Kapital is extremely interesting from the point of view of understanding Marx's very singular view of the world, but doesn't tell you much about how modern economists think about modern economies even from a contrasting perspective since neither existed at the time of writing...
“Modern economists” aren’t really a thing, at least in the sense that a consensus or collective understanding of economics is shared by a group denominated as such.
There is vigorous disagreement in the field regarding just about everything. The title of the underlying article may more appropriately be, “Popular Economics for Non-Academics.”
There is vigorous disagreement in the field regarding just about everything, but some of the few things they agree on (and the key fault lines for what they disagree on) didn't exist at the time Kapital was written.
krugman and mankiw are adversaries in the sense one prefers the current world neoliberal order designed for the benefit of the us to be led by democrats and the other prefers it to be led by republicans
to the average citizen of the world they are indistinguishable
Most of Econ 101, as a sibling comment notes, from basic approaches (definitions, deductive reasoning from models using algebra, testing of models with data) to detail (marginalism, "new consensus" macro modelling).
Macroeconomics and econometrics are two major subfields which literally didn't exist in Marx's day: economists may disagree significantly on conclusions and somewhat less significantly on certain assumptions models make, but they're focusing on the same variables (interest rates matter and fiscal policy somewhat matters, inflation is a thing which can be reduced, boosting employment and staving of recessions is more difficult) and doing similar maths.
This article on the 2008 financial crisis has lots of interesting references to government data. Then you can see if you reach the same conclusions as the authors.
Economics is about making decisions when your decisions have trade-offs because you have limited resources. Everything has a price, but the prices aren't always measured in a nice money-based price tag for your convenience, they're ultimately measured by the next-best alternatives. Decisions and policies don't just have consequences, they have second-order effects and third-order effects and you need to chase those down too, because excluding anything makes you understand the costs wrong (e.g. add highway lanes to relieve congestion -> now there is more traffic, because of "induced demand", not sure that was a good idea -> but why was there even induced demand? where are those trips coming from and what was the cost of the previous configuration? is this a housing-policy thing now??). You also learn to worry a lot about how decisions are actually made by self-interested decision-makers, rather than by abstractions-seeking-the-greater-good, and you examine what the decision-makers' incentives are....
Whereas a work like Das Kapital tells you very little about how to think this way. It's not intended to; it's more about the relative influence of various actors within a political-economic system, while raising tough questions about the meaning of private property.
>Economics is about making decisions when your decisions have trade-offs because you have limited resources.
But land isn't limited in the sense that there isn't enough of it for everyone, there is a fixed quantity of land on this planet but more than enough for everyone. Somehow some people got this absurd theory in their head that once there is abundance there is no need for economic allocation mechanisms. This completely ignores that even if there is enough land for everyone, a single person may have more land fenced off than he needs for himself, meaning that someone else ends up with less land than he needs for himself. Despite abundance of land you still need to allocate it properly and you still need economics to do that but economists shrug and do nothing. Artificial scarcity is the new normal.
Since all producable goods tend toward market saturation you will have this problem in more and more sectors in the economy as your country gets wealthier. In fact the problem isn't poverty, the wealthier we gets the worse things get.
Why is that the case? Why does the economy fail to allow abundance to happen? Why did economists put on a brain cage that tells them that scarcity is absolute and that if something isn't scarce it should be made scarce?
Reality is quite boring. Assume that there is a floor on capital yields meaning the income share in labor can never reach 100%.
Since economic activity gets siphoned off into the pockets of the owners of capital aka the rich get richer and they don't spend their wealth back into the economy, the rest of the economy must shrink. A game of musical chairs starts. There must be a loser and people will do absolutely everything to not end up as the loser. To prevent the non rich economy from shrinking and shriveling into nothing, we must keep up this farce of endless economic growth so that living standards don't get worse.
> But land isn't limited in the sense that there isn't enough of it for everyone, there is a fixed quantity of land on this planet but
You have assigned an economic value system and denied doing it - that someone can have "enough" land and someone else does not have "enough". By who's pricing model and oops - guess we're back to plain old economics.
Sorry but it actually is about economics and it is a pretty good description of capitalism but he makes some glaring errors about money by assuming that it is just a medium of exchange. Making such a grave error means that his proposed solutions to end capitalism are doomed to end in failure.
To expand on this (and hopefully not mangle your original idea), the key feature that makes a capitalist economy efficient is the use of a price mechanism to distribute the hard problems of decision-making to people who are reasonably well-informed and well-incentivized to make good decisions. These decisions will benefit society as a whole when (A) property rights exist and are enforced, (B) there are low barriers to entry, (C) transaction costs are low.
(There will be failures otherwise. Pollution ends up under A, monopolies under B, and a whole host of modern stupidities ends up under C — e.g. just for instance, no one at a minimum wage job is going to afford a lawyer to negotiate their employment contract: transaction costs are too high; the bigcorp employer, by contrast, only has to draw up the contract once. Instant structural unfairness follows.)
Orchestrating both information and incentives like this is really really hard. It's hard enough at a mid-sized project at a mid-sized company, where management spends hours and hours hammering on the idea of "alignment". At the scale of the global economy it's utterly intractable.
Ancient Rome, famed for its commerce, had a variety of capitalist features, though with significantly less productive use of invested capital, as one would expect of a pre-industrial society. Most people, however, would consider Roman slavery with people-as-property to be an abrogation of property-rights-in-the-self rather than just enforcement.
Marx identifies 5 functions of money in the 3rd chapter of Capital Vol 1 called "Money," not to mention the expanded treatment of money by Capital Vol 3.
Economics is mostly political economy. It's based on ideology more than anything moral or actually scientific. Neoliberalism has been the dominant theory since Keynesianism. It's been an abject failure, but nobody has come up with anything to replace it yet.
I'm sorry, what? Look at the curriculum for any economics degree, look at the winners of the Sveriges Riksbank Prize. How much political economy do you see there?
> based on ideology
Krugman and Manikw are on the opposite ends of the ideological divide. But the economics textbooks that they each wrote will not contradict the other.
A cursory look at the table of contents of Volume 1 turns up various topics such as:
- the length and regulation of the working day for factory workers
- the division of labor
- the economic impacts of increasing automation/mechanization
- wages (the factor payments for labor)
These are all topics that I think reasonably fall under the umbrella of economics. Certainly Capital is not a book on positive economics. It is, throughout, quite normative, and expressly interested in the combination of politics and economy.
Reading Capital may not help you understand how modern mainstream economists think, but it will definitely get you thinking about the same kinds of problems that they deal with. For example: how regulations might be used to enforce a 40 hour work week. Of course, capitalism has quite outgrown Marx's mid-19th century conception of it. It's an old book. But I find it difficult to understand how a book critiquing the work of the first economists is not a text about economics.
Well you labeled it a "hot take" so that at least shows you understand how absurd this take seems on its face. So what's the part I'm missing? Why is this a good take?
Marx was a political scientist, not an economist. He thought about how greed effects decision making and power corrupts. He was interested in a political revolution because he believed capitalist systems are unable to solve market failures. Economics is generally less interested in the politics of how to implement solutions and more interested in what the optimal solutions are.
> Marx was a political scientist, not an economist
This is probably as pointless of a statement to argue against as it is to make in the first place. But, Marxian economics is still considered one of the main schools of economic theory today and comprises several other schools within it
> He thought about how greed effects decision making and power corrupts.
This is not really something he wrote about. Maybe you're confusing him with the anarchist Bakunin who believed anyone with any amount of (unequal) power would inevitably become corrupt. But given that he believed you could have a "dictatorship of the proletariat" to usher in revolution, he clearly didn't share this view.
> He was interested in a political revolution because he believed capitalist systems are unable to solve market failures.
I guess in a vague, broad sense this is sorta correct... But he actually believed capitalism was a necessary step towards socialism. So much so that Russian Marxists like Lenin specifically tried to bring Western-style capitalism to Russia. They thought it necessary for the advancement of society
> Economics is generally less interested in the politics of how to implement solutions and more interested in what the optimal solutions are.
Karl Marx was specifically interested in "Scientific Socialism". In his time he was hailed as "having done for economics what Newton did for physics". He developed a pretty in-depth and rigorous theory that provided really useful tools to study and analyze society. And he and his followers believed that his conclusions were a result of this rigorous and scientific approach to social analysis
Mind you, this is not really unlike modern economic theory. We have tons of tools that had never actually been tested. In fact, I'd say that the past 15-ish years of economics are revolutionary precisely because it's the first we're actually being data-driven about things. Things like the Phillips curve are still taught in Econ 101 classes around the country but it has thoroughly been debunked using actual real-world data
You can argue that Marx's theories had issues but they were just as "scientific" as modern economics has been up until very very recently. (That is, not very)
Reading the first chapter alone (in particular the section on commodity fetishism) will tell you all you need to know about how economists think, because it tells you why economists think. This is a domain of inquiry that is necessary for any science, but that the economists since Marx have ran from for reasons Marx exposed in Capital itself. Notice that the OP article doesn't even try to justify its categories. How do economists think? Marx responds very simply: ideologically, dogmatically.
The beginning of Capital is quite dense (establishing the basic definitions of a study often is, and Marx's dialectical approach takes some getting used to if, like me, you never could understand Hegel) so I would recommend reading it along with David Harvey's lectures available on Youtube. However, the book does open up from there and becomes very much more concrete: working day lengths in the factory, increasing automation of industry, transition from feudalism by expropriation of land from farmers, ...
It is of course important to understand the works that Marx was critiquing or building on. Smith's Wealth of Nations, for example, is available for free from Standard Ebooks (https://standardebooks.org/ebooks/adam-smith/the-wealth-of-n...). This translation is very readable so I encourage you to take a look.
As a fairly big (philosophical) Marxist, it's important to recognize that Marx is much like the Bayesian Statistics of economics.
For me personally, it was Marx that first made sense when I read it, very much like Bayesian statistics first made sense to me where I found Frequentist stats very confusing.
That said it shares the same problem: If you learn Bayesian statistics the Summer before Stats 101 in college, it will likely hurt your performance in that class. Likewise, while Marx makes a lot of sense, understanding Marx will mean you have an even more difficult time communicating with mainstream/orthodox economists.
However from a Marxist perspective this is no accident. One of, if not the most, important ideas coming out of Marx is the idea of ideology. The idea is that even our most basic thinking and views about the world are formed around the idea of maintaining existing social relations in favor of the ruling class.
An example of this (my own) is the way that Christianity in Medieval Europe quickly evolved into a belief system where the natural order involves an all mighty ruler that must not be questioned. The idea that the natural order of things involves a strict monarchistic hierarchy was fundamental to the Medieval European world view. Clearly this is a beneficial world view if you are a ruling monarch. You still see the impact of this today in the way we tell stories about princesses who, even when their identity is either unknown or hidden, are innately superior to other around them, or in other narratives where justice is satisfied only when the "true king" sits on the throne.
Orthodox economics, from a Marxist perspective, is referred to as bourgeois economics. That is, at a fundamental intellectual level, orthodox economics exists to reaffirm a capitalist worldview, in a similar way to medieval theology evolves to support monarchistic rule. An example of this is the way that the role of labor in the creation of value is fairly hidden, the economic inputs and outputs are all framed in a way to distract from the very idea that the worker creates value.
Another good example of the difference is the "business cycle" vs Marx's crisis theory. In orthodox economics the business cycle is a borderline supernatural process that we just accept as "how things go". For Marx periodic market crises are because Capitialism is filled with unresolvable internal contradictions (one example is the incentive for Capitialist to maximize the exploitation of the worker while simultaneously depending on that worker for the creation of surplus value). Marx spends a good chunk of Capital vol III developing this idea. For Marx the big concern is that deep contradictions in the foundations in the logic of Capitialism will ultimately lead to it's collapse.
So while I do recommend nearly everyone read Marx, it will likely hurt, not help, you understand mainstream economic theories.
When it comes to understanding how the economy (especially inflation) works i really like the NPR article about how Brazil fixed their inflation. It boils down to inflation being inflation expectation.
tldr: They invented a new theoretical currency. All prices were each month listed in the actual price in the old currency and the price in the new currency (that didnt exist yet). And each month the new currency was redefined so that stuff still cost the same in the theoretical currency. They did this for a few months till they declared inflation fixed and creating the new currency that had "proofed" its stability the previous months. And Abrakadabra, people believed and inflation was fixed through the introduction of the Brazil Real. Obvious when you think about it, its not called fiat currency for nothing.
>Say, for example, that milk costs 1 URV. On a given day, 1 URV might be worth 10 cruzeiros. A month later, milk would still cost 1 URV. But that 1 URV might be worth 20 cruzeiros.
>The idea was that people would start thinking in URVs -- and stop expecting prices to always go up.
Yes, that happened. But the government also did take the finances under control, restructured (literal "changed the structure of", not defaulted) its debits, added controls to the banking system, restructured the banks, pegged the currency to the dollar, made a campaign of price transparency, and a lot of other things.
>But the government also did take the finances under control, restructured (literal "changed the structure of", not defaulted) its debits, added controls to the banking system, restructured the banks, pegged the currency to the dollar, made a campaign of price transparency, and a lot of other things.
And how much of what you just listed worked the exact same way as the new currency trick, through being a frame to influence public perception?
Thats the important perspective i took away from it, that i was thinking about economics wrong. In the end the way it works is through crafting stories to get the market participants to believe certain things. Because that is all the economy is, people and their behavior. And if you want to influence behavior, you have to influence how people think.
The educative campaign was also about people's mind. The others were very real changes and most people didn't even know they were happening.
If you go into your sibling that continued my list, all of his items are real, and only the balanced budget was even communicated broadly.
Yes, psychological factors are important for an economy, but they aren't singularly important. They are not even merely more important than the other kinds.
>They are not even merely more important than the other kinds.
I might be very wrong here, but i dont think it is possible to source that. I understand that they did all those things, but unless its possible to articulate how it affected market participants behavior i would argue claiming causality is very difficult. How exactly does for example a balanced budget halt inflation outside of changing inflation expectation? There will be answers depending on which model you adhere to, but does that explanation still hold up and remain applicable today? Because if not you kind if have to explain why not.
With economics being focused on human behavior in a market, what fundamentally determines how good a model describes the economy is market participants believe that it does. Because their believe determines the behavior you are trying to model in the first place. For that not to be the case we would need to see some static structures emerging in markets independent of market participants motivation and their understanding of how the market works. And if i am not mistaken that hasnt been the case. All there is is peoples behavior and it doesnt seem to be static.
*There is of course stuff like interest rates which changes behavior directly through higher costs(forcing behavior instead of changing motivation), but as i said, most.
edit: Which again, is the change in perspective i mentioned above. Unless i am overlooking something obvious, economic models arent describing some intrinsic behavior of markets because there doesnt seem to be any. They are only able to describe behavior once market participants behave that way. Which would mean economic models work because people believe they do. For that not to be the case you would need to see some models that remain applicable throughout time.
I am sure i am overlooking something obvious, but the answer to that would be a link to a working economic model that identified some fundamental structures that isnt dependent on market participants motivation.
There were plenty of policies against inflation that focus only on the people's perceptions in History. Those are an easy and cheap thing to try, so governments do try. When that's the only focus, those policies seem to fail every time.
On the other hand, policies that focus on real aspects have a non-zero rate of success. A balanced budget by itself has a higher rate of success than any policy that doesn't include a balanced budget.
Brazil was in an exceptional situation in 1994, where any policy based only on real aspects would be expected to fail. But don't think this is a general case.
I am not arguing they dont work, quite the contrary, what i am focused on here is how they work.
And that is always through changing the behavior of market participants. There is no other angle or lever to pull, that is all the economy is, peoples behavior. The distinction between tricking people with a fake currency and real policies like a balanced budget is meaningless in this context because they work the exact same way. Both give reasons for a reduction in Inflation expectation. You can argue that its justified (or real) in one case and not in the other but i dont see the point.
They also, among other things, raised interest rates and taxes, severely cut public expenditure, legally enforced balanced budgets and cut tariffs by half. It was a pretty thorough plan.
I really don't understand the appeal of The Worldly Philosophers. Maybe it's just me but I found the explanations of the ideas of each philosopher to be rather muddled.
I found it stimulating in high school (compared to most social-studies stuff). But from recently sampling it in the library: I don't think it mentioned the marginal revolution at all. E.g. Alfred Marshall did get a couple pages, but only as some kind of Victorian eminence who made some technical contributions not worth explaining.
Not sure what the article said since it's locked, but I recommend Steven Landsburg's "The Armchair Economist". It's one of my favourite books of all time.
Freakonomics?! It's a clickbait book. Wild headling-grabbing claims, bogus data, and dubious methods. It's like saying to learn investing you should watch Jim Cramer's Mad Money.
> Economics has a reputation as a dry, heartless subject, full of boring equations.
Not if you have any training in a hard science: then you think of economics as something largely devoid of equations and made up of lots of ad-hoc regression analysis and hand waving. This might not be the fault of the economists but of the difficulty of the subject matter of course. But economists really should learn to accompany their predictions with error bars as every undergraduate physicist must.
Economists have "hard science" models but those are empirically unreliable.
Honestly the boring answer is that e.g. liquidity is the ability to change your mind instantly, which also means that any prediction can become invalid at any given moment.
If you want to increase predictability, you would have to encourage people to make decisions as soon as possible and stick with those decisions for as long as possible.
As a mechanical engineer (not a hard science), economics has always looked more like history than science. As in, you can build models to show what happened, but not what will happen.
Edit: I think Ive had my mind changed enough in this thread to edit this. It's obviously a very deep subject and I've been convinced it has predictive qualities. I definitely dont think of dry equations though, more like psychology, and politics. But I'm looking forward to learning about it and possibly having my mind changed yet further.
Econ is great at predicting the future. Let’s say your uncle tells you about his new stock trading strategy that’s guaranteed to make him 10% returns per month. Will he be rich two years from now? Econ’s efficient market hypothesis predicts he will not.
Or let’s say the president of Japan announces a plan to beat deflation once and for all. He says that next year, he’ll fire their central bankers and hires the ones from Venezuela, give them a 100% annual inflation target, and promise them millions of USD in bonuses if they meet or exceed that target.
Even though this plan is going into effect next year, what will you see the next day? (Assuming people believe the president is serious.) Econ predicts you will start seeing inflation immediately. And we see effects like these all the time when looking at how the actions of central bankers effects the economy – if Powell says he’s going to change interest rates, there’s a reaction in the markets when he makes the announcement and not one when he makes the actual change.
>Let’s say your uncle tells you about his new stock trading strategy that’s guaranteed to make him 10% returns per month. Will he be rich two years from now?
That depends on whether the stock he bought was GME.
These are not predictions, they are assumptions. The difference being they are in no way quantifiable. Econ has lots of equations, but it can't actually predict anything beyond some broad directions like you show, and even those are sometimes wrong.
There was even a story (no idea if true, so maybe of limited relevance...) of a reverse bank run happening in Japan, with people rushing to deposit money to save a failing bank.
There's a big difference between micro and macro. Macro is basically predictions as you say because in the end it's largely underpinned by market expectations which are not always rational. Micro on the other hand looks at the choices of individuals, which are by definition at least somewhat rational. Individuals will always make the choice that they believe will maximize their utility, so the whole thing is really just equations whose derivative you set equal to 0 in order to maximize/minimize.
> which are by definition at least somewhat rational
Or can be demonstrably arbitraged to take advantage of the irrationality in a tangible, quantifiable and repeatable way. Put-call parity, substitution, et cetera.
Before you lay into an entire academic discipline, it would help to understand it a little better. Fine if you’re just bagging on DSGE models, since they really are garbage (although I would argue that it is because of all the equations involved). But the vast majority of economics is concerned with causal analysis where there are no predictions. And everybody reports standard errors and has for decades.
This. The subject is definitely not the rigorous science that its practitioners would like you to believe. They mostly just fit some sort of regression model and analyze it, but rarely is there any serious work to demonstrate that reality actually obeys the model. I understand that proving the real world actually conforms to theory is very hard, but that is what makes science what it is, and why science is really hard.
No I don't want to read through that crap anymore, I had enough in grad school helping econ friends. What I'm talking about is that they always make a bunch of simplifying assumptions about the world and then fit their model and analyze. But what they almost never do is seriously justify the assumptions. One popular paper is to do "Assuming the world follows theory X, we propose this tweaked version of model Y from paper Z and show how it better predicts this dataset of 600 points from the world bank." I knew numerous people in grad school who played that game. There is no way the tiny little dataset they had could justify any of this, but that's what publishes in econ. And if you ask them about this, they will tell you that they only had this tiny little dataset because that's all that is publicly available and so on. That's fair, but also gives them a huge dodge to hide behind. That's what I saw of the field and I came away thinking that it stank.
> But economists really should learn to accompany their predictions with error bars
Virtually all published papers in economics that use regression analysis which you mention include "error bars." The discipline calls these standard errors and confidence intervals. If a paper is non-parametrically estimating functions rather than single parameters, they might also report confidence bands.[1]
Standard errors may be calculated analytically (resting mostly on asymptotic theory) or numerically (using a bootstrap estimator for them). There is a large literature on the appropriate standard errors for various contexts, with clustered errors being mainstream in applications.[2][3] These are taken seriously in peer review, and published papers come with long lists of robustness checks which turn papers into book-length publications when you include the appendices.
The economist acts as a pretty good contrarian indicator.
What would really help is look at some of the bigs, compare them with each other, follow them over time, see who was right and who wasn’t, and come too your own conclusion.
Bonus: chat or follow some old school, based interest rates traders, see what they have to say. Compare them to economists.
Then look into the Eurodollar system, and be prepared for a shock.
Made an account only to suggest checking out Perry Mehrling‘s work. He has a Coursera course for free which will change the way you look at economics entirely.
I‘ve studied economics and political economy for years and never seemed to be able to tansfer the micro/macro models to the real world. Perry‘s work doesn’t have to be transferred b/c they come from the world of banking in the first place.
Perry is best consumed in lectures. Here one on Eurodollar [1].
John Maynard Keynes and Rosa Luxemburg writing about capitalism to understand the current economic situation AND why most "mainstream" economists keep a certain direction.
I can't read the fine article. I've read from economists that the key essay to answer this is "What is Seen and What is Not Seen" by Frederic Bastiat (1840). That introduces the parable of the broken window. Its arguments are reprised in Economics in One Lesson by Henry Hazlitt (1946). Are either mentioned in the article?
You can't steelman classical economics without groking these.
Its a very political field and whichever little clique gets the ear of the decision makers that year determines what policies get enacted. I'll grant you that this doesn't matter in practical terms, because we all know that the policies will benefit the rich, not us, but at least you can get a better understanding of how you'll be robbed.
They listen to the ones they find useful. I guarantee you "trickle down" wasn't Bush's idea, an econ man put those words in his head, and it was to provide academic justification for giving the rich a big wealth transfer from the working class.
This is needlessly antagonistic towards economists. The majority of them are boring academics. The others are employed by the rich to whisper into the ears of politicians as you describe. This is precisely why it's important to learn economics: so you can vote for economically literate politicians who are be better resistant to lobbyists' BS and vote against politicians who are clearly trying to favor special interest groups.
Once the 1970s happened and Keynes was accepted, the Revolution was over, wasn't it? My macroeconomics courses in the 2000s basically said, "Yeah, stagflation happened. How bout that," and went back to the G plus E plus I whatever.
The most important thing to know about the field of economics is the only people who get funding are the people who tell the public that the government should do whatever it was the government wanted to do.
Example: you won't get funding if you go around saying there's no such thing as a labor shortage in a market economy, even though this is entry level economics. Why would that tank your career? Because big business has paid the government to pull the right levers to suppress your wages. The solution to a labor shortage is higher wages, but that can't be the government's response to their donors. Technically you can say the truth, but you better not be very loud about it.
This is how the idea that raising the minimum wage would cause unemployment came to be and how the fact that (up to a fairly high point) it simply eats profits got suppressed.
Can't really tell where you're going with this. The solution to a labor shortage is higher wages. You seem to be suggesting that it should be an increase in minimum wage.
In a market economy, you absolutely wouldn't need this if you had a labor shortage...the market would resolve on its own. But we don't have that. We have an economy where millions are paid by the govt to do nothing. This then becomes what employers are competing with.
Wouldn't that just mean that the employers need to compete with the government, i.e. raise wages? So than the market should resolve this on its own as well?
"you won't get funding if you go around saying there's no such thing as a labor shortage in a market economy, even though this is entry level economic"
The Economics 101 answer is clearly wrong or at least incomplete in this case. Think about it this way: if people's wages increase in real terms by definition this means they can buy more with their wages. Producing stuff requires, amongst other things, workers. Suppose we're in a situation like the current one where unemployment is low and businesses across all sectors cannot find enough workers to keep up with consumer demand. What happens if they all try and solve this by increasing wages across the board? Well, their workers have more money to spend so this increases consumer demand even more - and remember, the problem we were trying to solve was that this was already too high compared to supply. What it doesn't do much for is the supply of workers, since there's not some big pool of potential workers who could be working but aren't. It's not going to encourage people to work longer hours either since when would they have time to spend the money? Basically, it makes the whole problem worse, and that's why the Fed and central banks around the world are freaking out right now.
A labor shortage is potentially an opportunity for the economy to re-rorient itself and for wealth to be redistributed. Companies producing goods that are more in demand will afford higher wages, while companies that produce less in-demand goods will not, and can ramp-down their production or go bankrupt.
To take an extreme hypothetical - let's say there was a massive shortage of food workers. As the price of food increases, so would the wages for food workers, until they will start pulling people from other industries, which can no longer offer competitive salaries. This could lead to something like ad-tech eventually start losing low-level workers to agri-business.
Essentially, the mistake in your argument is to assume that demand is high and inflexible around the board. In reality, certain industries have higher demand than others, and many workers can change industry, even in the short term, if incentives are high enough.
However, companies used to cheap labor and high margins are not willing to give up their profits and reduce their margins, so they are begging the state to find a way to force people to keep working for them for nothing.
I'm pretty sure your example just demonstrates the point that I was making originally though. Assume there is a massive shortage of food workers, food prices increase and the food industry starts pulling people from other industries like ad-tech which can no longer offer competitive salaries. This implies an aggregate shift in spending from discretionary consumer purchases (which are specifically what fund ad-tech and the advertising industry) to food. In other words, people have on average become poorer: they have to spend a larger proportion of their money on essentials like food and have less left over for other stuff. Which is, of course, just another way of saying that on average people's wages have shrunk in real inflation-adjusted terms.
(It's not like the other stuff can just become cheaper in order to make up for it either - remember, all the other industries are suffering the same underlying cost pressures as the food companies and the whole reason they're losing the competition for workers is because there's no longer enough people willing to pay the increased prices they'd have to charge.)
If I remember rightly, the proportion of a country's workers employed in food production is even pretty good approximate measure of how advanced an economy is, with more advanced economies employing a much smaller proportion of their workers that way and having much more doing other things.
The fed chairman recently gave a press conference in which he complained that workers had too much power in the market and were able to demand higher wages. He explicitly stated he was going to create policy to tip the balance of power back towards businesses. He didn't say exactly what he was going to do, but made his intent clear.
People express a lot of concern about things like how wages have not kept up with inflation for decades, how families have to have two incomes to survive, etc. Just when workers were maybe gaining some of that ground back, the fed chairman tells you he's going to fuck you with policy. The type of person who supports such policies and pretends that's good for you are the ones who get the positions, the funding, etc.
What are you saying? You know what replaced Keynesian economics in the 70s? Monetarism in the vein of Milton Friedman
The same Milton Friedman that, along with the rest of the Chicago Boys, guided the policies of Augusto Pinochet. Generally regarded as one of the most brutal dictators South America has ever faced...
You know who became vegetarian because of his concern for animal suffering? Hitler. That's as relevant for dietary and ethics choices as your mention of Pinochet's brutality is for economic policies.
Pinochet's economic policies were regarded as extremely successful, basically his turn around of the economy is what allowed him to be so brutal to his political enemies. Unfortunate, but it's hard for me to say the chicago boys actions in Chile can be regarded as failure.
What allowed him to be so brutal to his political enemies is that he commanded the army. The economic reforms came after the coup d'etat and suppression of the opposition not before. And they were far from smooth sailing: ironically Friedman coined the idea of a "Miracle of Chile" in an article at the beginning of 1982, shortly before Chile was plunged into a deep recession.
Either way, the comment further upthread ranting about Keynes was weird considering that Keynesianism really didn't involve shooting people, and whilst the ideologically opposed Chicago School policy didn't either, it was famously most faithfully implemented by a military junta Friedman himself had plenty of time for.
There have been plenty of dictators that have been able to be ruthless efficient with their suppression of their people that had nothing akin to free markets (Russian tsars, Genghis Khan, certain dynasties in Japan, etc)
An effective government isn't evidence of anything. You forget that the most productive economy the US has ever had was during WW2. When the government basically took complete control over almost every aspect of production to make sure everything went to the war effort. Does it work? Yes. Does it mean it's a "good economy"? I don't think I'd wanna live in such an economy personally
Not sure why this is being downvoted. This is just well-estatblished history. Keynesian economics came out of the Great Depression of the 1930s and was the leading economic theory until stagflation posed a major theoretical challenge for it and monetarism took over instead
Strictly speaking it depends what you consider to be "Keynesian" economics (But yeah, your comment was a lot more accurate than the one it was replying to)
Stagflation killed the Phillips-curve "Keynesianism" which emerged after Keynes' death as wasn't actually in the General Theory: the idea that inflation was inversely proportional to unemployment so you could get rid of the latter if you had enough of the former. It didn't kill off the more generally useful idea of macroeconomic modelling or the assumption government policy could mitigate recessions.
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Similarly, strict monetarism (the idea that the government could easily stabilise things by ensuring the money supply was at a certain level) didn't survive the realisation the banking system made the money supply flex and so the result was interest rates and other monetary aggregates bouncing around all over the place , but the basic idea that controlling inflation was possible and a priority for central banks persisted once governments switched to fixing interest rates instead.
One problem I have with economics books is that they tend to end with either “and therefore, government spending is bad” or “and therefore, government spending is good”.
What I’m really after are non-ideological macroeconomics books that will help a layperson have a better sense of where the economy is headed so I can invest better, not books that would help me make better decisions if I were running a country, which I’m not.
Even finance experts like Matt Levine use index funds. Unless you are mega rich and have connections, you almost certainly have no advantage against the many people who work 100 hours a week trying (and often failing) to beat the market.
People do beat the market, but the thing is if you can beat the market then you don't need to accept public money - you become a private trading firm and trade with your own money and keep all the profits.
That's the issue: successful firms which beat the market don't keep doing it on behalf of other people for very long.
This. Imagine the arrogance necessary to believe that you can understand economics, finance, geopolitics, and the vast arrays of industries and competing companies well enough by studying as a hobby in your spare time to get better returns than professional investors who literally spend their entire careers trying to beat the market, and fail on average.
You're correct but I'd like to point at that professional investors don't understand all of that either. They spend their careers focused on little niches in which they can find an advantage. So it's less, what are the mysteries of the economic universe, and more, why does the West Texas Intermediate futures curve differ from the Brent curve and how can I profit from the spread?
That and the goal of many (most?) professional investors is not to beat the market. For some they just need to have higher returns than cost of funding and anything positive is accretive. Others sell fund investors on things like low market correlation. Or others have more specific goals like hedging future fuel prices for an airline.
Point being, individual investors have completely different goals from most professional investors and as you point out, "VTSAX and chill" is the way.
For many professional investors (and certainly for a large class of asset management firms), the big incentive is to accumulate more AUM. Returns can be a strong marketing tool to do that, but they're not the only one.
I think investing and economics isn't that well correlated. You need some idea of monetary and fiscal policy but as you say economics tends to get political quick.
Agreed avoid his crypto stuff. I'm just trying to think of a popular person to talk about markets and economy that isn't a bedroom expert like most of them.
Most of them are boring or technical or not that good. I love Hugh Hendry but he's repeating himself all the time now. If you have someone you like I'm interested.
> Economics is about explaining things after the fact, and incapable of prediction.
I would expand on this a bit.
The problem with economics is that it's the study of a type 2 chaotic system, where predictions about the system themselves feedback into the system and change the outcome. Contrasted with a type 1 chaotic system, like weather, where predictions are extremely difficult but can be made without affecting the outcome. Economics is chaotic because conscious actors are extremely unpredictable and change their behavior based on new information.
This is something you have to bear in mind whenever you hear an economist or government official make a prediction. The very act of making the prediction public often becomes a self defeating prophecy, because masses of people and money make changes to their future behavior based on the prediction. Also called the Prophet's Dilemma, https://en.wikipedia.org/wiki/Self-defeating_prophecy. A close relative of the Preparedness Paradox, https://en.wikipedia.org/wiki/Preparedness_paradox
This is why some of the best predictions are never made public. The best traders don't sell you their strategy. Because as soon as their prediction mechanism becomes too public, it gets absorbed into the system and arbitraged away to worthlessness. That's also why you always must take what government officials say with a grain of salt. They're often not telling you what they really think is going to happen. They're telling you what they think is going to motivate the population to behave in the most productive way given the current environment.
Making economic predictions is a grand game of "I know that you know that I know that you know". It's a game of mass manipulation rather than a technical pursuit of simple measurement.
It has aspects of weather like behavior. Plus climate behavior in that chaotic systems can jump from one semistable pattern to another. And then point events.
A virus jumps from bats to humans. Some dictator decides for his own internal reasons to start a war. The pace of technology isn't predictable or even possible to predict.
Referring to something above. Economics would be a lot better if it focused on historical happenings and stopped trying to pretend it's a hard science like physics.
unlike physics, and somewhat unlike chemistry, there is no direct causal relationship, instead it is systems of systems with new, unpredictable events entering into most of the them constantly. The time window for a prediction is also crucial, because the same set of decisions and rules in one era have different results in another era. Economists preside over this cacophony with a lot of measurements and news items. Occasionally something really worthy comes out, but the daily arguing and posturing is quite a turkey show, IMHO. Thomas Piketty got a prize recently.
> give us an example of a macro or microeconomic model that is incapable of prediction and it's (therefore?) all ideology?
Generally, the more a theory talks about how the past actually happened the more it's ideology than falsifiable science.
Take Marxism. It's largely a history of class struggles. There are testable bits, e.g. the labor theory of value (which is wrong). But most of it is unfalsifiable. Similar to the barter-then-money origin of money story, which offers zero predictive value while also being archaeologically unsupported.
Theories of value are untestable, since value isn't price. The LTV can only really be argued to be wrong on philosophical and theoretical grounds, not on empirical grounds. This is because market prices are not necessarily the same as values. There are however plenty of arguments outside the empirical realm against it.
If you want a testable theory from Marxism there really only are two - the aggregate rate of profit to capital will go down in the very long term, there will be endogenous economic crises due to lack of demand/too much supply in aggregate. The rest are unfalsifiable as far as I'm aware. The issue is that both of these predictions seem to be correct so far - P/E ratios are going up and we have now had plenty more evidence that crises due to mismatch between demand and supply are inherent to capitalism.
However, it's still not a great tool at actually predicting the world, because the vast majority of predictions are unfalsifiable. But I agree with you that most of economics is moreso ideology.
> One problem I have with economics books is that they tend to end with either “and therefore, government spending is bad” or “and therefore, government spending is good”.
Which economics book ends that way? I'm genuinely curious.
I went there to see how economists think... and they showed me a big tracking consent form that doesn't label the toggle buttons for whether I'm opting-in or opting-out.
The closest thing that I know of is Philip Tetlock, he made a 20-year-long experiment where he asked a variety of "experts" about political events like the fall of the Berlin Wall, and recorded the results.
The thing about making a prediction is that you don't really have much control over your experiment. I would bet that most rigorous predictions end up invalidated by some stated or obviously implied caveat.
There's something to it. But I don't believe the "type 2" dynamics point: if it were the case, then surely there must be some fixed-point you can reach if you take into account that your predictions become public.
Any business that does not depend on secrecy could be considered an example.
(There's an old hippie business book "Honest Business: A Superior Strategy for Starting and Managing Your Own Business" by Salli Rasberry and Michael Phillips
https://en.wikipedia.org/wiki/Michael_Phillips_(consultant) "a founder of the Briarpatch Network. As a banker in 1967 he organized Mastercard.")
You can e.g. buy a fax machine and encourage other people to get them too. The classic network effect: "the phenomenon by which the value or utility a user derives from a good or service depends on the number of users of compatible products. Network effects are typically positive, resulting in a given user deriving more value from a product as more users join the same network" https://en.wikipedia.org/wiki/Network_effect
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[ 3.2 ms ] story [ 303 ms ] threadhttps://www.amazon.com/Capital-Critique-Political-Economy-Vo...
There is vigorous disagreement in the field regarding just about everything. The title of the underlying article may more appropriately be, “Popular Economics for Non-Academics.”
to the average citizen of the world they are indistinguishable
Macroeconomics and econometrics are two major subfields which literally didn't exist in Marx's day: economists may disagree significantly on conclusions and somewhat less significantly on certain assumptions models make, but they're focusing on the same variables (interest rates matter and fiscal policy somewhat matters, inflation is a thing which can be reduced, boosting employment and staving of recessions is more difficult) and doing similar maths.
This article on the 2008 financial crisis has lots of interesting references to government data. Then you can see if you reach the same conclusions as the authors.
https://monthlyreview.org/2008/12/01/financial-implosion-and...
Economics is about making decisions when your decisions have trade-offs because you have limited resources. Everything has a price, but the prices aren't always measured in a nice money-based price tag for your convenience, they're ultimately measured by the next-best alternatives. Decisions and policies don't just have consequences, they have second-order effects and third-order effects and you need to chase those down too, because excluding anything makes you understand the costs wrong (e.g. add highway lanes to relieve congestion -> now there is more traffic, because of "induced demand", not sure that was a good idea -> but why was there even induced demand? where are those trips coming from and what was the cost of the previous configuration? is this a housing-policy thing now??). You also learn to worry a lot about how decisions are actually made by self-interested decision-makers, rather than by abstractions-seeking-the-greater-good, and you examine what the decision-makers' incentives are....
Whereas a work like Das Kapital tells you very little about how to think this way. It's not intended to; it's more about the relative influence of various actors within a political-economic system, while raising tough questions about the meaning of private property.
But land isn't limited in the sense that there isn't enough of it for everyone, there is a fixed quantity of land on this planet but more than enough for everyone. Somehow some people got this absurd theory in their head that once there is abundance there is no need for economic allocation mechanisms. This completely ignores that even if there is enough land for everyone, a single person may have more land fenced off than he needs for himself, meaning that someone else ends up with less land than he needs for himself. Despite abundance of land you still need to allocate it properly and you still need economics to do that but economists shrug and do nothing. Artificial scarcity is the new normal.
Since all producable goods tend toward market saturation you will have this problem in more and more sectors in the economy as your country gets wealthier. In fact the problem isn't poverty, the wealthier we gets the worse things get.
Why is that the case? Why does the economy fail to allow abundance to happen? Why did economists put on a brain cage that tells them that scarcity is absolute and that if something isn't scarce it should be made scarce?
Reality is quite boring. Assume that there is a floor on capital yields meaning the income share in labor can never reach 100%.
Since economic activity gets siphoned off into the pockets of the owners of capital aka the rich get richer and they don't spend their wealth back into the economy, the rest of the economy must shrink. A game of musical chairs starts. There must be a loser and people will do absolutely everything to not end up as the loser. To prevent the non rich economy from shrinking and shriveling into nothing, we must keep up this farce of endless economic growth so that living standards don't get worse.
You have assigned an economic value system and denied doing it - that someone can have "enough" land and someone else does not have "enough". By who's pricing model and oops - guess we're back to plain old economics.
1. How much land is enough for someone?
2. Is land fungible?
> economists shrug and do nothing
What exactly do you want economists to do here? Redistribute land?
> if something isn't scarce it should be made scarce?
Which economist is advocating for this?
(There will be failures otherwise. Pollution ends up under A, monopolies under B, and a whole host of modern stupidities ends up under C — e.g. just for instance, no one at a minimum wage job is going to afford a lawyer to negotiate their employment contract: transaction costs are too high; the bigcorp employer, by contrast, only has to draw up the contract once. Instant structural unfairness follows.)
Orchestrating both information and incentives like this is really really hard. It's hard enough at a mid-sized project at a mid-sized company, where management spends hours and hours hammering on the idea of "alignment". At the scale of the global economy it's utterly intractable.
Was ancient Rome capitalist?
https://www.marxists.org/archive/marx/works/1867-c1/ch03.htm
It's unclear what you think Marx said on "how" to end capitalism and how this relates directly to his theory of money.
I'm sorry, what? Look at the curriculum for any economics degree, look at the winners of the Sveriges Riksbank Prize. How much political economy do you see there?
> based on ideology
Krugman and Manikw are on the opposite ends of the ideological divide. But the economics textbooks that they each wrote will not contradict the other.
- the length and regulation of the working day for factory workers
- the division of labor
- the economic impacts of increasing automation/mechanization
- wages (the factor payments for labor)
These are all topics that I think reasonably fall under the umbrella of economics. Certainly Capital is not a book on positive economics. It is, throughout, quite normative, and expressly interested in the combination of politics and economy.
Reading Capital may not help you understand how modern mainstream economists think, but it will definitely get you thinking about the same kinds of problems that they deal with. For example: how regulations might be used to enforce a 40 hour work week. Of course, capitalism has quite outgrown Marx's mid-19th century conception of it. It's an old book. But I find it difficult to understand how a book critiquing the work of the first economists is not a text about economics.
This is probably as pointless of a statement to argue against as it is to make in the first place. But, Marxian economics is still considered one of the main schools of economic theory today and comprises several other schools within it
> He thought about how greed effects decision making and power corrupts.
This is not really something he wrote about. Maybe you're confusing him with the anarchist Bakunin who believed anyone with any amount of (unequal) power would inevitably become corrupt. But given that he believed you could have a "dictatorship of the proletariat" to usher in revolution, he clearly didn't share this view.
> He was interested in a political revolution because he believed capitalist systems are unable to solve market failures.
I guess in a vague, broad sense this is sorta correct... But he actually believed capitalism was a necessary step towards socialism. So much so that Russian Marxists like Lenin specifically tried to bring Western-style capitalism to Russia. They thought it necessary for the advancement of society
> Economics is generally less interested in the politics of how to implement solutions and more interested in what the optimal solutions are.
Karl Marx was specifically interested in "Scientific Socialism". In his time he was hailed as "having done for economics what Newton did for physics". He developed a pretty in-depth and rigorous theory that provided really useful tools to study and analyze society. And he and his followers believed that his conclusions were a result of this rigorous and scientific approach to social analysis
Mind you, this is not really unlike modern economic theory. We have tons of tools that had never actually been tested. In fact, I'd say that the past 15-ish years of economics are revolutionary precisely because it's the first we're actually being data-driven about things. Things like the Phillips curve are still taught in Econ 101 classes around the country but it has thoroughly been debunked using actual real-world data
You can argue that Marx's theories had issues but they were just as "scientific" as modern economics has been up until very very recently. (That is, not very)
By whom? Can you point to a single aspect of modern mainstream economics that is influenced by Marx?
1. Classical
2. Neoclassical
3. Marxist
4. Developmentalist
5. Austrian
6. Schumpeterian
7. Keynesian
8. Institutionalist
9. Behavioralist
With behavioralism obviously being one of the newest. Anyways if you'd like to read more about contemporary impact of Marxian economics:
https://mronline.org/2020/09/15/contemporary-relevance-of-ma...
The beginning of Capital is quite dense (establishing the basic definitions of a study often is, and Marx's dialectical approach takes some getting used to if, like me, you never could understand Hegel) so I would recommend reading it along with David Harvey's lectures available on Youtube. However, the book does open up from there and becomes very much more concrete: working day lengths in the factory, increasing automation of industry, transition from feudalism by expropriation of land from farmers, ...
It is of course important to understand the works that Marx was critiquing or building on. Smith's Wealth of Nations, for example, is available for free from Standard Ebooks (https://standardebooks.org/ebooks/adam-smith/the-wealth-of-n...). This translation is very readable so I encourage you to take a look.
For me personally, it was Marx that first made sense when I read it, very much like Bayesian statistics first made sense to me where I found Frequentist stats very confusing.
That said it shares the same problem: If you learn Bayesian statistics the Summer before Stats 101 in college, it will likely hurt your performance in that class. Likewise, while Marx makes a lot of sense, understanding Marx will mean you have an even more difficult time communicating with mainstream/orthodox economists.
However from a Marxist perspective this is no accident. One of, if not the most, important ideas coming out of Marx is the idea of ideology. The idea is that even our most basic thinking and views about the world are formed around the idea of maintaining existing social relations in favor of the ruling class.
An example of this (my own) is the way that Christianity in Medieval Europe quickly evolved into a belief system where the natural order involves an all mighty ruler that must not be questioned. The idea that the natural order of things involves a strict monarchistic hierarchy was fundamental to the Medieval European world view. Clearly this is a beneficial world view if you are a ruling monarch. You still see the impact of this today in the way we tell stories about princesses who, even when their identity is either unknown or hidden, are innately superior to other around them, or in other narratives where justice is satisfied only when the "true king" sits on the throne.
Orthodox economics, from a Marxist perspective, is referred to as bourgeois economics. That is, at a fundamental intellectual level, orthodox economics exists to reaffirm a capitalist worldview, in a similar way to medieval theology evolves to support monarchistic rule. An example of this is the way that the role of labor in the creation of value is fairly hidden, the economic inputs and outputs are all framed in a way to distract from the very idea that the worker creates value.
Another good example of the difference is the "business cycle" vs Marx's crisis theory. In orthodox economics the business cycle is a borderline supernatural process that we just accept as "how things go". For Marx periodic market crises are because Capitialism is filled with unresolvable internal contradictions (one example is the incentive for Capitialist to maximize the exploitation of the worker while simultaneously depending on that worker for the creation of surplus value). Marx spends a good chunk of Capital vol III developing this idea. For Marx the big concern is that deep contradictions in the foundations in the logic of Capitialism will ultimately lead to it's collapse.
So while I do recommend nearly everyone read Marx, it will likely hurt, not help, you understand mainstream economic theories.
Solved by reading Atlas Shrugged in the interim.
tldr: They invented a new theoretical currency. All prices were each month listed in the actual price in the old currency and the price in the new currency (that didnt exist yet). And each month the new currency was redefined so that stuff still cost the same in the theoretical currency. They did this for a few months till they declared inflation fixed and creating the new currency that had "proofed" its stability the previous months. And Abrakadabra, people believed and inflation was fixed through the introduction of the Brazil Real. Obvious when you think about it, its not called fiat currency for nothing.
>Say, for example, that milk costs 1 URV. On a given day, 1 URV might be worth 10 cruzeiros. A month later, milk would still cost 1 URV. But that 1 URV might be worth 20 cruzeiros.
>The idea was that people would start thinking in URVs -- and stop expecting prices to always go up.
https://text.npr.org/130329523
Yes, that happened. But the government also did take the finances under control, restructured (literal "changed the structure of", not defaulted) its debits, added controls to the banking system, restructured the banks, pegged the currency to the dollar, made a campaign of price transparency, and a lot of other things.
I believe its impact was similar to the campaigns about price transparency. And lower than anything else on my list.
And how much of what you just listed worked the exact same way as the new currency trick, through being a frame to influence public perception? Thats the important perspective i took away from it, that i was thinking about economics wrong. In the end the way it works is through crafting stories to get the market participants to believe certain things. Because that is all the economy is, people and their behavior. And if you want to influence behavior, you have to influence how people think.
If you go into your sibling that continued my list, all of his items are real, and only the balanced budget was even communicated broadly.
Yes, psychological factors are important for an economy, but they aren't singularly important. They are not even merely more important than the other kinds.
>They are not even merely more important than the other kinds.
I might be very wrong here, but i dont think it is possible to source that. I understand that they did all those things, but unless its possible to articulate how it affected market participants behavior i would argue claiming causality is very difficult. How exactly does for example a balanced budget halt inflation outside of changing inflation expectation? There will be answers depending on which model you adhere to, but does that explanation still hold up and remain applicable today? Because if not you kind if have to explain why not.
With economics being focused on human behavior in a market, what fundamentally determines how good a model describes the economy is market participants believe that it does. Because their believe determines the behavior you are trying to model in the first place. For that not to be the case we would need to see some static structures emerging in markets independent of market participants motivation and their understanding of how the market works. And if i am not mistaken that hasnt been the case. All there is is peoples behavior and it doesnt seem to be static.
*There is of course stuff like interest rates which changes behavior directly through higher costs(forcing behavior instead of changing motivation), but as i said, most.
edit: Which again, is the change in perspective i mentioned above. Unless i am overlooking something obvious, economic models arent describing some intrinsic behavior of markets because there doesnt seem to be any. They are only able to describe behavior once market participants behave that way. Which would mean economic models work because people believe they do. For that not to be the case you would need to see some models that remain applicable throughout time.
I am sure i am overlooking something obvious, but the answer to that would be a link to a working economic model that identified some fundamental structures that isnt dependent on market participants motivation.
On the other hand, policies that focus on real aspects have a non-zero rate of success. A balanced budget by itself has a higher rate of success than any policy that doesn't include a balanced budget.
Brazil was in an exceptional situation in 1994, where any policy based only on real aspects would be expected to fail. But don't think this is a general case.
And that is always through changing the behavior of market participants. There is no other angle or lever to pull, that is all the economy is, peoples behavior. The distinction between tricking people with a fake currency and real policies like a balanced budget is meaningless in this context because they work the exact same way. Both give reasons for a reduction in Inflation expectation. You can argue that its justified (or real) in one case and not in the other but i dont see the point.
(https://en.wikipedia.org/wiki/Alfred_Marshall#Theoretical_co... for what I wish the book had told me.)
https://en.wikipedia.org/wiki/Freakonomics#Criticism
Not if you have any training in a hard science: then you think of economics as something largely devoid of equations and made up of lots of ad-hoc regression analysis and hand waving. This might not be the fault of the economists but of the difficulty of the subject matter of course. But economists really should learn to accompany their predictions with error bars as every undergraduate physicist must.
Honestly the boring answer is that e.g. liquidity is the ability to change your mind instantly, which also means that any prediction can become invalid at any given moment.
If you want to increase predictability, you would have to encourage people to make decisions as soon as possible and stick with those decisions for as long as possible.
Edit: I think Ive had my mind changed enough in this thread to edit this. It's obviously a very deep subject and I've been convinced it has predictive qualities. I definitely dont think of dry equations though, more like psychology, and politics. But I'm looking forward to learning about it and possibly having my mind changed yet further.
Or let’s say the president of Japan announces a plan to beat deflation once and for all. He says that next year, he’ll fire their central bankers and hires the ones from Venezuela, give them a 100% annual inflation target, and promise them millions of USD in bonuses if they meet or exceed that target.
Even though this plan is going into effect next year, what will you see the next day? (Assuming people believe the president is serious.) Econ predicts you will start seeing inflation immediately. And we see effects like these all the time when looking at how the actions of central bankers effects the economy – if Powell says he’s going to change interest rates, there’s a reaction in the markets when he makes the announcement and not one when he makes the actual change.
That depends on whether the stock he bought was GME.
There was even a story (no idea if true, so maybe of limited relevance...) of a reverse bank run happening in Japan, with people rushing to deposit money to save a failing bank.
Or can be demonstrably arbitraged to take advantage of the irrationality in a tangible, quantifiable and repeatable way. Put-call parity, substitution, et cetera.
Virtually all published papers in economics that use regression analysis which you mention include "error bars." The discipline calls these standard errors and confidence intervals. If a paper is non-parametrically estimating functions rather than single parameters, they might also report confidence bands.[1]
Standard errors may be calculated analytically (resting mostly on asymptotic theory) or numerically (using a bootstrap estimator for them). There is a large literature on the appropriate standard errors for various contexts, with clustered errors being mainstream in applications.[2][3] These are taken seriously in peer review, and published papers come with long lists of robustness checks which turn papers into book-length publications when you include the appendices.
[1] https://cattaneo.princeton.edu/papers/Cattaneo-Crump-Farrell... is one example.
[2] See https://economics.mit.edu/files/13927 for a recent discussion.
[3] See https://gregoryeady.com/ResearchMethodsCourse/assets/reading... for bootstrap-based methods.
How do you find someone like this?
>look into the Eurodollar system
Suggestions for a first foray? Too much financial conspiracy stuff out there.
I‘ve studied economics and political economy for years and never seemed to be able to tansfer the micro/macro models to the real world. Perry‘s work doesn’t have to be transferred b/c they come from the world of banking in the first place.
Perry is best consumed in lectures. Here one on Eurodollar [1].
[1]: https://m.youtube.com/watch?v=tUi-xTmOCUE
You can't steelman classical economics without groking these.
Example: you won't get funding if you go around saying there's no such thing as a labor shortage in a market economy, even though this is entry level economics. Why would that tank your career? Because big business has paid the government to pull the right levers to suppress your wages. The solution to a labor shortage is higher wages, but that can't be the government's response to their donors. Technically you can say the truth, but you better not be very loud about it.
> to suppress your wages
Can't really tell where you're going with this. The solution to a labor shortage is higher wages. You seem to be suggesting that it should be an increase in minimum wage.
In a market economy, you absolutely wouldn't need this if you had a labor shortage...the market would resolve on its own. But we don't have that. We have an economy where millions are paid by the govt to do nothing. This then becomes what employers are competing with.
Wouldn't that just mean that the employers need to compete with the government, i.e. raise wages? So than the market should resolve this on its own as well?
The Economics 101 answer is clearly wrong or at least incomplete in this case. Think about it this way: if people's wages increase in real terms by definition this means they can buy more with their wages. Producing stuff requires, amongst other things, workers. Suppose we're in a situation like the current one where unemployment is low and businesses across all sectors cannot find enough workers to keep up with consumer demand. What happens if they all try and solve this by increasing wages across the board? Well, their workers have more money to spend so this increases consumer demand even more - and remember, the problem we were trying to solve was that this was already too high compared to supply. What it doesn't do much for is the supply of workers, since there's not some big pool of potential workers who could be working but aren't. It's not going to encourage people to work longer hours either since when would they have time to spend the money? Basically, it makes the whole problem worse, and that's why the Fed and central banks around the world are freaking out right now.
A labor shortage is potentially an opportunity for the economy to re-rorient itself and for wealth to be redistributed. Companies producing goods that are more in demand will afford higher wages, while companies that produce less in-demand goods will not, and can ramp-down their production or go bankrupt.
To take an extreme hypothetical - let's say there was a massive shortage of food workers. As the price of food increases, so would the wages for food workers, until they will start pulling people from other industries, which can no longer offer competitive salaries. This could lead to something like ad-tech eventually start losing low-level workers to agri-business.
Essentially, the mistake in your argument is to assume that demand is high and inflexible around the board. In reality, certain industries have higher demand than others, and many workers can change industry, even in the short term, if incentives are high enough.
However, companies used to cheap labor and high margins are not willing to give up their profits and reduce their margins, so they are begging the state to find a way to force people to keep working for them for nothing.
(It's not like the other stuff can just become cheaper in order to make up for it either - remember, all the other industries are suffering the same underlying cost pressures as the food companies and the whole reason they're losing the competition for workers is because there's no longer enough people willing to pay the increased prices they'd have to charge.)
If I remember rightly, the proportion of a country's workers employed in food production is even pretty good approximate measure of how advanced an economy is, with more advanced economies employing a much smaller proportion of their workers that way and having much more doing other things.
People express a lot of concern about things like how wages have not kept up with inflation for decades, how families have to have two incomes to survive, etc. Just when workers were maybe gaining some of that ground back, the fed chairman tells you he's going to fuck you with policy. The type of person who supports such policies and pretends that's good for you are the ones who get the positions, the funding, etc.
Exactly, and it's insane to see other workers support these policies instead of trying to push for alternatives.
Yes, but for how long.
The same Milton Friedman that, along with the rest of the Chicago Boys, guided the policies of Augusto Pinochet. Generally regarded as one of the most brutal dictators South America has ever faced...
Either way, the comment further upthread ranting about Keynes was weird considering that Keynesianism really didn't involve shooting people, and whilst the ideologically opposed Chicago School policy didn't either, it was famously most faithfully implemented by a military junta Friedman himself had plenty of time for.
An effective government isn't evidence of anything. You forget that the most productive economy the US has ever had was during WW2. When the government basically took complete control over almost every aspect of production to make sure everything went to the war effort. Does it work? Yes. Does it mean it's a "good economy"? I don't think I'd wanna live in such an economy personally
Stagflation killed the Phillips-curve "Keynesianism" which emerged after Keynes' death as wasn't actually in the General Theory: the idea that inflation was inversely proportional to unemployment so you could get rid of the latter if you had enough of the former. It didn't kill off the more generally useful idea of macroeconomic modelling or the assumption government policy could mitigate recessions. . Similarly, strict monetarism (the idea that the government could easily stabilise things by ensuring the money supply was at a certain level) didn't survive the realisation the banking system made the money supply flex and so the result was interest rates and other monetary aggregates bouncing around all over the place , but the basic idea that controlling inflation was possible and a priority for central banks persisted once governments switched to fixing interest rates instead.
What I’m really after are non-ideological macroeconomics books that will help a layperson have a better sense of where the economy is headed so I can invest better, not books that would help me make better decisions if I were running a country, which I’m not.
That's the issue: successful firms which beat the market don't keep doing it on behalf of other people for very long.
Answer: because they make more money from the fees than they do by "beating the market"
The truth is if you beat the market by pure luck once you can market your shit fund and lure in thousands more investors for decades.
Just VTSAX and chill.
That and the goal of many (most?) professional investors is not to beat the market. For some they just need to have higher returns than cost of funding and anything positive is accretive. Others sell fund investors on things like low market correlation. Or others have more specific goals like hedging future fuel prices for an airline.
Point being, individual investors have completely different goals from most professional investors and as you point out, "VTSAX and chill" is the way.
https://www.youtube.com/c/RealVisionFinance is pretty good for anything that has the boss Raoul Pal, most other talking heads aren't that great.
Not possible by definition.
Economics is about explaining things after the fact, and incapable of prediction.
Therefore, it's all ideology (rock fell on my head, must have offended god of rocks, only logical explanation).
I would expand on this a bit.
The problem with economics is that it's the study of a type 2 chaotic system, where predictions about the system themselves feedback into the system and change the outcome. Contrasted with a type 1 chaotic system, like weather, where predictions are extremely difficult but can be made without affecting the outcome. Economics is chaotic because conscious actors are extremely unpredictable and change their behavior based on new information.
This is something you have to bear in mind whenever you hear an economist or government official make a prediction. The very act of making the prediction public often becomes a self defeating prophecy, because masses of people and money make changes to their future behavior based on the prediction. Also called the Prophet's Dilemma, https://en.wikipedia.org/wiki/Self-defeating_prophecy. A close relative of the Preparedness Paradox, https://en.wikipedia.org/wiki/Preparedness_paradox
This is why some of the best predictions are never made public. The best traders don't sell you their strategy. Because as soon as their prediction mechanism becomes too public, it gets absorbed into the system and arbitraged away to worthlessness. That's also why you always must take what government officials say with a grain of salt. They're often not telling you what they really think is going to happen. They're telling you what they think is going to motivate the population to behave in the most productive way given the current environment.
Making economic predictions is a grand game of "I know that you know that I know that you know". It's a game of mass manipulation rather than a technical pursuit of simple measurement.
It's an art, not a science.
The reason it's chaotic is not just because predictions about it feed back into it. It is also a weather-type chaotic system.
> It's an art, not a science.
That may well be.
However, he question that really matters is : is it useful at all?
As demonstrated time and again, this whole legend about hidden winning strategies may very well be utter and complete BS:
https://www.investopedia.com/articles/investing/030916/buffe...
A virus jumps from bats to humans. Some dictator decides for his own internal reasons to start a war. The pace of technology isn't predictable or even possible to predict.
Referring to something above. Economics would be a lot better if it focused on historical happenings and stopped trying to pretend it's a hard science like physics.
Can you give us an example of a macro or microeconomic model that is incapable of prediction and it's (therefore?) all ideology?
I can't think of none off the top of my head.
Generally, the more a theory talks about how the past actually happened the more it's ideology than falsifiable science.
Take Marxism. It's largely a history of class struggles. There are testable bits, e.g. the labor theory of value (which is wrong). But most of it is unfalsifiable. Similar to the barter-then-money origin of money story, which offers zero predictive value while also being archaeologically unsupported.
That topics of no interest to modern economists occupy the bulk of popular discourse concerning it.
If you want a testable theory from Marxism there really only are two - the aggregate rate of profit to capital will go down in the very long term, there will be endogenous economic crises due to lack of demand/too much supply in aggregate. The rest are unfalsifiable as far as I'm aware. The issue is that both of these predictions seem to be correct so far - P/E ratios are going up and we have now had plenty more evidence that crises due to mismatch between demand and supply are inherent to capitalism.
However, it's still not a great tool at actually predicting the world, because the vast majority of predictions are unfalsifiable. But I agree with you that most of economics is moreso ideology.
Which economics book ends that way? I'm genuinely curious.
Nothing wrong with specialized, focused studies on one subject or another, and popular press. But they won't do what the title says.
Much denser is The Road from Mont Pelerin by Philip Mirowski.
As anonporridge points out in a sib comment ( https://news.ycombinator.com/item?id=32620572 ) economies are too dynamic for a naive economics to work.
Yes, in a few different ways I think. You have to make predictions or, equivalently, employ strategies that do not depend on secrecy.
E.g. "evolutionarily stable strategy" (ESS). A strategy that does well in the presence of copies of itself (and mutants.) https://en.wikipedia.org/wiki/Evolutionarily_stable_strategy
Any business that does not depend on secrecy could be considered an example. (There's an old hippie business book "Honest Business: A Superior Strategy for Starting and Managing Your Own Business" by Salli Rasberry and Michael Phillips https://en.wikipedia.org/wiki/Michael_Phillips_(consultant) "a founder of the Briarpatch Network. As a banker in 1967 he organized Mastercard.")
You can e.g. buy a fax machine and encourage other people to get them too. The classic network effect: "the phenomenon by which the value or utility a user derives from a good or service depends on the number of users of compatible products. Network effects are typically positive, resulting in a given user deriving more value from a product as more users join the same network" https://en.wikipedia.org/wiki/Network_effect
https://en.wikipedia.org/wiki/The_Armchair_Economist
Extremely approachable book with fantastic examples explaining somewhat complex concepts.