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Comment by uticus | Hacker News Reader

Understanding central banking, like so many other things, also means understanding philosophies, worldviews, perceptions, and outlooks. And goals. Especially goals.

So yes, read. But my advice: read widely, not naively, because economic theory looks like math from the shoreline but it tastes and feels like philosophy when you dive in.

Fun starting point: learning about the different "schools" of economic thought: https://en.wikipedia.org/wiki/Schools_of_economic_thought

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This begs to mention the beloved ft.com 404 page: https://www.ft.com/errors/page/404

That was both clever and hilarious.

"Classical Economics": There is no such page. We are not going to interfere.

Thanks for the link! What a fun read.

Something else to be mindful of when reading about economics is that the more centrist, middle of the road, technocrat type of stuff that underpins modern economies tends to not be all that loud on the internet, whereas you get people endorsing more fringe, absolutist theories who make a lot of noise.

I was going to say the opposite -- in my reading, the tone of the mainstream media narrative around central bank actions is always technocratic. Interest rate changes, we are told, are intended to heat or cool the economy just so, to reach an ideal balance of employment and inflation. Central bankers agonize over data and projections to reach a decision. Whether these interventions are in fact scientific, their past track record, who benefits from them, alternative viewpoints... none of that is discussed.

I have no particular viewpoint on what central banks should or shouldn't do, and I am no more impressed with Austrian or goldbug or crypto community ideologies about the topic. I just find the discussion unsatisfying. I don't believe that central bankers are brilliant economic engineers with deep insights into the ideal economy that can only be explained to us non-experts through crude temperature/thermostat metaphors. It all seems a bit cargo culty to me.

Economics is the discipline of cargo cults. It is a deeply inexact art that is basically applied sociology and politics with a dash of maths, complicated by the fact that (1) people may make or break trillions of dollars depending on its conclusions (there aren't trillions at stake on whether or not the Higgs boson exists), and (2) it studies an immensely complex system of 8,000,000,000 humans (+ historical baggage) which is not accurately observable and whose behaviour changes with the very predictions you make!

It is a discipline where even the basic axioms are subject to disagreement and 100s of different viewpoints, yet many economists insist that it is a perfectly exact science. It is in fact a very political discipline and we would all benefit if we realised once and for all that there is no Single Truth, that the "consensus" is not necessarily correct, and that There May Be An Alternative.

Any complex topic discussed in the public sphere will not be satisfying. Economics is especially bad since everyone, for some reason, thinks they're an expert in the topic and will argue in favor of the last popular idea they heard from their favorite internet economist.

Like with some areas of medicine, many people are opinionated on economics because they're suspicious they're being exploited and questioning the system seems like a way to push back.

In medicine, though, I have more confidence (overall) that establishment views are scientific.

Medicine and economics have quite a history of blatantly ignoring things that don’t fit with the accepted consensus. I still remember how meditation was viewed as nonsense. The gut flora is another issue where medicine was/is way behind the curve.

Looking at statements about the housing bubble in 2008 or about inflation a few years ago I don’t trust much in the economics profession either. They seem to always be behind the curve.

Talk about negative interest rates and people are going to look at you as if you are crazy.

I'm not an expert at economics, I think I am merely scraping the surface but everyone else? They aren't even trying to scrape, they just assume that endless growth and positive interest rates are god given.

I wish we did an actual, formal experiment in economic systems between different areas. Have one area with a similar culture and people subscribe to Austrian theories, have one follow Keynesian theories, have another follow MMT, etc. That’s the only way to make sense of these systems and do an actual comparison.

That’s susceptible to all kinds of excuse making and allegations of sabotage and cruelty and messy edge cases and would be extremely difficult to pull off in a way that satisfies zealots, but it’d have the massive benefit of actually comparing systems outside of any given framework for reasonable people.

My own personal theory is that any given economic system’s benefit is related to the collective psychology of the populace and that there are different local maximums and systems that work better in certain situations than in others.

Obviously we cannot do controlled experiments here the same way we can in the physical sciences, but it seems that historical evidence is pretty clear by this point on whether freer markets perform better than ones with more government intervention.

Agreed. At this point the main question seems to be about to what extent you can add any knobs to a free market via reserve requirements and interest rates and taxes and government spending. I happen to think a lot of that is voodoo that tends to backfire, but I think adding knobs can work better in some places if you do it right and that it’s a legitimate and unresolved (and probably unresolvable without a crazy experiment) empirical question.

Ultimately the more I read the more I recognize my own ignorance about a lot of this stuff and think the more most people are more ignorant than they realize. That’s why I tend to gravitate towards systems that maximize freedom at the national/international level, as I think any restrictions that need to exist tend to be emergent locally if allowed.

This is one of those things, though, where the boring position is that "relatively free markets are good, but markets also require some government intervention to function well". It's not exciting or edgy, and not at all simple, because it's tricky to figure out which regulations and how much are good, and how they should change over time and so on.

"Some government intervention" has dramatically increased over the past century (after having stayed relatively flat for the century before that, since Adam Smith first came into the scene with groundbreaking ideas), so the boring position isn't so boring anymore. The government has their fingers in so many pies these days it's hard to say what even are the remaining relatively free markets.

And we are dramatically better off than a century ago. Teasing out what's correlation and causation is not easy work.

> the tone of the mainstream media narrative around central bank actions is always technocratic.

That's true, but I don't think anyone outside of finance actually pays attention to the MSM narrative around central banks. Rather they get all their information from memes that have little basis in reality.

> I don't believe that central bankers are brilliant economic engineers with deep insights into the ideal economy

They aren't supposed to be. They're just supposed to make sure the money in the economy is circulating in a way that keeps it from spiraling to a point of no return, much like an ER doctor ensures that oxygen is circulating in a patient's body to keep it alive. Most criticism of central banking is akin to criticizing an ER doctor for helping the fat cells more than the heart muscles.

> Rather they get all their information from memes that have little basis in reality.

What was the last popular economics meme? Money printer go brrr?

> They're just supposed to make sure the money in the economy is circulating in a way that keeps it from spiraling to a point of no return, much like an ER doctor ensures that oxygen is circulating in a patient's body to keep it alive.

I don't think so. In the US, the current rate increases to control inflation are not a matter of life and death. The bankers are speculating they have an opening to reduce inflation by raising rates with minimal negative side effects. They're pushing toward an ideal (or at least up a believed gradient), not saving us from Armageddon.

>What was the last popular economics meme?

I'm not strictly talking about humorous memes like "brrrrr". I mean there are a bunch of ideas that loosely resemble heterodox economics except they're even less sensible. For example:

- The only "real money" is gold/crypto

- "Wtf happened in 1971?" is basically advertising the return of the gold standard.

On the other side, you have memes that justify free money and loan forgiveness like:

-Debt is just make believe that can simply be wiped out with the stroke of a pen with little consequence

- TARP bailouts were handouts to the rich, so we deserve them too

>They're pushing toward an ideal, not saving us from Armageddon.

Most people aren't criticizing the interest rate hikes. They primarily criticize things like quantitative easing and bailouts do prevent economic collapse.

Agreed on all counts. I admit I find the graphs of trends starting in 1971(-ish) fascinating, but of course the 1971 graph people never talk about the combination of short-term drivers (e.g. oil supply shocks) and long-term drivers (e.g. globalization, computer revolution) that shaped the economy over this same period, or the difficulty of actually explaining what these trends had to do with closing the gold window.

Life is full of fascinating but ultimately misleading coincidences.

The "Wtf happened in 1971?" meme is the poster child for being skeptical of mono causal explanations for complex issues. There have been a ton of other events since 1971 that are likely major contributors. In addition to the things you pointed out, 1972 is the year that Nixon went to China. Automation has replaced a lot of workers. The size of the workforce increased dramatically. We experienced the dawn of the information age. All of those things are going to contribute to stagnant or reduced real wages. Especially for those at the bottom of the wage distribution who are going to be most vulnerable to offshoring and automation.

And I would guess that monetary policy has disproportionately benefitted the wealthy, but that's only because I assume that all policy benefits the wealthy unless it's specifically designed to help the not-wealthy.

Nobody remembers that the gold standard used to be viewed as a "cross" on which poor farmers were crucified, hence we needed to massively expand the money supply with silver.

Even policies specifically designed to help the not-wealthy often disproportionately benefit the wealthy.

Yes, in addition to demonstrating the weakness of mono-causal explanations it's also a good use case for Chesterton's Fence. We moved away from the gold standard for a lot of reasons. For example, as bad as inflation can be deflation is unquestionably worse. And we haven't had any major shocks to the economy that are anywhere near as severe as the depressions that were experienced prior to ditching the gold standard. This could just be good fortune, but you at least have to consider it when deciding if you want to go back to hard money.

Also, on several of the charts it's fairly clear that the inflection point isn't 1971, and some of the other policies with a fairly obvious causal relationship with widening of income inequality (like top bracket tax cuts) are those typically endorsed by those wishing to return to the gold standard

Most goldbugs, and many crypto boosters, are just hyper-individualists. "I keep my money and it doesn't lose value" is the only criterion they care about in a monetary system or a tax system. Hence the support for both constricting the money supply and low taxes, especially on the high-income bracket they usually reside in.

Housing really started to shift in that time frame.

MMT and Stakeholder Capitalism will be mainstream before long. They deserve to be fringe. But they're taking over the mainstream rather forcefully.

This was never more clear to me than when I read Mazzucato's "The Value of Everything" and then, immediately after, Krein's "The Value of Nothing".

It looks like math, feels like philosophy, and the aftertaste is one of bitter selfish persuasion.

I love how you worded your advice here and I agree this is the best approach because macroeconomics is a "social science".

Everything you hear and understand about central banking as it exists today is just part of the prevailing school of economic thought. It is not the only way forward and many would argue it is not even the best way forward (but we are always led to believe it is)

"economic theory looks like math from the shoreline but it tastes and feels like philosophy when you dive in." I'm plagiarizing that for the rest of my life

Economics is the study of how to most effectively manipulate conscious actors to engage in work they don't intrinsically want to do towards some large, long term goal.

That goal is always primarily to increase the power and influence of the society (crudely GDP growth) because those that don't direct most energy towards this goal eventually end up getting out competed and supplanted by those external societies that do.

> And goals. Especially goals.

One of the more memorable ah-ha moments or me in college was embarrassingly simple: my IPE professor leaned against the desk while the class was discussing something, and quietly asked, "why have an economy?"

How can you not have an economy in a society of more than one person? Or perhaps in a society that has exceeded Dunbar’s number.

Economy != market, or trade, and implies some deliberate ordering, regulation, and (probably) nurturing.

"Economy" being a made up term , makes no sense in that question.

"why have economics" makes a better question.

it being a made up field, with terrible history of accuracy, poor reasoning, virtually no way to replicate and test theories, interests only those that participate (willingly, out of curiosity or due to poor career choices) in that field of pseudo-science.

Why have it at all tho? Politics.

All terms are made up.

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

http://www.websters1913.com/words/Economy

(chiefly sense 2 on that second one)

The question makes sense using either of those sources for one's understanding of the term.

meteorologists did eventually find a place at the end of the news.

You worded it very well. Any suggestions on understanding the “goals” part of modern central banking?

Debt: The First 5000 Years

ASIN ‏ : ‎ 1612194192

Publisher ‏ : ‎ Melville House; Updated, Expanded edition (October 28, 2014)

Language ‏ : ‎ English

Paperback ‏ : ‎ 560 pages

ISBN-10 ‏ : ‎ 9781612194196

ISBN-13 ‏ : ‎ 978-1612194196

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