[HN Gopher] How does the economy work? A new Fed paper suggests ...
___________________________________________________________________
How does the economy work? A new Fed paper suggests nobody really
knows
Author : pseudolus
Score : 206 points
Date : 2021-10-03 10:53 UTC (12 hours ago)
(HTM) web link (www.nytimes.com)
(TXT) w3m dump (www.nytimes.com)
| JamisonM wrote:
| "For example, when inflation has been low in the recent past,
| workers might not demand raises as they would in a world where
| inflation was high; after all, their existing paychecks go pretty
| much as far as they used to. You don't need some theory involving
| inflation expectations to get there."
|
| Isn't what is described here /actually/ a theory about inflation
| expectations?
|
| Literally this mechanism that recent inflation creates the
| expectation of more inflation and that drives behaviour that
| generates further inflation.. and no one is sure how to turn that
| back around without a crushing recession. Isn't that the
| conventional wisdom this article is allegedly skewering?
| Red_Leaves_Flyy wrote:
| Cracking down hard on rent seeking parasites would go a long
| way to reduce costs in healthcare, housing, and the automotive
| industry.
| salawat wrote:
| And... Welcome to a bunch of layoffs from rent seeking
| parasite industries while all the fat cats try to park their
| capital somewhere else ahead of the regulatory crackdown
| curve.
|
| The problem is centralization of wealth, absurd expectations
| on the returns of capital, and the coupled wage theft that
| enables those returns, popularized by an entire generation of
| Welch worshippers, and skewed expectations created by export
| of production, and increasing reliance on safe-harbor third
| world labor prices.
|
| It's all way more interconnected than it looks.
| imtringued wrote:
| As wealth inequality rises there are more people who have
| no idea what to do with their wealth and more people who
| have ideas but no wealth.
|
| According to Dirk Lohr the biggest driver of wealth
| inequality is just good old real estate and it's mostly the
| land that appreciated in value. Chasing land rents (I mean
| speculation on rising land values, not renting out
| apartments as a landlord) feels wholly unproductive.
| hellbannedguy wrote:
| In the USA, I would like to see laws limiting whom, and
| how much realestate a person can accumulate.
|
| 1. You need to be a citizen in order to buy realestate.
|
| No more wealthy guys buying our land with an email. No
| more homes siting empty, or filled with illegial.
|
| 2. Wealthy guys can only buy two, or three at most.
|
| 3. Outlaw corporate speculation in realestate, like
| Blackstone.
|
| I feel #1 is something that should have been outlawed
| years ago.
| bpodgursky wrote:
| Yes but... in healthcare, a lot of those "rent-seeking
| parasites" are in fact millions of low-skill middle-class
| paper pushers called "insurance coders", "claim adjusters",
| "billing specialists", etc.
|
| You make healthcare cheaper, but need to concurrently give
| the millions of people who depend on this overcomplicated
| system a different path...
| BeFlatXIII wrote:
| Isn't that exactly where the magic of capitalistic creative
| destruction is supposed to swoop in and save the day? Put
| them out of work and let the invisible hand sort them out.
| Cycl0ps wrote:
| I don't think that's as big a problem for white-collar
| workers as it is for blue-collar. Processing paperwork,
| managing a team, calculating risk, these are all things
| that readily translate to new fields, as opposed to
| something like mining or carpentry. I have zero concerns
| that someone losing their job in insurance would struggle
| to find work.
| bpodgursky wrote:
| These are almost all blue-collar work. I don't know if
| you're familiar, but search for "medical coder" jobs
| online -- they are all $15-25/hr.
| throwawaygh wrote:
| The right way to think of those jobs is roughly
| "specialization of the 'secretary' work force".
|
| A small minority of office jobs are "white collar" in the
| traditional sense
| bo1024 wrote:
| I think the point of that quote is people reacting only to the
| present and the past. I.e. not any beliefs (expectations) about
| the future.
| ur-whale wrote:
| > A new Fed paper suggests nobody really knows
|
| And no one is surprised, least of of all economists (whose
| livelihood depends on it but know exactly how much BS their field
| is) and politicians, who, like tribal chieftains of old using
| sooth-Sayers to give justification to their decisions find
| economists very useful.
| slavboj wrote:
| Glad the NYT / federal reserve board have caught up with points
| from 1920s tier von Mises & Hayek.
| ur-whale wrote:
| Economists are really good at providing explanation after the
| fact, which makes people feel good because it feels like they
| understand what's going on.
|
| That's why economists are still in business to this day.
|
| However, when it comes to predictive power, the entire field's
| output is exactly nil.
| williamtrask wrote:
| https://archive.is/v0ifa
| akinity wrote:
| https://web.archive.org/web/20211003121747/https://www.nytim...
| roenxi wrote:
| The Fed employs some very clever people. They never believed that
| public fears of inflation tend to be self-fulfilling. They
| "believed" officially because if they didn't then their policy
| would be reckless, and pointing out the rather obvious reality
| like this Rudd bloke is doing might well be bad for a career.
|
| The logic is like saying we would all get a pony if we believed
| hard enough. Economics doesn't work that way, there is an
| underlying reality that people are trying to sniff out and some
| error bars around where prices end up because the signals are all
| noisy.
| JumpCrisscross wrote:
| > _never believed that public fears of inflation tend to be
| self-fulfilling_
|
| Inflation expectations being self fulfilling is the entire
| reason we measure the former.
| tomcam wrote:
| Consider the source. It is by an employee of the Fed. The fed,
| like Federal Express, is a private corporation. It is not an arm
| of the government. I'm not saying the analysis is untrue. I'm
| just saying that this is not an unbiased source.
| paulpauper wrote:
| _It is vivid evidence that macroeconomics, despite the thousands
| of highly intelligent people over centuries who have tried to
| figure it out, remains, to an uncomfortable degree, a black box.
| The ways that millions of people bounce off one another -- buying
| and selling, lending and borrowing, intersecting with governments
| and central banks and businesses and everything else around us --
| amount to a system so complex that no human fully comprehends
| it._
|
| Still not harder than modern physics or modern math. Unknowable
| is not the same as complicated. The lottery is easy to play and
| model mathematically but unknowable. It's not that hard to
| understand: an economy is a set of inputs: govt. spending,
| personal consumption, innovation, private investment, etc. and
| then based on these inputs the economy either grows or shrinks,
| and then this can be indexed to some baseline such as CPI. The
| understanding of this stuff dates back to the 50s. Just because
| recessions cannot be predicted does not mean the economy is a
| black box.
| deliberateJack wrote:
| We know the rules of physics and math. We can make predictions
| using those rules and express them as well defined terms.
| Physics and math are not a black box.
|
| The inputs of "the economy" are not even well defined. We
| measure SOME of the inputs and cannot predict the outputs like
| recession. Sounds like the economy is a black box.
| JumpCrisscross wrote:
| > _We know the rules of physics and math. We can make
| predictions using those rules and express them as well
| defined terms. Physics and math are not a black box._
|
| We can make a good deal of economic predictions that
| validate. Predicting recessions is in a similar class of
| problem as predicting the weather. We understand, in broad
| terms, the system-level dynamics. But we don't get it at the
| granular level, and that granular level sometimes manifests
| systemically in a chaotic way.
| andrepd wrote:
| Much to the contrary, it is much much _much_ harder than any
| system in fundamental physics. The economy (like the weather,
| or cells) is a much more complex system than a black hole or a
| hadron.
|
| Furthermore, it actually has a peculiarity unique to studying
| systems of humans (as does psychology or sociology):
| predictions about the system affect the system, which makes it
| even more difficult to distinguish true predictions from self-
| fulfiling prophecies.
| mahogany wrote:
| I agree -- as a "former mathematician", I find economics to
| be much more daunting than math, and I'm skeptical about
| anyone who has more than a modicum of certainty about it.
| Modern mathematics is certainly complex, but there are
| definitive axioms that are nearly universally agreed-upon,
| and proofs operate on logic alone. It's like a hard game with
| known rules. Are there definitive axioms in economics that
| apply to the real world with irrational actors?
|
| As you say, I think the key component that introduces all the
| uncertainty is: humans. You can't prove anything interesting
| about a human-based system using pure logic (at least not
| that I'm aware of).
|
| I'm reminded of the quote by Von Neumann: "If people do not
| believe that mathematics is simple, it is only because they
| do not realize how complicated life is."
|
| But I will be the first to admit that my economics
| understanding is shallow. I'm curious: what are examples of
| theorems or definitive truths in economics that we know apply
| to the real world with real humans?
| paulpauper wrote:
| >But I will be the first to admit that my economics
| understanding is shallow. I'm curious: what are examples of
| theorems or definitive truths in economics that we know
| apply to the real world with real humans?
|
| Supply/demand, IS-LM model, risk-neutral pricing, no
| arbitrage conditions. In the latter, 'free lunches' tend to
| be arbitrag-ed away by market participants (humans).
| satellite2 wrote:
| Even tough those are very robust models, they can still
| end up being wrong given some policy (some asset
| distributed via first come first served or via a lottery
| to avoid price increase for instance).
|
| The only real definition I see is the equation of
| exchange which is purely mathematical and not linked to
| any real world data, but there are probably many other
| that are definitions and not theories / models.
| paulpauper wrote:
| Modern physics is way more than black holes, which were
| mathematically understood a long time ago
| joe_the_user wrote:
| _The paper disputes the idea that people's expectations for
| future inflation matter much for the level of inflation
| experienced today._
|
| What I have been reading lately gives me the impression that
| different patterns of capital allocation have changed inflation
| dynamics.
|
| There's excess demand for older-generation used by the auto
| industry. In text book economics, that would lead to higher
| prices and then more factories and the meeting of that demand at
| a higher level.
|
| But what happens is chip makers, the only ones apparently capable
| of making even older generation chip factories, won't allocate
| capital for such factories because they view as on their way
| regardless of demand.
|
| So essentially, with huge capital allocations, companies won't
| chase short-term demand surges because they don't want to be left
| with future excess capacity (which is more costly than any
| immediate payoff). Look at Nvidia actively fighting the demand of
| crypto miners for their products. This seems to be a barrier to
| any inflationary spiral (increased demand leads to shortfalls,
| not higher prices and production. Maybe prices too but increases
| not propagating).
|
| So, it's not that the economy is incomprehensible but it's
| structure changes and so it's structure can't be captured by pure
| economic theory.
| xchaotic wrote:
| just a small nitpick in the overall correct train of thought -
| is that it this reduction in output still does drive up the
| inflation - as fewer cars are made, their price increases (and
| it has knock on effects of increasing prices to anything
| affected by cars - delivery, logistics, you name it)
| WalterBright wrote:
| Inflation is a _general_ rise in prices, not a rise in the
| price of one or a few goods. In order for prices to rise
| generally, there has to be an increase in the money supply
| relative to the goods and services it represents.
| landemva wrote:
| If inflation is reduction in broad (not one single item)
| purchasing power of the monetary unit, then inflation will
| be felt when people lose confidence in the money or the
| organization backing the money. USA will feel significant
| inflation when the public loses confidence in the federal
| government. EU is much further down that path.
| tibbetts wrote:
| Except if the increase in car prices is known to be temporary
| than it doesn't really drive overall inflation. I for one
| just fixed a car I would otherwise have replaced, due to the
| used cars I would replace it with being in short supply.
| Traster wrote:
| This has always been the case. Economists are great at
| explaining the economy in retrospect - oh if demand rises we'll
| see extra supply. Oh except the suppliers can predict peak
| demand and won't expand to meet unsustainable demand causing a
| shortfall in supply even under excess demand. Sure, it sounds
| obvious, but actually _predicting_ it rather than observing it
| is what 's valuable.
| chmsky00 wrote:
| It would be nice if the era of economic theory were to end.
|
| Herbert Weisberg argues in Willful Ignorance (paraphrasing for
| brevity; read and come to your own conclusions) we're using
| statistical and probabilistic tools in economics that were
| purposely left crude by the mathematicians that defined them,
| as they were defined to handle abstract quantities.
|
| Applying them to human economics means we're mathematically
| accepting rounding errors that leave people behind.
|
| That is the pattern we have to break politically. We spend a
| lot of time emotionally promoting certain stats and hand waving
| away at a number like "2% reduction in poverty" still means
| we're leaving millions behind.
|
| Not having services like universal healthcare is clearly
| politically gamed, but we refuse to see it as anything like a
| government bombing civilians.
| joelbondurant wrote:
| Buy bitcoin, bye banks.
| qqtt wrote:
| Along similar lines, nobody "really knows" how Google search
| works. Sure, you have some experts who can talk about how parts
| of the algorithm work, you have the underlying bones of page
| rank, you even have SEO experts who can get you reasonably close
| to the top search results.
|
| But is there a single individual on earth who knows all the ins
| and outs of all the minutiae of every single aspect of Google
| search - from search result algorithm to ingestion to crawling to
| artificial intelligence? Not a chance.
|
| You don't even have to get as complicated as Google search - any
| reasonably complex software system with hundreds of engineers
| working on it will be beyond the comprehension of any human being
| - fully understanding that is (which also entails knowing exactly
| all the edge cases, all the bugs, all the unexpected results
| possible, etc.)
|
| How does the economy work? Nobody knows - but that doesn't mean
| nothing intelligent can be said about it, or that the Fed can't
| make reasonable decisions on imperfect information - just like
| any other incredibly complex system that humans struggle to
| understand.
| omegalulw wrote:
| Software (and economy) get big and complex due to emergent
| properties that arise from base rules. This is why, for most
| large projects, no one _needs_ to know the entirety and all the
| edge case to make modifications and improvements, you focus on
| base rules and build off from there. For software that would be
| individual components and whatever invariants you have set up.
| And then you you build off of these to reason at higher levels.
| Attempting to know the whole thing at once "and all the edge
| cases" is quite wasteful.
| MuffinFlavored wrote:
| > But is there a single individual on earth who knows all the
| ins and outs of all the minutiae of every single aspect of
| Google search
|
| Would you go as far as to wager that the top 15
| engineers/architects on the project (over the years) know about
| 85% of the ins and outs of the system? Generally speaking at
| least, edge cases excluded.
| albertgoeswoof wrote:
| No one even knows how to make a pencil:
|
| https://en.m.wikipedia.org/wiki/I,_Pencil
| arcticbull wrote:
| Right, or the way that gravity works. We know _that_ it works
| and that 's good enough for the day to day. Even good enough to
| plan.
| phkahler wrote:
| That's missing the point. Economics is treated more like
| thermodynamics. In thermo you have lumped parameter models
| (parameters like temperature and enthalpy) that are actually
| correct even though they dont take tiny details into account.
|
| IMHO the problem with economics is that their simple models are
| not over a closed system. A supply and demand curve is fine for
| a specific product, but it fails if you try to use it at the
| macro level where other factors come into play.
|
| I'd love to work on better models for the fed, with the data
| and experts they have.
| lotsofpulp wrote:
| >A supply and demand curve is fine for a specific product,
| but it fails if you try to use it at the macro level where
| other factors come into play.
|
| In what way do supply and demand curves fail at the macro
| level?
| tibbetts wrote:
| Also people working on thermodynamics get to test their
| models a lot, and it's noticed when their models fail. I'm
| not even sure supply demand curve is good for a specific
| product, having spent some time around consumer packaged
| goods analytics. Consumer behavior around frozen pizza alone
| is massively complicated, never mind cleaning supplies,
| candy, beer, or cosmetics.
| bko wrote:
| > Rule 1: Think of the economy as being more like a cat than
| a washing machine.
|
| > We are victims of the post-Enlightenment view that the
| world functions like a sophisticated machine, to be
| understood like a textbook engineering problem and run by
| wonks. In other words, like a home appliance, not like the
| human body. If this were so, our institutions would have no
| self-healing properties and would need someone to run and
| micromanage them, to protect their safety, because they
| cannot survive on their own.
|
| > By contrast, natural or organic systems are antifragile:
| They need some dose of disorder in order to develop. Deprive
| your bones of stress and they become brittle. This denial of
| the antifragility of living or complex systems is the
| costliest mistake that we have made in modern times. Stifling
| natural fluctuations masks real problems, causing the
| explosions to be both delayed and more intense when they do
| take place. As with the flammable material accumulating on
| the forest floor in the absence of forest fires, problems
| hide in the absence of stressors, and the resulting
| cumulative harm can take on tragic proportions.
|
| [0] https://fs.blog/2012/11/learning-to-love-volatility/
| cblconfederate wrote:
| Thermodynamics is derived from statistical mechanics though.
| Economics models use too simplistic approximations of the
| behavior of human brains.
| sjtindell wrote:
| As I understand there are some models in both Econ and
| Finance where they literally took equations from
| thermodynamics and just said "what if this variable
| represented money instead of heat".
| [deleted]
| seiferteric wrote:
| Would also explain why centrally planned economies probably don't
| work as well and will be less dynamic.
| newaccount2021 wrote:
| 90% of central planning is having a central bank. That's pulled
| form a quote from Lenin btw.
|
| In much of its early history, the Soviet economy outperformed
| many other leading industrial economies, which is what scared
| capitalists in the West so profoundly in the 1930s. It did so
| at a great and terrible cost that would be unacceptable in a
| free society, but it performed nonetheless.
|
| China today is another example of central planning and high
| performance.
|
| In any case, the US is clearly a planned economy - the Fed even
| states its inflation target, and there is a target employment
| rate.
| imtringued wrote:
| I like the headline. Nobody really knows how the economy works.
| Economics is an attempt to explain how wealth and prosperity are
| created. That also means some branches are biased towards what we
| already have. It gets especially bad when morality is used
| because from the perspective of something as uncaring as an
| economy there are no meaningful morals, they are all made up. I
| personally think the vast majority of economic problems are
| caused by modeling errors. The model we use to look at the real
| economy is too rigid to represent it.
|
| The laziest way to explain the rigidities is to just blame
| someone else, most of the time governments. However, getting rid
| of goverments doesn't seem to get rid of all rigidity because, as
| it turns out, our physical world is constrained by more than just
| politics. What's often forgotten is that governments can also
| fight against natural forces that reduce flexibility in the
| economy. Therefore the answer is neither more government or less
| government. No it's the usual boring answer. What we need is
| better governments. It's like a supply and demand situation.
| There is demand for a certain size of government and the supply
| is often either too high or too low. The goal is to find a
| balance.
| JumpCrisscross wrote:
| > _Economics is an attempt to explain how wealth and prosperity
| are created_
|
| To expand on the question's unknowability, "wealth" and
| "prosperity" are measures on a population's utility functions.
| "Utility" is an attempt at mapping the set of possible things a
| person could want to an ordered set [1]. This goes to the heart
| of preference, free will and consciousness.
|
| Fortunately, at a population level, persistent effects _do_
| manifest. But we don 't know why. Because at the individual
| level, they're inexplicable (if existent at all).
|
| This is why, by the way, economics often finds inspiration in
| particle physics. Not because people are particles. But because
| it's a field that has developed techniques and methods that
| make useful population-level predictions without completely
| understanding the individual components.
|
| [1] https://en.wikipedia.org/wiki/Utility
| MuffinFlavored wrote:
| > Economics is an attempt to explain how wealth and prosperity
| are created.
|
| Overly simplistic view from scratch: Individuals start
| businesses to offer other individuals and businesses goods and
| services. Wealth transfers daily to and from many
| individuals/businesses. Where does this definition fall
| apart/breakdown as you start to zoom in (or out)?
| tibbetts wrote:
| Breaks down instantly when you try to define which activities
| count as businesses, or try to define why individuals are
| offering goods and services to one another.
| biotinker wrote:
| I think it breaks down when you start trying to look at
| emergent behavior that only becomes apparent at large scale.
|
| An analogy would be to start looking at a water molecule,
| H2O, and then trying to explain glaciers and oceans without
| any sort of similar system to use as a model.
| jtolmar wrote:
| These abstract businesses are going to have an awful lot of
| trouble producing anything of value without employees. The
| three-way relationship between worker, owner, and customer is
| required to meaningfully model anything about our economy.
| jokethrowaway wrote:
| Employees are just other businesses providing a service in
| exchange for money with a strict contact regulating that
| supply of service (and tons of regulations)
| 1vuio0pswjnm7 wrote:
| Framing the question as one of "more" or "less" government
| seems to contain an implicit assumption about the value of
| government itself. The value of any government. It assumes all
| government is qualitatively the same. Hence the only question
| is whether we should have more or less. Whether that is a
| reasonable assumption to make is left as a question for the
| reader.
| mvanaltvorst wrote:
| The minute we have solved AGI, will we have solved economics as
| well? I would imagine that if you just pit 100,000 smart agents
| against each other with a virtual currency you could calculate
| the ideal government policies to maximise welfare.
| NateEag wrote:
| Don't forget that an AGI would have no particular reason to do
| anything for humans.
|
| We might be most relevant to one as a source of raw materials:
|
| https://www.lesswrong.com/tag/paperclip-maximizer
| ur-whale wrote:
| > The minute we have solved AGI, will we have solved economics
| as well?
|
| Certainly not if you allow AGIs to be economic actors.
| ashleyn wrote:
| No, because as long as scarcity exists, there's going to be
| winners and losers - and losers will not be happy being
| selected as the losers. Whether it's by a bureau or by machine.
| scoopdewoop wrote:
| Scarcity is largely artificial, but ok
| rybosworld wrote:
| The earths resources are finite, no?
| imtringued wrote:
| The assumption is that the population is finite as well.
| I don't know how things are going to end.
| djbebs wrote:
| No it isn't
| imtringued wrote:
| There is artificial scarcity of jobs, i.e. employment
| opportunities. Think about how in a recession people lose
| their job even though they want to pay rent and buy food.
| It's because the remaining full time jobs pile up on
| fewer people. This results in a downward spiral as people
| without incomes can't spend and those with incomes become
| cautious and save instead of spending their money.
|
| Let's say the maslow hierarchy ranks needs according how
| productive they are with shelter and food at the bottom
| being the most productive and social needs at the top
| being the least productive.
|
| By that logic we should be employing people according to
| their needs to achieve high productivity in the economy.
| If you have two employees and fire one the economy will
| shift away from the productive part of the economy to the
| less productive part because the second employee is no
| longer able to buy food. Income welfare exists for this
| very reason. To take the surplus of the first employee
| and reallocate it to food and rent. If we had "job
| welfare" then we would take the jobs and spread them out
| over more people.
|
| Instead of, "oh you want to eat? too bad we won't let you
| work" it's "you eat, you work"
| rytill wrote:
| Scarcity is built into the fabric of humanity. Even if we
| solve food, material, and comfort, humans will continue to
| compete for mates and status, which are ordered human
| constructs.
| mattmcknight wrote:
| Can't read the NYT article, but the headline is a bit of a
| misstatement. It should be, "nobody can fully control or predict
| the results of how the market economy works". The source paper
| gets deeply into the work of Lucas, but misses the foundational
| nature of the Lucas Critique [1] (and Campbell's law, et cetera)
| in the effectiveness of economic policymaking. One challenge with
| setting fixed policy boundaries, particularly those based on
| fuzzy things like expectations, is that the reporting on the
| expectations affects the expectations. It's as if when the
| meteorologist predicts rain, people take some protective actions,
| that reduce the chances of rain. Thus, predictions of the effects
| of policy must take into account the predicted reactions to the
| policy. But if people know that policy is being constructed to
| already take into account the expected reactions, this will again
| affect their reactions, so policy needs to be adjusted to take
| into account these second order reactions, and so on.
|
| [1] https://en.wikipedia.org/wiki/Lucas_critique
| Geee wrote:
| Just stop meddling with the economy and it'll work perfectly.
| Soviet Union had the world's smartest economists trying to
| control their economy, and probably wrote smart scientific
| articles with all kinds of complex mathematics trying to prove
| each other wrong.
|
| To me it seems obvious that laissez-faire economy would just
| stabilize itself in the most optimal way. I don't know if the
| economists actually know this, but can't do it because of
| politics or their own benefit.
| dddw wrote:
| "Stop medling with the economy" probably stems from before
| abolition...
| incompatible wrote:
| The economy, back when it was on a gold standard so that the
| money supply was more constant, tended to show a strong boom-
| bust cycle. The bust would lead to bankruptcies and
| unemployment. I'm not sure if this counts as "working
| perfectly" or not. These days, central banks flood the economy
| with money if there's the slightest hint of anything going
| wrong, so that interest rates have persistently tended to zero
| and even below.
|
| A capitalist economy is based on government intervention, in
| any case. They provide all the enforcement of contracts and
| property rights, and do some wealth redistribution, especially
| helping people who can't survive from what the market provides.
| Without the latter, it seems inevitable that the system
| devolves into a few winners and many losers, and such a system
| will eventually be overthrown by the losers.
| noahtallen wrote:
| It really depends what "most optimal" means. For example, our
| regulatory system today is the result of companies crossing a
| line that society is unhappy with:
|
| - Massive pollution. Think of the burning Cuyahoga River or the
| terribly smoggy Pittsburgh.
|
| - Horrible working conditions. Where plenty of employees
| (including children) were forced to work more hours than
| healthy, and in environments which kill them.
|
| A similar modern example is hospitals price gouging super basic
| medical supplies.
|
| Those are the natural results of companies operating in a
| purely profit-driven manner. A laissez-faire economy has no
| concept of morality or rights, just of profit.
|
| Given that most people are completely unwilling to live under
| those sorts of conditions, our society has interjected itself
| into the economy to protect our rights. That happens via
| government regulation.
|
| If we remove regulations and "stop meddling with the economy,"
| companies will take the cheapest route to profit, because they
| basically have to. With no regulations, that means many
| companies won't build expensive filtering systems to reduce
| pollution or wool quickly disregard expensive or time consuming
| safety rules.
|
| I'm also not convinced that laissez-faire actually works at all
| when the primary goal of the sector in question ought to be
| different from profit. A great example is health care, where
| the primary goal should be human well-being and health, but
| being profit focused would be completely at odds. If you're
| profit-focused, there's nothing stopping you from fixing prices
| very high because the person getting emergency services doesn't
| have a chance to shop around or look at competition.
|
| In fact, any place that competition can't or doesn't exist is
| very bad for society and consumers. Any sort of monopoly means
| prices are very high and quality is very low.
|
| And monopolies always form over time in a laissez-fairs economy
| because it's the best way to increase profit. And yet this is
| completely to the detriment of society and consumers --- e.g.
| to the detriment of everyone who exists. (I would posit that
| even a Walmart exec would have parts of their life that would
| be better if Walmart wasn't monopolizing small markets.)
|
| How do these problems get solved without "meddling" in the
| economy?
| maxerickson wrote:
| "work perfectly" and "optimal" aren't objective states, they
| are opinions.
| throwawaygh wrote:
| Exactly. Carbon is optimally priced. Obviously.
| boomskats wrote:
| Pretty sure South Park nailed how the economy works with the
| Margaritaville episode [0]
|
| [0]: https://www.youtube.com/watch?v=wz-PtEJEaqY
| tombert wrote:
| This feels like one of those "and water is wet" type posts.
|
| I can't stand basically any political commentary anymore, at
| least in regards to economics. It feels like everyone has
| "simple" solutions to the best way to solve every economic
| problem, and it doesn't really seem like the economy can easily
| be reduced to a ten second Fox News soundbyte.
| Animats wrote:
| Well, yes.
|
| From the Fed perspective, they've discovered the hard way that
| the few knobs they can adjust, such as the discount rate, don't
| do what they thought they did.
|
| Tax and spending policy can control an economy at a finer level
| of detail, but if taken beyond simple goals, like "increase
| exports" or "build war materiel", tends to result in boondoggles
| with lobbies behind them. The dairy industry, NASA, ethanol from
| corn, and university administration staffs are well known
| examples. As a control system, it has too much lag for stable
| control.
|
| One thing that the pandemic has made clear is that today's "free
| market" has more lag than previously thought. Half-empty store
| shelves are the new normal. There's a correction, but it's slow.
| It takes several years to react to a disruption. With long supply
| chains, back-propagation of market signals through the supply
| chain takes longer. With today's excessive outsourcing, there may
| be only a few places in the world making some minor but essential
| item. Worse, that minor but essential item may not be a big
| money-maker for the producers, and so they lack the incentive to
| add capacity.
|
| Then there's overshoot. It now looks like there will be a
| semiconductor fab glut around 2023.
| JumpCrisscross wrote:
| > _the few knobs they can adjust, such as the discount rate,
| don 't do what they thought they did_
|
| What is the evidence for this? We have low rates spurring
| inflation expectations, in the population, and concerns, at the
| Fed. That's about as orthodox as monetary policy gets.
| Animats wrote:
| That, 2009-2020, real interest rates went all the way to 0,
| and even negative, in attempts to generate more economic
| activity. Yet this didn't generate inflation.(The pandemic
| did, but that's a different effect.) That was quite
| unexpected.[1]
|
| [1] https://www.babson.edu/academics/executive-
| education/babson-...
| _wldu wrote:
| Yep. Economists and meteorologists. What they try to predict is
| sort of like trying to predict where the disc will land in Plinko
| [1]. Neither of them have a clue until it actually happens... _"
| Our models showed the disc going the other way (especially the
| European Model), but we were wrong again. Tune in tomorrow while
| we talk fast and act confident again."_
|
| [1] -
| https://en.wikipedia.org/wiki/List_of_The_Price_Is_Right_pri...
| adrianN wrote:
| Meteorologists are pretty good at their job.
| Barrin92 wrote:
| within a limited time horizon that is. IIRC meteorological
| forecasts are about 80% accurate a few days in, 50% accurate
| about two weeks into the future, and after that of not much
| use.
|
| Economics of course is often expected to make much stronger
| claims, people have expectations of it that resemble Asimov's
| psychohistory despite the fact that there is no science that
| manages to tame that level of complexity.
|
| I think it was Tyler Cowen who said once that economics is
| more useful as a tool to clarify thought rather than a tool
| to make predictions. People just have the wrong expectation
| of what economics is.
| pessimizer wrote:
| > IIRC meteorological forecasts are about 80% accurate a
| few days in, 50% accurate about two weeks into the future,
| and after that of not much use.
|
| I think the accuracy is more complicated than that, because
| while they lose precision (and thereby the correct
| prediction of the amount of rain in your neighborhood or
| town), they can predict larger movements pretty accurately
| pretty far in the future. I remember how bad weather
| prediction was 30-40 years ago, and am shocked how they now
| have pretty good insight into the weather two or three
| weeks from now.
| popcube wrote:
| we had have chaos theory. it indicates that we just can not
| predict things in too far future
| HPsquared wrote:
| Meteorology is much easier because the act of working out
| what the weather will do next, won't have an effect on
| weather. Not so in economics!
|
| My intuition says there's probably a kind of uncertainty
| principle or incompleteness theorem at play in economics.
| adrianN wrote:
| It works the other way too. If everybody believes that
| your model is correct, the chances are very good that its
| predictions actually become true.
| HPsquared wrote:
| That's the driving force behind a lot of religions and
| other traditions.
| notfromhere wrote:
| Economics at its base is group psychology, and humans are
| irrational and wildly unpredictable. A lot of economics
| writing depends on a rational human that actually doesn't
| exist.
|
| Hence why a lot of economics is speculative and should
| only really be applicable to specific cultures that are
| being studied, since cultural behaviors and expectations
| will effect economic behaviors and outcomes.
|
| There's a balance between data and interpretation in
| economics, which is why it's a social science. There are
| disciplines like Austrian economics that discount
| quantitative analysis, but that's as wrong as relying
| purely on quantitative analysis.
| UnpossibleJim wrote:
| A human is irrational and wildly unpredictable, but
| groups of people (like most animals) are more easily
| predicted. While it's difficult to predict a specific
| stock, it's easier to predict trends given global
| situations, within a certain time frame, with enough
| information. The main problem becomes having access to
| such information. So much of the economy is global now,
| and behind closed doors, that information is unavailable
| or at a premium.
| moonchrome wrote:
| >IIRC meteorological forecasts are about 80% accurate a few
| days in, 50% accurate about two weeks into the future, and
| after that of not much use.
|
| 80% accurate about what ? If this is overall then I'm not
| impressed because in stable weather you'll get a high % of
| being right just by extrapolating. Similar with economics
| for that matter. What I usually care about and where
| weather forecast failed me just last month, is unstable
| time over a specific area. Just last weekend my wife and I
| were about to cancel our trip to my hometown because the
| forecast was high probability of rain for the entire
| weekend, this was the forecast on Friday. Went anyway and
| got a sunny Saturday and Sunday morning, got a bit cloudy
| by the end of Sunday when we were leaving. This happens so
| often that I don't know why I bother checking anymore.
| Cacti wrote:
| Well, there has been a little-noticed revolution in
| meteorology in the US in the past 15 years, driven by
| improved simulations and measurement systems (mostly funded
| by the federal government). Our predictive capability is well
| over 10x improved from just the late 90s when it was still
| quite poor.
| WalterBright wrote:
| Not in Seattle. Today was forecast as a dry day (even this
| morning), but it rained. I tend to do better just by stepping
| outside, sniffing the air, and looking at the clouds. It's
| not expertise on my part, just experience.
| Mikeb85 wrote:
| The problem is economists who say things in the public sphere
| are heavily scrutinized and criticised and feel the need to
| 'prove' their theories. Also, because of the pay factor, many
| great economists go make millions working for banks and hedge
| funds. Economists know, economics can predict it, but for
| reasons, it doesn't end up as public knowledge.
| hourislate wrote:
| What I find amazing is that people can make careers (Economists
| and Meteorologists) out of guessing and being wrong most of the
| time. Anyone with a real job would get fired within the first
| month if they had the same record of performance.
| andresgaitan wrote:
| Excellent.
| fulafel wrote:
| Meteorologists have it easy, because weather doesn't react to
| the forecast and modify its behaviour to invalidate it.
| WalterBright wrote:
| A butterfly flapping its wings would disagree with that.
| shrimp_emoji wrote:
| Self-aware weather with neurosis...
| cubano wrote:
| Personally, I always love the "50% chance of rain" forecast
| as it perfectly describes that they have no idea if its going
| to rain or not, but yet sounds so scientific and official.
| elcomet wrote:
| That is absolutely not "we have no idea". It's a very
| precise prediction, not like a [10%-90%] range. If you look
| at all their 50% prediction, the half of it should be rain
| and half should be no rain. This is what this number tells
| you.
| posco wrote:
| Predicting 50% can be validated: if I say a coin will be
| heads 50% of the time, I know more than nothing: I know
| more than someone who incorrectly claims it will be heads
| 75% of the time.
|
| And we can quantify in various ways how much better the 50%
| prediction is than the 75% prediction.
| Stratoscope wrote:
| That's actually not what "50% chance of rain" means.
|
| Here's a pretty good explanation:
|
| https://www.wsfa.com/2019/08/23/what-does-chance-rain-
| really...
|
| And many more:
|
| https://www.google.com/search?q=50%25+chance+of+rain
| lottin wrote:
| Economists are not trying to predict anything. Some economists
| do make predictions, but economics is not about making
| predictions.
| edflsafoiewq wrote:
| What is it about then?
| tacostakohashi wrote:
| It's mainly about allocating resources.
| missedthecue wrote:
| _" To most people, economics is a dull science full of
| statistics and jargon, mainly concerned with money and
| designed to answer a narrow (but important) set of
| questions. To economists, economics is a powerful tool for
| understanding why armies run away, voters are ignorant, and
| divorce rates rise, as well as solving practical problems
| such as how not to get mugged. Its theme is not money but
| reason- the implications, especially the nonobvious
| implications, of the fact that humans act rationally. Or to
| put it more formally:_
|
| _Economics is that way of understanding behavior that
| starts from the assumption that individuals have objectives
| and tend to choose the correct way to achieve them. "_
|
| Excerpt from _Hidden Order_ , a book which explains
| economic concepts to non-economists.
| BoiledCabbage wrote:
| Explanations are useless if they can't make predictions.
|
| Non-falsifiable explanation aren't worth the paper
| they're printed on.
|
| While it's a nice quote above, I suspect many economists
| would disagree with that reduction of their field to
| being only backwards looking.
| lottin wrote:
| > Explanations are useless if they can't make
| predictions.
|
| Nonsense. Most sciences aren't about making predictions.
| Another example is linguistics. Linguists have
| reconstructed languages long extinct and figured out how
| they evolved into modern languages. Yet, they can't
| predict how these languages will evolve in the future.
| Does this mean these explanations useless? No. Why should
| they be useless? They may not be of interest to you, but
| that doesn't mean they're useless.
| pbhjpbhj wrote:
| I disagree with you, strongly, but I'll just note this --
| you appear to espouse the view (in you last sentence)
| that utility is the only value something can have. There
| are many things to know that lack utility but still hold
| value somehow. Useless does not mean worthless; but
| science really is about prediction.
| lottin wrote:
| I don't know what you're on about. It's been over a
| century, since economists adopted a subjective theory of
| value, according to which value is that--subjective. As
| such, we don't try to explain it, because it doesn't
| matter. You may think something is valuable because it's
| useful, or because some other reason. It makes no
| difference, and we don't care. All we care about is how
| much you are willing to pay for it. This tells us
| everything we need to know.
| lottin wrote:
| Same as any scientific endeavour, studying a particular
| phenomenon, which in the case of economics is the
| production, distribution and consumption of goods and
| services.
| edflsafoiewq wrote:
| It is in the ability to predict novel situations that
| understanding is tested.
| lottin wrote:
| Not really. For example, a model can accurately explain
| variable X as a function of Z, Y but if Z and Y are
| exogenous variables, i.e. outside of the scope of the
| model, then the future behaviour of X cannot be known,
| despite the fact that we may understand very well the
| mechanisms by which Z and Y cause X.
| mcguire wrote:
| Which is why economics is not a science.
| lottin wrote:
| Science is the application of the scientific method, and
| mainstream economics fully adheres to the scientific
| method.
|
| There are heterodox schools, such as the Austrian school,
| that reject the scientific method, and these are
| definitely not scientific.
| mcguire wrote:
| Your model of X, Y, and Z cannot make predictions. How do
| you validate it?
| rsj_hn wrote:
| Economics is a social science and as such, is not really
| amenable to the methods of falsification or
| experimentation that work well in physics or chemistry.
| In short, it's not really a science. That doesn't mean
| you shouldn't try to do your best to be logical and
| factual as much as possible, but at the end of the day
| you will produce mostly unfalsifiable theorizing.
|
| Really you need more modest goals, for example to at
| least try to approach the subject objectively rather than
| via sentimental moralizing. Even that is a massive
| effort. Imagine a physicist decrying how "wrong" it is
| for gravity to be weaker than the other forces. You would
| laugh at such a person and immediately classify them as
| not a real physicist. So you can use that as a filter to
| exclude much of heterodox economics and economists as a
| start. That's the battle being waged -- objectivity --
| not falsifiability.
| lottin wrote:
| If social sciences are not sciences, what are they?
| Please, explain. Also I'd like to know how falsifiability
| applies to the big bang theory. Thank you!
| PeterisP wrote:
| Falsifiability applies to the big bang theory because the
| big bang theory is not about the general concept of "a"
| big bang, but about specific models of how exactly the
| events very shortly after the big bang happened, which
| make testable predictions about all the consequences of
| those very early events - the distribution of matter and
| energy in the universe, properties of cosmic microwave
| background, etc; such models can predict
| observations/measurements (of ancients events) that we
| have not yet made, and be falsified if those observations
| disagree with the model predictions.
| jokethrowaway wrote:
| You can't really prove or disprove whether an economic
| theory is a good choice or not for a country at a
| specific time.
|
| How are you going to measure the outcomes and for how
| long will you measure them?
|
| The problem with economics is how politicised this field
| is and how the best theory ends up being what's best for
| governments and politicians. Is mainstream economics
| what's more convenient for the 1% or what's best for the
| world?
|
| We will never know what the economy would be if we
| weren't so Keysian. Maybe we wouldn't have a crisis every
| 10 years.
| neilknowsbest wrote:
| "The curious task of economics is to demonstrate to men how
| little they understand about what they imagine they can
| design" -- Hayek
| andresgaitan wrote:
| Excellent quote
| [deleted]
| codeulike wrote:
| Of course it's about prediction. There's no point spending
| time trying to understand something unless you're going to
| use that understanding to try and anticipate the future.
| recursivedoubts wrote:
| The Federal Reserve's job is to keep the banking system afloat,
| w/ the big banks functioning and well fed. And they do a good job
| of it.
|
| Everything else in "the economy" is incidental.
| throw0101a wrote:
| > _The Federal Reserve 's job is to keep the banking system
| afloat, w/ the big banks functioning and well fed. And they do
| a good job of it._
|
| The Fed's job is:
|
| > _The Federal Reserve works to promote a strong U.S. economy.
| Specifically, the Congress has assigned the Fed to conduct the
| nation's monetary policy to support the goals of maximum
| employment, stable prices, and moderate long-term interest
| rates. When prices are stable, long-term interest rates remain
| at moderate levels, so the goals of price stability and
| moderate long-term interest rates go together. As a result, the
| goals of maximum employment and stable prices are often
| referred to as the Fed's "dual mandate."_
|
| * https://www.federalreserve.gov/faqs/what-economic-goals-
| does...
|
| There is a tension between maximum employment and stable prices
| though: if the economy is starting to run hot, it means more
| and more people may be employed to keep up with demand. But if
| there's too much demand, and not enough supply, inflation
| starts kicking in (there are other sources of inflation
| though). So the 'trick' is to know when employment has reached
| the point of being 'maximum enough', and slowing down the
| economy then.
| salawat wrote:
| Ah... Let's define maximum as something completely different
| from "maximum". That sure sounds like economics.
|
| Also sounds an awful like a planned economy lite. But I
| suppose they call that monetary policy.
| recursivedoubts wrote:
| The Federal Reserve's job is to protect the banks. Of course
| they aren't going to come out and just say that.
|
| We are all aware of what they, and our economist friends, say
| they are doing, but we also have eyes and brains.
| andresgaitan wrote:
| Excellent
| horns4lyfe wrote:
| Well now thanks to the progressive caucus their job also
| includes solving racial inequality an climate change. That will
| work out, I'm sure.
| debo_ wrote:
| I hope "well fed" was an intentional pun!
| HPsquared wrote:
| Not underfed or overfed.
| mark_l_watson wrote:
| I would say that the Fed's job is protecting Wall Street
| bankers and promoting a rise in stock market prices. I don't
| think they care much about regular people.
| nabla9 wrote:
| To be clear, that's your (somewhat cynical) opinion of what
| their job is. I assume that you think Fed is cynical and
| sinister organization.
|
| Their offical job description is. "maximum employment, stable
| prices, and moderate long-term interest rates." (aka the so
| called dual mandate).
| jrochkind1 wrote:
| If you want to be cynical about it, I don't think that's even
| cynical enough. How about: Optimize between maximizing
| profits of the rich and minimizing chance of social disorder
| or rebellion from the poor being too numerous and too
| miserable.
| dageshi wrote:
| A quote from a book by Terry Pratchett that springs to
| mind...
|
| "They think they want good government and justice for all,
| Vimes, yet what is it they really crave, deep in their
| hearts? Only that things go on as normal and tomorrow is
| pretty much like today."
|
| I've often wondered if for the majority in a lot of
| societies, that isn't essentially true.
| jrochkind1 wrote:
| Well, there are some in such misery that things going on
| tomorrow pretty much like today is intolerable. Which is
| to some extent both objective and subjective.
|
| I guess how stable a social order is depends in part on
| for how many.
|
| (Of course there are also societies in which an extreme
| minority who wants tomorrow to be much like today can
| keep it so by raw force; I guess that can be a kind of
| stability too, with enough force, maybe)
| ItsMonkk wrote:
| And if you believe that cynicism, and believe that the
| market follows what the Fed sets out with, the only
| question you can really have is: When does it break?
|
| We know from the Martingale Betting system that when you
| have a losing bet, it doesn't matter what sizing you
| employ. Eventually the risk accumulates and it blows up. We
| also know from the Kelly Criterion that even if you have a
| winning bet, if you bet to large, you will go broke.
|
| As time goes on, the Feds bets have been getting bigger.
| They have been keeping more and more losing companies in
| business. Moral hazard is accumulating. Those that make the
| biggest bets get the biggest gains allowing themselves to
| make even bigger bets.
| fuzzfactor wrote:
| >In the common telling, the Great Inflation of the 1970s
| got going because people came to believe inflation would
| keep spiraling. The surge in gasoline prices wasn't
| simply a frustrating development, but a harbinger of
| things to come, so people needed to demand higher raises,
| and businesses could feel confident charging higher
| prices for most everything.
|
| This has always been spoken like it's from someone who
| was not present at all during the Nixon destruction of
| the US dollar.
|
| Or not observant in the least.
|
| But that's when people started saying things like this,
| and after influential people start believing it without
| thorough questioning, well here we are.
|
| The only significant demographic that could demand raises
| of any kind were unionized workers, who were shortly
| kneecapped by the Wage & Price Freeze.
|
| Businesses at the time almost never felt _confident_
| about anything, and only raised prices out of desperation
| for survival. At least they were allowed a little head
| start ahead of consumers & workers, and the Wage & Price
| Freeze was delayed as long as possible (ie prices were
| allowed to skyrocket) before being strategically kicked
| in right before workers' pay would have had a chance to
| drift toward parity.
|
| It always takes a lot longer for workers to share in any
| economic benefits, if at all, with great delay & lag when
| it does occasionally come to pass.
|
| Since it appeared mathematically as if half the wealth in
| the pockets of a nation's workers had been lost forever
| in only a few years, yes people believed that inflation
| would keep spiraling, but nobody thought there was
| anything that could be done about it since the regime in
| power was not only crooked to the bone, but working for a
| corrupt political party which was already too big to
| fail. There was only one alternative party and they were
| not math wizards either, and equally untrustworthy.
|
| By the time Reagan came along no one with good
| mathematical recognition could have come close to
| leadership advisory positions any more because it
| actually had been too late for a while.
|
| They're not betting with their own money anyway, and
| people already had to accept that the chance of any
| winnings had become infintesimal by then.
|
| Reagan did turn out to be a better actor than people
| thought at first.
|
| But even George Bush Sr. was able to recognize what he
| called "Voodoo Economics" of the Reagan years because it
| was not based on reality or things that can be good to
| actually have faith in.
|
| Not that he had a better plan, but at least his hindsight
| came into focus for a bit. Even the most excellent plan
| would have had no chance of deployment with the type of
| economists monopolizing worldwide influential positions
| by then.
|
| So the Bush I Recession ended up based on somewhat
| different types of superstitions than the Reagan
| Recession.
|
| And here we still are.
|
| The problem a decade ago was not fundamentally that the
| banks had grown too big to fail, but rather the political
| parties which have proven their economic incompetence had
| already been too big to fail for longer than most voters
| have been alive.
|
| And neither economists nor the voters can do the math
| since it is far too complicated for most, plus it doesn't
| matter anyway since the more powerful are going to
| extract as much as possible from the financially weakest
| before it's even more too late for them both.
|
| And then there's the pessimistic narratives, but just
| trying to keep it as positive as possible right now.
| nabla9 wrote:
| Indeed. What you describe is clearly populist nihilism.
|
| "They" aka the corrupt elite are screwing up "real people"
| who are poor. Ills of the system are moral issue, not
| really a structural issue.
| jrochkind1 wrote:
| Hm, interesting, I don't see it that way, it seems to me
| that "cynical" interpretation leads to the reverse: that
| ills of the system are structural, that the fed is
| fulfilling it's intended structural role in the system --
| preserving the stability of an unjust system -- the
| problem isn't the morality of the people who happen to be
| in the fed, even the most well-intentioned people will
| find themselves fulfilling this role (without
| systemic/structural change), because it's structural.
|
| But I see your point about how it (the simple 'most
| cynical' description) could be interpreted the other way
| too. I don't agree it is necessarily that way; perhaps
| that simple one-liner is not sufficient to distinguish
| the structural from the moral interpretation.
|
| I'll have to think on it more.
| nabla9 wrote:
| Have you considered the possibility that Fed actually has
| overall positive role (limited by it working within the
| mandate)?
|
| I'm not saying it does. But most people with very
| negative view barely know what Fed does and why it does
| what it does. Also they don't differentiate between what
| tools Fed has and what should be done using other means
| by Treasury and the rest of the government, but was left
| to Fed because politics is dysfunctional.
| fallingfrog wrote:
| I would love to see economics reparameterized in terms of it
| being a social network, with nodes and links, and then trying to
| measure how much the network is clustered or more un-clustered,
| the power relations between central and peripheral nodes (rulers
| and workers), and how that affects total network efficiency and
| how that affects inequality. And how resources flow between nodes
| and how when network connections break (people lose jobs or other
| business relationships) it can cascade through the network, and
| how the clusteredness affects how much and how fast it cascades.
| That is probably where the business cycle comes from imho. It
| just seems like nobody is looking at the problem from the right
| perspective.
|
| Then once you have a model with realistic qualitative behaviors-
| once you can identify the important variables like clusteredness
| and inequality, identify constraints and artificial forcings like
| government programs, then you can try to measure those variables
| in the real world and you might be able to make some near term
| projections that have actual predictive power. You could also
| make some predictions of how new government programs will impact
| things you care about like total productivity, how precarious or
| robust each individual's situation might be (do people have
| second chances or do they collapse into homelessness after one
| bad decision or accident), what the baseline economic outcome is
| (do we have people starving), etc.
|
| Right now I really don't feel like the state of the field of
| economics is advanced to the point where anybody is able to apply
| economics to problems we care about in any kind of rigorous way.
| After the fact you can always find some economist that will say
| "I predicted this" but you can also find 99 others who didn't
| predict it. And the people who get put in charge of the federal
| reserve are always one of the other 99. In fact I get the
| distinct impression that nobody in a position of power actually
| _cares_ whether economics produces reliable intelligence. After
| the year 2000 bubble, after the financial collapse, nobody in a
| position of authority at that moment should have ever held a
| government job again. But yet here we are. (Same thing goes with
| the people who said that the Iraq war would pay for itself and
| that Afghanistan would be quick and easy- why do those people
| still have jobs?? But that 's a tangent.) We are so used to
| catastrophic incompetence that we can't imagine any other
| situation.
| satellite2 wrote:
| It think that's why most central banks are showing interest in
| distributed ledgers for traditional currencies, so that the
| flow of cash actually become visible.
|
| Basically it is well known that the economy is a gigantic graph
| and that graph theory might help answer fundamental questions
| about it.
|
| The issue is that you need a massive amount of data to have a
| somewhat accurate model. The central banks do have some data
| (none on cash tough) as banks have some reporting requirements
| but generally those data are available only in aggregate and in
| economics (or basically any forecasting activity) the devil is
| in the details.
| mihaic wrote:
| I find it hard to believe that there could ever really be a good
| economic model. Predicting the weather works with a supercomputer
| since all the processes (temperature, pressure, etc) can be
| modeled as continuous. A very successful Spiderman movie saving
| Sony's quarterly profits hangs often on a coin-toss.
|
| Our lives are governed by relatively simple rules of physics but
| the world is in an incredibly complex state. Economics takes the
| output of those rules of physics and tries to wrangle the state
| of all the atoms in the world into some simple values, and then
| uses some simple equations to make predictions. How is this not
| worse than spherical cows?
| MuffinFlavored wrote:
| > Predicting the weather works with a supercomputer since all
| the processes (temperature, pressure, etc) can be modeled as
| continuous.
|
| Why can't the flow of money be modeled? Don't we have enough
| data on human behavior historically? Can't we trace where money
| generally ends up?
|
| Using the recently printed money isn't a super great example
| because as far as I understand, it's mainly held up in the
| banking system.
|
| Maybe the stimulus money given to American citizens recently
| would be a better example. We know some of it went to savings,
| some of it went to bills, some of it went to frivolous
| purchases, etc.
|
| If AI can detect fraud / objects on a road and make decisions,
| why can't a few of the most common economic possibilities be
| fed into some kind of model?
| saurik wrote:
| The argument was that discontinuities exist in things like,
| starting with the specific example, whether a movie turns out
| to be particularly interesting enough to drive people back
| into theatres.
| joe_the_user wrote:
| Lots of system consisting of discreet pieces can be modeled
| fairly exactly.
|
| The thing that makes economies very hard to predict is they're
| a combination of people acting according to quantifiable
| economic incentives and people acting accord to a collection of
| ideas, fashions and emotions that can switch unpredictably or
| simply aren't known.
| JumpCrisscross wrote:
| > _Predicting the weather works with a supercomputer since all
| the processes (temperature, pressure, etc) can be modeled as
| continuous_
|
| Except it's not continuous. That assumption works most of the
| time. But sometimes--often--it doesn't. Particle interactions
| chaotically manifest systemic effects in unpredictable,
| dramatic ways.
|
| The limitations on our current models of fluid dynamics and
| economics are uncannily symmetric. (The latter fails more
| unexpectedly.)
| mihaic wrote:
| Well, yes, my main point was that the weather is much closer
| to a perfect continuous model than the economy, and we get
| weather predictions wrong all the time. I doubt we'll have a
| change with the economy in the next 50 years.
| littleme2020 wrote:
| https://coincircle.com/l/nyZPq_OEKj
| nkurz wrote:
| I applaud the New York Times for prominently linking to the full
| paper from the article. In case anyone missed the link:
| https://www.federalreserve.gov/econres/feds/files/2021062pap...
| Dudeman112 wrote:
| I wholeheartedly agree.
|
| Publishing a news article about sciencey stuff without
| providing the bloody citation should be a crime.
| sokoloff wrote:
| I know you're being hyperbolic there, but if I take it at
| face value, I'm left wondering if that would pass First
| Amendment protections. I suspect most such policies would be
| in violation of 1A.
| shkkmo wrote:
| I see a pretty obvious argument that this would be a
| content neutral regulation that serves the public good.
| sokoloff wrote:
| Yes, I see that argument as well. 1A doesn't say
| "Congress may pass laws abridging the freedom of the
| press only when they serve the public good" but has
| rather stricter/broader prohibitions.
| shkkmo wrote:
| If you study the history of US case law you will see
| "content neutral" [0] regulation that "serves a public
| good" is often used as part of the standard to decide
| when the US government is allowed to restrict speech.
|
| [0] https://mtsu.edu/first-amendment/article/937/content-
| neutral
|
| The "content neutral" part is really important because it
| is what allows a huge range of government regulations
| that ideally are equally applied to everyone regardless
| of how popular a message is. The "public good" part is a
| portion of showing that a speech limiting regulation is
| narrowly tailored enough to achieve that public good
| without unnecessarily hampering speech.
|
| Regardless of what you think about the validity of these
| court decisions, there is reasonable precedent to think
| that such a law would survive a 1A challenge.
| sokoloff wrote:
| Very interesting and relevant citation. Thanks! Those
| cases do seem slightly different in character from "if
| you, as a news organization, literally say X, you are
| compelled to also say Y; violations are a crime rather
| than a civil violation", but I agree it's not open and
| shut.
| andy_ppp wrote:
| I'd go even further, publishing out of context quotes without
| linking to the video or transcript is also disgusting and
| massively common!
| aalam wrote:
| It's common because it would be too resource-intensive to
| provide transcripts for every quote.
|
| Articles from high-circulation newspapers often have five
| or more interviewees per article. Quality newspapers are
| averse to publishing quotes without fact-checking them if
| possible (e.g. if a politician makes a false claim, you
| don't want to publish it without indicating it's false). To
| maintain the same principle, newspapers would need to fact-
| check the entire transcript, versus just the quoted part,
| for accuracy.
|
| But if you want only a partial transcript, then you're
| essentially at the current state of affiars where you only
| quote the part you need, and paraphrase the rest.
| Journalistic ethical guidelines already require quotes to
| be in context for fairness. Reputable publications have an
| incentive to publish quotes in context (the interviewees,
| journalist watchdogs, and many readers would criticize that
| publication if they don't). So I don't see anything wrong
| with reading quotes and assuming they are published in good
| faith.
|
| To mitigate ethical lapses, you can also read the same
| coverage from different sources (e.g. Wall Street Journal
| and New York Times) to get broader context about
| particularly important articles, and also subscribe to
| newsletters on reporting (e.g. the American Press Insitute
| newsletter, the Columbia Journalism Review).
| andy_ppp wrote:
| I think if I'm on record I'm recording the conversation
| and the reporter should do the same. The highest standard
| would be to provide all on the record statements in
| recorded audio so we can confirm the reporter didn't
| misremember to make the story juicier...
| rossdavidh wrote:
| When I'm considering how much to ask for (or demand) in pay, I'm
| not primarily thinking about inflation. I'm thinking about the
| supply and demand for my type of labor. If I think I could get
| more, but inflation is low, that doesn't stop me from asking for
| more. If I think there's a labor surplus right now, but inflation
| is high, I am nonetheless unlikely to walk out in search of
| higher wages.
|
| Similar logic, I expect, applies to the boss side of things.
| ryebit wrote:
| IMO, economics is an area that will continually be hampered by
| models that don't fit, and increasing complexity.
|
| Any model that predicts things simply and well, will be gamed;
| thus requiring a more complex model.
|
| Or as Goodhart's Law[1] has it: "When a measure becomes a target,
| it ceases to be a good measure."
|
| That's presuming we never reach some economic state so perfect,
| that even with an accurate model, no one can find an extra
| advantage, nor can it be disrupted by natural events.
|
| [1] https://en.m.wikipedia.org/wiki/Goodhart%27s_law
| echopurity wrote:
| Anybody who claims to "know how the economy works" definitely
| does not know how the economy works.
|
| It's pretty sad that one economist pointing this out is a big
| deal.
|
| It's the result of echo chambers like HN.
| nabla9 wrote:
| "Nobody knows" is too simplistic a take. Nobody knows when they
| don't know anymore is more accurate.
|
| A better way to describe the situation is that most mainstream
| established macroeconomic theories/models work only
| conditionally. They match reality accurately only in certain
| periods, on the condition that myriad of other factors doesn't
| become important. Over time, some excluded variables become
| important. The explanatory power of the old model erodes. When
| the theory is finalized and explains the situation for the era it
| was created, it may be already outdated.
|
| Inflation expectations theory works reasonably well for fast
| growth, increasing labor force industrial era. It's not so good
| in 2% annual GPD growth, aging or slowly growing labor force era.
|
| The new school of economists thinks that that inflation is not
| likely to be a long-term problem. Fed will be back in trying to
| get inflation up in 1-2 years. Old school economists who look at
| the older models and data from 50-90s think that expectations
| will keep inflation going once it starts.
| csours wrote:
| To emphasize: people can describe the rules that governed the
| economy of the past.
|
| Problems:
|
| Companies and people are constantly changing how they do
| business to best exploit the economy. This can change how
| things work in large and small ways - every financial disaster
| leads to a raft of rule changes.
| freeduck wrote:
| The simple idea of you print more money therefore each dollar,
| euro... has less value, therefore inflation.
|
| Works for me
| kazen44 wrote:
| in the end though, a dollar, euro or whatever is just a
| abstract unit which represents hours of labour spend. Inflation
| is making the hours worked in the past worth less, and forces
| people to spend their money early to get maximum effectiveness
| out of their work.
|
| From a labourer's perspective, inflation is making the results
| from work done in the past worth less, while those who have the
| means to take risks can negate these negative side effects.
| freeduck wrote:
| what does the labourer's perspective have to do with
| anything.
|
| if there are a 100 dollars today and tomorrow there are 200.
| a dollars worth is halved right? or?
|
| Got some secret insight on supply demand, that the general
| public is unaware of?
|
| I would sooo like to know :-)
| ItsMonkk wrote:
| Cantillion effects. Who gets the money? What do they spend
| it on?
| freeduck wrote:
| LOL
| salawat wrote:
| Let's extend this.
|
| Inject it at ground level. No banks. No taxing. Let's
| come up with a few scenarios.
|
| Everyone invests it in Stocks. Everyone saves. Everyone
| invests in assets to start their own businesses.
| ItsMonkk wrote:
| You can't invest money in stocks. Every time you transact
| with stocks, the person who is giving you stocks is
| getting your money, and so that money is not in stocks.
|
| The only time you "invest" in stocks is during a public
| offering. And when a company does a buyback, that's a de-
| vestment. Over the last 20 years there has been more
| buybacks than stock issuances. The market is running dry.
|
| Deflationary assets are exactly what r > g predict.
| imtringued wrote:
| >Everyone invests it in Stocks. Everyone saves.
|
| Well, this wouldn't cause any inflation at all. It's
| basically just dead money. Either you own a stock or you
| save money in your bank account because someone bought
| your overpriced stock.
|
| >Everyone invests in assets to start their own
| businesses.
|
| This will cause inflation over the short term if there
| isn't enough labor available to do all investments.
| Interest rates would rise to encourage people to save
| their money.
|
| There is also another form of inflation. There is enough
| labor available but the investment fails. You borrow $100
| but only repay $80 (inflation adjusted of course). There
| is more money without enough production to back it up.
| freeduck wrote:
| I would So Much Love to meet a rocket scientist some day,
| that could give me some true perspective.
| freeduck wrote:
| This is fun. Somebody on the internet is wrong!!!
| freeduck wrote:
| Why?
| freeduck wrote:
| https://xkcd.com/386/ didn't get the reference
| freeduck wrote:
| #MeToo
| freeduck wrote:
| How to get banned on this forum?
|
| https://github.com/freeduck/hellebrevet/blob/main/skizze.
| jpg
|
| Sort of a mohammed drawing
| freeduck wrote:
| In Tallinn so don't blow up my family.
|
| Let's talk
| imtringued wrote:
| If the laborer is 2x as productive tomorrow then the value
| of your dollars is the same.
| imtringued wrote:
| 1 Apple = $1
|
| I borrow $100 from the bank which creates $100. I buy seeds and
| plant trees. I sell 100 Apples to pay the loan back. Did the
| value of the dollar go down? No it didn't. This is how the
| supply of money can go up much faster than inflation.
| ItsMonkk wrote:
| This is a bad take because if that dollar does not transact,
| you do not get inflation but you get a lowered velocity.
|
| However a lowered velocity rises r - g. This exacerbates wealth
| inequality.
| edzillion wrote:
| > This is a bad take because if that dollar does not
| transact, you do not get inflation but you get a lowered
| velocity.
|
| > However a lowered velocity rises r - g. This exacerbates
| wealth inequality.
|
| The cantillion effect:
|
| https://en.m.wikipedia.org/wiki/Richard_Cantillon#Monetary_t.
| ..
| salawat wrote:
| Sounds to me like the Fed has spent the last fifty years
| dumping velocity then.
| imtringued wrote:
| The r > g thing is cool in theory but it has an obvious flaw.
| As inequality rises returns go down. Interest rates have hit
| rock bottom rates.
|
| You have to explain how returns can exceed economic growth.
| Your returns have to be earned through coercion basically,
| the other party can't refuse. Overpriced stocks just result
| in lower yields. I can only think of real estate as something
| that is earning a fixed return through coercion. The other
| thing would be money if the fed forcibly raised interest
| rates but interest is already zero.
| canada_dry wrote:
| > that long-term inflation expectations are not just interesting
| but are a decisive determinant of real-time inflation
|
| I think economists neglect to include an obvious factor: _people
| are greedy opportunists_. When inflation first get reported on
| (in some tangentially related sector) the most opportunistic and
| greedy businesses jump at the opportunity to bump prices.
|
| When less opportunistic (but still greedy) businesses see one of
| their suppliers bumping prices, they follow suit and it quickly
| gains momentum.
| solveit wrote:
| > I think economists neglect to include an obvious factor
|
| In general, if you ever find yourself thinking that an entire
| discipline is neglecting an obvious factor, you should check
| whether that's actually true. I am pretty sure that your
| phenomenon of opportunistic price-hikes at reports of
| irrelevant inflation is either
|
| 1. Well-understood to not happen.
|
| or
|
| 2. Somebody's PhD thesis.
| andy_ppp wrote:
| Isn't it just as simple as there is a supply of money that
| everyone is chasing that expands forever if governments let it.
| If it stops expanding governments cause recessions if it expands
| more people get richer but this leads to everyone getting really
| scared there is too much money (debt) and so people start doing
| things to repay the money supply causing a recession. It can't
| possibly be this simple so governments need to pretend it's much
| more complex than that and that their tough stewardship of the
| economy is going to save the day.
| geoduck14 wrote:
| ^^^This, but add in a bag of weasels and I'm pretty sure we got
| it figured out.
| tmnvix wrote:
| > ...if it expands more people get richer
|
| Not necessarily.
|
| If you think of money as representing a claim on the finite
| resources of the world then if the distribution of the increase
| in the money supply is too concentrated then you can have a
| situation where more people end up poorer.
| andrepd wrote:
| > Isn't it just as simple as [short paragraph].
|
| The answer is going to be no x)
| andy_ppp wrote:
| Yes, it was a heavily tongue in cheek attempt to sum up the
| field of economics in a paragraph, if that wasn't clear!
| imtringued wrote:
| I don't see 2% inflation as some kind of evil thing. The
| problem is that things like automation reduce the need to work
| by some degree so people get to work less but employment tends
| to pile up on fewer people. People don't measure prosperity by
| how much wealth their work produces. They measure prosperity by
| how much their job pays. It's employment that decides
| everything.
|
| Since work has become a social activity people actually like to
| work more than they demand work themselves. So people compete
| for fewer and fewer full time jobs as productivity rises.
|
| Here is my explanation. 8 people work at a restaurant and spend
| 5 hours out of 40 per week making pasta. Someone invents a
| pasta machine. So now everyone gets to work 35 hours. The boss
| decides to fire one worker so that the remaining employees work
| full time again. Everyone is competing desperately to not end
| up as the last guy without a job. Full employment in this
| scenario would require people to eat the additional pasta
| (=consume more) that the machine produces.
|
| If you truly believed that the 8th person would find a better
| job then it wouldn't matter if you fire them or not. In fact,
| if you create a new full time job that needs 40 hours of work,
| then all 8 restaurant employees would apply at your company
| because they know they get to work 5 hours more. The best out
| of 8 would be chosen for the new job. One person leaves the
| restaurant, resulting in full employment of the 7 restaurant
| workers.
|
| Meanwhile if you just fire a random restaurant worker then it
| is entirely possible that one of the 7 employed workers is
| switching jobs and the unemployed worker has to get back to
| work at the restaurant. It's quite inefficient.
| amelius wrote:
| The biggest problem is people (an entire profession) _claiming_
| to know how the economy works.
| goatlover wrote:
| Do economists really claim that? Or do they study economic
| behavior and try to make predictive models to better their
| understanding? It seems like the general public misunderstands
| what economists do, and the misunderstanding is due to
| ideological/political reasons.
| smackeyacky wrote:
| Its the poor record of predictive ability that damns
| economics and economists.
| cottager2 wrote:
| Economists definitely claim to know how things work. I
| vividly remember reading neo-liberal gospel (the economic
| theory, not political leaning) in the NYT opinion section
| written by Paul Krugman 10 years ago. Allowing completely
| free trade will be great he said. Prices will be lowered and
| the economy will run more efficiently. Maybe that's true, but
| it also hollowed out the U.S. manufacturing base and
| consequently the middle class. You don't see articles like
| that anymore.
| dls2016 wrote:
| Paul Krugman actually changed his tune about this...
| moreover, you can find critiques of free trade being bad
| for workers everywhere if you look. And these critiques
| aren't new: https://m.sevendaysvt.com/vermont/sanders-why-
| i-oppose-nafta...
| imtringued wrote:
| Well, the problem isn't free trade. It's that some
| countries work more than they need to. If every country
| had balanced trade there wouldn't be many arguments
| against it.
| ur-whale wrote:
| > I vividly remember reading neo-liberal gospel written by
| Paul Krugman
|
| Krugman is the perfect proof of the fact that the entire
| field of economics is populated by charlatans.
|
| His track record on predictions is worse than flipping a
| coin.
| paganel wrote:
| It was the same in Europe and things have changed, it's
| true, nowadays you have the US officials close to the
| president quoted with:
|
| > Biden official says protecting US steel a national
| security issue [1]
|
| on the front page of the Financial Times.
|
| [1] https://www.ft.com/content/e1f33362-2c36-4f99-9b11-7dcd
| 82ee7...
| G3rn0ti wrote:
| > Maybe that's true, but it also hollowed out the U.S.
| manufacturing base and consequently the middle class.
|
| Citation needed.
|
| Edit: Just as a counter point consider reading this
| article: https://www.latimes.com/opinion/op-ed/la-oe-
| schiller-shrinki...
| TrispusAttucks wrote:
| [1] China really is to blame for millions of lost U.S.
| manufacturing jobs, new study finds
|
| [1] https://www.marketwatch.com/amp/story/china-really-
| is-to-bla...
| ItsMonkk wrote:
| I encourage everyone who cares about this space to watch
| the 1994 Charlie Rose episode with Sir James
| Goldsmith[0]. He nailed it.
|
| [0]: https://www.youtube.com/watch?v=wwmOkaKh3-s
| naasking wrote:
| The middle class in cities is probably doing fine. Rural
| areas not so much, and that's where the manufacturing
| base was gutted. Offshoring has had a large negative
| impact there and also made our supply chains more fragile
| as we found out during COVID. These facts are a big
| reason why Trump's anti-China message really resonated in
| those areas.
| notfromhere wrote:
| Cities had pretty substantial manufacturing bases before
| deindustrialization.
|
| Middle class in cities is shrinking, and most American
| cities of any notable size are split between knowledge
| workers and a service worker underclass. That's why so
| many American cities are split between very nice
| neighborhoods aNd those that resemble 80s Detroit.
| marcusverus wrote:
| If economists did their work without ever leaving academia,
| you certainly could argue that they're simply "trying to make
| predictive models to better their understanding". But as soon
| as they begin advising governments on policy, they abdicate
| that argument.
| q-big wrote:
| The problem of staying in academia is getting a tenured
| position ...
| imtringued wrote:
| Indeed, the thing we call economy is changing all the time.
| Economics try to explain how the economy works that's not the
| same as being 100% sure.
| ur-whale wrote:
| > Economics try to explain how the economy works
|
| This is a common mistake.
|
| Explaining how things work is entirely useless (unless all
| you're interested in is feeling good about yourself).
|
| The only thing that matters for a so-called scientific
| discipline (which economists claim to be, but really aren't)
| is its predictive power.
|
| If "explaining how things works" actually produces something
| that has predictive power, then yes, you've got something.
|
| If all it does is produce explanations of what happened after
| the fact, what you have is intellectual masturbation.
| [deleted]
| heresie-dabord wrote:
| Economics is extremely useful as a form of employment for
| economists. -- Galbraith
| amelius wrote:
| Yes, but my point goes further than that.
___________________________________________________________________
(page generated 2021-10-03 23:00 UTC)