The hole at the heart of economics: the consent of the governed

Institutions failed, as they are wont. If any course of action can lead to a crises of 'legitimacy', it was already time to break out.

The poseurs are those with all the gear but no idea. It takes them time to be accepted by your game playing clique, you may even put them through some hazing and initiation before they are accepted. They want to play the game but do not know the ins and outs. Therefore they become easy prey to believing what your narcissist game player tells them.

In politics the electorate is essentially entirely poseur. Most employees have no idea how to run a company even the one they work for, even if they have worked there for decades. So, why on election day does the uninformed, propagandized to masses get to have a say?

Invariably yet another narcissist gets into office, regardless of their political colours.

A couple of points: 1. negative externalities make necessary laws and regulations if you want an efficient market. 2. Keynesian economics (presumably what you referring to) has nothing to do with restricting free trade, but deals with the boom-bust cycle and how a government can manage it.

After these, a lot of power shifted from the people to the federal government. And then the government needed economists to tell them how to use this new power. And because there are dozens of federal agencies employing economists, they're never going to say "We shouldn't be here at all" but rather "Let's hold back a little bit on using our power here". They're going to adjust their message so that politicians are more likely to appoint them to positions of power.

Academia isn't any better: They crucially depend on government money, and the effort is always on more government influence(and money) even if a few professors write theoretical books saying otherwise.

In finance, I believe economics is still useful since you can make measurable predictions, and execute trades and deals off of them. But, economists at finance companies aren't nearly as noticeable as economists in the government and academia.

If you completely cut those items in the first paragraph, it would become nothing more than a moderately useful branch of philosophy.

if you had to explain to an alien what happens when you go to a store and exchange a piece of paper for a candy bar and get some paper and metal back, you'd be there for a long time and have to explain much of human history and civilization.

'which laws govern' i.e. are naturally imposed and who is 'imposing [somehow unnatural] laws and regulations', seems to be largely in the eye of the beholder.

the idea any of this happens in a state of nature seems naive.

(I like how they've quoted https://twitter.com/dsquareddigest - he's an excellent person to follow for common-sense politics/economics with minor snark. And he's right that “‘it just isn’t done’ is basically the central organising constitutional principle of the UK.”)

This is normal, because the foundations of a given society are intensely political and have a huge impact on the nature of economic activities that exist (whether independent courts will enforce loan contracts, for example, is a political decision with major consequences for capital flows).

Recently, the public face of economics has been largely microeconomic modelling, which looks (from a distance) like an apolitical applied science. But the economic historians and the political economy people have always been part of the discipline as well, whether they be Marx or Milton Friedman.

Consider serfdom, slavery, guild systems, the Enclosure Act, private armies, strikebreakers, debter's prisons, workhouses, unequal pay for equal work, press-ganging... You can look all across history, and hardly find an example of free commercial exchanges at work.

BUT: it seems there was a change around about the time of Keynes. Until then, economists talked mostly the general kind of systems that would produce prosperity.

Even Marx talked like that -- he might have believed in rational planning, but he wrote about how the capitalist system as whole (mis)functioned, and how the proletariat would "inevitably" seize control. He did not detail already existing "levers" that be used by governors to steer the economy.

First thing that needs to be modeled correctly is the government. Whats is it? Is it going to be authoritative or democratic. Now if it is authoritative, it servers a minority in power. If its democratic, shouldn't it be optimized for welfare of its citizens? Once that is defined, it becomes easy to model economy right. The right thing that should've been done is to let go of attitude "too big to fail" and let the market correct itself. Contracts were made between banks and investment banks. Those were valid contracts. Those who found themselves at the short end of the stick knew what they were getting into. It was the expert bankers who created those contracts. They didn't held their end of the deal. They basically caused a mess and got away scott free.

That book contains some policy prescriptions that you may or may not like, but regardless of that, it contains (a) a solid history of the development of money that is based more on actual history and sociology, rather than made-up stories, and (b) a solid and relatively plainly written introduction of how modern fiat money systems actually operate, without all the weaseling of terms you read elsewhere (e.g. "banks parking money in the central bank" is a pet peeve of mine).

Ceteris paribus is a technique for decomposing complex problems into simpler elementary ones, not an assertion about underlying economic realities. It's employed most commonly in microeconomics, which works fabulously, in much the same way as classical mechanics continues to work fabulously for the vast majority of earthbound practical problems. Macroeconomics is beset by problems because our understanding of social and organizations structures is seriously incomplete, in much the same fashion as ants probably have extreme difficulty in forming ideas about the collective behavior of ant colonies.

If you take moves that hurt trust in those institutions, people might no longer consent to being governed by them. Now, a world without courts is economically worse of, so take public trust into account when making decisions.

In democracies the rule is by institutions rather than by individuals, but the same principle applies: we can only have a liberal capitalist democracy for as long as enough people believe that liberal capitalist democracy is the right thing. Once enough people believe otherwise the government collapses and something else (probably a lot nastier) takes its place.

Therefore it is beholden on those who manage our liberal capitalist democracy to ensure that they maintain this consent. Economic and political policies should be fashioned, in part, around this principle.

The recent wave of populism, Brexit, Trump, etc., can be interpreted as a revocation of that consent. The implication is that now populists might impose much worse economic policy than a moderate consent-preserving policy beforehand.

In other words, economists often have blinders on, concerning themselves only with Homo Economicus, while forgetting all about Homo Politicus.