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Ask HN: What are you reading to make sense of the economy?

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Re: Ask HN: What are you reading to make sense of the economy?

#151
post #55

Earlier quoted context omitted.

The response of governments around the world doesn’t look like it’s been informed by Austrian economics, and in places which have implemented some kind of policy derived from MMT (esp. Australia) things have been looking pretty good. What would Austrian economic policy have done differently and better?

Maybe I'm don't understand it properly, but it seems to me that Austrian economics would predict hyperinflation and high interest rates in Japan the last twenty years when the opposite have happened. As you say Modern Monetary Theory models predict Japan and, also, the missing depressions in Australia.

Their central bank practically nationalized the entire economy:

https://research.stlouisfed.org/publications/economic-synops...

As for Australia they are heading into a deep recession as we speak and who knows if it will be a depression or not but given the state of the world, odds are reasonable.

Re: Ask HN: What are you reading to make sense of the economy?

#153

Making sense in what fashion, to what end? Investment opportunities? Proposed public policy changes? Where to look for a job? To a large degree the economy is unknowable. That's why you can get two economists in a room and receive seven opinions. Don't get me wrong; there's good value there. It's just that economics is an odd mix of philosophy and math. On my more cranky days I call it astrology for people who know c…

Agree 100%. The whole reason why market economies - economies based on the decentralized mechanism we call "prices" - work better than any other economic system is because they're decentralized. If one person or group of experts could know the current wants/needs of millions of individuals, we wouldn't need prices and that person/group could predict the direction of the economy.

Similarly, say all you care about is predicting a recession since that's going to risk your job/business/personal finances etc. As far as I know, there's no way to predict a recession until after you're already in one. Sure, a yield curve inversion has preceded every recession in the past ~50 years, but (1) that's only ~5 recessions (2) the inversion has taken place up to 33 months prior to recession and (3) as the Great Recession taught us once again, just because something has been true for many years in the past (housing prices always going up) doesn't mean it'll hold true in the future.

Macroeconomic forecasting is by and large nonsense. The PhD chief (macro)economists from big banks you see on CNBC will, at best, identify some recent trends that could cause the economy to change if said trends continue and, at worst, prognosticate. I wouldn't describe myself as an "economist" since I only hold a bachelor's of science in economics, but the prognosticators do a tremendous disservice to themselves and to the practice of economics.

So should you ignore all economic news and analysis?. No. You might be able to make some vague, general, long-term forecasts, like how I believe that the US economy will remain a major economic power 20 years from now (hence why I'm comfortable squirreling away cash into S&P 500 Vanguard index funds) and that Amazon will probably be a major company for most or all of that period, but I don't pretend to know whether inflation will be below 2% for any fraction of that period, if self-driving cars will replace Uber drivers, or if China's per-capita GDP will exceed that of the US.

You have to be careful to identify what's not knowable even when everyone else believes that something is knowable. When I did debate in high school (circa mid-late 2000s), we had a topic on whether the US government should increase investment in alternative fuels. Many arguments in favor relied on the assumption that oil prices would continue to rise. Some experts debaters cited even suggested the world had already reached "peak oil." Judges were receptive since they were paying $4.00/gallon for gas. Now, of course, if oil is a finite resource and our consumption/drive habits remain the same, oil prices will have to rise eventually without alternative fuels. But few people, including me, (at least few people who got media attention) realized that the then-high oil prices were both (1) inducing previously cost-prohibitive US oil extraction and (2) weakening the incentive of OPEC's members to keep production low. That was a lesson to me: conventional wisdom about the economy, even "wisdom" from "experts" in a segment of the economy, can be wildly inaccurate.

P.S. hot take: while it's clear that humans can and have changed the climate, it's not clear what the tangible effects will be... so while some investment in mitigation may be warranted (especially with respect to obvious pollutants), we should be careful not to incur massive costs today on the assumption that say, Miami will definitely be underwater in 50 years.

Re: Ask HN: What are you reading to make sense of the economy?

#154

Making sense in what fashion, to what end? Investment opportunities? Proposed public policy changes? Where to look for a job? To a large degree the economy is unknowable. That's why you can get two economists in a room and receive seven opinions. Don't get me wrong; there's good value there. It's just that economics is an odd mix of philosophy and math. On my more cranky days I call it astrology for people who know c…

I believe this sentiment is mostly a symptom of the extreme prevalence of charlatans who use economics as a marketing tool rather than a social science.

Economics is really just accounting, statistics and psychology. But mostly accounting. I think people get really worked up about the “unknowable” parts and fail to see that accounting can open up tremendous insights if we only take the time to understand it well.

If you want to learn about economics for some specific money-making purpose, you’ll probably end up with an incomplete view that frustratingly fails to describe reality most of the time. On the other hand, if you approach the subject simply with an open mind seeking understanding, you will be richly rewarded with deep insights about the structure of society and the human condition.

Re: Ask HN: What are you reading to make sense of the economy?

#155

Earlier quoted context omitted.

The Austrian School seems to have been wrong about the last 15 years' money printing causing inflation. In particular, the general Austrian school would have predicted a lot more inflation by now. The prediction on this has fared so poorly that the last 15 years has given rise to a school nearly diametrically opposite to the Austrian school: modern monetary theory. (My understanding of the Austrian response to this i…

If you're talking about the U.S. that's mainly due to our reserve currency status and nothing else. And the money printing has driven certain sectors higher even in the face of low / stagnant growth. Stocks, real estate, etc being some of them. But you gotta understand that we export a great deal of our inflation. One day those dollars will come home to roost, but until then, Germany's balance sheet looks a hell of a…

The American Dollar was the world's reserve currency in the 1970s as well. They still managed high inflation.

The subdued American inflation despite QE has a more technical and contingent explanation: the Fed started paying Interest on Excess Reserves (IOER) in 2008. Ie they reward banks for keeping the money they are printing out of the economy.

Most of the time since then, the interest on short term US government bonds hasn't been much higher than the interest on excess reserves. So there hadn't been much aggregate economic impact when the Fed bought government bonds with new money.

The banks slightly preferred excess reserves over government bonds, because they regulators preferred them.

The QE was 'sterilized' by IOER.

Re: Ask HN: What are you reading to make sense of the economy?

#156

Earlier quoted context omitted.

Economists do not claim to know the economy, much less to the point of becoming rich. They are far more likely to insist that nobody can know such thing. You must be thinking of somebody else.

Hardly. Economists may believe in the idea, for example, that you can't time the market, but I have yet to meet an economist who doesn't have very strong ideas about the types of policies or interventions that are good for bad for the economy, and again it often feels like you get 10 economists in a room and you get 10 different diverging opinions.

First, strong opinions are not knowledge. In the event that one economist forgets that, the other nine will remind him of it. But that's hardly the case right now. There's a lot of discussion on what should be done right now on the part of economists, but it's very clear that nobody is quite sure of what to do. Which is why there is so much discussion in the first place.

Second, knowledge about the economy, specially such that all could become "billionaires", is empirical knowledge and knowledge of particulars such as knowledge of when to time thr markrt. Economists have some conjectural and general knowledge regarding some policies which leads the profession to develop something akin to a consensus on certain issues (10 out of 10 is really a gross exaggeration), such as rent controls. But there has never been a proposition in economics which hasn't found defenders against any supposed consensus, specially nowadays, with the incentives to publish surprising results, and most are conscious of it. The issue with the comparison with any sort of divination is that economists do not claim to be good forecasters.

Re: Ask HN: What are you reading to make sense of the economy?

#157

Earlier quoted context omitted.

The Austrian School seems to have been wrong about the last 15 years' money printing causing inflation. In particular, the general Austrian school would have predicted a lot more inflation by now. The prediction on this has fared so poorly that the last 15 years has given rise to a school nearly diametrically opposite to the Austrian school: modern monetary theory. (My understanding of the Austrian response to this i…

Are you aware of the stock market, housing market, bond market, precious metals? Asset price inflation absolutely is happening. The FED up until now was able to keep the CPI increases fairly low even though they were creating trillions of dollars, because the money was locked into assets. This has had a severe effect on anyone in the market for these assets that have risen.

How do the assets lock up money?

The stock market, no matter how enormous it's market cap, doesn't lock up any money. When I pay through the nose for Tesla stock, the other fellow then has some money that he either has to spend or park somewhere.

Re: Ask HN: What are you reading to make sense of the economy?

#158
post #19

The only school that has any explanation for this is the Austrian School of Economics. Their theory of the business cycle is the reason they successfully predict every crisis to the tee (except for timing, no one can do that), while other economists are just blown away in surprise that it even happened. Mises and Hayek wrote big and hard to read books about it, but two that explain this to the layman are "Meltdown" b…

The best theory I've seen for crash cycles is: 1. The establishment encourages making credit widely available in order to pacify the less well off who would otherwise demand a better deal out of the social contract. 2. This leads to unsustainable debt, as people are forced into borrowing to meet basic needs with no means to pay it back. 3. Eventually this comes to a head as people begin to default, causes a cascading…

How does step 2 work? Are the creditors fools?

Re: Ask HN: What are you reading to make sense of the economy?

#159
Many are plugging books here, so I will plug: The Money Problem by Morgan Ricks

It provides a solid overview of different views of what is money, what is banking, and in what ways does the financial system impact the real economy? - These are all contested points in economics.

He goes on to lay out a different design to a monetary system, that he believes resolves the main fragility in our current system - panics on short term debt. It's a good read for someone who enjoys system design as much as they do financial/monetary economics.

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