Real World Economics
Degrees Available Through the University of Experience
BY DAVID S. LEWIS
In the real world, as opposed to the theoretical, economics is the simple experience we engage in every day. It is the give-and-take of life, and this give-and-take a million times over per day comprises the economy. Subsumed though into the Federal Reserve’s macroeconomics, this economy has been made to seem extraordinarily complex, beyond the common man—yet it is only to the degree that the simplicity of it has been obscured by those in control.
Not formally an economist (not even informally), I happened to have attended the University of Pennsyl-vania’s Wharton School of Finance, consistently ranked the best business school in the world, yet I learned little of practical value at that institution—the first collegiate business school in the country—and although it was a fascinating exper-ience, it was one that left me shaking my head.
Instead, my real training was on the job, managing $6 million of receivables for the family business, not such a great sum for a corporation, except that those were the days before personal computers, and I was the only one in the office. Many of the accounts, moreover, emanated from the dog-eat-dog world of Jersey jipsters and Bronx bandits—those looking to fleece others any way they could, any day of the week, me included. Quite an education.
Later, and having worked numerous jobs (factory worker, bus driver, greenskeeper, shipping and receiving), I owned and managed two small businesses interspersed with stints as a traveling salesman selling holistic appliances, health insurance, automotive products, and then the print advertising found on these pages.
Sounds like a resume, but it’s just the experience of an ordinary American, like that of so many others interested more in free enter-prise than subservience to a corpor-ate or bureaucratic routine. Millions have lived and performed likewise (and far better), those who create most of the new jobs in this country, those who take the risks, bear the stress of ownership, and who hope for reward. Such are the credentials of a real world economist, along with one other in my case: my father, a salesman, small business owner and manufacturer—his means of earning a living and raising six kids after flying B-17s in WWII, the man who taught me the prime rule of economics, one I recall like a mantra and readily applied when I sold my first business in 1986, a natural food and vitamin store. It is a rule rooted in human behavior, as is all economics.
The buyer, a high binder of sorts who was buying stores all over the area, tried to come in and tell me what my business was worth based on an inventory we had conducted and some formula he dreamed up, a low ball figure of course. Unwilling to accept his premise (or his assumption that I was a granola head, as opposed to a real world economist), I told him his theoretical price for my business was irrelevant, that he had wasted time creating it, and I repeated to him the counsel I heard my father express all my life, the prime rule: “the value of any product or service is what someone’s willing to pay for it—nothing else needs to be said.” (This rule, by the way, flies in the face of sophisticated theories of value, yet it cannot be refuted).
Eventually, buyer and seller arrived at a negotiated price, one that I was willing to accept and he was willing to pay, and that’s what my business was worth, rather than any figure calculated using an arbitrary theory, and I of course obtained a far better price than the buyer’s original offer, owing to my father’s tutelage, which supports the idea that theoretical economic policies are used to exploit rather than arrive at a natural consequence.
This is economics. It takes place in market stalls every day, everywhere in the world, and here in our shops, garages, supermarkets, agricultural markets and auctions in Montana. It has little to do with theories taught and imposed upon us by academics, most of whom have never run so much as a lemonade stand, and this includes the current group in the White House, as well as people like John McCain, Chris Dodd, and Barney Frank. The school of economics from which they graduated was that of chasing our tax dollars, having nothing to do with real life (though McCain learned something about real life in a prison camp for seven years) as with the economics of universities—where students and teachers deal in theory from ivory towers, not practice.
To be blunt, theoreticians know nothing about real world economics, they only know theories, a situation reminiscent of a celibate priest giving instructions on sexual relations to married couples. So our collective response ought to be—Thanks, padre, but no thanks, I think we can handle this on our own, if only we could regarding our economic fate given the burdens and intrusions foist upon us by the theoreticians in the White House and the president’s Council of Economic Advisors, the nation’s high priests—virgins all—of economic theory.
In contrast, let us briefly look to one of the greatest real world economists of all times, Alexander Hamilton, who saved his fledgling country from imminent economic ruin in the 1790s by insisting upon trade with our former enemy, the British, after having run an international trading post during his childhood in the Caribbean. Now that’s real world economics.
To understand artificial economics one might compare the real economy to any other natural system. Let’s use the human body, an intricate self-regulating organism, one that functions magnificently with simple nourishment and exercise. A corollary to Keynesian intervention-ism (expanding and contracting the money supply; see page 3) would be the practice of administering amphetamines and depressants, alter-nating the dose and frequency as deemed necessary and causing addiction, dependency and poor health to the person taking the injections, which in this case is you and me and all the businesses in the country—cells in the body economic that must process the drugs. And, as time passes, the cumulative dependency grows until it reaches an economic crisis (as with recent events). Other ways in which the Keynesian system intervenes involve fiscal policy—government borrowing, spending (stimulus) and taxation.
As with intervention in natural systems, intervention into the economy has been a disaster, as powerful men acting arbitrarily try to improve upon nature’s handiwork—in this case human nature, natural adaptation, the inherently sustainable process of free enterprise as practised without any need for artificial distortions since hunter gathers began trading across North America 12,000 years ago.
But, you say, human nature can be destructive, unbridled free markets and greed must be suppressed. Just look at Anaconda Copper, you say, and the Berkeley Pit or WR Grace in Libby, disasters resulting from unrestrained free enterprise. And then the banking crisis and all those bad loans pushed upon the American people, and sick people having their health insurance canceled.
As explained though (see page 3), the recent economic crisis was arti-ficially incentivized. The federal government made it profitable, even mandatory, that bad loans be granted, with the understanding that those loans were guaranteed. Regar-ding environmental disasters, poisoning others or the natural world is not free enterprise, it is criminal behavior, and financial instruments leveraged by 4000 percent is fraud resulting in part from the failure of government to fulfill one of its few constitutional responsibilities—law enforcement.
Regarding canceling the insur-ance of sick people, we could provide an explanation similar to the one you are reading, though longer, that would demonstrate how the forces of nature have been subverted through intervention into the health care economy, leading to a situation where cancellations are possible and where insurance is necessary (See Who Killed Healthcare by Regina Herzlinger). The common denomin-ator is that someone stepped in and confounded the natural regulating forces of millions of people, adminis-tering drugs, if you will, with disas-trous unintended side effects.
It must also be said that freedom does not include the unholy alliance of special interests with politicians. This too subverts the natural process through intervention and again falls under the category of wrong doing, not free enterprise.
More and more the view prevails that intervention into the economy before and during the Great Depres-sion, rather than helping the economy, caused and severely prolonged the downturn, which otherwise may have been an 18 to 24 month reces-sion, the natural business cycle, and even prominent figures close to FDR admitted that the government’s massive intervention had done nothing to help the economy, as unemploy-ment soared through 1938.
Keynes (a Cambridge intellectual who during the Russian Revolution rooted for Bolshevism, but who later reluc-tantly admitted that capitalism, though objectionable, was prefer-able) believed that demand for goods might be insufficient during ordin-ary economic downturns, leading to unnecessarily high unemployment, and that the government’s role was to create a more utopian society, to intervene by taking control of the money supply. He argued that government could be used to increase demand, thus increasing economic activity and reducing unemploy-ment. His scheme though might best be described as an inability to leave well enough alone, an arrogant need to interfere when things work out reasonably well on their own due to natural price adjustments in the economy, and due to human nature—the irrepressible motivation on the part of so many to improve their lives as self-regulating cells in the body economic. As prices fall in a downturn, people are motivated to buy again, and so demand picks up. Growth and jobs follow. Simple.
Keynes’ life though was that of a Cambridge academic (yet he made a fortune speculating in the financial markets). He was also the son of academics, removed at birth from the give and take of the real world that shapes one’s personality and understanding, and his influences were the utopian socialists with whom he associated and by whom he was taught. He was motivated to do good, some would say, but it is his manipulative system that now manages our economy and subverts the natural process of our economic lives.