economics, Meta Intelligence, Page 6

Movies as a “Parachute” or Backdoor Into the Field of Economics

Here’s a second example of using movies to “sneak up on” a field such as economics.

Think of the movie, The Treasure of the Sierra Madre, from 1948, a Humphrey Bogart classic:

In 1925, in the Mexican oil-town of Tampico, Fred C. Dobbs (Humphrey Bogart) and Bob Curtin (Tim Holt), two unemployed American drifters, survive by bumming for spare change. They are recruited by an American labor contractor, Pat McCormick (Barton MacLane), as roughnecks to construct oil rigs for $8 a day. When the project is completed, McCormick skips out without paying the men.

Returning to Tampico, the two vagrants encounter the grizzled prospector Howard (Walter Huston) in a flophouse. The loquacious and penniless ex-miner holds forth on the virtues of gold prospecting and the perils of striking it rich. The two younger men feel the lure of gold and contemplate its risks. Dobbs and Curtin run into McCormick at a cantina, and after a desperate bar fight, they collect their back wages in cash. When Dobbs wins a small jackpot in the lottery, he pools his funds with Curtin and Howard to finance a gold prospecting journey to the Mexican interior.

The flophouse mentioned above (“Oso negro”) has a quick scene which is a marvelous “parachute” into economics: a group of men begin to reflect on why gold is so expensive while the basics of life like water or air are not. Howard (their “cracker barrel philosopher-sage,” played by Walter Huston) explains that a thousand men set out to find gold. 999 of the men fail to find any, one finds some. The price of gold has to reflect the costs of finding it (i.e., men, equipment, time, effort, opportunity costs, risks, danger, etc.) by all thousand and include the 999 failures and not just the one success. This is an example, albeit primitive, of something like the labor-theory of value explored by Ricardo and then Marx:

Labor theory of value

The labor theory of value (LTV) is a heterodox theory of value that argues that the economic value of a good or service is determined by the total amount of “socially necessary labor” required to produce it. … Marx did not refer to his own theory of value as a “labor theory of value.”

Again, using this movie as a charming or enchanting “jumping off place,” you would begin to “dive into” those pages of the textbook that are relevant, much as you’d use a dictionary to look up some words. You then read towards the front and the back of the textbook, coming at it your own way, mindful of these questions of yours which begin to give the field a “shape.” You could do the “standard slog” through the textbook, none of which you remember three days after the course because nothing was based on your own “enchanted” searching and exploring.

Lastly, the author of the original 1927 novel, on which the movie is based, B. Traven was a German anarchist and he may have analyzed the world and its prices and costs (i.e., economics) like Howard in the movie. This too is itself another “pathway” into economics, a biographical one.

How to Jump From a Field to a Larger Understanding: The Example of Globalization

In a university, one is trained to “inspect” fields. That produces what might be called a “monographic” intelligence.

Our purpose is to show and promote something ancillary to this, what might be called a “circum-spective” intelligence (i.e., using the specialized knowledge as one “brick” in a larger structure of understanding).

Let’s do an example:

Think of all the descriptions and analyses of something called globalization. An objective evaluation of the literature on this show two analyses that stand out and tower above the rest:

Prof. Jeffrey Williamson and Kevin O’Rourke, Globalization and History, MIT, 1999 (this is a “quantitative history” or “cliometric” study and a classic).
Elhanan Helpman, Understanding Global Trade, Harvard, 2011 (a masterpiece of trade-based analysis)

Both of these authors are Harvard professors in economics and deserve the high regard that such books have won them. In these two books, there are several technical disagreements of which the deepest is that Williamson focuses on the emergence of one world market price (say for wheat) and argues that this “price convergence” is the best measure of globalization. Thus at a certain point wheat of a certain kind (hard, durum, etc.) was price at the same world rate whether the wheat came from Kansas, Canada, Argentina or Ukraine. The world is then a global price-making market mechanism. This price convergence then extends to their kinds of prices as globalization processes deepen. Williamson explicitly considers other approaches to globalization such as trade share of GDP as confusing.

Helpman, on the other hand, uses export plus imports/over GDP as his measure, clearly disagreeing with the Williamson approach of prices and not trade shares.

Interestingly, both scholars conclude that something we call globalization begins to “show up in the data” in the 1820s. Thus, Marco Polo-type stories are colorful and “multinational” but have little to do with actual (i.e., data based) globalization as we see it, looking backwards from 2020.

Both of these books are classic works and show the intricacies and utility of the “cliometric” approach (i.e., explaining the past quantitatively, using data from economics).

However, there’s a deep perspectival omission in both works:

As the novels of Balzac (1799-1850) show there begins to “co-evolve” with this globalization story a parallel story of global colonization and empire-building by the European powers. Algeria is seized in 1830 and culminates in the brutal Algerian War of 1954-1962. Without de Gaulle‘s supreme prestige as the savior of France, the French would have gone to a destructive civil war and the defeat in French Indochina at Dien Ben Phu. 1954 almost lead to endless strife based on events on the other side of the world. Balzac’s novels are often set in the 1820s and mention a deepening involvement of France with North African empire-building.

This culminates in Maupassant’s novel Bel-Ami from 1885, which centers on the inexorable rise of an unethical “manipulation machine,” who returns from North Africa as a penniless soldier and after many twists and turns makes several killings in North Africa in various shady schemes which he gets wind off via his journalism contacts. In other words, the rise of Western industrial technology (from railroads to cars to planes) conquers the world one way while the European colonial armies conquer the world another way.

The peoples like the Vietnamese and Algerians “see” the world in colonial terms with colonialism backstopped by industrial technology. Their quest for dignity begins with this analysis and not with the analysis which says industry and science are primary and colonialism a footnote.

It is this fundamental clash of historical interpretations on a worldwide scale which bedevils the changing relationship between the West and the non-West and is more profound than the econometric differences between a Prof. Williamson and a Professor Helpman.

By seeing how these layers and stories are “entwined” gives you a deeper and wide-angle vision which one field—economics or cliometrics—can’t offer because it is one brick or building block in a larger story. Fields have to be “opened up” in this way, which is the mission of this book.

How to Sneak Up on a Field With Types of Meta-Intelligence

If you look at a typical economics book and are coming at it with no particular background (e.g., your dad was an economist at the World Bank, say, so you’ve “swum” in this water via your background and dinner table conversations), you will find it “remote” and “foreign.”

What to do? You need to “sneak up” on a field and find a door into it or a window to climb through that brings you inside.

This foreignness and remoteness is true for any field you can think of since unfamiliar fields are disorienting at first. You need a pre-understanding.

Let’s do two simple examples of how one gets a pre-understanding:

During the foreclosure crisis following the Great Recession of 2008 and thereafter, you might have asked yourself about the size in dollars of US residential housing stock to see what it might mean if values declined. You found perhaps that it was surprising difficult to come up with some “ballpark” sense of US housing as you looked through Google and other entries.

Here’s a sample of a kind of made-up workaround that points you in the right direction:

Suppose we say the population of the USA is 320 million at the time, in round figures that are convenient and approximate only. Assume, for no reason, that all Americans are members of households of four (i.e., families with two parents and two children). This is of course utterly false but serves our “guesstimating” purpose we hope.

If we divide the total population by 4, we get 80 million families. Assume all families live in single-family homes ignoring apartment buildings, multi-family homes and a zillion other forms. Make up a number like 300 thousand dollars per home at the time, based on radio news, and you will get a national housing stock value of 80 million by 300 thousand which is 24 trillion dollars.

In fact, the official value of U.S. residential housing was usually given at 24-25 trillion so our “sneaking up” guesstimating was not bad at all.

Now ask how one might have perhaps done it better, more cleverly. You have to “back into” a field by something you yourself look into and figure out before you enter the “ocean” of the textbook presentation.

It requires a kind of “sneaking up” on a field with back-of-the-envelope “meta-intelligence” in order for you to attune yourself to the field, or if you want to “parachute” in like a “knowledge spy” and get what you need. This is true for all fields. Some “homemade” familiarity you make up yourself is needed.

How to “Sneak Up” on Academic Fields With Meta-Intelligence

An accepted workhorse of economics is the Cobb-Douglas production function based on two people with the names of Cobb and Douglas.

Your economy produces, say, shirts and to do that you need machines (capital), workers (labor), energy, materials.

Think of 100 women seamstresses at one hundred tables with sewing machines plugged into 100 electrical outlets (energy) and lots of fabric (raw materials for shirt-making).

Capital (e.g., machines, equipment, structures) is denoted by the letter K (from German word Kapital), workers or labor force by L (for labor) and the whole is called KLEM. (capital, labor, energy, materials). The letter A stands for “technology level.”

We simplify and worry only about K and L just to make the math much easier. Remember capital here means machines and not money.

In Cobb-Douglas “world,” the product of your economy, shirts is called Y (we don’t have the shirt prices to keep things easier).

Then Y=A multiplied by K (to the alpha) multiplied by L (to the beta). Alpha and beta are measures of responsiveness, “elasticity,” sensitivity.

Cobb-Douglas is multiplicative (i.e., A by K by L, so the algebra goes easier). A is called “technical change” or technology.

Suppose you don’t know or don’t remember log differentiation (calculus) to easily “play with” this little equation. That’s ok.

Think of the simple identity z=xy. This could be 10=5 x 2 or 12=4 x 3. You can show that if the left side goes up by 10%, the right must grow by 10 percent so that the 5, say, becomes 5.5. 5.5 x 2 is 11 so both sides are the same again, 11=11. It’s easy to show that the percentage growth on the left side of the equation is roughly the sum of the percentage growth of each of the numbers on the right.

You can easily show that the percentage growth of Y (say 6% per year) is approximately equal to the percentage change of A plus percentage growth of K+ plus that of L with K and L modified by alpha and beta.

This is a simplified version of so-called “Growth accounting” (i.e., components of growth in Y from year to year).

You will find that once you sense how this kind of “accounting” looks and works you can proceed to other kinds of accounting in economics such as Balance of Payments accounting or National Income accounting.

These exercises are key to economics as a field with its textbooks and again you have to sneak into it, so to speak, by climbing through a door or window you made up yourself to give you some bearings.

We call all this a pre-understanding before more usual understanding through textbooks.

Pre-understanding is a deep key or prerequisite to educational mastery.

On a National Public Radio call-in talk show few years ago, there was a discussion by four economists (professors plus private sector analysts). A listener calls in and asks one of them about the growth prospect for the following year. The professor responds: about 2.88 percent. Everybody goes quiet and wonder how he figures this out.

The answer will help you “sneak in” to or “parachute” into this world.

The professor, in his mind, calls the economy Y. He realizes that Y is the same as Y/L multiplied by L, where L is labor force. In Y/L by L the l’s cancel each other out so it’s just a harmless re-write of the basic variable Y.

Y/L is average productivity (e.g., number of shirts [the economy has one product, shirts]) divided by number of workers (laborers, seamstresses making the shirts).

If Y is one hundred and L=10, then the average laborer produced 100/10=10 shirts. ie that’s the average productivity.

The professor knows that approximately the percentage growth of Y (which is what the radio show caller’s question was about) is the sum of the percentage growth of Y/L and L.

He’s familiar with the latest productivity and labor force projections from the electronic newsletters he receives and the websites he checks out (e.g., BEA and the BLS, et al).

He adds them up to get 2.88 percent, the number he mentions to the questioner and the rest of the radio audience.

Once you’re familiar with these simple elements of analysis and sources of info, you can begin to lose your fearfulness and do the same as the professor, who is not solving complex differential equations in his head to answer the question for the listeners.

As a “field outsider,” you’re unfamiliar with the “landscape” and “rules of thumb” and your mind races or wanders when confronted by such a question because you don’t have these simple techniques.

You can thus “parachute” into any field and leave with what you need.