This time I’ll write about the economic crisis and money in general. For Americans, money has a deep psychological meaning, much more than its physical realization a collection of bits on the bank’s computer. The fundamental equation is:
rich = good
Negating both sides we get the second equation:
poor = bad
This way of thinking is relatively modern. I think that before communism and capitalism, there was no religion or social movement that had money as such a core concept. It is difficult for Americans to accept that in older parts of this world rich=suspicious and poor=unlucky.
The fundamental equation means that in order to be good, you need to make more money. Almost every American has a plan how to become really good. I’ve heard many, from writing a bestseller, designing a flying toy, etc. Generally, there are two categories: 1. There are more than 300 million people in America. You need to make one cent on each. 2. There are many millionaires in America. You need to convince them to give you some of the money they don’t need and feel good about that. Some of the craziest plans made people extraordinary wealthy, though most people stay only with their plans.
Money has to come from somewhere, and in Canada it is mostly natural resources. Basically, they are digging money. But vast land also implies huge infrastructure expenses. In the past settlements spread all over Canada, and later they had to connect remote places to roads, electricity and other services. They also fenced long highways against wild animals, and built bridges for animals to cross.
Excess of money is a double-edged sword. On the one hand, they can invest in arts, culture, science, education and environment, and pay more attention to professionalism and quality. But money can also be spoiling. I heard about a guy who was giving private lessons at a rich family (the sort that send their driver to pick the teacher). One day the kid said to him: my mother gives you $50, I’ll give you another $50 if you leave me alone to play computer games.
Sometimes I follow the ecocomics in the media and get really puzzled. Take the gas prices for example (Americans are psychologically very sensitive to gas prices). About a year ago gas prices went up and they said it is bad for the economy, because people and companies will spend more money. Then gas prices dropped, and they said it is a bad sign, since people and companies could not afford the high prices. I was confused since I always believed low prices are good because people save money, while high prices are good because they show people have money. Why can’t economists calculate the optimal gas price and set it accordingly? If they can’t do that and believe in free market, how can they complain about prices?
Things are not much better in academia. On the one hand there are business schools, and on the other there are departments of economics refuting the theories taught in business schools. I think economics enters a phase that many sciences had gone through in the past, when people realize that nice theories are not a complete explanation before they can be programmed and generate valid predictions.
If you watched “The Midas formula” (5 parts in this order
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you know what crisis economics models can cause.
The current recession can be felt on the commercial streets. It is normal to have stores going down and new ones opening. But lately I noticed much more stores closing than usual. There is also rising unemployment. Half a million Americans losing their job each month is quite scary. Looking for a job is one of the things Americans hate the most. In Toronto, for some professions it takes a year to find a good job. However, Canadians have a mild temperament. They don’t get overly excited when they succeed and are not overly depressed when they don’t. Still, an American recession is other countries’ dream.
A crisis could also be an opportunity. Think about all the economics graduate students that don’t have a good subject for a thesis... The same way Bernanke is an expert on the great depression, they might be called to save us in the future. All they got to do is to dig works on previous recessions, compare to new data, and conclude that the crisis was inevitable, but if steps elaborated in the thesis were implemented, it was preventable. Of course, these theses would be more convincing had they been written few years ago. And such works are missing an important part of the graduate student experience: not thinking about money.
