Economics and a View of Life

I’ve found it interesting to think about how people organize their lives. I feel that most of us, myself included to this point, choose a particular view on life because of the events that have shaped our lives. We learn from experience and most of our experience tends to be in an area that we are drawn to as children or young adults. I know that is certainly true of myself.

I find myself drawn more and more to economics as a means of explaining the world, even if it’s just a framework for hanging knowledge on. Recently I drew out a little diagram that indicated how economics, as a viewpoint, shapes the other areas that I spend my time working on. Marketing, which I do for Click Consulting, is very directly related to economics for the simple reason that economics studies the spread of money and marketing tries to redirect the flow of money. Investing, my other business love, is directly related to economics because investing is the attempt to purchase assets before money flows to them and then sell the assets after people with money want it.

In many ways all of my interests, from psychology and biology to architecture and engineering, are directly related to economics. I picked up a book the other day called Butterfly Economics about how economic theory is mostly flawed because it looks at markets more like physics problems than biological, chaotic problems. The math and movements are less like Newtonian motion (even Brownian motion) and are in fact more like the evolution of animals or bacteria. I have found it funny that most kids believe all the random things they learn in general education classes have no use to them. Everything, if you’re willing to put it all together, is connected and influences each other. Knowing a little bit of a lot allows you to see a lot of casual connections you wouldn’t otherwise see or even have any inkling to see.

I am beginning to understand that I can learn a lot of things, even things that I would have never had any interest in, if I am willing to relate everything back to economics. I feel that economics is the study of how people place votes on what they value. It’s almost like psychology but with a voting mechanism. And in many ways I’ve found the models created to be interesting ways to look at the world. The idea that raising prices during a crisis is the humane thing to do seems counter-intuitive at first. Why would you take advantage of someone like that? In fact, it’s the exact opposite. By raising prices, the shop owner is actually ensuring that everyone gets a little bit instead of a few people hoarding. He might get lucky and might get a lot of money for his troubles, but there is always the possibility that there will be no recovery and the money he got for the goods is worth nothing. We all get paid based on risk and the value of the goods was have on hand. So I can learn psychology both directly through examples like the one above (both how the shop owner reacts, the people react, and the actions they take illuminate a lot about their views of the world) and by seeing how psychology models of the world match up to economic models of the world.

It will be interesting to see how an economic view of the world, looking at how people transfer value to each other, affects the ways I interact in the world. I wonder how your own model affects your view of the world, how you learn new knowledge, and how you interact with other people.

Gains for women in the recession

from lumaxart.com

One of the things that I’ve noticed about myself and I think that happens to a lot of us is that we read something interesting and then pretty quickly we forget about it. Later, when the information we read actually affects us, we’ve forgotten the information. Today I’m going to talk about one of those things that I read awhile back but is just now starting to be important.

Back in June I read an abstract of a study about how women advance during recessions. The study said that during downsizing, women are actually able to move up the ladder faster than normal as older men, in higher positions, take buyout packages. The movement though is relatively quick and stops after the initial promotions though as less jobs means less positions to be promoted into. So, women, if your company is going through downsizing, look for your opportunity to get promoted and take advantage of the opportunity while it exists, it wont last very long.

Another study that I read awhile back was about overconfident CEOs. It shared a lot of interesting things, including the idea that mergers and aquisitions often happen because the CEO thinks it should, not because of the business value that is actually attributed to the deal. Part of the article shared this fact:

[T]hey find that CEOs appear to overly attribute their role in successful deals, leading to more deals even though these subsequent deals are value destructive.

While we may be in a recession because of overconfident CEOs and others in the financial sector, it seems to me that everyone was overconfident over the last few years. The real question is simple. What do we do now to be successful over the next few years?

Welcome

I’d like to welcome you to my site. My name is Cody Boyte and this is my first blog post. I’ll be commenting on the things that affect my life, most often I will comment on business and economics. At this point, that seems to be the most important thing in the national news so it bears comments.

I won’t outline any manifesto or ground rules for my blog, I have chosen to let it evolve. Please comment as you please. I look forward to talking to everyone who gets involved.

I’ll start my blog with a comment on the state of the economy and give a little hope for the future. I’ve spent a bit of time over the last few months thinking about whether our economy is going to stay stagnent, move towards a recession, recover, or go into runaway inflation. At this point it seems like we’re occillating between inflation and deflation because the major financial institutions have started to completely deleveraged, which causes deflation, and yet at the same time the Fed is handing out money and has lowered the interbank rate back to the same rate that it was at when our economy started towards the problems we currently have.

In any case, I read an interesting article today. It was called “How Japan learnt how to stop worrying and love the recession” in the Times Online (timesonline.co.uk). Towards the bottom of the article I read a little passage that shared the secret for anyone that wants to learn what to do if we hit a deep recession:

Japanese instinctively hoarded cash for a rainy day: financially and philosophically, companies and the general population began carrying umbrellas even when the forecast was good. Household risk aversion now commands cultish devotion: books about living on a fiver a day sell in millions, and TV programmes on the theme are primetime fare.

If you can learn to be the guy selling the tome on how to live on a fiver a day, watch out. You’ll be doing just fine in the recession. The key it seems is to play to the times, whatever they are. Best of luck.