What to read to understand how economists think

https://www.economist.com/the-economist-reads/2022/08/09/what-to-read-to-understand-how-economists-think

by helsinkiandrew • 4 years ago

175 274 4 years ago

economist.com

bpierre• 4 years ago

https://archive.ph/EeAXV

antegamisou• 4 years ago

Also look into Capital: A Critique of Political Economy

https://www.amazon.com/Capital-Critique-Political-Economy-Vo...

notahacker9• 4 years ago

Kapital is extremely interesting from the point of view of understanding Marx's very singular view of the world, but doesn't tell you much about how modern economists think about modern economies even from a contrasting perspective since neither existed at the time of writing...

fleetwoodsnack• 4 years ago

“Modern economists” aren’t really a thing, at least in the sense that a consensus or collective understanding of economics is shared by a group denominated as such.

There is vigorous disagreement in the field regarding just about everything. The title of the underlying article may more appropriately be, “Popular Economics for Non-Academics.”

VictorPath• 4 years ago

For modern topics, read the Monthly Review ( https://monthlyreview.org ).

This article on the 2008 financial crisis has lots of interesting references to government data. Then you can see if you reach the same conclusions as the authors.

https://monthlyreview.org/2008/12/01/financial-implosion-and...

unmole9• 4 years ago

Hot take: Capital is not about economics. Reading it will in no way help you understand how economists think.

Bakary2• 4 years ago

Could you please expand on this?

imtringued3• 4 years ago

Sorry but it actually is about economics and it is a pretty good description of capitalism but he makes some glaring errors about money by assuming that it is just a medium of exchange. Making such a grave error means that his proposed solutions to end capitalism are doomed to end in failure.

mushbino2• 4 years ago

Economics is mostly political economy. It's based on ideology more than anything moral or actually scientific. Neoliberalism has been the dominant theory since Keynesianism. It's been an abject failure, but nobody has come up with anything to replace it yet.

nilaykumar2• 4 years ago

A cursory look at the table of contents of Volume 1 turns up various topics such as:

- the length and regulation of the working day for factory workers

- the division of labor

- the economic impacts of increasing automation/mechanization

- wages (the factor payments for labor)

These are all topics that I think reasonably fall under the umbrella of economics. Certainly Capital is not a book on positive economics. It is, throughout, quite normative, and expressly interested in the combination of politics and economy.

Reading Capital may not help you understand how modern mainstream economists think, but it will definitely get you thinking about the same kinds of problems that they deal with. For example: how regulations might be used to enforce a 40 hour work week. Of course, capitalism has quite outgrown Marx's mid-19th century conception of it. It's an old book. But I find it difficult to understand how a book critiquing the work of the first economists is not a text about economics.

culi8• 4 years ago

Well you labeled it a "hot take" so that at least shows you understand how absurd this take seems on its face. So what's the part I'm missing? Why is this a good take?

interpenetrate2• 4 years ago

Reading the first chapter alone (in particular the section on commodity fetishism) will tell you all you need to know about how economists think, because it tells you why economists think. This is a domain of inquiry that is necessary for any science, but that the economists since Marx have ran from for reasons Marx exposed in Capital itself. Notice that the OP article doesn't even try to justify its categories. How do economists think? Marx responds very simply: ideologically, dogmatically.

nilaykumar2• 4 years ago

Note: Capital is available to read for free here: https://www.marxists.org/archive/marx/works/1867-c1/

The beginning of Capital is quite dense (establishing the basic definitions of a study often is, and Marx's dialectical approach takes some getting used to if, like me, you never could understand Hegel) so I would recommend reading it along with David Harvey's lectures available on Youtube. However, the book does open up from there and becomes very much more concrete: working day lengths in the factory, increasing automation of industry, transition from feudalism by expropriation of land from farmers, ...

It is of course important to understand the works that Marx was critiquing or building on. Smith's Wealth of Nations, for example, is available for free from Standard Ebooks (https://standardebooks.org/ebooks/adam-smith/the-wealth-of-n...). This translation is very readable so I encourage you to take a look.

PheonixPharts• 4 years ago

As a fairly big (philosophical) Marxist, it's important to recognize that Marx is much like the Bayesian Statistics of economics.

For me personally, it was Marx that first made sense when I read it, very much like Bayesian statistics first made sense to me where I found Frequentist stats very confusing.

That said it shares the same problem: If you learn Bayesian statistics the Summer before Stats 101 in college, it will likely hurt your performance in that class. Likewise, while Marx makes a lot of sense, understanding Marx will mean you have an even more difficult time communicating with mainstream/orthodox economists.

However from a Marxist perspective this is no accident. One of, if not the most, important ideas coming out of Marx is the idea of ideology. The idea is that even our most basic thinking and views about the world are formed around the idea of maintaining existing social relations in favor of the ruling class.

An example of this (my own) is the way that Christianity in Medieval Europe quickly evolved into a belief system where the natural order involves an all mighty ruler that must not be questioned. The idea that the natural order of things involves a strict monarchistic hierarchy was fundamental to the Medieval European world view. Clearly this is a beneficial world view if you are a ruling monarch. You still see the impact of this today in the way we tell stories about princesses who, even when their identity is either unknown or hidden, are innately superior to other around them, or in other narratives where justice is satisfied only when the "true king" sits on the throne.

Orthodox economics, from a Marxist perspective, is referred to as bourgeois economics. That is, at a fundamental intellectual level, orthodox economics exists to reaffirm a capitalist worldview, in a similar way to medieval theology evolves to support monarchistic rule. An example of this is the way that the role of labor in the creation of value is fairly hidden, the economic inputs and outputs are all framed in a way to distract from the very idea that the worker creates value.

Another good example of the difference is the "business cycle" vs Marx's crisis theory. In orthodox economics the business cycle is a borderline supernatural process that we just accept as "how things go". For Marx periodic market crises are because Capitialism is filled with unresolvable internal contradictions (one example is the incentive for Capitialist to maximize the exploitation of the worker while simultaneously depending on that worker for the creation of surplus value). Marx spends a good chunk of Capital vol III developing this idea. For Marx the big concern is that deep contradictions in the foundations in the logic of Capitialism will ultimately lead to it's collapse.

So while I do recommend nearly everyone read Marx, it will likely hurt, not help, you understand mainstream economic theories.

Wolfbeta• 4 years ago

So while I do recommend nearly everyone read Marx, it will likely hurt, not help, you understand mainstream economic theories.

Solved by reading Atlas Shrugged in the interim.

cf141q53254• 4 years ago

When it comes to understanding how the economy (especially inflation) works i really like the NPR article about how Brazil fixed their inflation. It boils down to inflation being inflation expectation.

tldr: They invented a new theoretical currency. All prices were each month listed in the actual price in the old currency and the price in the new currency (that didnt exist yet). And each month the new currency was redefined so that stuff still cost the same in the theoretical currency. They did this for a few months till they declared inflation fixed and creating the new currency that had "proofed" its stability the previous months. And Abrakadabra, people believed and inflation was fixed through the introduction of the Brazil Real. Obvious when you think about it, its not called fiat currency for nothing.

Say, for example, that milk costs 1 URV. On a given day, 1 URV might be worth 10 cruzeiros. A month later, milk would still cost 1 URV. But that 1 URV might be worth 20 cruzeiros.
The idea was that people would start thinking in URVs -- and stop expecting prices to always go up.

https://text.npr.org/130329523

glofish• 4 years ago

TIL, thanks for the fun read, quite enlightening

aristus• 4 years ago

There are only two hard problems in economics: cash invalidation an naming things.

formerkrogemp• 4 years ago

Don't forget depreciating land..

marcosdumay6• 4 years ago

That narrative is highly misleading.

Yes, that happened. But the government also did take the finances under control, restructured (literal "changed the structure of", not defaulted) its debits, added controls to the banking system, restructured the banks, pegged the currency to the dollar, made a campaign of price transparency, and a lot of other things.

bombcar4• 4 years ago

“Pegged the currency to the dollar” is probably doing a lot of heavy lifting here.

cf141q53254• 4 years ago

But the government also did take the finances under control, restructured (literal "changed the structure of", not defaulted) its debits, added controls to the banking system, restructured the banks, pegged the currency to the dollar, made a campaign of price transparency, and a lot of other things.

And how much of what you just listed worked the exact same way as the new currency trick, through being a frame to influence public perception? Thats the important perspective i took away from it, that i was thinking about economics wrong. In the end the way it works is through crafting stories to get the market participants to believe certain things. Because that is all the economy is, people and their behavior. And if you want to influence behavior, you have to influence how people think.

arexxbifs• 4 years ago

They also, among other things, raised interest rates and taxes, severely cut public expenditure, legally enforced balanced budgets and cut tariffs by half. It was a pretty thorough plan.

unmole9• 4 years ago

I really don't understand the appeal of The Worldly Philosophers. Maybe it's just me but I found the explanations of the ideas of each philosopher to be rather muddled.

santiagobasulto• 4 years ago

I read The Worldly Philosophers a long time ago (I was young) and I loved it. I remember really liking the narrative and the historical background.

abecedarius• 4 years ago

I found it stimulating in high school (compared to most social-studies stuff). But from recently sampling it in the library: I don't think it mentioned the marginal revolution at all. E.g. Alfred Marshall did get a couple pages, but only as some kind of Victorian eminence who made some technical contributions not worth explaining.

(https://en.wikipedia.org/wiki/Alfred_Marshall#Theoretical_co... for what I wish the book had told me.)

Bakary2• 4 years ago

Another suggestion in the same vein is Why Nations Fail: The Origins of Power, Prosperity, and Poverty

vouaobrasil• 4 years ago

Not sure what the article said since it's locked, but I recommend Steven Landsburg's "The Armchair Economist". It's one of my favourite books of all time.

dredmorbius3• 4 years ago

https://news.ycombinator.com/item?id=32618863

alecco• 4 years ago

Freakonomics?! It's a clickbait book. Wild headling-grabbing claims, bogus data, and dubious methods. It's like saying to learn investing you should watch Jim Cramer's Mad Money.

https://en.wikipedia.org/wiki/Freakonomics#Criticism

transportgo• 4 years ago

The article states: “Some of the studies discussed in it have been called into question. But the overall lesson is a useful one: incentives matter. ”

kwhitefoot2• 4 years ago

Economics has a reputation as a dry, heartless subject, full of boring equations.

Not if you have any training in a hard science: then you think of economics as something largely devoid of equations and made up of lots of ad-hoc regression analysis and hand waving. This might not be the fault of the economists but of the difficulty of the subject matter of course. But economists really should learn to accompany their predictions with error bars as every undergraduate physicist must.

imtringued3• 4 years ago

Economists have "hard science" models but those are empirically unreliable.

Honestly the boring answer is that e.g. liquidity is the ability to change your mind instantly, which also means that any prediction can become invalid at any given moment.

If you want to increase predictability, you would have to encourage people to make decisions as soon as possible and stick with those decisions for as long as possible.

fezfight2• 4 years ago

As a mechanical engineer (not a hard science), economics has always looked more like history than science. As in, you can build models to show what happened, but not what will happen.

Edit: I think Ive had my mind changed enough in this thread to edit this. It's obviously a very deep subject and I've been convinced it has predictive qualities. I definitely dont think of dry equations though, more like psychology, and politics. But I'm looking forward to learning about it and possibly having my mind changed yet further.

ChadNauseam• 4 years ago

Econ is great at predicting the future. Let’s say your uncle tells you about his new stock trading strategy that’s guaranteed to make him 10% returns per month. Will he be rich two years from now? Econ’s efficient market hypothesis predicts he will not.

Or let’s say the president of Japan announces a plan to beat deflation once and for all. He says that next year, he’ll fire their central bankers and hires the ones from Venezuela, give them a 100% annual inflation target, and promise them millions of USD in bonuses if they meet or exceed that target.

Even though this plan is going into effect next year, what will you see the next day? (Assuming people believe the president is serious.) Econ predicts you will start seeing inflation immediately. And we see effects like these all the time when looking at how the actions of central bankers effects the economy – if Powell says he’s going to change interest rates, there’s a reaction in the markets when he makes the announcement and not one when he makes the actual change.

colinmhayes5• 4 years ago

There's a big difference between micro and macro. Macro is basically predictions as you say because in the end it's largely underpinned by market expectations which are not always rational. Micro on the other hand looks at the choices of individuals, which are by definition at least somewhat rational. Individuals will always make the choice that they believe will maximize their utility, so the whole thing is really just equations whose derivative you set equal to 0 in order to maximize/minimize.

influxmoment• 4 years ago

"error bars" are only relevant if you have a reliable model and theory. Economists buying into their own models of humans is the problem

Gimpei• 4 years ago

Before you lay into an entire academic discipline, it would help to understand it a little better. Fine if you’re just bagging on DSGE models, since they really are garbage (although I would argue that it is because of all the equations involved). But the vast majority of economics is concerned with causal analysis where there are no predictions. And everybody reports standard errors and has for decades.

sudosysgen3• 4 years ago

Do the standard errors actually hold up empirically?

erdos4d4• 4 years ago

This. The subject is definitely not the rigorous science that its practitioners would like you to believe. They mostly just fit some sort of regression model and analyze it, but rarely is there any serious work to demonstrate that reality actually obeys the model. I understand that proving the real world actually conforms to theory is very hard, but that is what makes science what it is, and why science is really hard.

nequo2• 4 years ago

Out of curiosity, could you give a few examples of published papers that uncritically reported regression estimates?

nequo2• 4 years ago

But economists really should learn to accompany their predictions with error bars

Virtually all published papers in economics that use regression analysis which you mention include "error bars." The discipline calls these standard errors and confidence intervals. If a paper is non-parametrically estimating functions rather than single parameters, they might also report confidence bands.[1]

Standard errors may be calculated analytically (resting mostly on asymptotic theory) or numerically (using a bootstrap estimator for them). There is a large literature on the appropriate standard errors for various contexts, with clustered errors being mainstream in applications.[2][3] These are taken seriously in peer review, and published papers come with long lists of robustness checks which turn papers into book-length publications when you include the appendices.

[1] https://cattaneo.princeton.edu/papers/Cattaneo-Crump-Farrell... is one example.

[2] See https://economics.mit.edu/files/13927 for a recent discussion.

[3] See https://gregoryeady.com/ResearchMethodsCourse/assets/reading... for bootstrap-based methods.

kwhitefoot2• 4 years ago

I stand corrected. Thank you.

neverrroot• 4 years ago

The economist acts as a pretty good contrarian indicator. What would really help is look at some of the bigs, compare them with each other, follow them over time, see who was right and who wasn’t, and come too your own conclusion. Bonus: chat or follow some old school, based interest rates traders, see what they have to say. Compare them to economists. Then look into the Eurodollar system, and be prepared for a shock.

boppo13• 4 years ago

chat or follow some old school, based interest rates traders

How do you find someone like this?

look into the Eurodollar system

Suggestions for a first foray? Too much financial conspiracy stuff out there.

nullnein• 4 years ago

Made an account only to suggest checking out Perry Mehrling‘s work. He has a Coursera course for free which will change the way you look at economics entirely.

I‘ve studied economics and political economy for years and never seemed to be able to tansfer the micro/macro models to the real world. Perry‘s work doesn’t have to be transferred b/c they come from the world of banking in the first place.

Perry is best consumed in lectures. Here one on Eurodollar [1].

[1] https://m.youtube.com/watch?v=tUi-xTmOCUE

immigrantheart• 4 years ago

Isn’t this the same as whether a fund manager can do well in one year and bad in another? I.e just randomness?

kkfx• 4 years ago

John Maynard Keynes and Rosa Luxemburg writing about capitalism to understand the current economic situation AND why most "mainstream" economists keep a certain direction.

hirundo• 4 years ago

I can't read the fine article. I've read from economists that the key essay to answer this is "What is Seen and What is Not Seen" by Frederic Bastiat (1840). That introduces the parable of the broken window. Its arguments are reprised in Economics in One Lesson by Henry Hazlitt (1946). Are either mentioned in the article?

You can't steelman classical economics without groking these.

dredmorbius3• 4 years ago

https://news.ycombinator.com/item?id=32618863

itsthemmrvax• 4 years ago

Why do we care what economists think?

erdos4d4• 4 years ago

Its a very political field and whichever little clique gets the ear of the decision makers that year determines what policies get enacted. I'll grant you that this doesn't matter in practical terms, because we all know that the policies will benefit the rich, not us, but at least you can get a better understanding of how you'll be robbed.

marcosdumay6• 4 years ago

I'm not sure decision makers listen to economists.

Aunche2• 4 years ago

This is needlessly antagonistic towards economists. The majority of them are boring academics. The others are employed by the rich to whisper into the ears of politicians as you describe. This is precisely why it's important to learn economics: so you can vote for economically literate politicians who are be better resistant to lobbyists' BS and vote against politicians who are clearly trying to favor special interest groups.

mbg7212• 4 years ago

Once the 1970s happened and Keynes was accepted, the Revolution was over, wasn't it? My macroeconomics courses in the 2000s basically said, "Yeah, stagflation happened. How bout that," and went back to the G plus E plus I whatever.

Consultant324522• 4 years ago

The most important thing to know about the field of economics is the only people who get funding are the people who tell the public that the government should do whatever it was the government wanted to do.

Example: you won't get funding if you go around saying there's no such thing as a labor shortage in a market economy, even though this is entry level economics. Why would that tank your career? Because big business has paid the government to pull the right levers to suppress your wages. The solution to a labor shortage is higher wages, but that can't be the government's response to their donors. Technically you can say the truth, but you better not be very loud about it.

pydry• 4 years ago

This is how the idea that raising the minimum wage would cause unemployment came to be and how the fact that (up to a fairly high point) it simply eats profits got suppressed.

qeternity• 4 years ago

in a market economy
to suppress your wages

Can't really tell where you're going with this. The solution to a labor shortage is higher wages. You seem to be suggesting that it should be an increase in minimum wage.

In a market economy, you absolutely wouldn't need this if you had a labor shortage...the market would resolve on its own. But we don't have that. We have an economy where millions are paid by the govt to do nothing. This then becomes what employers are competing with.

makomk2• 4 years ago

"you won't get funding if you go around saying there's no such thing as a labor shortage in a market economy, even though this is entry level economic"

The Economics 101 answer is clearly wrong or at least incomplete in this case. Think about it this way: if people's wages increase in real terms by definition this means they can buy more with their wages. Producing stuff requires, amongst other things, workers. Suppose we're in a situation like the current one where unemployment is low and businesses across all sectors cannot find enough workers to keep up with consumer demand. What happens if they all try and solve this by increasing wages across the board? Well, their workers have more money to spend so this increases consumer demand even more - and remember, the problem we were trying to solve was that this was already too high compared to supply. What it doesn't do much for is the supply of workers, since there's not some big pool of potential workers who could be working but aren't. It's not going to encourage people to work longer hours either since when would they have time to spend the money? Basically, it makes the whole problem worse, and that's why the Fed and central banks around the world are freaking out right now.

melagonster• 4 years ago

In past, president Reagan complaint economist have conspiracy, why all of them give same advice.

alfiedotwtf• 4 years ago

Keynes was accepted

Yes, but for how long.

mbg7212• 4 years ago

Until you can get a bullet in your head for questioning him, like always.

culi8• 4 years ago

Do you mean "and Keynes was over"? Keynesian economics got big in the 30s and was killed by the stagflation of the 1970s

culi8• 4 years ago

Not sure why this is being downvoted. This is just well-estatblished history. Keynesian economics came out of the Great Depression of the 1930s and was the leading economic theory until stagflation posed a major theoretical challenge for it and monetarism took over instead

Bloating2• 4 years ago

70's stagflation UNaccepted Keynes

fithisux• 4 years ago

Question: What to read to understand how economists think. Answer: Mein Kampf, just replace Jews with Humans (superset of the Jews).

hairofadog• 4 years ago

One problem I have with economics books is that they tend to end with either “and therefore, government spending is bad” or “and therefore, government spending is good”.

What I’m really after are non-ideological macroeconomics books that will help a layperson have a better sense of where the economy is headed so I can invest better, not books that would help me make better decisions if I were running a country, which I’m not.

Ilverin• 4 years ago

Even finance experts like Matt Levine use index funds. Unless you are mega rich and have connections, you almost certainly have no advantage against the many people who work 100 hours a week trying (and often failing) to beat the market.

XorNot2• 4 years ago

People do beat the market, but the thing is if you can beat the market then you don't need to accept public money - you become a private trading firm and trade with your own money and keep all the profits.

That's the issue: successful firms which beat the market don't keep doing it on behalf of other people for very long.

anonporridge2• 4 years ago

This. Imagine the arrogance necessary to believe that you can understand economics, finance, geopolitics, and the vast arrays of industries and competing companies well enough by studying as a hobby in your spare time to get better returns than professional investors who literally spend their entire careers trying to beat the market, and fail on average.

Just VTSAX and chill.

rr8083• 4 years ago

I think investing and economics isn't that well correlated. You need some idea of monetary and fiscal policy but as you say economics tends to get political quick.

https://www.youtube.com/c/RealVisionFinance is pretty good for anything that has the boss Raoul Pal, most other talking heads aren't that great.

gjvc2• 4 years ago

Choose your heroes carefully. Raoul Pal lost his mind (and the respect of many) when he became a cryptocurrency shill.

ur-whale2• 4 years ago

What I’m really after are non-ideological macroeconomics books

Not possible by definition.

Economics is about explaining things after the fact, and incapable of prediction.

Therefore, it's all ideology (rock fell on my head, must have offended god of rocks, only logical explanation).

anonporridge2• 4 years ago

Economics is about explaining things after the fact, and incapable of prediction.

I would expand on this a bit.

The problem with economics is that it's the study of a type 2 chaotic system, where predictions about the system themselves feedback into the system and change the outcome. Contrasted with a type 1 chaotic system, like weather, where predictions are extremely difficult but can be made without affecting the outcome. Economics is chaotic because conscious actors are extremely unpredictable and change their behavior based on new information.

This is something you have to bear in mind whenever you hear an economist or government official make a prediction. The very act of making the prediction public often becomes a self defeating prophecy, because masses of people and money make changes to their future behavior based on the prediction. Also called the Prophet's Dilemma, https://en.wikipedia.org/wiki/Self-defeating_prophecy. A close relative of the Preparedness Paradox, https://en.wikipedia.org/wiki/Preparedness_paradox

This is why some of the best predictions are never made public. The best traders don't sell you their strategy. Because as soon as their prediction mechanism becomes too public, it gets absorbed into the system and arbitraged away to worthlessness. That's also why you always must take what government officials say with a grain of salt. They're often not telling you what they really think is going to happen. They're telling you what they think is going to motivate the population to behave in the most productive way given the current environment.

Making economic predictions is a grand game of "I know that you know that I know that you know". It's a game of mass manipulation rather than a technical pursuit of simple measurement.

It's an art, not a science.

lottin• 4 years ago

Economics is about explaining things after the fact, and incapable of prediction. > Therefore, it's all ideology

Can you give us an example of a macro or microeconomic model that is incapable of prediction and it's (therefore?) all ideology?

I can't think of none off the top of my head.

unmole9• 4 years ago

One problem I have with economics books is that they tend to end with either “and therefore, government spending is bad” or “and therefore, government spending is good”.

Which economics book ends that way? I'm genuinely curious.

colinmhayes5• 4 years ago

Anything associated with MMT.

marcosdumay6• 4 years ago

You know, there are plenty of undergrad and graduation level textbooks, whose goal is exactly that article's title.

Nothing wrong with specialized, focused studies on one subject or another, and popular press. But they won't do what the title says.

neilv• 4 years ago

I went there to see how economists think... and they showed me a big tracking consent form that doesn't label the toggle buttons for whether I'm opting-in or opting-out.

golemotron• 4 years ago

Any first year Calculus textbook.

mattacular• 4 years ago

Hard pass

marban• 4 years ago

Classic: How The Economic Machine Works by Ray Dalio https://www.youtube.com/watch?v=PHe0bXAIuk0

BMc2020• 4 years ago

The Wrecking Crew by Thomas Frank is good for the lay public.

Much denser is The Road from Mont Pelerin by Philip Mirowski.

amelius2• 4 years ago

Is anyone keeping track of how often economists are right versus wrong?

Banana699• 4 years ago

The closest thing that I know of is Philip Tetlock, he made a 20-year-long experiment where he asked a variety of "experts" about political events like the fall of the Berlin Wall, and recorded the results.

peteradio• 4 years ago

The thing about making a prediction is that you don't really have much control over your experiment. I would bet that most rigorous predictions end up invalidated by some stated or obviously implied caveat.

carapace2• 4 years ago

There's really no point. If there are any successful economists other than Jim Simons they keep real quiet.

As anonporridge points out in a sib comment ( https://news.ycombinator.com/item?id=32620572 ) economies are too dynamic for a naive economics to work.

amelius2• 4 years ago

There's something to it. But I don't believe the "type 2" dynamics point: if it were the case, then surely there must be some fixed-point you can reach if you take into account that your predictions become public.

sbf501• 4 years ago

"The Armchair Economist", Steven Landsburg

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

Extremely approachable book with fantastic examples explaining somewhat complex concepts.

NeutralForest2• 4 years ago

Talking about Economics on HN, what could go wrong

napoleon_thepig• 4 years ago

Brace yourselves for people commenting with a lot of confidence in what they're saying, but without actually having read anything about the topic.

NeutralForest2• 4 years ago

Yeah the average take on this thread is abysmally bad.

LiberationUnion• 4 years ago

Some of them might be trolls trolling to get their kicks. As always, I brace myself for trolls everywhere online.

dtgriscom• 4 years ago

Back in the early '80s I took course in regulation from one of the leading experts in railway regulation. She was great, and the main idea I took away from it is "don't regulate if the market will naturally fix itself." So, the big question when deciding whether some issue needs to be controlled through regulation is whether the market will function well without regulation. (In most of the examples she gave, it would.)

culi8• 4 years ago

Who was she?

lock-the-spock• 4 years ago

That misses about 95% of reality. To mention just one key factor: without government intervention you end up usually with a monopoly or oligopoly.

Not to mention safety standards, labour protection, quality and warranty, ...

Without regulations and often intervention all goes to pieces.

to directly counter your argument: no railroad ever developed without government intervention and at least funding, guarantees and land grants.

seibelj• 4 years ago

Can you name an example of a monopoly that has developed in the last 50 years that didn’t occur because of crony capitalism?

kylevedder• 4 years ago

without government intervention you end up usually with a monopoly or oligopoly.

I would love to hear your explanation of how government intervention is the only thing preventing a monopoly or oligopoly of plumbers, electricians, pet groomers, or halal carts.

xyzzyz• 4 years ago

You seem to have noticed the part where the parent comment says “don’t regulate”, but missed the part where it says “if the market will naturally fix itself”. Please, read it again, so that you can respond to what it actually says, instead of what your imagined version of it says.

rufus_foreman4• 4 years ago

Unless you are claiming that there are no issues that don't need government regulations, I don't see how your argument contradicts the parent post.

Bloating2• 4 years ago

natural monopolies are short-term, unless propped up by government

being propped up includes excessive copyright protections

At one time, Walmart and Microsoft were considered by some to be "natural monopolies".

darksaints4• 4 years ago

You could just as easily say that government causes 95% of monopolies. Regulatory compliance is almost universally a fixed cost to a business, and large fixed cost structures are the defining characteristic of a natural monopoly market. That's also the reason why small public IPOs disappeared after Sarbox...small corporations can't handle the cost of regulatory compliance.

Regulation can prevent monopolies, but it can just as easily enable them. And lack of regulation can allow monopolies to form, but they can also allow markets to commoditize. Quality of regulation will always matter more than quantity.

houstonn• 4 years ago

Corporations secure their standing through regulation. It prohibits upstarts from competing because of artificial overhead that only the largest and most well-connected (to government insiders) can handle.

It's practically dragging the ladder up behind them.

avgcorrection• 4 years ago

And if the market doesn’t manage to regulate something just put those things in the Externalities bin.

senttoschool3• 4 years ago

This is taught in any Economics 101 class in college.

Government regulation = market inefficiency

andrekandre2• 4 years ago

  > Government regulation = market inefficiency

there are many causes of inefficiency, such as too many middlemen, monopolies, oligopolies, cartels etc...

pupperino• 4 years ago

Most disciplines evolved in the last 40 years (looking at you psychiatry), but economics has changed rather drastically. Methods for testing theory back then were Bad. Like, really bad. Ed Leamer's 1983 paper on this (http://www.econ.ucla.edu/workingpapers/wp239.pdf) is a good read if you want the details. Beginning in the late 80s, there was a movement toward study design and credible identification. Software like Stata (and nowadays there's R, julia and python) started lowering the costs of doing data-intensive work. The 90s and 00s are full of really interesting papers pushing the frontier on what could be done do gather evidence of causality: Angrist and Lavy in 1999 using Maimonedes Rules and RDDs to estimate class-size effects, Hoxby 2000 using rivers and county borders as exogenous variation on public school competition, Acemoglu, Johnson & Robinson 2001 using colonizer death rates to estimate long-term effects of colonization. The discipline has evolved and so has our understanding of minimum wages (https://academic.oup.com/qje/article/134/3/1405/5484905), gun violence (https://www.nber.org/papers/w23510) and nation-building (https://scholar.harvard.edu/files/dell/files/paper_combined....). Pretty sure Railway Economics has changed too.

Animats4• 4 years ago

Ah, that was pre-deregulation in the US. Now we know what happens with de-regulation. At first, there are lots of new entrants in the industry. Gradually, the new entrants go bust or consolidate. The industry reduces to an unregulated oligopoly with four or less major players.

Examples:

- Wireline telephony. (AT&T, Verizon)

- Cellular telephony. (AT&T, Verizon, T-Mobile)

- Cable TV (Comcast, Charter, AT&T).

- Banks. (Bank of America, Citigroup, Chase, and maybe Wells Fargo)

- Package delivery (FedEx and UPS, plus USPS).

- Airlines (United, American, Southwest, and Delta)

Price competition seems to disappear at 3 or less direct competitors, from an EU study.

darksaints4• 4 years ago

However, the brewing and trucking industries have done the exact opposite. Maybe your model is broken.

De-regulation is a misnomer, and using it as a pejorative shows ignorance as to how regulation really works. Quality will always matter way more than quantity.

classified• 4 years ago

… and the internet overlords, like Google and Facebook.

jcampbell1• 4 years ago

The EU is different than the US. The EU has country club culture of old families that stay off each other’s turf. That used to be the case in the US where airlines split routes, and the cable business is still a mess. Steve Jobs tried to pull that shit with programmer salaries. Frankly I have little issue with US monopolies as many you list only make a 10% margin. I’d rather pay T-Mobile $27 than the $30 I currently pay, but I am not all that upset about it. An Epipen is $600. That is due to the FDA only approving 1 device with $0.10 worth of epinephrine, when the EU has 6 choices all less than $100. Bad government policy can screw us. It would be really nice if the US government relaxed the regulations on a drug invented in 1910 combined with a spring.

I’m not disagreeing with you but I just feel like I am as likely to get screwed by regulatory capture as natural monopolies. Wild west entrepreneurial capitalism is a decent antidote to crony capitalism which thrives with regulation.

MBS, Putin, Biden, Trump, Xi all want power over industry, media, and education. I question how much I want a savior empowered by the law and a duty to save us from monopolies and tycoons. Elon Musk seems to be creating a monopoly on space access and he is high on the scale of douchbag, but he is unlikely to make my life worse. Even if he controls space.

From a monopolistic standpoint, you have to laugh at Zuck getting a Fuck from Chinese TicTok. It may not be good, but he isn’t cronies with Mr. Zhang.

It is also worth acknowledging that most of the audience here has benefited directly or indirectly from the obscene profit margins that the US tech scene has created. Complaining about monopolies is biting the hand that feeds. Ignore any negativity as the choir here gets the rich milk of profit margins which have historically only ever been created by monopolies.

What makes me laugh is that the US military and US fracking means we Americans get the good life and high programmer salaries because US tech is immune while Europeans hang their laundry outside.

omreaderhn• 4 years ago

These are some of the most regulated industries in the US.

rufus_foreman4• 4 years ago

> Banks. (Bank of America, Citigroup, Chase, and maybe Wells Fargo)

This one is a pretty bad example. If I want to avoid Spectrum, I don't get cable. If I want to avoid FedEx and UPS, I don't get to order things online.

If I wan't to avoid Bank of America, Citigroup, Chase, and Wells Fargo (which I do, particularly that last one), I bank at a credit union.

But yeah, it's fun to imagine what it would be like to live in a world where any company with more than 4% market share gets broken up as a monopoly.

userabchn• 4 years ago

A corporate tax rate that increases with revenue would naturally disincentivize such monopolies/oligopolies (by making it easier for small companies to compete against them) without requiring the government micromanagement of deciding what is and what isn't a monopoly.

As_You_Wish3• 4 years ago

Correct.

Which is why breaking apart companies that form monopolies is so important. Break up Facebook. Break up Amazon. Break up the Warner Bros Discovery merger that just happened (why was that allowed in the first place?).

Monopolies are the one major failing of capitalism. Busting up monopolies is an important function of government. Unfortunately, all our congress is now bribed (they call it lobbying and PACs) and work for the monopolies or oligopolies. So that's how Warner Bros Discovery has happened to create this huge news and media organization. In any merger, I like to see who the new CEOs are and get a sense of them. David Zaslav is the new CEO. If you haven't seen David Zaslav, the new CEO, speak, here is a little video of him good little speech: https://www.youtube.com/watch?v=0i0v5GVZ30o

Because our US congress is being bribed, a main solution to monopolies is term limits. About 90-95% of representatives are re-elected to Congress year after year. And about 80-85% of the Senate. For example, Diane Feinstein has been a California Senator for 30 years, and I am almost convinced that they have put an android in her and there's just a thin coating of her skin over it. Why is this happening...why don't we have term limits?

Maybe 6 years for both, then the politician is OUT.

ianai2• 4 years ago

You really want 100s of competitors. If they’re running advertisements they’re exploiting market power.

jl6• 4 years ago

Those all seem like fiercely price-competitive markets, with the exception of wired comms where there isn’t competition in regions which have been divided up between one provider or the other.

Also, they are all highly regulated industries, so it’s hard to disentangle whether any observed issues are due to market failure or regulatory failure.

pessimizer• 4 years ago

the big question when deciding whether some issue needs to be controlled through regulation is whether the market will function well without regulation.

All markets are regulated. Markets are defined by their regulation. You're talking about the calculation one should do when deciding when some market needs to be more or differently regulated.

yevpats• 4 years ago

Milton Friedman - Money and Inflation - https://www.youtube.com/watch?v=B_nGEj8wIP0

I think is under rated talk which explains complex stuff in layman terms.

leed25d2• 4 years ago

https://www.goodreads.com/author/list/23458.John_Kenneth_Gal...

dredmorbius3• 4 years ago

The Age of Uncertainty if you'd like a good overview to start with.

<https://en.wikipedia.org/wiki/The_Age_of_Uncertainty>

His The Great Crash: 1929 remains amazing.

And his son (James K.) is also an economist, pretty good.

leed25d2• 4 years ago

I will look in to the younger. I am hoping that he has the same droll, dolorous, dare I say, ghastly demeanor

albertop• 4 years ago

How to Think about the Economy: A Primer [0] - is a great starting point.

[0] https://mises.org/library/how-think-about-economy-primer

zasdffaa• 4 years ago

From my non-economics perspective, they seem to have a genius for ignoring externalities (CO2 anyone?), that, and anything they don't want to consider. I can't have any trust in a model/framework that can pick and choose so freely.

colinmhayes5• 4 years ago

Economists talk constantly about implementing policy that neutralizes externalities. Carbon tax and LVT are among the most cited policies they want to implement. Economists don't write the laws though, and people generally aren't interested in paying their externalities so it doesn't happen.

sieste• 4 years ago

Among the few econ books I read I most enjoyed Modern Principles of Economics[1] by Tyler Cowen.

https://www.goodreads.com/book/show/6659172-modern-principle...

greatpostman• 4 years ago

Think? Economics doesn’t work. A small minority of all the theory developed has any relevance to the real world

jrm49• 4 years ago

Economics is .. mostly just not good as a discipline. Micro can be pretty useful to individuals, but Macro is literally no better than astrology, and perhaps worse because people have a better sense of astrology's limitations.

It's important to study economics primarily not because "it's good at predicting things," but more to understand how most everything is made up and then people use economics to back into ideas.

Roughly, the problem is not just "All models are wrong, and some are useful," but additionally that "many models are harmful and unchecked."

rufus_foreman4• 4 years ago

> Macro is literally no better than astrology,

Macroeconomics:

"Macroeconomics is a branch of economics that studies how an overall economy—the market or other systems that operate on a large scale—behaves"

Astrology:

"The divination of the supposed influences of the stars and planets on human affairs and terrestrial events by their positions and aspects"

Astrology is irredeemable. If current macroeconomics is no better than astrology, that is an opportunity.

> Micro can be pretty useful to individuals

This is the crazy part. Micro relies on assumptions that just aren't true. Micro is much closer to astrology than macro. If you build an extensive mathematical framework on top of assumptions that are not just false, but sort of crazy, you've got nothing.

JumpCrisscross6• 4 years ago

Micro relies on assumptions that just aren't true

I'm going to assume this refers to the rational actor assumption? If so, it's like Econ 102 that this is an Econ 101 simplifying assumption, similar to our ignorance of friction and turbulence in Physics 101.

jrm49• 4 years ago

I guess what I would say on this is: Consider your average Microeconomics 101 and Macroeconomics 101.

Micro will probably give the average person a few useful tools for business, because it's pretty easy to see where the model is just a model, but basic supply/demand stuff might come in handy.

Macro, on the other hand, will literally make you dumber.

jrm49• 4 years ago

Dictionary definitions? This observation suffers from the exact same problem that economics does.

Theory and practice are very often completely different.

JumpCrisscross6• 4 years ago

Macro is literally no better than astrology

Pop economics is notoriously bad. But if the popular version of a science were its judgement, physics and climatology fare little better.

Concepts like unemployment, production and risk premiums were macroeconomic inventions. Would you prefer nobody thought or talked about credit crises, the relationship between mortgage rates and housing prices or business cycles? Because before 19th-century macroeconomic theorizing, concepts like inflation were colloquial [1].

[1] https://en.wikipedia.org/wiki/Inflation#Classical_economics

Aunche2• 4 years ago

Macroeconomics does work though. Central banks do a pretty good job of tuning the knobs that steer GDP or inflation towards the direction where they want it to go. You just have to recognize that these aren't and can't replace structural reform.

curiousgal• 4 years ago

Central banks do a pretty good job of tuning the knobs that steer GDP or inflation towards the direction where they want it to go.

We'll see.

Phil_Latio5• 4 years ago

Micro can be pretty useful to individuals, but Macro is literally no better than astrology

Macro brought a whole new dimension to the economic thought. Example: Due to leaving out the macro dimension when deciding the fate for Greece in the eurocrisis, they forced them to lower the income of all people by 20% or something. Because the neoliberal labour market theory (micro) assumes the labour market functions like a normal market. They assumed the lower wages would be subsidized by higher employment (lower price of goods = higher demand). The opposite was the case. Unemployment increased drastically. And it's very simple to understand why. The income is cut by 20% -> the demand is automatically cut by 20% -> companies don't have incentive to employ new people -> instead they let people go despite the low wages so they can maximize their profits. This chain of events does not exist in micro.

Another fundamental aspect is savings and debt. People don't realize, that every new savings in an economy have a debt counterpart in the same amount. So to say for example: "the government has to decrease it's debt" means nothing without explaining who should make less savings / more debt in return. This accounting logic can be used in cases like Germany with their export surplus: If everyone in Germany is saving (private households, companies and government), then who is the debt counterpart? The foreign countries. Then one should ask whether such a sitution is sustainable, were one country always saves while all it's trade partners always have to make debt. Obviously not. Micro economists would find ways to put a "everything perfect" stamp on Germany though. Because they are stuck on a micro level.

t_mann• 4 years ago

Fyi, modern macroeconomics is essentially a flavour of microeconomics. They call it microfoundations for macro. They share all the important formalisms like general equilibrium. Macro is just where the inadequacies of that formalism are most evident because it gets the most attention outside academia.

roenxi6• 4 years ago

People don't realize, that every new savings in an economy have a debt counterpart in the same amount...

This is the model macroeconomists use, but they've repurposed the word "savings" to something that isn't a particularly good idea.

Someone who has $1,000 & invests it into - say - buying a solar panel doesn't have any savings but has made their future more comfortable through investment but has no savings. If they instead put the money into savings the evidence I've seen is it will go to some profligate spender who will likely make the future worse for everyone (like a money-losing Uber or a wormongering government).

This is why macroeconomics can reasonably be compared to astrology - the words have so little connection to what people understand that they are useless. People make the mistake of thinking savings are desirable, not understanding that formal language has separated the idea of savings (accounting identities) and investment (making life better).

jrm49• 4 years ago

Honestly, you're doing a good job proving my point.

In your first example, you're just offsetting some ostensibly bad macro with different macro. And I see no compelling reason to strongly favor theory 2 over theory 1, given the same problem that's endemic to pretty much all macro, you can't treat this like a "scientific experiment." Change the variables a bit and you could probably come up with a different outcome.

To be clear, I 100% stand on my astrology point -- but I also say that to punch up astrology a little bit. For both macroeconomics and astrology, neither has very good predictive power of the sort that you should rely on, but both have the potential to kind of jog our brains a little bit to open up paths to interesting ideas.

They're equal.

cutler5• 4 years ago

I know of a number of astrologers, such as Ray Merriman (USA) and Christine Skinner (UK), who made some pretty accurate predictions about the markets and the economy in general.

sudosysgen3• 4 years ago

There is a sufficient number of astrologers that eventually some will happen to individually make a certain number of accurate predictions.

abigail953• 4 years ago

ever feel like igneous rocks are just bullshit?

openfuture• 4 years ago

This article couldn't be further from the truth! All you need to read is this comment.

Economists don't think, they feast. Mostly on the blood of the innocents but sometimes also on the bounties of nature or, rarely, on the delusions of idealists. Therefore what you must do is to learn how to feast, this is easier said than done since you cannot feast alone (unless you are the blessed one).

Nonsense such as "the economist" must be guarded against with thick sarcasm, maybe even borderline surrealism, this way you can shock your sense of discrimination into the configuration required to believe in the local tax authority. Which is a requirement for attending their feasts and learning the basics of economics.

paulpauper• 4 years ago

Regarding Freakonomics:

Some of the studies discussed in it have been called into question. But the overall lesson is a useful one: incentives matter.

This seems inherently contradictory. How can we draw lessons or inferences if the data is wrong or not what it purports to be?

gtvwill• 4 years ago

Lol it's because most folks mistake economics for a science when it's actually just a grouping of mostly wrong hypothesis. They'll believe any shit their fed.

treeman79• 4 years ago

Hard to get better then Basic Economics by Thomas Sowell.

https://www.amazon.com/Basic-Economics-Thomas-Sowell/dp/0465...

jiscariot• 4 years ago

Agreed. And Applied Economics after that. These books change the way you think.

wikitopian• 4 years ago

Economics should be thought about like sports, with the corporations as athletes, countries as teams, regulators as referees, and citizens as owners.

If you don't keep it competitive and rewarding for the athletes, there's no money for the owners of the franchises to share.

Moralizing either in favor of the owners (socialist demagoguery) or the players (capitalISM) ends up harming the game.

cutler5• 4 years ago

Marx's theory of surplus value, as expounded in Das Kapital, was what really opened my eyes when studying Economics at university. After reading about his labour theory of value I realised all the textbook economics I'd been spoon-fed from Lipsey's "Positive Economics" during my 2 years of A-levels (UK) was just an apologetic for the prevailing capitalist system.

msla4• 4 years ago

How does the Labor Theory of Value account for the value of art?

cutler5• 4 years ago

Marx was primarily addressing the value of commodities, ie. economic value, but extending it to works of art: the number of socially necessary hours required to create a piece of work. That's not the same as market value though both exist. Art creation isn't really addressed by this as the labour pool for a piece of art is exactly one whereas the Labour Theory of Value is about social production.

wrp• 4 years ago

This collection of papers may be more appealing to the HN crowd. They give a more technical critique of the practice of economics.

Alfred S. Eichner. (1983). Why Economics is not yet a Science.

1. Introduction.

2. What do we mean by asking whether economics is a science?

3. Modern empiricism and quantum-leap theorizing in economics.

4. Ideology, methodology, and neoclassical economics.

5. A behavioral theory of economists' behavior.

6. The development of contemporary mainstream macroeconomics: Vision, ideology, and theory.

7. How economists misuse mathematics.

8. Institutional analysis: Toward progress in economic science.

9. Why economics is not yet a science.

The unifying theme of the papers is that there is no empirical support for the foundational propositions of the dominant theoretical framework. They argue that for economics to become a science, it must shift its focus to testable claims.

I think the best chapter is 7. The author's field is optimal control theory, and he argues that it is misapplied to economics.

korax_nyx• 4 years ago

I am an Economist and I don't especially love my profession, so I'm not going to defend its many, many flaws, because it has a LOT. But this comment section is just a dumpster fire of opinions from many people that you can clearly see that never really touched or studied Economics, beyond some article, book or ideology... You know, Gellman Amnesia and all that.

It's fascinating to me how tech-related discussions are on point here and this site is a gem, but regarding other topics, they tend to get off the road fast and hard, especially social sciences.

I visit HN every day because I am a geek at heart that loves machines since childhood and then I studied people (Economics, Psychology, etc). We know that technology is queen right now and you are on top of the world. Almost everyone here is way, way smarter than me and I know that, but knowledge in one field, no matter how important or powerful it is (like tech right now), does not translate into others, especially social sciences, human behavior, and the like. Despite that, the hubris and the "I'm better than you" attitude on these topics are astonishing.

I love this site, it's really a gold mine of very sharp people and responses, just not on some topics.

What to read to understand how economists think

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