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Friday, June 30, 2017

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



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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.
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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.

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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.

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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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Thursday, June 29, 2017

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.
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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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Tuesday, June 27, 2017

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



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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.
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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.


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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.

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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



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Monday, June 26, 2017

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
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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.

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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.

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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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