Ask HN: What are you reading to make sense of the economy?
With so much happening so suddenly, what are you reading to make sense of the Economy and markets.
To a large degree the economy is unknowable. That's why you can get two economists in a room and receive seven opinions. Don't get me wrong; there's good value there. It's just that economics is an odd mix of philosophy and math. On my more cranky days I call it astrology for people who know calculus.
If the economy were knowable to the degree that some economists claim to know it, they'd all be billionaires. So my advice is to scope down your question to something a bit more workable.
Second, knowledge about the economy, specially such that all could become "billionaires", is empirical knowledge and knowledge of particulars such as knowledge of when to time thr markrt. Economists have some conjectural and general knowledge regarding some policies which leads the profession to develop something akin to a consensus on certain issues (10 out of 10 is really a gross exaggeration), such as rent controls. But there has never been a proposition in economics which hasn't found defenders against any supposed consensus, specially nowadays, with the incentives to publish surprising results, and most are conscious of it. The issue with the comparison with any sort of divination is that economists do not claim to be good forecasters.
I have yet to met a person on the street who doesn't have strong opinions about what economic principles should be implemented.
>it often feels like you get 10 economists in a room and you get 10 different diverging opinions.
I don't understand why this is a bad thing. Progress is made by exploring diverging theories.
You can make the case that as a columnist, he's encouraged to make predictions but most Keynesians believe in direct cause -> effect of policy decisions based on a handful of metrics that properly describe the economy as a whole.
I listened to the National Association of Business Economists webinar yesterday presenting survey expectations for Q2. To say there was difference in opinions is an understatement. Opinion ranged from barely any impact to 50% GDP loss (annualized, so 1/4 of that for a quarter).
You hear economists say things like "guns and butter do well in recessions." The same idea applies here: what do people need during this time? That is what creates the market.
Outside of that, my only thought is don't pay attention to the short run volatility of the stock market as an indicator for long run economic outcomes.
I thought his point was great. There's some well-trodden ground in economics. If you learn nothing more but where the alligators are, you're probably going to do a lot better on that trip through the swamp you plan on taking. If nothing else, it tends to elevate the conversation.
It's ultimately a study of the impact of the decisions societies make, and even then, the metrics it uses are often poor indicators of quality of life. Apartheid South Africa was the continent's bread basket on the basis of its mining output and high GDP per capita. But that wealth was concentrated in the hands of the white minority and not used to improve infrastructure and education for the colonized majority. That was badly needed to fuel long-term growth and build an economy that wasn't dependent on commodities prices.
Astrophysics is kind of in the same boat. You can't really set up a proper test and control - you're forced to do what you can with the datasets that are available.
As W. Brian Arthur has observed, vrtually all of economics ultimately boils down to questions of policy. There is effectively no theoretical (as opposed to policy-oriented) economics, let alone a truly experimental sort. This applies not just to orthodoxy, but many heterodoxies as well.
The notion that science is of necessity experimental is fundamentally false. Experiments are useful, but the core of science is that it is observational, you might call it experiential, with hypotheses and observational tests (of which experiments are one subclass) being used to form theories and models.
The scope of, say, experimental cosmology, meterology, geology, paleontology, evolutionary biology, and ecology are ... fairly small. Though not entirely nonexistent. Famous proofs, or validations, of Einsteins theory of general relativity were observational, based on star positions during solar eclipses and of Mercury's orbit. Neither of which lend themselves readily to laboratory experiments.
Similarly, simulations are a powerful tool in many disciplines.
Geology is an interesting case on several counts.
It's among the oldest of the natural sciences, dating back thousands of years, to at least ancient Greece (Theophrastus, 372–287 BCE, Peri Lithon). It has been almost entirely observational, rather than experimental. As recently as the late 18th century, the Earth was thoght to be unknowably old (James Hutton, I believe), and through the 20th, informed and scientific views differed by orders of magnitude. It wasn't until the 1st decade of the 20th century that early radiometric dating suggested even approximately the right range. The actual. value, plus or minus 1%, wasn't determined until the 1950s. And the central organising principle of a study dating back 2,400 years wasn't. finally accepted until 1965, having been proposed in modern form in 1912. That is, it's only 55 of 2,200+ years that geologists have formally had the foggiest notion of how their study actually works.
And even. still, in one major application, earthquake prediction, the field remains conspicuously incapable, at least where timing is concerned. Criminally so according to Italian courts: https://www.scientificamerican.com/article/italian-scientist...
We've an exceptionally good idea of where earth movements are likely to occur, what landforms are especially vulnerable, and what construction methods most resilient. But precise timing eludes us -- at human scales events are effectively random.
Economics prides itself on its reliance on maths, dating to Alfred Marshall, to which I can only commend this Reddit thread:
https://old.reddit.com/r/AskEconomics/comments/bevb7u/why_is...
Economics, my own course of academic study, remains mired in wishful thinking, false models, self-serving theory, and rejection and suppression of well-grounded alternative or additional concepts. It specifically rejects thermodynamics (Georgescu-Roegen, Daly, Ayres, Hall, Keen, and others), evolution (Veblen), complexity (Arthur and others), and limits (John Stuart Mill, William Stanley Jevons, Kenneth Boulding, Meadows et al, and others). Even where at leaast some elements of the mainstream have resumed rational behaviour, policy and public discourse frequently have not.
Epistemic progress and ideology are all but incompatible. If not entirely. Until economics entirely rejects ideology it will not progress. Given its foundations in moral philosophy and the inherent self-serving dynamics of wealth -- "Wealth, as Mr Hobbes says is power" notes Smith. in one of the shortest and clearest sentences of Wealth of Nations, a book generally given to neither -- this seems a formidable challenge.
The principals of supply and demand are vague and flexible enough to be completely devoid of meaning.
The principles of supply and demand are not vague at all, but they have limitations. They are necessary to understand economic behaviour, but rarely in the real world are they sufficient.
Economists are famously bad at preventing or predicting recessions.
Similarly, say all you care about is predicting a recession since that's going to risk your job/business/personal finances etc. As far as I know, there's no way to predict a recession until after you're already in one. Sure, a yield curve inversion has preceded every recession in the past ~50 years, but (1) that's only ~5 recessions (2) the inversion has taken place up to 33 months prior to recession and (3) as the Great Recession taught us once again, just because something has been true for many years in the past (housing prices always going up) doesn't mean it'll hold true in the future.
Macroeconomic forecasting is by and large nonsense. The PhD chief (macro)economists from big banks you see on CNBC will, at best, identify some recent trends that could cause the economy to change if said trends continue and, at worst, prognosticate. I wouldn't describe myself as an "economist" since I only hold a bachelor's of science in economics, but the prognosticators do a tremendous disservice to themselves and to the practice of economics.
So should you ignore all economic news and analysis?. No. You might be able to make some vague, general, long-term forecasts, like how I believe that the US economy will remain a major economic power 20 years from now (hence why I'm comfortable squirreling away cash into S&P 500 Vanguard index funds) and that Amazon will probably be a major company for most or all of that period, but I don't pretend to know whether inflation will be below 2% for any fraction of that period, if self-driving cars will replace Uber drivers, or if China's per-capita GDP will exceed that of the US.
You have to be careful to identify what's not knowable even when everyone else believes that something is knowable. When I did debate in high school (circa mid-late 2000s), we had a topic on whether the US government should increase investment in alternative fuels. Many arguments in favor relied on the assumption that oil prices would continue to rise. Some experts debaters cited even suggested the world had already reached "peak oil." Judges were receptive since they were paying $4.00/gallon for gas. Now, of course, if oil is a finite resource and our consumption/drive habits remain the same, oil prices will have to rise eventually without alternative fuels. But few people, including me, (at least few people who got media attention) realized that the then-high oil prices were both (1) inducing previously cost-prohibitive US oil extraction and (2) weakening the incentive of OPEC's members to keep production low. That was a lesson to me: conventional wisdom about the economy, even "wisdom" from "experts" in a segment of the economy, can be wildly inaccurate.
P.S. hot take: while it's clear that humans can and have changed the climate, it's not clear what the tangible effects will be... so while some investment in mitigation may be warranted (especially with respect to obvious pollutants), we should be careful not to incur massive costs today on the assumption that say, Miami will definitely be underwater in 50 years.
Conventional wisdom is wrong about all kinds of things, all the time. "Forecasts have been wrong, therefore forecasting is pointless" is the wrong lesson to take.
Perhaps I'm misunderstanding your reply or I wasn't clear in my original post. The history of failure of expert consensus forecasts is one reason why we should be highly skeptical. That's why I said such a forecast, and you yourself quoted, "...can be wildly inaccurate" and not, as you suggest I said "...is pointless."
Macroeconomic forecasting is indeed pointless, but for a different reason. Some might say it's pointless because the economy is a (1) complex and (2) chaotic system. The economy is indeed complex and chaotic, but so is the weather... and we can forecast the weather with accuracy and precision macroeconomic forecasters drool over. The economy has two additional and overlapping factors making forecasting effectively impossible: (3) two-way causality between the forecast and the economy (the forecast is based on the predicted behavior of individuals and individuals will change behavior depending on the forecast) and (4) the free will of humans.
Economics is really just accounting, statistics and psychology. But mostly accounting. I think people get really worked up about the “unknowable” parts and fail to see that accounting can open up tremendous insights if we only take the time to understand it well.
If you want to learn about economics for some specific money-making purpose, you’ll probably end up with an incomplete view that frustratingly fails to describe reality most of the time. On the other hand, if you approach the subject simply with an open mind seeking understanding, you will be richly rewarded with deep insights about the structure of society and the human condition.
Sure, people being certain about what's going to happen and when is akin to snake oil, but using good insight and tools to try and control how people are affected by something like a pandemic seems to me to be the role that economists need to play.
Unfortunately, there are way too many variables, interactions, etc, etc to have any real confidence in those measures. It's further complicated by the idea that the normal tools (primarily interest rate & money supply delivered via subsidies, etc) are beyond their "normal" operating ranges.
When the Fed rate was 5% and loans were 8%, lowering rates encouraged borrowing. When the Fed rate is 0.25% and loans are 3-5%, qualified people can get all the money they want.. now what? Do they give money to people who can't pay it back (mortgage crash) or spend it on "shovel ready projects" which take 12-18 months to get started?
Alternatively, when consumer spending makes up 70%+ of the economy, consumer confidence is probably the single most important metric.
This is less engineering and more psychology at scale.
Thats not Keynesian economics at all! Or rather it's a view that people from schools of thought completely opposite to Keynesian also believe.
Does anyone not think this? Eg, Quantitative Easing: does anyone (Keynesian or not) think it does nothing?
Or to put it another way: it's the three-body problem extended to millions->billions of bodies which use psychology+perception as the main force instead of gravity.
With our current crisis trying to discern what worldview policy is trying to force the economy to serve helps me understand decisions, especially with regard to things like inflation, consumer confidence, greed/fear, etc.
The number of professional economists who focus on investing, or even "the economy", is much smaller than most people imagine.
It's just that economics is an odd mix of philosophy and math.
On my more cranky days I call it astrology for people who know calculus.
Read his insights and watch his interviews. That's a good basic start. Everything more then that: Nobody really knows.
I have read countless of books, but one thing you have to know:
It is a market - period. Something has value just because another person wants to buy it (at a given price). That's basically all there is. If you think that some asset is worth more in 10 years then it is now - buy it.
The "markets" go heavily up and down currently. That's just because different people price in the current health crisis in different ways.
It's free
William Ackman: Everything You Need to Know About Finance and Investing in Under an Hour | Big Think [0]
Covers the money making, Wall Street side
Ha Joon Chang, Economics: the Users Guide and 23 Things They Don't Tell You About Capitalism (don't dismiss it as an anti-capitalist treatise, it's not) are also good, lighter weight (unlike Hill & Myatt no maths) but give an overview of the different schools of economics and what can be drawn from each.
Was having a slow morning here so your comment led me on an hour and a half of checking out that video and some of his other content.
His videos seem a lot more approachable than the book.
If it means "What 10-15 stocks are poised to give me great returns in the next 5 years", the reading will be different (this would be sector reports, 10-Ks etc)
If it means "how can I ensure that another economic shock won't destroy my wealth or plans for FIRE", the reading will be different.
FWIW, I am finishing up a book called "Contagion" [0] (not the fiction one ) and should start reading "Pale Rider" [1] about the 1918 pandemic. I've found that history offers guidance and opens your mind to possibilities thus offering solace.
[0] https://www.amazon.in/Rules-Contagion-Outbreaks-Infectious-D...
[1] https://www.amazon.in/Pale-Rider-Spanish-Changed-World-ebook...
Also recommend Marketplace's podcast Make Me Smart [1], which is an informal deep dive on a single subject. It's nominally a weekly podcast, but they're now releasing a 10-minute daily version.
Finally, NPR's Planet Money [2] and their daily podcast The Indicator [3] are entertaining and education as well.
[0] https://www.marketplace.org/ [1] https://www.marketplace.org/shows/make-me-smart-with-kai-and... [2] https://www.npr.org/podcasts/510289/planet-money/ [3] https://www.npr.org/podcasts/510325/the-indicator-from-plane...
Look at the non-COVID Make Me Smart topics as an example:
- Housing policy - Corporate social responsibility - food policy to fight global poverty - the equal rights act - facebook and US elections - regulating the internet with section 230 - an interview with a senior politico editor about the school-skills-jobs pipeline - why private equity needs to be regulated
That said, I do appreciate the Marketplace interviews with 'regular small business owners' Marketplace has been doing lately. Ranchers, Mississippi freighters, factory operators, etc.
In terms of other podcasts, Bloomberg's Odd Lots podcast[1] is a nice long form podcast with subject matter experts. Their guests also likely have a political agenda, but you at least get exposed to the inner workings of a market. A recent pair of podcasts provides a good example: a few months ago they talked with a guest about an unusual feature of Korean retail banking, the structured note. They provide investors--primarily retirees--a fixed 7.8 percent return if the market doesn't drop by a huge margin. Otherwise, investors are stuck with the return of the underlying benchmark (which is down a huge margin). Well, last month exactly that exact tail risk scenario triggered, and they brought the guest back on to further discuss how this compares with previous bank crisis episodes.
In particular, they collect and graph enormous amounts of data to augment their articles. It's much better than random posts found on the internet.
I had been an avid reader for 30 years, cancelled my subscription around 2015-2016, and I was not even aware of the new ownership at the time, I just sensed the change of their ideological orientation and did not like it one bit.
So to answer your question: if you want what the Economist gives, you don't need to go anywhere else.
The Agnelli family owns 43.4%, members of the Rothschild family own 21%, other big corporate/rich families interests own the rest. Lots of "Sirs", "Ladies" and "Baronesses" on the board of directors, as you can see below.
From the Wikipedia page:
Pearson PLC held a 50% shareholding via The Financial Times Limited until August 2015; at that time Pearson sold their share in the Economist. The Agnelli family's Exor paid £287m to raise their stake from 4.7% to 43.4%, while the Economist paid £182m for the balance of 5.04m shares which will be distributed to current shareholders.[2] Aside from the Agnelli family, smaller shareholders in the company include Cadbury, Rothschild (21%), Schroder, Layton and other family interests as well as a number of staff and former staff shareholders.[2][3]
The current members of the board of directors of The Economist Group are: Rupert Pennant-Rea (Chairman), Zanny Minton Beddoes (editor-in-chief of The Economist), Lady Suzanne Heywood, Brent Hoberman, Sir David Bell, John Elkann, Alex Karp, Sir Simon Robertson, Lady Lynn Forester de Rothschild, Chris Stibbs and Baroness Jowell.[12]
Lady Lynn Forester de Rothschild publicly supports many politicians including Hillary Clinton.
The Economist used to be pro-small-business free market. At some point they started justifying outsourcing as "free trade", which benefited big companies like Apple, etc. and stagnated or starved small businesses (and the productivity/innovation that comes from it), not to mention labor providers (even highly educated ones, such as software engineers :-))
This has proven to be quite bad for the US and Europe (except the 1%, whose interests The Economist represents through ownership) - and it may get even worse when money-printing will stop working at some point.
And no, I am not missing your point. There was a clear change in direction a few years ago - as I mentioned, I sensed it, but was not aware of the ownership change at the time.
You either did not notice or you just started reading them - good for you. Enjoy.
I don't really disagree with you about any of the points you're making, which means I often or usually don't agree with the Economist on these points, I just think it's a weird critique of the Economist to accuse them of being globalist, free trade, neoliberals; to me it's like, yeah, they are the Economist... It seems like accusing Jacobin of being socialist.
Maybe this change happened before 2005? I'd be interested in seeing some receipts. Are there some anti-outsourcing articles from way back that I've missed?
First: accounting. I got an MBA five years ago and accounting was my favorite subject because it is behind everything that a business does. Accounting is the instrumentation that allows humans to organize their activity across tremendous scale and complexity and still be confident that they are producing value (making a profit). In the modern economy, accounting is everything. Try reading Jerome Levy’s “Where Profits Come From” to check your accounting chops: https://www.levyforecast.com/assets/Profits.pdf
There is a common fiction to money matters that everyone has to share- whether or not they know it- and the language in which that fiction is written is accounting.
Poetic.
It's a fairly detailed book but it's worth the time. If you're too busy to read a whole book, you might want to take a look at "Economics in One Lesson" [2] by Herny Hazlitt.
The foundation for economic education[3] has some great articles too about economics and public choice.
[1]https://www.amazon.com/Basic-Economics-Thomas-Sowel/dp/04650... [2] https://fee.org/media/14946/economicsinonelesson.pdf [3] https://fee.org
Mises and Hayek wrote big and hard to read books about it, but two that explain this to the layman are "Meltdown" by Tom Woods[0] and "How An Economy Grows And Why It Crashes" by Peter Schiff[1]. The first is an explanation using the 2008 crisis, and the second is a very amusing yet educating economy lesson told as a kids' story.
Another book that can help grasp this, although I wouldn't read it first, is "The Forgotten Depression: 1921: The Crash That Cured Itself" by James Grant.
If you're interested in the actual business cycle theory, Tom Woods explained it briefly while promoting Meltdown. Explanation starts 14:03:
https://youtu.be/NBwJm68FkMc?t=844
[0] https://www.amazon.com/Meltdown-Economy-Tanked-Government-Ba...
[1] https://www.amazon.com/How-Economy-Grows-Why-Crashes/dp/B004...
A prediction without timing is no prediction at all.
I actually sat down for a few hours to calculate what would have happened if this pandemic happened in the 50s, and no one could work (especially true since there was no internet). Seems like people saved enough for a year at home, on average. Today people are so levered up not only do they not have savings, they have to pay back debt.
I've been saying for a few years that a recession is coming but I'm not going to pretend I thought it would be started by an event like this. Recessions are simply a natural part of the business cycle and after such a long 'boom' period there was certain to be one eventually.
No, but inverted yield curves do.
As more of the largest companies in the market exhibit strong revenue growth, it drives the P/E ratio of the broader market higher without implying anything about the underlying equities.
Effectively shutting down more than half of all business is slightly more than bursting a bubble. It is world war II scale event, with exception that there is no war that could take all the unemployed hands to the front and to producing weapons.
But let's not forget that this wasn't caused by the virus itelf, it was consciously decided by politicians to trade an (unknown in magnitude) risk for a huge recession.
Look at the unemployment claims chart. This has never happened before in the entire 20th century. That’s not a pin. That’s a collapse in employment.
It doesn’t really matter whether or not people have savings.
Economic recessions don’t mean “people don’t have their savings anymore.” They’re a reduction in economic activity. That doesn’t have to happen because people are literally out of money, it can happen because people are unwilling to spend as much as they used to.
Take the best-off person right now as an example. They still have a job, working from home. They have 6-12 months of emergency fund. Despite all this, are they going to buy anything but essentials right now? Plus, in many cases, they don’t have a choice. They’re not allowed to pay for their gym membership. They’re not allowed to take dance classes. They’re not allowed to go on vacation.
They’re sitting at home buying groceries and nothing else just like the person with no savings.
Odd that you don’t mention wages. Seems like middle-income wages are stagnant while housing, healthcare and education get more and more expensive. Not hard to see how that would cut into household budgets and encourage debt.
US has huge debt -> No US politician will ever default on it -> They will print money to pay it -> Dollar loses value.
That's fairly simplified but I hope you get the point. Since they see this as a dollar crisis, they are busy buying gold, silver, gold stocks, and assets in countries that have dollar-denominated debt.
I'm going to add my 2 cents here and say that in my opinion, if the Corona situation will be solved quickly enough, or at least be perceived to be solved by the public, a rush of optimism will allow the fed to inflate the bubble and postpone (and worsen) the depression.
Some day.
I doubt it’s the only ‘school’ that has an explanation. That there are cycles in the economy isn’t a very strong statement. Nor does it seem to apply here because this is a different cause than one underpinning a typical business cycle.
Until this virus is wrestled to the ground somehow (e.g. distancing, sterilization, vaccine, herd immunity, etc...), we’ll continue to see mitigating effects which distort the picture of normalcy pre-2020.
See other comments of my explaining the virus is a pin that burst a bubble already there.
What does this mean?
I do believe that the Keynesian economics that has been practiced for the last few decades has left the global economy woefully unprepared and venerable. Low interest rates have fuelled massive asset price inflation and encouraged governments, businesses, and individuals to take on far more debt than is prudent.
If you are talking about the QE programs, that's what Keynesian economics would call "pushing a string". Keynesian would be fiscal policies, not monetary policies.
Well most governments around the world have been running deficits (the US to the tune of~$1T annually) since the last recession. I consider that to be some pretty serious fiscal stimulus.
But that's just a reality of how the economy works, that doesn't mean necessarily that Keynesian policies are followed (beyond the automatic stabilizers that are certainly Keynesian in design). Keynesian policies would be to try to offset a fall in aggregated demand by increasing fiscal spending, and that have been taboo since the 80's
I don't think that's a fair assessment. The US has certainly been running deficits for a long time but the deficits of the last 10 year have been much larger (as a percentage of GDP) [1]. Some other countries [the exception not the rule] have been more prudent with their finances. In my part of the world New Zealand has been running a surplus since 2015 and prior to COVID-19 starting Australia was due to have a small surplus this year for the first time since the GFC.
> Keynesian policies would be to try to offset a fall in aggregated demand by increasing fiscal spending
I guess you can argue that spending hasn't been Keynesian enough.
[1] https://tradingeconomics.com/united-states/government-budget
I'm going to dispute that this have something to do with "prudence".
If an economy grows (bigger GDP), that means that more money is spent in the economy. That money have to come from somewhere otherwise there will be not grow (1).
New Zealand have a positive commercial balance, that's where the money is coming from. Obviously, not all the countries can be net exporters at the same time.
If the USA government were running a surplus instead of a deficit, they will not be being more prudent, but less. Running that surplus would mean that the GDP doesn't grow or that the private debt increase (after all, money has to come from somewhere). Private debt is a lot more dangerous that public debt.
On the other hand, if New Zealand government, with a positive commercial balance, has an economy a full utilization (I don't know if that is the case) and run a deficit, they will create inflationary pressures on the economy.
That's very true. People will read and decide for themselves.
As you say Modern Monetary Theory models predict Japan and, also, the missing depressions in Australia.
https://research.stlouisfed.org/publications/economic-synops...
As for Australia they are heading into a deep recession as we speak and who knows if it will be a depression or not but given the state of the world, odds are reasonable.
1. The establishment encourages making credit widely available in order to pacify the less well off who would otherwise demand a better deal out of the social contract.
2. This leads to unsustainable debt, as people are forced into borrowing to meet basic needs with no means to pay it back.
3. Eventually this comes to a head as people begin to default, causes a cascading chain through the economy as people are unable to meet their obligations, leading to crash.
4. At which point, governments step in and debt is forgiven, correcting the imbalance created in step 1.
Seemed to make a lot of sense to me. And the interesting thing is that it suggests a solution: replace widely available credit with direct wealth redistribution and you end up with the same net effect (as the debts are being forgiven in the end anyway), but without the destructive boom-bust cycles.
People borrow for much more than basic needs and they do so voluntarily without anyone forcing them. This does not substantially affect your logic, but I think lots of the blame for mismanaging debt lies at the people in debt themselves.
You can also see this in student loans. Sure, people volutarily choose to take them out. But this is because they live in a society where access to a lot of jobs is gated on having a degree, and degrees are so expensive that a loan is the only option more often than not.
People can be forced without there being an "anyone" to do the forcing. Being underemployed in some expensive city, unable to make your next car payment that you need to get to your job doesn't require an "anyone" to force that person into a loan at gunpoint. They're still being coerced into that decision, even if there isn't an "anyone."
I would argue that there has been no truly left government in either the US or the UK (where I live) since Reagan/Thatcher introduced this style of economics in the 80s.
As an example where ABC will go off the rails, our current crisis is not one build up due to overage in inventory, a favored ideal rationale for ABC to explain the business cycle. Much more explanatory, surprisingly, is Keynesian animal spirits.
The central bank is not the only interest rate driver, as the last 5 years have shown, especially for rates of long tenure bonds. But, regardless of drivers, malinvestment certainly does occur.
Also, current consensus, of course among mainstream economists, is that countries that more believe the Austrian school, like Germany, has caused unneeded pain on themselves/their neighbors by advocating of austerity versus stimulus during downturns. If you want the mainstream steelman against the Austrian school, you can search Paul Krugman's take on them.
The stock market, no matter how enormous it's market cap, doesn't lock up any money. When I pay through the nose for Tesla stock, the other fellow then has some money that he either has to spend or park somewhere.
The money is funneled into these assets by regulatory incentives 401k, HUD, federal student loans, etc. The seller's money goes toward that as well.
But you gotta understand that we export a great deal of our inflation. One day those dollars will come home to roost, but until then, Germany's balance sheet looks a hell of a lot better than the U.S.'s. going into this recession. Our deficit is already $3 trillion this year and climbing rapidly, with debt levels reaching their highest in relative terms since World War 2. And we haven't even scratched the surface of this deep recession yet.
The subdued American inflation despite QE has a more technical and contingent explanation: the Fed started paying Interest on Excess Reserves (IOER) in 2008. Ie they reward banks for keeping the money they are printing out of the economy.
Most of the time since then, the interest on short term US government bonds hasn't been much higher than the interest on excess reserves. So there hadn't been much aggregate economic impact when the Fed bought government bonds with new money.
The banks slightly preferred excess reserves over government bonds, because they regulators preferred them.
The QE was 'sterilized' by IOER.
You are right, there is very little inflation in the consumer price index (at least nominally), but there is a significant amount of inflation in assets and other parts of the economy that are relatively close to the central bank/printing press. Inflated Silicon Valley salaries, maintained by an influx of VC money bidding up the price of labour, are a great example of this.
As a german, this is news to me. Austrian school stands mostly for a free market without or as little as possible state interventions and regulations: a idea very frowned upon here generally and usually rather associated with the US
Similarly, things like housing, healthcare costs, schooling costs, etc. are not well captured by the inflation metric, but have grown wildly in the last few decades.
The purchasing power of the average person is probably worse now than it was in 2007 if you look at what people actually have to spend money on versus the artificial basket of quality adjusted goods used to measure inflation.
And same thing goes with groceries. When ice cream used to be a pint, it's now 14 oz. They have decreased the size of things like food packages over the last 15 years, and I don't think that's taken into consideration in the inflation index. Recently they decreased the size of orange juice by 15% but kept the price the same. That is the definition of inflation.
https://media4.manhattan-institute.org/sites/default/files/t...
I'm not economist but I've found this captures the feeling that although we're more productive and wealthier, it still feels harder to get ahead and live an average life.
There's plenty of actual mainstream economists that can give you steelman responses to Austrian Economics. Don't go get them from Krugman. You won't get good steel from him; it will have too much straw in it.
The biggest thing I find incomprehensible is this belief that when a recession or crisis hits, you have to let pretty much everything go to shit so the bad firms can get wiped away and better, more innovative firms can take their place. On the face of it, that is very reasonable, and I certainly worry about the moral hazard of bailout after bailout.
But at the same time, Schiff seems to incomprehensibly believe that our political systems live in a world separate from our economic ones. There is just no way the populace at large in a liberal democracy would stand for a deep recession/depression without demanding the government do something to soften the blow. There is even less of a chance of that happening with a command-control/fascist type economy. This fantasy that he believes that people would just stand idly by thinking "thank God the free market is clearing out the detritus!" while they lose their jobs is laughable at this point.
After about 12 months in average from when the inversion stars, the recession will start itself. >"All the recessions in the US since 1970 (up through 2018) have been preceded by an inverted yield curve (10-year vs 3-month). Over the same time frame, every occurrence of an inverted yield curve has been followed by recession as declared by the NBER business cycle dating committee.[12] The yield curve became inverted in the first half of 2019, for the first time since 2007." https://en.wikipedia.org/wiki/Yield_curve
FWIW, Richard D. Wolff doesn't accept crashes as a given. He advocates worker self-directed enterprises as a mitigation. Having done some workplace democracy (am a huge fan), I regard his effort as more aspirational than prescriptive, but it's nice to have people floating new ideas.
Mises is a big joke. Never made it past assistant professor. Never worked a day of his live in private enterprise. His theories describe barter economies in the middle ages; alas this quite well. Due to his lack of understanding of the principal nature of capitalism he offer no insights into economics.
"Credit expansion can bring about a temporary boom. But such a fictitious prosperity must end in a general depression of trade, a slump."
Ludwig von Mises
Von an outstanding an deep insight, not. While not explicit mentioning it, he suggests that this is a bad thing. Trick question: What kind of boom does not bring a credit expansion with it? His quote is just a tautology and offers no insight. Yes, the boom/bust cycle is an inherent feature of capitalism.
If you are referencing to the fallout from covid, it's essentially the effect of global commerce coming to screeching halt.
As CEO of GS said, no one has a clue on what's going to happen in Q2 and beyond, and if they say they do, they are BS'g.
It's a Black swan event. Most forecasting models are ineffective. Whether it would be a V, U, L recession is anyone's guess. As it all depends on how politicians react, ie. How late they are to lockdown and how long they will be in that state. Which perhaps is outside the realm of traditional economics. Hence my suggestion.
Yeah, one could say that things could have been better prepared (I'm in that camp), but one can never truly prepare for half of the working population being put on indeterminate leave on such great a scale.
COVID-19s impact wasn't nearly unpredictable or unprecedented enough to be defined as a Black Swan imo. I did know many people both in real life and online who were concerned about it before the impact, considerably different from e.g. 2008 financial crisis.
Beyond that, if you want something kind of fringe but real time, ZeroHedge is interesting. Lots of chaff, but some of the wheat is insightful.
Real vision[0] has some really good content. It's not super easily digestable for someone not in professional finance but I think finance is just too complicated to simplify and not lose a lot of nuance. I'm trying to learn and have to look up a lot of stuff but it has been fun. I think they have 1 month trial for $1. I recommend Raoul Pal's recent video "The Unfolding" as a starting point.
I also think Macro Voices[1] podcasts are very solid. Again not very easy content but experts in various fields help to make sense of the bigger picture. You can choose a bit depending on what you're interested in (gold, bitcoin, bonds etc).
It's worth noting that NOBODY knows what is really going to happen, all you can do is try to get informed opinions and set probabilities. If you're looking for investment advice trying to time the market or sectors, I would stop looking. The uncertainty does not favour amateurs in my opinion.
The downside to arrogance is that it will tank your reputation if you fail. This may be too early in History, and too politically charged to use as an example, but think Trump.
[^] on personal interactions, though, I find arrogance a repellent trait.
Summary: you better of learning more about human behavior, and how we operate on a daily basis then reading every book on economy.
When I heard in 2008 as a kid, that the world is in a financial crisis because the investors are scared, I had no idea what is going in. I was like, those people are grown man, how come they fear something they do all the time? And why does investors mood correlates to financials? How can a grown man have a fear of investing as an investor, it was odd at a time for me. Then I went ahead and played outside like nothing is happening.
I've read a lot of books just about everything, like on every topics i could get my hands on. Some of em are: Thinking, Fast and Slow, The power of habbit, Deep Simplicity, Intelligent Investor and much more, not exclusively from hackernewsbooks.com.[0]
I always arrived at the conclusion of the market is eventually run by people(no shit). At some point in time people come up with the idea of having a stock exchange or whatever you want to call it. Without people it would be non-functional, non-existent. So if you want to know about the working of market, you better of reading about humans, human mind. What drives us, why we do things, fears, and so much more. And the best thing about this is that you can see for yourself, it feels I am doing a research, but on myself. There is not a single silver bullet in this topics of course, but one book I most often hear is Thinking, Fast and Slow, mentioned before, its really worth to read it!
Sometimes its driven by fear, like right now. In 2008 it was greed (yeah its usually not just one thing, but you get the idea). So at the why and how, I usually end up with human behavior. And since you cant determine what someone is going to do, feel or think, you cant really tell what is going to happened next, or in the future. But after reading more and more about humans, it gets a little bit clearer as you read more books and connect the dots. And you are going to experience everything for yourself. You can be your own research subject. The past couple of years I've been doing that and I really enjoying it.
[0]: https://hackernewsbooks.com/book/thinking-fast-and-slow/8e66...
For me, personally, after trying to make sense for a while using the mainstream narrative, the only thing that worked was Modern Monetary Theory. Their explanation of the banking system is based in how it really works (mainstream textbooks don't), the sectoral balances framework (1) gives you a tool to think in terms of aggregate demand and their theory explain things that mainstream have problems with (like public debt ratios and inflation and interest rates relationships). There is a textbook available(2).
1.- https://en.wikipedia.org/wiki/Sectoral_balances 2.- http://bilbo.economicoutlook.net/blog/?page_id=33139
very approachable for an intimidatingly huge book
So a shift away form outsourcing, at least outsourcing out of country in full as has been the case in many area's of production alone.
Equally, resource/asset stripping may well be rife in the fallout with the ability to buy up companies cheaper and be instances in which those value of assets changing quicker than the company values them. They may own some unused warehouses that on the books been almost written off and yet perfect venue for manufacturing boom.
But so many things so high up in the air, you can never see a true picture of tomorrow, but can get some idea's and those ideas will change and flesh out in the long-run. But it's the overall trends and psychology is probably as useful a skill in predicting the markets than maths in today's times. Which kinda shows how up in the air everything is.
Only thing for sure, soon as one company comes up with a cure, you will see a jump in that companies share price, even if they was to do it all for free.
https://www.reddit.com/r/Frugal/
https://www.reddit.com/r/personalfinance/
https://www.reddit.com/r/financialindependence/
https://www.reddit.com/r/investing/
https://www.reddit.com/r/stocks/
Oh, this was the article https://qz.com/1707479/reddit-has-become-a-guide-to-personal... (https://news.ycombinator.com/item?id=22478854).
Then there are the recent HN posts to Lyn Alden’s work: https://news.ycombinator.com/from?site=lynalden.com .
Nick Rowe: https://worthwhile.typepad.com/worthwhile_canadian_initi/nic... , https://twitter.com/MacRoweNick
Scott Sumner: https://www.econlib.org/author/ssumner/ https://twitter.com/MoneyIllusion
Maybe, Antonios Fatas: https://twitter.com/AntonioFatas
And Also Maybe Sam Bell: https://twitter.com/sam_a_bell
Have been scanning HN a lot for anything related to the economy and found little except for this post.
Read Debt the first 5000 years from David Graeber.
Read Money in the Modern Economy from the Bank of England. https://www.google.com/url?q=https://www.bankofengland.co.uk...
Why these? You have to understand money and credit. Economics ignores money and credit which would be like physics ignoring atoms and gravity.
Yesterday they disavowed economists who are apologists for price-gouging on life-essential goods, such as masks, whose production cannot quickly respond to pricing signals.
Because judging a subject based on it's faculty classification is oh-so-scientific. Economics is a scientific study of social phenomenon; where else would you like it to be placed?
You’ll likely be surprised at what facilities are at the disposal of this pseudo public institution, and it’s certainly interesting. The Fed collects inordinate amounts of data from each of its branches, and in times of crisis, as the books elaborate on, it seems they mostly go off the cuff with custom solutions to large scale solutions. Anyways, it helped me understand the US economy better. Greenspan’s book has more info on global policies.
[0] https://www.macrovoices.com/ [1] https://www.realvision.com/
Capital and Ideology by by Thomas Piketty
Spoiler alert Since way back inequality was baked-in as a featue.
https://twitter.com/LukeGromen
https://twitter.com/LynAldenContact
blog:
Common thread is topics around currency dynamics, and US Dollar reserve currency affecting..many things: trade, markets, geopolitics.
Anyone who claims to know for certain what the impact will be, is a fool or a liar. We are in unprecedented monetary policy times.
Maybe USD is cementing it's position as the global currency standard, maybe this will spell the demise of the USD and the US' economic collapse, or maybe not much will change at all. There are arguments for all three to be true.
Why do you need to know for certain?
If you're trying to make money, or even just "get by", you look at probabilities of possible outcomes and make your best guess on how to approach the problem. A mentality of "no one knows for sure, so it's pointless" is oddly unscientific. You only need to be "right" some of the time.
I try to write a blog post once or twice a week as well, but this is more for myself -- just to actually force myself to synthesize everything going on. Happy to share if anyone is interested.
[1] https://www.coursera.org/lecture/money-banking/a-money-view-...
Central banks inject money into the economy, inflating the economy, reducing costs across the board. This acts as a wealth transfer from wealth holders to wealth producers, by that I mean businesses.
Normal inflation happens in a healthy economy, in an unhealthy one like this one, they dust off the lever known as QE. In a QE environment, the central bank injects money directly into the economy by buying up government bonds and other financial instruments.
This coupled with fractional reserve banking means that the banks can make a whole lot more loans, flooding the system with liquidity so that money can start moving again.
I had implied that QE increases the money supply, and so was corrected and told that it was actually the money base that was increased. On to Wikipedia I went to upgrade my knowledge.
There I found out that the concept of money base is referring specifically to the amount of money banks can lend on using fractional reserve banking. So while nominally it's referring to the amount of hard currency in circulation, that 'in circulation' part is key, it's not just the amount of 'real' money out there.
Economics shouldn't be mysterious, one's first stop should be Wikipedia to understand the boring concepts. If you want to know how it got that way, the Wikipedia articles on the history of the banking system are pretty good.
It's dry, boring stuff. But you need to know it if you want to understand how the world works.
That's not how it works.
First, never mind how much money banks can lend, if there is nobody asking for credit. You can't create demand for credit by QE.
Second, private banks are not limited in their capacity for creating credit by the quantity of reserves available. If central banks are going to keep their interest rate target they have to facilitate any demand of reserves by private banks.
It's impossible for a Central Bank to control the quantity of money and the interest rate, they have to choose one, and they choose the interest rate.
As I said in another post, I was totally confused about how it works until I started to read the Modern Money Theory version of all this.
Here, explained by the Bank of England (pdf):
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
Ray Dalio’s talks on YouTube, and his most recent TED talk are great for context around economic downturns.
Real Vision and Anthony Pompliano’s podcast are good for deep dives into what’s going on with a bit of an alternative take.
-Freakonomics (https://freakonomics.com/) has been making some good episodes about different aspects of the current crisis. The latest episode is about the food supply market, the one before is about the $2 trillion aid package.
-Planet Money (https://www.npr.org/sections/money/), which was created in 2008 to help make sense of the finantial crisis, is obviously focused on the crisis. Expect 20-30 minute episodes about economic topics in the news (some of the latest episodes include "The Big Small Business Rescue" and "The Economics Of Hospital Beds")
Dalio runs the world's largest hedge fund and it's entirely focused on predicting what the macroeconomy will do, based on studying the last thousand years or so of economic history.
According to tome better read than me it doesn't help that Keynes ideas floated during his writings so many contradictory ideas can be read and/or inferred from it.
It's an impressive aggregation of data and journalism. But boy could their site do with some improvement... Could be some work in it?
There's a comments section under every article, and a motley community of dedicated "common 'taters". Plenty of workers, business owners, property darklords, doomers, prospective first home buyers, trolls, and even a few wise farmers. I find it helpful to guage the vibe of what is happening on the ground. Deep down, I think what's really needed is a forum.
I highly recommend Economics in One Lesson by Henry Hazlitt. It is a very approachable book that can be read in one sitting.
It illustrates the seen and unseen effects of action from Frédéric Bastiat.
So I kept it aside, I bought a piece of land and now I setup hydro and solar pvs, to generate my own power.
I am growing my own food (mostly potatoes, tomatoes, beans, raising few hens for eggs) and I've shelter, that's pretty much all I need.
So now I don't care about economy going down or smth, yes I might lose money which is in economy but it isn't going to affect my livelihood.
It provides a solid overview of different views of what is money, what is banking, and in what ways does the financial system impact the real economy? - These are all contested points in economics.
He goes on to lay out a different design to a monetary system, that he believes resolves the main fragility in our current system - panics on short term debt. It's a good read for someone who enjoys system design as much as they do financial/monetary economics.
What I read here are:
- Newspaper titles (only read the content if something is really interesting)
- Twitter, following a few key people, both with a political and economical background
- Discuss with friends about economy topics
I know there's much noise in all that, but same as with politics, I don't think you'll be able to fully make sense of the economy unless you dive deep into it for many years, and even then you'll only get a partial view on many things.
https://www.amazon.com/Principles-Economics-7th-Gregory-Mank...
I started with vulgarisation but it didn't lead me very far. This is a reference textbook used by economics students around the world. It's surprisingly entertaining and teaches you the basic concepts of macro and micro economics.
[1] https://www.amazon.com/Farewell-Alms-Economic-History-Prince...
Therefore, my best advice for you is to hoard cash (3-12 months expenses), cut expenses and try not to freak the fuck out right now
I know that a lot of it is supposedly not going to make it into the real economy. But if there is one thing for sure, it's that the government is going to behave recklessly and fuck it up.
1. Economics in one Lessons. One of the most powerful books I've read on the economy. Will help you rethink and see deeper 2. Dao of Capital. Book by Mark Spitznagel -- goes into tail risk hedging, and his counter-intuitive investment thesis. He made 4000% over Covid 3. Dalio's essays -- from "The changing world order" to "Debt Crises"
Published ~2005, it (arguably) makes sense of the previous several decades of western economics.
https://www.johnralstonsaul.com/non-fiction-books/the-collap...
It might be an interesting read, but the main thesis seems false? Globalism has done just fine.
> Elsewhere, the world looks for answers to African debt. the AIDS epidemic, the return of fundamentalism and terrorism. all of which perversely refuse to disappear despite the theoretical rise in global prosperity.
Most of these don't look so intractable any more, even if we haven't solved them, yet.
who's we ?
The go to text book to understand the mechanisms and mechanics behind Modern Money Theory.
This blog, and this post in particular.
not in any way affiliated with them, i just find their content sophisticated and interesting.
Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism https://en.wikipedia.org/wiki/Bad_Samaritans:_The_Myth_of_Fr... https://www.youtube.com/watch?v=WU9DgfOMpmo
Economics: The User's Guide https://www.theguardian.com/books/2014/may/29/economics-the-...
Jane Jacobs
Cities and the Wealth of Nations https://www.eyrie.org/~eagle/reviews/books/0-394-72911-0.htm...
He got it completely wrong - for quite some time, Grasshoppers have been routinely bailed out with money stolen from the Ants (through interest rates way below inflation).
Here are some random links that I check from time to time when I have the time.
https://wallstreetonparade.com/
https://www.nakedcapitalism.com/
https://mattstoller.substack.com/
And then many mainstream ones like newspaper sites and the like.
1/ consumer confidence is extremely low as people are afraid of the virus and afraid of losing their jobs
2/ businesses have seen sudden and complete revenue destruction with revenue going down from 50% to 0% of pre-crisis; however their obligations (salaries, servicing debt, paying suppliers) obviously are still there. The natural instinct is to pause projects, new hiring, layoff people, stop buying things, postpone payments to suppliers and be more aggressive in collecting invoices.
This becomes a self-reinforcing cycle purging non-essential businesses or non-competitive businesses at a very high rate.
This will accelerate until normal people are no longer afraid to go out and then the supply chains will restart with the businesses managed to remain alive.
The best policy response would be to freeze the capitalist system altogether and allow any liability due in the future to be postponed by 3 months when entities can prove significant revenue shortfalls and implement an aggressive government-backed temporary unemployment system for those businesses as well.
To the extent that people haven't lost their job yet, it would fix the impulse of business owners to do this very aggressively in the necessity to balance inbound and outbound cash and post-crisis these businesses would have similar balance sheets as pre-crisis so life can resume quickly.
For normal people nothing would change much to the current situation (stay at home, temporary unemployment, being afraid).
The other good policy response I have seen is to force banks to give businesses a corona-credit and to guarantee those loans. It's less good because it does increase the debt-load of a company which alters their balance sheets and would have to be paid off post-crisis.
How so specifically?
Disclaimer: NC is fairly leftish, but I don't consider that a flaw. I'd be interested in learning about rightish blogs of the same depth and quality.
Yes, the host is a libertarian, but I don’t think he forces it on his listeners. He’ll often have people on who aren’t anything close to libertarian. He’s also quite upfront about his own biases.
I learned a ton from that podcast.
I am only a third of the way through, but it so far seems thoroughly researched, without the dodgy understanding of economics in many (most?) historical nonfiction books. The only potential problem is that I want to believe that the dystopian sounding world ruled by mamluks was an economic disaster waiting to happen, so I am wary of my reading being overly credulous. It could be that irrigation dependent agriculture was more brittle infrastructure, but I haven't yet had time to finish or digest the book yet.
From the introduction
England:
> In spite of the disputes over many significant issues, scholars agree about certain aspects of the outcome in Western Europe, particularly northwestern Europe. In many areas, urban and rural wages rose, land rents declined, grain prices dropped, agricultural output became more diversified, and unemployment levels decreased. Furthermore, the percentage decrease of agrarian and total output was less than that of the population, and per capita incomes rose. Overall economic recovery was largely completed by the year 1500. Landholding systems were transformed, and the manorial system, which was on the wane in some areas, collapsed in many parts of Western Europe, and was replaced by tenant farming or small peasant landholdings. Where these conclusions are accepted, they are often accepted as an axiomatic response to the relative scarcity of labor and the abundance of land that accompanied depopulation. The concessions that landlords made to peasants also seem to be an obvious consequence of the relative scarcity of rural labor.
Egypt:
> Wages dropped precipitously, land rents increased, grain prices rose, agricultural output became less diversified, and unemployment levels increased. The percentage decrease in agrarian and total output was greater than that of the population, and per capita incomes plummeted. The landholding system did not undergo a radical transformation, and the aristocracy was able to successfully contest the demands of scarce rural labor. Furthermore, economic recovery was nowhere in sight by 1500; the agrarian system lay in ruins, and agricultural output had declined by approximately sixty-eight percent.
[1] https://smile.amazon.com/Black-Death-Egypt-England-Comparati...
Mod is a former /r/collapse mod. Pesimistic, but not a loon.
Marx
the Bible
Bogleheads
Newspaper titles (you read that right, not the content, titles)
"nothing, I just bought a piece of land to grow potatoes and beans"
Comparative study of the black death
Raw St. Louis Fed data
Fear and Loathing in Las Vegas
2. A Template For Understanding Big Debt Crises (2018) by Ray Dalio
3. Capitalism: The Unknown Ideal by Ayn Rand
4. Basic Economics: A Citizen's Guide to the Economy by Thomas Sowell
So the governments of the world have been the ones buying. https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
The fed put 4 trillion on the books during the financial crisis and 10 years later they started normalization and barely made a dent. This number should be 0. Now in a few months they've spent 2 trillion buying what nobody on the market is buying.
How do you make sense of the market when the government is basically preventing the crash. It's not possible to make sense right now.
We aren't seeing real market numbers. We aren't seeing real tbill rates. We arent seeing real economic numbers like unemployment because the governments have been hiding % under participation rate.