How Did Economists Get It So Wrong?
I found this to be a must read. I should be getting work done, but this is MUCH more interesting.
How Did Economists Get It So Wrong? - NYTimes.com
Much of this may be boring to those formally schooled in economics, but I'm not, and I'm liking the insight I'm getting from this concisely presented hindsight. So to speak.
How Did Economists Get It So Wrong? - NYTimes.com
Much of this may be boring to those formally schooled in economics, but I'm not, and I'm liking the insight I'm getting from this concisely presented hindsight. So to speak.
Comments
Really? I thought it was all old-fashioned, classical gold, guns and steel fiscal conservatives around here.
<scratches head>
Well, I'm seeing a lot of irrational actors in the market right now. They just don't realize they're acting irrationally. I'm no fiscal conservative, but I do realize that buying now is taking a huge bet. Actually, the stakes have been rising since the mid 90s, but economic bubble theory isn't taught in primary school.
It should be.
I am not an economist, but is there an actual economic bubble theory? Like the kind of theory that might have a rigorous curriculum associated with it? I'd love to see it if it exists. I imagine the theory would need some updating after this last decade.
http://technologyreview.com/blog/arxiv/24023/
http://www.amazon.com/Why-Stock-Markets ... 0691118507
I'm not either, but I find it hard to believe that even the most basic Econ curriculum wouldn't touch on speculative bubbles. There's plenty of theory out there, and a great number of classic examples.
http://en.wikipedia.org/wiki/Economic_bubble
I think that physics and economics are both sorely neglected subjects in the public schools of this country. Incredibly important, vital topics that are just too 'hard' (and I don't mean difficult) for many people's liking. Tough! Deal with it.
Science in general is just neglected in our public schools. Why? We churn out four lawyers for every engineer, and wonder why we are faltering, why our car companies can't compete on the world stage... it wasn't always this way. America used to be a shining light of ingenuity, with the best public schools in the world. Now we are falling through the international rankings like a stone.
I truly believe that in order to compete on the world stage, America needs to solve it's education problem. Forcing everyone to drop 120k on a four-year college (which spends the first year just teaching it's students what they should have learned in high school) isn't realistic or sustainable.
I got a B.A. in economics with a focus on international trade and we didn't really talk about bubbles at all (and I was taking the courses just after the dot com crash!). My courses were mostly all about long-established qualitative economic theories, not much in new developments. I hear that a B.S. would have involved a lot more calculations of hard numbers, so maybe that degree touches on it. Or bubbles might be something taught at the Masters level.
I agree that America is facing a large education problem, but I think the root of that problem is a lack of money. We have no money to spend on education and are already in a huge amount of debt from so many years of federal budget deficits. The money to fix the education problem simply isn't there.
This is a bit off-topic, but I think before we can fix the education problem (and every other similar problem facing this country) we need to find a way to fix the trade imbalance. We've had years and years of spending more on imports than we do taking money in from exports, and thus slowly using up our country's wealth to sustain the lifestyle we're used to. We need to turn that around, so more money is coming in than going out. Only then can we afford the education and healthcare and other government services we've come to expect in this country. There are only two ways to fix this trade imbalance. Work harder to sell our goods and services to people outside this country and/or stop buying so much stuff from outside this country.
That would need to be a bunch of individual decisions, right? If we become like China, where students are immersed in science so they can create more products to make the rich there richer, it probably wouldn't be worth living in the US anymore. Better to have a lower standard of living in terms of material goods. Especially since most of the stuff people buy is unnecessary junk.
We are in complete agreement that if your priority is to retire on a government pension, without having to work hard, produce results, or enjoy the material benefits which those brings, that socialism would be just fine for you.
The wonderful world of labor control of industry awaits you in Detroit.
There is a very small amount of duplicated effort when two companies make competing products, but the fruit of that competition far outweighs the cost, which is why companies often pay for competing efforts even among their own employees, as well as of course the government paying for competing designs on military projects.
So I assume you are talking about how somehow a large fraction of your personal output is directed to some other person who is getting rich at your expense. That does happen in some cases, but fortunately thanks to capitalism and our freedom, you can go somewhere else to work.
The problem is that in socialism, there is no where else to go. A large portion of your income goes via taxes to people who do not want to work, or who spend their time lobbying for special benefits from the government. Even worse than that, is that because there is little reward for hard work and innovation, the total output of the country falls and there is less total products and services to go around, regardless of how they are distributed. That's why socialism failed in Russia and China, and will eventually fail everywhere else also.
Another example is schools. Many schools are public, government owned schools, yet they have to compete with other private schools that still exist.
Many of the companies around these days are so large and multinational that it wouldn't much different if they were just multiple governments competing against each other. A world where there was the USA owned auto manufacturer competing against the Japanese owned auto manufacturer competing against the South Korean auto manufacturer competing against a German manufacturer, wouldn't be much different from GM competing against Toyota competing against Kia competing against Volkswagen.
Also, who's to say that one government can't have multiple divisions created to compete against each other, or have municipal governments compete against each other and the federal government.
There are many ways to have socialism while still having competition.
From the perspective of a customer, where transportation and other frictional costs are low, that is true. However, it is much more difficult for a person to move to a different country and culture if that is the only way to change jobs if they have developed industry specific skills. So that means that the company or its government will have monopoly power over those employees. That will inevitably lead to unionization, and that seems to always lead to explicit and implicit work rules that favor clock-punchers and against people who want to work hard and innovate. Unionization also causes wages to be set higher than in a competitive environment (witness Detroit), and that hurts consumers, who then have to struggle to pay the bloated salaries and benefits of people fortunate enough to gain employment in a government protected union shop.
There are problems with gov't in every country (it's an evolving process), but the problems of our gov't are a lot worse than the problems in most socialist countries. How is it better to be highly innovative and work hard for 30+ years, paying $hundreds monthly for premium health insurance, yet still be able to lose everything, even $millions, if you have a health issue? How is it better for hard workers to pay $thousands annually into a gov't retirement plan, and have that money be routinely raided to shower fat cats with it, so that the workers can't retire? There is relatively little reward for hard work and innovation here in most cases; socialist countries offer a greater reward for that. One can still get rich in those countries too.
If you maintain your own retirement plan, then it won't get raided, except through government action. The only plans being raided are the ones set up through collective bargaining.
As for health costs, the reason they are so high in the US is because the rate of obesity is far higher here than in other countries. So it is our prosperity actually that is causing the problem. It will take some time for people's behavior to change, but all this talk about socializing health care is slowing things down by distracting people from really what needs to be done, which is simply better diet and exercise.
I'm actually not interested in more vacation. With all the people in the world that are living in extremely poor conditions, I really don't think we should be doing even less than we are now.
Obesity is a factor to be sure, but if you take good care of your body you can still be forced into bankruptcy over a health issue despite having premium health insurance and plenty of money. Doctors and hospitals here can charge anything for anything; if it's one of the million things not covered by your insurance then you're on the hook for the whole amount. Will you be scrutinizing the charges when you're unconscious? Our system would be just as broken if Americans weren't obese.
Then you support socialism = more cooperation for the greater good. Capitalism promotes a worse standard of living for the competition (e.g. Nike wants no laws supporting labor at its foreign plants). If everyone gives up their vacations, you'll find that the conditions of the poor remain about the same. That's because poorness is due largely to corruption and/or dictatorship, problems that everyone working more don't solve.
I very much agree. That's why I am so opposed to socialism, because it is so well suited to having a dictator siphoning off the wealth of a nation. If people get to keep what they produce, there is much less opportunity for that kind of theft.
Here is a source that explains it numbers.
http://www.economist.com/media/pdf/QUALITY_OF_LIFE.pdf
They rank the US as #13. However, if you go to the bottom, you see that the US blows away the other countries except Luxemburg in GDP per capita. Norway is a close third. Canada would probably do well if you restricted it to the population that lived within commuting distance to the US.
The weight assigned to income in that study is 11.5. The life expectancy is given a weight of 15. The US gets a low score there because about 30% of our population is obese, as compared to 10% in most other countries. The divorce rate is given a weight of 14.3, which is a bizarre weight considering how many people do not even get married. And so.
Basically studies like that are nonsense made up by Europeans to get around the plan and simple fact that if you like having stuff, you are better off being in the US.
While there is a long and rich history of communist dictatorships stealing from the citizenry, the current situation in the world is subtly different. While traditional communist despotisms like N. Korea are still around, perhaps the most terrible places on earth are in excessively capitalistic places like Africa, the slums in the industrializing world, or the ghettos of the first world. These are the places where your ability to get by, with nobody getting your back except informal networks of friends and family (or "friends" and "family"). History appears, to this observer at least, to be teaching that capitalism in the extreme is just as tyrannical as communism.
Also, in case you missed the memo, the United States has been a socialism in the proper since at least the 1930s. Of course, the era between say 1945 and present has been uniformly the most economically repressive era of this nations existence. Right?
So, in other words, there is in fact not that much correlation between how much money you have and how "good" your life is. If I were inclined to argue for socialism, evidence like this is very powerful. It does not support more capitalism unless you believe wealth alone is the most important goal in life. If so, I'm sorry for your dreary (to me) existence.
What that study shows is that if you are willing to pick some non-sensical metrics and factors you can put whichever country you want on the top.
If the residents of a country spend their money on granite counter-tops, then it makes sense to say that capitalism is not worth the problems it brings. In fact, this country is exceptionally generous in its foreign-aid and charitable contributions, both within the country and outside. Europeans doesn't have as much wealth to give from, but within the US, places like Mississippi, which ranks on the par economically with most of Europe, gives a larger percentage of its income.
As for fixing up US ghettos, we spend a huge amount of money there every year, but with little progress to show for it. That's because the problems there are not really monetary. They are caused by the breakdown in family structures that was caused when welfare programs penalized mothers for having a husband.