inadvertent lessons in economics

Economics Economics Questions
1

A similar thread to this one was just made (different enough to separate them) which spurred me to ask this question to you all.

I recently remembered my first economic thoughts and how my parents answered my questions and I think (more so now that these memories have come to me) that they may have shaped the way I saw and continue to see the world today. Despite any common fallacies your parents (or others) may hold, can you think back to a specific time in your childhood or early adult years where your parents inadvertently taught you a sound economic truth?\

For example, I remember being a kid from about age 5 to well into my early teens. On a fairly regular basis, I would see my dad purchase something fairly expensive, like a new set of tires. I would ask him how much they cost, and he would tell me (in the case of the tires, say $300). I would then ask him “How come they cost so much?” His reply: “because they can get it.”

In that little 5 word answer, he basically explained subjective value theory to me. Now, I don’t think my dad knew he was explaining SVT to me at the time because if you asked him today what subjective value theory is, he would probably have no idea, and he probably wouldn’t even know it was an economic term (though he might). However, looking back on that, I am utterly astounded at the simplicity through which he explained a solid economic truth, one that stumped great economic minds for ages: How is value determined? Incredible.

Another example: I remember I was about 5 (give or take a year or so) and I was driving home from school one day with my mother. I asked her (from the best of my memory - it is very hazy), “Mom, why do we have money? If we get it by going to a job where we do things for people and they give us money, and we also go spend money on things, wouldn’t it just be easier if we were each just given what we are going to buy, or what we need instead of working for money?” (basically, I had concocted the idea of communism and to me, it was totally original. I had never heard of such a system ever before.)

Her answer: “If we did that, no one would work because they would be given things and at the same time would expect everyone else to go work. Everyone would think this and then nothing would get made”

Me: “What if we only get what we need if we go to work?”

Her: “Who decides what we need, and what about what we want?”

This was my first intellectual brush with economic ideas such as communism and capitalism and is the first time I remember consciously thinking about these things. I think it say’s something about the intellectual stability of marxism that a child of 5 can basically come up with it on his own, as well. While my mother’s explanation is in no way an exhaustive critique of communism and/or Marxism (her first response is a common objection to it), I think that the question “Who decides what we need?” was a great one to ask. She didn’t argue with me, or tell me I was wrong, rather she challenged my premise with a really good question that must be answered and, in doing so, she encouraged me to entertain these ideas (likely much to her chagrin today).

Interesting topics to explore:

  1. It seems that my question to my mother when I was a child hints at this ability for us to think through complex economic ideas at a very young age. It seems that society and the state education system slowly erodes away these ideas of Freedom and sound economic thought. As children, after all, we know instinctually, if not intellectually, that it is wrong for someone to take what is “ours”. I wonder what would end up being most children’s understanding of economics were they left totally alone, educated neither from a capitalist nor a socialist framework.

  2. While my mother’s replies were a little more pointed and intentional to get me to see the issue’s with socialism (and, thus, come to embrace American “capitalism” - my parents are neocons), the inadvertent truth expressed by my father hints at an unconscious knowledge of economic truth. Is it possible, however, that the state can only erode away our intellectual understanding of true economics, or at least much harder to erode away is our innate understanding of it? Do you believe we have an innate understanding of good economic theory?

2

I definitely think kids understand a lot more than we give them credit for, and it is definitely eroded by authority. I recently remembered being taught about business cycles in my 1st business class and thinking, that makes no sense, there has to be something tying this cycle together, or it would not be synchronised throughout the economy. I can’t remember, but I’m sure I didn’t speak up about it.

3

I think both these questions ar fairly common for most kids.

I remember wanting a Pokemon game, and wondering why it wasn’t free, that was when I was taught about incentives for work.

Actually, I had an interesting conversation with my granddad which led me to understand that different people value things differently.

Me: “Granddad, why do some women show their boobs in magazines”.
Granddad: “Well, what if I offered you a pound to stand naked for a photo?”
Me: “No way!”
Granddad: “Three pounds, five pounds, fifty pounds?”
Me: “I don’t think I would do it for less than (some absurdly high, only a child would come out with) X”
Granddad: “Fine, I’ll find somebody else. They’ll do it for less”.

And that’s when I learned that people valued their privacy at different levels, and I quickly learned to apply this to everything else.

As a teen, I also learned about disincentives of welfare/socialism from my parents. I mean, these guys are statists… but they definitely hated the taxman. Kind of like Woods, I had some level of defence against the educational propaganda through my parents.

4

were they neocons like mine? Loved the military industrial complex, war, and perhaps a few other areas of the government? The sad fact is, I think most of your average, commoner neocons (romney voters) really do believe that the government should stay small in an economic sense (if we ignore the military). I mean domestic and social programs. My father is for cutting taxes. Theoretically, he believes that any tax cut is a good thing Ceteris paribus. In this case, he would prefer taxes stay the same and get a cut for the poor than no tax cut for either. However, if one person deserves a tax cut, it is the rich, because, according to him, the rich pay more in taxes than the poor. Whatever…But, I know what you mean. In some ways, neocon philosophy is in some areas at opposition with the educational propaganda, although not in practice.

The real problem is that they, like the left, fall for rhetoric and not true action. “Well,” he implies, “Romney says he is going to cut taxes. Obama wants to raise taxes. So, I vote for Romney, because I do believe (to some degree) that at some level, taxes is thievery.” I have gotten my parents to admit at least this. Unfortunately, they fall fr the lesser of two evils argument. For practical reasons, this might be valid on some utilitarian level. I don’t think it can be stated that either is less evil than the other though.

I am sure this is almost always the case (politicians are pretty universally hated), but what astounds me about this election in particular is that I feel the dislike for both candidates is even stronger than usual. Even though they believe Romney is the lesser of two evils, my very neocon parents admit that the lesser evil isn’t much “lesser”, so to speak. Before, say with Bush vs Kerry or Bush vs Gore, my parents were pretty ardently for Bush. They didn’t like everything about him (especially by the end of it), but they felt that he was much better then either Kerry or Gore by a very long shot. Not so with Romney and Obama, and I get this from a lot of people, both on the left and the right. When I tell people I am not voting, I don’t get nearly as much of a disgusted look as I used to. Before they would say “We MUST elect Bush at all costs” or “We MUST elect Gore at all costs”, and in both cases, they would end it with some plea for my vote, as if it would make a difference, that it was so important to go vote to effect a change. People are starting to see the illusion of this. Now it is simply, “I understand the poor lack of choices, but you should vote out of duty to your country, or to prevent someone from using your vote fraudulently, if for nothing else.” The pro-voting stances are more principled than out of any dire imperative.

This fact both gives me hope and depression. It gives me hope in that I see that the average person is beginning to see that the choice is not a choice at all. Conversely, tt depresses me because these same people still hold onto Democracy, or voting, or government as a viable means by which to create a good society or solve its problems.

5

Neocons don’t really exist in the UK, in any major kind of way. I think that knd of philosophy only really develops in the US because of “super-power” status.

They tend to be “safety net” kind of statists. They do not support things like the NHS for everybody, but only for the poorest. They believe in state education (though, I’ve slowly been making progress with my mother - she likes school voucher systems which work with public and private schools).

While they hate welfare in principle, when guilted inro it, they’ll support just about every kind of “benefit” available.. just with greater means testing, that kind of thing.

What I do admire about my parents, though, is their belief in personal responsibility and hard work. When they first met and started forming a family (that is, they had me), they actually qualified for numerous handouts… and rejected them all. Outside of a mortgage, they’ve never held any kind of debt (and the mortgage is reasonable… bought a house a couple of years ago, put over 50% down, had a £200k mortgage, which isn’t even twice my father’s income), EVERYTHING else comes from savings. Vacations, home improvement, cars, new TV. Everything.

Hell, they’re even in credit with the utility companies, and my dad’s got a six figure pension saving plan (which he’s calculated will give him a reasonable standard of living on retirement, taken for inflation… although, he’s based this on CPI figures, and CPI being relatively constant… I try warning him about this, but he won’t listen).

So, what I’ve learned from parents, actually, is good budgeting and hard-work ethics, and the understanding that it’s always better to delay gratification until the point where it’s no longer a luxury (for example, we never took fancy vacations until the point where it became so affordable, that they were no longer a big deal).