Economics Takes a Holiday: Celebrations from the Dismal Science
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Economics Takes a Holiday: Celebrations from the Dismal Science
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Overview
Holidays help define our culture, but people forget that they are closely connected with economics.
Author Holley Hewitt Ulbrich combines her lifelong fascination with our nation’s most special occasions and her love of economics in this fascinating account. You’ll learn why Punxsutawney Phil might play a role in economic forecasting; how Valentine’s Day could just be an example of heartless capitalism; how Earth Day provides insights about property rights; how Father’s Day and Mother’s Day helps us understand the history of the American family.
Holidays are about communities, cultures, history, and our relationship with the natural world, and they offer a way to highlight a context in which we make our choices. Since they are scattered throughout the year, they help us explore emerging ideas of behavioral and neo-institutional economics in small, seasonal doses.
Join Ulbrich as she explores what these occasions say about our economic system, our society, and ourselves with Economics Takes a Holiday.
Product Details
| ISBN-13: | 9781458207630 |
|---|---|
| Publisher: | Abbott Press |
| Publication date: | 01/09/2013 |
| Sold by: | Barnes & Noble |
| Format: | eBook |
| Pages: | 138 |
| File size: | 254 KB |
Read an Excerpt
ECONOMICS TAKES A HOLIDAY
Celebrations from the Dismal ScienceBy Holley Hewitt Ulbrich
Abbott Press
Copyright © 2013 Holley Hewitt UlbrichAll right reserved.
ISBN: 978-1-4582-0761-6
Chapter One
JANUARY
1st—New Year's Day: Credible Commitment
The first of January, the start of the new year, is a time of new beginnings. It embodies many traditions of starting over. Partying the night before is about ringing out the old, ringing in the new. In the South, the traditional midday meal of collard greens, black-eyed peas, and fatback is supposed to attract good luck and prosperity for the coming year. Year-end articles recap the best photos, greatest sports moments, celebrity deaths, a kind of closure before moving on to the next twelve months. And then, there are New Year's resolutions. People commit themselves to quitting smoking, losing weight, exercising more, watching television less, spending more time with family, being more frugal, and a variety of other intended improvements in their personal, work, or family and community life.
Economists refer to these commitments to resist temptations as meta-preferences—preferences about preferences. I may prefer French fries to apples, but I also prefer thinner to fatter. At least on New Year's Day, and for as long as possible thereafter, I want to commit to thinner over fatter and thus apples over French fries. I may have to find ways to bind myself to that commitment, much as Ulysses bound himself (literally, to the mast) to resist the call of the sirens in the Odyssey. There are a variety of steps I can take to increase the odds of honoring that commitment. I can join weight watchers. I can diet with a friend. I can keep a food journal in which I have to confess every fall from dietary grace. I can publicly proclaim my goal. All of these devices will increase the likelihood that I will keep my commitment.
Commitment to change, or to staying the course, is not just a personal issue. While we may not expect to keep our New Year's resolutions, we do expect our governments' commitments to be credible. Changes in government policies affect our individual decisions. Tax breaks for fuel efficient cars and better home insulation alter our choices. The Affordable Care Act will certainly change a lot of choices by individuals and firms. Cap and trade on emissions, credit card regulations, bank bailouts, changes in the estatetax—allofthesepoliciesaffectpeople'sdecisionsaboutwork, career choices, risk-taking, borrowing, investing, and lending.
But governments themselves change. Elections often change the party in power, and policy changes come with that shift. While some of our personal decisions are pretty short term, others—choosing a career, buying a house, investing for retirement—are long-term. We need to have some idea of whether a policy change is temporary or permanent, or at least reasonably long term. Nowhere was that demand for a credible commitment by government more evident than in the debate over privatizing Social Security. Individuals who had made life plans that included Social Security as currently structured would be affected adversely by a shift to an individual retirement plan, especially those close to retirement.
How can governments make credible commitments when those in power serve two, four, or six-year terms? How can they bind future governments to honoring their commitments? Certainly citizen pressure does the trick on certain issues, like Social Security. Putting policies in the constitution are another way to make credible commitments, because it is typically more difficult to change a constitution than to rewrite a law.
There is, however, a downside risk to making too many commitments, especially those that involve money. Governments need both stability and flexibility. If all their commitments are written in stone, they have few choices or options when fiscal circumstances change. State governments discovered and rediscovered that challenge in the fiscal crisis of 2001-03 and again in the financial crisis starting in 2008. Unlike the federal government, all but one of the fifty states are required to balance their budgets. In more prosperous times, many states made commitments to lower taxes, higher education spending, and more support for Medicaid, children's health insurance, and other transfer programs. But when the economy turned down, they found themselves faced with commitments they no longer had the financial resources to honor.
Economists have long recommended that states create adequate reserve funds to cushion the shocks of periodic recessions on public services, but while most states have rainy day funds, those funds are usually not big enough to ride out even a modest recession. So, which commitments take priority? Some states raised taxes, which had a further dampening effect on consumer demand. More cut services to balance their budgets. The state's commitments to smaller classes, less crowded prisons, support for public higher education, and/or access to health care for the state's poor had to be re-examined in the light of scarce resources.
Credible commitment is most important when the program, or the tax policy, or the service affects long-term decisions of individuals. Governments need to pick and choose their commitments. They need to limit their promises to those to which they can reasonably commit themselves and their successors in fiscally responsible ways.
15th—Martin Luther King Jr.: Prophet of Nonviolence
On the third Monday in January we honor the memory of Dr. Martin Luther King Jr. with a federal and state holiday. We have many ways of honoring his memory, each of which celebrates an aspect of Dr. King's dream for a better world. Some communities focus on racial equality. Others organize volunteer service days in accordance with the National Day of Service that honors Dr. King's famous query: "What are you doing for others?" Communities sometimes celebrate a day of active nonviolence in acknowledgement of his commitment to peaceful resolution of conflict. It is Dr. King as an advocate and practitioner of nonviolence as a philosophy and a way of life that this essay honors.
As a society, America has a tendency to violence. We have higher rates of gun ownership and murder than most developed nations. We like violent sports and violent movies. But there are many Americans who practice nonviolence as a way of life.
Nonviolence is more than the absence of violence. It is not passive. It's a way of life, a conscious refusal to rise to the bait, an attitude toward other people, other parties, and other countries. Nonviolence is hard work. It's going the second mile, not seeking revenge, not exacting an eye for an eye or a tooth for a tooth. Nonviolence begins in attitude. Gandhi, the most successful proponent of change through nonviolent resistance, says that "It takes a fairly strenuous course of training to attain a mental state of nonviolence ... Nonviolence is a weapon of the strong."
Nonviolence calls for an attitude of collaboration, of partnership, of acknowledgement of our shared humanity, shared interests, and shared desires. Best/worst, right/wrong, win/lose, conquest/ defeat are dichotomies that have a place in the world—to spur us to be and do our best—but they can be a source of great harm when they creep into segments of our lives that should be grounded in mutuality and right relationship.
American society places a high value on competition. Competition spurs us to do our best, to succeed, to win, and in the process, to produce benefits for others. We compete in school for grades and prizes. We compete for entrance into good colleges and for the best-paying jobs when we graduate. We compete on reality shows and game shows to win big money, to be the next Iron Chef or the biggest loser. We compete vicariously through our favorite sports teams or political candidates. We compete as a nation to be the richest, the most successful, the envy of all other nations. But in many aspects of our lives, we rely on collaboration rather that competition to get the results we want. Families, churches, neighborhood associations, food co-ops, and many other ways of organizing to provide for a group or a community downplay competition in favor of everyone contributing what they can to the shared purpose and all being entitled to benefit equally. We depend on other people to help make things happen, and they depend on us, even in the workplace, where teamwork has become an important management principle. So for most of us, both competition and collaboration play important roles in our lives.
The market economy relies on competition as a way to harness our aggressive and individualistic inclinations to the service of the greater good. Our individual pursuit of success and profit under the discipline of competition benefits the economy as a whole. Unlike warfare or other kinds of aggressive behavior, market competition is generally not violent, at least not physically violent.
For economists, the opposite of competition is not collaboration or cooperation but monopoly. Being a monopolist means no longer having to compete, because you have wiped out the competition. You don't have to cater to the consumer, because you have no competition. If people want electricity or water (two typical monopolies) they have to come to you, and they have to pay your price. There are lots of local monopolies as well—the only grocery store in a small town, for example, which charges higher prices because it's so far to the next supplier.
Most economists think that monopolies are short-lived. People will search out substitutes. Eager entrepreneurs will find a way in, a way to break off some segment of the monopolist's market with a different but related product. Competition will find a way. Federal Express and United Parcel Service succeeded by challenging parts of the United States Postal Service monopoly. The American auto industry, long dominated by the big three, found that foreign producers could invade that cozy club with cheaper, better, smaller cars. We are still seeing the consequences of competition in that area of the economy for the former monopolists.
Economists have made careers of studying monopolies, but they have paid surprisingly little attention to the other alternative to competition. Cooperative production of goods and services, according to mainstream economic theory, will usually break down because people will be tempted to free-ride. Free riders are those who enjoy the benefits of shared goods and services without providing their fair share of the effort and funds it takes to produce those goods. Whether it's a food co-op, a sailing club, a church, or some other voluntary cooperative organization, mainstream economics says there will always be shirkers who enjoy the benefits without paying their fair share and thus, eventually, make the voluntary system break down. Yet these collaborative organizations continue to thrive and prosper alongside their more traditional counterparts, the corporation and the for-profit firm.
Some shared goods and services benefit payers and nonpayers alike, like fireworks displays or public beaches or national defense. That's one reason so many shared goods are provided by governments. Another reason is that some goods are just too expensive for low income households to provide for themselves, so they depend on the contributions of others. These goods include affordable housing, transportation, and basic health care. These are government programs, but there's a surprising amount of private effort that goes into making such services available. Despite the predictions of economists, people care about the well-being of others, even strangers, and there are examples everywhere we look of people cooperating to make sure that needs are met.
There are also what economists call club goods, which are provided by voluntary associations such as golf clubs, sailing clubs, singing groups, community theater. Club goods are shared among members and sometimes (usually for a fee) non-members. Producing these kinds of goods and services is more about self-interest than altruism, because it's more fun to sail or sing or act with a group than by yourself. These organizations are pretty good at ensuring that everyone pays their fair share and excluding non-payers.
Another aspect of collaboration that takes some economists by surprise is that many people do both—they compete and collaborate; they pursue self-interest and contribute to the well-being of others. The same woman who is a profit-maximizing, "greedy capitalist" at work may give blood on the way home or pound nails for Habitat for Humanity on the weekend. Human beings are more complex than simple, individualistic, self-interested competitors. We value community in many forms—neighborhoods, voluntary associations, cities, extended families, churches—and many if not most of us a re willing to do our fair share to ensure that community based organizations continue to exist.
Several studies of economic behavior have borne out the notion that our interaction with others is complex and often involves both competition and collaboration. Economics shares with mathematics and psychology an interest in game theory as a way to understand how people interact with each other. One of the findings from game theory experiments is that when people have regular and repeated interactions with others—neighbors, merchants, service providers—they pursue a strategy called Tit for Tat. If you cooperate with me the first time, or treat me fairly, I will do the same to you the next time. If you take advantage of me the first time, I will take advantage of you the next time. The most successful players of these games, which mimic real life, do unto others as they have been done unto in the previous encounter. Eventually a pattern sets in of refusing to play again with those who act purely selfishly, while surviving players collaborate for the best shared outcome. In real life, collaboration means doing your fair share of the work or contributing your fair share of the money even if no one is checking up on you. Selfish behavior may succeed in the short run, but it seldom does in the long run.
How do we as a society balance the benefits and costs of competition by encouraging more cooperative ways of relating to each other? We return to Dr. King, who was not an economist, but a theologian. Theologians and other philosophers help us to shape our understanding of the world and our place in it by calling us to our better selves. In the process, they shave off some of the rough edges of a competitive world. Within the framework of those positive values, habits, and self-understandings, economics can be used to harness competition and encourage collaboration to give us the best of both worlds—the productive economy and the supportive community.
Chapter Two
FEBRUARY
2nd—Ground Hog Day: Punxatawney Phil and Economic Forecasting
Groundhog Day is a remnant of an earlier Celtic holiday called Imbolc, which celebrates the promise of the coming spring. Every February 2nd, reporters gather in Punxatawney, Pennsylvania, to see whether the groundhog sees his shadow when he emerges from his hole. A shadow means six more weeks of winter; no shadow forecasts an early spring. The groundhog is a loyal and amusing, if somewhat inaccurate, medium-term weather forecaster. Most of the weather forecasts we rely on for making our daily and weekly plans are short term (up to five days). They predict temperatures as well as rain, wind, sunshine, clouds, and occasionally hurricanes or tornadoes. But Punxatawney Phil and his chief competitor, the Old Farmers' Almanac, make longer term forecasts—Phil for six weeks and the Almanac for the entire year. Weather has economic importance to all kinds of providers of goods and services—farmers, airlines, and tourist services being chief among them.
The patterns of El Nino and La Nina in the Pacific Ocean offer some guidance for these longer term weather forecasts, but only professional meteorologists and atmospheric physicists attempt the daunting task of forecasting years ahead, not merely weather but also climate and climate change.
Economists have a similar challenge in making short-term, medium-term, and long-term economic forecasts. There is a demand for short-term forecasts—GDP, retail sales, stock market indices, and interest rates—that parallels our interest in daily weather forecasts. There is profit to be made in correctly anticipating changes in key variables that affect stock prices, credit availability, the housing market, auto sales, and other important measures of economic activity. That kind of short-term forecasting has an entire industry of its own.
For the medium-term (approximately six months to two years ahead),economists have developed elaborate computer models that predict the behavior of output, employment, prices, and interest rates based on past experience. A collection of leading indicators, including building permits, changes in the money supply, and other variables, has a history of moving about six months ahead of changes in GDP and is a widely used and simple forecasting tool. An uptick or downturn in this index suggests a similar uptick or downturn in GDP six months or so into the future.
(Continues ... )
Excerpted from ECONOMICS TAKES A HOLIDAY by Holley Hewitt Ulbrich Copyright © 2013 by Holley Hewitt Ulbrich. Excerpted by permission of Abbott Press. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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Table of Contents
Contents
1. January....................11st—New Year's Day: Credible Commitment....................1
15th—Martin Luther King Jr.: Prophet of Nonviolence....................5
2. February....................11
2nd—Ground Hog Day: Punxatawney Phil and Economic Forecasting....................11
14th—Valentine's Day: Heartless Capitalism?....................15
3rd Monday—President's Day: What Makes a Leader?....................19
3. March....................23
17th—St. Patrick's Day: Snakes and Ants....................23
20th/21st—Vernal Equinox: Our Fancy Turns to Better Mousetraps....................27
4. April....................31
15th—Income Tax Day: Flat and Simple, or Fair and Complicated?....................31
22nd—Earth Day: Property Rights....................35
5. May....................39
1st—May Day: Fertility and Population....................39
2nd Sunday—Mother's Day: All Mothers are Working Mothers....................44
6. June....................47
14th—Flag Day: How Big Should a Country Be?....................47
3rd Sunday—Fathers' Day: The Changing American Family....................52
7. July....................57
July—The Month of Revolutions....................57
14th—Bastille Day: The Costs of Inequality....................61
8. August....................65
August—The Month with No Holidays....................65
9. September....................71
1st Monday—Labor Day: Minimum Wage, Living Wage....................71
1st Sunday after Labor Day—Grandparent's Day: Paying for the Golden Years....................76
20th/21st—The Autumn Equinox: Turning Points and the Business Cycle....................80
10. October....................85
12th—Columbus Day: The First Wave of Immigration....................85
21st—Alfred Nobel's Birthday: The Nobel Prize in Economics....................89
31st—Halloween: Taking Chances....................94
11. November....................97
11th—Veterans' Day: Paying What We Owe....................97
4th Thursday—Thanksgiving: Affirming Our Values....................101
12. December....................105
5th—National Volunteer Day: Working for Nothing....................105
6th—Saint Nicholas Day: Is There a Santa Claus?....................110
Late December—Winter Solstice/Christmas/Hanukkah: Throwing Hope into the Darkness....................113
26th—Boxing Day: Opening the Box....................117