Influential Economists Take Over the World

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Influential Economists Take Over the World !
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Influential Economists Take Over the World !

• A survey of men who changed the way we look at
  the study of resource usage.

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Influential Economists

• John Maynard Keynes says an Economist must be
  mathematician, historian, statesman, and
  philosopher.
• He must study the present in light of the past
  for the purposes of the future.

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Who is the Original Economist?

• It is, of course, our old friend Og.
• A simple man studying resource use, scarcity,
  production and consumption, trade, and wealth.
  He is guided by traditions to solve daily
  problems so his tribe can survive.

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What does Isaac Newton have to do with Economics?
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What does Isaac Newton have to do with Economics?

• On the surface, it would seem like Nothing.

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What does Isaac Newton have to do with Economics?

• On the surface, it would seem like Nothing.
• However, his scientific method determined Cause
  Effect to be the most important process.

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What does Isaac Newton have to do with Economics?

• Therefore, the earliest Economists might be
  referred to as Newtonian because they also
  looked for cause-and-effect relationships in
  economic processes.

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Adam Smith (1723-1790)
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Adam Smith (1723-1790)

• A Theory of Moral Sentiments
• We are confronted by an impartial spectator who
  advises us whenever we make a moral choice.

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Adam Smith (1723-1790)

• An Inquiry Into the Nature and Causes of the
  Wealth of Nations
• What is it that actually makes a nation wealthy?

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Adam Smith (1723-1790)

• The productivity of its people.
• Division of Labor!
• (Which develops more skill, wastes less time, and
  leads to better inventions.)

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Adam Smith says

• Division of Labor is the great cause of the
  increase of public opulence, which is always
  proportioned to the industry of the people, and
  not to the quantity of gold or silver, as is
  foolishly imagined.
• It was not by gold or by silver, but by labour,
  that all wealth of the world was originally
  purchased.

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Adam Smith (1723-1790)

• The Invisible Hand of self-interest will adjust
  the market appropriately to benefit both
  producers and consumers.

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Adam Smith (1723-1790)

• In a free market, Producers must make something
  Consumers want at a reasonable price. If
  Consumers do not buy a product, the final answer
  is not to produce it!

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Adam Smith (1723-1790)

• Still, we must be careful.

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Adam Smith (1723-1790)

• Still, we must be careful.
• Protectionism is bad.

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Adam Smith (1723-1790)

• Still, we must be careful.
• Protectionism is bad.
• People of the same trade seldom meet together,
  even for merriment and diversion, but the
  conversation ends in a conspiracy against the
  public, or in some diversion to raise prices.

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Thomas Malthus (1766-1834)

• Essay on the Principles of Population

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Thomas Malthus (1766-1834)

• Agriculture production is arithmetic, but
  Population growth is geometric. Thus
• Population increases
• 1, 2, 4, 8, 16, 32, 64, 128
• While food increases
• 1, 2, 3, 4, 5, 6, 7, 8

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Thomas Malthus (1766-1834)

• Whatever shall we do?

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Thomas Malthus (1766-1834)

• Whatever shall we do?
• Positive Checks will increase the death rate
  war, plague, pestilence, famine.
• Preventative Checks will decrease the birth
  rate having children lowers the standard of
  living.

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Thomas Malthus (1766-1834)

• Whered he go wrong?

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Thomas Malthus (1766-1834)

• Whered he go wrong?
• Missing out on medical advances agric-ultural
  revolution (crop rotation, seed selection, tools,
  horses) industrial revolution changes social
  values.

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Thomas Malthus (1766-1834)

• Aggravated Social Reformers
• Influenced Darwin
• Created the Dismal Science

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David Ricardo (1772-1823)

• Said Malthus, I never loved anybody outside my
  own family so much.
• Says Mark Blaug, If economics is essentially an
  engine of analysis, Ricardo literally invented
  the technique of economics.

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David Ricardo (1772-1823)

• Success in stocks and loans

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David Ricardo (1772-1823)

• Success in stocks and loans
• Excited by Wealth

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David Ricardo (1772-1823)

• Success in stocks and loans
• Excited by Wealth
• Monetarism

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David Ricardo (1772-1823)

• Success in stocks and loans
• Excited by Wealth
• Monetarism
• Law of Diminishing Returns

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David Ricardo (1772-1823)

• Law of Comparative Advantage
• Why we should trade with others even when we are
  perfectly capable of producing the good ourselves.

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Here on Gilligans Isle

• The Skipper can catch a fish every 10 hours and
  build a hut every 20 hours.
• Gilligan takes 15 hours to catch a fish, and 45
  hours to build a hut.

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Here on Gilligans Isle

• Adam Smith would advise the Skipper to go off on
  his own, because hes much better at everything
  than Gilligan.
• BUT
• Ricardo knows about Comparative Advantage!

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Here on Gilligans Isle

• Because of his inefficiency, Gilligan will have
  to work more hours, but look at the productivity

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Here on Gilligans Isle

• Skipper works 1000 hours
• Gilligan works 3600 hours
• If they each split their tasks 50/50
• Skipper will produce 100 fish and 50 huts,
• Gilligan will produce 120 fish and 40 huts,
• So the total is 220 fish and 90 huts. BUT

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Here on Gilligans Isle

• Skipper works 1000 hours
• Gilligan works 3600 hours
• If Skipper spends all his time on hut-building,
  and Gilligan spends all his on fishing, the total
  will be

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Here on Gilligans Isle

• Skipper works 1000 hours
• Gilligan works 3600 hours
• If Skipper spends all his time on hut-building,
  and Gilligan spends all his on fishing, the total
  will be
• 100 huts and 240 fish

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Internationally,

• You see that this is not much different from the
  U.S. working a 40-hour week to produce computer
  software, while folks in Sri Lanka work 96-hour
  weeks stitching sneakers or soccer balls.
• (Remember this when you see the quote from Lester
  Thurow)

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David Ricardo (1772-1823)

• Theory of Rents
• Economic Rent is the payment above what it takes
  to keep land, labor, or capital in its current
  use.
• (Would Willie Mays really play for free?)

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David Ricardo (1772-1823)

• Theory of Rents
• Workers, Capitalists, and Property Owners form a
  complex equation, in which the Owners always
  profit more than is reasonable.

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David Ricardo (1772-1823)

• This would be the happiest country in the world,
  and its progress in prosperity would be beyond
  the powers of imagination to conceive, if we got
  rid of two great evils the national debt and
  the corn laws.

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John Stuart Mill (1806-1873)

• Methodical Thorough analysis of work to date
• The Spirit of Ricardo
• The Scope of Smith
• Socialist Ideals
• A Benthamite

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Jeremy Bentham (1748-1832)

• The Principle of Utility
• It is our moral obligation to act such that it
  will produce the greatest possible total
  happiness.
• Influenced Mill

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Jeremy Bentham says

• Every law is an infraction of liberty.
• It is vain to talk of the interest of the
  community, without understanding what is the
  interest of the individual

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John Stuart Mill (1806-1873)

• Found Inductive Reasoning useful (traditional
  Economics was more deductive)
• Distinguished Positive Economics from Normative.

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John Stuart Mill (1806-1873)

• The Paradox of Taxation
• Suggested Workfare
• Government should generally stay out of Economics
• Fought for womens suffrage, poor rights, and
  enhanced humanity.

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What does Charles Darwin have to do with
Economics?

• On the surface, it would seem like Not much.

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What does Charles Darwin have to do with
Economics?

• However, now the scientific method suggests that
  we look for a natural evolution in economic
  processes, with the survival of the fittest
  companies and consumers.

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Karl Marx (1818-1883)

• An angry young man.

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Karl Marx (1818-1883)und Friedrich Engels
(1820-1895)

• A pair of angry young men. (sort of)

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G. W. F. Hegel (1770-1831)

• What does Hegel have to do with Economics?

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G. W. F. Hegel (1770-1831)

• What does Hegel have to do with Economics?
• On the surface it would appear not much.
• But

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G. W. F. Hegel (1770-1831)

• He invented the Dialectical Reasoning model.
• There is
• Thesis
• Antithesis
• Synthesis

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Karl Marx (1818-1883)

• Marx turned this into Dialectical Materialism

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Karl Marx (1818-1883)

• Marx turned this into Dialectical Materialism
• Thesis A rich minority gets richer.

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Karl Marx (1818-1883)

• Marx turned this into Dialectical Materialism
• Thesis A rich minority gets richer.
• Antithesis The poor majority gets poorer.

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Karl Marx (1818-1883)

• Marx turned this into Dialectical Materialism
• Thesis A rich minority gets richer.
• Antithesis The poor majority gets poorer.
• Synthesis The poor overthrow the rich.

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Karl Marx (1818-1883)

• Communist Manifesto
• Workingmen of all countries unite!
• They have nothing to lose but their chains.
• Das Kapital
• Foolish Bourgeoisie
• Revolting Proletariat

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Karl Marx (1818-1883)

• Whered Marx go wrong?
• Ignored Idealism
• Felt Desperation
• Didnt see Middle Class, welfare spending, or the
  value of Entrepreneurship

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Karl Marx (1818-1883)

• Still, he remains a voice for social justice to
  balance out economic gains.

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Alfred Marshall (1842- 1924)

• He saw Economics as the 4th Great Vocation which
  men might pursue, with the goal being to provide
  the opportunity for material wealth to everyone.

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Alfred Marshall (1842- 1924)

• He also demonstrated
• Marginal Utility
• Laws of Supply and Demand
• Equilibrium
• Elasticity
• Short Long Run effects

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Albert Einstein (1879-1955)

• What does Albert Einstein have to do with
  Economics?
• On the surface, it would seem to be Nothing!
• But

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Albert Einstein (1879-1955)

• What do WE know?
• Albert taught us to look at things in new and
  different ways that everything is relevant to
  its own time and space.

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Thorstein Veblen (1857-1929)

• Was an Institutionalist
• Maybe he should have been institutionalized!

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Thorstein Veblen says

• Equilibrium doesnt exist in real life
• Some people work for works sake
• Poor people will strive to climb the ladder
• Govt. Unions do a lousy job looking out for the
  workers.

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Thorstein Veblen wrote

• Theory of the Leisure Class (1899)
• Conspicuous Consumption
• Passive Acquisition
• Battle between Engineers and Businessmen

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Joseph Schumpeter (1883-1950)

• Delineator of the Business Cycle
• Coined the term Creative Destruction

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The Business Cycle

• Expansion

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The Business Cycle

• Expansion
• Peak

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The Business Cycle

• Expansion
• Peak
• Contraction

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The Business Cycle

• Expansion
• Peak
• Contraction Recession

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The Business Cycle

• Expansion
• Peak
• Contraction Recession Depression

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The Business Cycle

• Expansion
• Peak
• Contraction Recession Depression
• Trough

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The Business Cycle

• Must there always be a relentless, continuing
  business cycle?

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InWoodyEconomics,we sayNo!
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So, what exactly IS Spiral Economics?

• And,
• can I trust you to
• Drive my Car?

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(No Transcript)
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The Car is our Economy.
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The Car is our Economy.
The Mountain represents economic growth.
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The Car is our Economy.
The Road is growth or decline.
The Mountain represents our economic status.
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The Car is our Economy.
Our Cars accelerator is spending.
The Road is growth or decline.
The Mountain represents our economic status.
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The Car is our Economy.
Our Cars accelerator is spending.
The Road is growth or decline.
We decelerate by saving.
The Mountain represents our economic status.
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The Car is our Economy.
Our Cars accelerator is spending.
The Road is growth or decline.
We decelerate by saving.
On the front are all the old folks.
The Mountain represents our economic status.
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The Car is our Economy.
Our Cars accelerator is spending.
The Road is growth or decline.
We decelerate by saving.
On the back are the kids.
On the front are all the old folks.
The Mountain represents our economic status.
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The Car is our Economy.
Our Cars accelerator is spending.
The Road is growth or decline.
We decelerate by saving.
On the back are the kids.
On the front are all the old folks.
Income Tax and Unemployment Comp. are the
governors.
The Mountain represents our economic status.
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The Car is our Economy.
Our Cars accelerator is spending.
The Road is growth or decline.
We decelerate by saving.
On the back are the kids.
On the front are all the old folks.
Income Tax and Unemployment Comp. are the
governors.
There are no brakes!!!
The Mountain represents our economic status.
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The Car is our Economy.
Our Cars accelerator is spending.
The Road is growth or decline.
We decelerate by saving.
On the back are the kids.
On the front are all the old folks.
There are no brakes!!!
Income Tax and Unemployment Comp. are the
governors.
Consumers are doing the driving. (Guided by the
Fed Chairman, sort of.)
The Mountain represents our economic status.
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Can I trust you to drive my car?
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Mr. Woodys Superquick 1-Question Driving Test

• You have just read in the USA Today that
  economists are predicting a moderate nationwide
  recession that is expected to last at least one
  full year. What will you do?
• Save up as much money as you possibly can right
  now so you will have some extra to get you
  through.
• Spend every penny you have so you can stimulate
  the economy and perhaps avoid the recession.
• Join a survivalist club and stock up on food,
  water, and ammo so you can fight off beggars.
• Continue to save and spend in approximately the
  same ratio as you do now.

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Mr. Woodys Superquick 1-Question Driving Test

• You have just read in the USA Today that
  economists are predicting a moderate nationwide
  recession that is expected to last at least one
  full year. What will you do?
• If you chose
• (C) Join a survivalist club and stock up on food,
  water, and ammo so you can fight off beggars.
• You probably need to seek psychotherapy right now
  before you start imagining that they are coming
  to get you.
• I cant trust you to drive my car!

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Mr. Woodys Superquick 1-Question Driving Test

• You have just read in the USA Today that
  economists are predicting a moderate nationwide
  recession that is expected to last at least one
  full year. What will you do?
• If you chose
• Spend every penny you have so you can stimulate
  the economy and perhaps avoid the recession.
• You are likely to end up begging on the street
  and getting shot by the people who answered (C).
  It is unwise to have no resources to draw upon in
  hard times.
• I cant trust you to drive my car!

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Mr. Woodys Superquick 1-Question Driving Test

• You have just read in the USA Today that
  economists are predicting a moderate nationwide
  recession that is expected to last at least one
  full year. What will you do?
• If you chose
• Save up as much money as you possibly can right
  now so you will have some extra to get you
  through.
• You will actually cause the recession to become
  worse, because your sudden subtraction from the
  money flow will cause the downward spiral to go
  faster.
• I cant trust you to drive my car!

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Mr. Woodys Superquick 1-Question Driving Test

• You have just read in the USA Today that
  economists are predicting a nationwide recession
  that is expected to last at least one full year.
  What will you do?
• If you chose
• Continue to save and spend in approximately the
  same ratio as you do now.
• You may have a chance. Youll probably want to
  increase your saving somewhat, but generally this
  is the only behavior that will NOT make the
  situation worse.
• I MAY trust you to drive my car!

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It may look a little goofy, but it may help you
remember the concepts.
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John Kenneth Galbraith (1908-

• The Affluent Society
• Myth of Consumer Sovereignty
• Price Controls are anti-inflationary
• Wants vs. Needs
• Govt. must improve public facilities

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J. K. Galbraith says

• The great dialectic in our time is not, as
  anciently and by some still supposed, between
  capital and labor it is between economic
  enterprise and the state.
• Economics is extremely useful as a form of
  employment for economists.
• The modern conservative is engaged in one of
  man's oldest exercises in moral philosophy that
  is, the search for a superior moral justification
  for selfishness.

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The NEW Institutionalists(Hey, lets apply
Marshalls Formulas to this!)

• Economics can be applied to the Law!
• Probability x Loss gt Cost of Prevention
• Does Rent Control help the poor?
• Criminals pay attention to Cost/Benefit ratios!
• Why does the Drug War fail?

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John Maynard Keynes (1883-1946)

• Finally, an Optimist!
• Later in life, he wrote Economic Possibilities
  for Our Grandchildren, in which he imagined an
  end to scarcity, the abolition of material
  desires, and improved kindness.

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John Maynard Keynes (1883-1946)

• Economic Consequences of the Peace
• Warned that reparations and other sanctions would
  make it impossible for Germany to recover from WW
  I.

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John Maynard Keynes (1883-1946)

• The General Theory of Employment, Interest, and
  Money
• In the long run, we are all dead.
• Buchholz Even Keynes would not accuse his
  colleagues of schizophrenia. He gave them the
  benefit of the doubt and called them stupid.

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John Maynard Keynes (1883-1946)

• The General Theory of Employment, Interest, and
  Money
• Income determines spending.
• Savings are the enemy of economic expansion.
• The Multiplier Effect

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John Maynard Keynes (1883-1946)

• The General Theory of Employment, Interest, and
  Money
• Fiscal Policy can stimulate an economy (Prime the
  pump, govt. spending, cut taxes boost to
  economy)

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John Maynard Keynes (1883-1946)

• When a Royal commission solicits opinions from 5
  Economists, they get 6 opinions 2 from Mr.
  Keynes.
• When my information changes, I alter my
  conclusions. What do you do, sir?

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J. M. Keynes ends his book

• The ideas of economists and political
  philosophers, both when they are right and when
  they are wrong, are more powerful than is
  commonly understood.
• Soon or late, it is ideas, not vested material
  interests which are dangerous for good or evil.

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Richard Nixon said

• I guess we are all Keynesians now.

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The Monetarists Strike Back

• The government is not a very good driver.
• Growth has little to do with fiscal policy.
• The velocity of money is most important.

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Milton Friedman leads the charge

• Consumption is impressively stable.
• Monetary misuse has accompanied every major
  recession and every large inflation.
• Crowding out results from Keynesian fiscal policy.

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Arthur Burns(Fed Chair 1970-78)

• (pp. 361-4)
• most economists move from platform to
  platform

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Harry Truman, Comedian

• I certainly wish I could find a good one-armed
  Economist.
• Why?
• Because I am damn tired of those who say, On
  the one hand we could but on the other hand

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Arthur Burns(Fed Chair 1970-78)

• (pp. 361-4)
• most economists move from platform to
  platform
• The important factor in the business cycle is
  not the stock of money, but the rate of turnover
  of money.

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3 Ways the FED controls the Money Supply
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Arthur Burns(Fed Chair 1970-78)

• We have millions of decision-making units in
  this country.
• Lets give them a chance to do their part.
• The economy contains recovery forces of its own.

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Yo-Yonomics?
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Yo-Yonomics?
A long-standing Economic principle says that we
can control the economy to some degree, but not
fully. If we Expand too rapidly, we will get
Inflation, and any attempt to decrease the
inflation will cause Unemployment. Pick Your
Poison.
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Paul Volcker(Fed Chair 1979-87)

• Inherited a 12 Inflation Rate
• Tightened the Money Supply (How?)
• Makes life more difficult for Borrowers, but OK
  for Savers.

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Paul Volcker(Fed Chair 1979-87)

• Sometimes the technical analysis runs in the
  same direction as the psychology, so making
  policy is easy. But sometimes they run in
  opposite directions. And the psychology often
  runs to extremes.

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Paul Volcker(Fed Chair 1979-87)

• Sometimes it means there is no right policy.

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Alan Greenspan

• put Keynes head on Friedmans body.
• Found the way to cut inflation, decrease
  unemployment, and steadily grow the economy with
  shrewd monetary policy.

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Robert Heilbroner (1919-2005)

• Like Mill, an analyst
• Sees the Big Picture
• 3 Types of Economies
• Revealed the subjectivity of Economists
• Searched for an all-encompassing vision
• Socialist orientation

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Lester Thurow (1938- )

• The Zero-Sum Society
• How we benefit by improving the economies of
  Third World countries
• How tax cuts with military spending wrecks the
  economy

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Lester Thurow says

• A passion for building a world-class economy
  that is second to none in generating a high
  living standard for every citizen is exactly what
  the United States and every other country should
  seek to achieve.
• Change requires individuals who recognize that
  new things can be done and who take the
  initiative to get them done ... The existing
  bureaucracies, public and private, will not take
  on the job of changing what is.
• Natural resources have dropped out of the
  competitive equation. In fact, a lack of natural
  resources may even be an advantage. Because the
  industries we are competing for - the industries
  of the future are all based on brainpower.

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Maria Bartiromo
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The 5 Economics Books that have dominated the
discipline

• The Wealth of Nations Adam Smith
• Principles of Political Economy and Taxation
  Ricardo
• Principles of Political Economy Mill
• Principles of Economics Alfred Marshall
• Economics Paul Samuelson

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Two Interesting Economics Books for Modern Readers

• The Worldly Philosophers by Robert Heilbroner
• New Ideas From Dead Economists by Todd Buchholz