Against Economics

https://www.nybooks.com/articles/2019/12/05/against-economics/

by kwindla • 7 years ago

136 191 7 years ago

diego2• 7 years ago

This article lost me at "printing money does not cause inflation." How would that be possible? The only answer would be that money is increasing in value for some reason, and the government must print more to keep prices stable (otherwise they would fall). Even then, it would be a technicality.

donatj• 7 years ago

Yup, came here to make the same complaint. The article just throws that out there as fact with no justification or citation.

Just need to look at what's going on in Venezuela, right now.

Increased supply of anything lowers it's value.

lordnacho3• 7 years ago

Increased supply of anything lowers it's value.

Network goods? Are telephones more valuable when more people have them? Road networks?

Just pointing out that many things in economics are not so obvious.

You're right that you need to cite things that go against the orthodoxy. At least to have sane debates. But of course he could have cited the current money printing era, where if you believe the official figures there's not a lot of inflation anywhere in the west. I'm not so confident in the figures, but that's at least some evidence that printing a load of money doesn't cause inflation.

fzeroracer• 7 years ago

If we take the opposite of your logical argument, then lessened supply of anything increases it's value. That's a logical proposition stemming from your original thesis.

Now let's try applying that to bus networks. The more busses we have on the road, the less they're worth. If we reduce the supply of busses, then busses will be more valuable.

But this ignores the network effects of increasing the supply of something. If we increase the supply of busses, then we also increase the demand for busses and the value of busses through increased ridership. A single bus is worthless, but a fleet of busses is valuable to a community.

pjc50• 7 years ago

Venezuela is a great example that hyperinflation, or substantial consumer price inflation, is mostly a forex phenomenon, and in turn a balance of trade problem. Because you can't print other countries' money.

Venezuela is a disaster because its export industries collapsed, and it doesn't have the advantage that western countries have of being an inward investment destination. So all sorts of things have to be imported, and the dollars needed to import them become increasingly scarce.

Printing money is a symptom. If the presses stopped then all that would happen is that paper money would become increasingly scarce as well as worthless.

trcarney• 7 years ago

I think you conflated value and price. Increased supply of anything lowers it's price not it's value. For example, oxygen is extremely valuable, can't live without it, but it is also very abundant. Therefore, its price is $0 almost everywhere. When you go to a ski resort, where the air is much thinner, there then becomes a market for oxygen and the price goes up[0]. The price changed with supply, not the value.

[0] https://www.oxygenplus.com/blogs/articles/why-oxygen-plus-is...

littlestymaar8• 7 years ago

Because it's pretty clear to anyone close to economics. Nobody is monetarist nowadays, because data shows they were simply wrong [1].

The monetarist pitch was sexy because it sounded intuitive and elegant, that's why it spread so broadly. But it's worthless. Too bad for elegance and intuitiveness, if the reality doesn't match your model, you must throw it away.

Increased supply of anything lowers it's value.

It doesn't work this way for money. otherwise,how would you explain that Euro isn't getting cheaper in dollar since 2015 when BCE is injecting billions of Euros on the market while the US has stopped QE for a while?

[1] https://fredblog.stlouisfed.org/2014/08/m2-velocity-and-infl...

aaronbwebber2• 7 years ago

No, that is not the only answer. There is at least one other possibility, which is that the demand for money is increasing.

diego2• 7 years ago

Well, if the demand for money is increasing and the supply is stable, then the value increases. Definition of supply and demand.

CharlesColeman2• 7 years ago

"printing money does not cause inflation." How would that be possible?

I haven't read this particular article, but I've read elsewhere that traditional tools used by central banks to increase inflation are being observed to empirically no longer work. I understand many of these techniques are analogous to "printing money" in a controlled way. That points to failures in their models of the economy and of inflation.

I also think I've read that at least some of the reason for this may be higher than expected levels monopoly-type powers active in the economy that conspire to keep prices and wages, and therefore inflation, down. My recollection is hazier on this part.

Edit: this might be the article I was thinking of:

Are Superstar Firms and Amazon Effects Reshaping the Economy?: The biggest companies may be influencing things like inflation and wage growth, possibly at the expense of central bankers’ power to do so.

https://www.nytimes.com/2018/08/25/upshot/big-corporations-i...

Two of the most important economic facts of the last few decades are that more industries are being dominated by a handful of extraordinarily successful companies and that wages, inflation and growth have remained stubbornly low.
Many of the world’s most powerful economic policymakers are now taking seriously the possibility that the first of those facts is a cause of the second — and that the growing concentration of corporate power has confounded the efforts of central banks to keep economies healthy.
Mainstream economists are discussing questions like whether “monopsony” — the outsize power of a few consolidated employers — is part of the problem of low wage growth. They are looking at whether the “superstar firms” that dominate many leading industries are responsible for sluggish investment spending. And they’re exploring whether there is an “Amazon Effect” in which fast-changing pricing algorithms by the online retailer and its rivals mean bigger swings in inflation.

throw0101a4• 7 years ago

I haven't read this particular article, but I've read elsewhere that traditional tools used by central banks to increase inflation are being observed to empirically no longer work. I understand many of these techniques are analogous to "printing money" in a controlled way.

There are circumstances where printing money does increase inflation.... and circumstances where it does not:

When short-term interest rates reach zero, further monetary easing becomes difficult and may require unconventional monetary policy, such as large-scale asset purchases (quantitative easing).

* https://www.brookings.edu/blog/ben-bernanke/2017/04/12/how-b...

* https://en.wikipedia.org/wiki/Zero_lower_bound

It should be noted that central banks are not omnipotent: they do have some influence, but they do not have all the influence. When governments enact austerity, which depresses demand and economic activity, thus reducing inflationary tendencies, they are working at cross-purposes to the central banks.

After the Great Recession we saw central bankers cut rates, but governments cut spending, thus the two cancelling each other out to a certain extent.

afterburner2• 7 years ago

The US "printed money" after 2008, and it did not cause inflation. Maybe your understanding is wrong.

throw0101a4• 7 years ago

The printing-money-will-not-cause-inflation was predicted by Keynesians:

Suddenly it seems as if everyone is talking about inflation. Stern opinion pieces warn that hyperinflation is just around the corner. And markets may be heeding these warnings: Interest rates on long-term government bonds are up, with fear of future inflation one possible reason for the interest-rate spike.
But does the big inflation scare make any sense? Basically, no — with one caveat I’ll get to later. And I suspect that the scare is at least partly about politics rather than economics.

* https://www.nytimes.com/2009/05/29/opinion/29krugman.html

The economic models said that the Fed should have decreased interest rates until they reached -6.7% (i.e., well below zero), but this that was impractical, the next-best thing was flood the market with cash equivalent, and that inflation would not appear:

* https://krugman.blogs.nytimes.com/2009/11/16/the-madness-of-...

It seemed totally obvious to many people that with the Fed adding to the monetary base at breakneck speed, high inflation just had to be around the corner. That’s what history told us, right?
Except that those who knew their Hicks declared that this time was different, that in a liquidity trap the rise in the monetary base wouldn’t be inflationary at all (and that the relevant history was from Japan since the 1990s and from the 1930s, which seemed to confirm this claim). And so it proved, as shown by the red marker down at the bottom.

* https://krugman.blogs.nytimes.com/2015/05/17/money-inflation...

According to mainstream theory, among the characteristics of a liquidity trap are interest rates that are close to zero and changes in the money supply that fail to translate into changes in the price level.[2]

* https://en.wikipedia.org/wiki/Liquidity_trap

The [2] is a 1998 paper by Krugman talking about Japan. So ten years before the Great Recession there were already models on how to think about increasing M2 from other countries' experiences.

Proziam• 7 years ago

The buying power of $1 USD has diminished massively over time and continues to do so. Every year the money in your wallet is worth at least 1.8% less. Over your lifetime that becomes a substantial loss in buying power.

shrewduser• 7 years ago

the US dollar was also in massive demand during 2008 as it is during every downturn or when risk goes up.

djokkataja• 7 years ago

There are multiple cases where an increase in money supply doesn't lead to inflation; the United States in recent years comes to mind:

"A good example is in a recession, the stock of money may rise 5%, however, people will be making fewer transactions and therefore the velocity of circulation will fall. This explains why quantitative easing (increasing the money supply) did not cause inflation between 2009 and 2016." [0]

The article I link below contains 3 more examples:

[0] https://www.economicshelp.org/blog/111/inflation/money-suppl...

marcusverus• 7 years ago

You are arguing that this is sometimes true. The author was clearly arguing that it is generally true:

"We now live in a different economic universe than we did before the crash. Falling unemployment no longer drives up wages. Printing money no longer causes inflation."

He is stating that we are in a different universe, with the clear implication being that the following items, which he does not qualify, are the new reality.

roenxi5• 7 years ago

To add some precision: doesn't lead to consumer price inflation.

Increasing the money supply has caused massive inflation; the price of gold isn't where it is because the colour yellow is in fashion. Asset prices are out of control.

viburnum2• 7 years ago

There’s been a huge increase in the money supply around the world since the GFC and hardly any inflation. This should not be a surprise because monetarism already failed as soon as it was tried 35 years ago. Simple models of the price level do not work. Output, trade, interest rates, investment, consumption, conflict between capital and labor, it all matters.

hogFeast5• 7 years ago

The point wasn't to cause inflation but to stop deflation.

This is a mistake that people almost always make with economics: failing to understand the decision contemporaneously.

By the metrics under which it was conceived, it had the intended effect (although some unfortunate side-effects...as ever).

Turing_Machine• 7 years ago

The only answer would be that money is increasing in value for some reason, and the government must print more to keep prices stable (otherwise they would fall). Even then, it would be a technicality.

I don't think that's a technicality at all, but rather the norm in an expanding economy. In such a case the supply of money must increase in order to maintain stable prices. More stuff to purchase requires more money to purchase it.

Inflation occurs when the supply of money increases faster than the amount of goods and services available for purchase, or if the money supply remains the same, but the goods and services available somehow decrease (for instance, after a lost war or natural disaster).

Deflation occurs when the supply of goods and services increases faster than the amount of money, or when the supply of money decreases with the goods and services remaining the same.

We've seen a lot of bad inflation in recent history, but it's not often appreciated that deflation can be equally ruinous. The Great Depression is an example of what you get if deflation gets out of hand. The prices for everything from stocks and bonds to apples and wheat plummeted, but it sure didn't lead to a consumer's paradise.

afpx2• 7 years ago

I think he means that printing money doesn’t change supply and demand curves. It only lowers the value of the money that one already has. For example, if one government prints more money, it doesn’t cause Global inflation. It just makes one country’s money worth less.

jmcqk6• 7 years ago

Are you asking theoretically or empirically?

Because using actual events from history, it's true that printing money may not cause inflation.

When theory fails to describe reality, the failure is in the theory, not reality.

tuberelay• 7 years ago

If you print money and then give it all to big banks who use it to ramp up the price of equities, it never really reaches the average person for them to be able to ramp up the price of the basket of things which CPI measures. Inflation here is seen in the stock market tripling, but that isn't included in government measures.

QuesnayJr21• 7 years ago

Because it's not inflation. It would be an asset bubble. Except it's not even that -- the P/E ratio on stock is high now because the economic news has been good, but it's nowhere near dotcom bubble levels (https://www.multpl.com/s-p-500-pe-ratio).

Zarath2• 7 years ago

I don't know, I mean, things like rent and healthcare costs seem to be increasing at runaway speeds. I'm sure lots of other things are too, just not TVs or whatever.

cortesoft• 7 years ago

I remember hearing about new economic theory that talks about inflation being related to latent productive capacity. If, for example, a factory is only producing at half capacity because there is not enough people with money to buy their product, they can simply increase production if more money is put into the system without raising prices. It is only once a factory is at full capacity that it would raise prices to match the supply/demand curve.

Our modern economies have a lot of latent capacity, especially since so much of our economy these days does not have a lot of raw materials involved. More Netflix subscribers don't use much more raw materials to serve them. We are not limited by things like oil and iron anymore, so we don't hit supply issues which cause inflation.

QuesnayJr21• 7 years ago

This is basically Keynesianism, which is the leading paradigm in macroeconomics. The challenge is knowing how much excess capacity there is in the economy. Unemployment is 3.6%, so I would guess not a lot, but I could be wrong.

nullc2• 7 years ago

This article lost me at "printing money does not cause inflation." How would that be possible?

Consider the equation of exchange (https://en.wikipedia.org/wiki/Equation_of_exchange): MV = PQ.

The amount of money (M) can be increased without prices (P) going up so long as either the velocity (V) of money goes down or the economy (Q) becomes larger.

Zarath2• 7 years ago

Just off the top of my head, if money supply increases at the same rate as human population growth, it seems like inflation should remain constant?

littlestymaar8• 7 years ago

Interestingly enough, the Monetarist view, which link between inflation and money creation is mostly a myth that was debunked long ago[1] (if you look at the history of the US since the 60s you'd see that this «hypothesis» doesn't hold, neither in short terms nor in long terms).

But it was so obviously intuitive for the layperson that it caught rapidly in the opinion, and now it's considered common sense.

[1] https://fredblog.stlouisfed.org/2014/08/m2-velocity-and-infl...

bildung3• 7 years ago

I think the author didn't elaborate further because while this is non-intuitive and tends to rail up the internet armchair economists, it actually is a well researched phenomenon.

One pointer would be the term "liquidity trap", e.g. this here as a starter: https://www.investopedia.com/terms/l/liquiditytrap.asp

Japan in particular had this problem for decades.

And I have to point out "printing money does not cause inflation" is exactly what happened in the US and Europe after 2007/8. There was massive QE but no increase in inflation (inflation was actually reduced).

nlfwhulsdhouv10• 7 years ago

To this day, economics continues to be taught not as a story of arguments—not, like any other social science, as a welter of often warring theoretical perspectives—but rather as something more like physics, the gradual realization of universal, unimpeachable mathematical truths.

This has always been my main frustration with economics. As a field, it certainly has value and usefulness, just like sociology, anthropology, or any of the 'softer' sciences. However, it eschews the tradition of teaching a variety of views and perspectives for the rigid orthodoxy of classical physics or chemistry, without the clean experimental results to back it up.

Microeconomics and econometrics take a much more concrete and practical view and well-describe localized economic phenomenon, but macroeconomics is a bastardized combination of sociology and capitalist political theory mashed into an unfalsifiable 'science' and taught as such.

lordnacho3• 7 years ago

As someone who studied economics, I've always found the history of the subject itself to be more illuminating than much of the content of it. Both due to the content having this not-rigorous quality to it and because a lot of macroeconomics seems to be politics in disguise.

You're right about micro though.

nlfwhulsdhouv10• 7 years ago

Both due to the content having this not-rigorous quality to it and because a lot of macroeconomics seems to be politics in disguise.

Yeah, I'm cool with macro conceptually, but we shouldn't pretend it's something it's not. The history is super interesting too, it connects with tons of important events, countries, and changes in the perception of society.

You're right about micro though.

Interestingly micro is the one place where you can run moderately-well controlled experiments too :D.

mr_toad• 7 years ago

a lot of macroeconomics seems to be politics in disguise.

It used to be called political economy. But macroeconomics went off on a math-trip in the 20th century that rivals string theory in its practical applications.

lukifer2• 7 years ago

https://en.wikipedia.org/wiki/Physics_envy

nlfwhulsdhouv10• 7 years ago

Haha, essentially, although I have a great deal of respect for the 'softer' sciences. _Most_ researchers are thoughtful enough to understand the limits of the approach and teach in kind. Economics are a special kind of arrogant though.

CharlesColeman2• 7 years ago

but macroeconomics is a bastardized combination of sociology and capitalist political theory mashed into an unfalsifiable 'science' and taught as such.

It also serves as highly effective propaganda for its embedded political ideas. It's a lot harder to question the politics if you've been indoctrinated into believing they have the truth of a natural science.

dredmorbius2• 7 years ago

That's the principle reason for teaching economics as an objective truth, "positive" rather than "normative" (a set of distinctions I always have to look up).

If what you're teaching is simply "natural law", then "it is what it is". If it's a moral discipline (which was what Adam Smith rooted his study in), it's ... rather something else.

There are some useful bits to economics. There's a lot of cruft in it as well. A huge part of the value of studying the field isn't the knowledge you gain about the world, but of the delusions of many of those who claim to understand it, or know what should be done for it.

QuesnayJr21• 7 years ago

"Propaganda" is always a convenient label to throw around about ideas that you don't agree with. Economics isn't perfect (economists are human), but it is engaged with the empirical evidence. The empirical evidence is that capitalism is pretty good at delivering goods and services, that it suffers from a business cycle, and that markets by themselves are not good at correcting externalities (such as pollution). Economics engages with this empirical reality. The people who are quickest to call economics "propaganda" are the ones who want to deny this reality.

hogFeast5• 7 years ago

If you are criticising economics for the lack of "clean experimental results", the problem is with your expectations.

Everything depends on context. That means that results won't apply 100% of the time.

It doesn't mean that economics is useless, medicines don't work the same way with every patient, but it does mean that you have to humble about what you know and be prepared to change your mind.

nlfwhulsdhouv10• 7 years ago

I'm not claiming they require "clean experimental results" for the field to have validity. I think sociology is a very valid and valuable field that doesn't have such a thing.

My problem is the misrepresentation of a sociology-like field as experimental physics, or worse, a study of morality. Both are exceptionally common in economics, and I've had several teachers and professors present it that way. It's the orthodoxy surrounding a very specific, Reagan-era capitalist interpretation of the function and behaviour of a society taught as a universal law.

chewz• 7 years ago

However, it eschews the tradition of teaching a variety of views and perspectives for the rigid orthodoxy of classical physics or chemistry, without the clean experimental results to back it up.

I have same problem with astrology and numerology. Useful and entertaining and you can read about it in almost every newspaper but where is the proof?

QuesnayJr21• 7 years ago

You think physics doesn't have warring theoretical perspectives? I suggest reading about the history of string theory, or MOND versus dark matter.

Progress in economics is slow, but there is progress. Questions do get settled. We don't mull over issues indefinitely. Most disputes about macroeconomics were settled by the financial crisis. We have all new disputes now.

jariel• 7 years ago

This is not an argument against economics, but against specific ideas in economics holding true:

"Falling unemployment no longer drives up wages. Printing money does not cause inflation."

This is not fair.

A) Wages are the last thing to rise and tend only to do so when unemployment is low. We're just now reaching that level.

B) Inflation doesn't well account for surpluses: we're getting a lot of bang for our buck in digital services, something that's super hard for the BLS to measure. 'Consumer Surpluses' are like 'profits' to the consumer that are not really measured at all - the only place we do this is when the BLS measures the 'quality' of a basket of goods to figure out inflation: i.e. if the Tomato is getting nicer, redder, juicier, then part of the increased cost of said tomato goes to value, the rest to inflation. This is hard enough to do already, but nary impossible with new services coming online.

Case and point: Fortnite. It's free. I've played quite a number of hours of that last year and never spent a dime. Apex is a big game, not free. This is a new trend. The surpluses there are vast. Games have a measurable effect on time spent on other things as well.

In a nutshell: consumers lives are improving in ways not always appreciated.

C) "Printing money does not cause inflation" - generally, it absolutely does! It just depends where you measure said inflation: stocks, housing - massive inflation. We just don't put that into our version of inflation. But there's inflation for sure!

Consider point 1 and 2 together: if stocks are doing well, and CEO's are getting their rewards for strong returns, why are they incented to innovate, pay more etc? Screw that - in a game of 'stocks going up because free money' - the strategy is to 'do nothing' - just keep operating as per, and avoid risk. 'Push the button, collect reward'. Risk changes the nature of the operating environment, and who wants that if there's steady 'returns'?

D) The Fed is not 'printing money' really, it's not quite fair to say that in the sense usually implied: a government (or anyone else) 'printing money' to pay for stuff has an entirely different implication.

I'll state the article misses the most important things:

1) Printing money almost assuredly does cause inflation, even now.

2) All things equal wages will rise as unemployment lowers. It's just that 'all things are not equal'. Take a look at real surpluses. Take a look at debt-leveraging in homes. Take a look at bifurction of employment from 'tech workers' to 'powerless gig economy' people. Take a look at levels of migrants, their relative skill and their relative market power for wages (they have little power, and there are enough that it absolutely moves the needle).

'Economics' can be used to measure and address all of those things, you just have to start looking at the data, and if not, start measuring things we didn't before.

My bet is the answers are not actually that far off, and probably not very surprising if we could see 'all the data' otherwise ignored or unmeasured.

tjpaudio• 7 years ago

I would write this author off, this is a rant and nothing more. "We now live in a different economic universe than we did before the crash. Falling unemployment no longer drives up wages..." Wages are certainly going up in places with low unemployment, its just not distributed as evenly as it was in prior history.

lukifer2• 7 years ago

For context, David Graeber is an anarchist anthropologist who has written extensively about economics. His two best-known works on the subject:

- https://www.amazon.com/Debt-First-5-000-Years/dp/1612191290/

- https://www.amazon.com/Bullshit-Jobs-Theory-David-Graeber/dp...

His views are surely influenced by his a-priori politics, but I've found his ideas thought-provoking to say the least.

QuesnayJr21• 7 years ago

Graeber is also the person who wrote this sentence:

"Apple Computers is a famous example: it was founded by (mostly Republican) computer engineers who broke from IBM in Silicon Valley in the 1980s, forming little democratic circles of twenty to forty people with their laptops in each other's garages..."

hogFeast5• 7 years ago

For context: this idea is basically a fetish amongst those around Corbyn.

Danny Blanchflower was, at one point, influential amongst the Corbyn crowd. Around 2013-15, he made a prediction that wage growth wouldn't rise as unemployment fell. This was true for a while...until 2015, and wage growth was nearly 4% a few quarters ago.

The idea that high employment won't cause wage growth is something that you will, however, hear repeatedly from Corbynites.

Btw, economists, unlike the author, tend to be quite sensible on the Phillips curve and understand that the relationship varies.

anm89• 7 years ago

This article is utterly nonsensical (claiming the money supply is essentially unrelated to inflation) but the specifics of their argument say a lot about the field and why things I think are about to get worse.

Their argument goes

A) current economic regimes are built on shifting sand and border on useless for predicting macro crises (this is true more or less)

B) there are other schools of thought out there which are sometimes more predictive than the main stream

C) therefore get rid of economics

D) and replace it with a different version of economics, specifically one which agress with my politics.

The problem is that they are right, mainstream economics is junk, and so it becomes really hard to discredit other wacky ideas like mmt, or endless unmoderated fiscal stimulus because hey, couldn't be much worse than our system which seems to blow up and screw everyone over.

nlfwhulsdhouv10• 7 years ago

D) and replace it with a different version of economics, specifically one which agrees with my politics.

All of macroeconomics is really just politics though, so if you believe a particular political conception is more useful or valuable, of course you want economics to follow. It's a shame the author didn't cite more, but it also doesn't mean they're wrong.

The current set of economists are evolved Reagan-era republicans, which is certainly political, and one particular politic at that.

AnimalMuppet• 7 years ago

Well... it's true that macroeconomics is always influenced by politics. It's not true, though, that "all of macroeconomics is really just politics". There's a bit more to macroeconomics than just "here's my politics, therefore here's my economics".

widowlark• 7 years ago

All of macroeconomics is really just politics

This is not really true, there's a science to it as well, but its not always well employed

apendleton2• 7 years ago

claiming the money supply is essentially unrelated to inflation

I don't think this is the actual claim. The key quote is this (emphasis mine):

Doubling the amount of gold in a country will have no effect on the price of cheese if you give all the gold to rich people and they just bury it in their yards, or use it to make gold-plated submarines

It's not that they're unrelated, it's that increasing the monetary supply is a necessary but not sufficient criterion for inflation to occur. I don't think the author would likely deny that printing boatloads of money resulted in inflation in Zimbabwe or Venezuela, just that if you increase the monetary supply specifically by giving it to rich people who hoard and it never gets spent on consumer goods, it won't affect the price of consumer goods. That's not how it went down in Venezuela, but is (the author asserts) what kept QE from working.

chillacy• 7 years ago

In the common model for inflation MV=PQ that would match with low V, or "velocity of money"

jfengel• 7 years ago

I don't think the author would likely deny that printing boatloads of money resulted in inflation in Zimbabwe or Venezuela

They might, actually, since the relationship between cause and effect isn't as simple as that. In both cases, the economy collapsed, causing massive inflation from the supply shock. The governments turned that into hyper-inflation by responding with printing money, but that was effect rather than cause. Even if they hadn't devalued their currency that way, they would still have been in a crisis.

The hyperinflation added an accounting crisis on top of that, but that's more about numbers than about the real problems. It's frequently presented as if the monetary policy were the cause of the crisis and they should just stop doing that, but it's simply not true. What they needed was to fix their specific national disasters -- destroying the farming infrastructure in Zimbabwe's case (after centuries of colonialism putting all of the farmland in the hands of an entrenched elite and race-based oppression of everybody else), and the collapse of the oil economy in Venezuela's (as well as mismanagement of their oil wealth leading up to it).

BenoitEssiambre• 7 years ago

and it never gets spent on consumer goods

It doesn't need to be spent on consumer goods to cause inflation. It can also be spend on economic investment ie. new capital (new factories, new equipment, infrastructure inventory, supplies, training, R&D, real estate, mining operation etc. etc.). The money will quickly flow to employees and then to everything else.

Only if the rich keep all the new money in cash form would it not cause inflation but this would usually be a very risky and unstable situation for the money hoarders as some of the money on the sidelines can start moving at any time which would cause inflation to spike and the rest of the stockpile to lose value quickly.

jeffdavis• 7 years ago

"...government borrowing didn’t divert funds from the private sector; it created entirely new money..."

The general answer to this is that public spending crowds out private spending as both are bidding for the same goods and services.

Not sure if that's a good explanation, but the article doesn't seem to address that conventional wisdom.

hogFeast5• 7 years ago

I have an outsider's perspective, I studied economics but mostly ended up doing economic history (I am a practical person, and preferred stats to models)...

...the point of economics is not to produce models that are 100% accurate. Yes, there is an absolute ton of witchcraft in economics and especially in macro (CGE, DGE to name two areas beloved by civil servants/central banks) but it is very far from useless (and, contrary to what the author thinks, there is a hell of a lot of testing of theories). The issue, funnily enough given the author's perspective, is often that we use economics to just support whatever we already believe.

On his actual content: unsurprisingly, he gets his history totally wrong.

First, an important point, the UK never actually adopted monetarism. We were forced to adopt DCE targets by the IMF in 1968 but everyone thought it was bullshit. Even after Thatcher crushed inflation, monetarism was only popular amongst the small group of City economics/journalists who came to the idea in the 1970s (and were thought of as crackpots by non-risk takers). The UK was thoroughly Keynesian, that is why we persisted with utterly insane policies through govts under both parties (until Thatcher).

Second, saying monetarism causes disaster confuses the cause and effect. Monetarism, whatever its theoretical faults, was correct in 1979 but was only necessary because Labour/Heath had fucked the economy beyond belief (the UK went to a three-day week because the economy literally just stopped working).

Third, the 1960/70s were not a period of economic success. Inflation hit 25%, two devaluations, one trip to the IMF, one banking crisis, and endless begging other people to lend money (and the govt got a reputation for going back on agreements). Incomes policy was, objectively, one of the most disastrous policies ever conceived. It ended up, literally, with unions running the economy in 1974. Yes, growth was high but real growth was lower and supported by population growth. I am not aware of any history which concludes any economic policy pursued in this period worked. Everything failed.

Fourth, what everyone forgets about the 1950/60s was that there was almost no trade. That is why workers were richer. Most currencies weren't convertible until the late 50s. The UK could milk Commonwealth nations dry with no competition. But the evidence here is clear: trade makes us richer. Anyone who says this isn't the case, even Trump recognises this, is an ignoramus.

Fifth, Greenspan understood there was a bubble. He gave a speech in 1998 saying there was a bubble. The issue - which is perfectly logical if you look at what happened in 1958 when the Fed did burst a bubble - is that people will say you caused the downturn if you intervene (he blames monetarism for causing the downturn but also blames the Fed for not bursting the bubble...what a genius this guy must be, spotting bubbles like he is at a car wash). This is an attempt to inject some psychology into economics, it is amazing the author doesn't see this.

It is no surprise Graeber has thrown his lot in with Corbyn. The number of crackpot acolytes around Corbyn grows every day (thankfully, he remains unpopular with voters). I would vote for Labour normally...but their current policies are just...ignorant. These ideas have been tried, they didn't work, that is why Corbyn has support amongst young people who don't read books. The logic is: build a wall, make Goldman Sachs pay for it.

petermcneeley• 7 years ago

You dont sound like an outsider at all. "Trade makes us richer. Anyone who says this is the the case is an ignoramus".

Contrast that with this recent article

https://foreignpolicy.com/2019/10/22/economists-globalizatio...

I think what you really need to define is what "us" means

nlfwhulsdhouv10• 7 years ago

Sorry, but what makes you an outsider?

The number of crackpot acolytes around Corbyn grows every day (thankfully, he remains unpopular with voters). I would vote for Labour normally...but their current policies are just...ignorant. These ideas have been tried, they didn't work, that is why Corbyn has support amongst young people who don't read books.

You've obviously taken all of this as an attack on your personal view of politics and its intersection with economics. However, instead of reflecting on why the economists that have associated themselves with Labour are criticizing your politic, you've taken to calling them crackpots. Robert Skidelsky certainly has the credentials to be taken seriously, regardless if you agree or not. Throwing out a few points that are _directly refuted_ by Skidelsky doesn't make for useful or productive criticism.

Together, this isn't the mark of an outsider. At best you're a 'useful idiot' in the Chomskyian sense, at worst you're the economist that supports violent austerity the article is criticizing.

6510• 7 years ago

note to self:

Required for education: Unskilled labor "must" pay less to motivate people to get diplomas.

Required for productivity: Wages "must" be low enough so that people have to keep working.

Since motivation to get a diploma depends on the size of the income advantage "ideally" people without diplomas should barely be able to sustain themselves - forever.

All other economic talk seems filler material. All excessive wealth "should" go towards sustaining the filler material or otherwise be destroyed. For this purpose we also see endless investment in businesses that exist only for the purpose of extracting wealth from everyone else. Some of course deliver useful products in return but if they could increase ROI by not making anything most if not all would do it. If they operate at a loss it is even more "beneficial" to the system. For this purpose we also have 32 Trillion "hidden" in tax havens.

The whole thing seems to have "evolved" so that we all are as productive as possible only to sacrifice the produce on the altar of productivity again. The bad thing about this is that all this "productivity" destroys everything around us. It all costs finite resources. We would be better off just making what we need efficiently.

ep103• 7 years ago

Does anyone have a good, non-biased resource explaining why keynesians cannot explain stagflation, and what Milton Friedman did during this era to solve that problem and thereby launch us into the modern neo-liberal moment?

Whenever I search for this, I have a tendency to find articles that already assume the reader has read on the topic numerous times (like this one), or they they only address the topic in the most watered-down and overtly partisan manner.

From reading between the lines on the first few pages of google results, it seems like Keynesian thought in the 1970s hadn't evolved far enough to recognize that inflation could have multiple driving factors and could impact different parts of the economy disproportionately. My limited understanding too is that this was resolved theoretically and with obvious and clear explanation in the years afterward (now referred to as neo-keynesian), but by then Milton Friedman had been lionized as the new economic "truth" and the universe moved on in his direction.

bhl• 7 years ago

Very few things in economics are resolved theoretically; they're more often improved empirically.

Take for example stagflation. Previously, economists assumed a simple linear relationship between inflation and unemployment (Philips curve). That failed to hold in the 1970s.

And now, economists assume a simple linear-dynamics relationship between expected inflation and unemployment (augmented Philips curve).

QuesnayJr21• 7 years ago

In 1958, A. W. Phillips discovered an empirical relationship between inflation and unemployment, now called the Phillips Curve (https://en.wikipedia.org/wiki/Phillips_curve) -- the higher the inflation rate, the lower the unemployment rate.

Milton Friedman argued that the trade-off only existed for unexpected inflation. Once everyone anticipates that inflation, it will have no impact on unemployment. That's what happened in the stagflation era.

The New Keynesians use an expectations-adjusted Phillips curve, which take into account this effect on expectations. In New Keynesianism there is a short-run trade-off, because prices do not instantly adjust, but there is no long-run trade-off once prices actually do adjust.

nyolfen• 7 years ago

i don't have anything that fits that criteria specifically but you might be interested in philip mirowski's book on the social history of neoliberal thought:

http://gen.lib.rus.ec/book/index.php?md5=16D0875D5BCCD74581E...

skybrian2• 7 years ago

Inflation was fixed when the Federal Reserve (led by Volker) increased interest rates to over 17%, causing the early 80's recession. [1] We've had other problems since then, but not inflation, so it increased confidence that the the Fed knows what it's doing.

But I don't know what Friedman had to do with this or how it affected theory.

[1] https://en.wikipedia.org/wiki/Early_1980s_recession_in_the_U...

perl4ever13• 7 years ago

This is an unsatisfying view of things, for me, because it seems like low inflation and interest rates are a global phenomenon.

As a pessimist, it seems to me that assuming there are resilient homeostatic mechanisms preventing inflation, then they must be obscure, given that politicians have not been able to screw them up for quite some time. And that means that when they do break for whatever reason, markets may not be aware for an indefinite amount of time. Like, for instance, lately people have been worrying about the US President trying to bully the Fed. It's hard to tell if he's had any effect, if he was right in his opinion, and whether he has found or will find any new lever to influence them.

I don't really think it makes sense to regard the Fed as an entity that still entails the Volcker era, and I'm doubtful that markets really have faith in it that way. I'm inclined to think more along the lines that often markets just go along assuming nothing has changed until there is a shock or crisis that shows they have. Like Wile E. Coyote running off a cliff.

viburnum2• 7 years ago

Keynesians (the real ones, not the so-called New Keynesians) understood stagflation as it was happening. There was a deadlock between capital and labor. The oil embargo starting in 1973 lowered America’s real income. The question was who was going to suffer for it. It led to a political crisis, which in the short run was handled by allowing wages and prices to both run up, but it was eventually resolved in favor of capital during the Volcker shock, which deliberately created mass unemployment to undermine worker power. It didn’t have to turn out this way, though. There were other options.

Here’s an excellent article:

https://nplusonemag.com/issue-34/reviews/other-peoples-blood...

lootsauce• 7 years ago

A few observations I generally do not see discussed.

Velocity of money has a large impact on the inflationary impact of circulating money.

Bank loans endogenously produce new money in the economy. This can dramatically impact the inflation seen relative to Fed printing.

Official macro stats, especially inflation are tweaked to death and are not a stable metric.

rayiner6• 7 years ago

The article takes things a bit too far with the political angle. Just because economists may or may not be particularly accurate at predicting recessions doesn’t mean that “economics” doesn’t deserve its place in the neo-liberal order.

NPR did a podcast a few years ago on six policies it’s ideologically diverse panel of economists all agreed on: https://www.npr.org/sections/money/2012/07/19/157047211/six-...

They are:

1&2) get rid of tax deductions for mortgage interest and healthcare

3) eliminate corporate taxes

4) replace payroll and income taxes with consumption taxes

5) impose carbon taxes

6) Legalize marijuana

Perhaps unsurprisingly, Europe, Canada, and Australia have all been moving in the above direction (at least slowly) over the past 30 years, marking a period of return to growth after decades of economic doldrums where they were uncompetitive with the USA.

There is even less disagreement when it gets into microeconomics. Everyone agrees that markets produce efficient prices so long as you account for externalities. So for example, an EPI study polled economists about the $15 minimum wage (who identified as Democrats 3:1 as compared with Republicans): https://www.johnlocke.org/update/what-do-economists-think-ab.... 75% thought it would negatively affect employment, and 84% agreed it would hurt youth employment.

Similarly, few economists support rent controls: https://www.economist.com/leaders/2019/09/19/rent-control-wi...

Indeed, the consensus on government price controls is so deep that, with the exception of isolated things like rent control and the minimum wage, where people don't perceive it as price regulation, even liberals don't really call for price regulation. That is remarkable, because price regulation was a feature of life until the 1970s. Airline tickets, freight trucking, phone bills--all were priced not based on markets, but based on bureaucrats picking numbers.

gruez• 7 years ago

4) replace payroll and income taxes with consumption taxes

how can this be implemented in a fashion that's non-regressive? income taxes in most countries are progressive, and consumption taxes are regressive.

crazygringo• 7 years ago

They can be progressive too: [1]

A direct, personal consumption tax may take the form of an expenditure tax, that is, an income tax that deducts savings and investments, such as the Hall–Rabushka flat tax. A direct consumption tax may be called an expenditure tax, a cash-flow tax, or a consumed-income tax and can be flat or progressive...
This form of tax applies to the difference between the income of an individual and the increase/decrease in his savings. Like the other consumption taxes, simple personal consumption taxes tend to be regressive with respect to income. However, because this tax applies on an individual basis, it can be made as progressive as a progressive personal income tax. Just as income tax rates increase with personal income, consumption tax rates increase with personal consumption. Economists from Milton Friedman to Edward Gramlich and Robert H. Frank have supported a progressive consumption tax.

[1] https://en.wikipedia.org/wiki/Consumption_tax

nwj• 7 years ago

Progressiveness is a function of both taxes and benefits. A consumption tax scheme can be made more progressive by paying benefits in a more progressive manner.

For example, Exampleville institutes a consumption tax of 15%. Such a tax is regressive because consumption is usually a smaller proportion of a wealthy person's income than a poor person's income. To counteract this, Exampleville pays a monthly cash grant to all citizens and adjusts the payment level so that the cash grant is larger for the poor and smaller (or non-existent) for the wealthy.

See https://tax.purpleplans.org for an example of a real proposal that mimics this scheme.

tptacek• 7 years ago

I think 1 & 2 might be the motivating problem for my whole worldview right now --- just the notion that the system is in fact rigged, but not for who we want to say it's rigged for, but rather for the college-educated middle/upper-middle class. We're all on board for for social justice (I certainly am too), but only to the extent that it doesn't impact the square footage we can get a mortgage on in a choice "public" school district.

This isn't an especially productive comment and I should probably delete it before I hit the reply button.

RhodesianHunter• 7 years ago

You'd think that, until you have a conversation with someone who does accounting for the ultra rich and discover that the mortgage interest deduction is a joke compared to the loopholes those people are able to take advantage of.

sjg0073• 7 years ago

Economists were wrong about the $15 min wage.

QuesnayJr21• 7 years ago

According to this survey in 2015 (http://www.igmchicago.org/surveys/15-minimum-wage), economists do not have a clear opinion on a 15 dollar minimum wage. "Uncertain" is the most common answer on whether it would cause unemployment, and "Agree" and "Disagree" both get considerable support.

Webstir• 7 years ago

You said: "Everyone agrees that markets produce efficient prices so long as you account for externalities.”

You lost me here, and revealed much about your thinking. Please explain how a “market” is anything other than steady state if all externalities are accounted for? Profit, by definition, means getting something for nothing. Without externalities, capitalism doesn’t exist.

perl4ever13• 7 years ago

I don't agree with your definition of profit.

Profit, I would say, is really the same thing as interest, i.e. return on capital, just with the connotation of being less predictable.

And interest, I would define not as something extra for doing nothing, but as a deferred payment for the labor that created the capital, which serves the important social purpose of rewarding people for deferring the consumption of the fruits of labor.

That's why people have not found a way of eliminating it, even though usury has been criticized for thousands of years.

perl4ever13• 7 years ago

Some other points:

1. Externalities can be positive. For example, the government builds roads, and doesn't account for the benefit to private industry on their books.

2. You're in a forum with a lot of software engineers; do you really believe that every new piece of software that brings $X in revenue necessarily costs society $X somehow? What mechanism causes this? Saying everything has externalities is far from saying they are always significant, or if significant, they are equal and opposite to the internalized value.

speedplane• 7 years ago

Please explain how a “market” is anything other than steady state if all externalities are accounted for?

I took micro-economics in highschool, and when discussing how trade is overall beneficial, they trotted out the old example of two countries, each producing bicycles and bananas.

The purpose of the exercise is to show that if each country focuses on one item and specializes on it, everyone benefits.

I always found that example to be deeply disturbing. If given a choice, who would actually prefer to live the banana country rather than the bicycle country? Even in highschool this silly example demonstrated the absurdity of classical economics.

bjourne2• 7 years ago

NPR did a podcast a few years ago on six policies it’s ideologically diverse panel of economists all agreed on:

That panel consisted of five American economists (Luigi Zingales is perhaps an immigrant but working in an American university). Two of them appeared to be om the Democrat's side and three aligning with the Republican party. That is not very ideologically diverse.

littlestymaar8• 7 years ago

Everyone agrees that markets produce efficient prices so long as you account for externalities.

Clearly not everyone does. A big part of the heterodox economists even denies the existence of the notion of “efficient price” and rejects the concept of equilibrium.

What you call “everyone” is in fact the huge group of “Neoclassical synthesis” economists, which is super dominant nowadays, but it's not at all everyone.

afpx2• 7 years ago

Won’t most of these cause more wealth inequality? I think economics should be focused on improving peoples‘ lives, not just increasing the GDP.

xvilka• 7 years ago

Highly correlates with what is written in the Incerto[1] series by Nassim Nicholas Taleb.

[1] https://www.goodreads.com/series/164555-incerto

KODeKarnage• 7 years ago

Oh great, another non-economist getting famous for criticizing economics from a position of comprehensive ignorance. Modern economics has more than enough critics WITHIN the economics field. People who wouldn't say something as stupid as "Economists still teach their students that the primary role of government ... is to guarantee price stability!". Seriously, this has NEVER been remotely close to true. When you say something like that, you effectively lose the section of the audience that knows the something about economics, and are instead rousing the ignorant rabble. The field of Economics has problems (such as an over-reliance on mathematical models), but instead of any of THAT being discussed we have the argument centering around some fantasy-world view of economics and economists!

etripe• 7 years ago

You're taking the least charitable interpretation of that sentence, reading it as "all" or "most" economist teaching government's primary role is price stability. That is apparently false (I'll take your word for it).

In a more charitable reading, he's reacting to one or a few instances where it is taught but shouldn't. That could be accurate, if contextually misleading and possibly myopic.

Discounting his argument based on factual errors is fine, but given that you only bring one counterpoint to the table, "another non-economist getting famous for criticizing economics from a position of comprehensive ignorance" sounds like an argument from authority.

QuesnayJr21• 7 years ago

I don't see how anything in the text permits that charitable reading. Even the inventor of monetarism itself, Milton Friedman, thought that the government could prevent recessions -- he just thought that the best way to do that was to target the money supply, so you get price stability and no recessions all at once. The whole point of his and Schwartz The Monetary History of the United States is that drops in the money supply are linked to recessions.

riffraff• 7 years ago

We now live in a different economic universe than we did before the crash

I think "this time is different" thinking is dangerous. Yes, maybe the world is different now, but it's only been 10 years since the big crash, not so long.

Expecting the world to keep being the same as it is now is just as dangerous as thinking it will always be as it was for the last 50 years.

darawk• 7 years ago

Central banks like the Bank of England create money as well, but monetarists are entirely wrong to insist that their proper function is to control the money supply. In fact, central banks do not in any sense control the money supply; their main function is to set the interest rate—to determine how much private banks can charge for the money they create. Almost all public debate on these subjects is therefore based on false premises.

This seems to be a weird oversight on the part of the author. Even if we accept the heterodox view of money creation as espoused by this article (which I do, for what it's worth), the central bank still plays a very important role even in the private creation of money. Setting the "risk-free" interest rate for the economy determines how much money banks are going to be willing to lend, which thereby determines how much money they will create. Just because the central bank is not printing the money themselves does not mean that their policy levers are not having profound effects on the money supply.

QuesnayJr21• 7 years ago

Graeber has an oddly dated notion of issues in macroeconomics. Targeting the money supply is a 70s era idea that the Bank of England tried briefly and abandoned in favor of targeting the interest rate.

harimau777• 7 years ago

Can anyone recommend a book or other resource that gives an overview of the various schools of economics including the "heterodox" ones?

When I'm learning about a subject I find it much easier if I have a framework for categorizing and organizing the different approaches or topics that the subject consists of.

Synaesthesia• 7 years ago

Well the best heterodox economist IMO is Michael Hudson. Recommend his blog, talks and books to anyone.

JDiculous• 7 years ago

Ha Joon Chang - Economics: The User's Guide

aazaa• 7 years ago

Printing money does not cause inflation.

Ah, but it does. It creates asset inflation. This may be the worst kind of all possible inflation because it makes people believe they are wealthier than they are. When the inflation can no longer be sustained, large numbers will soon find out they are far poorer than they once thought. That's the stuff of revolutions and Dark Times.

Asset inflation takes root through policies that distribute money, not to the poor (Great Society), but to the rich (Deregulation and Quantitative Easing). The rich have no use for the money being given out and so drive up asset prices with it.

From this perspective, it's easier to see how a multi-thousand word essay on new economics fails to mention negative interest rates once.

cryptica• 7 years ago

I agree with your point about asset inflation but I think that the author of the article is well aware of it based on these lines:

Doubling the amount of gold in a country will have no effect on the price of cheese if you give all the gold to rich people and they just bury it in their yards, or use it to make gold-plated submarines (this is, incidentally, why quantitative easing, the strategy of buying long-term government bonds to put money into circulation, did not work either). What actually matters is spending.

Are you suggesting that negative interest rates are some kind of solution? I think they would make the problem worse, just like QE; the effect would just be to expand the money supply by injecting more money into the economy on the basis of arbitrary rules.

With negative rates, the incentive becomes that everyone should borrow all the time (because borrowing becomes profitable), so then the question will quickly become "who is allowed/qualified to borrow?" and the answer will either be "rich people" or some other kind of unfair arbitrary criteria.

Negative interest rates are a terrible idea. All the extra money will be absorbed by cryptocurrencies, advertising platforms and other speculative investments.

panarky• 7 years ago

What actually matters is spending

Exactly right.

  MV = PT

Where M is the monetary base, V is the velocity of money, P is the price level, and T is the real value of transactions.

Central banks would love it if they could precisely control inflation by creating and destroying money.

What actually happened with QE is that M increased and V decreased in almost the identical magnitude, leaving P and T virtually unchanged.

Central banks have very little influence over the real economy, aside from short-term changes in interest rates.

snidane2• 7 years ago

This is the big flaw in how inflation is measured. Assets (eg. for pension savings) and especially housing costs are for some reason not included in the Consumer Pricing Index despite them being a huge expense from person's monthly paycheck.

One can argue the reasons why. Is of the same problem with KPIs in general thay we only measure things which are easy to measure and omit the difficult but often much more important things to measure?

Or is it a conspiracy plot in which the governments realized that the only way to repay those ever increasing government debts is by inflating them away. Ie. borrowing at 1% akin to CPI reported inflation instead of at 8% which is what the actual inflation might be.

ianai3• 7 years ago

Putting on my academic Econ hat for a moment: There’s probably a stronger argument for including housing costs like rent into CPI than asset value like home values. Assets like homes are supposed to be illiquid and relatively constant over time. Ie little change in the underlying fundamentals of the item or changes that can be accounted for in an uncomplicated way. When such stable in underlying value but relatively illiquid assets like homes trade their realized prices are supposed to reflect little more than inflation. So maybe their price changes make more sense on the exogenous side of the equation than the endogenous?

Is this argument still valid? It seems like it would be since it still seems moving in and out of a mortgage is a longer (by months) process than moving in or out of a lease.

derefr2• 7 years ago

I think (Core) CPI is what it is because many things carry an inflationary signal, but very few things have no other signals mixed in as noise. Core CPI isn’t quite “measuring what is easy to measure”, but rather “measuring what is least distorted by other pressures on the market” (because goods like food and clothing are both easy-enough to produce and in high-enough demand that there is almost always an efficient market for them.)

You can then use the inflation signal from Core CPI to correct other measures for inflation, in order to see what those other measures are doing beyond just inflating. (Maybe they’re doing something like “inflation squared”, but that’s still a separate thing, which you still need a measure of base-term inflation to find out!)

QuesnayJr21• 7 years ago

Your basic assumption here is not true. The CPI includes housing costs. Here is how the BLS calculates housing costs for the CPI in great detail: https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...

aww_dang• 7 years ago

Speaking from the Austrian perspective, the original definition of inflation is an inflation of the money supply. Price inflation is a separate but associated phenomenon.

QuesnayJr21• 7 years ago

There's no such thing as asset price inflation -- it's a pre-modern Austrian notion. The value of an asset is the discounted value of its future cash flows (the net present value). If an asset is worth more than its future cash flows, then you have an asset price bubble.

The rich think they are rich because they actually are rich, and they expect to be rich in the future. The value of the stock market is high because profits are high, and the owners of stock expect them to remain high. They could be overoptimistic about the future, but its driven by future expectations about the real economy.

corporate_shi113• 7 years ago

What are the future cash flows of a stock with no dividend?

They are 0. Does that mean that all stock price inflation for such securities is just a bubble? Of course not.

snidane2• 7 years ago

After years of unsatisfactory personal research of various schools od economics I had to come to conclusion they are all flawed because they completely omit the important parts which govern our economy.

For example having all economical models based around people exchanging goods and not focusing on why money actually disappears from economy in form of monopolies and money parked in real estate. It always has to be poured back into economy in form of money stimuli like QE, yet people are blind to the fact that it yet again gets eaten up by ever bigger monopolies and more expensive real estate. A simple network model of money circulating in economy would show that these sinks are where the money keeps disappearing.

Yet no economic school has its primary focus set on these money eating sinks. The closest school is actually the once mighty, now close to extinct Georgist school, in which they at least explain the business cycle of booms and busts as housing cycle, where housing bust is not some random consequence of a business going bonkers, but housing (actually land speculation) being the major cause of these cycles.

If you think about it 100% of population (except for hobos) are involved in real estate market and paying close to 50% of paycheck on housing in some form. Yet all economics focus on stock and bond markets and exchange of random little items even though these are dwarfed by the housing markets.

I don't think it is a conspiracy, but laziness. People like to research things which are easy to research, but not things which are difficult but important.

QuesnayJr21• 7 years ago

There's an entire field of real estate economics. There are professors and conferences and everything.

You won't find your theory about money sinks, because it's a theory unique to you. It may be the greatest breakthrough in the history of economics, but it's not a theory that currently anyone else believes in. I personally am skeptical.

ianai3• 7 years ago

“”” The one thing it never seemed to occur to anyone to do was to get a job at a bank, and find out what actually happens when someone asks to borrow money. In 2014 a German economist named Richard Werner did exactly that, and discovered that, in fact, loan officers do not check their existing funds, reserves, or anything else. They simply create money out of thin air, or, as he preferred to put it, “fairy dust.””””

Let me stop you there. Economists aren’t trying to create the exact theory that market participants implement. That would almost certainly be short sighted to the point of uselessness. (How often in your life have you woken up with Plan A and wound up doing B - where B is very different from A?) Instead, they’re looking for a theory that agrees in the outcome and may be applied usefully to describe what’s going on in resource allocation. This probably flies in the face of a technology focused era in which surveillance of the masses at the nearly perfectly micro/individual level is a prime factor in market valuation. Some of the largest corporations today have access to data no economist ever dared dream to consider.

That actually makes me think modern surveillance companies (google, Apple, amazon, etc) could really make market models from the individual to market level in aggregate.

Versus the topics at discussion here - which are macroeconomic. Macro is often hurt by a lack of data since there are only so many years of data of the goings ons of nations in a global context - with probably not enough variation to make conclusions.

Against Economics

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