Is economics ********?

skilgannonau

Ivan I think we are making the same point or this is another example that language can give to rise to ambiguity. I was referring to the following post:

In any case I would use this analogy to say that the fact that economists fail to accurately predict economic crises doesn't mean it's all bs.

kramer733

Hey thanks for replying. So if i were to minor in economics, what should i be expecting?

skilgannonau

Check out this link:

http://ocw.mit.edu/courses/economics/

loseyourname

No, it's not, not at all. The problem with the public perception of economics as an academic discipline is that all people ever see of it are political debates about the use of fiscal and monetary policy and the use of leading indicators to predict turns in the business cycle. Most of economics has absolutely nothing to do with these things. The study of economics simply tells us what will happen in a vacuum when you tweak one variable in a system, which is the same thing any other science does. As you make the system more complex, this information becomes less and less useful. Economic analysis can teach us that demand inelasticity leads to price discrimination when the conditions of market segmentation and imperfect competition obtain. It can teach us that efficient pricing is impossible for goods that are nonrival and nonexcludable. It gets into trouble when we try to model an entire nation as a system of econometric trend lines.

By the same token, fluid dynamics would get into some trouble trying to tell us where a bottle we throw into the ocean will end up in five months. That isn't considered a failure of physics.

kramer733

That's a really good analogy sir. Thank you.

brainstorm

Many of the most basic assumptions in economics are very logical. If people are rational, they are more likely to forego buying something at a higher price than a lower one. That is the basic logic behind the demand curve. Same goes for producers/investors with the supply curve; i.e. if the price is higher they will want to produce/sell more of it. Where economics starts to break down is when the supply and demand sides start getting strategic. This is why things like market control, monopoly/oligopoly, consumer/investor subjectivity, etc. interfere with economic predictability. Of course in reality humans are always rational to some extent and irrational/subjective/emotional as well. This is what makes complex economic predictions more of an art than a science. You can look for patterns in the subjective/emotional decision making while paying attention to rationality as well, and predict with a certain amount of accuracy what kind of market events will occur. Still, ultimately you have to recognize that there are always unseen factors that you haven't considered that could throw off your predictions to any degree. If you are the kind of person who discards anything that isn't very accurate and reliable, you would throw away economics, I think. But if you are a person who wants some insights into how human-decision making results in market prices, investment/production/consumption patterns, etc. then economics has a lot to offer you even if you'll never be able to win at stock-trading as a result.

cesiumfrog

Say you need to buy replacement windscreen wipers for your first time. The store has three options: $8, $13 or $33. None of the brand names are familiar to you. The packets are approximately equally rife with buzzwords and devoid of relevent quantitative measures. There are additional complexities (such as the options of three brands of replacement blades instead or in the future). Because of the opportunity cost of the time it would take you to properly study the ramifications of each option (on how well they improve the all-weather driving experience, and on how long they last), a fully informed decision is unfeasible (if it was even possible), so you're going to choose solely based on price.

Are you really going to risk taking the cheapest option?

brainstorm

First, you would expect that in a rational free market with open access to information, consumers would create an easily accessible database, preferably accessible via cell-phone, that reports which brands of goods are of inferior quality. Those goods, then, would quickly go out of business.

Also, if producers acted purely according to free market rationalism, there would be multiple supply-firms with the same quality product and those firms would compete to lower their costs to undercut their competitor and gain market-share in that way. If part of cost-cutting involved seeking new, less expensive materials, the firm would test the materials before utilizing them because it would not want to lose sales by getting the reputation of having an inferior-quality product.

Usually I buy the least expensive brand and I rarely have quality problems. There are exceptions, however, and in those cases I shop for the least expensive (most competitive) brand of the product with satisfactory quality. Still, how many people are irrational enough to buy the more expensive product as a prayer that the quality will be good? I have certainly been guilty of this in the past but it is basically a response to fear that the market is filled with inferior quality products. In a rational free market with free information exchange (good information - not misinformation), that shouldn't happen.

BTW, what's your point? That economics should start modeling rationality as consumers purchasing the highest priced products to avoid low quality? Wouldn't the demand and supply curves then slope in the same direction?

cesiumfrog

The idealised market you imagine might be nice, but that's not pertinent to the question of whether the actual real-life market conforms with the mainstream economic theories or not.

My example wasn't hypothetical, I was just relating what I did last weekend. I chose the middle price, reasoning that the cheapest option would be produced using lower quality rubber and thus be more likely to fall apart disproportionately soon. Based on previous experience of cheap goods falling apart and of longer satisfaction with goods that at first appeared expensive. And like you say, we all do this at least some of the time. After all, that's why woolworths sells the same milk with two or three different labels (each label at a different price, each selling in comparable quantities). It flies in the face of textbook economic theory, but it's how the real world actually is.

But I was merely critiquing your post, not trying to make my own point, those were in post #4 of the thread. Should I trust the Keynesians or their opponents? And, please do tell me, why is there so much debate and widespread criticism specifically of economic growth?

brainstorm

The fact is that rational economic behavior promotes the discipline of the invisible hand, which itself rewards rational behavior and punishes irrationality by constraining revenues. This is why so many people want rational economic behavior to be a fiction, both in theory and in practice. If people irrationally spend extra money on products and brands they hope will be better quality, or because they believe that budgeting hurts the economy and eliminates jobs, etc. If they "buy American" even when it costs more to do so because they want to see more local jobs created, etc. All these relatively irrational consumer behaviors promote higher revenues for businesses. So OF COURSE business interests promote any form of irrational spending possible by whatever means.

The problem is, what happens when all this irrational spending and money-making grows into an irrational invisible hand, which it arguably has? At that point, you need more and more money flowing in all directions to sustain the consumer lifestyles and business models that have become habitual. These entail a good deal of waste, as waste is the natural companion of irrationality. You even get people arguing that irrationality and waste are the prerogative of the free market and even it's raison d'etre.

Keynesianism and its opponents are, imo, two sides of the same coin. Keynesianism promotes spending during recession to stimulate sleeping spending, but it also promotes taxation during periods of high GDP growth, which disciplines the growth and prevents inflation and irrational spending, etc. You would think that the opponents of Keynesianism would be against stimulus but they're not in most cases. They are just for eliminating the taxation during the economic boom. That way they can keep and spend more of the money they are making at that time.

Imo, Keynesianism fails to check long-term economic growth in a way that prevents wasteful irrational economic behaviors from becoming habitual. People and businesses get used to a certain stable level of cash flow and they fail to seek highly innovative ways of reducing their costs and changing their practices to achieve ever higher levels of efficiency. If they would be motivated to do this, I think we would see radical cultural evolution with people working and living with practically no resource-consumption to speak of. This would seem like poverty by current standards, but health care and other economic resources would be developed and managed in a way that people would enjoy high levels of prosperity despite highly rationalized and efficient economic goods and services.

If all you care about is preserving the cultural-economic status quo, then either Keynesian or anti-Keynesian approaches will do, I think. The only difference with anti-Keynesian ones is that you get lower taxes during periods of growth.

cesiumfrog

Is there any truth to the claim that the economy needs to always maintain its average rate of growth above a certain level merely to avoid some kind of self-collapse?

http://www.eveoftheapoc.com.au/Downl...eFatalTrap.htm

skilgannonau

@cesiumfrog: I briefly looked at that article and I have to say it is a pretty terrible article. The points the author makes is so convoluted I don't see the logical connection between most of the arguments he makes. What I think he is trying to say is that because the supply of money is tied to debt (which is a false premise since the central bank, i.e. government, prints money which then can be exchanged for goods and services; not necessarily debt) and economic growth is lower than the interest charged by banks on debt borrowed the debt/gdp ratio will rise so that debt exceeds income (ie gdp) and therefore economies will 'somehow' collapse. That's his main argument from what I can gather.

There is so many problems with the assertions he makes that I will only point out a couple of things:
- The author confuses 'stock' with 'flow'. global debt may be greater than global income but that's because income is a flow while debt is a stock. global wealth on the other hand is always going to be greater than global debt because we can keep on creating wealth in perpetuity (which i will explain in a later point).
- the author claims that economies will somehow collapse as the debt to income ratio becomes bigger. No logical connection. Don't know what else to add on this point.
- Money is ultimately created by government. Money is not tied to debt and money is not income either. Income is the quantity of goods and services that an economic agent produces. So a country can print as much 'money' as it wants but it will not get richer because income is dependent on the production of goods and services;
- Goods and services are produced from two things: labour and capital. Thus my earlier point that wealth can be produced in perpetuity as long as we have labour and capital.

and i can keep on going except like I said there is so much wrong with that article it's not funny. The least mean thing I can say about the article is that it is ignorant to the extreme.

cesiumfrog there are many things wrong with economics but not by the claims in that article. Furthermore, while there are problems within the discipline that doesn't make it useless. On the contrary there is no other discipline that is better able to tackle the issues dealt within economics. If there was, then historians, anthropologist, lawyers, sociologist, physicist instead of economists would be dealing with those issues.

In fact, I dare say the ignorance displayed by the author of that article is an argument for more education in economics for the layperson and some people should definitely not be allowed near an keyboard or the internet.

brainstorm

This is true at an obvious level. But what about the fact that once people start exchanging labor and capital for money, people start trying to exchange one commodity for another? This was the issue that I wondered about when houses were being bought for 1million, renovated, and sold for 5million. What can be done with that 4million in profit? For it to be spent, doesn't 4million extra worth of goods and services have to be produced? If they aren't, then doesn't the price of existing goods and services have to increase to a point where supply and demand curves fix the shortage?

If that happens, and inflation occurs, as it did with gas prices; fuel-cost driven inflation is accompanied by shrinking revenues as everyone tries to prevent their bottom-line from suffering due to increased costs. Now the solution has been to fiscally stimulate more revenues, but what happens when that money once again drives up demand for fuel and causes another fuel-cost inflation? Sure, Obama's logic that a stimulated economy would invest in fuel-conserving technological and economic reforms, but have they happened? Can the economy do more with less fuel now than it could in 2004?

I don't mean to suggest this is Obama's fault because it's not. It's the fault of everyone who thinks that if they can just get their cash-flow up, everything will go back to the way it was when things were good. There's just no recognition of the need to create sustainable economic practices as a means to avoiding bust/boom cycles. People just do anything to get the thing booming again and then when it busts they try to make sure someone else has to suffer instead of themselves.

doodle_sack

This topic is currently in debate (though no one cares to debate about it!). It's quite confusing, for instance, everyone is aware of harvard university, their master degree in economics (part of their phd) is called A.M Economics(historic style of writing M.A Economics), which states economics is an art. But, if you ask the harvard economists, they themselves will have different opinion about this issue.

What I think is, taking into consideration the serious developments in the field and their incorporating of advanced math subjects makes me think, they are all in the serious process of making it a science field, but they named it science for the most obvious reason that it can't be named as BS(A) Economics!

But seriously, guys I think there is a flaw in prediction everywhere!

Evo

You need to provide serious academic articles that back up your position. Otherwise, please do not post if you have nothing of value to contribute.

RufusDawes

http://economistsview.typepad.com/ec...economics.html

http://www.debtdeflation.com/blogs/w...isis021809.pdf

I am sure there are many more articles which point to the complete and utter failings of academic economics.

skilgannonau

'Academic economics' has had failings and will continue to have failings. I don't know of any discipline has been right about everything (or even some things) first time round.

The fact that economics has failed to make accurate predictions doesn't invalidate it as a discipline. Put another way if you didn't have economics are there any other discipline that is better able to explain the phenomena that economics tries to explain?