Don’t know much fis-cal history
Don’t know much economy
Don’t know much about Bretton Woods [1]
Don’t know much about exchange of goods
But I do know I have TT
What he knows, he always shares with me
And I gather each pearl, gratefully!

Don’t know “Cost of Opportunity” [2]
Long run/Short run dichotomy
Never understand Dow Jones charts
Can’t tell Friedman and Keynes apart
But I know that Tommy loves this stuff
Graphs, statistics: Can’t get enough
My financial advisor: TT

Now, he don't claim to be L. von Mises [3]
But he’s like him to me
The banks are declining, the stock market’s crazy,
TT can explain, you see

Macro/Micro? A mystery
Rate exchange of currency
Haven't planned for retirement
And can’t figure where my savings went
But I do know that others, too,
Share confusion and are feeling blue
And I tell them to call on TT

[Interlude: Politicians posture, each blaming the other side, while the world slides downward for refusing to recognize the facts of (economic) life and of "human action". (see note #3)]

So if you find confusing, too --
What the politicians say and do
Ask our MBA Turtle, TT!




[1] "Bretton Woods" -- an international conference held in Bretton Woods, New Hampshire, USA, in July 1944, to design a plan to restore global economic order from the disastrous disruptions caused by World War II. There is a "slight" chance that more details might be found in our companion post today, "American Pie Shrinks As More Slices Handed Out".

[2] "Opportunity cost" -- in economic decisions, the value of what you must give up to do the thing you are thinking about doing.
(FG Fairly & Graciously turns the lectern over to TT at this point.)

Simple example: A car dealer offers you either 0% financing, or $3,000 "cash back" if you buy a new car (not both.) Suppose the retail price of the car is $20,000.00, and that you actually do have the needed $17,000.00 cash in the bank. (You do, don't you? :-) To determine which is the better deal, you must consider how much interest the bank would pay you on that $17k over the same period of time. Paying cash for the car saves $3,000.00 vs. the freebie loan, but there is an "opportunity cost" of the lost interest that would have been earned if you took the free loan and kept the money in the bank. Currently, savings account rates are low - only 1 - 2 % in the US -- so the opportunity cost factor here is almost negligible.

Hint: Most of the time, the 0% financing will be the less favorable deal. The car dealer's finance company isn't stupid. If they can't make more on the discounted financing than the bank is paying on deposits (they'll pay the car dealer the same $17k that you would, but they'll get your note for $20k in return), they'd just put their money in the bank instead of taking the crazy, foolhardy risk of lending it to someone like you. (j/k! -- but you get the point.)

Bonus hint for geeks and wanna-bes:
Most 0% loans are for short terms, often as short as two years. In the above example, the finance company's $17k loan has an effective annual return to them ("APR") of about 16.2%. We *told* you they weren't stupid. :) You can't get 16% on your bank savings account. But in effect, the loan costs you that.

Bonus hint for the Real World:
Suppose you don't have the cash (Shocked! We're *shocked*, we tell you!), but your credit union will lend you the 17k (3k cash back is the down payment) at, say, 5% APR. You now know to take the credit union's loan, because paying 5% interest with a 3k rebate is better than paying 0% interest at an effective APR of 16.2 %.

[3] (TT:) Why do so many people think economics is some arcane mystery, like rocket science? Here's one example: The actual opening paragraph of Wikipedia's article on von Mises' book, "Human Action":

" 'Human Action: A Treatise on Economics' is the magnum opus of the Austrian economist Ludwig von Mises. It presents a case for laissez-faire capitalism based on Mises' praxeology, or rational investigation of human decision-making. It rejects positivism within economics. It defends an a priori epistemology and underpins praxeology with a foundation of methodological individualism and laws of apodictic certainty. Mises argues that the free-market economy not only outdistances any government-planned system, but ultimately serves as the foundation of civilization itself."

Cripes, it's bad enough that TT has a thing for sheep; now everyone knows that he's also an apodictic praxeologist. (huh?)

Here's how TT would describe von Mises and his greatest work:

"Ludwig von Mises (1881 – 1973) was an Austrian economist whose magnum opus was 'Human Action: A Treatise on Economics'. It presents a case for laissez-faire* capitalism based on Mises' rational investigation of human decision-making. Mises argues that the free-market economy not only outdistances any government-planned system, but ultimately serves as the foundation of civilization itself."

See? It *can* be explained in reasonable English -- which we tried to do in the companion economics parody posted today. (This is where having a bright, well-educated partner, but without a background or education in the financial fields, served as an invaluable sounding board for the other parody, giving feedback and making sure that TT's professional knowledge was being put into English that other readers without specialized knowledge could grasp. Since FG has already hit the hay and left TT to do the posting -- he knows the HTML markup code, anyway -- she doesn't know this comment was added. Surprise! xoxoxo muah!)

TT had to read the entire 900+ -page original of "Human Action" (*zzzzzz*). All *you* have to do is read our companion parody posted today. Lucky you!


* "laissez-faire" - (c. 1680) French for "Let It Be", a title brutally ripped off by The Beatles almost 300 years later.