Thursday, October 14, 2010

What I Learned From Studying Economics

I've always been interested in the study of the social forces that shape our lives, whether we're talking business, politics, psychology, religion, technology, anthropology, marketing, all that happy shit. But since commodities started spiking a few years ago, and the economic collapse that followed shortly thereafter, I've found myself with a lot of time on my hands, mostly due to long periods of unintended unemployment. Perhaps out of an interest in figuring out what the fuck is going on in the world, I started reading a lot more about economics. Sure, I took a couple classes in college, and I was always one of those guys who actually paid attention, but it was the great recession that has turned a mild interest into a near-obsession. I've spent between 4 and 14 hours a day reading about economics news and theory for the last couple years now, and I have a few observations I'd like to make which I think can really help illuminate the subject for those of you who have had way too much in the way of employment obligations to do this sort of research.

What did I learn?  

Economics is bullshit. No, really. Economics is a field that is still in its infancy. Its principles are poorly understood, and with major divisions over really fundamental questions, it's a wee bit premature to be thinking of it as a science. And it is enormously complex. Yeah, it's all about working with numbers, so you'd think it'd be easier, but most classic and computational approaches to the subject are fundamentally wrong. Why?

Decisions aren't actually rational. Yet this is the assumption that underpins the vast majority of economic equations, and all that happy Adam Smith 'invisible hand' stuff libertarians like to talk about. Worse, old-school economists also assume their rational decision-makers have perfect knowledge. And as for that invisible hand of the market fixing flat tires and walking old ladies across the street, that additionally requires the utter fantasy of nonexistent barriers to entry, meaning that anyone who wants to compete on a level playing field can do so, never mind that every single aspect of a launching and running a business raises that barrier a little higher, from the access to capital to the difficulty of building a capable team to the economies of scale the other competitors have. The whole idea is a total fucking fantasy on a truly massive scale. But that shouldn't be a surprise. Because...

Media coverage of economics is shit. You might have heard about arguments between Keynesian economists and Austrian economists, right? Keynes being associated with added stimulus, and the Austrians arguing for austerity? Well, that's pretty much bullshit. The reality is that economics has actually come a long fucking way since the macroeconomics 101 textbooks of 1986, when the people writing these articles took that one class in college. Nowadays they call it Post-Keynesian Economics and Computational Economics, now joined by surprisingly illuminating Behavioral Economics and a bunch of other paradigms I didn't bother reading too deeply on. I will say that the whole duality makes for a nice article, very easy to understand, liberals on one side, conservatives on the other. Of course, the need for dumbing it down for mainstream audiences shouldn't be surprising, since...

Economics is fantastically complicated. Not that the basic concepts are terribly hard to wrap your head around, but if you're trying to make predictions with any sort of accuracy, you're dealing with billions of individual decisions, dozens or even hundreds of variables, vast arrays of information that you will probably never be able to fully account for, all working together in a constant systematic flow. Ultimately, all economic predictions are reduced to educated guesses, estimates derived from looking at a mountain of data, expressed in jargon to give it the weight of science. Nobody knows anything. And what does it mean when you have a highly important field where everyone's just trying to make their mountain of bullshit look pretty? 

Economics is about politics. Economists are there to control people. They're there to act as a sort of modern medicine man, going off into the wilderness to return with predictions for the new year. They're there to pitch for the ruling class, to tell us how unavoidable it is for us to be exploited for the benefit of the wealthy few. Economists in power attempt to direct the flows of an inherently unstable system of interrelated markets, trying to create opportunities for extracting wealth from the more predictable shifts. They know how poorly understood the economy is by the average investor. They know that it is rooted in these intensely emotional decisions, a fickle mob acting from fear and greed in largely predictable waves. And they wield their power as the captains of industry, kings of the 21st century, leading their nations in the currency wars that so characterize globalized politics, wielding subterfuge and all manner of financial machinations, everyone trying to capture resources in a world that has no more to offer the old economics of financial growth.  

The financial markets are fucked. There's no getting around it. We have built a system so incredibly complex that we have no way to keep track of it, no way to control it, no way to predict it, hardly any way to understand it, though it is increasingly clear that the whole thing is fantastically precarious. And yet, by the nature of its complexity and the accumulated power of the ruling class, we are forced to put our trust in those who use their power to enhance their own position, who institute policies that abuse our trust and actively endanger the lives of billions and our own freedom. The only thing we can do to stop them and break their system of power is to simplify. We've got to adopt new ways of doing finance that make economics a real science, one that's understandable by people who aren't necessarily as smart as guys like Bernanke. That means we need to radically decentralize our economy-- we need to adopt investment policies for the long haul, investing in the productive capacity necessary for building the resiliency and sustainability our economy will need to prosper in the future, as well as pushing the lifestyle changes we'll need to make to get there. 

What else can we do?


  1. Making predictions about the economy is every bit as complex and complicated as making predictions about the weather. But at least weather forecasters don't get bogged down in ideological positions.

  2. "That means we need to radically decentralize our economy..."

    I agree.

    Despite the animosity you seem to have for the classical liberals, you come to the same obvious conclusions they do from time to time. I wonder why.

    So...I agree. Nothing needs to be as complicated as it is, and when it is it's usually for the purpose of obfuscation, not because it's necessary that it be that complicated. Why? Because, as you've stated, economics is linked to politics. Grand complex schemes are a nice way of obscuring the truth without actually lying and then the oppression and exploitation can begin.

    So- the system is made complex. Some people bother to learn the (ever changing) complexities of it and experience two things: financial reward, and a sense of (sometimes smug) intellectual satisfaction. Generally speaking intellectualism is completely in love with itself. This is bad because it leads to the perpetuation and/or creation of new and ironically stupid ways of going about things. Why? The simple truth is boring to people who love intellectual exercise but don't know where else to get it. It doesn't help matters that our current education system seems designed to get in the way of any meaningful thought. So once someone finally experiences the joys of understanding something intricate and complex they get so swept up with joy and vanity that they sometimes forget to question the value of the idea. If you have someone learn the intricacies an unjust, very complicated system of economics/politics that would give them an edge within that system, unfortunately the odds are good that they'll favor the understood, unjust system- first because they have an advantage and also because they understand it and feel better about themselves.