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MARTHA ALLEN: The economy: A quick course for social science and liberal arts majors

November 13, 2008
Lake Placid News
English majors will like the resonance of terms like “the Death Spiral,” and “globally cascading bank implosions,” and are going to want to use them. This cannot be allowed.

The trouble is that Bob the English major can have no understanding of these terms. They sound good to his ear and also evoke amorphous emotional responses, in the same way poetry does, without conveying anything useful about the current economic situation. Trying to educate him on the subject will do no good; the terminology as a thing in and of itself will get in the way.

There is a story that Pablo Picasso, as a child, could not learn his arithmetic because the numbers on the page were too real to him. He took his pencil and turned the numeral 7 into a nose.

Just as the infant Picasso was unable to get past the shapes of the numerals in order to utilize them symbolically, the English major can’t hear the phrase “The Death Spiral” without immediately starting to mumble lines from William Butler Yeats’ poem “The Second Coming.”

Turning and turning in the widening gyre

The falcon cannot hear the falconer;

Things fall apart; the centre cannot hold;

Mere anarchy is loosed upon the world...

In the same vein, the film student will think of Star Wars, particularly Darth Vader. People on diets, when they hear about the economic meltdown, get stuck on the idea of a toasted cheese sandwich and never get any farther.

What about you? How well do you understand the Current Global Economy Vocabulary? Take this quick quiz and find out!

1) Which of the following phrases describes the current economic situation?

a) Bubble-and-bust

b) bubble-and-squeak

c) Fleer Double Bubble

d) Bubble bubble toil and trouble

2) Which of the following is a hedge fund operator?

a) Mrs. Tiggy Winkle

b) Jimmy Buffett

c) I don’t know

d) a and c of the above

3) Toxic debt refers to

a) original sin

b) money lent to a family member

c) money owed to an ex

d) inedible tulip bulbs in Holland in the 1630s

Answers next week!

Many now feel a need to name, blame and punish others in order to make our problems go away. This is an ancient, perhaps instinctive, response to calamity, variously called “expiation,” “scapegoating” or “human sacrifice.”

In a very pure and highminded way, they believe that others should suffer quite a bit more than they do. It saddens them that the culprits, lenders and borrowers alike, of the notorious Fannie Mae and Freddy Mac, Wall Street and the auto industry, may go unpunished for their roles in the economic meltdown. Still, some take comfort in their faith that the perpetrators will eventually burn in hell. Hey, what goes around comes around!

But what is this economic crisis, you ask, and how may I, a regular person, understand it?

Balancing a checkbook, planning a party or home improvement outlay and maybe clipping some coupons are the sum total of Betty Sue’s financial experience. Betty Sue has always been pretty good at arithmetic, but still, she has trouble understanding the finer points of leveraging, options and what’s that word? Divergence?

Anyway, when Enron’s books were opened and Enron’s bookkeeping methods revealed, many were dumbfounded. The modern accounting methods practiced seemed too complicated to understand. It is far easier to understand these practices if you think in terms of your everyday life, or at least of behaviors familiar to you, if only through your coworker or girlfriend or maybe your cousin Aggie. We know, for example, that you would never kite a check yourself!

A Ponzi scheme, sometimes referred to as a tower of cards or pyramid scam, is an example of a situation in which an increasing number of people expect to get rich in an enterprise with insufficient backing. Chain letters are pyramid schemes. So are those sales businesses where everyone just hires employees who have to pay up front.

Kiting checks used to be a lot easier, back before electronic checking. See, you have more than one account. Then you borrow from Peter to pay Paul, timing your checks and deposits very cleverly so that you can keep yourself afloat high above the squalid plain of your actual money, if any.

Oh yes, that word? Derivatives. They led to leveraged bets. Hope this has helped. Time to go.

Have a good week!



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