began a fervent study of the subject that lasted his whole life. Like many great students, he was always striving to learn more. Fifty years of writing produced eighty-two publications, the number of which an accomplishment in itself.
However, his publications are not the majority of his contributions. Like any good instructor, his largest influence was that which he had on his pupils and protégés. By the end of his life a large portion of economist in Europe were trained by him and or followed his teachings. I think all teachers would like to think they have a positive influence on their students. I would agree that good teachers do.
Although Marshall loved math, and frequently used math in economics, he did so simply out of convince for himself. He felt that relying on math too much in economics would “lead us astray in pursuit of intellectual toys, imaginary problems not conforming to the conditions of real life,” and may cause, “us to neglect factors that could not easily be worked up in the mathematical machine.” This is somewhat surprising to me. His timing and skill set was perfect to apply mathematical strategies to describe economic principles. Math was his passion, and I would think it would only be natural for him to try to apply math to economics. I wonder what he would think of our economics today? Would he think there is too much math involved in our current anlaysis?
One of Marshall’s greatest contributions to the science of economics is his recognition of the importance of time and how it affected economic analysis.  As Angel Versetti suggested in my second reading, “History of Neoclassical Economics – Analysis of Failures of Neoclassical Thought,” the lack of consideration for time and its affect on economic aliases was one of the failures of most Neoclassical thought. That would lead me to believe that Marshall’s consideration of time was even more significant to neoclassical thought.
Marshall said the answer to time was constantly stating conditions like “all other things constant, “etc. However, Angel Versetti mentions that the numerous assumptions required by neoclassical thought limits the usefulness of the analysis. Despite this obvious observation, I think Marshall’s attempt to account for time in his analyses is significant.
He was the first to consider both the short-run and the long-run and apply them to analysis of the firm and industry. He applied this kind of analysis toward subjects such as increasing and decreasing costs and internal and external economies. He also understood the limits to this method. An example of this is Long-period supply, in which it is difficult to explain certain aspects of the long-run supply curve. He even applied time to his analysis of elasticity, which is important because how quickly change happens is directly related to elasticity.
I find his observation about class and elasticity interesting.  In his analysis, he mentions that meat is more expensive in rich neighborhoods because the rich will not by the poor cuts and those cuts have to be sent to somewhere people will buy them (poorer neighborhoods). Though maybe not intentional it’s an interesting explanation for Veblen goods.
Another significant contribution of Marshall was his work on the demand curve. He recognized numerous assumptions required to draw a demand schedule. He applied his ideas of time to his analysis. He also recognized the effect of income changes on demand.
Marshall also used utility theory to analyze several different methods of government intervention as an attempt to provide the public with greater utility. Angel Versetti pointed out that this use of utility assumes that people will act rationally maximizing their utility, when in reality people do not always act rationally. However, Marshall used utility to discuss subjects such as taxes and subsidies on increasing and decreasing cost industries. He also analyzed economic welfare and monopoly.  Although the utility theory that he used for his analysis was flawed, he was still able to make some interesting and insightful conclusions.
Yet another contribution is his analysis of factor demand. It seems that his analysis of elasticity and the advances he made in its determinates, help him have a unique insight into factor demand. Where most authors assumed long-term equilibrium in their analysis, Marshall instead assumed that there would be some cases in which some change caused disequilibrium for time enough to affect the supply chain to be affected. With this basis he was able to offer unique analysis.
As we can see, Marshall wrote on pretty much every subject of political economies. He studied and wrote on the subject for years and years. Nevertheless, most of his contributions were not based on original thoughts; instead he mostly gave new insight to already existing ideas. He was able to organize, develop and refine all the theories of the neoclassical era. He basically made a really good compilation of Neoclassical theories.
I find it very interesting that the author attributes his fame and reputation to simple luck. He wrote a book and because it was not directed toward the scientist, but toward the intelligent layperson, the book was successful and happen to catch the “academic spirit” at the time.  Not that the author discounts or disregards his contributions to economics, but the author seams to think that he was not too outstanding at original economic thought. He also mentions that he owe a portion of his reputation to the fact that many of his students choose to expound upon his ideas therefore perpetuating his reputation.
As Angel Versetti points out, there are many limits to Neoclassical thought. However, there is still a use for these kinds of theories. I think that Marshall did what he could with the world he lived in. I also believed that he achieved much and contributed greatly to economic thought.

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Thursday, October 17, 2013

Thoughts on NeoClassical Economics

Thoughts on Neo-classical Economics and Micro Economics in England and somewhere

By Benjamin Bowman

The first reading "Early Neo-classical Economics,” first talked about A. A. Cournot. As the author reviewed his life, it made it seam like Cournot was a great economist that struggled to achieve success in life, but was recognized greatly in death. The work of Cournot contributed greatly to current economic thought.

Cournot was a strong proponent of mathematical analysis of economics. He used his mathematical background to critique and expound upon previous writers such as Smith, Say and Ricardo. He said that economic analysis had to be grounded in empirical observations and in facts. He refused to accept speculation when it came to his demand function, but in a method similar to current day, he successfully used math to explain the relation between demand, supply and other demand factors. He was able to recognize and explain how "facts, theory and model building were intertwined."

Although Cournot made many contributions to microeconomic theory including a simple competitive model, an advanced model of composite and derived demand, and discussions of various economic equilibriums, his contributions to method and monopoly-duopoly theory dominated the attention of theorists and critics alike. I find it interesting that his work answered some important questions, but by answering one question it created more. It seems like the author's favorite economist to this point was Cournot. The author holds him in high esteem to the point of saying Cournot reached a level of achievement few have reached. He did so by seeing economics as a toolbox full of tools that could be used to answer numerous economic questions. I can very easily see economics as such a science. I wonder if Cournot thought himself an economist, or if he was more of a philosopher? The author said he "practiced economics as a vocation, not a profession, so I venture to say he would not think of himself as an economist.

I find the story of Dupuit interesting because he was formally an engineer but enjoyed political economy as a hobby. With the exception of “Commercial Freedom,” the majority of his economic contributions entail journal writings. I wonder how his journal found its way fonts the economic world?

I love that Dupuit recognized that unorganized statistics are meaningless. I wish more people recognized this today. Constantly polls are skewed to achieve the biased results that the pollster seeks. Then the skewed results are used as propaganda to influence people or politicians. The severity of statistical abuse has led some of statistically literate to cynicism. It is so difficult to sift through the mounds of propaganda, that even legitimate and organized statistics are lost in the deluge.

Dupuit’s contributions to the idea of marginal utility are quite amazing, especially considering the fact that he was an engineer, and the majority of his explanations were based upon empirical quandaries. It is also impressive that the majority of his works were concerning municipal issues, but applied well to almost all goods. He linked the demand curve to utility for the first time and consequently created a new approach to economic inquiry, that is welfare economics.

Dupuit's analysis of monopoly and discrimination, using the railroad method, reminds me of the airways method of discrimination between first class and second class passengers. It also reminds me of localized monopolies for utility companies. In his example, the gov't is able to offer consumers more utility than if it was run by privately. I think this is very possible, but government, tyrants and politicians, have proven time and time again, that they will often act in their own interests despite the interest of the people. What is to make the government not charge a prohibitory price that leads to less utility, or simply not provide sufficient service? Not only that, but it seams gov't has a habit of decreasing economies of scale due to bureaucratic difficulties.

I agree with J. S. Mill about certain necessity for government to run certain ventures that would not be profitable for the private sector, but necessary for the economy and the people. However, government has a tendency to screw things up when it reaches too far. With that being said, I do believe that Dupuit made significant progress toward a fruitful level of government planning. His work laid the foundation for the analysis of when and if such government intervention would be appropriate and beneficial for society.

Jevons was a solitary man. I loved his self-assessment as to why he has a disposition toward solitude. He stated then what we know now as group thought. That those who are raised in the conversation of the many will tend to think as the many, and will scantly raise their thoughts above their level. Of coarse there are always exceptions to the rule, but he was very right. It is difficult for scientific revolution unless we cast out the status quo. The easiest way to cast out the status quo is to expel oneself from it. One of my favorite things is to go for a hike alone with my thoughts.

However, at the same time there is an advantage of synergy when working with increasingly complex sciences. One cannot be an expert in every aspect of science, but by allying oneself with intellects that complement each other, the group is empowered beyond any individually achievable level. For example Jevons could have benefited greatly from the insights and second opinion offered by Dupuit, the main discoverer of utility. Jevon's expounded on Dupuits idea of utility and was the first to articulate marginal utility. It sounded like Jevons was inconsistent in his piecemeal work, but that his theory of marginal utility is one of the things he described in detail. He also used his theory of utility to describe and develop his theory of exchange and theory of labor supply.

The author makes the argument that if Jevons had lived to complete his work, he would have made a larger impact on economic science, but experiencing an untimely death left his work in pieces and unfinished. Even in this unfinished state, his contributions to economics are profound. Keynes was a big fan. Despite the disposition of isolation, it seems to me that Jevons was well aware of his predecessors and other economics of his time. In fact he made an effort to make sure everyone in the economic world knew of the available writing of economics. From this reading, I do not doubt that given more time in life, his impact on economics only would have been magnified.

I find it interesting that so few pages were dedicated to John Bates Clark, even though the author recognized him as one of the "most honored and revered of early American economist." In the reading it seems like his contributions were limited to his Marginal Productivity-Theory of Distribution and his Marginal Utility-Theory of value, even though credit for the former was shared with other economists. It leaves me feeling like the author cut his section short. I find it interesting that Clark was able to first educate himself, and instead of looking forward to new ideas like most of his colleagues, he looked back and was inspired by the economists that came before him. His Marginal Productivity-Theory of Distribution was inspired by Riccardo's rent theory. I'm sure that in ten years I could reread these pages and learn something completely different. Life and experience have a way of doing that to us.

My third reading was “Neoclassical Economics as a Theory of Politics and Institutions” by Anton D Lowenberg. This writing was a synopsis of neoclassical economic theory in modern economics.  The author made an argument for neoclassical economic theory, and rebuffed some of what he saw as the common critiques from the theory’s opponents.  He also made an analysis comparing “structuralist” and “functionalist” in our current day. Although it was interesting, looking back I don’t think this was the best article for additional reading.
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Tuesday, October 15, 2013

Dave Ramsey Epic Success!

I oft times criticize Ramsey for his one size fits all investing and get out of debt plan. The thing I have to give the guy credit for is his ability to help people get out of debt.

In his "snowball" approach, he recommends that consumers pay off the smallest debt first. Mathematically, it is best to pay of the highest interest rate first. I have often thought that if you are disciplined enough to follow Dave's plan then you are disciplined enough to pay it off right. I AM WRONG. You see, I was considering the above average, not part of the herd, level of discipline. Dave is considering human nature and psychology.

As an economist, I cannot consider only the logical solution. That would lead me to Marxism and Socialism as the best solution. After considering human nature, we realize that Marxism fails. It is similar when considering how best to pay off debt for the herd. Dave's method has a better chance at success for the most amount of people, because it is designed for the herd. It is designed with human nature in mind, and the herd is a larger demographic.

Recently, a Time's article featured this conundrum. The article "The Verdict is in Tackle Smaller Debts First" vindicates Dave's method of paying off smaller debts first. Good for Dave, for standing up for what he believed in, and finally being vindicated by psychology. Touché.

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Thursday, October 3, 2013

Thoughts on Marxism

Below is a reflection paper for my History of Economic Thought Class. Enjoy.

I have often been wrong in this class. Whether it is suggesting that wealth inequality has been decreasing, or thinking Mills was like Reagan, it is obvious that I have a lot to learn about economic thought. My readings on Marx do not make me feel any different. In fact, in the first reading, “Marx on Economics,” there is a recurring theme about how the majority of people are ignorant to the true doctrine of Marx. Although I would like to consider myself a little more knowledgeable than the average person, it is obvious that I am not the most knowledgeable economist, nor anything close to it. So, I must approach these readings from the perspective of ignorance. It will be difficult to ignore the years of propaganda and lies I have learned about Marx, but I will do my best.
“Marx on Economics” did a very good job pointing out several accomplishments and faults of Marx and Engels writings.  One of Marx accomplishments was his theory of business cycles.  Marx and Engles were some of the first to notice that there were periods of fluctuation of growth, upward and downward.  Although Marx never did extensively define his theory of business cycles, the author mentions that most of what is contained in today’s theory of business cycles can be found in parts of his writings.
Marx also seemed to offer significant contributions to the theory of labor. Although inspired by Ricardo, he didn’t accept Ricardo’s labor theory of value. So, he created his own. There are several problems with Marx’s labor theory of value, and we now know it is not the best way to measure value. The second reading, “Marxian Socialism,” mentioned a major contradiction that it called the “Transformation Problem.” Marx himself attempted to solve this problem in Volume 3 of Capital. The author mentions there is great debate as to the level of success Marx was able to achieve.
Marx denounced Say’s law. He called it childish and boiled it down to meaning that if there is a sale, there must be a purchase and therefor always a balance of sales and purchases. He pointed out the obvious truth that if you add currency, suddenly there is no requirement for someone to make a purchase just because they just made a sale.  If Say’s law is true this would cause crisis.
One of the shortcomings of Marx’s writings was his prediction of the future. Obviously, no one can predict the future any prediction of the future has to be considered in that light. However, many of the motivations of Marx rested on his predictions of the future of capitalism. Marx saw a capitalist society that would continue to grow into a few incredibly rich capitalists wielding unchecked amounts of power and using it to enslaved a massive workforce. The author mentions how Marx could not have foreseen things like growth of powerful workers unions, or the animosity experience between competing industries in multiple nations (ie auto industry). Even though I agree that the “increasing misery of the working class” was a “fantastic miscalculation,” my cynical self will argue that Marx was and is right.
It shouldn’t be surprising to those aware of our current situation. Wealth inequality is at an all time high. Wages have not been increasing lately and it seems that the workingman can barely get by. Politicians are slaves to special interests and addicted to their own power. The uber rich control them by addicting them to power and contributions.  They fear more the next election than worry about what’s right. Has the state not become an “instrument of force used by capitalists against workers?”
Corruption is rampant in our government and private industries. Greed has driving Wall Street and big banks to take bigger and bigger risks. Losses are covered up in offshore companies. Are we not also slaves to the “man?” Do we not sell our freedom by the hour? Does our consumer culture not enslave us in shackles of debt? It might have happened a little differently than Marx predicted, but does this not sound like the “future” of capitalism that Marx described?
Many people believe this, but I don’t. I don’t believe capitalism is to blame for the degradation of society. In fact it is the continued growth of government that tempts politicians with increasing power. It is the call of the worker for more social planning that increases the size of government. Yes, men like Bill Gates yield disgusting amounts of power. However Bill himself would not be able to shape our children’s curriculum to create an army of Microsoft customers if it wasn’t for our socialized education system.
Many people want the masses to believe this. For various reasons they want the lower classes to rise up and revolt. But many of those same people are the cause of many of these problems. For some reason I feel like I am digging myself a hole, but I like digging so I will continue.
The biggest thing that I don’t understand is the obsession with Marx in our current economic society. I have listened while an economist went on and on about how horrible capitalism is. The problem was that he used many Marxist and Socialist examples and called them capitalism because they were or are found in our society today. Maybe I’m wrong, but I don’t believe we live in a capitalist economy. We do to an extent, but I think our current economy more closely represents imperialism. It’s a mix of government collusion with private business similar to what we saw during Great Britain’s period of colonization. I digress.
Marx has been discredited. His labor theory of value was extremely flawed and neglected to recognize other sources of value. His analysis of capital accumulation proved to be wrong and failed to recognize other possible outcomes of capital accumulation. His theory of exploitation of workers, highly dependent on his labor theory of value, proved to be incorrect. Long periods of unemployment have been the exception in capitalism more than the rule. His theory of class conflict failed to recognize that the government could step in and make things better for exploited workers. Even the idea of Marxist Utopia, not mentioned in either reading, has been tried and failed. The incentives to take risks, provided to workers and entrepreneurs by the capitalist system, have proven to be a very efficient way to increase quality of life.

So why is capitalism so demonized? Why is socialism and Marxism making a resurgence of popularity in our society? Although I feel some form of Marxism is an inevitable equilibrium due to proliferating ignorance in society, even some of the most well educated economists in society are Marxist. I just don’t understand it. I assume, and look forward to, my questions being answered in class. I started reading the Communist Manifesto a while ago, and confess that I have been distracted by other readings. However, I have been looking forward to the subject of Marx from the beginning of the semester.

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