6 ms·

Here are my observations as a layman: 1) The economy is really, really complex, to the point that people who study professionally are about as good at predicti

Here are my observations as a layman: 1) The economy is really, really complex, to the point that people who study professionally are about as good at predictions as a dartboard. 2) Therefore, monkeying with it means pulling levers on a machine you don't understand. 3) While pulling those levers (via stimulus, bailouts, etc) may or may not help, it DEFINITELY costs lots of money. My conclusion: as much as possible, leave it alone. Exceptions: "referee" kinds of issues - no stealing from your customers; banks can't have a bunch of CDO debts off the books, etc. Then let the market work it out. House prices falling? Well I guess we built too many houses. Sucks for the people that are trying to sell, but it's awesome for the people trying to buy. Leave it alone and it will work itself out. Propping up the market just wastes money and delays the inevitable day of reckoning.

danielsoneg 16y ago
I tend to take this approach with medicine too - the human body's a pretty complex machine.
- sabat 16y ago
  I presume you're being ironic.
- presidentender 16y ago
  Anatomy, physiology and pharmacy are susceptible to investigation via the scientific method. The economy is not. Furthermore, the layman had best not mess with his own treatment in many cases: "Give me antibiotics, they worked last time I was sick!"
  - bitwize 16y ago
    Anatomy, physiology and pharmacy are susceptible to investigation via the scientific method. The economy is not. Tell that to Esther Duflo, the only rational economist. Unlike just about the entirety of the rest of her field, she actually conducts controlled experiments and gathers data, rather than arguing from a priori assumptions.
    - presidentender 16y ago
      Really? She conducts controlled experiments on economies? Gives stimulus money to one city and simultaneously does not give money to an identical city in the same economic climate, something like that?
      - bitwize 16y ago
        Basically, yes.
protomyth 16y ago
Generally markets work much better when the "referee" part is a known quantity. We are currently seeing a lot of problems based on the lack of knowledge about healthcare rulings and further government intervention. It is almost like everyone is holding their breaths.
thedaveoflife 16y ago
The one problem with this logic is that occasionally leaving it alone, as you put it, can be more costly than taking action. Often when we see the problems that emerge when the government takes action, i.e. with bailouts, we ignore the problems that were prevented.
- hga 16y ago
  Agreed: TARP and the related interventions of that period were designed to prevent a cascading failure of the world's financial system, which we know is very bad: http://en.wikipedia.org/wiki/Creditanstalt http://en.wikipedia.org/wiki/Creditanstalt.
  - lzw 16y ago
    The failure has not been prevented, it has merely been postponed to a point at which it will be vastly worse. This is a fundamental misunderstanding of economics that politicians tend to have. You can't spend money and change history, all you can do is let the errors f the past be worked out via natural processes, like bankruptcy. If we had liquidated all those fraudulent securities we would have a stronger economy than we do by damaging the rest of the economy in order to perpetuate the fiction that those securities were not fraudulent. The money used to support these bog use housing securities was taken out of the economy, and that act damaged it more than letting banks fail. It, notably, also did not free up the credit markets which remain seized. In this case the market was not tricked by a political action that did not address the fundamental issues.
    - hga 16y ago
      I think you're misapprehending my point (and I wasn't all that clear or let alone detailed). I agree 100% that deleveraging is what's required, the liquidation of all these bad investments (and for that matter that's what the Austrians recommend). Here I'm talking about timing and secondary effects. There's a big difference between this effectively happening all at once as banks and other institutions refuse to do business with each other due to the fear of counterparty risk vs. working through this inevitably very painful process over a period of years (traditionally I gather it tends to be about a decade, which is way too slow and painful, but better than the first option). When you allow the first to happen a bunch of viable companies go out of business quickly because they can't do their day to day financial work. E.g. one of the FDICs actions has been to guarantee non-interest bearing business accounts so that e.g. you can be sure your payroll will happen (even if the bank collapses and a bit of a delay is incurred at worst case).
CWuestefeld 16y ago
Actually, what you're writing about -- the very fact that the economy is so complex that nobody can fathom it -- is pretty much what one of the Austrian gods, Friedrich Hayek, wrote, and he earned a Nobel Prize (partly) for this. Yes, it's quite impossible for any one entity to understand all that's going on: every project and its priority; every input to those projects, and how readily other inputs can be substituted (aluminum instead of steel? we could do it, but...), and so on. The only way to work this stuff out is to let the market handle it. And this is exactly what is being done when you see prices fluctuate in response to supply and demand, etc. This allows people to indicate directly just how important each choice is to them.
ataggart 16y ago
As Hayek noted in The Fatal Conceit, "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."
- CWuestefeld 16y ago
  If you're lucky, you find a few books over the course of your life that completely change the way you look at the world. For me, The Fatal Conceit was one of those books. Hayek does a great job of showing how society, including its markets, evolve just like nature does. Victors impose their culture on the vanquished, but themselves aren't immune from influences of those they're occupying, etc. The product of this is something of tremendous complexity. That it works is evident, but just like a natural evolved organism (or a genetically-derived algorithm, for that matter), the way that it works is completely opaque. Today we can't even imagine actually engineering a better human being -- or even a frog for that matter. If we're lucky we can manipulate a few very basic traits. Deeper meddling than that is pretty much assured to produce stillborn offspring. Why, then, do we persist in the belief that we can fundamentally change the structure of how our markets work, or even completely engineer new ones from whole cloth?

danielsoneg 16y ago

I tend to take this approach with medicine too - the human body's a pretty complex machine.

sabat 16y ago
I presume you're being ironic.
presidentender 16y ago
Anatomy, physiology and pharmacy are susceptible to investigation via the scientific method. The economy is not. Furthermore, the layman had best not mess with his own treatment in many cases: "Give me antibiotics, they worked last time I was sick!"
- bitwize 16y ago
  Anatomy, physiology and pharmacy are susceptible to investigation via the scientific method. The economy is not. Tell that to Esther Duflo, the only rational economist. Unlike just about the entirety of the rest of her field, she actually conducts controlled experiments and gathers data, rather than arguing from a priori assumptions.
  - presidentender 16y ago
    Really? She conducts controlled experiments on economies? Gives stimulus money to one city and simultaneously does not give money to an identical city in the same economic climate, something like that?
    - bitwize 16y ago
      Basically, yes.

protomyth 16y ago

Generally markets work much better when the "referee" part is a known quantity. We are currently seeing a lot of problems based on the lack of knowledge about healthcare rulings and further government intervention. It is almost like everyone is holding their breaths.

thedaveoflife 16y ago

The one problem with this logic is that occasionally leaving it alone, as you put it, can be more costly than taking action. Often when we see the problems that emerge when the government takes action, i.e. with bailouts, we ignore the problems that were prevented.

hga 16y ago
Agreed: TARP and the related interventions of that period were designed to prevent a cascading failure of the world's financial system, which we know is very bad: http://en.wikipedia.org/wiki/Creditanstalt http://en.wikipedia.org/wiki/Creditanstalt.
- lzw 16y ago
  The failure has not been prevented, it has merely been postponed to a point at which it will be vastly worse. This is a fundamental misunderstanding of economics that politicians tend to have. You can't spend money and change history, all you can do is let the errors f the past be worked out via natural processes, like bankruptcy. If we had liquidated all those fraudulent securities we would have a stronger economy than we do by damaging the rest of the economy in order to perpetuate the fiction that those securities were not fraudulent. The money used to support these bog use housing securities was taken out of the economy, and that act damaged it more than letting banks fail. It, notably, also did not free up the credit markets which remain seized. In this case the market was not tricked by a political action that did not address the fundamental issues.
  - hga 16y ago
    I think you're misapprehending my point (and I wasn't all that clear or let alone detailed). I agree 100% that deleveraging is what's required, the liquidation of all these bad investments (and for that matter that's what the Austrians recommend). Here I'm talking about timing and secondary effects. There's a big difference between this effectively happening all at once as banks and other institutions refuse to do business with each other due to the fear of counterparty risk vs. working through this inevitably very painful process over a period of years (traditionally I gather it tends to be about a decade, which is way too slow and painful, but better than the first option). When you allow the first to happen a bunch of viable companies go out of business quickly because they can't do their day to day financial work. E.g. one of the FDICs actions has been to guarantee non-interest bearing business accounts so that e.g. you can be sure your payroll will happen (even if the bank collapses and a bit of a delay is incurred at worst case).

CWuestefeld 16y ago

Actually, what you're writing about -- the very fact that the economy is so complex that nobody can fathom it -- is pretty much what one of the Austrian gods, Friedrich Hayek, wrote, and he earned a Nobel Prize (partly) for this. Yes, it's quite impossible for any one entity to understand all that's going on: every project and its priority; every input to those projects, and how readily other inputs can be substituted (aluminum instead of steel? we could do it, but...), and so on. The only way to work this stuff out is to let the market handle it. And this is exactly what is being done when you see prices fluctuate in response to supply and demand, etc. This allows people to indicate directly just how important each choice is to them.

ataggart 16y ago

As Hayek noted in The Fatal Conceit, "The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design."

CWuestefeld 16y ago
If you're lucky, you find a few books over the course of your life that completely change the way you look at the world. For me, The Fatal Conceit was one of those books. Hayek does a great job of showing how society, including its markets, evolve just like nature does. Victors impose their culture on the vanquished, but themselves aren't immune from influences of those they're occupying, etc. The product of this is something of tremendous complexity. That it works is evident, but just like a natural evolved organism (or a genetically-derived algorithm, for that matter), the way that it works is completely opaque. Today we can't even imagine actually engineering a better human being -- or even a frog for that matter. If we're lucky we can manipulate a few very basic traits. Deeper meddling than that is pretty much assured to produce stillborn offspring. Why, then, do we persist in the belief that we can fundamentally change the structure of how our markets work, or even completely engineer new ones from whole cloth?