Lauren M. Dobbie

Thinking outside the model

In Uncategorized on April 25, 2011 at 10:32 am

My last exam is tonight… then I’m done university, at least for a while. Aside from how long the paperwork takes and the fact that the gown-wearing and stage-crossing isn’t until June, I’ll unofficially have a degree in economics as of 9:00 tonight.

If you thought this was going to be a sanctimonious post about the wisdom I’ve accumulated over the last four years, I don’t blame you- the intro was borderline. However, I will offer you a few reflections on this course of study and where I hope it goes…

Studying economics does make one a bit of a skeptic-cynic when it comes to most facets of daily life, from the zoo-like quality of most Beer Stores when they’re busy to the recent events in Egypt and Libya. Yet, once you study, in depth, the incentives of the masses I found that after the “People are evil and selfish” wanes, an appreciation for the complexity, design, and hopefully the effectiveness of ‘the way things are’ begins to emerge.

Of course, on the other hand, studying economics does give one a major tool in today’s increasingly dynamic world: the ability to think critically. As much as thinking economically can make someone understand certain institutions and policies in the world and help accept them, economics can also expose some important short-comings or problems in major social arenas. Understanding incentives helps a person understand power, which is so important on so many levels… from friendships to the workplace to globalization.

Courses in economics do have one major draw-back that you have to watch out for, namely, context. The cynic-skeptic quality of studying economics can get way outta hand if you’re not careful to explore and understand the major perspectives surrounding the issues at hand. What I mean by that is you can study labour economics, for example, and think “Well of course there are wage and income gaps between men and women- many women are taking time off from work and leaving the labour force for extended periods of time to have and raise families so of course there are going to be income inequalities” or one could think that no matter what the reason is: taking time off work or simple prejudice, that these wage gaps will never close.Taking a non-economic and economic considerations of the factors that influence economic phenomena such as this gives a needed burst of “thinking outside the model”. Looking at the world economically is a valuable skill, I think, but looking at something just economically would be like looking around a new apartment without checking to make sure that the shower head is installed higher than 5 feet off the ground (that is the situation at my current apartment), or checking to make sure it has good cell phone reception (that was the situation in my last apartment).

The question that’s still lingering is “How can things be made better?” Health care systems… paying for education… workplace training… democratization… Retail… there are so many institutions, systems, and processes that aren’t perfectly aligned with the way people think (on average), what they want (what they think they want too), and how they want to get what they want. This might be what pushes me to do grad school one day but at least now that those questions are firmly planted in my mind I can try to improve what “institutions, systems, and processes” I come across in my own life.

Also, the man in the picture for this post is John Maynard Keynes… He’s probably the best example of an economist who turned an existing economic/political ideology on its head (at least until Friedman), plus he basically remedied the Great Depression. He had the wherewithal to make dramatic and different suggestions to policy-makers when it came to government spending in the UK which sounds like a rather “dry” accomplishment but really, that was pretty badass because it takes courage to stand up and question the status-quo, especially when you’re standing up and facing something like the government.

So I guess the moral of this story is that economics has, in a big way, set me up to think in a way that may give me ideas about how to think outside the box and maybe even suggest changes that could make the something… anything… better. University has also made me apt at cashing in on vague ideas and large words, but this is the best I’ve got: economics has made me think differently for the better and I feel set up to bring something cool to the table.

Advertisements

Compensated Variation

In Uncategorized on March 8, 2011 at 2:17 pm

Today I was working with one of the students that I tutor on the concept of compensated variation. In intermediate microeconomics we learn how to solve compensated variation problems that go something like this: if people buy an optimal amount of Good A and Good B at price A and price B with this amount of money, how much would we have to give them to keep them just as well off if one of those prices should increase?

Like most of the things I’ve learned in economics, this can be abstracted out quite widely. What if we asked ourselves what we would need in return if something in our lives changed or if something becomes harder to come by, do we look for something else to compensate us?

For instance, most of the people I know including myself seem to feel the inner price of their downtime going up and up and up. If I relax now, what am I giving up? Study time, cleaning time, errands time, time at work, and the list goes on and on.

Now, the decision of how to allocate time normally doesn’t include time for one’s self. When I look at my own planner all I see are my obligations to other people and projects. In fact, in microeconomics we study how individuals allocate time between “working” which we call “consumption” and “not working” which we call “leisure”. So if you have a job or a course of education that you are depending on for your earnings now (or earnings in the future as is the case with school) then the price of your leisure is very expensive.

Being conscious of this makes me ask myself two questions: Have I allocated my fixed amount of time properly? Or am I way too far to the “consumption” side? And if my time is allocated according to my preferences for money and time off then am I managing my leisure time properly? Am I doing what I want? Or am I giving that all away too?

For me now, time management doesn’t just mean ‘getting as much done as I possibly can in this scarce amount of time I have’… It is more comprehensive than that. I’m learning to think honestly about how I should be spending my time and I’m realizing that I’m too far on the consumption side. My leisure time is dropping down to a level that’s almost non-existent. In economics we call that a ‘corner solution’ where the individual is ‘all consumption’ (read: working all the time in order to consume) or ‘all leisure’.

The corners suck.

Balance is what I want so I’m trying to become more conscious about my Time Decision. When you’re time gets more and more expensive you need to make sure you’re compensating yourself for this on-going change. Making sure you have enough free time to yourself is part of all of this. So next time you feel overwhelmed by your own week, as yourself if you’re on the corner…

Love and economics are in the air in Canada

In Uncategorized on February 14, 2011 at 4:48 pm

Love is certainly in the air in the world of Canadian finance but like any relationship or marriage it’s not without its points of contention either. The Toronto Stock Exchange and the London Stock Exchange have proposed that they merge which will change the scope of stock markets in both countries.

Now, for two people to truly stay together there have to be reasons other than “the flame”. As a hardened economist I don’t believe in people being in relationships without real reasons and real incentives, so why are the TSX and the LSE coming together?

The foremost reason is that business in general is becoming more globalized practically by the day. What’s stopping a Canadian stock trading company from attracting potential shareholders overseas? Well, nothing. But it would sure be a lot easier with a partner over there, namely the LSE. Publicly traded companies in Canada will have access to British markets and vice versa, which is a huge incentive for both to merge.

Many people would probably say that facing the challenges of life together in a partnership is more desirable than facing them alone. In this way, economics and love are no different. The TSX and the LSE both face competition from other stock trading companies. Therefore, combinging both companies allows for both to capture more market share in both markets. The TSX and the LSE individually face the risk of competition over-taking more and more of the shareholder market but together they could in fact retain and even increase their market power.

The financial benefits of a partnership are also very important incentives to come together and stay together. Sharing expenses, combing incomes, and having greater access to capital markets are typical benefits of going through life in a pair rather than alone. Here again the stock trading world is in the same boat. One of the hypothesized benefits of this merger for the people who buy stocks is that the transaction costs of buying and selling stocks will decrease.

Now, there are two sides to every story and there is almost no economic or personal decision that doesn’t come with at least a few potential concerns. One of the biggest challenges of any partnership of any kind is the difficulty surrounding comprimise. “You cut one hole in the bag of milk and I cut out two… So what do we do now?”  is not the kind of comprimise to which I’m referring unfortunately. Yet, in the same breath it’s not fundamentally far off either. Whenever two economic processes come together there is going to be some overlap and some major differences too. What I’m getting at is how this new company (which is operating under the temporary name “Holdco” for “holding company”) will be run is going to take more than careful thought. The administrative thickets are going to be sharp and well, thick at the bottom. It’s not so much the broad outlook of what will happen once these companies merge that’s giving people grief– it’s the operation of the thing that’s making a few people sceptical. However, even once the merger happens (if it happens) the TSX and the LSE will still operate individually even though the companies will be joined, so it’s not like this is just a disguise for England taking over our sovereign stock exchange. Besides, big guys in the Middle East have huge stakes in both companies and will end up owning almost a quarter of “Holdco” anyway (source: The Globe and Mail).

All in all, there are lots of details to be ironed out in terms of how this company will run and on the Canadian side Ottawa’s industry minister Tony Clement is in the process of reviewing and (maybe) approving this merger, so rest assured this major deal will only go through if there’s something in it for us.

Love conquers all. So does economics.