Saturday, January 03, 2009

All Hail Simple Economics

I'm no econ guru.  As an accounting major, I took three econ classes and two finance classes in college, and that's it.  And while I did well in all of them, I understand that I never really understood much of how it all works.  And partly that's because they don't really teach you much of how things really work at that level.  It's all this silly theoretical stuff about an ideal world.  

Hell, I took a finance class that taught how to pick stocks using dividends and profits and all that great stuff, yet it was during the internet boom and all the "hot" stocks didn't pay dividends or have profits.   Many of them didn't even have feasible business models, yet still were considered "hot" in the same way a craps player can feel "hot."  And for as much as the professor was teaching us the basics of how stocks should be picked, it was obvious that this isn't what Wall Street was doing and we all knew it.  

I remember having a class discussion on whether it was a good idea for Time Warner to allow itself to be purchased by AOL.  I said it was a horrible idea, while many others strongly disagreed.  As usual, the accountant was right.  I should add that most of the finance majors I went to school with couldn't even read a simple Balance Sheet.  And I've dealt with real-life loan officers who were just as bad.  It's their job to read such things, yet they couldn't understand the basics even when I explained it all to them.

Econ for Dummies

And so I'm always amused whenever Atrios bitches about the dumbing down economists give as the public face of their profession.  Economists write papers that are so far above my head that I can't even begin to see where they begin, yet when speaking publicly, you'd think this was all stuff they could teach to third graders.

And I just don't get that.  Most experts take pride in how difficult their fields are.  Artists don't glibly say "Oh, I just threw a bunch of paint on a canvas."  Stock brokers don't admit that herd-based gambling trumps real number crunching.  They all pretend as if they alone have the expertise required to understand the genius of what they're doing.  Yet economists really do engage in a complex field, yet act as if all the answers were staring at them in the mirror each morning.  Paradoxically, because their field is too complex to explain, they feel it necessary to over-simplify everything for easy consumption.

And not only do I think that does a huge disservice to their profession, but think that it creates an over-generalized impression that economics is something that anyone can easily understand.  And the people who fall for this are simpletons who really do believe that the one econ class they took really did explain everything to them.  For them, the "free market" is a perfect system that is only fouled up by government interference; all evidence to the contrary.

The Supply & Demand Oracle

I once knew somebody who took one econ class.  Yes, just one, and kept trying to explain the wisdom of Supply Side Economics to me based entirely on one of those supply & demand charts they show you on the first day.  I kept trying to point out to her that her chart was meaningless because it had no numbers on it and tried to discuss the issue rationally.  But to no avail, all I'd get was yet another meaningless graph with two meaningless lines intersecting and the insistence that this proved that taxes needed to come down.  The more I denied the obvious truth of her idiotic graph, the more frustrated she'd become and the more insistent that I was in denial for not admitting that her graph proved everything. And this person graduated from a respectable university not knowing any more about economics than this.

And this is entirely absurd.  Now, I don't expect for them to be teaching the tough stuff on day one, but they at least need to convey the idea that they're not getting very deep into any of this.  Intro classes are really little more than teaching the basic terminology of the field, yet too many people take these classes and imagine they're ready to be amateur economists.  One supply & demand chart and they think they've solved all the pressing economic issues of our day.  Similarly, one psych class is enough to become a psychiatrist and one philosophy class puts one on par with Kant.  Interestingly, I know few people who think they're accountants after the first Principles of Accounting class.  And usually, they decide that they want nothing to do with accounting.

But those Micro & Macro econ classes really do give a stupid idea of economics, particularly to stupid people who wouldn't understand the tough stuff if it was explained to them.  As long as those meaningless lines intersect, they know the score.  It's unfortunate that too many of the actual professionals have decided that things are so complex that they'll just pretend the complexities don't exist.  The markets were out-performing the theories, so rather than imagine that cheating was going on, they decided to toss out the theories and place full faith in the markets.  And as long as they can silence the ones who don't play along, they can pretend afterwards that nobody could have predicted.  

1 comment:

fledermaus said...

The other problem I've seen is that they tend to make an assumption but then that assumption becomes the conclusion. I saw someplce an economist talking about how long the recession would last and he said it would not be too bad based on his "model" and followed with an ass covering "our model assumes the US economy is self correcting"