My house is full of those yellow books that have titles like “Law for Dummies”,
“NASCAR for Dummies”, and “Investment Clubs for Dummies”. I love “Dummies” books and consider myself a life long dummy. The reason I love being “dumb” is because I love to learn. You can learn anything if you admit you don’t know it and you don’t “get it” until you really do.
I like to start to learn a new topic with a simple basic overview. If I can’t explain it to you on the back of an envelope, I don’t feel like I understand something. I don’t mind getting into some detail once I can see a thing whole. I just hate to read too much if I do not understand where the writing is going and why I am going with it. The most valuable resource we have is our time. It helps to understand why learning a topic represents a good investment of our time.
I am writing this memo to you to give you my thoughts about:
· What is Economics?
· How can you develop a basic understanding of Economics?
· What you can get from learning Economics?
· Where are the opportunities for young people graduating from high school today who understand Economics?
I hope that you will feel free to send questions back to me through Mr. Hayworth. Learning is a continual journey, not something that ever starts or finishes.
What Is Economics?
You can’t have everything. Where would you put it? — Steven Wright
Economics is the study of our optimization (creation, management, allocation and destruction) of our resources. To optimize something is to make the most of it. Our spiritual and intellectual resources are infinite. That means there is more of it than we could ever use up. Our resources in the material world ---such as air, water and land---- are finite. Most of us believe that we have a responsibility to take care of the land, to take care of each other, and to take care of ourselves. Economics is a body of knowledge that helps us do that.
I love economics. I love economics because it helps me understand my world. I have found that while listening to people is useful, paying attention to “how the money and resources” work tells me even more about what is really happening around me and what it is people really believe, know and do. It helps me understand whom I can trust to use my time well and whom I can’t trust. Economics helps me understand what I want to accomplish and how to accomplish it and helps me get that done. Economics helps me understand how to create value for those I love, including my family, my friends and my neighbors. Economics helps me solve some problems and avoid others.
Bottom line, Economics is something that -- if you master its basics -- can be hugely useful to you today, tomorrow and for the rest of your life.
Economics: An OverviewOur task is to look at the world and see it whole. —E. F. Schumacher
If economics is the study of the optimization of our resources, we need to first ask what are our resources?
A. Resources Let’s divide up all the resources in our material world into the following categories:
· Human: Human resources are people like you and me. This includes our time and physical energy and health. Many times you will hear the expression, “ People are our most valuable resource….” One of the themes I will stress again and again is the value of your time, your health and your well-being. This is currently and always will be your single most valuable resource. Learning about Economics includes learning how to invest your time in a way that optimizes your energy and the energy of those with whom you share your life.
· Animal: The world is full of many living things in addition to humans. We are only one of many species. Animals include the cows that give us their milk, the birds whose singing fills our days and the snakes we could live without!
· Natural Resources: Our planet, Earth, has thousands of acres of land, forests, lakes and ocean and an atmosphere full of oxygen that supports our life. We cultivate and extract from the land and living energy around us to grow our food and make products that comprise many of our physical assets.
· Knowledge: We have the ability to take our knowledge, experience and intelligence and transfer it quickly to other humans through books, software, videos, art and other knowledge tools as well as to imbed it in our surroundings so that things like the design of our cars and buildings are “smarter” for us.
· Man Made Resources: We build buildings, roads, bridges, water and sewer systems, electric and gas systems, transportation systems, communication systems and various other forms of property, plant and equipment and “things” from cars, to lipstick to microwaves to furniture. We also create art and musical instruments and all sorts of tools that we use for work and for play to make our world safer and more beautiful and to make it easier for us to stay in touch and connected with each other.
· Financial: Sometimes we own things directly, like owning our own home. Sometimes instead we accumulate our ownership through participating in a financial instrument that allows us to participate in owning something or in the value or wealth of it indirectly. So, for example, I can take three homes and put them in a company, and own the stock of the company instead of the homes. My stock is considered a “financial asset”. We will talk later about money and financial assets as tools that we use to trade and store our resources.
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Resources: Suggested Study Brainstorm: Get a map of the place in which you live. Draw a circle around the area in which you live, go to school and spend the majority of your time. Let’s define that place as your neighborhood. Make your best guess as to an inventory (a list of everything) of all the resources except for financial resources in your neighborhood using no more than one piece of lined paper for each of the resource categories -- human, animal, natural resources, knowledge and physical.
How many acres of land, how many trees, how many lakes, how many people, how many houses, how many dogs, how many cats, how many miles of roads and so forth. Can you envision all the resources in your day-to-day world? This is much more fun to do in teams, so see if you can get together with some of your classmates and brainstorm your inventory together. Your local library and the Internet should help you identify and estimate some of the resources.
Remember, there is no such thing as a right or wrong answer among us dummies, so just do your best.
Estimated Time: Assuming each person takes the lead on building an inventory of one of the five resources comprised of no more than one page of lined paper each, invest up to 5-10 hours per team member in a 4-6-person study team.
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B. Who Manages Our Resources? We have not journeyed all this way across the centuries, across the oceans, across the mountains, across the prairies, because we are made of sugar candy. — Winston Churchill
Some resources are owned and managed by individuals. Others of our resources are managed by teams or groups of people in various forms of organizations who formally or informally share responsibility for the resources they create, manage and consume. I divide resource management up among the following “resource players”:
· Individuals: You and I are both individual humans and we each are responsible for managing some resources, including our time and energy.
· Families: Our family is responsible for a larger amount of resources than we are alone and we are all expected to share in that responsibility.
· Communities: Our family and the individuals and families who live around us constitute our community. We share certain resource responsibilities as a community. We also sometimes participate in wider communities through our work and schools as well as through the Internet or other “communities of interest” and networks made possible by phone, mail and digital communication.
· Companies and Other Private Organizations: Many of our assets are owned and managed by companies, whether small businesses or large corporations, or organizations that are like companies but do not make a profit, such as “not for profits” and associations. For example, our school is a “not-for-profit” organization.
· Governments: In America, we believe that freedom is our divine right, and that we create and authorize a government to do certain functions for us so that we, our families, and our communities do not have to do them. This includes management of the assets we believe should be shared -- like water and air and national forest land -- rather than owned by individuals or our companies, not for profits and other organizations and corporations.
Government managed assets and related services include everything from national defense to picking up the garbage In America, we have federal, state and local governments. So, for example, I live in the town of Hickory Valley, in Hardeman County, (my town or my municipality and my county are my local government) in the State of Tennessee (that is my state), in the United States of America (my country). Typically, there are three key parts to most governmental units in America --- the executive branch (which administers the functions and responsibilities of the governmental unit on a day-to-day basis or “gets the work done”), the court system (which decides disagreements between various individuals and organizations) and the legislature (which represents the people in making laws and allocates funding to the other branches).
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Resource Players: Suggested Study Brainstorm: OK, get your study team assembled and inventory the resource players in your neighborhood. Get out your local phone book and go through it. What are the most common types of companies and other organizations in your neighborhood? Make a list. What are the forms of government represented in your area, local state and federal? Can you find them in your phone book? Can you find them on the WWW? Can you tell from reading about them what they do? What companies or other organizations and governments do members of your family work with a lot? Do you understand what they do?
Make a list of your questions about the resource players in your neighborhood and bring them to class so that you can brainstorm them and learn the answers together. In addition, make a list of the three types of companies, organizations or governments that you are most interested in learning more about, perhaps by visiting on a field trip. Who would you most like to learn more about ---the newspaper, the courts, the local banks, the city counsel, the library, sewage treatment plant, the electrical utility or the local sports team? There are an endless number of opportunities, so focus on the ones that you are most curious about and who you would most enjoy learning more about.
Estimated Time: Invest up to 5-10 hours per team member in a 4-6-person study team and deliver your lists and questions in 5 pages or less.
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Resource Players: Suggested Workshops and Field Trips: Once the members of the class have defined which resource players they are most interested in knowing about, I would recommend that you have a class to describe that type of player in more detail and then have a field trip where a representative of the player in question is willing to give a presentation and tour on who they are and what they do.
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Resources and Resource Players: Suggested Assignment for Extra Credit: Every year I speed-read the new almanac. The World Almanac is about 1,000 pages long. I skim through the whole thing, page by page, only reading the pages that I am interested in. What I find most interesting is what information the almanac has in it and the charts and statistics that describe the economy. If you want to be an investor in the stock market or in business, reading the Almanac is more useful than almost all national TV and news. (Your local paper is invaluable --- always read your local paper.)
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C. Tools, Maps, and Systems We Use to Optimize Our Resources Resource players use lots of different tools, maps and systems to help them create, manage, distribute, and consume or destroy resources. Let’s review the major categories, as follows:
1. Legal and Regulatory Systems:
Make a law, make a business. — New Jersey street saying
We create laws (formal rules or “statutes” enacted by a legislative majority) and regulations (administrative rules, put forth by the executive branch, interpreting statutes for day-to-day application) that reflect our common agreement of how our dealings with each other and our management of resources may be controlled and conducted. Legislators make most laws, governments execute them and courts interpret them. After spiritual and natural forces (God and the weather are far more powerful than any man-made system), the law is the most powerful variable in determining how resources are managed.
If you want to understand how your local economy works, it pays to also read “Law for Dummies” and to familiarize yourself with not only how the legal system is supposed to work, but also how it really does work. Most law is written assuming that time has no value. Since time is very valuable and “money talks”, the law can be applied in very uneven ways.
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Legal Systems: Suggested Brainstorm: If you were some of our European, Asian or African ancestors who arrived in the new world, what did you have to invent to set up a colony or community. If instead your ancestors were already living here as Indians, how were you already managing your resources and what were the most important differences between your system and the ones started by the various immigrant groups? Why? If you had to invent our legal systems all over again, whose system would you use, the Indians’ or the immigrants’? Why?
Legal Systems: Extra Credit Reading: If you want to go deeper into this topic, read "Law for Dummies" by John Ventura
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2. Money Tools and Systems:
The health of a State depends on a due quantity and regular circulation of cash as much as the health of an animal body depends upon the due quantity and regular circulation of the blood. — Alexander Hamilton, 1st Secretary of the Treasury
2a. Currency: If you really want to understand Economics from the ground up, spend a day trying to get everything done without using currency. You would have to barter things for other things because you can’t use currency. Once upon a time, people had to trade pigs for goats, and milk for help cutting down trees etc. There was no such thing as “money.” Money was a tool that we invented to help us transact and trade our time, our services and various products we make or land we own much faster and more efficiently.
Currency is really a remarkable tool. By making it easy to buy and sell things, it was one of the greatest time savers that mankind ever invented. We take currency and money so for granted that we have lost sight of how it works. At the end of the great depression in the 1930’s, there were over 3,000 community currency systems in operation in America. While most of them then disappeared, there is a new interest in community currency, particularly for the prospect that it may help people save time and circulate resources back in their local areas.
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Currencies: Suggested Study Brainstorm: Get that study team together. Review the websites of organizations like the Schumacher Society on creation of community currencies like the HOURS and LETS systems. Have each member learn the “411” on one of the currency systems. Come back into a group and have each team member give a 15-minute description of the local currency system that teaches that system to the other members of the class. Figure out what system of local currency you would use for your neighborhood. Write a description in one page or less of what currency your group chose and why. Make a presentation to the class. After all the presentations discuss the similarities and differences in the team choices.
Estimated Time: No more than 5 hours per person to produce no more than 1 page.
Alternative: If not all the teams want to work on currency do a quick report on the current barter systems used in America. Some people estimate that as much as 25% of all worldwide economic activity is done with bartering goods for other goods and services. Don’t spend more than five hours per person on this and produce a report that is no more than 2 pages. Describe some of the pros and cons of these systems as compared to the current American currency system.
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2b. Accounting/Financial Statements: After currency, my second favorite money tool is accounting. Accounting is something I struggled with mightily in business school. I found it hard to learn, but simply marvelous to know about. Accounting is a system to track, value and protect the assets owned and managed by any of the resource players. Most accounting has been developed to track and illuminate assets that can be legally owned (most of our assets -- such as the oceans -- are shared and not owned by individuals in the traditional sense).
A “snapshot” of a group of accounts for a person, company or government agency at any particular time is called a “balance sheet”. Income and loss statements and statements of sources and uses of funds are two other types of financial statements, only these latter statements illustrate uses of resources over periods of time. Some people produce personal financial statements when they borrow money to buy a house or a car, or when they report to the tax authorities.
Financial statements for companies and government agencies traditionally include a balance sheet (an inventory of assets and liabilities and retained equity or savings), an income statement (revenues, expenses and profits) and a sources and uses of funds statement that shows where all the cash came from and where it went during the period.
Generally speaking, equity (i.e., ownership) interests in for-profit corporations are valued in the stock market according to the company’s performance as demonstrated in its financial statements over a period of time or, in some cases, based on the value of intangible assets held by the company (like patents, product ideas, software programs, etc.).
While accounting is quite useful, we tend to fall into the trap of valuing things that are accounted for in financial statements and ignoring the many assets that are not accounted for in this form. So we think that our money has more value than the oceans because we have no way of watching the value of oceans fall in the stock market as we trash and pollute them.
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Accounting/Financial Statements: Suggested Class: Invite an accountant to give a class on the 20 accounting and financial statement terms most commonly used in every day life and in the daily news and why each student should take accounting. I think it is up there with auto mechanics and household plumbing and electrical systems as a “must do” in your curriculum. However, no need to wait to just learn what all those words mean. What is a balance sheet? What are liabilities, really? Also, remember, one of the keys to a happy life is to have a wonderful accountant who teaches you and makes you smart. If you are not going to be an accountant, you certainly want to know one that you can trust who will keep teaching you as time goes by.
Accounting/Financial Statements: Extra Credit Reading: For those in the class ready to jump into accounting now, get hold of a copy of "Accounting for Dummies", by John A. Tracey.
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2c. Budgets: Another tool I love is the budget. I have started several businesses and run a government agency. I have discovered that one of the keys to success in life is learning how to put together and use time and money budgets. Budgets are a plan for what you are going to do with your resources, while good financial reports and statements show what you really did.
A time budget is something that estimates the time you have available and how you intend to invest it. A money budget estimates how much money you have available and how you intend to invest it. You should definitely enjoy one class on what is a budget and how to put together a simple budget of your time and your money.
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Budgets: Suggested Study Exercise: You have 24 hours in a day and 7 days in a week. Make a chart on graph paper by hand or on an Excel spread sheet on your computer of how you invested your 24 hours in the last 7 days of your life and how you anticipate spending your 24 hours a day in the next 7 days of your life. Now, take the number of hours that you spent watching TV in the last 7 days. Multiply that times 52 weeks. What is that total amount of TV time in a year?
Now, let’s look at what I call “reengineering opportunities.” Those are the opportunities to change from the “status quo” so that you can get more benefit for the time or money you are investing. The concept is that you should always be on the lookout to get more for yourself with less expenditure of effort. That is what makes budgets useful tools – they help us get smarter and that helps us get more for less.
OK, make a list of what other things you could do if you invested that time you spent watching TV in learning something that you wanted to know how to do, whether it is play an electric guitar, auto mechanics, gourmet cooking, etc. OK, now calculate how much you could earn if you had a job and worked for those hours? OK, now make a list of the things you could buy with that much money.
Now, look again at your budget and see if there are additional reengineering opportunities that you have, not from changing how you spend your time, but by teaming up with other people to help you share certain things that will help you be more productive as a group and individually. For example, I always work and learn faster in teams when I can split up the research and brainstorming with other people who have different skills and abilities than I have. I find that teaming up helps improve my time budget a lot.
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Budgets: Suggested Class:
Spend a class reviewing the annual budget of your town and your county. What are the major tasks that your town and county do and what are the revenues and expenses in your area for those tasks and how much is spent per person by your town and county on you and your family? Work out the calculations together in class. If possible, invite someone in the budget operation for your town and county to come explain it all to you. If you are interested, do a second class on your state’s budget with two teams presenting the pros and cons of your state increasing taxes this year to fund its deficit. See if you and your classmates can come up with a plan for your state representative. Get on the Internet and find out who your state representative is, what his or her position is on how to balance the state budget and whether tax increases are needed. See if he can come listen to your presentation.
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2d. Markets: A market is a system through a place or a process by which buyers and sellers interact to exchange goods and services. For example, the farmers’ market is a market in a place where farmer come to sell their crops and products to people who wish to buy them. You will often hear references in the news to the “Jackson market” or the “Tennessee market” or the “US market.” These refer to all the buying and selling of goods and services in our town, our state and our country. You will often hear people refer to markets that are not placed based, like the “internet market” or “the agricultural market” that refers to certain specific ways of buying and selling ---such as doing in on line---or to certain types of products and services.
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Markets: Suggested Study Games: The best way to understand markets and entire economies is to invent one yourself. Some software games are great to help you understand how to do this. I used to love to play SimCity and Railroad Tycoon. Check on what games are available that help you simulate how to invent a local area and market. When I was in high school, we set the whole gym up with different countries and then had the various countries trade with each other. I started out as the poorest island nation and ended up as the richest nation. It was the best day I ever had in high school. That was when my teachers realized that despite my dismal grades, I should go to Wall Street. I did and I loved it. If you can find and decide on a great game that the whole class could play that would teach you how to invent a market and “make markets” by buying and selling different goods and services, I would spend two to four weeks playing it. There is no better way to understand what a market is then to invent one with your friends and teacher.
Markets: Suggested Class: Spend some time in class on how trade works, and what is import-export and how to think of the balance of trade in your community, county or country. Find some useful examples of how the trade routes developed through history and how it has effected the development of our civilization. Talk about new technology and how that may impact markets and where we live and what we do.
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2e. Financial Assets/Mortgages, Stocks and Bonds: The human race has created a lot of different types of legal entities in which to own, trade, borrow on, and manage resources. These include indirect ownership or interest in resources and hard assets like cars, land, and buildings. . Financial assets can be the interests or participations in the ownership of the resources or hard assets.
Financial assets can also be interests in pools of assets that are owned by companies and associations and governments. For example, rather than owning many buildings, we can have a company own and manage the buildings and issue stock to represent the ownership in the company. That way many people can participate in the ownership of the buildings. If the company borrows, it does not sell a portion of its ownership, it simply gets money that it promises to give back. This type of borrowing is called a loan, or an I.O.U (I owe you!) or a bond, or a mortgage if it pays for real estate or certain kinds of physical plant and equipment. Most state and local government’s finance their operations on a pay as you go basis with taxes paid by taxpayers, but they sometimes finance their buildings and capital expenditures with bonds, called municipal bonds. Our federal government is not run on a financially prudent basis, and they issue Treasury bonds to borrow for current operations because they cannot balance their budget.
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Financial Assets/Mortgages, Stocks and Bonds: Suggested Class: Spend a class discussing the two primary systems of financing assets: debt and equity. There is an old rule of thumb which says, “neither a borrower nor a lender be.” That is because debt financing often creates different and unhealthy incentives between people. Debt financing throws us out of alignment with each other. See if you can describe a start up company where everyone has equity, both the employees and outside investors, and a start up company where a few people hold all the equity and finance the company with lots of debt from the outside and the employees have no participation in the equity. See if you can figure out the incentive systems of all the different players in the company and how that will impact their behavior and their ability to work well together.
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Financial Assets/Mortgages, Stocks and Bonds: Extra Credit Reading: For those of you who are particularly interested in how you will manage your money and finances, including financial assets, read “Personal Finance for Dummies” by Eric Tyson.
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2f. Capital Markets: We have markets that are dedicated to buying and selling financial assets called capital markets. This includes such markets as:
· The Stock Market
· The Bond Market
· The Currency Market
· The Mortgage Market
Often times we discuss these markets by country or continent, so you will hear references to the London markets or the Japanese markets or the Hong Kong markets or the US markets. Capital markets are trading around the world 24 hours a day, seven days a week.
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Capital Markets: Suggested Reading: Read a simple and colorful primer to get the basic words and concepts --- The Wall Street Journal Guide to Understanding Money & Investing by Morris, Morris & Siegal. Go through all your questions in class until you feel confident that you have the basic ideas down.
Capital Markets: Suggested Stock Game: Divide the class up in teams. Each team can pick out a group of 3 stocks that it believes will make the best investment by the end of the semester. Figure out a prize that the team with the biggest increase in its portfolio value by the end of the semester can win. Then go to it!
Capital Markets: Extra Curricular: For those of you who want to keep going, why not find and join an investment club in your area? Feel free to do a special paper on what an investment club is and why the members of the class may want to join one to help learn more about the capital markets and how to be successful investors. For additional reading, get "Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money -- That the Poor and Middle Class Do Not!" by Kiyosaki & Lechter and "Investing for Dummies" by Eric Tyson.
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3. Resource Management Communication Tools
Many have marked the speed with which Maud’Dib learned the necessities of Arrakis. The Bene Gesserit, of course, know the basis of this speed. For the others, we can say that Maud’Dib learned rapidly because his first training was in how to learn. And the first lesson of all was the basic trust that he could learn. It is shocking to find how many people do not believe they can learn, and how many more believe learning to be difficult. Maud’Dib knew that every experience carries its lesson. — Princess Irulan, from Dune by Frank Herbert
3a. Project Management, Learning and Business Plans
Since most resource management requires collaboration among different people in families, communities and organizations, as well as collaboration among different associations of these groups -- something we often hear called “networks” -- one of the tools used to create a “shared intelligence” about what a group is going to do and how its members are going to do it is a plan.
A plan may cover how a group will do one project (project management plan) or it could cover how to start and manage a business (business plan). A plan could cover how a person or group will learn what it needs to know to do the business or project or to get an education (learning plan). Budgets are one of the key components of most project management, learning and business plans.
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Plans: Suggested Exercise: Develop a learning plan for yourself through the age of 25. What do you want to learn to do, what do you want to do and how are you going to do it? Do a time budget to go along with your learning plan. How much time will it take you to learn the things you want to learn, from buying, driving and fixing a car to knowing how to travel to other countries to learning how to speak another language?
Suggested Time: Spend 3 hours or less to do a two page plan and a 1 page budget.
Plans: Suggested Class: Review how the MIT project management responsibility system works and brainstorm how knowing that system can help your study teams have more fun, work faster and get better results. If you like it, try using it for your study team projects. I can provide basic materials on the MIT system if you are interested.
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3b. Tools for Information Processing and Problem Solving Skills
Different people process information and solve problems differently. There are various tests that help us categorize how we process information and solve problems. One of the most popular is the Myers-Briggs test, which many companies and organizations use as one of the tools that helps them assemble teams of people to manage resources effectively and helps teams communicate and collaborate effectively. If I know that you manage information very differently from the way I do, and how, then I have a much better chance of communicating with you effectively and efficiently.
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Tools for Information Processing and Problem Solving Skills: Suggested Class and Exercise: After a brief review of how the Myers-Briggs classification system works, take the test (which is available on the Internet) and see what your type is. Now discuss the differences in the way the members of the class process information and solve problems and what knowledge of your problem solving types might mean to your creating the ideal study teams for your work in Economics.
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Tools for Information Processing and Problem Solving Skills: Extra Credit Reading: Read The Seven Habits of Highly Effective Teens: The Ultimate Teenage Success Guide by Sean Covey, Steve Covey’s son, for lots of ideas on how to put your new communication tools to work in practical ways that help you now.
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Entrepreneurship:
My gasoline buggy was the first and for a long time the only automobile in Detroit. I was considered to be something of a nuisance, for it made a racket and scared the horses . . .. I ran that machine about one thousand miles through 1895 and 1896 and then sold it to Charlie Ainsley of Detroit for two hundred dollars. That was my first sale. I had built the car not to sell but only to experiment with. I wanted to start another car. — Henry Ford
One way to become a resource player in organizations beyond your family is to team up with some other people whom you trust and who have the right sets of skills and start your own company or organization. Entrepreneurship is a whole topic of its own within the world of economics, so we don’t need to spend a lot of time on it here. If it is one that you are interested in, get hold of some of the good movies and books about entrepreneurs who started their own companies. For a good read, try Growing a Business, by Paul Hawken (which is available on tape). For the best story on the entrepreneur who would “never, never, never give up” and who rebuilt a government and saved the world (at least for the time being), read William Manchester’s second volume biography of Winston Churchill, Alone. [Better yet, check out the Kaufman Foundation websites or other potential sources such as 4H, Junior Achievement for information on small businesses started by teenagers.
Economics: What’s in It for Me?
If you’re not part of the solution, you’re part of the problem. — Eldridge Cleaver
I divide the benefits of understanding Economics into two categories: mapping and creating value.
First, Economics helps me build and maintain a “map” of my world, so that I can understand more about the guidance and purpose of my life. Economics is a form of sunshine.
Second, Economics helps me get and give energy in a way that helps me accomplish my purpose, including building a career and companies and managing my assets in a manner that adds value to me and my family, friends, and communities. Let me describe these in more detail.
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The Story of the Island and Gulf of California
---The Island of California--- is of one of my favorite maps.
It is a map of the New World. It was drawn in 1701 by Spaniard Herman Moll. The map shows an American continent with its western coast dominated by a long island of great mass – the Isle of California. For many years, European explorers sailed the Pacific Ocean to the California coast, secure in the knowledge that they could not reach the Rocky Mountains without another ocean crossing. I was told that they would take their boats apart on the Pacific coast and carry them over the mountains so they could sale across the Gulf of California. Expedition after expedition died in the desert trying to carry their boats to a place that did not exist. They failed because their map was not accurate.
I was also told that a political problem arose in trying to get the map fixed, because so many myths had grown up around the official map. Explorers claimed that they had sailed around the Isle of California and successfully sailed across the Gulf of California to the mainland. Finally, after decades in circulation, it took an order of the King of Spain to abolish the map.
While we do not know how much a generation of explorers paid to purchase this map, we can only imagine the price they paid for believing it was accurate.
An accurate map is an excellent investment. A reliable map is an essential tool of any fiduciary. (A fiduciary is a person who is responsible for managing the assets of others.) Whether managing an armada and men on a voyage of discovery and conquest – or making sure our business and our families are safe -- performance depends on the quality of our intelligence about where we are and the options available. Success is more often achieved from a clear understanding of what we know and – perhaps even more important – what we don’t know.
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Understanding “How the Money Works” Helps You Map Out Your World
The first reason that I love Economics is that , by understanding how the economics of time and money work and how various resource players manage and transact various resources, I have come to develop a great “mapping” tool. More often than not, I find that the mainstream media try to tell me things that are as absurd as that California is an island. Economics helps me understand what does and does not make sense. While the news tries to sell me on the theory that people are doing things for vague reasons and sentimental notions, economics helps me estimate how the power, money and operations are really working, who is benefiting, who is being adversely impacted and how.
Understanding “How the Money Works” Helps You Make Economics Energizing For Your Team
Since economics helps you draw and continuously redraw your maps of how your world really works, it then helps you proceed to accomplish your personal and family goals within your wider economic community with the most efficient use of your time. For a great book that helps you think through the philosophy of how to do this, see Robert Axelrod’s “The Evolution of Cooperation”, which can teach you about how to become a “tit for tat” resource payer.
With a good map you can see both opportunities and risks along your pathway much more clearly. I would encourage you to learn more about the history and nature of risk and the art and science of “risk management”.
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The History of Risk: Suggested Class: I would recommend that the teacher read “Against the Gods: A History of Risk” by Peter Bernstein and give you a series of lectures on the history of risk. It would be wonderful if one of the insurance companies in the area as well as one of the larger local banks could host one or more classes at their offices on the history of risk in their industry as well as their vision of risk management and how they handle it. Reducing and managing risk is one of the critical components to any successful resource management and is at the core of transforming economies from primitive stages to more productive forms of economies. Remember Murphy’s Law, “Anything that can possibly go wrong, will.” And then there is O’Brien’s Law, “Murphy was an optimist.” Well, great economics is about facing Murphy’s and O’Brien’s truths and using them to make sure things come out well despite the typical risks.
Besting Risk: One of my favorite all time books to help you learn how to deal with real world risk is C.S. Lewis’ “The Screw Tape Letters”.
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Economics: Opportunities and Risks for Young Entrepreneurs
Let’s make no mistake about this: The American Dream starts with the neighborhoods…to sit on the front steps – whether it’s a veranda in a small town or a concrete stoop in a big city – and talk to our neighbors ... — Harvey Milk
Here are five areas where I believe that there will be a lot of opportunity for young entrepreneurs:
Starting a Solari: Moving From a Non-Sustainable Economy to a Sustainable Economy
A solari is a community databank and equity investor that collects and circulates information about resource use within that place. (For details on the standards that define a solari, see “http://www.solari.com). A solari is the basic knowledge infrastructure that is necessary for a community to reengineer its current government investment, to incubate new small businesses that can create equity and compete successfully in a global market, as well as to enable the community to finance with equity as opposed to municipal debt. This is critical if we are to move to an economy that promotes capital gains from healing the environment and ensuring that we are safe. Our current economy is organized to move resource control to large corporations that make money from extracting resources (as opposed to using resources in a way that heals environments) and from doing things that decrease personal safety.
A solari will also help a community understand how it can become more self sufficient --- by growing more food locally, circulating investment locally or prototyping solar energy and other forms of local energy generation that decrease the need to import from outside the area.
To get started you may want to start or particpate in a Solari Investor Circle. You can learn more about Solari Investor Circles at www.solari.com
Reengineering Government Sources and Uses of Funds in Your Community
We have experienced an explosion of new technology and used the energy created to increase corporate productivity, but not to reengineer and improve government productivity. That is primarily because government reengineering needs to be done place by place, so that we reengineer total sources and uses for all government budgets within a place. Operationally and politically we have found this impossible to do. However, this kind of reengineering will soon become an economic must-do if we are to move to a more sustainable economic basis.
Community Venture Capital: Incubating Small Businesses
There are three parts of every business or operation. There is the business. There is the “business of the business.” And there is financing the business. So, for example, if I own a company that makes and sells orange juice, my product and my business is orange juice. However, I can expect that about 30-50% of my operation will be “the business of the business” -- a term that incorporates accounting, personnel, legal, office space and all sorts of other things that are required to create a proper infrastructure to support the business. Finally, I can do a great job at the business and the business of the business, but if I do not finance the business well, I will not succeed.
One of the reasons that small business is having trouble competing is that a small business cannot afford to pay the costs of the business of the business and financing the business to a standard that a large company can. That is where the idea of an “incubator” comes in. A lot has been written about how incubators build successful high tech companies. Yet few have addressed how incubators could be combined with community venture capital funds to reengineer the business of the business and financing of the business so that new small businesses could share these functions in a way that would help them successfully best corporations in the marketplace.
“Voting With Your Resources”
As our economy and markets globalize, things move much too quickly for the normal governmental regulation and enforcement agencies to keep up with them. Hence there is more and more interest in not just voting at the polls every two to four years, but “voting” in the marketplace every day with our time and money. If you search for, “socially responsible investment” on the web, you can learn more about one of the most rapidly growing areas of the money management business, reflecting greater consumer demand for private market enforcement of higher standards for corporate behavior.
In a “vote with our money” system we do not purchase from a company that violates our fundamental values in its operations; we do not deposit money at a bank that violates our fundamental values in its operations; we do not buy or watch media unless they tell us the truth about “how the money works” and we only invest in companies that operate with the boundaries we consider to be acceptable behavior for a good global citizens. To operationalize such a system requires substantially better information for consumers and investors about who is who in terms of responsible economic behavior.
Economic Warfare: Making Markets Work in the Real World
As globalization increases and organized crime increases as a percent of world Gross Economic Product, we find more and more of a merging of the traditional areas of the intelligence agencies, the military, and enforcement services in “information warfare” and “economic warfare.” This is one of the reasons that recruiting is reported to be up at the Central Intelligence Agency and other places where young people can learn about economic warfare and how companies and networks really compete in the real marketplace.
One of the ways to live a wonderful life is to learn about those who don’t live wonderfully and learn how to protect ourselves from them,. That means we will need some talent in economic warfare.
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Opportunities and Risks: Suggested Class:
Why not have a class in which you brainstorm where you and your classmates see the economic opportunities in your world as well as the economic risks? Let your conclusion tell you about what are the most important things that you can learn about economics?
Opportunities and Risks: Go to the Movies
For a cinematic tour of some of the risks we all face in managing resources in various kinds of organizations, here are some of my recent favorites available at your local video store: (i) Startup.com, (ii) Anti-Trust, (iii) Bullworth, (iv) Wag the Dog, (v) Gettysburg, (vi) Jesus, The Greatest Story of all Time and (vii) Other People’s Money. Why not pick one or two to watch and have a class discussion on how you would have handled the same risks?
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Good Luck
I hope you enjoy your learning journey in Economics. If I can be of more assistance, just let me know. Good luck!
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For more articles and information from Catherine and Solari, see the Solari website at www.solari.com
