Economism
Outlines a deconstruction of the framework for understanding the world of classroom economics, clarifying assumptions and misleading teachings while sharing historical insights into how economism became a prevalent influence in the U.S.
Stats for nerds
3recommend
20mentions
4people
2017–2025years
85% recommend15% neutral
Mentions per year
What Hacker News says
- This is without a doubt the greatest piece of "economism" I have ever read. "MoNeY sUpPly" is a simplistic talking point. Supply shocks played a major role in post-pandemic inflation, along with the increase in money supply. The guy literally goes on about Supply/demand, and then says it is not a factor in inflation because; "You see price going up due to supply shocks is not inflation because now my daddy is in White House, and he's causing a supply shock"
Tariffs on elastic goods and services will lead to equilibrium. Tarriffs on inelastic goods like Oil, Steel, and Timber will not. People need to drive cars, build cars, heat homes, build homes, and maintain those homes and cars using these materials. At least in the short term, US consumers will see price increases.
It is the "Drill baby drill" School of Delusionomics. People who don't understand anything twisting themselves via mental gymnastics to justify their ridiculous belief; that Donald Trump knows what he is doing.
The guy still says "China will pay the tariff".
- The word “Presumably” is doing a lot of heavy lifting there. That Econ101 justification is harder and harder to keep up as you learn more about both economics and the real world.
For detailed counter arguments, see Branko Milanović Global inequality: A New Approach for the Age of Globalization, James Kwak Economism: Bad Economics and the Rise of Inequality, Walt Bogdanich & Michael Forsythe When McKinsey Comes to Town: The Hidden Influence of the World's Most Powerful Consulting Firm, and many other books.
- I thought the article made a lot of noise about very little.
Sure, inflation reports the change in price of an average basket, and some prices in the basket might have gone up a lot, and some down a lot. But that is a different issue, and not inflation.
The basket is carefully constructed to mirror what the average consumer consumes. Thus, the inflation of the basket measures how much more the average consumer has to spend on his consumption. That is certainly a useful number.
To your further points:
- [...] The models are not made properly, and there's a lot of hand-waiving.
I'd disagree, you must have come across the wrong models. Theoretical economics has many beautiful models precisely laid out. For example, the Arrow-Debreu equilibrium model [1] utilises "the Kakutani fixed-point theorem on the fixed points of a continuous function from a compact, convex set into itself." I doubt that any engineer can find fault with the specification of that model. Similarly, the Heckscher–Ohlin model of international trade is well specified and yields five informative theorems [2].
To which extent those models reflect, or can be applied to, the real world is an entirely different question of course.
Then there is empirical economics, a whole different ball park. But if you look at national accounts [3], for example, all those measurements are defined in excruciating detail, and there are books just dedicated to define the terms correctly.
- The pop-sci version of economics is a bunch of easy quips
Agreed. Some of them are more informative than others.
- The econ 101 version of economics is dominant in popular thought.
Yes, and that is quite bad, and is often exploited particularly by the political right, the business-friendly laissez-faire libertarians. James Kwak calls this Economism, and he has a great book about it [4].
- Inflation [...] can't look at it as a single figure.
Again, to the extent that it reflects the price increase for the consumption basket of an average consumer: yes, it is an interesting and important number, and in particular, it is one number. Obviously, with more numbers a more nuanced discussion is possible.
- Relative price changes are what matter in society.
Sure, they matter. But inflation in itself really matters also, per se.
By the way, Keynes pointed out that inflation need not be a bad thing. One thinks it is obviously bad because the average consumer has to pay more for his basket, thus can afford less of it. However, if there was, for example, a fiscal stimulus in the wake of a recession, and that leads to everyone having more money at their disposal, and aggregate demand rising, then there will be a new equilibrium with more demand, more supply, and higher prices (=inflation), but the average consumer having more of their basket than before. Good, not bad.
[1] https://en.wikipedia.org/wiki/Arrow–Debreu_model
[2] https://en.wikipedia.org/wiki/Heckscher–Ohlin_model#Conclusi...
- You're right (and I don't dispute) that almost all firms aspire to long-term shareholder value creation, and that there are both practical reasons (market forces, competition) and theoretical reasons (Econ 101 arguments such as the two welfare theorems, principal-agent theory, etc. [1]) why that is and should be so.
However, that is just a broad and fast rule, and it is neither empirically true, nor desirable, nor legally required that every firm at every opportunity "maximises profit". It is this over-simplification that I argue against [0].
If Facebook is shown to pursue profit at the expense of teenager health, or at the expense of democratic institutions, or Shell is shown to pursue profit at the expense of the environment, the appropriate response is not to shrug and say "doh, that's what companies do (and must do)!".
Instead, one ought to discuss whether A) the legal/regulatory framework within which the firm operates should be tightened (eg with rules that just prohibit certain things, or internalisation of externalities), or B) whether a firm should refrain from doing certain things even though they're (still) legal and increase profits.
[0] GP didn't state, as you sensibly do, that "profit maximization should be taken to be the default", but rather (my highlights) "That's any for profit company no matter what anyone believes. Any company its only purpose is profit.", which is just the facile statement I argue against.
[1] Note that these Econ 101 arguments for the primacy of profit maximisation rest on many assumptions that don't hold, see for example James Kwak's book Economism: Bad Economics and the Rise of Inequality.
- Right. And now that you have echoed Economics 101, it is time to look at these issues in a bit more detail. See for example John Kwak's Economism, in which he addresses this facile justification in some detail.
- > a lot of economics as it’s used for political decisions is way oversimplified to the point of being useless or just plain wrong.
Absolutely. A point well made by James Kwak in his book Economism: Bad Economics and the Rise of Inequality, where he complains about this caricature of Economics 101 that is often used to justify laissez-faire policies.
