Economic cycles have been observed since Biblical times ("Indeed seven years of great plenty will come throughout all the land of Egypt; but after them seven years of famine will arise, and all the plenty will be forgotten..." Gen. 41). Then and now, people would try to adjust and figure out what happened. Since the economy is complex and not everyone thrives or suffers at the same time it's difficult to know whether the down- or upturn is more than just a passing phase. In fact, it takes study and an official declaration from the National Bureau of Economic Research to know if we are in or out of a recession.
The current recession is the longest since the Great Depression of the 1930s. For a region like upstate New York, which was already lagging the nation in economic growth, it has been a time of retrenchment and the loss of some well-established businesses. (The Triple Cities weathered the 1930s in somewhat better shape than the rest of the nation).
Moreover, today's "Great Recession" signalled a change in some of the structures and practices that have been a part of economic activity for many years -- either by government action or instituted by the business community itself -- and like much else these days it is global in scope. With crises in investment, real estate, education, government spending and much else, life will not be the same coming out of this episode as it was going in.
Neither will the science of economics go unchanged. Although warnings had been heard for many years about the vulnerability of such instruments as subprime mortgages and derivatives, few expected the general economic collapse that brought down century-old brokerage houses and brought on massive government intervention in the United States and elsewhere.
The dislocations suffered by the markets -- and the widespread personal pain -- has caused real soul-searching in the field of economics, and a questioning of the principles and assumptions that economists use. That has brought behavioral economics into the ascendancy and with it the ideas of economist Robert H. Frank. Dr. Frank refers to himself as an "economic naturalist". He is Henriettta Johnson Louis Professor of Management and Professor of Economics at Cornell University's Johnson Graduate School of Management. In a field often overburdened with charts, formulas and grand designs, Robert Frank specializes in micro- and behavioral economics, inquiring into personal motivation and social trends as much as into classic cost/benefit analyses. Professor Frank has shaken up the teaching of economics by deemphasizing mathematical aspects in favor of a case-history aproach. He also believes that Charles Darwin's ideas on competition and "survival of the fittest" are more pertinent to economics today than the seminal views of Adam Smith.
Robert Frank writes a regular Economic View column for The New York Times. His earlier books include "The Winner-Take-All Society" and "Luxury Fever". "Principles of Economics" was co-authored with Ben Bernanke, now chairman of the Federal Reserve and a leader in the study of macro-economics. Dr. Frank was also a guest on NPR's "Talk of the Nation".
In "The Economic Naturalist's Field Guide: Common Sense Principles for Troubled Times", Robert Frank brings back many of the columns he's written in the Times during the past dozen years touching on a wide ramge of subjects, including salaries of hedge fund managers, Gross Domestic Product as a measure of well-being and income inequality. The articles about the recent economic downturn and about health care financing bring the book up to date with today's major issues. He advocated a single-payer health insurance system in a Times column in 2007 and followed through on that proposal:
The first step is to acknowledge that insurance companies are not evil, that they invested in good faith under tax laws that favored employer-provided health insurance. To put them out of business overnight would be unjust.
Even so, they are not entitled to a permanent license to operate a system that has become economically unsustainable. The move to a single-payer system would save far more than enough to compensate insurance companies for lost profits. Compensation for losses could start at 100 percent, then be gradually phased out as companies shifted investments elsewhere. --from "The Economic Naturalist's Field Guide"
Robert Frank joins Bill Jaker on OFF THE PAGE to share his common-sense principles.