Loss: A Guide to Economics

MANY HUMANISTS PREFER to know as little about economics as they do about heavy-vehicle maintenance or how their parents really are. And yet economics is the watchdog of a free society. Thanks to the vigilance of large investors, who serve somewhat the same function here as the Academy does in France, the state of our economy is a key to our moral fiber. Say there is rioting and ill humor in the cities, or too many loud parties in the small towns. Or the President responds to press-conference questions with an eerie, toneless hum. Or infestations rage through a great part of the Midwest. Immediately, the nation’s serious investors discern that the time is out of joint, and, to bring America back to itself, start moving their money to other countries. When the nation straightens out, when the editorials in Forbes have brought an adequate response and things at last seem “right,” then the key investor, even if he has taken a shine to one of those pert Swiss tellers, will start to buy shares in our future again. And we will have a future. This is known as “positive reinforcement,” and is only one of the ways in which economics lends clarity and order to our lives. (Unlike rock music.)

To understand how the whole great process of economics works, we must begin at the beginning. Take a dollar bill from your pocket, smooth out the wrinkles, and forget it. There is no longer any use talking in terms of one dollar, since it will not buy you coffee and a grilled cheese. Save the one, and when you get twelve more to go with it you can buy a lurid novel. Take out a twenty and look at that.

Now. This piece of “legal tender” (a poignant phrase, since so many things that are tender are still not legal, and vice versa) is not in itself “worth” anything. It bears a nice enough engraving of President Jackson, but few people need one. To realize how relative cash is, try spending a twenty on—to take a fanciful (for now!) example—Neptune, where they have never heard of President Jackson. Or probably of anyone named Jackson, if you can imagine. At least we hope they haven’t. If they have, our intelligence is lagging dangerously behind theirs. Far from knowing who was Neptune’s president in 1829-1837, we are not even sure whether they have “hands” or “feet.” Or, more crucial, whether they have something we want badly. If Neptune has something we want badly enough, such as a cheaper material for making inflight pudding, then Neptune can say to us, “Ordinarily we knock this down at five dollars a barrel, but for you, since it means so much to you, we’ll make it twelve.” Thus your twenty comes to be worth $6.67, if you act now.

Economics teaches us that other things can happen to your twenty:

Inflation. Picture your twenty shrinking, ominously, and Jackson beginning to look like King Farouk. People smile too readily in the street. Your twenty isn’t worth as much anymore.

Recession. Picture your twenty growing, ominously, and Jackson beginning to look like Elisha Cook, Jr. Hat sizes run smaller. Your twenty is worth more (that is to say, it is becoming less valuable at a slower rate), but you can’t afford to use it.

Depression. Oh, God.

Action on the street. Someone bigger than you runs up to you on the street and snatches your twenty and says, “Do something about it.” Jackson doesn’t want to get involved.

Obsolescence. Because of the way things are made at certain—or allpoints on the economic continuum, all of the ink on your twenty, including Jackson, fades away.

Boom. Picture Jackson robust and hickory-strong, able to whip the pound, for what that is worth, at the Battle of New Orleans. (With the aid of pirates.) People run around slapping each other on the back, often too hard. You slip a disk. Your twenty helps to pay for new and improved medical service and your doctor’s new boat.

BOOM. It is gratifying to be able to say “Boom” in a public-service article. Boom boom! Boooommm. But don’t get any ideas.

Famine. Happens abroad.

All right. How about now? At this point in history, we in the United States enjoy plenty—of both inflation and recession. Thus, money is becoming at once less worth striving for and harder to get. Under these conditions, investments should be made with great caution, as indicated below:

Common stocks. Not a good bet at this time. See preferred stocks.

Preferred stocks. Not a good bet at this time. See commodities. (Pork bellies, for instance, and don’t let an economist see you smile. Nothing puts off an economist like the simplistic assumption that pork bellies in themselves—or even wearing vests and posed around a long table as the Council of Economic Advisers—are funny.)

Commodities. Not a good bet at this time. (Porkbellyporkbellyporkbelly. Did you smile?) See silver.

Silver. Not a good bet at this time. See gold.

Gold. Too late.

Other factors to consider at all times are the wage-price spiral, the supplyand-demand seesaw, and the principle of compensation.

The wage-price spiral. You demand a raise from your company, which bakes cakes, so that you can buy shoes. By the time you get to the shoe store the increase in cake prices occasioned by your raise has caused the shoe-store operator, who had to buy a cake earlier that morning, to raise the price of shoes to the point where you need another raise. Even without taking into account the high-speed cab rides back and forth, this can become extremely complex, especially when your boss’s son or daughter is going out with the shoe-store owner’s daughter or son and needs more and more money from his or her father in order to convince his or her potential live-in mate that he or she can raise his or her standard of living.

(The need to improve the quality of one’s life, of course, is something to be reckoned with at every point along the spiral. Thus, you ask for a raise that will enable you to buy shoes and will also make things a little more mellow for you all around. The shoe-store operator does the same in raising his prices, and anticipates that you will, and figures that into his equation. This is true of every economic unit except doctors and lawyers, who, being essential against death and/or ruin, simply increase their prices as much as they want to. Life being a serious proposition, a consumer cannot expect to have an easy choice between legal fees and prison, or medical bills and encephalitis. Furthermore, doctors and lawyers must go to school for years and years, often with little sleep, and at great sacrifice to their first wives.)

The supply-and-demand seesaw. When there is enough of something, people tend to say, “Who needs it?”

The principle of compensa tion. There is something to be said for, if not necessarily during, every economic period; every cloud has, for what it is worth, a silver-certificate lining. In a depression, for instance, when nobody has any money (and people eat pork bellies), that very fact creates among people a common bond.

Common bonds. See common stocks. □