Hi Guys,
In general, Economists have a Physics envy. They truly want to advance economic theory to the precision of physics laws. To accomplish this task they rely more and more on mathematical modeling and sophisticated statistical analyses. Although they have made enormous progress in their battle towards that goal, they will loss the equality war.
Physics only involves the motion and interactions between inanimate objects; economics adds the complexity of people to the interaction problem. An object falling under the influence of gravity will always obey the laws of gravity; a falling stock market will be subject to the fears, whims, and hopes of the investing public. One is predictable; the other is not.
Therefore, economic theory and practice don’t obey a single set of easily defined rules. And it is likely that the current operative rules have changed over time, and will certainly morph into another set in the future.
That’s why following a single economic perspective and school is hazardous. All the numerous economic schools have something to contribute. They especially work well under certain conditions, but they fail under other circumstances. In the economic world, flexibility and adaptability are attractive and profitable characteristics. Those who adhere to a single school will thrive sometimes, but will suffer at other times.
The most popular economic school is the Keynesian. It features a macroeconomic government intervention approach. Paul Samuelson’s textbook emphasizes that approach. Writer Paul Krugman is a current proponent.
The Chicago school is also a macroeconomic approach. It favors monetary policy control as an alternate to Keynesianism. Milton Friedman was a strong advocate. Their torch is now carried by Gene Fama.
The Austrian school emphasizes a minimalist laissez faire approach. It focuses on price as a natural stabilizing mechanism. Ludwig von Mises and Freidrich Hayek were prominent early developers. Henry Hazlitt popularized it with his successful “Economics in One Lesson” book.
There are numerous other economic schools (Marxian, Utopian, Physiocrats) that have had momentary popularity, but are now mostly consigned to the dustbin of history. The way things work, some elements of these discarded schools will likely enjoy some revival in the future. Economic change happens.
That’s why committing to a single economic philosophy is dangerous business. It’s somewhat similar to sector rotation in the investment world. Being familiar with all the economic models increase both our economic and investment opportunities. Stay loose.
One way to becoming aware of the various economic schools is to read an economics book. The more recent versions are not the same dry textbooks of yesteryear. I’m currently plowing through “Principles of Macroeconomics” by N. Gregory Mankiw. It is actually entertaining as well as informative. I recommend it to MFO members.
Best Regards.
Comments
Also, most past economic schools, were prior to the current world economy. They focused on a nation. With a global economy and freedom of capital the macro school ideas don't work. Take the stimulus package, much of that money went outside the USA, thereby diluting the effectiveness.
Regards-
Thank you for contributing to the topic. Several perspectives always make the discussion more informative, especially if those views differ somewhat.
Although the scale has changed in the positive direction, free trade has forever been a goal of economists everywhere, both yesterday and today.
For example, in the Mankiw book that I referenced, he has a summary survey of what current economists support. In the number 2 position of that survey he finds that 93% of these economists recognize that “Tariffs and import quotas usually reduce general economic welfare”. They are solidly against these harmful constraints.
Likewise, Adam Smith, in his 1776 “Wealth of Nations” tome, recognized the merits of an “absolute advantage”. That’s when one country can produce more of one item than another county can using lesser or equal input resources. Under those circumstances, Smith advocated that a country should produce those goods where they are most efficient, an “absolute advantage”. Good concepts survive the challenges of time.
A grand majority of economists since Smith’s time have similarly preached the economical Gospel of free trade. The global economy has surely exploded in modern times, but the economists’ basic support for free trade has remained positive and constant over centuries.
Best Wishes.
Yes, my thinking on many issues has evolved over time. I suspect that is equally true with you.
To be otherwise would imply that we have not matured and have not learned. Being unreceptive to a changing world and evolving environment would be a tragic mistake. I believe that neither of us are static and/or stale thinkers. We evaded that trap.
I vote that both of us have evolved, hopefully in a productive direction.
Thank you for your participation.
Best Wishes.
Physics: 2 + 2 = 4
Economics: 2 + 2 = 5
There.
1. The theories mentioned were developed under different times in world history - specifically world expansion. They were developed about 1900 to now. We are still generally in a time of expansion but that is changing and the problems are showing. The benefits of the trade and expansion is slowing down.
2. There are several major world wide events beginning now that have not been seen previously.
A - free movement of jobs and capital going to the lowest price locations - previously this process was slower and countries who lost jobs had a chance to adapt - not now.
B. Population growth going from 7B in 2000 to 10B in 2050 resulting in a huge increase in working age people but not enough jobs
C. Aging population - workers working longer meaning younger people have fewer opportunities. Aging population not working needing support from younger workers - i.e. higher taxes
D. Robotics - fewer jobs
E. Technological Singularity - fewer jobs
It ems D & E could be called the productivity gap - productivity (no jobs) is happening at the same time the population is exploding causing, in part economic inequality and low wages.
We can not stop 'free trade'. But, the old economic theories address 'old world' economic conditions. As I mentioned above the stimulus package was an old economic solution that didn't take into account the new world economics.
To address these issues we need a new world economic theories.
I’m an engineer by training and by professional practice. I carry with me a “can do” attitude and discipline. I am never in the doomsday prophets camp. I am not clairvoyant, but I do not share your negative perspectives.
World trade relationships have never been stronger. Professional economists love it. In Chapter 1 of the referenced Mankiw book, he lists 10 fundamental principles of economics. Principle number 5 states that “Trade can make everyone better off”. Will there be displacements and some dislocations? Yes, but the long-term overarching impact of world trade has been and will continue to be positive.
How do I know this? History yields the answer. Way back in the early 1800s when the steam engine was introduced to the public, the doomsday believers projected vast unemployment. The industrial revolution also brought with it pollution deaths and child labor exploitation. But the positives far outweighed the negatives.
My great grandfather’s family included 8 surviving children (several others died in childbirth). The boys were especially prized to work in the fields. Today, a family of that size would be exceptional and unnecessary from a family survival perspective. Family size is adaptive. It adjusts to economic conditions and necessities. In some parts of the world, the reduced family size is an issue. I do not worry worldwide overpopulation.
We definitely do not agree in some areas, but I appreciate and respect your viewpoints. Thank you.
Best Wishes.
Read up on stagnating wages in the USA since the 1970s, declines in defined pensions, health benefits etc to see how what I mentioned has unfolded and will continue to unfold.
Read up on how no nation who's nation debt exceeded 90% of GDP has recovered economically. See Europe now and how they instituted VAT, which will happen here.
Read up on the items I mentioned and the effect on labor.
2 + 2 = 5 for very large values of 2.
Everything I read as a layman in this area is indeed evidence-based and history-facing, not school-following. You purport to sound informed and read in this area but every time it is down to cases you show otherwise.
>> Also, most past economic schools, were prior to the current world economy. They focused on a nation.
All solid modern econs focus on the world, invariably, every one. Why are you so dwelling on prior work?
>> Read up on how no nation who's nation debt exceeded 90% of GDP has recovered economically.
Dear God. See http://krugman.blogs.nytimes.com/2011/12/04/british-debt-history/
And do check the cited IMF DB.
(btw, 'whose')
If you want new world econ theories and to make informed contributions, then suggest read up and get cracking on your studies. That is all anyone writes about today, at least the progressive econs, including your hated K. You yourself sound so near-progressive and astute sometimes. A puzzle, with your constant reactionary and contrary streak to posters. Like some oppositional/defiance disorder that prevents concurrence --- regardless. Wild.
Tongue in cheek, Albert Einstein said, "If the facts don't fit the theory, change the facts."
We all fall victim to that attractive face saving ploy, especially when justifying poor investment outcomes. It's convenient to choose an alternate benchmark instead of admitting an underperforming portfolio construction.
That tendency extends into the world of economic modeling analyses. Rather than rejecting our favored theory, we selectively accept data that supports our theory and reject data that runs contrary to it. That's sad.
Some MFO contributors do this regularly; others successfully resist. It's likely we all know which contributors fall into these two distinct categories.
Best Wishes.
Everyone needs to invest based on their risk tolerance. I know my limitations. Hence I try to find managers who I feel I have my best interest in mind. After that if a fund performs "poorly" or not is not in my hands. What is in my hands is to see if something about manager has changed. If I'm not doing that, or unable to do that, e.g. in 401ks, then I just invest in Index funds, and then any discussion about "poor outcomes" is redundant.
You noted: "In general, Economists have a Physics envy. They truly want to advance economic theory to the precision of physics laws. To accomplish this task they rely more and more on mathematical modeling and sophisticated statistical analyses. Although they have made enormous progress in their battle towards that goal, they will loss the equality war."
>>>Theory versus Law? My first guess that economics have a very basic "law", too; of supply and demand.
Tis not so much about what is currently understood about the "laws" of physics or the "laws" of economic movements; but that humans continue to modify the "laws" to fill a need to meet a circumstance or establish a different path based upon the "laws".
Intervention continues to exist in both of these areas.
Would be "fun" to write a book about this, eh?
Too many chores before the snow flies in this state.
Take care,
Catch
I think you are afraid to actually write a positive assertion on a topic for fear of being wrong. Instead you misunderstand other's posts and link to inappropriate articles. I am giving you the benefit of the doubt here. It could also be that you have not been educated in economics or have limited knowledge base in this subject but you want to participate.
The UK did have high levels of debt just before it's peak as a world power - it is no longer a world power or economic powerhouse it once was. You did not understand what I wrote. There were two aspects; debt and " recovered economically". You did not refute the point I stated.
Your one point does not make a cogent argument. Look at my post above. I was provided several points to support what I wrote.
I am aware that there are posters, such as yourself, who pick out one point to dispute. But, we all know such posters miss the big picture and can only argue at the margins.
If you are going to attempt to participate in these discussions you need to put something of yourself into it and prepare a cogent argument.
If you reply to this, my expectation is that you will again attempt to only focus on one or two points or nit pick a small issue. You may try to over compensate by overwhelming us with a verbose post. I hope you would attempt to be clear, concise and to the point.
? Do you have anything for this? Other than Glubb's vast views.
You may find much of interest in the below link, some of it perhaps even supporting what appear to be your takes, I think. Maybe. I am not always clear what your takes are and certainly not what your substantiation is.
http://www.imf.org/external/pubs/ft/wp/2010/wp10245.pdf
But now are you are at the point only of saying my discussions are no good, nor my information, nor my writing, or some such. So yes, I got nothing more to offer.
You see you proved my point above, you are afraid to put something of yourself in the post. You post a link alone without saying what your position is and how what you link to supports your position. Also, you don't take the time to provide the page or quote what is the salient points in your link.
Go outside and have a great day!
Well the exchange has certainly become more heated. It is also adding to my vocabulary. I had never encountered “desnotted” before today.
I checked the Internet for a definition and scored zero replies. Therefore, I assume it is an invented word that adds to our ever-expending lexicon. I’ll contribute to an expanding lexicon by saying that my goal in submitting this present post is to “deheat” the exchange.
According to the Internet, deheat is a nonstandard and rarely used word that means to cool. I learned something today; that’s a great way to start the morning accompanied by a cup of non-deheated coffee. Primarily, I also wanted to change the direction of the postings.
I was totally unaware of the popularity of inventing new words. My Internet search uncovered that the Washington Post has been playing these word games for decades. Apparently, the Post has been running an annual Neologism contest forever. Here is a Link to a 2013 article that summarizes past contest winners:
http://forums.watchuseek.com/f73/washington-post-annual-neologism-contest-827928.html
Some of these new words are terrific. Unfortunately for you Guys, I might be using some of them in future posts. I especially liked “Dopelar Effect” as a one letter replacement for the Doppler Effect.
According to the article, the Dopeler effect is “The tendency of stupid ideas to seem smarter when they come at you rapidly”. Some of that happens on a small fraction of MFO submittals. As always, readers must be alert and discriminating.
I hope this brief diversion tactic satisfies its primary goal. I wanted to add humor to the exchange. I hope I have deheated the exchange, at least to a more modest temperature.
I also hope that you find the Washington Post Neologism program as exciting and interesting as I do. That is an unexpected benefit of my research.
Best Wishes.
https://en.wikipedia.org/wiki/National_debt_of_the_United_States
https://en.wikipedia.org/wiki/Financial_position_of_the_United_States
https://en.wikipedia.org/wiki/United_States_federal_budget
Human behavior and motivation - I find that harder to decipher analytically.
I wish I could read the report the article references, but you need to be a member of Capital Economics to do so.
@Anna, your post explains why it does matter what statistic is used because most people don't "understand what it is and what it isn't, what it shows and what it doesn't show, when it's appropriate and when it is not, and how it can be used to reveal and how it can be used to obscure." Instead they are constantly bombarded with this the U.S.-has-too-much-debt message with, I believe, a highly manipulative intent.
@OJ, Auto da Fe--haven't heard that term in a while:
Thank you for rescuing the spirit of this thread. A few comments had taken a nasty direction.
I am definitely not an economics expert, but I am trying hard to learn. I am currently reading economics textbooks; that’s a hard road for me, but I persevere.
The economists seem to always discuss the relationship and magnitude of government deficit spending to GDP. They feel, and so do I in my uninformed status, that these are significant parameters that warrant scrutiny.
For a private citizen Polonius’s advice to “neither a borrower nor a lender be” is probably solid financially. However, for a businesswomen or a government, it is not practical advice.
In the economics text I’m currently reading, Greg Mankiw concludes that “when the government reduces national saving by running a budget deficit, the interest rate rises, and investment falls.”
I interpret that conclusion as having both positive and negative aspects. It’s good for some folks, and bad for others. Time scale also comes into the equation. Economic answers are never one-sided just like there are no one-armed economists. I sure don’t have an answer.
Our federal debt history certainly is spike-filled with peaks during war years. The spikes notwithstanding, the national debt as a percentage of GDP has been rising since a low of under 10% in 1900 to its present value of over 100% today. That’s a little scary trend, but not so much when contrasted to Japan’s ratio which is north of 200%. We’re higher than other countries that I respect, but because of a multiplicity of valid reasons.
Simple, general answers likely don’t exist. But I’m optimistic. I’m a firm believer in a regression-to-the-mean iron rule that seems to be universal in the financial world. At least I hope so.
Once again, thanks for your research and many fine contributions.
Best Wishes.
Exactly. Except, possibly, in simple minds.
Exactly. Except, possibly, in simple minds.
Ah, come on now.
When I was a young one, I learned that when I boiled/distilled enough "sap" from the maple trees in the spring, in the back 40; that I would arrive with a decent maple syrup in the end. 'Course, too many cooks could also cause a problem with this process.
Tis the same with many other subjects.
Hey, take care out your way.
A lovely day in Michigan for this time of the year. 84 degrees and about 35% humidity with a 10 mph breeze. Very pleasant for this old body. Back outside I must return as daylight is gone in 4 hours.
Catch
Regards,
Ted
https://en.wikipedia.org/wiki/Milton_Friedman