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Middle School MBA Blog

A Millionaire for Fifty-three Cents

Venezuela is issuing paper notes denominated at One Million bolivars. The notes are worth just over fifty cents each. Today. In a week or a month they will be worth less than fifty cents. Just one more predictable step down the path of socialism and profligate government spending.

Inflation robs money from people’s pockets without the risk of inserting one’s hand. The government prints money and spends it, reducing the value of money already in people’s pockets. People see prices skyrocketing and know they are poorer (can buy less), but most don’t understand why. https://www.middleschoolmba.com/lipstick-on-a-pig/

The government, of course, points the finger elsewhere – businesses, capitalism, colonialism, greed, the market… I’m sure they’ll soon expand the list to include bedbugs, the phases of the moon, fur balls, and solar wind.

https://www.msn.com/en-us/money/markets/hyperinflation-pushes-venezuela-to-print-1000000-bolivar-bills/ar-BB1ei8Dj

WSJ Clueless?

You would think that the Wall Street Journal would understand the laws of Supply and Demand.  But this article demonstrates how little truck people who should know better give to these Laws.

Sure, they’ve heard of them.  But they don’t really take them to heart.  They don’t grasp that these are natural laws, as unbreakable as gravity.  WSJ would never report an elderly person who fell, breaking their hip, and call gravity mean-spirited.  No, WSJ understands that gravity is an impersonal force.

But somehow they seem to think that Supply and Demand are optional concepts.  That supply, demand, and price are not actually locked in an unbreakable relationship, but subject to people’s moods, perhaps.

https://www.wsj.com/articles/coronavirus-capitalism-has-a-darker-side-11586429401

Khan Concurs

Here’s a great article by Salmon Kahn of Kahn Academy.  Blended learning elevates the experience for both teacher and student.  It’s a powerful way to leverage everyone’s talents and energy!

https://www.scientificamerican.com/article/salman-khan-how-blend-virtual-with-physical/

Negotiating with oneself

You should never negotiate with yourself.  That is, once you make an offer to your opponent you should never improve your offer until your opponent has made a counter offer.  Kids very frequently make this mistake when they first begin negotiating.  They are anxious for a response from their opponent and make successive offers trying to elicit that response.  They may say, “How about $40…  $35?… $30?…”

Coach them against this urge.  Make an offer and wait.  If your opponent asks you to make another offer, “that’s not good enough” for instance, you can just say, “I’m not going to negotiate against myself.  You need to tell me what works for you.  Make me an offer.”

If, on the other hand, you are in a negotiation with someone who is negotiating with themselves, then just sit there and let them continue.

Watch for this in your kids and take the opportunity to point it out.  Tell them to learn to be comfortable waiting for a response.  The silence can be awkward, but don’t let that push you into negotiating with yourself!  If need be you can do some role playing with them to get the point across.

Don’t let them leave your classroom without this critical life skill!

THSC (guest post by my sister)

My sister, Susie, and I went to THSC last week and she had to share her thoughts about her first homeschool convention:

I am a life-long educator. I say that with a lot of pride, but also reverence. I know that it is a privilege to have been fortunate enough to do something I love and am passionate about in an incredible environment. I teach in the small, utopian private school my three children attended from preschool through 8thgrade. Our school is a uniquely tightly knit community and I can’t imagine a better place, but how do other people educate their children?

For most of my life I have looked at homeschooling with a skeptical eye. In recent years I have had reason to reevaluate my attitude as homeschooling has evolved and progressed to its current state. Over the last three days I attended the Texas Home School Convention (THSC). It was my first time at a homeschool convention and my mind and heart are forever changed by what I saw there.

As I drove up to the Woodland’s convention center near Houston I was immediately struck by the people making their way to the building. There were families everywhere. Moms and Dads holding hands. Kids holding hands with or carrying younger siblings. All of them chatting, smiling, laughing. It looked a lot like people heading into Disney World.

The purpose of the THSC is for homeschoolers to come together to attend seminars on topics of interest and to explore the exhibit hall offering a wide range of curriculum. There were some homeschool-specific seminars like “Homeschooling and the Law”, but there so many options that any educator would be fascinated by that I wanted to attend them all. They ranged in topic from “Critical Thinking: Elusive or Obtainable” and “How to Score Big on the SAT” to “Science Poetry: Perform to Learn” and “Experience Excellence in Writing”. Then there were topics you wouldn’t see at educational conferences, but that should be there: “Is Math Straining your Relationship with Your Child?” (this has to be true for 90% of the population at some point in their lives!). Another was titled “Talk with Me: How Conversation Stimulates Learning” (It seems simple, but how many teachers do you think are doing that?). There were several seminars about parenting, family management, and even marriage. I wanted to attend them all, but I was there to work so I only attended one presentation: Clutter Free by Kathi Lipp. (That in itself was life changing, but that’s my story and not so much about homeschooling except that these people are progressive managers of their homes and lives.)

I was there to help man the Entrepreneurial Arts Middle School MBA booth in the exhibition hall. I was there to sell curriculum. (Doesn’t that sound boring??? I can assure you it was anything but!) These people were here to invest in education, in the future of their children. Not only were the parents there to shop for curriculum, but the kids were there to weigh in on their choices as well! I was amazed to see kids taking parents by the hand and leading them to a booth and saying, “this is what I want to learn about” or “this is how I want to learn math.” I have never seen children so involved in decisions regarding their own education. That in itself was fascinating!

I am the fourth of 5 children so I know what it’s like to travel in a herd. Sometimes you get trampled. These people moved in efficient little units. Sometimes with just one child. Occasionally 4 or 5. They were casual, but cohesive as they explored the exhibit hall. There were some specific activities designed for kids, but kids also sometimes just accompanied their parents to an adult seminar and sat and listened or read a book or played quietly on the floor with a toy or puzzle. (In retrospect, I don’t remember seeing a single kid playing on a cell phone or iPad. I did see kids in conversation with their parents and siblings.) In the three days I was at the convention, I never saw a kid misbehave or have a tantrum. I find that astonishing. I know these folks were sort of on vacation and having fun, but I promise I haven’t seen kids that happy and well behaved at Disney World.

As I mentioned, I did manage to attend one seminar. Since it was about clearing your clutter it was mostly populated by moms with a couple of dads here and there. A few very young children accompanied their moms. I arrived just as the speaker was starting and sat behind a woman who was already focused and ready to take notes.  About 10 minutes later, a young girl appeared. She could not have been more than 8 or 9 years old. She had a baby on her hip and was carrying a diaper bag and changing pad. She expertly handed they baby off to the woman in front of me and quietly said, “Dad’s at such and such, I’m going to so and so. I’ll see you when you’re finished here.” With that the young girl exited as quietly as she arrived and the mom proceed to nurse the freshly changed baby. All smooth as clockwork. I seriously felt tears well up at this beautiful transaction and I am not a crier. I suddenly realized I was surrounded by families who worked together in harmony. Not just parents hauling their kids along in life but kids contributing to the effort to learn and grow and become responsible adults.

Though the families hang together A LOT, the homeschool kids are capable and independent and savvy. I think the general perception is that homeschool kids are sheltered and won’t know how to function in the real world. The truth is that these kids have many more responsibilities than kids who sit in a regular classroom all day. They assist in deciding on curriculum. They help teach siblings. They help care for siblings. They learn to think outside the box. They are independent and intrepid. I can’t say enough good things about the kids at this convention.

No doubt home schooling is a huge undertaking. There were several seminars that focused on managing the enormity of the process with titles like “Maxed Out Moms” or “Overwhelmed.” My favorite title for this type of presentation was “Life in the Fiery Furnace: How to Avoid Homeschool Burnout.” I talked to many parents who attested to the fact that yes, it is a big job and it can be stressful, but beyond that and above all the enthusiastic energy that infused this event there was an overriding feeling of what I can only describe as Peace.

I came away from my first homeschool conference with the feeling that these homeschool people (the big and the small) know who they are and where they are going and are moving steadfastly in their own directions. It makes me hopeful for the future with these people in it. I can’t wait for the next homeschool convention!

Style Notes lll – Pitching

On pitching, we saw similar progression as in negotiating.

Initially, it was all about the product; kids were acting as consumers, a role they know well.  With some encouragement they began thinking about profits and market size and how viable the Business might be (as investors they are buying the business, not the product).

Most of them seem to have internalized the concept of Profit = Sales – Costs (from the Billy Bob and Factory Fun lessons), but they sometimes struggle to see the Business as a stream of profits or losses across time (as do most adults).  Of course, as investors, it’s all about whether that stream of future profits render an adequate Payback on our investment.  That’s the lesson we want to drive home; that’s what separates a consumer from an investor.

Style Notes ll – Negotiating Stages

More on my time at Southfield… on negotiating, I noticed that kids seem to go through distinct stages.
First, they’re trying to understand the concept of their next best option and what sort of target price makes sense.  At this stage they sometimes seem confused and make nonsensical offers when faced with a live opponent.  To help here, we created super-simple scenarios with no extraneous “informational noise”.
In the second stage, they get the next best option concept and are trying to process (in real time) their opponent’s offers in light of their next best option and goal.  Here we see them exchanging offers back and forth speaking nothing but numbers.
Lastly, when they are comfortable with the first two stages, they start to add more color and context instead of simply throwing numbers across the table (“this is a really good bike” or “well, thanks for that offer, but…”).  We also see them starting to be cognizant of their time constraints (and possibly their opponent’s time constraints) in this third stage.
My guess is that each kid needs to experience two to three negotiations to advance from one stage to another (by “experience”, I mean either judging or negotiating).  So once the kids get the hang of the process, it might make sense to break the class into two smaller groups (6 – 8 each) and run two negations at once (each with its own timekeeper and judges).  The smaller, more intimate groups might allow more learning to happen faster (maybe the judges and timekeeper all stand and cluster tightly around the two negotiators so they are all really in the thick of the action).

Style Notes l

Southfield School invited me to do some teaching with the 5th graders.  It was a great experience!  I was reflecting on our classes and wanted to share some thoughts.
Having a student “driving” the software and taking partial responsibility for managing the class was terrific.  I was happy to see that they needed almost zero instruction on how to use the software.
Along the same lines, putting the timekeeper in charge of the negotiations was a big help.   Both helped me spend more time looking at the class rather than a screen, and the kids felt more involved as well.
Many thanks to Southfield for a great time in the classroom!

Poverty Quiz!

Over the last 20 years, what has happened to the world poverty rate?

A: Increased by 22.4%

B: Stayed the same

C: Decreased by 50%

The answer is C, and that means that millions upon millions have left poverty around the world;  mostly in 3rd world countries.  Why?  Because countries have opened their doors (even if not fully) to markets.  No other mechanism has ever, ever come close to this accomplishment. Yay!!

http://www.worldbank.org/en/topic/poverty/overview

Lipstick on a Pig

Venezeula’s boss, after creating crushing hyperinflation, now proposes to fix it by cutting a few zeros off the bills.  It’s hard to believe that anyone could take his proposal seriously, but such is the level of economic understanding by most people.

Inflation is a clever way to steal money out of people’s pockets without even being in the same room.  Say you increase the amount of money by 1% and you get to spend that money.  It’s a great deal for you.  You buy goods for the cost of printing up some paper bills.  But for everyone else, their money is worth 1% less because prices increase due to the increase in money.  That’s why counterfeiting is illegal; it’s theft.

Governments use inflation all the time to allow them to spend more than they tax (people notice taxes and resist them, but few notice mild inflation).  But hyperinflation, a quarter million bolivars to buy a dozen eggs, quickly impoverishes people and gets a lot of attention.  In response, governments blame everything except the real cause (the government).  During the 1970’s in the US, the government issued WIN buttons (Whip Inflation Now) for people to wear, as if the cause of US inflation was something other than leaving the last remnants of the gold standard in order to spend freely.  But they could do that with a straight face because so few people understand the actual cause of inflation – a huge failure of economics education.

Adopting the US dollar would be a big improvement for the people of Venezuela.  They would exchange hyperinflation for single digit inflation and their government would have some fiscal discipline forced upon it.  But the change is unlikely to happen because without the advantages of theft via inflation the current government probably couldn’t stay in power; and they know that.  So Venezuela’s boss will continue to invent excuses for inflation and leave people in misery instead of putting his power in jeopardy.

 

 

Amy Wins $1,000 to Teach Middle School MBA!

Our latest Once Class at a Time winner comes to us from St. John Berchman’s School in Shreveport. Amy Vitacca was surprised when KTBS and Barksdale Federal Credit Union arrived with a $1,000 check this week!

She plans to use her winnings to teach her students about making money.

My 8th graders will be taking an entrepreneurial arts class. It’s a lesson in business and economics.

Congratulations again to Amy Vitacca.

Future Shade

A society grows great when old men plant trees whose shade they shall never sit in.  This Greek proverb is often explained as meaning that a selfless society thrives.  That’s a miss.  It’s not selflessness that leads one to build something which will provide benefits past one’s own lifetime; it’s a long time horizon.

Humans are the only animal capable of understanding their life and thinking past their own existence.  Those who build businesses or plant trees that will outlast them are usually not motivated by selflessness as much as a desire to create something lasting; maybe for their own offspring or maybe just for themselves.

A culture that promotes long time horizons creates a great society.  An example is Liechtenstein, perhaps the richest country in the world on a per capita basis.  Their culture is one of very long time horizons.

Adam Smith said the requirements for “opulence” were Peace, Easy Taxes, and Tolerable Justice.  To that we need to add long time horizons.

Drs. to Prostitutes

I prefer not to post something this mature but I have to use whatever means I can to combat these unfathomable injustices.  Venezuela has followed the classic pattern, a well-worn road strewn with human wreckage.

Stalin said that a single death is a tragedy while a million deaths is only a statistic.  VE has millions suffering every day; lack of food, lack of medicine, lack of everything, state repression…

One sad barometer of a dead economy is the women who, against every fiber inside them, take up prostitution to feed their families. Just to arrive at that situation they have gone through unimaginable suffering.  But their suffering has only begun.

We’ve watched this story unfold inexorably for a decade – step by step down the worn path.  Price controls, shortages, nationalized industries, inflation, currency controls, political repression.  There are statistics that capture all of these.  But no statistic can measure the suffering and heartache that drives a teacher or doctor to be a prostitute.

Just as women with no better options than prostitution flooded out of eastern Europe into the west after the FSU fell, they are now flooding out of VE into Columbia.  So predicable, so sad, so preventable…

In Venezuela, they were teachers and doctors. To buy food, they became prostitutes.

Soviet Asthetics

Traveling this week in Estonia, one of the former soviet states.  All the soviet relics (buildings, statuary, monuments) stand out as large, drab, uninspiring, and usually of concrete.  In a word, ugly.

And why not?  The soviet system was not a human institution like the market, which evolved organically to meet the needs of humans interacting voluntarily.  Instead it was a planned, top-down, socially-engineered system which sought to remake humans in some theoretical “new man” image.

It was a system which disliked this species, homo sapiens, and wanted to fundamentally alter it, all the while claiming to love and nurture humans.  Thus, the entire system was based on lies and compulsion.  Wouldn’t it make sense that such a system would produce artifacts which would strike humans as ugly?

There’s an eerie consistency among the gulags, military displays, drab buildings, imposing statues, and KGB memorabilia.  It’s all of a piece and it’s all ugly.

Defending GenX

A lot’s been written about the problems with “Generation X”.  This is another case of over-aggregation leading to a false conclusion.

Sure, there are way too many whiny, self-absorbed, clueless snowflakes.  But while these snowflakes get all the attention there’s a swath of kids in Gens X, Y, and Z that are lightyears ahead of where anybody else has ever been at that age.  These kids are smart, talented, tough, and visionary far beyond their years.  Maybe we should call them stardusted or stardusters.  They are making the most of the tools and knowledge available today, and they are going to rock our world.

Meanwhile, the snowflakes among them will melt away and run off like so many gallons of rain water hitting the storm drain, never to be heard from or thought about again.

So stop letting snowflakes tarnish your view of Gens X, Y, or Zed.  Maybe the distribution is wider today – a greater proportion of attention seeking crybabies on the bottom end – but those on the top end are way out on the top end.  Just a handful of stardusters will overshadow thousands of sniffling snowflakes.

So here’s to these awesome kids coming down the pike!

Adaptive v. Routine Experts

Here is a great article from Vanderbilt on what expertise is and how to develop it.

“There is a difference between adaptive experts, whose metacognitive skills allow the transfer of knowledge from one setting to another, and routine experts, whose expertise allows them to function well in standard settings but doesn’t serve them well when conditions are different.” [emphasis added]

Our goal at EA is to create adaptive experts – kids who can deconstruct, analyze, and adapt what they know.  We call that true understanding, as opposed to an ability to regurgitate facts.

The article then goes on to discuss the challenges of getting from novice to expert.  These points are excellent:

  • The development and retention of new knowledge depends in large part on the relationship between what one is learning and what one already knows. Because novices in a field typically don’t know much of the content in that field, they have little to which they can relate the things they’re attempting to learn. So they retain less.
  • Since novices typically don’t grasp the fundamental principles in a field, they don’t see the patterns grounded in those principles. They tend therefore to adopt anidiosyncratic organizational scheme for what they are learning. This organizational scheme might function well enough in a particular context (e.g., in the particular unit they’re covering in a part of a class) but it doesn’t serve them well in other areas of the field. It doesn’t transfer well.
  • The expert’s fluency can conceal the very principles and strategies that the novice must learn in order to become more expert. These principles and strategies are often invisible even to the expert precisely because they are second nature. And they’re invisible to the novice observing the expert because they’re implicit in the expert’s work.

At EA we focus on building ladders with low, closely spaced rungs.  These ladders lead the student to a clear understanding of fundamental principals which can be applied not only to different situations within the entrepreneurial arts, but to other fields as well.  We start where they are (their experiences and abilities) and take them bit by bit toward expertise.

Time happened!

Historically there’s been a lot of suspicion regarding Interest. In ancient times people understood that if you let someone use your land to grow crops, then it was proper that you be payed rent. After all, the farmer couldn’t grow the crops without your land. And clearly something new was created by the cooperation between you and the farmer: food.

But if I give the farmer money today and he gives me the same money back next year, why should he pay rent on the MONEY? It’s the same money – nothing new has been created. Why should there be interest?

I related this to a class of 6th-graders last week and asked what was going on. Clearly something happened in renting the field, but something also happened in the case of lending money. It’s just not as obvious. What happened?

A boy over in the corner raised his hand and said, “Time happened.”

BINGO! Unseen and unheard, time happened. The function of interest is to indicate the time value of money: how much more is a dollar worth today than next year.

I’m proud of all the kids but I was especially proud of that one that day…

Wants v. Needs

“That’s only a want, not a need”, a student dismissively said this week of an item he didn’t consider important. But the wants/needs approach is problematic. Unless you define a need as something which you can’t survive without (air), the definition becomes subjective. And if you do define a need objectively (according to absolute survival), then everyone alive today is obviously having all of their “needs” met. Not very helpful.

Let’s take a look at the margins. Would you agree that water is a need? Me too. But what about CLEAN water? Really, you can survive drinking murky-looking stuff. So is clean water a want or a need?? Is a house a need? Let’s say it is, but does that mean an air-conditioned house with a fridge is a need? Clearly not. In the West we are so far past the “needs” level that it doesn’t make sense to talk about it; we’re totally in the wants arena.

The subjective theory of value tells us that stuff is valued according to the subjective desires of consumers. These are not objective NEEDS, but rather subjective WANTS. And these wants are ranked in importance by each individual, inside each’s head. That is, no one except that individual can rank their wants. And, of course, each person will rank their “needs” very highly.

The bottom line is that we only need to talk about wants. We can be sure that needs are highly ranked among those wants, but we cannot say which things are needs, nor which things are the most urgent needs of a given individual. Thus, the wants/needs approach is just a distraction when it comes to thinking about market activity. Worse, it gives us the false impression that we’re able to objectively rank some goods above others and tempts us to impose our ranking on others.

You may object that it’s cold and cruel to ignore “needs” and only focus on serving “wants”. But the truth is that the needs of millions, even billions, of people have been best served by markets which are left alone to satisfy “wants” (among which are all the “needs”).

Guest Post!

Editor’s note: my friend Anne is a software engineer who immigrated from Viet Nam years ago. Her story about croissants has broad applicants in business, teaching, and life. I’ve cut down her original piece to fit our space guidelines, so apologies for any errors I’ve introduced or flavor I’ve deleted…

A few years ago, I am thinking of learning how to make French butter
croissants from scratch. I found a recipe on the web, followed steps by steps, to my surprise, the croissants turn out very good. Tried again second time – even better. Hmm! Making real croissants is not that hard!

About a year ago, I made croissant again, To my surprise, I failed: the croissants were stale, heavy and tasteless. I tried again, and again and kept failing. Somebody told me that I needed to use European butter withhigher melting temperature. So I did, still failed. And then another told me I needed to use flour imported from French, need to use good yeast, keep room temperature at 68 F, need a chamber to proof the croissant, etcetera, et cetera. Does not matter how hard I try, how much money I spend, seem I cannot make them anymore. I am about to give up. And then I think:croissant is a common pastry in French, so it must be cheap, and not that hard to make. Let’s try one last time, this time, use whatever available in the pantry: cheap butter for cooking from Kroger, cheap flour from Walmart, remaining of yeast,…If fails, give up for good and “move on with my life”. Guess what: they are delicious! Switch to another type of butter, still good. From then on, no matter what ingredient I use, I cannot fail :). I just realize:
1. If you success at first, does not mean you have talent or know things, some times it is just luck, or you just happened to be at the right place at the right time
2. Listen for advise from others but don’t follow these advise blindly. Most of the time, these advises are wrong (for you).
3. Expensive is not necessary equivalent with good.
4. Don’t make things complicated. The best usually comes from the most pure, simple form. Most of the time, they make things more complicated than it is so they can charge you tons of money.
5. Don’t give up, if you keep trying, you will succeed some day. Well, consider if you still alive and afford to try again.

On further questioning by your intrepid editor Anne revealed the following…

Why the croissant failed? For many reason: success too fast and too easy made me become cocky => I forgot to pay attention to detail. After a few failures, I chasing some advises, they might be good advises but they are not the reason that my croissants failed => listen to wrong advices. Third: thinking that using expensive material such as import flour from French, Organic European butter would be the keys, but they are not. Now I can use any ingredients and still make good croissants.

So, for me, the keys are: pay attention to details, understand what you are doing and why you are doing those steps, and most of all, doit with love.

So there you have it. Don’t let success go to your head, seek wise counsel, know what you’re doing, and do it with love. Many thanks to Anne for sharing and, hey, where’s my croissant?!

War is good for… what?

“War is good for the economy.” Perhaps the ugliest fallacy on the planet. How do we know it’s wrong? Bastiat exploded the Broken Window fallacy long ago: investopedia.com/ask/answers/08/broken-window-fallacy.asp. In more general terms, the economy’s purpose is to improve people’s standard of living. Siphoning off resources to build rockets which are then used to destroy someone else’s resources makes the world poorer (specific players, like military contractors, can benefit but the net overall effect is that we have less stuff and a lower standard of living). In addition to the material losses, war usually brings losses of freedom as domestic spying and internal security measures are ramped up. Clearly war is not “good” for the economy.

Yet, the inescapable logical conclusion of the brand of economics called Keynesianism is indeed that war is good for the economy. This alone should be enough to discredit or at least cast doubt on Keynes. But far too few economists value intellectual consistency or bother to critically examine what their textbooks told them. Instead, they follow Keynes in substituting shallow catch phrases for actual thinking. Thus war can be good for the economy even though it has a “negative social product”. Got that? Social product, presumably the very thing the economy is supposed to INCREASE, can DECREASE in a good economy. In fact, that very decrease in social product is what is DRIVING a better economy. Basically, the harder you step on the gas with your car in reverse, the faster you will move forward.

It is one of the great indictments on academia that an absurdity of this size can survive and propagate on its watch.

Friends and mirrors

Show me your friends and I’ll show you your future. This is an important maxim we should share with all kids. Another expression of it is, “you will become the average of the five people you spend the most time with.” This variant may be more accessible for kids. It’s a bit more concrete. Share it with your classes!

Could it lead to unhealthy competition as students all strive to hang out with the “best” kids?
a) There is no unhealthy competition… b) This competition is already happening, but maybe not for the right reasons. If kids explicitly think about who they want to become, they will make the decision of who to hang out with based on deeper consideration rather than a shallow attraction to bling. They may in fact decide to hang out more with their teachers, parents, and mentors rather than the cool kid of the moment.

Upstaged. Yay!

Been in the classroom lately with Ms. E, who’s taking her first laps with EA. And she’s absolutely killing it. She’s quickly mastered the concepts and then proceeded to deliver them the way only a gifted teacher can. She’s so much better than I am at teaching the coursework I developed. It’s been beautiful to watch EA come to life for her kids through her. I’m so grateful for these awesome teachers.

Social Sci – Not

Economics is sometimes called a “social science”, a potentially misleading term and maybe even an oxymoron.  In the “hard sciences” we study things.  Things never change their behavior because their behavior is built into what they are.  In fact, the behavior of water, boiling at 100 C, is one of the factors that help us identify a substance as being water.

In social studies (the term I prefer) we are studying the behaviors and interactions of people, and people, unlike things, can and do change their behavior.  As a result we cannot do side by side tests against a control to see the impact of changing a given variable.  Experiments can’t be repeated across time and geography and researcher to confirm results.  For example, there’s no way we can go back and have Napoleon win at Waterloo and see whether Tomas Paine still escapes execution by the French many years later.

Anyone in the social studies should recognize this limitation and resist the temptation to ape the vocabulary and methods of the hard sciences.  It turns out that social studies can’t predict as many things as the hard sciences, but the fairly limited conclusions we can draw are profoundly important.  For instance, simply having universal understanding and respect for the laws of supply and demand would alleviate untold misery and mischief across the globe.  Perhaps a contribution on par with the steam engine.

Gender Matters I

Do boys and girls think differently?  Are their brains actually different?  Leonard Sax, in Why Gender Matters, says yes to both.  Much of our society will recoil at this idea; we’ve all been brought up to believe the blank slate theory.  But Sax has some compelling things to say about why so many boys are diagnosed as ADHD and put on drugs.  I’m certain that too many kids are on that train and if for no other reason than this, Sax deserves a thorough hearing.  So I’ll have a few posts on his book.

Most germane right now with respect to EA are his thoughts on teaching physics to boys and girls.  On pages 255-257, Sax says that in the 1800’s more women studied physics than men and he attributes that to the teaching methods.  He claims that in the 1800’s the focus was on understanding, while today the emphasis is on skateboards, bullets, and bombs.  He doesn’t explicitly say so but my take is that he’s saying that today’s physics focus on what happens and formulae can provide those answers.  The why isn’t answered with formulae and he says that girls don’t find simply plugging numbers into formulae very satisfying.

Well, I’m a male who never found plugging numbers in a formula satisfying.  I found it to be a necessary evil throughout my engineering education (and almost intolerable in physics). I’m postulating that there is a subset of boys for whom manipulating formulae is interesting and they are very good at it.  They excel in “physics” and the girls and the rest of the boys tend not to.  My experiences teaching males and females is that there’s a near universal attraction to delivering understanding.  So the formulae oriented methodology may be blocking out many boys as well as lots of girls.

At EA we strive for understanding, arrived at intuitively within a clear context.  I confess that up to now I haven’t been alert to gender differences in my classes and have not taken any such thing into account in our curriculum.  My observation to date is the both genders are able to grasp business and economics far younger than is commonly thought by using the approach above.  But henceforth I’ll be on the look out, and should I see gender impacts, will look for ways to make our curriculum better suited for both genders.

Regardless, I’m appreciative to Sax for opening this new window for me.

Cry for Venezuela

About two months ago Venezuela announced that the military would take over food distribution. Now there are reports of that military trafficking the food to enrich themselves.

VE is a classic example of a vicious cycle in which the gov’t intervenes in the economy, things get worse, and so the gov’t intervenes even more, making things worse yet.  Rinse and repeat until people are dying wholesale from starvation, upheaval, or suppression.

Sadly, these episodes are completely avoidable.  Whenever some “leader” comes along proposing “bold experiments” run the other way.  All of these experiments have been tried and we have the body count to prove it (USSR, Cambodia, China, Cuba, go down the list.).

Only a market economy can create the wealth needed for humans to flourish.  A market economy requires respect for individuals’ rights and property, thus persecution is minimized.  People around the globe have to stop falling for the “charismatic leader” who claims to know better than the markets.

http://www.foxnews.com/world/2016/11/03/venezuelan-military-to-take-over-distribution-medical-and-surgical-supplies.html

http://hosted.ap.org/dynamic/stories/L/LT_VENEZUELA_UNDONE_PROFITING_FROM_HUNGER?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2017-01-01-11-03-43

 

Crit Think

EA strives to promote critical thinking in all activities and lessons.  But people differ in what they mean by critical thinking, so here’s what we mean.  We mean not accepting an idea until you understand it completely; until you can logically build it upon premises you have already thoroughly vetted.  And you have to do this in your own head.  You cannot sub out critical thinking.  You have to put forth the mental effort to examine each step of the logic and muster the integrity to be honest with yourself in this examination.

One great hurdle to critical thinking is reliance on “authorities”.  Often the “authority” is nothing more than famous, with no competence in the subject at hand.  It’s fine to consider what others think, particularly if there’s some reason to believe that they have special knowledge.  But any authority has to make their case in such a way that you can follow it from beginning to end.  If they don’t, never assume that you’re not smart enough to understand such a great intellect.  People who really know what they’re talking about can explain it in ways anyone can understand.  If they can’t, that’s big red flag.

That’s why we encourage students NOT to believe us.  We want them to believe only what adds up for them in their own heads.  The “curve balls” which we encourage teachers to throw are meant to keep kids on their toes, always questioning, always vetting each word that comes their way.  We want them to be critical thinkers.

Myth of Marxism

Why does adopting Marxism ALWAYS cause such misery and destruction (USSR, China, N. Korea, Venezuela)?  Because Marx’s theories were wrong; they were at odds with the facts on planet Earth.  The harder you try to cram a square peg into a round hole the more damage you do to both peg and hole.

At the root of Marxism is the Labor Theory of Value (the value of a product is derived from the amount of labor that went into making it).  At the time Marx published his first volume, the Labor Theory had at least one gaping hole which was widely known (returns to capital are equal across the value chain, in contradiction to the labor theory).  Shortly after Marx published his first volume, the labor theory was utterly destroyed by the Subjective Theory of Value, which is still in use today.

Despite having the rug pulled from under him, Marx went on to publish a second volume, which contained some obvious omissions.  Marx promised to fill in the blanks in his next volume, which never came.

Bad enough that Marx carried on with a completely debunked foundation.  Worse, Lenin and his ilk implemented this flawed theory to the tragic detriment of millions.  Ideas have consequences…

https://mises.org/blog/mises-myth-marx

 

Early Exits

Get this: some folks get together for the weekend for the purpose of starting a business.  By the end of the weekend they have designed a product, built it, advertised it on the web, and have sales by Monday.  Wow.  Obviously we’re talking about a technology business and the product is an ap or electronic tool, not the next driverless car, but still that’s amazingly fast.

I read this story in Basil Peters book, Early Exits. If I could think of a way to bring this activity to a classroom, I would.  But I can’t right now.  Why not have a couple of kids from your class tag along on one of these and put together a video about the experience?  If you can’t bring Mohammed to the mountain…

Slowing Down the Girls

Went swimming at Centenary yesterday and found the pool chock full of COSST (city of Shreveport swim team) kids.  There was a scheduling mix up and the pool was double booked.  So I went to ask the coach if I could get in with them.  He growled about the mix up; Centenary had screwed up.  But he said he’d clear the far lane and I could use it.

I saw there were two girls there, maybe 15 years old, using kick boards and didn’t want to further crowd the other lanes…

  • me: I don’t mind sharing the lane.
  • him: nah, I’ll move ’em.
  • me: You really don’t have to…
  • him(a little gruff): I don’t want you slowing down my girls.
  • me (to myself): thanks a lot; you haven’t even seen me swim.
  • me: Are you Butch?
  • him: yeah.

I then told him that back in the mid-70’s I swam for Alexandria’s team and used to compete against Shreveport (Butch was coaching COSST way back then, too).  He remembered my family and lots of the kids on our team and the conversation quickly went to our coach, Wally.  I’d known that Wally and Butch were friends but I didn’t know that Butch’s dad and grandmother had practically raised Wally in Shreveport.

The story goes that Butch’s dad coached a swim team and they shared a municipal pool with recreational swimmers, roping off half the pool for each.  Wally was a little kid and wanted to swim with the team, but wasn’t good enough and had been rejected.  So each day Wally would show up as a rec swimmer and do the workout written on the chalkboard anyway, swimming on the other side of the lane rope.  All that separated him from “the team” was a string of buoys stretched down the pool and Wally pounded out one workout after another.

Finally Butch’s dad caved and let Wally join the team.  Wally went on to be raised by Butch’s dad and later to swim college for the university of Alabama.  Not bad for a kid who couldn’t make the cut.  And not bad for a coach who, probably like his son, tended to be annoyed by anything that interfered with workouts.

Monopoly. Oh My!

It fascinates me to see how flimsy (and widely accepted) the arguments for regulating “monopolies” are.

The story goes that there’s no way you could have two competing electric companies so the gov’t has to grant a franchise to one (a monopoly) and then regulate that monopoly.  But the historical record shows that prior to the granting of franchises, multiple utility providers were common.

One thing I hadn’t realized is that as part of the regulation, the utility pays the gov’t a fee.  Hmmm.

So the utility gets to charge higher rates.   These are typically “cost plus”, which the regulators will tell you means that citizens only have to pay a smidgen over actual costs, thus profits are minimal.  In practice “cost plus” means that the utility wants its costs to be higher so the “plus” is bigger.  Thus, prices are higher than under a competitive situation.   Therefore the utility is happy to kick back part of the higher profits to the gov’t (what do you want to bet that even the kickback amount falls into the company’s costs so there’s also a “plus” on the kickback?).  Government-Industry partnership at its finest!

The paper I cite below isn’t the last word on the matter as others disagree, but you have to ask which is more likely;

  • a) the flimsy story that everyone has heard and accepted uncritically: it’s impossible to have multiple providers and thus essential to have franchises and regulation (even though there are historical cases which defy said impossibility), or,
  • b) some crony business people convinced some slimy politicians to share the higher profits available by blocking competition (as the English explicitly did under mercantilism) and this model was copied in other jurisdictions until it became the norm, perpetrating the flimsy story as cover.

Hmmm.  Let me think on that a while…

More details at these links:

https://mises.org/library/myth-natural-monopoly

In 1880 there were three competing gas companies in Baltimore who fiercely competed with one another. They tried to merge and operate as a monopolist in 1888, but a new competitor foiled their plans: “Thomas Aha Edison introduced the electric light which threatened the existence of all gas companies.”[21] From that point on there was competition between both gas and electric companies, all of which incurred heavy fixed costs which led to economies of scale. Nevertheless, no free-market or “natural” monopoly ever materialized.

When monopoly did appear, it was solely because of government intervention. For example, in 1890 a bill was introduced into the Maryland legislature that “called for an annual payment to the city from the Consolidated [Gas Company] of $10,000 a year and 3 percent of all dividends declared in return for the privilege of enjoying a 25-year monopoly.[22] This is the now-familiar approach of government officials colluding with industry executives to establish a monopoly that will gouge the consumers, and then sharing the loot with the politicians in the form of franchise fees and taxes on monopoly revenues. This approach is especially pervasive today in the cable TV industry.

By Don Boudreaux
Nearly everyone I know who uses Uber is, like me, mightily impressed by this transportation service.  It makes transportation within urban and suburban areas far less pricey and far more convenient than it was in the pre-Uber-era dominated by government-regulated taxicabs.  Uber is a boon to consumers and to people who work as drivers.
Uber is a shining example of creative destruction – in particular, in this case destroying not only an older, established way of serving consumers but, more importantly, destroying the government-granted monopoly privileges that that older, established way enjoyed.
Douglas Rushkoff, however, is unimpressed with Uber.  In his new book,Throwing Rocks at the Google Bus, Rushkoff alleges that the true monopolist is Uber, the success of which “involves destroying the dozens or hundreds of independent taxi companies in the markets it serves” [p. 86].  It is significant that in this book Rushkoff never mentions the entry restrictions and other government-granted privileges that protect traditional taxicab owners from competition.
So what evidence does Rushkoff present for this counterintuitive (to say the least) proposition that Uber, by using new technology to destroy a long-entrenched monopoly, is itself a lamentable, monopolizing development?  None – at least no evidence that any economist would regard as relevant or as supporting Rushkoff’s proposition.
Rushkoff dislikes Uber because it is aggressive (and because it doesn’t promote as much personal connection as he’d like between drivers and passengers [!]).  He hypothesizes – or, rather, asserts – that Uber somehow must monopolize all taxi service for it to succeed.  Rushkoff’s economic theory for this alleged requirement for complete domination by Uber is vague.  Here it is (pages 86-87; original emphasis):
Creative destruction?  Perhaps – but with a twist: the new businesses of the digital era aren’t stand-alone companies like stores or manufacturers but, as they say, entire platforms.  This makes them capable of reconfiguring their whole sectors almost overnight.  They aren’t just the operators – they are the environment.
To become an entire environment, however, a platform must win a rather complete monopoly for its sector.  Uber can’t leverage anything if it’s just one of several competing ride-sharing apps.  That’s why the company must behave so aggressively.
The best that I can make of this word salad is that Rushkoff assumes that a ride-sharing app has all the properties of a natural monopoly – that is, as its customer base expands its cost of serving each customer falls, and that this relationship between expanding customer base and falling costs continues to hold until all customers are served by one company.
Overlook problems with the very notion of natural monopoly.  What reason is there to believe that the cost of supplying ride-sharing services with apps, as Uber (and Lyft) do, is minimized when only a single such service serves the entire market?  I can think of none.
More importantly (because my imagination, being limited, hardly supplies a definitive test), Rushkoff offers no such reason.  He merely asserts it.  Rushkoff’s assertion, in turn, springs from an illogical inference that he draws from Uber’s aggressive effort to expand its ridership.  He infers that, because Uber is aggressive, not only is Uber intent on “becom[ing] our delivery service, errand runner, and default app for every other transportation-related function” [p. 87], but also that Uber is destined to succeed in this quest unless and until the rules of the traditional free-marketplace are rewritten.  But of course any company worth the weight of its corporate charter wants as large a market share as it can possibly achieve and will act aggressively in pursuit of that as-large-as-possible market share.  That’s what competition is supposed to incite firms to do!  It doesn’t follow, though, that this widespread desire and attendant action result in genuine monopoly power.  As long as competition is channeled toward pleasing consumers rather than toward pleasing politicians, genuine monopoly power is practically impossible.  (Good luck finding a single historical example of consumer-harming monopoly power that is not rooted in government grants of special privileges to incumbent producers.)
Again, Rushkoff is characteristically unclear here.  I infer from his word salad that he has in mind some problem akin to natural monopoly, but that inference might well be mistaken.
How ironic that one of the most successful monopoly-destroyers of recent years – Uber – is demonized by Douglas Rushkoff as introducing monopolization into the market that this company has, in fact, made genuinely competitive for the first time in decades.  How ironic that a supposed enemy of The Man – an energetic crusader for economic ‘justice’ – a visionary theorist of the future – laments the destruction of the decades-old cronyism of taxicab monopolies as he peddles baseless myths about the technology and the company that has done the most to finally put an end to this cronyism.

MR=MC… or not.

Marginal revenue equals marginal cost is a mainstay of neoclassical economics. I learned it in school and I’ve taught it to kids. While you work through the math it’s very plausible, but the Austrians object. They say that businesses maximize their revenue without regard to their costs and thus aim for the midpoint of their demand curve, not for the price that makes MR=MC. This reflects my actual experiences managing businesses.

We never targeted marginal cost. In fact, we hardly knew what our “marginal economic cost” was. Gross margin is as close as we come to measuring something like that. I kept track of my actual incremental cost to be sure I didn’t go below that, but I would sometimes sell below gross margin to maximize revenue and profit.

Also, I tried to keep the cost figures to myself; I didn’t want the sales people to know our costs bc they would tend to think they had more “room” to go down in a negotiation. I told them, “get the highest price the market will bear. Don’t worry about what our costs are; that has nothing to do with you. You’re job is to know the market and find the highest prices.” That is, I explicitly sought to keep the sales side (price) and the production side (cost) separate.

So I’m now very skeptical of MR=MC. Econ students blurt it out the way geometry students say “pi-r-squared”. It’s keystone doctrine.

But interestingly, the article below from a mainstream source does mention that “some economists (Austrians are like Voldemort: he-who-can’t-be-named) reject the core assumptions of neoclassical economics as unrealistic… …based on achieving economic utopia, not explaining how real markets operate.” This is actually a fair portrayal of the position of the school-who-must-not-be-named in a mainstream piece. Refreshing! They also credit Menger as part of the marginal revolution.

If you haven’t taken Jeff Herbener’s video class, “what’s wrong with textbook economics”, www.supportinglisteners.com/whats-wrong-with-textbook-economics/ you really should. He goes thru Samuelson’s book chapter by chapter with surgical precision and demolishes fundamental things like MR=MC. Point by point, he says, “this claim is not realistic… here’s what really happens…” And I’m going, “Yeah! That’s what I’ve seen happen! That’s what I’ve actually done!”

http://www.whatiseconomics.org/neoclassical-economics