by bohm 22 Replies latest jw friends
jamesmahon: You might laugh, but untill a couple of week ago i assumed there was a "theory of macroeconomics", you know, some set of equations, assumptions and concepts that everyone agreed describe macroeconomy.
I thought the FED applied that theory. Heck, I thought everyone would agree on policy as long as it was based on that theory.
boy was I wrong.
Hi Bohm
Wouldn't laugh at all. Actually, there are several theories of macroeconomics and yes, most of them have some sort of equation. In economics we try to create models, or equations, that help us predict what might happen or understand what has. There is a well known saying amongst economists that all models are wrong, but some are useful.
I had a lecturer who had worked for the IMF who firmly believed there was no such thing as macroeconomics. My own opinion is that there is, but it has to be built upon a sound understanding of the behaviours of individuals.
Fundamentally economics tries to answer what gets made, how does it get made and who gets what is made. Any economic problem (or perceived solution) can be simplified as an attempt to answer those questions.
You would be surprised at how many of the big questions of economics related directly to the three questions above there is no consensual answer to. For example, how much economic activity should be in the public sector? Why do we have unemployment? My belief is that these questions can be complicated if you only measure economic output as goods and services that have a value in the market and you believe the goal of society is to maximise this output. Interestingly, there is a branch of economics that is moving away from this view and suggesting we should look to maximise happiness.
Whilst I will often decry the state of economic debate or the simplistic economic view people have of the world, I would encourage everyone to explore economics from first principals - it can really change your view of the world. Indeed, I may be biased but I would have teaching of economics (and statistics) compulsory in high school.
james: " I would encourage everyone to explore economics from first principals - it can really change your view of the world" - any books you would recommend?
I read Krugmans latest book about past financial crisis. I thought it was really interesting.
I don't trust most mainstream Economists. Economics is not a science! According to writer Jay Hanson, on the theory and practice of Economics...
FIVE FUNDAMENTAL ERRORS
The Short Version, by Jay Hanson
( The Long Version is archived at http://dieoff.com/page241.htm )
(Permission to reprint explicitly granted.)
Any ONE fundamental error in neoclassical theory should be sufficient reason to reject conclusions based upon that theory. Here are five fundamental errors in the theory:
#1. A fundamentally incorrect "method": the economist uses "correlation" and "post hoc, ergo propter hoc" (after-the-fact) reasoning, rather than the "scientific method".
#2. A fundamentally inverted worldview: the economist sees the environment as a subsystem of the economy, rather than the other way around. In other words, economists are trained to believe that natural resources come from "markets" rather than the "environment". The corollary is that "man-made capital" can substitute for "natural capital". But the First Law of thermodynamics tells us there is no "creation" -- there is no such thing as "man-made capital". Thus, ALL capital is "natural capital", and the economy is 100% dependent on the "environment" for everything.
#3. A fundamentally incorrect view of "money": the economist sees "money" as nothing more than a medium of exchange, rather than as social power -- or "political power". But even the casual observer can see that money is social power because it "empowers" people to buy and do the things they want -- including buying and doing other people: politics.
If employers have the freedom to pay workers less "political power", then they will retain more political power for themselves. Money is, in a word, "coercion", and "economic efficiency" is correctly seen as a political concept designed to conserve social power for those who have it -- to make the politically powerful, even more powerful, and the politically weak, even weaker.
#4. A fundamentally incorrect view of his raison d'etre: the economist sees "Homo economicus" as a "Bayesian utility maximizer", rather than "Homo sapiens" as a "primate". In other words, contemporary economics and econometrics is WRONG from the bottom up -- and economists know it. The entire discipline of economics is based on a lie -- and economists know it. Moreover, if human behavior is not the result of mathematical calculation -- and it isn't -- then in principle, economists will NEVER get it right.
#5. A fundamentally incorrect view of economic élan vital: the economist sees economic activity as a function of infinite "money creation", rather than a function of finite "energy stocks" and finite "energy flows". In fact, the economy is 100% dependent on available energy -- it always has been, and it always will be. See a synopsis of the current energy situation at http://dieoff.com/synopsis.htm .
primatedave: Interesting list.
One thing i might question slightly is the "energy stock" idea and item #2: The current boom and crisis does not seem to be corrolated very well with a change in total energy production, rather it is a poor utillization of avaliable resources due to - what i would call - economic problems. Have you read Krugmans daycare example?
people don't talk about real economic issues anymore.
James, what do you consider are the real economic issues?
I get my best Economic News from my Wallet..
If it`s empty..
I know the economy is in trouble..
And..
Beer trade will follow..
............................
...OUTLAW
Sorry, no I haven't read much by Krugman. However, after a quick look on Google, I think I understand where you're coming from. There is a bit of debate on the subject of inflation and deflation on some blogs that I read. It can get a bit convoluted with different sides claiming to know things that the other side does not. The argument invariably gets political and ends in liberal/conservative bashing. Should Keynesian policies be followed? I don't know. Should the "markets" be allowed to decide? I don't know. To me, it's almost like discussing the Trinity in a religious debate forum. If god doesn't exist, why should it really matter? Likewise, perhaps the fundamental arguments behind government stimulus and "free" markets are also flawed.
If the currently deflating market bubble was comparable to a global ponzi scheme involving opaque derivatives traded on manipulated markets supported by a criminal financial elite and complicit political system, then how does one "fix" that? By blowing another bubble? By preventing the current one from deflating too fast? By withdrawing all support and letting the pieces fall where they may? I don't know.
The bubble could only grow so long as the actors in it could afford to keep investing surplus. However, what if the "surplus" invested was itself borrowed into existence? What if the risk was underestimated? What if the investment instruments were overrated? What if investment "products" were even designed to fail? What if all the financial rot in the system is still there turning into gangrene?
Global net energy plateaued in the past decade. Increases in efficiency are subject to Jevon's paradox. Crude oil production peaked in 2005. Total liquids (all liquid fuels including crude oil) peaked in 2008. The Export-Land Model predicts that oil available for import will decline faster that total production. While there is no conclusive proof that declining per capita net energy is to blame for the current market collapse, it is a fact that our civilization runs on petroleum. Broadly speaking, the total net energy available that human activity can economically use is defined by real limits that can be measured by scientific methods. How many economic models talk about Energy Return on Energy Invested (ERoEI)? Or thermodynamics? Entropy? Is there an alternative to petroleum that can provide the same high ERoEI, portability, and availability? Can civilization as it exists today run on any combination of alternatives? Do mainstream economists even talk openly about any of this?
Where this gets messy is that net energy is predicted to decline. Is there an economic model that allows for economies to shrink? Will loans be made by lenders knowing that fewer people will be able to repay them? Without new loans, what happens to the overall money supply? Can inflation take hold until the power of the bond market is broken? So many questions.....
It is very difficult to summarize the depth of human activity on this planet. Instead of economics, perhaps you should study ecology. The main article of faith in mainstream economic theory is Growth. Growth Is Good. The belief that economic growth will continue is politically and socially unquestionable. What do scientific models have to say about that? You've probably heard of the Limits to Growth study. In brief, it attempted to use models to measure and estimate the effects of human activity on planet Earth over a 100 year period starting in the 1970s.
See: http://www.theoildrum.com/node/3551 "Cassandra's curse: how 'The Limits to Growth' was demonized"
Bill Gross and PIMCO
... from Watchtower and Awake magazines. This sounds silly right? But this is called Information Control.
Some JWs literally rely on Awake magazines for news including economics news.
