Understanding economics
One of my motivations for enrolling in a course of study in international relations is the opportunity it gives me to fill in the (huge) gaps in my understanding of economics. Studying organizations like the WTO and phenomena like international finance is a good way to get started toward an understanding of how the world goes ’round. But there are some unanswered foundational questions that are impeding my understanding in these subject areas, so I plan to use this site as a forum to iron out a few matters over the next few weeks. I’m starting with Economics Explained, a kind of Dummy’s Guide to economics (though I’m sure a book of that title exists as well), and will be supplementing that with newspaper and Web reading, including The Economist’s recent survey on the global economy. I hope to be able to provide rudimentary answers to a few of the following questions:
- Why does it cost me less than $2 USD to get a haircut here in Buenos Aires while it costs at least $11 in Holland, Michigan?
- In general terms, what was the cause of the economic collapse of Argentina in 2001 and 2002?
- In particular, what role did Argentina’s debt play in that collapse?
- Currently the U.S.’s current accounts deficit (the difference between what it earns abroad and what it spends abroad in a year) is unprecedentedly huge. What does that mean? Is it really that bad?
- Currency markets generally, and government intervention in exchange rates: Why is the Euro so much stronger than the dollar? Why is the Argentine peso so weak?
- When investors choose to invest in "emerging markets", particularly in unstable ones like Argentina, what is their motivation? Are they merely speculating in the financial sector?
I’m also interested in a more thorough understanding of this blog post by journalist James Kunstler, and the differences between the "real" versus the financial aspects of the economy. Kunstler predicts the economy will crash this fall. An except follows:
Many are amazed at the levitation of a financial system with no remaining reality-based understructure of value creation. Zero-percent financing. Loans to anybody with a pulse. Instant conversion of hallucinated house value appreciation into speedboats and Hummers, college kids declaring bankruptcy on graduation at unprecedented rates, the explosion of "creative" financial instruments conjured out of the promises of millions to pay back money that they will never earn, and swapped in a spiral of casino-like wagers into metaphysical ethers of delusion — things like that. I sort of left out the pretend money that Mr. Bush’s government itself affects to disburse, and the bond racket linked to that affectation. …
Meanwhile, at home, we will come to grips with the sheer fact that a society unable to produce things of real value must contend with a tanking of those financial markers pegged to the expectation that a society can produced things of value. When that recognition hits, there will be far fewer zero percent loans and no money down ghost condo sales. The unwinding will begin. America will be reunited with it’s long-lost biological parent: reality.