Techdirt Reading List: Economics Rules: The Rights And Wrongs Of The Dismal Science
from the economics-is-fun dept
We're back again with another in our weekly reading list posts of books we think our community will find interesting and thought provoking. Once again, buying the book via the Amazon links in this story also helps support Techdirt.This week, we have Harvard Professor Dani Rodrik's excellent new book Economics Rules: The Rights and Wrongs of the Dismal Science. We write and talk a lot about economics around here, and we've recommended a number of economics or economics-related books. I've also argued in the past that economics should be a key subject taught in schools, if only because so many people (especially policy makers) seem to have trouble understanding the concept of tradeoffs, which are so key to understanding economics.
Of course, economics is also somewhat controversial. Sometimes it's described more like a science, and other times as a more wishy-washy "social" science, and then, to many, it's nothing but a scam. The fact that economists rarely agree on things certainly doesn't help matters. Add to that fact the various disciplines within economics, which sometimes appear to be contradictory (even if they're often not), and many outside of the field like to dismiss the concept of economics entirely, even when it actually is incredibly valuable in understanding the world around us and the options around various policy choices. And that's where Economics Rules is such a valuable addition to the thinking about economics.
Rodrik does a really great job laying out where much of the confusion and misunderstanding comes from, highlighting how economics is -- very much purposely -- about building models. But models, by their very nature, are not the complete picture of everything. They are limited models, which are very, very useful... in specific circumstances. When you need a map telling you how to drive to the doctor, you don't need a map that shows you changes in elevation. That information may be more accurate, but isn't very useful. So the crux of Rodrik's argument is that different economic models are useful in different situations, and if we just spent more time focusing on making sure people were using the right model in the right situation -- rather than looking for the grand unified perfect model that explains everything, economics would be a lot more useful in general.
The book is great in that it's useful both for people who aren't that familiar with economics -- to help them understand why it's useful and when it's not so useful -- as well as those who are deeply familiar with economics. For the latter, it's really useful for getting people to step away from steadfast devotion to certain models in areas where they might not really apply, where assumptions may not line up and where the key variables may actually be different. Personally, I found it quite useful in shaping my own thinking about economics and economic issues.
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Filed Under: dani rodrik, economics rules, reading list, techdirt reading list
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It is very dismal
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Re: It is very dismal
The prevailing economic theory in developed nations is that people act in response to incentives, and that if you rearrange the incentives, it will change the aggregate behavior of the people in question. While this is obviously a useful way to model human behavior up to a certain point, it's all too common to not understand where that certain point is.
For example, the incentives theory says that if interest rates are low and inflation is high, you will have a stronger incentive to take on debt and spend money than if interest rates were high or inflation low. So ever since the financial crash of 2008, the US Federal Reserve has been taking widespread measures to suppress interest rates and create inflation... and yet the inflation hasn't shown up and people aren't borrowing and spending.
Why? Because we're at a point in the USA where this particular incentive is essentially equivalent to "pushing on a rope." Consumer spending--the largest segment of the economy--is driven by the largest segment of the consumer base, which is, as it has been for decades, the Baby Boom generation. But they're getting into retirement age, or at the very least seriously-preparing-for-retirement age, which is a time when you want to spend less, save more, pay down debts rather than take on new ones, and set your financial house in order to attempt to secure your future.
Of course trying to create incentives for someone to very obviously act against their own best interest isn't going to work! (Particularly when doing so for a massive group of people.) And yet the theory doesn't take this into account, so people keep trying it and it keeps not working...
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Re: Re: It is very dismal
Consumer spending--the largest segment of the economy--
unquote
reason number one where number crunchers fuk it up.
you can't just have a nation full of users. the money
has to come from somewhere. to my grade nine brain,
it's that simple. don't confuse me with facts
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They say that an economist is someone who can authoritatively explain to you tomorrow why the thing he authoritatively predicted yesterday didn't end up happening today.
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Re:
One presumes that an economist who authoritatively explains to us tomorrow why the thing he authoritatively predicted yesterday didn't end up happening today exceeded the limit of his knowledge, and that makes it okay.
I find it hard to put my faith in any economic theory that's based on ideological considerations and doesn't describe the world we actually live in.
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Economics + Psychology = Becoming Science
For example, we know the whole “rational economic man” idea is a load of nonsense. What replaces it will have to be much more subtle and nuanced. And grounded in scientific reality, not ideology.
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herd mentality
It certainly doesn't bode well for any predictive 'science' that when put to the test, the more-educated turn out to be far dumber than the less-educated. Though it's entirely possible that "shock therapy" economic theory was actually crafted by military strategists rather then economic experts, and the post-Soviet economic collapse was by design rather than by accident.
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Re: herd mentality
Due to our relative personal autonomy and the fact that economic development was organic and incremental, we had more money to spend on the arms race than they did. They ran out of dosh and out of steam.
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Re:
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Re: Re:
Who's with me?
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Financed by hot air
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Re: Financed by hot air
projections of growth fuelled by production don't apply any more.
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