How did we geeks become experts on macroeconomics?
lbrandy.com
lbrandy.com
Here’s my theory. Macro-economics is:
Easy to grasp (the basic principles, anyway)
Experiments are pretty much impossible (making being disproven relatively rare)
A cynic might observe that all of this is true of both the author and professional economists (and other soft scientists). Many of their theories cannot be tested, presumably this fact ought to temper their certainty. As far as I can tell, it doesn't. No lack of certainty is evident in this post.
The author's chief defense of academic economic hypothesis is they are complicated. I have not had much patience for the "its complicated, trust us" idea since Catholic school.
Perhaps the author's and our time would have been better spent if he offered a coherent defense (maybe even using vaguely correct grammar) of these academic economic hypothesis rather than a sweeping ad hominem attack.
First, I did say, but perhaps not strong enough, that I include myself in the list of people who do not what they are talking about (or, more properly, in the group of people that do not have strong opinions).
I’ve done a fair bit of reading on topics like the Federal Reserve and money creation, like any good amateur, and the only thing I know for certain is that it’s insanely complex.
More importantly, however, you've missed my point. Nowhere did I want to claim that you shouldn't have opinions, beliefs, or the desire to argue about topics you are interested in, even as an amateur. "Its complicated, trust us" is not my point. It's missed my point by a wide margin.
My point is that bringing a false sense of expertise, or authority to the issue makes the discussions worthless and turns them into flamewars. People in online discussions want to pretend they are experts in macroeconomic theory. That makes them defensive and emotional. That makes the discussions uninteresting.
Alas, once again, the comment questioning the value of the experts' knowledge is the top-rated one in a thread. If you ask me, the biggest threat to HN's discussion quality is the anti-intellectual tendencies of many of the loudest voices.
Whatever the author of this post meant, it reads like a classic appeal to authority (this, the late Carl Sagan taught us, is a dangerous form of anti-intellectualism).
I wrote primarily to defend those laymen that spend a little time thinking and writing and talking about macroeconomics or psychology or any other soft science.
Why let everyone have their say? Because, the standards in the soft sciences are materially hardly different than in a reddit-flame war anyway.
It is intellectually dishonest to hold soft scientists to no standards at all and, in the next breath, bemoan laymen for doing the save very things.
Last semester, I read through the entire literature on interest rates in England in the industrial revolution. I found it could very well have been a reddit thread (although with much more fetching typography); it was uncivil and lacked any hope of scientific resolution. As far as I have read, most other macroeconomics literature is no better. (Check out the Journal of Economic History and the Economic History Review if you can.)
I think that partitioners in those fields forfeit the right to be snooty about lay opinion when their opinions are no more scientifically substantiated.
Let me be clear. My standards for the hard sciences are different. When there is hope of empirical resolution one must work very carefully in that framework. For instance, I feel pretty comfortable saying young-earth creationists are loony.
But maybe because I spend most of my day working on actual science, I am being too snooty myself.
And considering all of this high-minded intellectualism, maybe we need to go back to step one: hearing what the other person is saying so we don't argue with phantoms. So while I appreciate the impassioned defense of the laymen, I could do without both the strawmen and the rampant ad hominem. Normally, I wouldn't get so formal, but it seems to be your thing.
You seem to have decided, seemingly in retrospect, that the article was satire in its entirety. But, in the end I still walk away with the idea that you think people who disagree with mainstream ideas in economics are nutjobs. And, importantly, are in no way qualified to talk about them or think about them.
"I think you'd be hard pressed to actually make the case that my post represents an appeal to authority."
Well, lets see if I'm up for the challenge.
"Fiat currency is superior to the gold standard. Bankers are not evil. The Federal Reserve does a half decent job. Money is not debt. Debt isn’t even bad — the vast majority of it can be healthy. If you disagree with me, you are wrong, and a nutjob."
Is this an ironic punch-line? Or part of a pattern of defending the status quo established earlier?
"All you have to do is bring up topics like fiat currency, the gold standard, money creation, the Federal Reserve and inflation. It’s like walking into a southern church and bringing up evolution. (It’s not often I get to compare you guys to creationists.)"
See, earlier, you cited the same series of questions and compared those who disagree with the mainstream to creationists. (I think this is an unfair comparison, but that is another question entirely.) So, I think it that it is reasonable to interpret that as a component of your thesis.
Sandwiched in between these ideological statements are a few paragraphs about how the layman is not equipped to understand or discuss the ideas. This is what I read in telegraph form:
positions on economic theory STOP, you are not equipped to disagree STOP, therefore: positions of economic STOP.
Maybe you didn't mean to communicate this. But whatever your intention, I think you did end up saying it.
But, now, I realize I really have no idea what you actually meant. Maybe I am too foolish to understand; maybe your writing is imperfect. Oh well, I think we are all likely to survive to see tomorrow.
*
I feel pretty silly writing all of this nonsense without even mentioning economics. Is it reasonable to question whether mainstream economic hypotheses are valid?
I think so.
Firstly, professional economists disagree about everything you mentioned (especially the role of the Federal reserve and the wisdom of a fiat currency).
Secondly, consider the practitioners, who are under much more pressure to get it right than academics because the practitioners are subjected to real feedback. The practitioners are forced to discard poor ideas and routinely reject many mainstream academic hypotheses (like the efficient market hypothesis and the sanity of the Fed's inflationary bender).
Finally, these practitioners are frequently laymen. So, maybe there is hope for us. Maybe we can learn something by talking.
I think we can all learn a lot by talking more: nutjobs and all.
Now, let's get to the meat of your complaint. You accuse me of "defending the status quo" and nowhere did I do that (except in the final paragraph...which we'll get to a second). And yet, somehow you found it. Why? I'm guessing because you wanted to hear it. Let me show you...
All you have to do is bring up topics like fiat currency, the gold standard, money creation, the Federal Reserve and inflation. It’s like walking into a southern church and bringing up evolution.
You went so far as to call this statement "ideological". I'm sorry if this is harsh, but that is flat our ridiculous. Ridiculous.
You cannot reasonably claim that this established any pattern whatsoever of position, status quo or not. I mentioned fiat currency versus the gold standard, money creation, the Federal Reserve, and inflation. Nowhere in this statement did I make any judgement on any position, for or against, status quo or not. Nowhere in this statement did I claim any of those positions, on either side, is equivalent to creationism, either. Nowhere in this statement am I advocating any position on any of those issues, either. Yet you seem to have found it.
All I said was that those topics were likely to degenerate into flame wars, just like evolution in a southern church. The statement about evolution is the more controversial one!
Next, the final paragraph. It came after no less than 5 paragraphs of meta-discussion on the -exact- behavior I was ironically exhibiting in that paragraph. I wrote 5 paragraphs about the way people online act when they discuss these issues, and then I proceeded to do the -exact-same-thing- and you question whether or not it was intentional? I don't know how I could make it more clear. I spent 5 paragraphs explaining it. I even added a note. I wrote it in several comments. What if I'd put a smiley at the end? Would that have eased your frayed nerves? Would that have made you realize there was a more subtle point in play here?
Furthermore, the only two paragraphs you quoted in the entire article are the first and the last. You've read so deep into me mentioning a bunch of issues, that you actually think you've read advocacy. You've taken my one sarcastic paragraph and asked if I really meant it. You skipped the 7 in the middle that discuss, without fail, the issue of the conversation itself. In other words, the actual important part of my argument is conspicuously missing from your analysis.
Now, let's get onto the most important point: I didn't call you a nutjob. Yes, I know very well that I actually say "you are a nutjob" not once but twice in the updated version, but I'm still not calling you a nutjob. When you actually read the middle paragraphs and realize the final paragraph is nothing but a tongue-in-cheek imitation of the -precise- behavior I'm criticizing, you will realize that the last paragraph was simply me parodying the behavior in question. It was intentional hypocrisy. Again, I spent 5 paragraphs explaining this.
Now, if you don't mind, I'd like to make some completely unsubstantiated guesses as to what's really going on. (If this doesn't apply to you, I apologize, but I got 10 emails and you can find a dozen comments on reddit that it fits the bill perfectly for).
You didn't really read it. You probably skipped to the last paragraph, took it seriously, and got emotionally involved. Probably because no less than one of the things in the final paragraph argues with some macro-economic truth that you hold. Ever since you've been emotionally involved, you haven't actually really read what I wrote. You've pigeonholed my argument into what you wanted to hear. You've become defensive.
If you bother to sit down and read it, from start to finish, without your preconceptions that I am attacking your ideals, you'll find that not only am I not saying what you think I am saying, but more importantly that you are proving my point.
PS: I spent about 30 minutes composing and editing this for you. I hope you at least read it. I got discouraged about 10 minutes ago, however, when it was already downmodded to 0. I finished anyway.
By all accounts, you seem to be a very crafty guy but your writing is imperfect. I read a little about what you do at PitPatt and am impressed that you work on such a challenging problem. Writing well is hard too. I think that is what this drama is really about. A lot of people misunderstand this article, myself included. Maybe we are all idiots; or, maybe your writing needs work.
I did read the article; I read it over and over and each time I became more confused.
As a writer, your first goal should be to communicate your ideas clearly. Once you manage that, then you can worry about tackling bolder rhetorical challenges like satire. (Seriously, satire is hard.)
One of the best ways to improve fundamental writing skills is learning from professionals who use simple language and structures. Carefully read a quality newspaper or some Hemingway. Try to understand how those writers organize their thoughts. They tend to do a damn fine job.
I too need to learn more about writing and economics. Maybe that lesson is worth all of this drama.
"I feel pretty silly writing all of this nonsense without even mentioning economics" On the contrary, the world needs more of this...the obvious utter lack of ability of the average person to perform simple logical thinking is one of the most dangerous things out there right now, and is what makes modern public opinion so easy to manipulate. If more people were walking around with the ability to think, reason, and communicate, we wouldn't be in such a mess.
And then we have people like the original author....outspoken, but uninformed, who are essentially telling people to shut up, and don't even bother thinking, it is futile.
Although, if he was going for the most ironic blog post of the year, he has succeeded splendidly.
Yes.
The same thing takes place when a religious leader is shown to not be so moral, all of a sudden, despite you not having taken priesthood lessons or anything, you may now have a right to express morality more than him/her.
Last week, there was a post here about the youtube video "money as debt" that ended up getting killed here: http://news.ycombinator.com/item?id=461720
Equally, you could peruse Reddit (espsecially, say, politics). I don't know about digg, because I stopped going there for awhile, but it was as bad as reddit is now.
Now, you could argue that these discussions are all fairly above board, with none of the emotion-laden rhetoric that I appear to see. I'd disagree though but we can leave that as a matter of perspective. I think there is an -obvious- tonal difference in matters of economics (or politics, or religion) versus other topics.
I am trying to think about some topics that might be less "heated"? Startups? Nutrition?
The author didn't make a defense of "academic economic hypothesis". He made an attack on geeks' false sense of expertise on macroeconomics. Macroeconomics remains a giant, complex, poorly understood system regardless of whether there are academic economic models of it. It's not like "academic economic hypothesis" creates the system. The system is there regardless. It's hard to understand, but lots of people run around pretending they understand it.
> Perhaps the author's and our time would have been better spent if he offered a coherent defense (maybe even using vaguely correct grammar) of these academic economic hypothesis rather than a sweeping ad hominem attack.
Presumably you note the irony of making an ad hominem attack while simultaneously rebuking the author for making an ad hominem attack. In actuality, your ad hominem was far less called for because the author's "ad hominem" was the whole point. He was arguing that the quality of debate is poor, not arguing against any particular line of reasoning.
On a side note, it's disappointing that there's been so much made recently of the high quality of discussion on Hacker News and how we need to preserve it, and yet rubbish like "maybe even using vaguely correct grammar" still gets voted sharply up. Some day I truly hope to find a popular forum of well-informed members where snide comments are penalized as a natural side-effect of the forum design.
I agree that it doesn't create the system, but the publicity of of these hypotheses do affect the system, by affecting the behavior of the people that participate in the system. If someone believes that gold or the US dollar has more or less value based on some understanding of the increase in the money supply, that will affect their values, particularly if the people with those beliefs run the US Federal Reserve.
Which is somewhat frightening. There have been something like five or so actual macroeconomic experiments performed. There is no precedent for what we have done, and for what we are doing.
Even the most knowledgeable macro people are still limited by the fact that their models have little evidence tying them to reality (look at the debate between neoclassicists and Keynsians today). Macroeconomics people are somewhat stuck, they don't have enough information, they don't necessarily have consistent models.
As a result, it's hard to tell the difference between the nutjobs and the experts. And that gives the nutjobs a large sway where they otherwise wouldn't. Furthermore, basic economics is taught to a lot of people (I learned it in high school), which gives them the (false) idea that it is easy (which high school/intro college econ is).
I disagree, because his post wasn't about macroeconomics per se, it was about a large number of otherwise rational people on geek sites espousing controversial opinions on a complicated subject without the proper education, with too much confidence. This post could have been about evolution too, and it still would have been valid. Just a lot more controversial, because NO ONE will admit that their opinion on evolution may be wrong.
That aside, economics is difficult to verify, but there does exist a branch of science called experimental economics. There was one particularly interesting "study" that ought to catch your attention. http://ideas.repec.org/p/kud/kuiedp/0335.html That one study on its own should explain the need for a Federal Reserve Bank.
In general the article demonstrates what PG was saying in his article on identity. A lot of economic theory is difficult/impossible to test empirically, so there's plenty of room for all sorts of nonsense like ideology/identity/etc... to enter into one's economic world view.
Property rights are one of the foundations of a modern, successful capitalist economy. De Soto's "The Mystery of Capital" is a great read about some of the problems that occur when there are no property rights. However, they are one component in an economy, not the component. And, sadly, there is no clear, easy line dividing collective rights from individual rights, although we have a vague idea where it is (communism was a colossal failure, being way too much about collective stuff, and ignoring individuals).
By way of example, in Libertopia, perhaps it would be ok if I ran my own high-explosives & toxic sludge storage business in my apartment? Back in the real world, other people's rights to not be exposed to risk they didn't sign up for trump my property rights. Supposedly, in Libertopia, 'contract law' would take care of things, but in practical terms, how are you going to set up contracts so that you pay the people N meters away M amount for the risk they're taking by being around your munitions storage facility / smoking lounge? It's simply too complicated, and far easier to just have a local law that says "ok, this is not a part of town for munitions dumps".
Common law has a pretty good alternative to contract law for the kind of cases you mention. This is known as Tort law.
http://en.wikipedia.org/wiki/Tort
Most people know it as the law the dodgy lawyers who advertise on TV practice.
It is however a really neat concept that deals with just about anything outside of contract law. It was even used to handle things like pollution in the days before the EPA.
In your example your high-explosive and toxic sludge storage business could easily be sued under Tort law.
Local and property owners association bylaws can absolutely be used to spell out these offenses. However the wider regulation happens, the more it becomes silly.
For example smoking regulations could probably be done a lot more realistically through tort law than through blanket bans on smoking in bars and restaurants throughout a country. Using Tort would allow courts to look at individual circumstances. Thus one punitive ruling against a restaurant on behalf of an employee with lung cancer could effectively ban it. However a similar suit from an employee of a cigar bar would probably be dismissed, because an employee couldn't reasonably expect to avoid second hand smoke in a cigar bar. Thus allowing cigar bars to exist.
If you take a random grouping, finding an arrangement that suits everyone will be very, very difficult, or impossible. The only way I can see to solve this is to make moving to where you agree easier.
In the case where we move in and open up a munitions dump, either we signed an agreement not to engage in risky behavior, or we didn't. If we did, we're liable. If we didn't, then it still may be that the folks we bought the land from had, and then they're liable, since they didn't make buying the land conditional on signing the no-risky-behavior contract. Otherwise, buying that land turns out to have been a bad call for everyone else. Of course, once the dump explodes, we're liable for the damage, but as you note, we may no longer be able to pay for it.
Even when I advocate mandatory crime/injury insurance, I don't mean mandatory in the sense that I'm willing to throw people in jail for not buying it, but mandatory in the sense that I'm not willing to interact with people who refuse to buy it, or who are such bad risks that they can't afford it.
What would it mean for the price of oil to be managed perfectly? No information arbitrage opportunities?
Personally, I am not an "ends justify the means" kind of guy so a lot of economic policies are off the table from the start, even if they would in the end generate more wealth -- wealth is not the end all be all.
The reason people are so passionate about it is because the ideas people are expressing will have a real effect on them, often at the point of gun. Someone advocating higher taxes is in effect taking what is yours, someone advocating nationalization is one again advocating taking what is yours. Someone advocating setting minimum/maximum prices is directly controlling how much stuff you can have.
I'm a "means produce the ends" kind of guy.
For example, I'm pretty sure that a system which uses coercive means will have coercive ends. FWIW, many people disagree with that specific example - they insist that their system that uses coercion will not end up being coercive.
of course it also depends on the timescale we are looking at 10 years, 100 years, 1000 years, etc
Yes, there are examples of societies that had slavery and became "good" (for some reasonable definition of "good"), but I'd argue that their "good end" was not dependent upon their slavery means.
Here are some examples.
I understand that using heroin feels really good. However, the effects of using heroin are (stereotypically) bad over all.
A Somali warlord has it much better than the average Somali. However, a warlord culture is, on the whole, a disaster.
Are there examples of slave cultures that were as productive as same-era free cultures? (Not that productive is the only measure of good, but ....)
"Simple" at what level? The principles underlying evolution are fairly simple, but have resulted in the astounding richness of the biosphere.
What is taxed, punished, or regulated you will tend to get less of. What is profitable or encouraged you will tend to get more of. You can't understand all of the world from that, but you can understand a lot of it.
I don't claim to be an expert on macroeconomics. I do claim to be an "expert" on that principle.
http://www.amazon.com/Economics-One-Lesson-50th-Anniversary/...
Here's a link to one chapter on rent control, with detailed examples (saw this here at HN before reading the book):
http://jim.com/econ/chap18p1.html
Here's part of the reason people won't honestly evaluate the pros and cons of economic arguments:
http://www.overcomingbias.com/2007/03/blue_or_green_o.html http://www.overcomingbias.com/2007/02/politics_is_the.html
Finally, economics is complicated, but we've got almost all of human history to give us some data. It's got an immense amount of noise in it, but general trends do emerge. Price controls far below market have always created a black market, even in a hardcore enforced police state. That's a fact. Maximum price of goods under what people want to pay... human behavior... black market. That example is clear enough, and not many places in the world today are trying that one. Likewise, we're constantly trending to better economic systems with some blips here and there along the way. Many of the ideas we're arguing about today will be settled, and many of the positions held today will look really foolish in the near future. That's part of being human and progress in thought.
Maybe his analysis is right, and maybe it isn't. But we judge him by what he says, not his credentials, and he should be willing to grant the same to people writing about economics.
If you disagree with some specific argument, or even class of arguments, refute that. But blanket ad hominems lower the level of the conversation.
If one agrees with your above comment they would have to put both posts in the same bucket and in fact the whole thing is a meta-problem of expertise, as you mention it: "The same way he became an expert on the level of..."
It's pretty easy to observe that amongst geeks (or at least those that post a lot on the internet), there are way more people, compared to society at large, who believe in what most actual economists consider to be fairly fringe theories, like "Austrian" economics. I think this is interesting enough in itself to warrant thinking about.
To cite an example, this could be any number of people on this site:
http://news.ycombinator.com/item?id=473812
There's definitely lots of curiosity about the world there, which is definitely a hacker trait, but also this element of going from socialism to the another extreme, rather than, say, settling down somewhere in a range between, say, Krugman and Friedman, who are probably at two ends of mainstream economics.
I'll also add: sometimes "extremes" are correct. The concept of the US was pretty extreme at the time. (Many?) other times, however, they aren't. Plenty of smart people thought communism was a pretty good idea, and we are lucky in the US that during the 30'ies, the most extreme we got was FDR, rather than the wild swings that were going on in Europe.
You mention that you should settle down in a range between Krugman and Friedman. These are so completely opposite in their beliefs that you would end up believing nothing. -1+1=0. There really is no such thing as one mainstream economics, most economists are in one of these two camps Free Market or Keynesian.
I would also like to take issue with this using me as an example of "this element of going from socialism to the another extreme".
I grew up in a society (Denmark) where Socialism and the particular flavor of Socialism (Democratic Socialism) I believed in was mainstream and not at all considered extreme. When I look at the beliefs I had, they were pretty much the same as mainstream democrats have in the US today. I can accept libertarianism as being extreme, but in most of the world democratic socialism is not considered extreme.
I take pride in the fact that I was able to independently of anything but my own observations realize that this system, where I was living (Denmark) and my own party was corrupt and change the fundamental beliefs I had grown up on. Yes being a geek, who constantly question and optimizes things probably was an important part of this.
I think just accepting the status quo is impossible for a hacker, or we wouldn't have tech startups, open source or any other tech project that wasn't sponsored by DARPA.
http://en.wikipedia.org/wiki/Austrian_School#Analytical_fram...
The latter are considered mainstream, even if they're certainly very biased in favor of the infallibility of markets and/or inability of governments to do anything useful. The Austrians aren't, and tend to take things to even further extremes than someone like Friedman.
I am sorry if I mischaracterized your shift from socialism to libertarianism - I was thinking of a different sort of socialism, not the nordic sort, which isn't very extreme, all things considered.
Also, don't think there isn't some commonality between various branches of economics. Most everyone, Krugman included, is basically in favor of free trade, for instance. Generally, though, they talk about the stuff they disagree about, so it tends to be more visible.
Newtons laws of motion don't get discussed much because experimentation and time give overwhelming evidence that they're probably right. Thus there's not much point in discussing them, they're accepted as a foundation on which you can build, which is exactly what science does. Standing on the shoulders of giants.
Economics is different. Partly because of the inability to test a thesis, partly because everything is closely linked making it hard to distinguish cause from effect. I actually believe macro economics is currently in it's early stages, with professional practitioners still trying to get a grasp on the basics. Even among Nobel laureates in economics there's still disagreement about whether Keynes, one of the most heralded economists ever, was right or wrong. And he wrote his main work "The General Theory of Employment, Interest, and Money" in 1936. Likewise, if you look at the wikipedia entry on the great depression there's still substantial debate as to what caused it, and how we got out of it.
I also think that this discussion is good. Yes, there are some ridicolous theories on youtube, but the serious amateur probably knows enough to discard these as the crap they are. A public discussion of macroeconomics will, however, be very fruitful as people from other fields bring their expertise to the subject. Mandelbrot and his knowledge of fractals and mathematics has interesting points on economy, Kahnemann uses psychology to explain economic phenomena, and hackers, of course, can set up interesting computer models, which is probably the closest we come to experimentation in this field.
If you want to have an idea about how the best economists think the economy works, read the economist. Don't be surprised if they completely change their minds now and then. Only last year I would not have believed they would support a stimulus package today.
The common notion is that someone who hasn't read 1000 books about the conventional academic wisdom can't possibly make a valid argument. However, academic fields can often get into a cycle of conformance to an absurd belief. You don't have to read Aquinas to make the correct argument that belief in God is absurd from the start. You don't have to read Skinner to see the problem with behaviorism. You don't have to read all the latest analytic philosophy to see that it's all circular and useless. And you don't have to read the latest mainstream economics to see that it's based on a narrow and largely useless formalization of the difficult complexities of the actual economy.
The more interesting question is why? Why the false expertise? Why the heir of authority? Why the certainty?. The conversations tend to be extremely emotional and defensive.
I actually don't see too much false expertise, or pretenses of authority, etc. People want to discuss things so they do. If it effects their lives, well, who's to say otherwise? Oh right, some jerk with a blog.
If the treasury department issues 750 billion dollars with my name on it, I'm frankly not much a citizen if I declare my unavoidable ignorance on the matter and so devote myself to my suitable recreations of drinking beer and watching football.
Unlike the evolutionists, though, economists don’t have a mini-community of people making youtube videos and evangelizing their points of view to the general public.
Yes, there are economists who make youtube videos.
Programmers love to talk about quantum physics, the speed of light, and black holes. But you won’t find geeks getting all authoritative on the finer points of the event horizon? Why?
Economics is arguable because it is a soft science. We don't argue hard science because it's subject to controlled experiment. He's confusing apples and oranges.
Every, single, person in the discussion is an expert. Except, of course, they aren’t. None of them are.
Nope. Some of them are. He's confused "Some" with "None".
...blah blah. I'm picking up random sentences and they're all fucked up. If the point is to be funny, well, he failed at that as well.
First, the premise of the article is that people bring false expertise and unfounded certainty to the topic at hand. That has pretty much nothing to do with the veracity of various youtube videos, or MSNBC.
Second, the presumption that I actually hold any of the beliefs in the final paragraph is completely misfounded and can only be rightly attributed to someone who didn't really read what I was trying to say and instead decided to pigeonhole my argument. I don't know what to think. I cannot make a compelling and satisfactory argument (to my standards) for or against a gold standard and I sure as hell don't trust "dudes on the internet" to give me a reasonable argument, either. The topic is sufficiently complex that any charlatan can waive his hand, throw up some smoke and mirrors, and put on a convincing case for just about anything. That is why I don't trust so-called "expose" youtube videos, either. Or, for that matter, MSNBC, since no one who goes on "pop" news is actually interested in educated the public on the finer points of macroeconomics but instead massaging it for their own political purposes.
This affects people a hell of a lot (e.g. the financial+current bailout will cost every tax payer $10,000). Large groups of people already made very bad decisions on this topic earlier this century. Good decisions is the difference between S. Korea and Ghana.
Astro-physics, the finer points of quantum mechanics or the Hilbert effect do not affect people directly that much.
By the way, since people seem to be interested, I think the best macro book is Snowdon and Vane's Modern Macroeconomics.
http://www.amazon.com/exec/obidos/ASIN/1845422082/elidourado...
People can't down mod me, and it never insights any sort of emotions or response so it dies near the bottom. Thanks for the link!
* Easy to grasp (the basic principles, anyway)
* Experiments are pretty much impossible (making being disproven relatively rare)
make me think that it is not possible to be an expert on macroeconomics. Or, since nothing is falsifiable my opinion about how these random rules fit together is just as good as anyone else's. My entire career is based on how random rules fit together. I'm good at it. That's why I'm an expert on macroeconomics.
One of the key tenants of science is that a hypothesis makes testable predictions. If we can't falsify economic explanations, then perhaps we should take this approach and focus on the theories that make the best predictions.
And, no, if you don't understand the system, then you can have very little of value to say on it. Just precisely like if I don't understand quantum mechanics, it would be extremely stupid of me to make passionate forum posts about it.
In the years leading up to the recession, we wrongly believed the world's wealth to be 40% greater than it actually was. Figuring out that the true value is lower didn't destroy wealth, it just looks that way in many timeseries.
The inflated prices that various assets had at the height of the bubble were "true values" in the sense that their owners could sell them (or, more importantly, put them up as collateral for loans) for those values. Someone who bought a house at the top of the market, lost their job, and is now trying to sell their house so they can move to somewhere more affordable, is certainly feeling a real loss right now.
My best estimate for this quantity: let gamma = (historical price to own)/(historical price to rent), with "historical" meaning pre-1995. Gamma was more or less constant up until the housing bubble.
I'm guessing the "true value" of a house was in the neighborhood of gamma x (price to rent).
Also, economics has a lot of maths in it, which many geeks tend to excel in. So I don't think their starting position is that bad. Actually even most economics students try to brush over the maths, so I don't have troubles believing that some geeks might have a better understanding of economics than the actual economists.
I can't help but wonder if this is a generational thing. I seem to recall that not too terribly long ago major geek pasttimes included hacking the local phone switching equipment and cruising usenet. Now we're on to debating economic theory esoterica. My how the times have changed.
The real trouble with economics is that even economists disagree. It really is impossible to say anything like consensus amongst economists is x. A recent EconTalk (an excellent podcast to learn more about economics) talks about just this issue. Why do economists disagree:
http://www.econtalk.org/archives/2009/01/roberts_and_han.htm...
Their conclusion is that it is so easy to go in and fine statistics to prove just about any point, so in the end it is the "religion" of the economist in the end that decides which statistics and studies he uses. The two major schools and yes there are many more of Economics Keynesian vs Austrian/Chicago (ok those are 2 schools, but closely related) are in such a fundamental disagreement about just about anything.
Which brings me to question the premise of your article. I think it's healthy that geeks have an interest in economics. In particular geeks involved in startups need to know and understand the dynamics going on. So their analysis might not match yours, but that doesn't matter. They have an understanding and interest that helps them understand the world around them. This is not necessarily bad, in particularly if they are open to learning.
Saying that geeks shouldn't think about economics, because it's too complex for them to understand completely is just plain silly and also extremely elitist. It is also to a certain extent hypocritical as your post intentional or not says "Your understanding of economics is not as good as mine, so just stop thinking you know anything".
My "religion" in economics is the Austrian school of economics. I definitely view the world and politics through these colored glasses. I gradually arrived there on a long journey starting off as a socialist.
My life as a programmer has definitely helped me reach the conclusion that the economy is so complex that no amount of experts could possibly understand it completely. That the only possible way of living (not controlling) in such a complex system is through a distributed network of autonomous agents. I am sure many other programmers have reached the same conclusions.
My belief in markets has been flavored recently by Nassim Taleb's Black Swan, who concludes that the reason free markets are superior is not because of some complex theory of efficient prices, but because free markets allow more people to experiment and therefore accidentally find the right answers. An expert driven planned economy allows only one person throwing the dice.
The next 3 paragraphs should be understood is my conclusion about elitists as seen through my "free market" goggles:
Then again there are many other programmers who follow another religion. Since childhood many programmers have always been the most intelligent person we know. If you grow up like this it is very easy to start seeing other people as stupid. This is essentially how elitism grows.
It is very hard to avoid being elitist, when you spend a lot of time analyzing every situation in your life and see the vast majority of the people out there not doing the same. This elitist way of thinking almost requires the intelligentsia to take control. People often credit this way of thinking to Plato, all though it is such a natural way of thinking I'm sure it goes way back.
The Keynesian approach is one of the less evil outcomes of this elitist way of thinking. "We need to stimulate the economy so the small simple people can build their economy up". The other extreme was Lenin's dictatorship of the proletariat, where he concluded that it would take several generations of reeducation of the people by the elite, before society would be perfect. These two approaches while very different have the same fundamental reasoning that people are stupid and we the decision makers are not.
Both of these economic religions are very common among geeks. I also think it is natural that they are prevalent and that people discuss it. You see both of these (I know I'm overgeneralizing) battle it out on hacker news. I think this is actually healthy. I know that I can't convince a true believer of socialism that the free markets are the way to go. I can also safely say that it is highly unlikely that anyone will convince me in a single discussion that we should all become leninists.
That said, I have been corrected several times in discussions here on hacker news and have learnt from that. It is also an interesting and fun intellectual exercise for both of us. Who knows we might even convince someone sitting on the fence to jump off in our direction.
My conclusion is that Geeks and in particular geeks in startups should have an interest in economics. I also don't think we need to hold geeks to an even higher standard than actual card holding economics professors.
The foundation of macroeconomics is the aggregation of microeconomics, which comes down to people making decisions with their money. And everyone can understand that - even programmers. If the public truly can't understand the financial system, then that's a tremendous problem in and of itself.
Mainstream macroeconomists are starting to look a lot like the Pope.
Move along folks, nothing to see here...
And how would the OP or anyone else know the Federal Reserve Board does "a half decent job?"
"Money is not debt" - Did he mean "currency is not debt"? When I borrow $10k at the bank, money is created (they need only maintain a fractional reserve) and there is also an associated debt created - I owe the bank $10k. The "money" and the debt are unconditionally linked.
I think he's overspecified his point, that possibly being that macroeconomists have no trustworthy predictive models. Inotherwords, he's repeating part of Nassim Nicholas Taleb's work: http://www.fooledbyrandomness.com/
This article, recently posted here, as well as my comments on it, should help you escape from your fallacious "bankers are evil" reasoning. Bankers are not evil. They're hard working, competent people most of whom have little to do with the mess we're currently in.
This is a perfect example of the kind of misunderstanding the OP was talking about. Money is created by depositing money at a bank, not by the bank lending it. Banks only lend base money, and it's illegal for them to print that.
Of course, people usually don't take the cash loan directly, but have the money deposited at the bank instead, which results in money (in the form of current account balances) being created. But it's the act of depositing, not the act of borrowing, that creates the money. If they took the cash, no money would be created.
Then there are M1 to M3 which are count increasingly less hard money and those do consists of money created when banks lend money in the fractional reserve system. Banks can only lend money when people deposit so in this way you are both right.
For more see the wikipedia Money Supply page: http://en.wikipedia.org/wiki/Money_supply
This can be simplified to the phrase "the central bank".
Banks don't create money. Government institutions do.
This is why current account balances are counted in all the official measures of money quantities, including the most strict measures such as M0.
I’ve done a fair bit of reading on topics like the Federal Reserve and money creation, like any good amateur, and the only thing I know for certain is that it’s insanely complex.
In the final paragraph he's obviously being facetious.