Expertise Matters
I think Chris Bowers makes a lot of good points here about the offensive, unwarranted, counterproductive tone of sneering contempt and bullying that bailout proponents have had for opponents and the American public. But he follows that up with a very bad point:
Besides, if there is one subject where everyone in America is something of an expert, it is the economy. Everyone is forced to live in it, everyday, and so we all have on the job training and experience in how it works.
That’s just bullshit. We all live our lives subject to the laws of physics, but that doesn’t mean that we all pick up intuitive understanding of how physics operates. In fact, just the reverse. Our personal experience of the operation of gravity, air resistance, friction, etc. is deeply misleading and leads to all kinds of wrong folk-physics notions about heavier objects falling faster than light ones. Similarly, most people in their personal lives aren’t aware of making any dramatic decisions based on small changes in interest rates. Therefore, they may conclude that small across-the-board changes in interest rates couldn’t possibly have dramatic impact on their lives. And yet, anyone who thinks that is wrong. But to see that that’s wrong, you need to acquire some expertise in the subject.
I think some populism is very much a good thing, but this kind of “who needs experts?” thinking is, I think, best left to the conservatives who’ve managed to run the country into the ground by using it as a guiding philosophy.
64 Responses to “Expertise Matters”
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September 30th, 2008 at 10:17 am
One thing to bear in mind, though, is that folk-physics isn’t a component of any political ideology. So, if you keep your electric outlets covered to prevent the electrons from falling out, that may suggest that medication would help you deal with daily life, but it doesn’t mean that you’re necessarily a Republican.
September 30th, 2008 at 10:26 am
And it is this anti-intellectual position, an abhorrence of learning, that allows a poorly educated person, like Palin, to be considered a viable candidate.
September 30th, 2008 at 10:27 am
“…best left to the conservatives who’ve managed to run the country into the ground by using it as a guiding philosophy.”
Matt, come on. If you believe that, you are well on your way to becoming a partisan hack. Look, Iraq was a disaster, but it was an elite-led, not primarily a populist, disaster.
When did populism become a conservatism phenomenon? Are conservatives the party of John Edwards? Did conservative populism have anything to do with the economic crisis? Maybe, but I think the Clinton-era relaxation of lending guidelines, and the resistance of people like Franks and Dodd to regulation reform several years back contributed as much as anything conservatives did.
Both parties were (at best) equal-opportunity offenders here. Asserting that Republican populism has lead to this crisis is ridiculous on its face.
September 30th, 2008 at 10:29 am
Correct if anyone thinks a ‘we don’t need no damn fancy so-called experts’ approach is what we need, but in the end, technocrats may be just as ideologically biased and foolish as non-technocrats, despite ostensible technical expertise.
In a democracy, we citizens have to fight to protect ourselves both from raging, knowledge-free ignoramuses and icy, self-promoting technical experts who can ruin the world when they get really hooked on some harmful delusion. (For the last 30 years, it’s not like the deregulation fetishists counted few experts among their numbers.)
Hence the pointing out by so many economists (pace Dean Baker and Nouriel Roubini) how many knowledgeable, educated economists have been consistently wrong on the economy for the last few years — and not just ‘consistently’ in repeatedly, but a consistency that can be situated in an distortionately ideological approach to a subject matter.
Non-experts are required to find some sorts of ways to tell the difference between experts who seem to be helping toward a clear understanding or solution, and experts who aren’t. It’s not like we want to do so out of our own egos — we don’t have a choice.
September 30th, 2008 at 10:31 am
I drive a car every day. I think I’ll open an automotive repair garage. My initial salary outlays will be low since I’ll be teaching the techs how to do their jobs.
September 30th, 2008 at 10:32 am
But Matt, I can see a bank FROM MY HOUSE!!
September 30th, 2008 at 10:32 am
Re “I think some populism is very much a good thing, but this kind of “who needs experts?” thinking is, I think, best left to the conservatives who’ve managed to run the country into the ground by using it as a guiding philosophy.”
———–
1)That would be fine if the “experts” weren’t all corrupt assholes like Bush, Paulson and Bernanke –who sing for their supper by betraying the country. As the past 8 years has shown time after time.
2) “Experts” cover up the most obvious facts:
a) The top 3 percent own much of the national wealth. (Top 1 percent owns 33 percent alone.) THEY are the ones at risk of losses from this trainwreck.
b) The Superrich are also the ones whose irresponsibility caused this mess. Unless you think Wall Street created derivatives because Joe Sixpack wanted his $10,000 IRA to have a little pizazzz.
c) Yet Joe Sixpack will be the one hosed by this bailout. Bush has already stolen $3 Trillion out of blue collar workers’ Social Security/Medicare accounts.
d) Another $2 Trillion will be stolen to pay for this Bailout –because Mitch McConnnell will filibuster any post-Bailout attempt to raise taxes on the Rich to pay for the bailout.
September 30th, 2008 at 10:32 am
Welcome to the world according to idiotacracy.
“Expert” status in hydrodynamics granted to people who splash in a tub. “Expert” status in astrophysics granted to people who look up at night. “Expert” status in warfare granted to people who read a Tom Clancy novel.
Of course, it starts at the top. We have a CEO/MBA “expert” president who didn’t realize how the economy worked (and used a house of cards to explain it to us) until two weeks ago.
September 30th, 2008 at 10:34 am
Economics is not a science.
September 30th, 2008 at 10:35 am
Re El Cid
Yessir, we should listen to the non-experts pontificate on subjects like global warming, HIV/AIDS, evolution, vaccine efficacy, etc. Jenny McCarthy is just as knowledgeable about vaccines as medical researchers in the field. Not.
September 30th, 2008 at 10:36 am
Mr. Stoller,
Indeed.
“Prayer may not be very efficient compared to celestial mechanics, but surely it holds its own vis-a-vis some parts of economics.”
— Paul Feyerabend
September 30th, 2008 at 10:37 am
It was the “experts” who got us into this mess. President George Bush and his Cabinet and all of his experts in the Executive Branch.
Treasury Secretary Paulson — CEO of Goldman Sachs from 1998 to 2006.
Ben Bernanke — kissing Alan Greenspan’s ass on the Fed since 2002.
It like being robbed at home — and then having the burglars come back and demand that you give them an additional $10,000 out of your ATM to pay them for closing the back door.
September 30th, 2008 at 10:38 am
I don’t think the last sentence is intended to conflate populism and the “who needs experts?” thinking, Rab. There’s certainly a difference between the two, and it’s the latter brand of false populism that has been a bedrock principle of the Bush approach to governance. Not to say that the sentence doesn’t conflate them as written, but that’s a problem of syntax.
September 30th, 2008 at 10:41 am
Stoller is right that economics isn’t a science, so the physics parallel doesn’t quite work. Still, that doesn’t mean that every schmuck’s opinion is equally valid and we should embrace Republican-style anti-intellectualism.
September 30th, 2008 at 10:41 am
um, Matt? I’m not sure, but after reading Chris’ diary, I get the feeling he means that sort of, in a way like ‘monday morning quaterback’ type of thing. …that every one of us has experience that makes us feel like we have some valid points in the conversation. Telling people who feel like they have something to add to the conversation to go stuff themselves doesn’t help…
September 30th, 2008 at 10:42 am
“Economics is not a science.”
Well, it’s not a natural science, but it sure as hell is a social science…
September 30th, 2008 at 10:42 am
But, but, but … the terminal velocity of denser falling objects is faster
September 30th, 2008 at 10:43 am
Cool to see a battle of the Matts here.
Anyway, people comparing the expert consensus on the bailout to the Iraq War, should do better to remember the actual political environment of the Iraq War. The “experts” were the former diplomats and bureaucrats at the State Department who were all saying this was a horrible idea. They were condemned and ignored by the anti-intellectual ideologues, who felt the country should “go with their gut”.
I’m not saying “ignore public opinion!”, but ignoring expert advice has done this country a LOT more harm than it has done good lately.
September 30th, 2008 at 10:44 am
Conflicts of interests are rife with this bill. The failure to address those conflicts, which even layman can see, is the death of it. It is very clear to us all that moral hazard was eliminated and bad behavior was actively rewarded in the Paulson redux plans. When the bill is so bad that even a neophyte can see the problems in it, then why the hell did our democratic leadership champion this steaming pile?!?
September 30th, 2008 at 10:45 am
Matt Y. – The physics analogy was effin’ brilliant.
September 30th, 2008 at 10:45 am
heavier items do fall faster than light ones, for the most part, except in a vacuum, having a greater ratio of momentum to air resistance.
September 30th, 2008 at 10:48 am
Re SLC’s comment “Re El Cid Yessir, we should listen to the non-experts pontificate on subjects like global warming, HIV/AIDS, evolution, vaccine efficacy, etc. Jenny McCarthy is just as knowledgeable about vaccines as medical researchers in the field. Not.”
————–
Bad straw man, SLC.
El Cid was just pointing out that CROOKED Experts can fuck you worse than ignorant fools.
The difficulty is in finding Honest experts who will endanger their livelihood on behalf of the National Interest.
With the knowledge that “National Interest” doesn’t pay shit —NO University Grants, Consulting Contracts or Corporate Sinecures like Phil Gramm is currently enjoying.
September 30th, 2008 at 10:49 am
The convergence of left-wing and right-wing populism on this issue has been a little frightening to me. And Matt, come on, are you trying to say that economics isn’t as reliably predictable as physics, therefore everyone’s opinion is equal? That does sound like some right wing BS.
September 30th, 2008 at 10:50 am
Matt Stoller Says:
“Economics is not a science.”
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Tyler Cowen registers his dissent:
http://www.marginalrevolution.com/marginalrevolution/2004/07/is_economics_a_.html
September 30th, 2008 at 10:52 am
Re Matthew’s comment “Our personal experience of the operation of gravity, air resistance, friction, etc. is deeply misleading and leads to all kinds of wrong folk-physics notions about heavier objects falling faster than light ones”
———–
I dunno. The boys who shorted the shit out of Lehman and AIG seem to have been validated.
September 30th, 2008 at 10:56 am
Comment #15 is the one to note here: Bowers isn’t endorsing the position that living in the economy give you a useful understanding of it–he’s saying that people widely believe this to be the case, so it’s foolish to market a proposal as if you’re the only one who knows anything.
September 30th, 2008 at 10:59 am
Holy sh*t, SLC, or should I say “Hama Rules!”, how the f*ck did even your addled mind get that out of what I wrote?
Surely not even you were stupid enough to need to have it be explained to you that this need for citizens to make decisions about public policy even when there are disputes or outright contradictions among experts?
If experts disagree, what, do you just sit at home and cry and wait for King Jesus Scientist, Expert In All Matters, to save us all?
I mean, for the last generation or so, a bunch of supposed economic ‘experts’ have given the shittiest advice in the universe to our own government and governments all over the world. But, um, no? Because, um, they’re experts? And to insist we use a portion of our own democracy as intended, suddenly we’re all waiting for bimbos to make our decisions? WTF?
Even more embarrassingly, given that you’re not an expert yourself, how is it that you are able to tell who tends to be an expert on global warming and who isn’t? I mean, there must be some way of telling, and I’m presuming that you used just those sorts of knowledge mechanisms to tell the difference.
September 30th, 2008 at 11:01 am
So, if everyone is an expert on economics, does that mean we have to accept and respect the diagnosis of the right wing talk-show listeners and blog readers who are convinced that the entire financial crisis was caused by liberals who wanted minorities to have houses? After all, their expert opinion counts as much as anyone else’s, right?
Economics is far from physics, and deferring to the opinion of any economist based solely on his/her credentials is foolish.
Economics is also not astrology, and the argument that expertise is irrelevant – and that completely uninformed people can make meaningful policy judgments based on their personal life experiences – is also very foolish.
September 30th, 2008 at 11:04 am
“Tyler Cowen registers his dissent”
C’mon, now. Folks solved this question many generations ago. Are Cowen and Stoller really this stupid?
The natural sciences are the application of the scientific method to the study of non-human systems.
The social sciences are the application of the scientific method to the study of human systems.
Where economics belongs is not that difficult to figure out.
September 30th, 2008 at 11:14 am
Petey,
The problem with calling economics a science, social or otherwise, is that it’s impossible to separate one’s moral judgments from one’s ideas about economics. You can study radioactive decay without having any particular opinion about the morality of nuclear weapons, and you can do molecular biology without having an opinion about genetic engineering, and you can study forest ecology without having an opinion about deforestation (although few people actually do). But it’s much harder to make economic prescriptions without invoking one’s beliefs and values. Neither “Greed is good” or “Greed is bad” is a scientific judgment.
As someone who works in the natural sciences, I’m very skeptical that there is even such a thing as a ’social science’, psychology and sociology included. And that’s OK. Not everything in our lives is, or can be, or should be, a matter of ’science’.
September 30th, 2008 at 11:20 am
Petey,
Oh, and let me add. Scientific study, it seems to me, generally works by assuming that the subjects it studies behave in predictable and explicable ways. Sometimes those behaviors are determined, and sometimes they are probabilistic. This assumption works perfectly (most of the time) for nonliving systems, pretty much perfectly for plants, and pretty well for animals. But when science studies subjects that have free will and minds of their own, like human beings, those assumptions become more and more questionable. That’s why a ’social science’ can never be truly scientific in the way that natural sciences are. Human beings, unlike oak trees, paramecia, or gas molecules, are not completely mechanistic or predictable.
September 30th, 2008 at 11:21 am
It’s not economics that’s so confusing — although it is. It’s the financial math that underpins monetary transactions that is so blazingly complex that only a few understand it. Regulate it? You might as well try regulating the speed of light.
Example: try googling “derivative tranchelet” and go on from there.
September 30th, 2008 at 11:32 am
Matt, I’m very impressed with your physics example. I’m a physics prof and I could not have put it better. You got some good physics training in your background somewhere. If only more conservatives would show evidence of such training and thought.
September 30th, 2008 at 11:34 am
I see your (M.Y.’s) point, but I also partially disagree with it.
One essence of democracy is that there are too many people in “the people” to be permanently bribed into overlooking a bad situation. If the economy is bad, people know it, theoretical arguments will likely not convince them otherwise, and by definition you cannot pay them all off indefinitely. Experts, however, are limited in number, and so can be bribed or coerced or bamboozled into accepting nonsense for basically as long as you have the ability to do so. That, in a profound sense, is one of the reasons why we have votes and elections.
That is the sense in which we are all economic experts. An economic plan may be sensible even if popular sentiment is against it. An economy itself, however, cannot be in good shape if popular sentiment feels that it isn’t.
September 30th, 2008 at 11:47 am
Neither “Greed is good” or “Greed is bad” is a scientific judgment.
And you would rarely see an academic paper in economics that would state something like that. Most economists would start from “Greed is” and work from there. And one of the things that infuriates me about natural scientists is that they DO put in policy prescriptions into their papers (ecologists in particular). But that doesn’t mean that they aren’t doing science, it just means the reader should be aware of the distinction between normative and positive analysis.
Don’t confuse economic pundits and politicos invoking economics with the academic discipline itself. It’s the flipside of conservatives who confuse environmental activists with the academic study of environmental science.
September 30th, 2008 at 11:58 am
Let me lend my support to Petey here. Obviously economics is a social science. Now we could go back to first principles and debate whether social sciences really count as “science,” but we don’t exactly have that kind of time as the cost of credit rises ominously. Let’s agree to call macroeconomics and finance a species of technical knowledge and further agree that some knowledge and understanding of them is necessary to grasp the current economic situation. To paraphrase John Cusack in Grosse Point Blank, “I don’t want to have a semantic debate about it, I just want the liquidity.”
September 30th, 2008 at 12:10 pm
Hector these are confusions, and I might add the issues you raise have been pretty thoroughly aired going back at least to Max Weber. Anything that exists can be an object of knowledge. Social phenomena exist, no? So we can try to learn about them. I agree with you that social phenomena differ from natural phenomena, and that means that the knowledge we can gain of them is of a different kind, and less capable of yielding predictions. But credit systems, to take a germane example, have existed for centuries and the same properties show up again and again.
The other point to make re Chris B is that people know a great deal about their jobs and businesses and customers and other elements of their immediate environment. But that immediate experience and reflection does not teach people about trade or financial systems or government budgets — the moment you pull back the camera to the systemic or global scale, and to emergent properties at that level, you find many folks relying on metaphors and grossly inaccurate understandings of how things work. I’ve noticed in recent weeks a lot of people saying is just another recession, which means they have no ability to read what is going on in the financial system.
What’s needed is expertise, broadly systemic understanding. That can be gained. It’s a rhetorical trick to condense expertise into “experts” and then take off on populist tirades against experts.
September 30th, 2008 at 12:12 pm
“Scientific study, it seems to me, generally works by assuming that the subjects it studies behave in predictable and explicable ways. Sometimes those behaviors are determined, and sometimes they are probabilistic. This assumption works perfectly (most of the time) for nonliving systems … But when science studies subjects that have free will and minds of their own, like human beings, those assumptions become more and more questionable. That’s why a ’social science’ can never be truly scientific in the way that natural sciences are.”
I’ve got to say that you’re a bit nescient about the meaning of science, Hector.
Natural science is not defined as studying predictable objects. Meteorology is one good example of a natural science that is as fuzzy in its predictive abilities as the social sciences are. Natural science is simply defined by the application of the scientific method to the study of natural systems. Extrapolating from simple natural systems will produce more predictable results and extrapolating from complex natural systems will produce less predictable results.
Social science, on the other hand, is the the application of the scientific method to the study of human systems. Given that human systems are at least as complex as weather, social science is always going to be more like meteorology than Newtonian physics in terms of the reliability of its predictive ability.
But that doesn’t mean that economics isn’t a science. Science comes from the method. And it doesn’t mean that you shouldn’t evacuate if meteorologists tell you a hurricane is coming your way in New Orleans, even if meteorologists are often wrong.
At the end of the day, if you devalue the currency, you’re going to get inflation. This ain’t brain surgery. Folks can figure this stuff out.
September 30th, 2008 at 12:16 pm
The modern Left is as deeply imbued with anti-intellectualism as is the Right. To some extent, it is an American phenomenon, but not altogether. There was a time when the Left believed that intellectual attainment counted for something and was a laudable goal. That has gone by the board since about WW2, and now Lefists routinely refer to the “American people” as “sheep,” as does the Right.
And, the comment comes from Chris Bowers, who himself is more than a little guilty of anti-intellectualism and sneering at those who don’t share his beliefs. This is the same Chris Bowers who denounced the notion that any citizen had a “right to privacy” that entitled them to not have to listen to him.
True Believers (TM) are not good guides to right thinking or behavior.
Thanks.
mp
September 30th, 2008 at 12:18 pm
Re El Cid
1. Actually, I think that Mr. Don Williams would be more then happy to apply Hama Rules to Wall Street.
2. Mr. Don Williams’ takes the position that any economist who has the temerity to have an un-Williams thought on the bailout is a whore in debt to the plutocrats on Wall Street. His rhetoric is almost identical to that of people like Jenny McCarthy, Andrew Wakefield, and David Kirby, the leading lights of the anti-vaxers who claim that anyone supporting vaccination is a whore in debt to big pharma and the medical establishment. As a matter of fact, his diatribe on Paul Krugman could have been written by Ms. McCarthy about Dr. Orac or Dr. PalMD.
Re Hector
Not all of physics is deterministic. Quantum mechanics is very much probabilistic in nature.
Re Yglesias
Not being any kind of expert on economics, I would, however, agree with Robert Reich that a more conservative approach in which a smaller amount of money is allocated for a bailout in the current bill sufficient to carry us over until Jan 20. At that time, we will have a better idea as to how serious this situation really is and be in a position to pass a better piece of legislation, if necessary. In addition, I agree with a previous commentor on a previous thread that Mr. Paulson should resign and be replaced by someone with more credibility to implement the interim bailout, say, Michael Bloomberg. I assume that Mr. Williams will now raise his usual set of objections to Mr. Bloomberg; unfortunately, in Mr. Williams case, it becomes difficult to separate legitimate beefs with his well known antipathy for people of Mr. Bloombergs ethnicity.
September 30th, 2008 at 12:26 pm
Re Colin Danby’s comment “But that immediate experience and reflection does not teach people about trade or financial systems or government budgets — the moment you pull back the camera to the systemic or global scale, and to emergent properties at that level, you find many folks relying on metaphors and grossly inaccurate understandings of how things work.”
—————–
But do so-called “economic experts” know how things work?
Economics is the study of the aggregate behavior of large masses of people. It has significant value in certain contexts –but it also has significant limitations.
For one thing, most social systems I’ve seen follow Pareto’s rule — out of the masses, a few people own most of the wealth, receive most of the income, have most of the power and make most of the decisions. So you focus on those motherfuckers.
And if you want to know what they’re doing, you don’t model supply -demand curves — you ask them. Then check their holdings to see if they’re lying to you. Plus make allowances for all the things that make life worth living — Greed, Lust, Envy, Gluttony,etc.
Did the masses at Lehman take Lehman down — or was it CEO Richard S. Fuld? What kind of math model do you have for Fuld’s thought processes? Drunkard’s walk or rational decision maker? What about George Bush?
September 30th, 2008 at 12:30 pm
RE SLC’c comment “Mr. Don Williams’ takes the position that any economist who has the temerity to have an un-Williams thought on the bailout is a whore in debt to the plutocrats on Wall Street. ”
————-
So, SLC, can you find me that $5 Trillion Federal surplus?
Maybe it’s lying over somewhere near Saddam’s nukes?
September 30th, 2008 at 12:39 pm
Re SLC’s comment “unfortunately, in Mr. Williams case, it becomes difficult to separate legitimate beefs with his well known antipathy for people of Mr. Bloombergs ethnicity.”
—————
Oh come on, SLC. YOU call me a Bolshivik — so I assumed you knew my views match Lenin’s.
I admit that I think it’s hilarious that Bennie Bernanke’s middle name is “Shalom” (Hebrew for “Nothing Missing, Nothing Broken” ).
Hee hee hee. Tell THAT to the FDIC.
But I think George Bush and Henry Paulson amply demonstrate that when you really need to screw this country , you need a Goyim. Actually– since I think Senator Robert Bennett bears a lot of blame– a Mormon goyim.
September 30th, 2008 at 1:09 pm
I’ll gladly join the ranks of the sneering by adding, you have to be insane to think that, if things currently stay as they are, we’re looking at a modest increase in interest rates. We’re looking at an enormous increase in interest rates, to the point that, in the very short term, no credit will be available.
Think about that… NO CREDIT AVAILABLE. You look at Japan in the 1990s, when a similar banking crisis emerged, and it took more than 10 years to recover because the government did not intervene. Our crisis appears to be far worse, and paradoxically, we’re much less equipped to deal with the negative social consequences, such as high unemployment, bankruptcies, and foreclosures. In addition, American consumers depend on low credit rates because they are heavily indebted.
Usually, economic forecasts are all about uncertainty. However, in some situations, it’s really, really easy to predict future economic trends. Without a functioning credit market, we will see negative growth within a very short period of time.
September 30th, 2008 at 1:20 pm
“You look at Japan in the 1990s, when a similar banking crisis emerged, and it took more than 10 years to recover because the government did not intervene.”
Actually, the government did intervene in Japan in the early 90’s, and it did so quite heavily. It just intervened in a way that had very mixed results.
The problems with the Japan intervention in the 90’s are why folks look towards the Swedish intervention as a model instead.
September 30th, 2008 at 1:35 pm
Lest this thread devolve into *complete* idiocy, it should be mentioned that:
IT DOESN’T MATTER IN THE LEAST TO WHAT YGLESIAS IS SAYING WHETHER OR NOT ECONOMICS IS A SCIENCE.
September 30th, 2008 at 1:51 pm
And Matt, come on, are you trying to say that economics isn’t as reliably predictable as physics, therefore everyone’s opinion is equal?
Physics very often deals with simple problems. You try to simplify the problem as much as you can, and you might wind up with simple fundamental truths. But when you try to do complicated stuff you run into complications. So for example Newtonian physics explains a whole lot, but when you try to use it you have trouble solving the 3-body problem. The 20-body problem is bad too, as is the 100-body problem. But when it’s a million-body problem it isn’t as hard — you can find statistical results that are valid and useful even though you can’t predict individual paths. Those statistics aren’t as useful when it’s only 20 things and you really care what happens to each of them.
Economics is often caught in the sizes where the statistics aren’t useful enough but the specifics are too hard to deal with. And as Don Williams points out, even when you have many thousands of individual actors to collect statistics on, a few of them wind up being very important. You need to get answers for those few, and then you’re back in the 20-body region.
Hardly anything in economics is reliably predictable when there are a few great big variables you can’t control and you can’t predict.
Petey said, At the end of the day, if you devalue the currency, you’re going to get inflation. This ain’t brain surgery. Folks can figure this stuff out.
It certainly makes sense that printing money and spending it or giving it away will result in inflation. But we can’t be sure we’ll actually get inflation. It depends on what foreign investors do with their money. We’ve already gone years with foreigners carrying us, giving us bigger and bigger loans we can’t repay. If they do that this time, we won’t hve to get inflation. If they just collect our trillions of dollars of new money and sit on it, then we’ll be OK.
Why would they do that? I can’t think of a good reason. I can’t think of a good reason why they’ve done it this long. When I ask that the most usual answer is an old joke.
“When you owe the bank $100,000 you can’t repay, you have a serious problem.
“When you owe the bank $100,000,000 you can’t repay, you don’t have a problem. The bank has a problem.”
People say that the foreigners have to keep loaning us more money because they have such a big investment in us already that they can’t stand to see it go bad. They talk like foreigners have to keep sending us money forever the same way we had to keep sending soldiers to vietnam.
Would the present crisis be enough to get the foreigners to stop doing that? If so, we have a much bigger problem than just our entire credit system collapsing. Our entire banking and credit system collapsing would be a side effect of the real problem.
September 30th, 2008 at 2:15 pm
“It certainly makes sense that printing money and spending it or giving it away will result in inflation. But we can’t be sure we’ll actually get inflation.”
Of course. But devaluing the currency is very likely to generate inflation.
Almost nothing in the social sciences is a dead lock to happen. If a person is involved in a car crash and has a leg amputated, can we be sure that they will go through a period of mental depression? No. Most will, but some will not.
Complex systems are impossible to predict with a high level of accuracy, but that doesn’t mean that some general rules don’t apply.
“We’ve already gone years with foreigners carrying us, giving us bigger and bigger loans we can’t repay. If they do that this time, we won’t hve to get inflation.”
Dude, inflation is already above 5% – higher than it’s been in a couple of decades – and unless a recession hits, it is almost definitely headed higher. And that is following close on the heels of the dollar devaluation over the past two years.
Also, you seem to be confusing the current accounts deficit with currency devaluation.
September 30th, 2008 at 2:54 pm
Petey and SLC,
Good points, but I don’t think you’re giving enough weight to the fact that human beings- because we are conscious beings with free will- are different from paramecia or corn plants. You can still make predictions, because we have a predictable and mechanistic element to our behavior, but your predictions are going to be much more questionable than even the predictions of a meterologist.
For example, a few decades back, people predicted that many Asian and South American countries were going to become massively overpopulated and outstrip their natural resources. It didn’t happen….in large part because the leaders of those countries took the predictions seriously, and made a decision to deal with the problem through educating women, promoting birth control, etc. Does that mean that the theory was wrong? Not exactly. It means that the study of human beings can’t be as scientific as the study of other organisms. With human beings, unlike with most other living organisms, all studies have the problem that they fundamentally change the system being studied, since humans are conscious beings that can read the result of the study, think about it, and decide to behave in a different way than the study would predict. That is a major problem for any attempt to make the study of human beings “scientific”.
September 30th, 2008 at 3:06 pm
Re: And you would rarely see an academic paper in economics that would state something like that. Most economists would start from “Greed is” and work from there. And one of the things that infuriates me about natural scientists is that they DO put in policy prescriptions into their papers (ecologists in particular). But that doesn’t mean that they aren’t doing science, it just means the reader should be aware of the distinction between normative and positive analysis.
TheF79,
Yes, but that’s exactly the problem. “Greed is”, true, but it isn’t everywhere, at every moment in time, to the same degree. There are a variety of cultures and social systems through history, who had a variety of types of incentives- moral, cultural, social, and economic. We can alter, at least to some degree, how much our society values different things, and therefore the structure of incentives, and the things that individuals seek to optimize, are not necessarily a given.
Saying that “Greed is”, if it means “Human beings are self-interested to the same degree in each place at each time”, is in itself a kind of value judgment.
September 30th, 2008 at 3:17 pm
Petey, my main point is that the answers we want from economics tend to be things that are very hard to compute, while with physics we often settle for lesser goals.
About the details, I didn’t intend to pick on you but to show that even for such a basic question as yours, it’s still hard to get certainty. We can make obvious predictions about the results of various possible actions of the chinese government, but it’s still very hard to predict just what the chinese government will do or when it will happen. Economists can argue what the chinese government ought to do given various assumptions about goals, but they can’t be sure what that government’s goals are or what that government believes will happen.
So strictly as a thought experiment I pointed out that the chinese government *could* collect a whole lot of dollars and take them out of circulation, curing our inflation. I don’t have any argument that they will do so, or why they might do so. But our economy depends utterly on what they choose to do and we can’t make meaningful predictions without knowing what they will do.
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