I explained economics to my nine-year-old once. He’s a golden retriever mix, and the explanation was in the form of a song called “Who’s a fluffy boy? Yoooou are a fluffy boy!”
The 9 year old aside, I’m skeptical when anybody on social media claims they’re going to explain ANYTHING about economics. Even the best people in the world at it only KIND OF know what they’re doing.
macro economics is astrology for MBA bros
This is my takeaway from listening to NPR Planet Money.
Economists are never sure about anything, because that’s not how the world works. They only give rough estimations based on the current data, and say words like “maybe” or “high possibility”.
They’re not sith lords.
Also it’s the dumbest religion
It’s true, but it’s not because of their lack of knowledge, it’s because of the nature of the system they’re talking about. The economy is based on thousands of tiny variables, and which ones are relevant changes depending on the current state. Small changes to one part create feedback loops that effect other parts. It’s also not linear. You can change one thing by 1% and wind up changing other parts of the economy by 50%.
Economists take their best guesses based on the models and understanding they have right now, but it’s not like engineering - it’s notoriously hard to predict what the real causes and impact of anything will be. So you’re absolutely right - everything is an estimate because the system is inherently chaotic.
It’s less to do with “tiny variables” and more with the fact that the foundation of the “system” is the capricious whims of human fancy.
“Economist” falls in the same category as “alchemist”, “astrologist”, “psychologist”, etc.
Even the best people in the world at it only KIND OF know what they’re doing.
The best people in the world are very rarely the ones makes the decisions.
A bit like asking a team of NASA engineers why the latest SpaceX launch failed. They’re too busy getting downsized to give you an educated response
Engineer: It failed because it blew up. If it hadn’t blown up, the chances of success would have been much higher.
Because the front fell off.
That’s true too, but you’re also talking about a chaotic system, and chaotic systems are stubbornly hard to accurately predict even with perfect knowledge.
Economic forecasters are like weather forecasters. The really good ones give you their best guesses, but it’s still not a guarantee of anything - there are too many variables and even the tiny ones can have a huge impact on results.
Economic forecasters are like weather forecasters.
Weather forecasting, particularly in the near term, has grown very accurate.
Incidentally, front running, insider trading, and market manipulation have become increasingly common place as our information infrastructure has improved.
I’d say the one big difference between economics and weather is that a bunch of weather forecasting all saying “It’s going to rain, bring your umbrella” won’t cause rain because so many people bought umbrellas.
there are too many variables and even the tiny ones can have a huge impact on results.
There are a few very big variables that have an overwhelming influence on the system. If the Fed changes interest rates, if a major artery of trade becomes congested, if two major trading partners tighten or relax their trade policy, etc.
“Tiny” factors can precipitate bigger changes. A butterfly can slap Jerome Powell in the face while he’s announcing the new Fed Funds rate. But the things you’re looking at are all downstream and therefore predictable
Oh, there are certainly very big ones, but even the big ones sometimes don’t have predicted impacts because at given times some things that USED to be drivers might not be just now. For example, a 2% sales tax increase, depending on the current state of people’s buying, could have a minor impact or a major impact. If people are already buying only what they need, the impact to demand could be negligible. If they’re splurging but wages are stagnant, maybe it has a huge impact. If they’re splurging AND wages are increasing, maybe it has a negligible impact again. The basic point is, even if you understand the major drivers, without a bigger picture of the macroeconomic picture and what specific forces are driving behavior at the moment, your impact could be anything from dulled to the exact opposite of your intention.
Also, some of those factors, front running, insider trading, and market manipulation, which are evidence of a more predictable market, BECOME additional variables that impact decision making because they themselves impact other factors.
Weather forecasting might not be the best metaphor here… it’s more like the human body. You might know that some protein causes some favorable condition that you want to boost, but increasing that protein production might ALSO increase production of an enzyme for breaking it down, reducing bio-availability of one of the building blocks, leading to a reduction of another protein that’s critical for immune function. All of these pathways function together in ways that are extremely hard to predict, and it’s natural that very often you’ll be wrong.
But that’s not to say I’m being defeatist… you build better models and you try things anyway - because that’s what we do. I’m just saying economics is very, very, very hard, and there’s not just a limit to our current ability to predict, there’s a limit to how much certainty we CAN achieve.
anybody
on social mediaincluding economists*, claims they’re going to explain ANYTHING about economics.ftfy
This is like one of those two-line horror stories.
The economy is coming from inside the building!
The economy is like fairies. If you don’t believe in it, it stops existing.
