Saturday, April 26, 2008

Emotions, On the Face of It

When I was in high school my biology teacher said, very early on in the class, that the human face can give away what a person is feeling--no matter how well we can control our body language, our face can show our emotional state at any one time.

Well, recent research from Canada proves my former Biology teacher correct.

From the Reuters article:

Researchers at Dalhousie University's Forensic Psychology Lab in Halifax conducted the first detailed study on the secrets revealed when people put on a false face or inhibit various emotions, and found their faces told the truth.

Maximizing Utility and the Brain: Cash or Status?

Scientific American has an article regarding a study of the brain that indicates the brain places a high value on money, but a higher value on social status. From the article:

"Our study shows that both behaviorally and in the brain, people place an importance on social status," says Caroline Zink, a postdoctoral fellow in neuroscience at the National Institute of Mental Health (NIMH) in Bethesda, Md., and co-author of one of studies. "It's hugely influential even [when we're not] in direct competition with someone else."

Sunday, April 20, 2008

The Power of the Banana

Excellent article over at regarding the power of the banana.

Economics and the Common Man

Have you ever seen those polls where John Q. Public is asked about questions of a general economic nature? How many of them have, at the very least, a basic understanding of economics?

Yeah, me too; I think such an exercise is akin to asking a medical doctor about auto repair, an auto repair technician about quantum physics, or a particle physicist about literature: It makes about as much sense as, well, insert a colorful metaphor here.

Before Warren Buffet was interviewed that one Monday morning on CNBC and said that we practically have a recession, though we may not be in one technically, many people can only say as much when they’re asked about the “R-word.” In addition, I’ve noticed that the public tends to insert more emotion into their economic analysis than such things warrant.

Let me say this first: There is room for emotion in economics. When, however, a person’s opinion regarding the nation’s current economic state is based more on emotion than well-founded rational thought. Henceforth, my point: John Q. and Jane Public don’t know enough of a darned thing about economics to offer their opinion; at least not enough for it to be meaningful. In the spirit of that I’m going to point out a couple of economic concepts that might help to alleviate the problem.

Gross Domestic Product, otherwise GDP, once taught as Gross National Product, or GNP, is the number that sums all of the products and services rendered in the United States (or any country, for that matter). Right now GDP is around $13 Trillion or so, give or take a few hundred billion dollars. GDP is calculated as a combination of many things:

GDP = consumption + gross investment + government spending + (exports − imports)

While there are several nuances associated with each variable, there are a few things to point out.

· Consumption is the largest driver of the economy; essentially that is all of the dollars that you and I spend.

· Investment is nearly as powerful as consumption

· Government spending is relatively valued at one quarter the effect of investment spending.

This illustrates exactly the reason why it would be great for government to curtail spending, lower taxes, and help the marketplace—government spending doesn’t do nearly enough for the economy, lowering taxes allows for individuals to have the option to save or consume more (marginal propensity to save or marginal propensity to consume, respectively) –driving consumption and, perhaps, helping investments.

This makes sense to me, but I consider myself a fiscal conservative.

There will be the contingent out there that says that paying taxes is good because it funds essential services that the government must supply to people, and there’s the whole debate about which rights one has in regards to healthcare and such—that is not within the scope of this article—but if government were forced to act like business in their daily management then we would be able to get a lot more value from our investment in government than not. Put another way, we allow government to spend too much and, I think everyone can agree, that we get too little from it. Wasteful government spending becomes something four times as bad when you have this understanding.

So, in an ideal world there is a happy medium between extreme government spending and extreme tax breaks for everyone. We don’t live in an ideal world, however, and economics works in cycles. The best thing to remember is the economy will go up most of the time, but will go down every now and again. Panic is not something that needs to happen when it goes down. Markets correct, stocks fluctuate, and indexes do the same. It’s nothing to worry about.

Why do I say this? I say this largely because of my believe that our most recent economic downturn in 2008 has been worse than it needed to be because people tend to overreact to what they feel are negative changing market conditions. If they understood the underlying dynamics of the market and the philosophy that “this, too, shall pass,” it wouldn’t have been as bad as it was.

My tone about “was?” There are multiple indicators that are pointing towards the worst of the current downturn being over, and us being on our way back up. The recent rallies in the stock market, the change in CPI and labor numbers all point towards an increasing economy.

So, in light of whatever the market is doing, irrationality rarely does the market good in the long run. In fact, if it did well with it then we wouldn’t have had the downturn in the market which we have had.