Guns and Butter

Now let me preface this blog with two things: first, let me apologize for waiting months to write. In all honesty it's been a mixture of laziness and lack of inspiration. there are so many things I could have written about, but i was honestly waiting for the perfect idea to come to fruition because there was a particular thing i wanted to address. second, that I spent the better part of two hours writing about a completely different subject before coming across this draft in my blog posts. Now that I’ve discovered it, I realize I like it better, it seems far less sentimental and corny than the one I was writing tonight. (perhaps I’ll save that one for a more emo day).

Second, I’ve been waiting for the right theme to come up that meshed well with something I was very adamant about addressing in whatever I wrote about next. Months ago, when I first tried to write about this, a person who’s opinion I hold in very high esteem and who shall remain nameless, gave me new motivation to maintain my blog and for that, I sincerely thank you. This is a long way from dedicating my first book to you (that moment is yet to come), but this one's for you. Cheers.

The title should give you a clue as to what this blog will partly talk about. Guns and butter are two completely different goods that really have nothing to do with each other, but it's a great example...so great in fact that it has transcended decades and endless high school economics classes. I'm certain every high school student in the english speaking world has been exposed to this example, possibly with different goods, but for those who are suffering from early onset senility, here's a refresher:

For the ease of learning, an economy has only two goods: guns and butter. There's only so many guns this economy can produce, as with butter. Also, there's a number of combinations of guns AND butter that can be produced. The countless number of combinations that can be produced create a curve known as the productions possibility curve (PPC) or frontier.

Anyway, from this example, i hope you can see the big question every economy must answer. WHERE does the economy produce? Too many guns and the population will starve. Too much butter and we won't have enough guns! (let's think national defense here). SO which point is the RIGHT point? The problem with this answer is it depends. If the economy is in the middle of a war we clearly want more guns. If we're about to face winter, maybe we'd want to produce more butter so we can stock up our pantries. HOW DO WE KNOW WHICH POINT IS CORRECT??? Economically, ANY point on this PPC curve is correct, but for each economy that exists, there is certainly a more desirable point on this curve than all of the others. The age old question is: which one?

Anyway, before I bore you with this rhetorical question, i'm applying this example of the PPC to the decisions a lot of people in this world are forced to make. For instance, instead of guns and butter and again for the sake of simplicity, there is only passion and money. We can either choose to spend more time on our passion, or spend more time making money.

There is an endless combination of how much time to allocate to each thing, but again, which point is the right point? Now like I addressed in the beginning, this blog is dedicated to someone and this someone also gave me the idea for the topic. I was asked about some potentially life changing decisions, which long story short, consisted of potentially making a lot of money but neglecting one's true passion (not completely, but the neglect could be significant) or making less money but being able to dedicate a lot of time to one's true passion.

Answering this question in the real world is complicated and depends on countless factors. For instance, how GENUINE is this passion? How money- motivated are you? Do you want to be living a life of endless luxury and someday have your own hangar in an airport with your G6, or will you be happy living a simple but financially stable life? There are also the repercussions of your decisions. You could choose to go with the former (making a lot of money), but end up regretting not spending more time dedicated to your passion (like the art of making chinese fingers traps, for all comedic purposes). Or, worse case scenario, you make so much money (think Gordon Gekko) that you alienate everyone, end up alone in your 20 million dollar mansion, and are forced to leave your entire estate to your butler Alfred. I won't drone on with choosing the latter, or the repercussions of it, because I'm sure you get my point. CHOOSING WHERE TO BE ON THE PPC IS HARD.

I thought about what I said to this person when the subject first came up and what I would say now. And what I would say now is this: I can’t possibly answer this question for you, but think of guns and butter. Money is to guns as passion is to butter. You need both in life to be happy and for the sake of this argument “profit-maximizing”. Any economist will tell you, no economy has ever chosen all guns or all butter.

This one's for you,

Your Aspiring Economist

Seinfeld and Sponge-worthiness

It's been quite a long time since I've written. I've been so busy and haven't been reading much econ stuff lately nor have I come across anything particularly blog worthy.

A lot of stuff has happened since my last post. Most importantly, I got a job at Dow Jones in downtown SF in the financial district. I started April 19th as a Research Assistant. I'm extremely happy and relieved to have found something so quickly after graduating, and to top the cake, it is something I really enjoy. I was going through major bouts of anxiety (and for those who know me, you know how fretful and flustered I can get) and was seriously going through bi-weekly quarter life crises my last quarter at SB. So, needless to say, I'm much more relaxed now.

But, the purpose of this post is to provide a link to this article I came across from The Wall Street Journal. Per my research required for work, I come across a lot of interesting articles and this one I just had to share. It consists of two of my favorite things in life: Economics and Seinfeld. yes, Seinfeld.

Who knew an Economist could find a way to teach about investment decisions through Elaine's sponge dilemma?

To finding sponge-worthy men,

Your Aspiring Economist

Post-script: (I can't get the hyperlink to work, so you'll have to copy and paste...my apologies):

http://blogs.wsj.com/economics/2010/07/21/the-economics-of-seinfeld/

The Opportunity Cost of LOVE

I stole this from a very close friend of mine (if she reads this, she'll know who she):

"Some women choose to follow men and some women choose to follow their dreams. If you're wondering which way to go, remember that your career will never wake up and tell you that it doesn't love you anymore." - Lady GaGa

As a recent graduate, I've been plagued with huge amounts of anxiety and uncertainty about my future. I have a long-term goal of being an Economist, and like my step mom told me today that is a goal of mine and there several steps to getting there. I've just been so scared that i'll never be able to achieve the next step to getting there (whether it's grad school or becoming a research assistant) and there will be this huge domino effect. I don't want to look in the mirror 10 years from now and realize I'm a huge failure.

I say all of this because with this anxiety and uncertainty, so many other factors come into play, like love. We've all been victim to the opposite sex in one form or another. Whether it is losing yourself by being in a relationship, sacrificing your ideals, who you are, or your priorities for the one who tickles your fancy, or simply playing hookie from work/school because you can't seem to pry yourself away from the beautiful person laying in bed next to you, we've all been there. There may be no one else you'd rather be with than that person, but in the end if that individual wakes up one morning and tells you they don't "love you anymore" or they just "see you as a friend", it all of a sudden doesn't seem worth it does it?

This blog may seen overly sentimental and entirely non-economical, but it has a point. My point is, to me, the opportunity cost of love -at my age and at my stage in my life- is the time and energy I could be putting into achieving my goals. It is the job offers or grad school acceptances I may miss out on because I chose to put my energy into being with someone rather than committing to achieving my dreams. On the other hand, the opportunity cost of chasing my dreams is happiness. Love brings you utils (a unit of satisfaction in Economics) and by choosing to chase your dreams instead of choosing to chase love, you lose out on that. With that said, I love love and I enjoy being in a relationship. At this point, I would love to have those extra utils in my life, but like our wise Lady Gaga said, your career isn't going to wake up one morning and tell you "it's not you, it"s me".

To all those women who woke up one day and were told they weren't loved anymore,

Your aspiring Economist

Post-script: Trust me, if I could have it all I would. But remember, there are always too many wishes and too little genies to make them all come true.

Lou Dobbs and “Ignorant so and so’s”

I was thinking of a topic to discuss for today's blog and remembered watching a video last quarter in my Personnel Econ class about the United States and outsourcing. The video was from "Lou Dobbs Tonight" on CNN and talked about how outsourcing is terrible for America and has been hurting the domestic job market. It particularly highlights Nielsen, the world’s leading marketing and media information company. Nielsen has a 1.2 billion dollar outsourcing contract over the next 10 years (for both technological and operational labor) with TaTa Consultancy Services (an outsourcing company, among other things).

So, how much do you think outsourcing has affected our economy and the amount of jobs in the U.S.? More importantly, is it "un-American"? When I was first posed with these questions in my Personnel Econ class last quarter, I thought America was losing a lot of jobs and our economy has really been affected (or would be heavily affected).

However, to my chagrin the Bureau of Labor Statistics (in 2004) reported that only 1.9% of jobs lost in mass layoffs were associated with out-sourcing or movement of jobs to other countries.

So, unlike the video stated, Lou Dobbs may be the “ignorant so-and-so”. Outsourcing as of 2004, hasn’t even accounted for 2% of mass job layoffs in the United States. Economically, outsourcing is just another form of free trade and comparative advantage (the ability to produce a product most efficiently given all the other products that could be produced). If a firm can go elsewhere for simple data entry and basic programming - and the firm is profit maximizing - they should do so. Policies aimed at preventing trade, like outsourcing, would lower the standard of living for both Americans and the citizens of developing countries and can make firms inefficient and face higher production costs. Overall, an open market trading system is generally viewed by the economic world as a positive contribution to economic prosperity.

Glad Lou Dobbs left CNN,

Your aspiring Economist

Post-script – Watch Lou Dobbs:
http://www.youtube.com/watch?v=96Yo5Fi4sTk&feature=related

Post-post script - The Politics and Economics of Offshore
Outsourcing (American Enterprise Institute for Public Policy Research):

http://www.aei.org/docLib/20051208_WP122.pdf

Monetary Policy and the Zen Master

Let me just start this blog off by saying I like Alan Greenspan. A lot. I aspire to be a tenth of the Economist he has proven himself to be and if I could become anything in the world it would be Chairwoman of the Federal Reserve (shoot for the moon and land among the stars right?).

So, I really like this particular cartoon. It also pertained to something I learned in Monetary Economics: The “just do it strategy”. Alan Greespan’s reign in the 1990’s was deemed wildly successful for its ability to maintain low and stable inflation (around 2%). The "just do it" strategy is having a target but no particular nominal anchor (unlike monetarism, inflation, or interest rate targeting). This type of strategy relies heavily on forward-looking behavior and pre-emptive strikes based on expectation, among other markers.

Although Greenspan achieved success with this type of approach, there are two disadvantages: (1) it is non-transparent and lacks accountability of the central bank (the Fed) and (2) its success relies upon those in charge of monetary policy (can those in charge successfully identify future movements in the economy and act accordingly?).

Will Ben Bernanke be successful in his “preemptive strikes” should he choose to follow in Greenspan’s footsteps? I’m not one to say for certain at this point, but I will say this: I like Ben Bernanke too.

Nike wasn't the only one "just doing it",

Your aspiring Economist

Post-script: Frederick Mishkin and the “Just do It” strategy:

http://www.nber.org/reporter/winter02/mishkin.html

Economics and Accounting

“Economists are people who work with numbers but don't have the personality to be accountants.” - Anonymous

Present Value and Purchasing Power

On Friday, I watched a video clip on the food shortage and hyper-inflation occurring in Zimbabwe. It was about Zimbabweans who instead of enjoying their “golden years” are merely waiting to die because of the country’s dire economic status.

The video brought me to tears to learn that these retirees who diligently saved their entire working lives have a bank account full of worthless money due to hyper-inflation. To highlight the desolate situation, pension in the country pays $1 million Zimbabwe dollars per month (worth less than one U.S. cent), but a sack of onions cost $30 million. How incredibly heartbreaking is it to think of a senior citizen, or ANY individual for that matter, who did all the right things, worked hard and saved money, to find out their hard work is rendered useless and their pension even more so?

So, what is the answer to hyper-inflation? On one hand, the answer is clear: simply stop printing money (contractionary monetary policy). By reducing the money supply, in the long run we reduce price levels → deflation. The tightening of monetary policy will also strengthen the Zimbabwean dollar and possibly make the currency viable once more. On the other hand, we can’t just press the off button on the printer and expect everything to get better. Zimbabwe, like many poor countries, finds itself in the dismal economic abyss known as the "poverty trap". Solve this problem and you can consider yourself the next Nobel Prize winner.

On a lighter note, the previous paragraph reminded me of another video I watched on Youtube. It was a speech by Alan Greenspan. While introducing Greenspan, the presenter made a comment about wishing Economists were one-handed. If economist were one-handed then when pressed for answers on economic issues they wouldn’t be able to say, “Well, on one hand this, but on the other hand that”.

Glad she has two hands,

Your aspiring Economist

Post-script - If anyone wants to watch the Zimbabwean video:

http://www.youtube.com/watch?v=I20UNlC6qWY&feature=related