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Presentation

Social Sciences I
1984 Commencement Address, University of California, Santa Barbara


     
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Commencements are events to be remembered, but commencement speeches are another matter. When I recently polled a small sample of colleagues, friends, and acquaintances, I was surprised to learn that our recollections were dim; we could remember neither the subject of our own commencement address nor the name of the speaker. One possible explanation for this memory lapse is that commencement speeches are eminently forgettable because they are predictable and nonthreatening. More precisely, it takes little courage to stand up before a university audience and argue in favor of peace, justice, brotherhood, the environment, and lower registration fees.

. . . .Let the record show that I support these great ideas. Yet, it wouldn’t be efficient for me to spend these great few moments in an attempt to persuade you to set aside your personal goals in order to devote your lives to the great popular causes of our day. No, like most economists, I am far better qualified to explain how the world actually works rather than how it ought to work.

. . . .If you read the financial press, you might have the impression that economists have a variety of views on the proper course of policy on interest rates and credit. Nothing could be further from the truth. Most economists believe that a vigorously growing economy such as we have today will raise interest rates, which in turn will prevent the economy from growing. Now, clearly the best policy is to have the Federal Reserve raise interest rates in order to slow down the economy. Thus, interest rates can fall in an economy that is slowing down and we can then expect economic growth to speed up.

I can see by the complacent expressions on the faces of many of our degree candidates that they instantly realize the full implications of my remarks for credit and tax policy. Obviously, credit is good for the economy, but debt is bad. While too much private borrowing will drive interest rates up, those higher interest rates will result in too little borrowing. Consequently, the object of tax reform must be to encourage lending by discouraging borrowing. I’ll stop here and let you explain to your parents the obvious effect all this is going to have on the slope and shape of the yield curve for government bonds as well as an appropriate investment strategy for the next ninety days.

Now, if I might address the parents of the degree candidates for the moment; if your son or daughter is an economics or business/economics graduate, they are now able to explain all economic phenomena to you with accuracy and ease. However, this will require a bit of participation and concentration on your part as well since your graduate will undoubtedly rely on Morgan’s First Great Law of Economics. This law is named after Professor (and Dean) Douglas Morgan of our economics department. The law is brutally abstract and complicated but a rough approximation would go something like this: “If two lines on a graph cross, it must be important.”

. . . .We have many outstanding scholars and teachers in the economics department at UCSB. Professor Llad Phillips, Chairman and Labor economist, was the first to offer a solution to a problem that baffled economists much as the four-color map problem baffled mathematicians for years. Professor Phillips was the first to provide a formal solution to the production theory problem: “If a man can dig a hole in one minute, can sixty men dig a hole in one second?” Early empirical tests seemed to support the Phillips hypothesis but those experiments were summarily cancelled by the university Committee on Experiments with Human Subjects because of the many accidents!

Our incoming chairman, Professor William Comanor, discovered what has come to be known as Comanor’s Universal Law of Economic Progress while serving as chief economist of the Federal Trade Commission several years ago. That law reads: “Any sufficiently promising business practice must be regulated or it might succeed.”

Scientific truth is frequently revealed as a by-product of other activity. For example, Professor H. E. Frech, III, stumbled on an important truth when he became curious about his persistent record of personal trading losses in the bond market. Once he turned his attention to the problem, his superior insight led him to the following conclusion: When the Federal Reserve lowers interest rates, investors anticipate more inflation. Consequently, they demand a premium to compensate them for the loss of purchasing power so interest rates rise. But, if the Fed raises interest rates, interest rates also rise. Hence, we have the Frech Formula: “Monetary policy is optimal at all times since whatever the Fed does, interest rates rise and bond prices fall.”

Professor Stephen DeCanio, winner of every student evaluation contest for his spectacular performance in Econ 5 over the years, is the world-renowned author of DeCanio’s Generalized Probability Discovery: “There is a 50% chance of anything—either it happens or it doesn’t.”

. . . .Modesty prevents me from mentioning my own numerous discipline-shaking discoveries and laws. However, I will share with you one episode as an illustration of how brilliant economists discover the great principles of human action. One afternoon a few years ago, my four-year-old son and I were arguing the relative merits of full information versus limited information equation estimating techniques. I sensed he was winning the argument, so to distract him, I pulled a roll of candy mints from my pocket and offered a single mint to him. He took it, popped it in his mouth, and silently stood there staring at me. I said: “Well, what do you say?” He said: “I want the whole roll.” There in a flash I had the insight for Johnson’s first law of environmental economics: If it’s free, they’ll want the whole thing.

Unfortunately, time does not permit me to review the many accomplishments of my other colleagues in Anthropology, Black Studies, Chicano Studies, and Economics. Thus, I will now offer some final expert advice for the new graduates about to enter the job market and the real world. For those of you interested in investments, I suggest that you avoid purchasing bonds issued by any government located south of Oxnard. In addition, be skeptical of investment opportunities that look too good. Indeed, it’s probably easier and less risky to save $1,000 a year through smart shopping and aggressive bargaining than it is to earn $1,000 in any securities or real estate market. Never, ever, under any circumstances, agree to an adjustable rate mortgage.

Finally, recognize that you will be entering a performance society where rewards are distributed according to the value of services you provide to others. Society will pay little attention to your needs or your good intentions, and it doesn’t offer incompletes and makeups. How you fare will depend on how successfully you satisfy the wants of others.

My colleagues and I wish you the very best success in your intellectual, financial, personal, and social pursuits. Your accomplishments will reflect well on us and will please us considerably. You have a fine education and excellent opportunities; with a bit of good humor and reasonableness in your dealings with others, you should do well and serve well. Fight to the death for anything you truly believe—but for the sake of your loved ones, try to keep those kinds of commitments to a bare minimum.


M. Bruce Johnson was the founding Research Director at The Independent Institute, Emeritus Professor of Economics at the University of California at Santa Barbara, and former President of the Western Economic Association.






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