Tuesday, November 02, 2010


From Paul Krugman's blog:

Macroeconomics Is Hard

The thing is, no amount of experience meeting a payroll helps you understand issues that are critically affected by the way things add up at a macro level. Businesses are open systems; the world economy is a closed system, with feedback effects that are crucial but play no role in ordinary business experience. In particular, an individual businessman, no matter how brilliant, never has to worry about the fact that total income equals total spending, so that if some people spend less, either someone else must spend more, or aggregate income must fall.

This is why we have a field called macroeconomics. Unfortunately, the hard-won insights of macroeconomics are being rejected right now in favor of visceral feelings. And we’ll all pay the price.


To fully understand what Krugman is getting at, go read his column from Monday--his blog post, excerpted above, is in response to angry emails he's gotten about it. But here's the short version: most people don't really have much of a handle on economics, but many of those people think they do. I've written a lot about problems within the field of economics itself, most notably how economists, unlike actual scientists, begin their lines of reasoning with assumptions, rather than actual data about how the world actually functions, and when those assumptions are wrong, it spoils entire conclusions. But Krugman's observation focuses on our cultural fetishization of economics, how some people, usually guys in suits like businessmen or bankers, are seemingly in a much better position to "know" economics than workaday schmucks like you and me.

It kind of makes sense. Guys in suits deal with money, and the movement of money, in a much more substantial way than individual consumers. Guys in suits are looking at a wider segment of the overall economy than simply making rent by the first of the month, or paying off your student loans. So people feel like guys in suits "know" about economics stuff. And like I said, to some extent, that's true. Guys in suits understand money better than guys in t-shirts and jeans. Just ask 'em, and they'll let you know, especially if you start the conversation by asserting that we need to tax the rich more, or that we need more government regulation of business. They'll tell you how much they know, and how much you don't know, all fucking day long.

But the dirty little secret, which isn't really all that secret if you think about it for like two seconds, is that businessmen and bankers really only "know" economics in terms of their own businesses, in terms of maximizing their own profits, which is exactly what they're supposed to do as capitalists. What businessmen don't spend much of their brain power on is pretty much anything that doesn't affect maximizing their own profits. That means that, if these guys in suits have any economic expertise at all, it's regarding their own businesses.

Of course, the economy is much larger than any one business or industry, and concerns much more than maximizing profits. Consequently, asking businessmen for economic advice is really only going to get advice that is helpful to them, not you. Nonetheless, the establishment continues to cast these guys-in-suits in roles for which they are wildly, well, unsuited.

And because our ruling elite greatly prefers the sage wisdom of what amounts to tribal witch doctors, voodoo economics are what is practiced. By "voodoo," I mean "bullshit." Bullshit that keeps us unemployed and living on credit cards.