Comments on: Economic illiteracy

By: armchair pessimist

armchair pessimist — Tue, 09 Sep 2008 11:17:08 +0000

Some years back the London Economist asked four groups a series of questions in which the respondents had to make predictions about the economy. The groups were: Professional Economists, Government Officials, Business Leaders, and the London Trash Collectors. Group #4’s predictions proved the most accurate.

This is not to attribute mystical wisdom to the Common Man, but it is a warning not to blindly believe everything the “experts” tell us, much as they would like us to.

By: Rick J

Rick J — Sat, 03 Mar 2007 07:00:00 +0000

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By: Anonymous

Anonymous — Sat, 03 Mar 2007 07:00:00 +0000

Counsel from elders seems to be a lost treasure. Lost are lessons learned that may contain pearls of wisdom that could have benefited the seeker. Having survived my share of hazardous crossings, I am pleased to be able to share a thought or two. The main lesson is to keep on learning. Read and seek out other points of view like visiting your blog. Finding what is ultimately important has lead me to appreciate actuality, efficiency and mindfulness. Helping others to see some of the forest through the trees is a rewarding benefit of age and maturity. discernment

By: Alex

Alex — Sat, 03 Mar 2007 07:00:00 +0000

Hi Richard,

Again, I don't agree that the most efficient economies have the least restraint. There are many reasons why unregulated economies may be inefficient, and why regulation may increase their efficiency. To take two quick examples of market failures, there is the problem of asymmetric information (the used car market is the most common example) and the problem of externalities (pollution is the common example). In both these cases, various interventions could be made (third-party credentialing and Pigovian taxes, respectively, to take two examples) to increase efficiency.

The general lesson to take away is that the free-market-is-panecea model won't get you much farther than Econ 101. There will always be debate over the optimal levels of regulation/taxation/etc., but it is wrong for even efficiency-crazed people to assume that less is always better. And of course there is always the issue of equity, which I haven't even touched.

By: napablogger

napablogger — Sat, 03 Mar 2007 07:00:00 +0000

I agree with Phan that experts often disparage non experts on subjects of their expertise. But the plain fact is that we have to make economic decisions all the time as voters, so it would behoove us to learn as much as we can. The current social security debate is a good example, it involves economics heavily and the American people through opinion polls are going to decide its fate. So it is better not to leave the subject alone, because you can’t. I am frequently reminded of how little most people seem to know about it, yet make all kinds of political decisions based on it.

By: Richard Aubrey

Richard Aubrey — Sat, 03 Mar 2007 07:00:00 +0000

Alex. I didn’t say that there should be no restraints on choice. I said that when there are, economics gets complicated, not least because people would prefer not to be restrained and frequently work at getting their choice back by unforeseen means.
Hence the trouble, both in following the economy, and in making it work efficiently.
You will note the most efficient economies have the least restraint.

Richard Aubrey
raubrey@sbcglobal.net

By: Minhduc Phan

Minhduc Phan — Sat, 03 Mar 2007 07:00:00 +0000

It is normal for people who specialize on a field to find it annoying when novices discuss that field and do not what they are talking about. Everyone here probably has a topic that is dear to one's heart and would find it offensive when people who know nothing comment on it.

I am an economic major, I used to think I know the definition of economic. But as I read more of the conservative economists (Von Hayek, Von Mise, or Sen), I am not sure that it is that easily defined. But I know NOW that it is not about number, equation, or GDP. Economic is afterall a social science.

By: neo-neocon

neo-neocon — Sat, 03 Mar 2007 07:00:00 +0000

Alex, apparently my economic illiteracy extends even to the definition of economics itself. On the first day of the course, where they put up on the blackboard “What is economics?”, I guess I already wasn’t paying enough attention.

Thanks, everyone, for the suggestions for some good books and blogs about economics for the beginner. One of these days I’ll get around to them…one of these days….

By: Alex

Alex — Sat, 03 Mar 2007 07:00:00 +0000

At the risk of being an economics snob, I'd like to argue that Dennis the Peasant's post isn't really about economics. It's about tax fraud, and auditing, and the internal workings of the IRS. Dennis certainly appears to know his stuff on these topics, at least more so than Drum. But is this economics? I don't think so.

An economist might ask, for example, under what circumstances will fraud increase or decrease? If, say, fraud increases with the tax rate (I have no idea if this is true, but it would be my guess) then how much of the expected revenue increase will it eat up? How will fraud affect the distribution of the tax burden? What is the optimal level and distribution of audits, given that audits themselves are costly? And so on. Dennis and Drum do not touch questions like these; Dennis is simply reaming out Drum for not knowing his figures, and not knowing how the IRS works.

Economics isn't specialized knowledge related to taxes (or the stock market, or business). Economics is a set of theories about decision makers and the way they interact with each other and with institutions. Money, taxes, firms etc. need not be involved (though of course they often are). But ideas such as constraint optimization, supply and demand, and risk aversion do need to be involved.

And to Richard Aubrey:

I can't say I agree with you. Every developed economy has many, many restrictions on choice, and indeed could not function without them. For instance, contract law and patent law, two things generally adored by conservatives, both restrict economic choice. The real question is what are the best institutions and the most wise restrictions.

By: Tom Nally

Tom Nally — Sat, 03 Mar 2007 07:00:00 +0000

My favorite economist/blogger: The Angry economist (Russ Nelson) at http://angry-economist.russnelson.com.

He seems to blog for the non-economist. Though he is capable of high levels of economic nerd-dom, I suspect, he doesn’t really venture there.

He’s also quite the tech geek. Elsewhere, I’ve seen where he said that he still writes packet drivers. How many of us out there have done that? Not too many.

—Tom Nally, New Orleans