- I have no idea what’s right for the economy, and neither, in all likelihood, do you. The general public are astoundingly ignorant: six of every seven voters don’t know the difference between debt and deficit, one of the most googled questions in the prelude to the election was ‘what is austerity?’, and only 30% of people could correctly pick out the definition of quantitative easing in a multiple-choice quiz.
- Maybe you think you’re more informed and that while the general public might not have a good grasp on economics, you basically know what you’re talking about. But what if I begin to question you as to your thoughts on whether Britain is currently in a liquidity trap?
Bitch, I made it all the way through Piketty, read Reinhart and Rogoff before it was cool and can tell you why Currency Wars is a stupid book. That doesn't make me an expert on economics, but it allows me to say that the reason everyone thinks they know more economics than they do is that Economists don't know what the fuck they're talking about. So when you question me as to whether Britain is in a liquidity trap I'll say "well, that's a piece of jargon coined by economists to make you think they know something you don't when in actuality what they mean is 'does Britain have enough spending money'" which is prima facie the nonsense question it looks like.
- Why is it that we are comfortable letting experts tell us what is best when it comes to medicine but when economists are telling us something, we largely ignore it and assume that we know better?
Because economists destroyed the economy. Or are we going to blithely ignore that?
- Bitch, I made it all the way through Piketty, read Reinhart and Rogoff before it was cool and can tell you why Currency Wars is a stupid book. That doesn't make me an expert on economics, but it allows me to say that the reason everyone thinks they know more economics than they do is that Economists don't know what the fuck they're talking about.
So you've seen enough to qualify to have an opinion on whether economists know what they're talking about. Many of us haven't, and "acknowledge that you don't know what the hell you're talking about" is pretty good advice for us. Somehow I don't think this article is aimed at the kleinbl00s of this world (all one of him). The older I get, and the longer I don't get significantly better informed about economics, the more political questions I find myself answering with "I don't know". We humans aren't exactly great at holding off on opinions until we are well enough informed, or at least holding our opinions provisionally, so I see this as a step in a healthy direction.
- Somehow I don't think this article is aimed at the kleinbl00s of this world (all one of him).
No, the article is intended to make you equate the mysteries of economics with mutherfucking medicine. Check it out (again):
- Why is it that we are comfortable letting experts tell us what is best when it comes to medicine but when economists are telling us something, we largely ignore it and assume that we know better?
Because medicine is an evidence-based scientific study of cause and effect while economics is a loosey-goosey empirical curve fit that gyrates through 360 degrees of thought every 50 years, that's why.
I thinks it's telling also how distinctly askew the two fields are in terms of 'progress'. Economics (after checking wikipedia really quickly) was practiced by multiple ancient civilizations including the Mesopotamians and the Greeks. Thomas Aquinas was born in 1225 and he's apparently called by some the founder of "scientific economics". To contrast, penicillin was discovered in 1928. The germ theory of disease goes back to 1546 at the latest but more reasonably could be dated to 1808. When you compare the amount of time that people have spent thinking about these respective fields to the number of concrete answers a specialist could give to questions one might ask, there can be little doubt about who is coming from a place of knowledge and who chose to study a system of inherently irreducible complexity and would like you to believe they have the answers you seek.
- No, the article is intended to make you equate the mysteries of economics with mutherfucking medicine.
Whose researchers and practitioners are nearly as confused about as economists. Both fields feature a lack of experimental verifiability that should give us perpetual pause. The fact that we can't put people or societies in a box and poke them at will to verify hypotheses does mean that economists (and often doctors and medical researchers) do no know what the fuck they are talking about.
But, the mere fact it is hard doesn't mean everyone is an equal. You can understand some things about economy or medicine through study. That's tough and a valuable result, so I agree with the author of the article that this deserves soelme respect.
I went to school for economics.
When I asked any practical question about the economy my professors would talk about the problem for a bit. They would almost always do the "on one hand this on the other hand that" economist thing. Then they would usually tell me I should go ask some other professor who specialized in the pertinent subject if I wanted to know more.
If I then went to the specialist they would usually end up doing the two handed economist thing again and conclude that they strongly suspected things went one way or the other but that the whole question would be well served with more data and study if we wanted to understand it better.
Even professors who held strong opinions would often admit that they might be wrong and that different economic conditions could render their position on correct policy untrue.
Hearing politicians say anything about economics usually sickens me. They talk with such certainty. Ask an honest labor economist the ramifications of rasing the minimum wage you'll walk away realizing shit is tricky. Any one who says otherwise is full of shit.
Looking back I can only think of one professor who didn't preface most conversations with a phrase like ”the data suggests that..." and he was a bit of a crazy old dude.
He picked a poor analogy with medicine. Psychology would have been a much better comparison, or even neuroscience. In these disciplines there are things that we can talk about with a great deal of confidence, but some of the most important questions are difficult to even frame.
How do you feel about your education in economics? Worth the while? I think another reason why people love to talk about it, is because it is so fascinating. It's like social math weather.
I think it's a valuable thing to study.
I think taking just micro and macro is generally bad for people. A little bit of economics gives people a simple framework upon which to hang their bias and a whole lot more unmerited confidence in that bias.
If you go a little deeper you can't avoid the fact that almost any policy position will have winners and losers. Most people can only see the benefits of the policy choice that leans toward their bias and refuse to acknowledge that it could have any downside.
I helps you really understand opportunity costs. Cost Benefit Analysis was one of the best classes I took. People bag on it as a discipline soooo fucking hard and it's often used for evil but if it's done rigorously and ethically it really can lead to better outcomes.
The psychology of economic decisions is pretty interesting. Peoples fear of loosing something being so much more powerful than their desire to gain something. The way hot button issues distort our valuation of policy choices. Stuff like spending on health vs spending on terrorism.
Game theory makes you look at the world a bit differently.
If you study the history of economics and still believe that this is the best system that could ever be you're an idiot.
I have to imagine that it enriches my understanding of the world more than any hard science would have. Biology and Physics may be interesting but I don't know that undergraduate study in either would brush up against the world as consistently as economics. Maybe philosophy or literature could be enlightening on the same level but I rarely found academic analysis of books anything but tiresome and philosophy generally pissed me off.
- He picked a poor analogy with medicine. Psychology would have been a much better comparison, or even neuroscience. In these disciplines there are things that we can talk about with a great deal of confidence
Here is the kind of thing that an extremely rigorous professor concluded a semester of study about international trade with "We can say, with a high degree of confidence, that international trade increases GDP by at least 1/2 of a percent". She was a true believer in the value of free trade and markets, Had some reservations about FDI that were way above my head. That's a semester of theory about why trade was good and when it came down to econometric truth she could confidently tease out a measly half a percent if she was only going to accept the most rigorous and ethical analysis. I found the rigor impressive even if the power of economics to foretell the future or confidently tell us anything useful about our world a little bit less than what the general public thinks it can do.
- I found the rigor impressive even if the power of economics to foretell the future or confidently tell us anything useful about our world a little bit less than what the general public thinks it can do.
One of my favorite statistics professors decorated his office in fortune telling memorabilia. He said it was to remind people he consulted with not to trust him too much.
To test many hypotheses, sure. However, when it comes to matters of consciousness and intelligence in neuroscience, things can get sloppy and there is disagreement about what even constitutes a meaningful question, much less what is measurable. The same goes for psychology.
I'm not saying that there are perfect analogies, but are far better than making one to medicine.
But even then, It would be fabulous to hear an amateur discussion about bioprosthetic valves at a dinner party. The very premise of Glover's argument is insulting. As you mentioned, a liquidity trap is not particularly opaque idea, and the worst thing that can happen is that a few people debate over the definition of a 'liquidity trap' and walk away better for it.
- Britain is in a liquidity trap I'll say "well, that's a piece of jargon coined by economists to make you think they know something you don't when in actuality what they mean is 'does Britain have enough spending money'"
I disagree here. A liquidity trap is a situation where the monetary policy of the central bank is unable to increase GDP because more money will not result in lower interest rates, as they are already near zero.
Crack that down into human language:
- A liquidity trap is a situation where the monetary policy of the central bank is unable to increase GDP because more money will not result in lower interest rates, as they are already near zero.
"A situation where the monetary policy of the central bank" = Britain
"Is unable to increase GDP" = can't spend money
"because more money will not result in lower interest rates, as they are already near zero" = non sequitur
The central bank is independant from the political power.
We have to distinguish the monetary policy (central bank) from the fiscal policy (government).
If the central bank increases the money supply (how much money there is in the economy), it's not going to lower interest rates as they are already near zero, and thus it's not going to increase investments, and thus it's not going to increase GDP. That's the liquidity trap.
Britain spending money is something different, it's about the fiscal policy. It might help the country exit the liquidity trap, but it's not what the liquidity trap is fundamentally about.
See, you're trying to make it complex again. When people are talking about a country in a liquidity trap, they're talking about whether that country has freely flowing cash in its economy.
The US had a "liquidity trap" in 2009 for the simple reason that banks were gunshy about lending money. Cash for Clunkers was a way out of that liquidity trap that didn't involve monetary policy.
This is why people don't trust economists. There's a driving need to over-complicate things in order to obfuscate the levers of power.
- When people are talking about a country in a liquidity trap, they're talking about whether that country has freely flowing cash in its economy
Yes. But what's important is the implication : when you are in a liquidity trap, you can't use only monetary policy as a lever for growth.
On this graph (it represents the key interest rate from the FED, BCE, BoJ), you can see that the FED (in red) lowered it's interest rate after the crisis. They wanted banks to lend again and it worked. We are still in 2015 at a very low rate, and the US is currently in a liquidity trap and it has been the case for 5-6 years.
Janet Yellen (FMI's director) should announce today an increase of this key interest rate (how much the banks pays the FED to have money) : the US should step out of the liquidity trap today.
The US government used all sorts of policy to get the economy back up. Now that it seems stable, the FED is stopping the quantitative easing (a monetary policy which is not supposed to happen where you buy, among other things, private securities) and wants to increase the interest rate to be able to target the 2% inflation rate.
It's not hard to understand and I'm not trying to complicate things (but I could be clearer). But wanting to explain the whole thing in one sentence where you don't explain the difference between fiscal/monetary policy and how the key interest rate from the FED impacts the economy and could lead in what is called "liquidity trap" doesn't let you understand what a liquidity trap is and what it means for the economy.
If you can't explain it simply, you don't understand it well enough.
- Albert Einstein
-Look, I know that was a cheap shot. And I know that you're attempting to explain my misconception, not yours. But the fact remains: I explained a liquidity trap as "the country lacks cash flow" and you threw a graph and Janet Yellen at it. It doesn't change the fact that to the average man on the street, a liquidity trap is a lack of cash flow.
Most people don't know that the Fed isn't the government. Let's be real, though - they don't have to know that. In fact, it complicates things: try to explain how Bush's tax rebates weren't monetary policy without invoking The Beast from Jeckyll Island. Taxpayers got money as the result of a policy from the government. et voila. "Monetary policy."
And really, it's turtles all the way down with this shit. Economics is a profession where you're derisively labeled a "quant" if you understand differential equations, where Piketty bent over backwards to apologize for using algebra in a populist book. I worked for a company that worshipped EBITDA but of 8 VPs polled, 6 couldn't tell me what the fuck it was or why we used that metric instead of something, you know, defensible. Obfuscation is a fundamental tenet of economics, and the only reason it doesn't piss more people off is that economists are largely successful at it.
A liquidity trap is where the country doesn't have enough free cash flow for a gazillion different reasons that economists will attempt to explain using graphs full of acronyms, units you've never heard of and calendars that don't match the one on your desk. They do this so that you aren't tempted to ask them for an answer they can't give you.
Ready? I know very little about economics. But I know enough to say this article has some major problems. Enough problems in fact, I even listed them as I read so I wouldn't forget.
1. Medicine affects just the people with a specific set of circumstances. One may still know very little, but have a perfectly valid opinion because it actually effects them. Economics affect every damn person on the planet. Every single one—youngest to oldest, richest to poorest. So, everyone should have an opinion, even a poorly formed or supported one.
2. Mr. Glover fell for the jargon kleinbl00 pointed out. It's all fancy words for stuff that is a simple concept, but harder to phrase and fully understand the effects of. Like debt and deficit.
3. Economists don't really know what they are doing either, especially when it comes to manipulating the economy. The economy kinda just does what it wants. Even the Fed just responds to how it thinks the economy is doing. There is no majical formula we know to fix the economy.
4. Mr. Glover points out correctly that voters are often responding to economic cues. But see, that doesn't really matter, because politicians have a miniscule effect on the economy, if at all. Especially the President. And if even a Fed chairperson, appointed for 16 years, mostly just responds, how is a 2-year term Representative supposed to do anything? I don't know the UK situation closely, but it seems like since the Bank is independent, it'd be similar.
5. How come we can discuss values even if we aren't philosophers but not economics if we aren't economists?
6.
- Could we not create similar things for the budget or other economic policies?
Nope. That conflates fiscal and monetary policy, which are different. Fiscal is much more debated and ideological (see point 7). With monetary at least, basically everyone agrees we should try to keep inflation low, but present. So, it's easy to put just a small group of economists in charge of it.
7.
- Ideology has been injected into economic debate where it is not necessary or helpful.
What about supply-side vs Keynesian economics? Each has pretty big ramifications on how the government is run, and are therefore political/ideological. That's one of the big differences between the left and right: fiscal policy. Ideology has been born partly from economics, while Mr. Glover seems to suggest they come from two distinct spheres of the world. Honestly, I think Mr. Glover falls into the same trap as his audience; he doesn't know enough about economics to actually write this article.
Refreshing as it is to hear a call for some humility in place of the typical confident assertions* and explanations, "admit you know nothing" is going a bit too far.
First of all, there is a difference between macroeconomics and microeconomics. Macro is, in my view, practically a religion, with bitterly opposed sects: Austrians, Keynesians, monetarists, new classicals, new Keynesians.
No one seems to understand how macro works, and the field is full of speculation on interest rates, central bank machinations, and trade policy. Politicians mess with the economy, because that's their job, and have economists provide advice, because that's their job. It's like trying to target a 3.5% year-over-year growth in the rabbit population by cutting down the right number of trees and feeding squirrels. It's voodoo.
Micro is much more a science, maybe more so than medicine. Compare these hypotheses:
Patients get satisfactory relief when given a placebo.
When stuff costs more, people buy less of it.
Consider the difficulty of confirming the first sentence. Despite careful study, it is possible that medicine has gotten this wrong for decades.
The second sentence hardly needs confirmation. We see it demonstrated every time there is a sale. We demonstrate it ourselves by comparison shopping. It is a simple expression of the Law of Demand. I have cited it when talking about minimum wage.
I am ready to admit that I don't understand much about economics, but instead of mocking the "astoundingly ignorant" public, I try to improve my understanding. MIT offers their Principles of Microeconomics course free online, and I have found it both approachable and rewarding. There are charts and equations, but a lot of it is common sense.
Yesterday I listened to "Applying Consumer Theory: Labor" on the way to work. Professor Gruber used the example of buying steak and potatoes to illustrate two effects of price changes: the substitution effect and the income effect.
When potatoes become more expensive, people tend to buy more steak, that's the substitution effect, because both are foods.
But people have limited budgets, so now that they are spending more on food than before, they might have to reduce the amount they buy, that's the income effect. When potato prices rise, the two effects are in opposite directions for steak, so it's not obvious what will happen to steak quantity purchased.
Of course, since he's an economist, the professor won't be nailed down on potatoes either. It's possible in theory that the income effect is so large it drowns out the substitution effect, and people end up buying more potatoes after potatoes become more expensive. That would make potatoes a Giffen good, and they seem to appear more often in economics textbooks than the real world.
Economics is a study of what all people in all places do all the time, at least when it involves exchange. Of course it's complicated, and the models are imperfect. But that doesn't make it useless, and it doesn't have to be dull or inscrutable.
A book like Freakonomics can be a fun way to explore the "economic way of thinking," which tries to account for incentives, anticipate unintended consequences, and always ask "compared to what?"
* Sam might consider taking his own advice. He confidently asserts that six out of seven voters don’t know the difference between debt and deficit. The source was an online poll about fairness. The words “online poll” alone should shatter our confidence. The survey had an unused slot at the end, so they threw in an extra question:
- The government says it wants to eliminate the budget DEFICIT in five years. From your understanding, if it succeeds, will total government DEBT in 5 years time be...
14% said the debt would be higher, the “correct” answer, since the debt should be expected to grow even as the government reduces its habit of spending more than it collects. But a reasonable person might suppose that other factors could enter. Inflation could reduce the burden of debt. Default, debt forgiveness, or other contingencies could be imagined.
Indeed, 18% of poll respondents said they were “Not sure,” which in my opinion is always a good answer.
23% said the debt would be “about the same as it is now.” This is reasonable if the debt is very large compared to the deficit. And so it is: the debt is measured in trillions of pounds, the deficit in billions.
I have my my last exam in 2 hours and after that, I'll have a bachelors of business administration. I had macroeconomics, microeconomics and everything in between and still don't know shit. I had to google austerity myself when talks about it started in Quebec.
I feel like the world is economist's lab where they create and dismiss theories as they go along. ¨Oops, hyperinflation - let's try x because last time we did y and it made things worse! ¨
I took microeconomics and macroeconomics, accounting, numerous business accounting classes and have a degree in business management. I know enough go to know that nobody knows what they're talking about with certainty. It's not a science. It is at the mercy, largely of emotion and not logic.
Made an account to add something to the discussion that hasn't been added. I apologize in advance for formatting because I am typing on my phone.
My Economics Professor, I think, summed up Economics well. Economics isn't meant to be a truth or a science. An Economists job is to smooth out the ups and downs of the business cycle and get things moving back towards YFe or basically a healthy economy. It's not meant to make things perfect. All it does is contract the gap when the economy is heating up too quickly and will take too long to correct itself back to YFe or use expansionary policy options if the Economy turns too sluggish for it to be able to correct itself in a timely manner. This of course, is a basic understanding of macroeconomics. But economists aren't trying to be perfect they are just trying to push things back toward the middle one way or another. Their are continuous shocks to the economy and those shocks can be both positive or negative. All you are doing is reacting to those shocks accordingly. That's economics. Not a hard truth or science.
Piketty went as far as saying that the reason he moved back to France from the US is that in Europe, economics is treated as a social science like anthropology or sociology while in the US it's treated as a hard science, like chemistry or physics.
And that is the crux of the issue: economics is a theoretical framework prone to ideology and dogma that reflects our best thinking on complex, interconnected financial systems. It is not a field that lends itself well to theoretical derivation, nor is it subject to experimental repeatability. Yet articles such as this take the "back off, man, I'm a scientist" approach to things where no science has been applied.
Ayn Rand was a science fiction writer, yet the chairman of the Federal Reserve subjected our economy to her musings for 19 years. If the Surgeon General tried the same thing with L. Ron Hubbard's ideas on psychiatry the entire world would call him or her batshit insane.
I agree basically. Economics is basically, oh the economy is heating up too fast and inflation is rising...we need to slow down the economy. How do we do that? Well, there are dozens of ways! Ok let's do this and see what happens. Oh, the economy slowed down too much? Ok, well let's use policy to get it going again, again there are dozens of ways to do this, oh that didn't work as well as we thought? Uh oh, better drop interest rates even more. Oh no, the economy is again heating up too fast, but it looks like it's enough to self correct and any policy we do will likely have too big of an impact. Let's just let things continue. Shit. For whatever factor, the economy continued heating up and now there's too much inflation again or our currency is too expensive and that causes certain issues. Let's enact policy to slow things down.
It's literally a never ending cycle of nudging things back and forth to try and take away extremes because you are never going to completely be able to stop the business cycle and the ups and downs that come with the business cycle.
I think that's the healthiest way to look at macroeconomics. But that's the reason why there is so much argument because there is so many different ways to slow down or jump start the economy, but in doing so...you are likely causing another shock to the market that you will again have to manage.
Microeconomics since it's at a more individual scale, I think, you can be slightly more certain about. But again, it's all based on people acting rationally and if you know anything about humanity it's that people do not always act rationally.
Does Piketty make any comments on the different rigidities of the market in America and in Europe and the different challenges/benefits/circumstances (however you want to put it) that comes with those differences?
Anyways, I've been looking for a community like this with thoughtful discussion that doesn't have all of the things that a site like Reddit has that I think pushed most users here. I've been reading a lot of the discussions and I think I'm hooked! Thanks for the reply!
Going to have to give those books a read too.
*PS
The one thing, reading your posts, I think I disagree on is the complex language. You do have a point and I get what you are saying and it's not that you are wrong. But I think the terms you use are the ones you would use to describe to a laymen or average person who doesn't understand some of the intracacies of economics. I do think that language is important to distinguish different things because like another poster said, although the average person might not know it, the Fed and the Government act differently. Monetary and Fiscal Policy are two very distinct and different things. Quantative Easing or Open Market Exchanges can only be done by the Fed for example and are examples of Monetary policy. While, a tax rebate is Fiscal Policy.
I don't think the way you explained things is wrong, it's essentially what is happening, and for all intents and purposes, for the majority of people...that's all they really need to know...and if they could understand economics even in those terms, that would be helpful. But at a higher level, for people who study economics and experts and all of that and economists, it is important to distinguish between the two and the "complex" language is, to some extent, important. Does that make sense?
I'm proud to say that I don't know much about Econ, but I know enough to be able to tell when someone is full of shit about Economics and monetary policy. Everything else I have to dig into and hope that I can get a grasp of what is being said.
I have a degree in it, a worthless one. I learned a decent amount of history and summarized a lot of conflicting papers about things like the LFPR and globalization's impact. I read a thousand page Austrian bible by Rothbard. I drew graphs.
Four years down the drain but at least it was free (I knew that part was important going in -- didn't learn it from my economics courses).