My Dad the Economic Educator June 15, 2008
On this Father’s Day it is quite natural for me to be thinking of my dad who died two years ago. As I have grown and developed in my career, I have often thought about how Dad influenced my interest in Economics and how my foundation for this career of both education and economics was formed.
My dad did not have an extensive formal education by today’s standards. He had his high school diploma, but I remember as a kid he seemed to be always going to a special class for work. I remember when he joined the ranks of management taking a speech class. Thinking of my dad in a speech class gave me a smile. But when it came my turn, what was one of those courses he insisted I take in high school; you guessed it, a speech class.
As I think about both what I teach and also how I teach, it’s occurred to me my dad introduced me early in my life to the lessons I try to pass along as an economics teacher. My dad had an inherent knack for teaching the three of us (myself along with my brother and sister) several of the core economic principles, even without knowing them by name.
He introduced me early on to the principle every choice has a cost. A favorite phrase of Dad’s that resonated with this core principle, “are you sure you want to do that?” While he wasn’t aware of the decision-making process as I teach it today, he was most certainly aware of the underlying theme of the principle; every time you make choice you will incur a cost. So be sure you know the costs of your decisions BEFORE you make them.
The second valuable economic lesson was the corollary principle that all choices have consequences that lie in the future. I wish I had a nickel for every time he would say, “you better clean your room, or else. . .”, or “you better cut the grass, or else. . .”, or “_____ (you can fill in the chore), or else. . .”
Funny thing (wasn’t at the time), he always gave me a choice, only I didn’t know what the alternative was, but for sure did not want to find out. This was always confirmed for my brother and I on those few times we would choose to challenge the “or else”. My sister’s alternatives were never as bad as ours, she was Daddy’s little girl. Now having four daughters of my own I know exactly what where he was coming from!
My dad was an economist in spirit in a tool maker’s body. He understood quite vividly the lessons I needed to learn for life. I learned some early, had to relearn most late in life through experiences.
As I approach the time I begin to reflect back on my life I cannot help but think of the valuable lessons Dad was teaching without teaching, teaching without preaching, teaching without criticizing. He taught out of love, out of caring, out of knowing through his life what I needed for my life. What he didn’t realize is how his lessons have made their way into my professional life as well as my personal life. I only hope as a father I have passed along these valuable lessons as well.
Thanks Dad, and Happy Father’s Day.
Economic Decision Making and Presidential Elections
By and large economic perspectives come in three varieties; macro or aggregate, micro or business, and the personal. The macro level is a discussion on the national and international economy. It is about globalization, the fiscal policy actions of Congress and the monetary actions of the Federal Reserve, NAFTA, trade with China, India, and developing countries. A macro discussion may also focus on the actions that protect (or destroy) our freedoms of choice, expression, and our liberty.
A micro level discussion focuses on what one purports to be best for businesses, markets (producers and/or consumers), and industries. A discussion on this level might be aimed at the economic environment to promote business, a quality education or an environment conducive to a quality of life like no other on the planet.
Personal level discussions may be the most highly emotionally charged of them all. These discussions become “I”, “me”, and “my” focused; my job, my family, my home, my state. This is the level most likely where the discussant becomes emotional, and no matter what is said never really hears the other person.
These are also the election discussions that must occur in the context of rational understanding, decision-making, and appreciation for the “where they are coming from” mindset of each discussant.
In actuality, I suppose these three levels of economic impact seem fairly obvious. Fact of the matter, I am mostly conveying here a notion that many of you reading this are already familiar, either consciously or subconsciously. So let’s just say this little comment is a review and reminder.
A final thought. These three different perspectives are not independent of each other (another keen sense of the obvious statement). The economic impact of policy decision-making that occurs at each perspective impacts the others. Life is not played out in a vacuum, and neither are policy decisions, from which political and economic discussions are bred.
Play the game. Participate fully in the process. Just remember we are all influenced by our incentives and our choices have consequences that lie in the future. Know the economic perspectives of your discussions so the value of understanding and enlightenment can be fully appreciated; by each of you.
Population Math: Birth Rate Now = Future Population = Changing World
When I was a young lad, I remember seeing these pictures of Japan and the bustling city of Tokyo. The commentary surrounding those pictures was always one of how this small island country was so populated it was going to overrun itself, and everyone else who got in its way, including the United States. This was also the time “Japanese Paranoia” was sweeping the country as we (U.S.) were sure they were going to buy up the entire country and own everything. Well, I guess times have changed.
I just finished reading an article about the population problems currently being experienced by Japan. Apparently, Japan is experiencing a serious decline in their birth rate, leading to a serious issue of losing population at an alarming rate in the not too distant future. Remember, choices have consequences that lie in the future and economic systems determine the incentives and behavior of people. Japan’s culture may in fact be leading to significant economic change in the country.
For those of you who know me, or have read any of “stuff”, know I am a very strong proponent of the cultural triad model of society. For newcomers, briefly the cultural triad states that we all live and are interdependent on three dimensions of life; economic, political, and social. The three are constantly in motion both within each dimension, but also with each other. Ultimately, they all must be on the same dimensional scale within, or turmoil will prevail. Certainly, population (size, mortality, life expectancy, and birth rate) is one of those variables of the social realm that could play a significant role in the future of any country and the other two dimensions of the cultural triad.
The Japanese government is now creating programs or endorsing programs that will help raise the birth rate in Japan. Problem is, even with all the government programs and incentives, birth rates are not rising. Why? Current Japanese culture is resistant to marriage and childbearing. This is in stark contrast to Japanese history and the times when I was seeing Tokyo as a bee hive of activity and people elbow to elbow.
All choices have consequences that lie in the future. What does this trend predict about Japan’s future? Europe is having the same problem. What does this trend predict about the future of Europe? Who are having more babies? Where are they having more babies? If the mathematical population balance is altered by world region, culture, economics, or politics, can the crystal ball show us the future knowing what we know about choices now and consequences later?
Do all these questions have answers? I am confident they do. My professor from my Economics of Population course back in my grad school days would be even more confident of answers. I am also confident we can know the answers quite clearly with a little homework and research. The social beliefs of culture will impact the political and economic, that there can be no doubt. Do we know the consequences, and ready to accept them as they are- ceteris parabis. Only time will tell.
K-12 Education: Who is the Customer in a Global Economy?
It is a presidential election year. The discussions and debates have already begun. In this season of discussion, debate, each of us will do some soul searching to decide who has earned our vote to lead the nation for the next four years. So as we enter into this time for the activities that have made our country great (freedom of expression, meeting, speech, etc.) I would like to offer up one little thought. Regarding the economy, be sure as you enter into these discussions with your family, friends and colleagues on the economic issues making up this year’s election lexicon each of you are on the same page when it comes to the economic perspectives of your views and solutions.
Recently someone in the education world told me that producers set prices and the consumers paid the price asked. At first I chalked this gross miseducation to just one more educator whose understanding of our free market economic system was not what should be for an educator. This person is not alone either in education, or in the general public.
The more I thought about the exchange of information, it got me to thinking about a bigger, more macroeconomic issue. In today’s global market, who does education consider their customers; taxpayers, parents, teachers, the state or nation, or the students?
In an expanding national and global community, does education really understand the market oriented system they are now a participant, whether they like or not?
Globalization has brought one more thing to education. The market dynamics of consumer choice and producer response are now integral to education’s working environment. And most educators are going into the future kicking and screaming with heel marks in the parking lot.
Paradoxically, the customer of public education is not the student who is the direct recipient of their efforts. Nor is it the parents who are receiving the benefit of a public education system. Nope, it is not the taxpayers either who are financing the pubic education schools and districts across the state and nation. In today’s new global community and marketplace, I will submit the customer of K-16 public education in the United States is the United States as an aggregate society and our way of life as we know it today.
Having made that statement, let me state uniquevically I am not proposing, nor do I support, a national education system, though I know some claim we have already crossed that line (another discussion for another day).
To make my case, let’s go back in history to why public education was first created. Society had deemed education a merit good for society, and as such, education should be available to every child. It was a merit good to promote the national welfare. While that goal never really left us, it did over time more or less take a back seat to the local control philosophy, like the two were competitors. Local control is a philosophy dedicated more to policy, administration, and organization rather than societal mission statement for public education.
I will submit, like others before me, that the globalization of our world economically, politically, and socially has once again forced us to revisit this very important question; what is our ultimate mission for public education, K-16?
Public education can be the “silver bullet” of our society’s future if we have any desire to preserve the freedoms and liberties we take for granted in our way of life. But we must keep the true reason for public education a front burner issue.
I can hear you now—“DUH! That’s a keen sense of the obvious statement.” Complacency and losing focus of education's customer is one of society’s enemies as much as terrorism. Obvious, maybe; acting on it- a different issue.
Michigan’ “mental challenges”- Unemployment Isn’t What It Use To Be
As a young boy, I remember travelling from southern Ohio to Michigan for vacation with my family. We would go to Houghton Lake and I remember Dad talking about the conversations with the men from Michigan in the other cottages describing their “unemployment vacation” due to a business slowdown in the automobile industry. Not only were they on vacation, they were collecting unemployment insurance. For Michigan’s middle class, those were definitely the good times. In Economics, we would say it was a cyclical unemployment vacation. As would always be the case, within a few months they were back to work on the assembly line.
The problem with Michigan today is “as would always be the case”. Today, the cyclical unemployment vacation is history. For several years Michigan has found itself in a transition from a labor intensive manufacturing base to a more productive capital intensive manufacturing sector in more highly competitive environments. As the Michigan unemployment rate continues to be the nation’s highest, this time around the unemployment is structural. With structural unemployment, there are no vacations, only permanent layoffs and the realization this time real change is needed for the future.
Michigan’s “mental challenge” as I stated in the title is the state’s collective ability to accept this change and move forward from this point. Unfortunately, it does mean pain for some including relocation, finding a new career, or both. It also includes Michigan acknowledging the manufacturing of the future will be focused on the “metal arm” and not the “human arm”. It also involves Michigan’s acceptance of a more diversified economic base beyond the historical heavy reliance on manufacturing.
The move from structural employment also translates to a broader focus on education at all levels, K-16 and adult. I would submit it is Michigan’s second “mental challenge”. Several studies have recently revealed the positive nature in which higher education is being seen by both adults and young people. “Many Americans thought higher education was extremely important and was generally doing a good job. Although people were clearly worried about its high cost, most Americans thought that the task of providing a higher education to the next generation was “difficult but doable.” “The vast majority of young adults recognize the value of a college degree.”
Yet in the Fall of 2005 a Detroit News survey of Michigan adults revealed an attitude contrary to that above. Many Michigan adults do not think a college education is important. The days of the high school graduate going from the high school graduation party on Friday, going to the automobile company assembly floor on Monday, and within a few years having a middle income level envious by the rest of the country are the days for history lessons. According to David Cole of the Center for Automotive Research, every new job in the automobile industry today requires at minimum a two-year college degree!
These “mental challenges” and the accompanying attitude must change if Michigan is going to survive in today’s global marketplace. Today competition is not only outside the United States, but with other states as well. A commentary by Drew Winter of Ward’s Auto World on Detroit’s WJR radio stated Alabama has grown from one assembly plant to three, and is expected to produce 800,000 vehicles annually. Most of those vehicles were once produced in Michigan.
The earlier Michigan accepts this mental condition and makes the necessary changes to its economic base, the quicker Michigan will once again assume its rightful place as one of the leading economic states in the nation. The earlier the youth of Michigan understand that education is a lifelong venture, the greater and rewarding the opportunities await them in the future.
Globalization comes to Americana
This past weekend I was engrossed in one my favorite pastimes; NASCAR. It was the beginning of a new season. And like all new seasons in virtually any sport, it was filled with the anticipation of many new facets of the sport. NASCAR and this weekend was no exception. While my fascination with NASCAR was the impetus for this piece, this is not about NASCAR, directly anyway. It is one more piece in the globalization saga and its continued growing influence on our culture.
Enter the National Association of Stock Car Racing (NASCAR). Here is an organization started (as I understand it) on the beaches of Daytona, Florida. Its early drivers and heroes were mostly at the time former or current moonshine runners looking for a legal arena to burn off their desire for speed and fast cars. It grew up in the southern United States amongst cotton, tobacco, and all things “down home”. It was Americana.
Fast forward our calendars to February 18, 2007, the Daytona International Speedway and the Daytona 500; “America’s Race”. NASCAR has grown up. While the festivities and events surrounding the Daytona 500 had been the entire week, this day marked the end of innocence for “America’s Race”.
It was America’s Race with a global twist. Globalization infiltrated the Daytona 500 in two significant ways. One, the Toyota stable of race cars and new race teams began their journey of becoming part of the NASCAR landscape. Two, one of the brightest stars in the world of racing officially joined the NASCAR fraternity of drivers when Colombian Juan Pablo Montoya took the green flag. Even before Sunday, the Busch Series (analogous to AAA baseball) raced in Mexico. Not being a NASCAR historian, I cannot quote dates and times and places, but I strongly suspect in the last few years other evidence was planted to signal the end of NASCAR as pure Americana.
The other forms of racing have been internationalized for years. But this is NASCAR. This is “down home, good ol’ boy racing”. Why even American racers from those foreign entities of Indiana and California were even looked upon with suspicion when they began showing up at the speedway. What has the world come to anyway?! As the great philosopher Charlie Brown would say, “UGHHHH!!!”
It is not just NASCAR. The LA Galaxy mortgaged the moon to bring British soccer star David Beckham to the United States. There hasn’t been this much fanfare for a Brit coming to the U.S. since the “four mop tops” from Liverpool came across the big pond. Conversely, the NFL announces a football (our style) game next year in London that will count for league play.
I am not sure what the world has come to, but I do know where it’s going; Talledaga, Texas, Atlanta, Bristol, Martinsville, Dover, Charlotte and Miami.
For those of you north of the Mason-Dixon Line, those are a few of the locations for NASCAR races this upcoming race season. There might even be one in your northern part of the woods. Globalization VARROOMM!!
All Choices Have Consequences; Ask Pfizer
Yesterday I was able to catch some of the discussion during the Frank Beckman radio program on WJR regarding the recent decision by Pfizer to eliminate 2,400 jobs from their facility in Ann Arbor. I heard an interview with the representative from Pfizer. Of course, and very proper, he avoided any direct response on answering the “why” they chose to close Ann Arbor and not one of their other facilities. I remember Frank Beckman concluding with a “we still don’t know exactly why they chose Ann Arbor” (or something like that).
The first caller following the interview seemed quite versed on the entire situation, which I add here I am not. But he made a comment that led me to my own theory.
As an economics professor, I teach the interdependence of three dimensions that influence our culture and by extension every one of us; a political, an economic, and social (moral-cultural) dimensions. I teach this dimensional interdependence in the context of societies and nations, ultimately impacting on how we live as individuals. As the caller was speaking, I began processing the Pfizer interview, your caller’s comments within this three dimensional interdependency model.
What if we used the three dimensional interdependency model and applied it to the decision-making process Pfizer went through to decide where they would close facilities to accomplish their goal of consolidation? I have not conducted any research or background on any of this so what I am about to suggest is pure speculation.
According to the Pfizer representative they took six months to conduct their due diligence, and in the end the decision was extremely difficult- fair enough. So what tipped the scales? One, if they looked at all the sites and the quality of life at each was reasonably equal with pros and cons on both side. One could then suggest the social (moral-cultural) was a standoff. Two, given economic environments of all the locations, we know some had higher taxes than Michigan, some probably had lower (again, no research on my part), but overall the economic dimension may have been a standoff, or Michigan may have had a slight edge. Which leaves the political and here the scales tip.
The first caller’s reference to Senator Stabenow and her fight against the pharmaceuticals lit my lamp. I knew of her ideas and her being at odds with pharmaceutical companies, but not any of the specifics. This would explain Pfizer’s “end runs” regarding a direct answer on why Ann Arbor. They would have absolutely no reason to avoid answering the “why” question if the answer was tipped from the other two dimensions. In this political environment, the worse thing any one in political circles can do is burn bridges (so I have been told), or make enemies. This is especially valid when the potential adversary is now a member of the majority party. Therefore, I submit the scales were tipped against Michigan in the political dimension of their decision-making and could be directly attributed to the actions of Senator Stabenow.
If by chance this is correct, it will never (or be a very long time) be known. Or, this could be all nonsense. Plus, this conclusion could be arrived at without all the dimensional gymnastics. But if there is any truth there, when Senator Stabenow began her quest against the pharmaceutical companies, she did not remember one of the core economic principles; all decisions have consequences that lie in the future. Ann Arbor and Michigan, welcome to the world of consequences? Unfortunately, this is not a good one.
MCEE- A New Year, In a “New World”, With a New Attitude
What would you think of a teacher who taught their students “2+2=5”? Or that the capital of Michigan was Detroit? I doubt that you would think very highly of either the teacher or the school and district. In fact, you might even be downright angry at the lack of professionalism and inability of our educational system to properly educate our future adults.
Don’t think it can happen? It occurs everyday in economic education. Every school day across Michigan a young person is being taught “bad” economics, given only a partial answer to today’s critical economic questions, or being exposed to a program that provides plenty of “sizzle” but no “steak”. Every day, teachers are missing the details of why our economic system has been a model of free enterprise and growth for more than two centuries.
As we begin a NEW YEAR, it is time to get serious about the basics of sound economics. MCEE has been the gatekeeper and overseer for quality, standards-based “squeaky clean” economics for more than 25 years. Teachers cannot teach what they don’t know. MCEE teaches the basics first. MCEE teaches teachers the details. There are too many classroom programs in economic and financial education today that are not interested in the basics, the details, or even the teachers and students.
It is a NEW WORLD. Everyone is talking about the “flat world” of the 21st century (including me). At the same time many of these same people are advancing the cause that our students need more math, reading, language arts, and science to compete in the new global economy in which they will have to compete. This discussion is all well and good except for one small point; our students (and most adults) don’t have a clue what is meant by the “flat world”. Nor do they have an understanding of the global economy, let alone their future role and the impact on them.
In 1979 the Council was created to protect the quality of teaching about our free enterprise economic system by focusing on two key education principles I stated earlier; teachers can not teach what they do not know and students can not learn what they are not taught. MCEE is now at the heart of teaching about 21st century globalization so Michigan teachers are adequately prepared and trained with quality standards-based educationally sound economic education. The teachers are prepared and confident to teach and positively impact our state’s young people in their classroom.
With the new year also comes a NEW ATTITUDE at MCEE. It is time every one of us gets serious about the “how”, “why”, and “what” of teaching “squeaky clean”, real world economics to every Michigan citizen, young and old. This is very serious business, and we need very serious prescriptions. With that said, MCEE will be initiating the new MCEE Roundtable to support economic education with sound academic research and establishing high economic education standards for learners from kindergarten through adult.
MCEE strives to assure each citizen is economically literate to be a productive and responsible citizen, voter, producer, consumer, saver and investor. In today’s world, that means a thorough understanding and appreciation of the global economy and marketplace. Let’s provide our teachers and schools what is right, not what is popular. Let’s make sure that our students know the right answers to the right questions.
Michigan's Perfect Storm
Within a few days of one year ago, Michigan State Superintendent of Public Instruction Michael Flanagan used the analogy of a perfect storm to identify the peril of Michigan’s state public school system relative to other states and other nations. As a result, Michigan now has one of the most rigorous set of high school graduation requirements on the planet.
I hope it is not too late. I say that because Michigan is facing another perfect storm and we are already victims of some of its forces. So what is this perfect storm and what can Michigan do about it?
The first sign a storm was brewing was the evolution of not just a global market, but an open global market. As I have written and spoken about before, market forces are just that, forces. They will win in the end no matter what measures we use to pretend they do not exist or we can control them.
The second sign of the perfect storm was Michigan’s diametrical position of its standing with other states on median income and average education level. Michigan’s median income (50% below and 50% above) was one of the highest in the nation. The most recent data show it has fallen, but still ranks significantly above the median. This has all been very good for the state and its citizens. The long term problem is Michigan achieved that level of economic prosperity with one of the least educated workforces in the nation. As a state, Michigan is one of the lowest ranked states when it comes to number of college graduates per population, as documented by Governor Granholm’s Cherry Commission Report on Higher Education.
I realize this has become a keen sense of the obvious statement, but maintaining the status quo economic environment will surely relegate Michigan to second class economic status in very short order. The perfect storm is gaining strength even as well intentioned people from business, government, education, and labor continue to discuss and debate. One problem- the storm is not waiting for the discussions and debates. It is here and the time to act is now.
The new graduation requirements are a very good step in the right direction. Those will only address (and partially) the on-rushing storm. More needs to be done with education, specifically higher education, and obviously much more needs to be changed for our economic environment to be pleasing to the eyes of current and prospective businesses. This is not just a case of having the ability to attract new businesses, but the state needs to hold on to the businesses already here.
The path of the economic perfect storm does not have to pass through Michigan. But an open, global market will. Is Michigan prepared, willing, and able to take it on. For one thing is sure, it will not go away.
The Economic System determines our Level of Freedom
Of the six core economic principles, the principle on economic systems is the least discussed and used in discussions of society and today’s events. I am not sure why, though I have my suspicions. One, people are least likely to understand this principle and thus, least likely to identify its use in our society. Two, I will also submit it is a notion we more or less take for granted. And three, since we are ignorant of the principle, we ignore the interdependence between the economics dimension with the political and social dimensions that influence the environment in which we live.
Case in point is the flurry of today’s news events today where the media laments the situation in our political and social dimensions, but will seldom discuss how the events will change our economic dimension further influencing the political and social in the future. I want to be careful here, I am not referring to a lack of news on the economy or economic policy. We probably have more economic news hand grenades tossed our way than at any time in our history; which is one more major reason for economic education. However, what is seldom done is analyzing how the economic policy will spillover into the political and/or social world; ie. the interdependence of the three dimensions which make up the cultural triad.
If the news media and pundits would provide more analysis with a complete 6 principle focus on our economic system, I submit people would be less inclined to rush to judgment on some of today’s current economic issues; such as trade and job protectionist policies. Generally speaking, a loss of choice in our economic system will also translate into a loss of freedom or liberty in the social or political.
Part of my writing about this particular subject at this time is in some very, very small way my tribute to the late Milton Friedman. With his passing last week it gave me pause as I thought about his influence on my professional career and philosophy. There were two points in my career that stand out. One, when I was first beginning my career in economic education some of his early writings (Free To Choose being the major work) that set my philosophy and understanding that on economic free choice provides the basis of a strong economy. The second time he influenced me was during my studies on democratic capitalism when he laid out so eloquently the interdependence between economic choice, political liberty, and social freedom.
I hope we continue to heed “Uncle Milty’s” advice and counsel, realizing how valuable our market oriented economic system is for the welfare of our political and social freedoms as well. Another reason for sound, squeaky clean economic education to all our citizens, young and old.
The People of Michigan Have Spoken (Voted) and 6 Core
The game is over and the smoke has cleared. While the final score is still being tallied, the Democrats soundly defeated the Republicans in Tuesday’s version of the playoffs. Since these were mid-term elections one can’t in good faith call it “Super Bowl” Tuesday; that is coming in two years. But the results are clear which leaves me contemplating three of the six core economic principles; all choices have costs, economic systems establish the rules by which we live, and the consequences of our choices lie in the future.
Now that our government representatives are elected, I hope they don’t really mean what they said during the campaign. Too many times during this campaign I heard Michigan political hopefuls suggest the best course of action for Michigan is a protectionist, isolationist economic position, especially when it came to Michigan workforce and jobs. What concerns me the most is that the ones doing the loudest preaching in this arena were incumbents, both of which were re-elected. I am referring specifically to Governor Jennifer Granholm and Senator Debbie Stabenow.
I have been involved in educational circles that have included both offices (let’s make it clear I have not worked with either of them personally). I can assure you both are well qualified and doing the most for what they believe is best for Michigan. But if they believe their own campaign rhetoric, then Michigan may have a longer road to go than we really can afford.
Michigan cannot afford to stand by and create protectionist policies and outdated regulations to protect a mode of manufacturing that has been left behind by technology and the global economy. The intended (and unintended) consequences of such policies have long term economic distress written all over them. Generally speaking, these policies tend to lean toward changes in tax policy, employment and/or unemployment policies, or further regulations on business hiring practices. Either avenue chosen by our political leaders, the economic consequences can be very distressful. To borrow an analogy from Thomas Friedman and The World is Flat, what if during the Industrial Revolution the political leaders at the time would have instituted protectionist policies to protect the shrinking agricultural industry at the expense of industrial expansion? Michigan cannot afford this economic thinking in these times.
The fact is Michigan is in the midst of a major economic tsunami. Market forces are just that; forces. As I have written before, they can politicize the market all they want, but ultimately market forces will prevail. And they will ultimately prevail this time as well.
Remember all choices have cost. The election yesterday was a decision for when we would like to pay, because we will pay. Fact is, we have already starting paying. As my dad like to say, “Pay me now, or pay me later, but either way you are going to pay me.” I would submit yesterday’s election results suggest we have decided to pay later. The question for now rather than later – is later really later, or are we sooner to later sooner than we realize? Think about it.
What is good for one generation should be good for the other
(penned during summer, 2006)
I am sitting here at the World War II Memorial in Washington D.C. and it is truly an awesome sight. I have been to, and mourned at, the Viet Nam Memorial. Yet as I sit here gazing at this incredible memorial for the “greatest generation” I can’t help but think- why?
Why don’t we embrace the phrase, “We have come to liberate, not to conquer; to restore freedom, and to end tyranny” in 2006 as we did in 1946?
Why do we memoralize fighting for freedom in the 1940’s, but protest it today?
Why did we claim Hitler to be such a threat to freedom and our free way of life, yet indifferent about Al-Quaeda, Hezbollah, or Hamas?
Why did we draw the line in the sand against Hitler, but today our own freedom fighters get "labeled" by our own leaders?
Why do we memoralize our soldiers for defending freedom against an enemy that never set foot on our soil, yet today we excuse the enemy who did just that?
Why did we do all these things? Because it was the right thing to do! Every memorial, every word, every expression of thanks we pay tribute cannot express enough the appreciation we need to show those who gave the ultimate price for freedom and our free way of life. Not just our freedom, but the world’s freedom.
I wonder if we still have that spirit and fire in our belly as today’s terrorist opening exclaim their sole purpose is to “destroy us at all cost”. When Hitler occupied, we responded. When Japan attacked, we reacted. When Khruschev espoused to bury us, thank God we did not have to act.
Now it’s terrorists who have admitted their jihad from God is to destroy the West and our free way of life. Take your pick- Al-Quaeda, Hezbollah, Hamas, Brotherhood, they may have different names but their goal is the same as Hitler, Hirihito, Stalin, and Khruschev.
Where’s our resolve in 2006? I am confident the U.S. will respond. I hope it’s not too late. Freedom is not free- never has been, never will. All choices have costs and consequences. Do we choose freedom and its costs, or do we choose occupation and the end of our freedoms and way of life. C.S. Lewis may have said it best, "One of the most dangerous errors instilled in us . . . is the idea that civilization is automatically bound to increase and spread. The lesson of history is the opposite."
Minimum wage and the Six Core Principles
Being an election year there is a lot of noise in the air about raising minimum wage. Legislation has even been introduced to address the exact issue. This is all well and good as long as the legislators, and the general public, understand that all choices have costs and consequences that lie in the future. The choice to raise the minimum wage is no exception.
So as this election year hums along, and minimum wage is one of those issues leading the charge, let us in a very brief fashion look at a few of those costs and consequences. I present these in no particular order of importance or magnitude relative to the costs and consequences.
One, the Michigan economy is not in the best of shape right now and our business climate is not seen by outsiders as very attractive. Raising the minimum wage will only endorse that current dismal view of our business climate.
Two, most businesses allocate a certain percentage of their operations budget to salaries, wages, and benefits. Plus, most of these budgets are developed relative to a specific wage structure. If the state, or feds, go and change the status quo wage structure by raising minimum wage one of two variables will have to be altered; number of employees or a higher percentage of operations allocated to wages. The large majority of businesses impacted by a rise in minimum wage are ones who cannot afford it. Consequently, their response is to cut jobs as opposed to a higher percentage of operations. This is especially true in a flat or declining economy. Price increases to absorb the higher costs associated with a minimum wage increase would be business suicide. Minimum wage effectually hurts the very people it is intended to help by eliminating some of those jobs.
Finally, if the business competes in a global marketplace, minimum wage would make them less competitive. So the business becomes innovative and either finds ways to substitute technology capital for human capital; or moves to an environment that will allow them to remain competitive in the world market.
Minimum wage is a very interesting topic. The political and economic ramifications are, generally speaking, directly opposite of each other. It has large scale political appeal generally from both sides of the aisle, especially during an election year. It is generally proposed by very well intentioned legislators. Yet, generally speaking, the economics of minimum wage laws are not convincing. Especially when an economy such as Michigan’s is not only in the decline, but a major transformation is also needed to its economic personality.
The "Flat World" and Economic Education
There seems to be one popular book that captures our imagination. A few years ago it was Stephen Ambrose’s Undaunted Courage. More recently David McCollough’s John Adams was “in”. Today it is Thomas Friedman’s The World is Flat: A Brief History of the 21st Century. I love the subtitle.
Our world is “flat” for three reasons; technology, open markets, and trade. He examines ten world “flatteners” which result in one of these three categories. The 21st century flat world affects our participation as consumers, producers, savers, and investors; current and future.
Remember, all choices have costs and consequences that lie in the future. A miscalculation of the “flat world” by education, business, or government leaders can have destructive long term impacts on our economy.
Economic public policies are created to achieve intended consequences. The unintended consequences of such policies could range from loss of freedom and independence to loss of markets (labor and consumer choice of goods and services), higher prices, reduced competition, fewer employment opportunities, and/or business opportunities.
One example of the unintended consequences that result from public policy occurred with the yacht industry. In an effort to increases taxes on above median incomes, the U.S. passed an excise tax on luxury goods. A little economic education would have gone a long way to prevent what was about to happen.
People respond to price changes of automobiles and yachts quite differently. People need cars much more than they need a yacht. If one can afford a $30,000+ auto, more taxes would not be a deal breaker. So a change in quantity demanded for autos was minimal. Yachts were a different issue. The quantity demanded for yachts plummeted. Losing the yacht industry does not sound so devastating, unless you live in a region heavily dependent on the industry. Only quick action to repeal the tax saved an American industry from extinction.
What if, Friedman asks, during the Industrial Revolution the U.S. government used protectionist thinking to protect agricultural industry sectors losing out to industrialization? To get a glimpse of might have happened in the U.S., view the ancient histories of two economies that were far superior to Europe early in their history, China and the Middle East. Yet Europe became the dominant world power and influencer.
Contrary to what leaders in Lansing, Washington, or anywhere else may believe, long term market forces are not controllable. Forces, whether in nature or economics, will ultimately have their way. The flat world has shortened the lag between short and long term significantly.
The “flat world” is the elephant in the room. Education (including social science education) needs to acknowledge its presence, and respond. I submit the next major step will be for disciplines to develop their “fundamentals for a flat world”. Economics has its fundamentals in six core principles. They will impact every person in every economy in the “history of the 21st century”.
Good economics ususally does not make good politics
As we approach another political season I feel compelled to offer up this one little piece of advice as you weigh the pros and cons of all of the candidates in this upcoming election; generally speaking good economics does not make good politics, especially at election time. My disclaimer is that what I am about to offer is indifferent to political party affiliation, persuasion, or policy stand. I am an equal opportunity critic. Now before economists and politicians start to rant and rave let me explain myself.
First, “good economics” involves a careful analysis applying the 6 Core Economic Principles to any public policy debate or promise being made during the heat of political battle. It is Core Principle #2 that most politicians like to ignore; “All Choices Involve Costs”. For a politician to promote this principle is next to political suicide. They are interested in one variety of costs; what will cost them votes?
The second Core Principle politicians like to ignore is Core Principle #6; “All Choices Have Consequences that Lie in the Future”. Politicians like to discuss consequences alright, but just the ones that make their point. Problem with this is that are two sets of consequences, those that are intended and those that are unintended. Virtually without fail there are unintended consequences, the ones the politicians do not want you to know about.
Finally, politicians are not generally very good at implementing the basic decision-making model. Campaigning is a world of promises and points of view. It is not a world conducive to objectively evaluating alternatives against the criteria for what is best for the whole. The politician is generally only concerned with what is important for the constituency vote. And they know what is best- just ask them!
For these reasons, and while the case is not iron clad, one can make the argument that generally good economics does not make good politics during election time on the campaign trail. I know there are instances that the contrarian would rise up and shout, “HAH, you are wrong!” I know there are instances where this does not hold, like tax cuts, which is why it is a perfect topic for “Generally Speaking”.
But I will conclude with a very brief example; the price of oil. There are some politicians campaigning on the platform that they can do something about the price of oil. The fact is they can. They could cut the gasoline taxes that add to the price. They could establish price ceilings on gasoline prices at the wholesale or retail level. And they may just promise you lower oil and gasoline prices at the pump with these actions. If that sounds good, they may be your candidate! However, before you pull that lever in the voting booth think of one thing- what would be the consequences (intended and unintended) of these actions. Is the lower price these actions would generate really worth ALL the costs associated with these choices? It is the old adage- be careful what you wish for, very careful.
Think Choices, Think Costs, Think Consequences- and then go vote!
Personal financial literacy: We Still Have a Ways to Go
With the most recent 2006 release of the National JumpStart Coalition’s Survey of high school seniors, the evidence is clear; teaching personal finance is no more effective now than it was a decade ago. Every educator even remotely associated with the discipline should be asking – “Why?” And interestingly, the “why” is precisely, generally speaking, the problem. For whatever reason, personal finance education authors and material developers have refused to address one major issue in personal finance education- teaching the foundational “why”.
I need to make it very clear I am not opposed to teaching personal finance in schools. It is also necessary to express my support for its importance to being taught, although I am not necessarily a proponent for a state requirement. What I am advocating is a new paradigm in the teaching of personal finance. Let me say here also I am not real comfortable with the word "new". The personal finance education I advocate is not "new".
When a subject is taught for the purpose of education, the goal is to change behavior, appreciation, understanding, and/or values. Personal finance currently is not being taught for education, but as information. Personal finance presents a wealth of information, even in most educational school material. Information does not necessarily change behavior. I am advocating a new paradigm that presents personal finance to schools as an educational subject, not an educational placeholder.
Before I get too far ahead of myself, let’s go back to the Survey and look at the recent results. From the view of being statistically significant, the 2006 scores are precisely where they were two years ago, hovering around 52%. In fact, statistically they are essentially where they have been for the past decade. These sluggish results have occurred in an environment where public awareness has increased significantly (figuratively, not statistically) over the past several years. There was one blip in the past decade. In 1997, the average score on the first Survey was actually 5 points HIGHER at 57%!
There has also been a corresponding increase in the number of published “solutions” in personal finance from textbooks, to CDs, websites, games, “quadrants”, and every other teaching idea known to mankind. We now have personal finance material available in schools, our favorite bookstores, local department and “big box” stores, airports, and of the midnight infomercials (a popular venue for us insomniacs). We have been inundated with resources, yet our high school seniors are no better off in their personal financial literacy. Why no change? Generally speaking, personal finance material has always presented information, and focused on education. I can hear all the authors now, however, “it would be different if they were using my (our) materials!” Virtually all the materials I have reviewed, I would submit fit the “information” category as opposed to “education”. Some of the materials are very good in their presentation of presenting information. And they might very well help the reader understand accumulating wealth and other individual activities. Yet, I have found only one that promotes responsibility, decision-making, and knowing there will be consequences to the decisions one makes; i.e. the “why”.
One of my mentors, although we have never met, is leadership author and speaker John Maxwell. John has a favorite saying, "If you always do what you have always done, you will always get what you have always got." That has been the mantra of personal finance education for the last decade. For personal finance to change and be education, it is important to lay the proper foundational groundwork that will change behavior, change attitude, and change values long term. That means teaching personal finance from the foundation of a decision-making model, the six core economic principles, and the valuable roles of an educated participant in our global economy. It goes way beyond constructing a budget exercise or showing how to read a credit score. In essence, it’s a foundation of basic economics. Only then will we prepare our young adults for THEIR world, and actually educate them for THEIR future.
Welcome to Generally Speaking
Welcome to the first of what I plan to be a discussion forum highlighting the Six Core Economic Principles in today's current topics and issues. As a society we often allow emotional thinking to move forward and guide our public policy, economic decisions, or social mores. Generally Speaking will present topics from the viewpoint of the six core economic principles.
Generally Speaking will have several purposes. First and foremost is to make the six core economic principles relevant in the topics and issues of the day. Often, however, the discussion behind a topic or issue is, "generally speaking", contrary to what one would call the “conventional wisdom” of the day. A second reason for GS is to hopefully solicit discussion and dialogue on the issues and topics presented. Through the economic way of thinking, I hope GS will bring a sense rationality to a discussion.
I hope you will email me and tell me I am not playing with a full deck, praise me and tell me how smart I am (my Mom will want to know those), or just present another side to the discussion. After all, the beauty of our culture is the freedom to present many sides to an issue, even if we disagree totally. Discussion today has been dismantled to either right and wrong with no right to disagree. It seems the venim exhibited in many of today’s discussions has destroyed healthy debate.
It is a Thomas Jefferson quote, “I may totally disagree with you, but I will defend to my death your right to say it” attitude I hope to prevail with these GS comments. I fear we have lost that attitude, on both sides of the political spectrum.
These will be kept short and concise. I hope you will enjoy, be enlightened, and even feel the need to correspond and let me know how you feel.
