SUNNY SIDE OF THE STREET: ANALYSIS OF THE FINANCIAL SYSTEM & THE ECONOMY (part 1)

The Trees versus the Forest

by

Charles Lamson

During a typical month, the business and the financial pages of any leading newspaper or web site might include the following reports on the economy's recent performance: industrial production rose 1 percent; retail sales rose 2 percent; the unemployment rate fell slightly; IBM issued $300 million of bonds to finance the construction of a new plant; the Consumer Price Index increased 0.1 percent; the United Auto Workers and General Motors reached an agreement on a new three-year contract that will raise benefits and wages by 8 percent. The untrained eye might see little connection among these reports. The trained eye, however, sees more.

A major objective of any science---be it physics, astronomy, or economics---is to find patterns where the untrained eye sees only disorder. To discover and understand these patterns, it is usually necessary to disregard inessential details. Such abstraction facilitates the identification of the fundamental and essential relationships linking the key elements of the process or the phenomena being studied.

In the study of money, credit, and the financial system, you may find the details of the analysis overwhelming. Unfortunately, they may obscure the broad fundamental patterns of order so important to an analytical foundation. The problem is akin to getting lost in a forest. By paying too much attention to the individual trees, you can become disoriented and lose your way.

The general purpose of this next series of articles, in which, I will be analyzing the book The Financial System & the Economy by Maureen Burton and Ray Lombra, is to provide an analytical perspective on how the financial system fits in the overall economy. The circular flow analysis and accompanying diagrams should serve both as a roadmap through the economic "forest," and as an aerial photograph that reveals the patterns of order that link households, firms, financial markets, and financial intermediaries.

Spending, Saving, Borrowing, and Lending

It is important here, to better understand this next series of articles, that we define surplus spending units (SSUs) and deficit spending units (DSUs). SSUs spend less than their current income during a particular period of time. More precisely, the surplus is the income that spending units receive, but do not spend on consumer goods and services, or on investments such as new houses. It is this surplus that SSUs have available to lend. The spending units that spend more than their current income during a particular period of time are DSUs. The deficit is the extent of current spending on goods and services and investments over current income.

The DSUs must finance their deficits in some way. Normally, they do so by borrowing. Some DSUs, such as business firms, accomplish this by issuing financial claims on themselves. For now, we will refer to these financial claims on DSUs as bonds. Other types of DSUs, such as students struggling to buy books, pay their tuition, and feed themselves, may finance their deficits by taking out loans from their local banks. These loans too are a type of financial claim; the students agree to repay the loan principal plus interest.

Who provide the funds that the DSUs receive when they issue bonds, and the funds that banks lend to students? The answer, of course, the SSUs. Rather than accumulating the surpluses in the form of cash assets, buried in their back yards or hidden under their mattresses, SSUs generally purchase interest-earning financial claims. For example, a household with a surplus might purchase a  bond issued by a corporation. Likewise, the household might deposit the funds in a savings account at a bank, which in turn lends them to the DSUs. Thus, the SSUs are the lenders in society, and the financial system, composed of the financial markets and financial intermediaries, channels the surpluses of SSUs to the DSUs to finance their deficits.

To sum up to this point, individual spending units make two types of decisions. First, they decide whether to be DSUs or SSUs. Second if they decide to be DSUs, they must decide how to finance their deficits. If they decide to be SSUs, they must decide what to do with their surpluses. The financial system channels and coordinates the flow of funds, resulting from these decisions made by individual spending units.

*SOURCE: THE FINANCIAL SYSTEM & THE ECONOMY, THIRD EDITION, 2003, MAUREEN BURTON, PGS. 62-63*

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ANALYSIS OF "THE SOCIOLOGICALLY EXAMINED LIFE" (part 42 - The Finale)

Advantages of Systematic Research

by

Charles Lamson

Careful research is perhaps the best way to create valid and reliable knowledge about the state of the social world and how it works. It is the best way for several reasons. First, by using standard widely accepted means of finding things out, we can control personal biases. If we can do this we are less likely to mistake what we would like to be true for what is really true.

Suppose, for example, I believe that democratic work organizations are better than authoritarian ones and, would therefore like to believe that they are also more efficient. My bias would be to look only for evidence that supports my belief. But if I use a standard method of assessing efficiency and use it carefully and fairly to compare democratic and authoritarian work organizations, I will have to accept whatever I find. My bias would thus be cancelled out, or at least controlled.

Second, research can get us beyond personal experience and casual observation, because to research is to look beyond what is obvious to us from where we stand. It is to look for ideas and information that might challenge the common sense that gets us through daily life. It means considering the quality and correctness of knowledge created by others, even if we find their knowledge irritating. All this can be difficult, because our usual habit is to settle comfortably into believing that we already know what is right.

A third reason for doing research is that it lets us check up on each other. If we use methods that others agree are proper, they can look at our results and say, "Hmmm, yes, you did it right; these results must be correct." Or they can say, "You went astray here at this point, so your conclusions are not trustworthy." We can make the same judgments when others offer us knowledge they have created in this way. by working together we can do better at dispelling illusions, and in the long run, creating knowledge that is valid and reliable.

It may seem that Schwalbe has only good things to say about knowledge that comes from research. does this mean that one should accept as true whatever is published in a scientific or scholarly journal? No. Knowledge from any source should be critically interrogated. Careful research is just a way to avoid problems that are common when knowledge is created in other ways. And if research is done properly it can yield as much foolishness as any other method.

The larger point here is that we should be mindful, to the extent we can, of where our own knowledge comes from. We can be mindful in this way by asking ourselves how we know what we claim to know. Is some piece of knowledge a result of logical deduction? (If so have we reasoned correctly? How do we know that our premises are correct?) Is some piece of knowledge a result of personal experience or observation? (If so, are we claiming to know more than our personal experience can warrant? Is it possible that we have observed only what we want to believe is true, or that our observations have been limited in some crucial way?)

The point of asking ourselves these questions is not to arrive at a paralyzing state of doubt about what we know but to more wisely decide how much faith to put in what we know. If we can do this, we can open ourselves to new knowledge, without fear of surrendering our minds to yet another fishy belief system. 

*SOURCE: THE SOCIOLOGICALLY EXAMINED LIFE, 2ND EDITION, 2001, MICHAEL SCHWALBE, PGS. 

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ANALYSIS OF "THE SOCIOLOGICALLY EXAMINED LIFE" (part 41)

Reconditioning Ourselves

by

Charles Lamson

Upon hearing an argument about inner resources, a student said, "But isn't this a lot like in nature? You know, who survive and succeed are the fittest---the one who for whatever reason, best adapted to the environment." the teacher said yes, the situation could be seen that way, but there are two differences.

One difference is that in nature, creatures are what they are by virtue of genetic endowment; they do not become what they are by going to school, learning skills, and acquiring the habits and dispositions that allow them to survive. In the social world, however, we must devote conscious effort to all the tasks needed to turn children into fully functioning talented adults. If we do not do this, human beings can be damaged or stunted.

The second way things are different with humans, the teacher said,  is that our environment is not simply given to us by nature, but is socially constructed. The survival of the fittest analogy is thus wrong, because the social world can be changed to make it safe and nurturing for all kinds of people. We do not have to sacrifice human beings as if they were little fish deserving to be eaten by bigger fish. That kind of predatory arrangement does not make for a very humane world.

Reconditioning ourselves is always a possibility. If a lack of self-confidence is the problem, we can practice setting achievable goals, and then work to achieve them, thus boosting our self confidence. We can also learn new skills, habits, and ideas at any time. This becomes more difficult, of course, as we get older and settle into comfortable ruts. It might also be that others whose ruts run parallel to ours, will resist our efforts to change.

Yet, with support from others, remarkable change remains possible. If our relationships with others make us what we are, then we can potentially remake ourselves by relating differently to others, or by forming relationships with different others. As long as there exists the possibility of doing this, of making these kinds of changes, we need not resign ourselves to accepting everything that has been instilled in us by a particular form of social life. We can always pursue change and growth in directions of our own choosing.

In Conclusion

Being sociologically mindful, we can see how certain highly visible facts of social life---such as huge inequalities in wealth, status, and power can lead to inequalities in the distribution of invisible resources. The old adage "To them that have shall be given" is a poetic way of making the same point, which is that advantages tend to accumulate. If we are mindful of the bad results that arise from this tendency, we can decide to reorganize ourselves to make things turn out differently, with greater justice for all.

*SOURCE: THE SOCIOLOGICALLY EXAMINED LIFE, 2ND EDITION, 2001, MICHAEL SCHWALBE, PGS. 181-182

END

ANALYSIS OF "THE SOCIOLOGICALLY EXAMINED LIFE" (part 40)

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Visible Origins of Invisible Resources

by

Charles Lamson

Where do invisible resources (continued from last article) come from? Even strength, which at first seems like a genetic matter, is affected by culture and experience. Without proper nutrition and exercise, people who are destined to grow tall and wide do not necessarily become very strong. And even small people can develop their strength to the point where it excceds that of others who are twice as big. Much can happen, by choice or by accident, to shape our bodies in certain ways and not others

Other kinds of resources that reside in the body depend even more on experience and training. No matter what our potential might be, we always depend on others to teach us how to do things, to give us problems to solve, and to help us correct our mistakes. Differences in skill and problem-solving ability (what some people call intelligence) thus arise out of social life. We like to be rewarded for what our bodies and minds can do. Unfortunately, many people never get the chance to learn to do what is valued by those who can dole out rewards.

We can see that social experience conditions our bodies to react to the world in certain ways. Suppose you looked up from this blog right now and saw a wizened old man with bulging eyes and flecks of spittle on his chin coming at you with a knife in one hand and a rattlesnake in the other. What would you do? You might shriek, run, freeze, cower, or throw your smart phone or tablet at him. In any case, you would certainly have a bodily reaction---your heart would pound, your chest would tighten---and this reaction would be a result of how your body has been conditioned to respond to scenes you interpret as threatening.

This odd example serves to illustrate the point that our bodies, not only our minds, react to the world in ways that result from how we have been conditioned to react. Recognizing that these responses are conditioned is important, for it reminds us that we do not control all our reactions to the world. What is important to see is that some ways of responding to the world are more valued, more useful than others, and more likely to lead to inequality.

Imagine that you are invited to give a public talk about sociological mindfulness. The talk should be about an hour long and is set for a week from today. Your family, friends, and teachers will be there, along with most of the leaders of the community in which you live. You can expect an audience of about 1,500 people, not counting reporters and photographers. When you speak you will be representing not only yourself but all the people and groups to which you belong. If you do well, you will receive more honors and probably several job offers.

The prospect of giving such a talk would make many people extremely anxious. They would worry about looking unpoised, about saying the wrong thing, about embarrassing themselves and others. A person who has reacted this way might think, "I am so nervous I can't think straight. I can't prepare adequately in just one week! I know I am going to blow it. My heart pounds when I imagine getting up in front of all those people. I can't do this!" This sort of reaction might make it hard to do a good job, thus leading to the bad performance that is so feared.

Another person chosen to give the same talk might say, "Thank you for this honor. A week will be plenty of time to prepare. I'll get to work right away and do my best." Then, brimming with self-confidence, this person brushes up on sociological mindfulness, and studies the speeches of great orators throughout history. S/he then writes a first draft, revises it, gets comments from others, revises it again, practices giving the talk, revises some more, and then launches a brilliant career.

Why might two people react so differently to the prospect of giving a public talk? It is not much help to say, "Some people are more comfortable speaking in public than others." That is an observation, not an explanation.

Being sociologically mindful, we would ask what experiences led one person to be so confident and the other to be so anxious and afraid? How did one person learn to have faith in his or her abilities, and the other person not? We would try to understand how it happened that these people learned to feel so differently about their abilities and about the challenge of using them.

We should always be mindful that ways of responding to the world, the ways that are conditioned into us, are patterned. Some types of people are likely to be conditioned to respond to problems with calm faith in their own abilities and worth. If you are white, male, and upper middle class, you will probably have more experiences that nurture your talents, affirm your sense of worth as a person, and give you confidence that you can do whatever you set your mind to than if you are a black woman growing up in poverty.

Obviously, this is not true in every case. Some white men from rich families can be plagued by self-doubt. And there are many women of color, from all kinds of backgrounds, whose families and communities instill in them tremendous abilities and pride. Yet, on the whole, on the average, the pattern holds, as it must in a society that is run by and privileges whites, males, and those with wealth. In general, those who are born with more visible resources have better chances of acquiring the inner resources that lead to further advantages.

*SOURCE: THE SOCIOLOGICALLY EXAMINED LIFE, 2ND EDITION, 2001, MICHAEL SCHWALBE, PGS. 179-181*

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ANALYSIS OF "THE SOCIOLOGICALLY EXAMINED LIFE" (part 39)

Invisible Resources

by

Charles Lamson

There is a bumper sticker that says "Dress for Success---Wear a White Penis." This rye slogan reminds us not only that white males have, on the average, better chances of success in a society run by white males, but that people in other groups cannot shed their disadvantages as easily as changing clothes. If the bumper sticker makes us laugh it is because we know that, as a piece of advice, it is absurd; if you are not born with a white penis, it is almost impossible to put one on, at least in any convincing way.

Being sociologically mindful we can see another point: Differences between bodies are not mere differences if one body can elicit more respect than another. For example, in a society where things male and masculine are more highly valued than things female and feminine, a male body is a more valuable resource than a female body. If you dwell in a male body, you are more likely to be listened to, taken seriously, and seen as a potential leader. You can always end up proving yourself to be a fool, but at the start you will be given the benefit of the doubt because of your body.

Similarly, in a society where European features, especially light skin, straight hair, and a sleek nose are more highly valued---or seen as beautiful---then possessing a body with these features is a plus. With these features, you may be seen as having more innate goodness and intelligence, and thus be treated better. And if those who are already in power see you as looking like they do, they may be more inclined to admit you to their circles, thus giving you access to further resources.

The heading of this article suggests that skin tone and body type are somehow invisible resources. How can this be? Don't these resources have to be visible to produce results? The answer has to do with who sees what. It often happens that those who possess features that are more highly valued do not see the advantages these features provide. It is as if a person were blind to a badge s/he was wearing.

White people, for example, often fail to see that merely having light skin means they will be treated better in many situations than people with dark skin and African features. Being treated better means being listened to, appreciated as an individual, presumed competent or trustworthy, and recognized as entitled to dignity and respect. you might think, "What's so special about this? This is how it should be for everyone." You are right of course. But this is not how things are for everyone. That too can be hard to see.

Having a male body can work the same way. All else being equal, a person in a male body is likely to be presumed credible and capable. It is as if the male body were a sign that said, "Be assured that I know what I'm talking about and can back up my talk with action." And yet, as with whites and skin color, males seldom see that their bodies bring them unearned advantages, relative to women. The full value of a male body as a resource thus remains invisible to those who possess it.

Bodies can also possess other kinds of resources that are invisible and used. For example, strength, coordination, and muscle control are bodily resources. So is resistance to heat, cold, and disease. We could also include acute hearing, sight, smell, taste, and touch. All of these capacities reside in the body, as a result of natural endowments and training, and we might not know that a person possesses these resources until they are displayed.

Are such bodily resources differences or inequalities? Both. A difference in strength, for example, is by definition an inequality, because it means that one person is stronger than another. What matters, however, is whether strength can be used to produce other kinds of inequalities. If people could legally enslave others who were weaker, then strength would be quite an asset. Likewise, if people were paid according to how much heavy lifting they could do, strength could be turned into inequality in wealth. So we must be mindful that what counts as a resource depends on the situation.

*SOURCE: THE SOCIOLOGICALLY EXAMINED LIFE, 2ND EDITION, 2001, MICHAEL SCHWALBE, PGS. 177-179*

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ANALYSIS OF "THE SOCIOLOGICALLY EXAMINED LIFE" (part 38)

Differences and Inequalities

by

Charles Lamson

One time during a discussion of inequality, the teacher said that people with more money and education tend to have different values and tastes than people with less money and education. This was a minor point that the teacher did not expect to cause any trouble. But a young woman came to him after class with a worried look. "Don't you think it good to celebrate diversity?" she asked, surprising him with the question. "Well I suppose, maybe. diversity in what?" the teacher said. "Like in tastes and values," she said. "You know, like you said go along with social class." It seemed that she had taken her teacher's point point to be that the values and tastes of the rich were better than those of the poor. The teacher said that that was not at all what he meant.

As they talked, the teacher realized why this student had misunderstood him. She wanted to see social class differences as similar to ethnic differences. If people talked and dressed and ate and carried on differently because they had different levels of income and education, this was, she believed, an interesting and desirable condition. The teacher said that things were more complicated, and that we had better come back to this at the start of the next class.

During the next class we talked about the kinds of differences that exist between people. We talked about how some differences make society more interesting - for example, different styles in clothing, food, music, literature, dance, and art, and language. We talked about how other differences, such as in religious beliefs, political values, or sexual preferences, can be threatening and disruptive, especially if people are intolerant and lack compassion. Then we came back to social class, and again some students wanted to see it as just another interesting kind of difference.

The teacher said that social class was not simply a matter of differences, but of harmful inequality. Why, the teacher asked, would we want to celebrate the fact that some people work at hard, dirty, dangerous jobs for low pay, while others have vastly more wealth than they need or ever could use? Was this something to celebrate or was it a flaw in how our society worked? 

After they talked about this for awhile one student asked, "Are you saying that nothing good comes from social class differences? Isn't it good that we have a system in which some people can be free to think and to create?" These were hard questions that moved the conversation ahead by forcing them to consider things in a larger context.

Yes, the teacher said, money could buy a fine education, and give a person time to do creative work. And, yes,  it was a good idea that at least some people enjoyed these possibilities, but did these possibilities require inequality? Surely we could educate everyone and allow time for creative work, the teacher said, without vast inequalities in income and wealth. The teacher also said it was important to consider the human capacities that were wasted, when so many people never got to develop their talents. Perhaps with more equality, the teacher said, we could have a richer society for everyone, because more people would have time to think, create, and care for each other.

One student pointed out that poverty and oppression had given rise to a lot of creative adaptions - ways to survive and to enjoy life - on the part of African, poor, and working class people. He cited jazz, blues, gospel, and country music as examples. Another student replied that these were inadvertent results that came at a high cost. The teacher agreed: Just because some people can produce great art under horrible conditions does not mean we ought to tolerate such conditions. The teacher said that even under the best conditions, human life would not lack for the tension and conflict that spark creative work.

The teacher hoped that this discussion would help his students see differences and inequalities in a sociologically mindful way. The point was that some kinds of differences are good, because they give us all a chance to enjoy more kinds of food, clothing, music, and so on, but that other kinds of differences - in wealth and income, for example - are destructive. If some people cannot afford to eat nutritious meals, clothe themselves against the cold, get a good education, or take time for creative work, then not only do they suffer, but the whole society suffers, because the talent and energies of some of its members are lost.

Then, how can we be sociologically mindful of the difference between differences and inequalities? We must ask in what ways does this difference matter? Does the difference allow one group to benefit at the expense of another? Does it give one group power over another? Does it mean that members of one group get less respect than another? In short, we must ask, Does this difference cause harm? If a difference leads to exploitation, unfair advantage, domination, or some other kind of harm, then it is more than a difference. It is a form of inequality and not worth celebrating.

END

ANALYSIS OF "THE SOCIOLOGICALLY EXAMINED LIFE" (part 37)

Information as a Resource for Power and Resistance

by

Charles Lamson

Acquiring and holding on to power depend in large part on the control of information. Or perhaps it is more accurate to say that power depends on shaping the content of information, and controlling its flow to certain audiences. In this way, consciousness can be managed, so that people are usually compliant, rather than unruly.

A general principal here is that information is a resource that can be used to make things happen, which is to say that information can be a source of power. If you knew, for instance, that BioDynaTek stock was going to triple in value this year, you could use that information to get rich. You could buy stock now and sell it later for a big gain.

Or suppose you know of a job opening and knew exactly what a person should say in an interview to impress the boss and win the job. That would be valuable information to someone seeking a job. If you knew such a person, you could trade your information for a favor, or create an obligation to be repaid later. You could make some things happen and others not.

Even in intimate relationships people might seek power by controlling information. For example, if one person refuses to say how s/he feels, this keeps the other person guessing. It is as if one person is saying, "I will not tell you how I feel because then you will know what my vulnerabilities are, and perhaps you will some day use that information against me." Or is it possible that one person wants to appear emotionally tough and thus willing to walk out at any time. This too is a way to maintain power, because it can make the other person feel weak and dependent and perhaps a bit foolish for caring so much.

Being mindful of how information is linked to power, we can see that a great deal depends on context and the nature of our relationships to others. Nothing is a resource in a vacuum - not information or money or guns or anything. Power is the capacity to make things happen, but exactly what can be made to happen always depends on the context in which the resources we possess are or are not usable.

We can use simple questions to remain mindful of how the information we receive is filtered and shaped. For instance, we can ask, What assumptions are shared by everyone whose ideas are presented on this program (or in this publication)? What would be a truly alternative, not just slightly different point of view? Being sociologically mindful, we must seek answers, too, rather than letting others feed us whatever information they like.

A way to see how information is filtered and shaped - and to see what we are missing when we rely on one source - is to consult a variety of sources and to see how they compare. It also helps to remember that all stories have more than two sides. Being sociologically mindful, we will try to grasp as many sides as we can. When people are able to do this, and when they are willing to think critically, exploiters and fakers of all kinds lose their power.

*SOURCE: THE SOCIOLOGICALLY EXAMINED LIFE, 2ND EDITION, 2001, MICHAEL SCHWALBE, PGS. 164-165*

END