Economist here, I want to rant about why I don't tell people

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I got a PhD and all, I can post a picture if you'd like but I'd have to do it in such a way that I am still anon. After my personal rant is a longer itemized rant about common economic fallacies I hear.

Social science is one of the most difficult things to be an expert in because everyone on the planet has some sort of internal model about how society works. People only learn things via personal experience so some expert coming along saying "ahhhctually I read in some book that blah blah" always backfires.

The result is you get this "the people that know aren't talking, and the people that are talking, don't know" effect with all things social science, and especially economics because that is something everyone thinks their opinion is just as good as an experts'. Worse, if you disagree they think you have a political agenda.

That last part is mind boggling stupid to me because one of the foundations of economics is that economists do not assign value to what people want. So, by assuming they think I am telling them to value something, i.e. push an agenda, they are highlighting how far left on the DK curve they are. It's a giant "do not talk to this person, they are a proud dumbass" flag for me.

There are some things as an economist that are not pushing an agenda. Tax cuts do not decrease the budget deficit. That is just nonsense and the situations where it "theoretically could occur" are so extreme that we are far from it. Basically, we'd have to have 90% or so average tax rates, not marginal.

However - this is another annoying habit of people - they assume by pointing that out I therefore am against tax cuts. Most people I talk to, you tell them you like tacos and they assume you like fajitas. That's not how I talk - if I say I like tacos, I said I like tacos (but said nothing on my preference for fajitas, I gave you no information on fajitas - by the way I like tacos but not fajitas).

Unfunded tax cuts are actually part of the toolset to deal with a recession - its identical to more government borrowing/spending. In those cases the impact on debt to GDP long run is beneficially as long as it is temporary. Just don't expect me to say that in a good economy cutting taxes is going to decrease the deficit. I wouldn't be an economist. But - even with all this info you still say "I want tax cuts and the government to borrow for them!" I cannot really prove you wrong. I cannot tell you that is something you should value. In that case you would be saying you prefer the government have more debt and (rich) people having more money to drive up land values with their asset purchases.

Which is why I don't talk about it generally. I am an analyst by trade and being accurate about what will happen is how I pay my bills. I would say that the bulk of the social science field is the same in that we want to be correct in our predictions of what will happen. While we may have things we want to happen, professionally our reputation hinges on our predictions as it informs on our internal models. If our internal models are wrong, our colleagues will not respect us.

So when a neighbor or a relative dismisses something I say that is pretty damn accurate as incorrect without any supporting evidence, it is insulting to a high degree and I make mental note to avoid that person.

You end up realizing ignorance is bliss and when someone tries to force a political discussion, you smile and nod. My wife's friends typically know I am an economist by the time I meet them so its not like I am telling people when I meet them.

The typical course of how it goes is a husband of my wife's friend will come up to me and start dropping hints of wanting to talk about politics. Then it goes into something I cannot resist responding to or I would lose respect for myself. Usually they react poorly as social science informs me that people by age 30 or so don't change their worldview and being seen as correct is important to particularly males.

I hate to say this, but its almost always males too. My fear as a social scientist is "STEM male, laughs at liberal arts majors, took no liberal arts classes, still thinks that if they took a few weekends off they could get a PhD in it and prove the field wrong."

It's so common I hate myself for prejudging people like this. Men in particular have an arrogance bias in which they want to believe they understand the world and know how things work. It contrasts sharply with a scientific background in which you are taught to constantly doubt your evidence and second guess. In my world, if I say something is 90% sure, its pretty sure and we go on that. In the normal world, people see that as a sign of lack of confidence.

Economics teaches you to think at the "margin" and the typical person thinks naturally in the "categorical." Categorial thinking is "I like Pizza." Marginal thinking is "I like about 1-2 slices of pizza after that I do not like pizza." It seems like a small difference but it matters a lot. We are taught to live in reality and work within that. We are taught that everyone has their motivations and incentives, and that typically people are selfish.

I am such a cynical person that 10+ years ago there was a guy doing a book tour about building schools for girls in Afghanistan. I was a churchgoer back then and the youth group I was part of all wanted to go see him speak. I said out loud he "was probably a fraud because usually the louder people proclaim their good deeds, the more awful they are." I was seen as a downer for saying that. But... years later it was proven he was a fraud (look it up, google "Afghanistan girls school book fraud" or something like that).

Anyways cynicism is a must in being a social scientist because there is no reading of human history or the nature of human societies that leaves you with much optimism beyond the hope that technology can somehow mitigate our demons.


So here it is, my rant to this forum on things I want to say to people that people keep saying:

Oil and world markets:

- There is one world price of oil. Absent market interventions the price per region would vary only by transportation costs. Saudi Arabia pays the same price per oil, but they use subsidies to keep their consumer price at the pump artificially low. We could do the same if we wanted - we could tax oil and then use it on gas rebates. It wouldn't mean gas were cheaper its just shifting the accounting to placate a political base.

- The US oil production does not impact the price of oil very much. We could triple it and it wouldn't budge - mainly because our oil is several times more expensive to extract than Saudi oil. As a result anytime the price of oil goes down, US oil producers default on their loans and try to renegotiate terms. Many US banks are decreasing their oil and gas loans because of this fear that OPEC will occasionally crash the price to keep US production out of business. As a bonus, they are often claiming they are doing it for the environment (but we all know if price were high and stable they would be all in).

- People consistently do not understand trade deficits. The term "trade deficit" is a fiction created by people with a political agenda because it does not exist. There is a "current account" and a "capital account." They must balance. What you hear about as a "trade deficit" is actually a "current account" deficit. What that means is your trading partner has more of your currency than you have of theirs. But they must balance it out in the capital account by using those dollars to buy US assets.

- Basically, the larger the trade deficit we have with the world, the more the world will be pouring those dollars into US real estate and equities - we end up paying higher rent because of this but US landowners/equity owners benefit as well.



Government debt:

- Most people don't know how government accounting works. When they say "$1 trillion of increased spending," its over 10 years. I am not referring to any specific bill, but that is typically how the government accounting is reported.

- $1 trillion over 10 years is $1 Trillion divided by (10 * $20 trillion GDP annually) or about .5% of GDP. I significantly understated the GDP as I held it constant. A $1 trillion spending bill, even if you think its the absolute worst, at least your anger should be mitigated by the fact that its not as large as it seems.

- Most people also form their model of government budgeting on their household model of borrowing and spending. In the household model, all borrowed money must be paid back before you die (or your creditors get first cut at your assets upon death).

- There are several key differences however. Governments do not die. They also do not retire. So imagine if you lived forever and your income went up 4% per year. You can actually keep borrowing money forever and never pay it back as long as the interest rate is below 4% per year.

- Another key difference is many governments borrow in money they print. This would be like going to get a loan in money you are printing out at your house.

- Why would they do this? Well because they believe your house will keep producing goods that people want to buy with that money.

- Why would you borrow and not print out more? Well because if you did, that would increase inflation - decrease the value of the dollar.

- We still owe money we borrowed from WW2, its just that the principal remaining has grown at a slower rate than the GDP of the country, as a result it doesn't matter as much. Because our GDP is growing faster, it makes sense to invest that marginal $1 on future GDP than paying down existing debt.

- The only things that matter in a country that borrows in money it prints is unemployment and inflation. To see why, think about this:

We could commit to paying off our debt completely as soon as possible. Raise taxes a ton, and lets do this. But that would cause such a huge unemployment shock that you would be foolish.

Alternatively, we could print out more money

This is not a license to borrow as much as you want. However it must be emphasized that anyone claiming the US will go bankrupt is lying to you.

We see it plastered all over the news - the national debt. Whats it up to now, $30 trillion? Looks scary right!

As I mentioned, the US could legally fire up the printing press and pay it off tomorrow - so the idea of bankruptcy is literally impossible.

But of course they won't do that because that would be inflationary. But the national debt reporting is dishonest at a more fundamental level. The people who report the national debt numbers do have an agenda they are trying to get you to worry about it to justify cuts in government spending.

If you were an accountant and were trying to assess the fiscal health of a company, would you panic about debt?

Well of course not, your first question should be, "well what are the assets and the operating income?"

Notice how every article about the US debt never talks about that - so its a fundamentally dishonest way of reporting.

The US government alone is estimated to have $150 trillion in assets (1/2 trillion in Gold alone, most of rest is public lands). The US operating income is a percentage of the expected future GDP of the economy. When you put things in those terms - you will lose a lot less sleep over the US debt.

Again, note I am not saying I like fajitas. I am not saying I want more debt. I am just saying that the people coming to you huffing and puffing about it are either ignorant or have an agenda. Because in practice, neither party has managed to balance budgets for 40+ years. Its because those at the top know its not a big deal. So they spread fear about it for short term political gains.

The reality is no one is talking about what the real issue is - all the baby boomers retiring. We promised them a lot of money that is either going to have to come from general revenue or borrowing. We sure as hell know that no politician will be elected will be able to win and run on legitimate reform.

Taxes

-Most people have no clue what they are truly taxed. This is because there is a difference between "economic tax incidence" and "legal tax incidence." If we announce a "LeBron James" Tax and say that he (or whoever is the best NBA player) must pay 10% more in tax, it is very likely he can turn around to his employer in his next contract and demand most of that back.

We often find across wide ranges of occupations and wages, there is differing ability to pass on a tax increase to their employer. This is similar with inflation, some people can pass on their increased costs to their employers better than others.

-They also don't really have a good accounting of what they get from the government, and most research shows that roughly the middle class gets what they pay into, and most redistribution is from the top to the bottom (so if you make less than 300k or so I guarantee you very little of your taxes is going to people that don't work, its generally the really rich who get far less in benefits than they put in).

- The government programs also don't advertise, which leads to people not being aware of their benefits. The people who want the government programs to end do advertise, which leads people to being overly aware of the negatives (or outright lied to).


- again, I never said I liked Fajitas - I am not advocating for or against any government program in specific or in general.

Random tidbits

- Recycling paper is stupid, stop doing it to save trees. It does not save trees. Trees are a farmed product. If we waste more paper, they plant more trees. Again, I'm not saying I like fajitas here - don't waste paper to cause them to plant more trees.

- Most of the criticisms you see in the press about the field of economists "not knowing something" are actually things that are well known and accounted for in economics. I see it every year or so, some article written entitled, "what economists get wrong about xyz." When in reality, you can do a scholar search and see like 10 journals wholly dedicated to that issue (exaggerating slightly here).

- Most people also have no clue how much math and statistics are required to get a graduate degree in economics. They remember taking economics in high school or maybe college and it was mostly reading. Graduate level econ is almost entirely math and statistics. The only parts that aren't are the ones where you are writing literature reviews of others' work.

Economists are very big on being able to formulate your statements in algebraic form. It forces you to say something clear and definite.

We believe if you can't put your model about the world into algebraic form, you can't take derivatives with it and thus make hypothesis about how things will change. If you can't understand and apply statistics, you can never see if the real world data matches your hypothesis (and thus see if your model is wrong).

If you can't do that, then you are blowing out your @ss.

Me too! I'm thrifty, but I don't tell people because they'll think I'm a cheapskate.

I saw in a documentary that England had a huge trade deficit with China a few hundred years ago. We were buying loads of tea and China plates. Most of the precious metals in the British banks were given over to China because of this.

This is the "mercantilist" fallacy.

The wealth of a nation is not its gold, its the value of its goods and services.

China in 1800 was poorer than it was in 1250. Britain was and still is much richer per person than China.

Another way to put it, the power of Britain was giving them useless shiny metals in exchange for things they enjoyed.

Warren Buffet said something like, "why would you want gold? The only reason you would buy gold is to hopefully sell it to someone at a higher price. You'd much rather buy something that produces something like a business."

Another common fallacy is that imports are bad and exports are good.

As I wrote, when we buy stuff from China, we give them US dollars (or pounds, or Euros, etc). Now they have US dollars. Unlike Gold, US dollars can generally only be used in the US. So you have to either buy goods from US or things IN the US, like land.


So trade deficits are a fiction.

Mercantilism and the quest for gold reserves was demonstrably proven incorrect over several hundred years of experience.

Fiat currency is a great thing. Gold has awful traits as a currency. It tends to go up in value in recessions - which makes recessions worse. During severe recessions there tends to be deflation and contrary to what people think, deflation is worse. Yes, eggs get cheaper but deflation is also employers paying less in wages, which come in the form of layoffs because people don't accept pay cuts.

Regarding why China was poorer per person in 1900 than it was in 1250 - it was because they concentrated land at the top. Because wealth was tied to land, the rich kept hoarding the export crop land and the masses kept getting smaller and smaller plots.

Result was by the time Mao came around and shot the landowners and redistributed the land, the average Chinese peasant was just glad to have more than they did, which was barely enough to survive. The lesson is that extreme inequality can lead to the collapse of a state, and there is strong argument that this contributed to Rome's demise.

The UK over time did adopt more policies that acted as a release valve for excessive wealth accumulation, and has not collapsed.

There are microeconomic explanations for things.....and there are macroeconomic explanations for things.

One thing that scientists might not do is take into account "personal experience"----because "personal experience" is mere "anecdote," and not directly derived from science/research.

In psychology, say, B.F. Skinner might have been "right" about certain things macrocosmically in a psychological sense----but that certainly didn't apply to his relationship with his family.

Thanks for posting. I hope you will continue to post here and provide the insight your background has given you.

(I am a STEM bro but I have huge respect for mainstream economics)

ok thanks for that answer its interesting.

What are the negative or positive outcomes of another nation who has hostility towards the US owning a lot of US land?

Thanks! I too generally read mainstream and what other economists say are great economists. I am at the bottom of the field, even with an advanced degree. It definitely makes me humble and reminds me I need to pick experts to follow. Doesn't mean I believe everything 100% they say, but I definitely think some deserve to to be listened to even if you end up not agreeing 100%.

There is a general agreement amongst the fields that you trust the experts in each. It holds well for most fields. People don't generally burst into a medical conference and insist the worlds leading heart surgeon actually doesn't know anything about how to do heart surgery. Its the same with physics - non physicists generally defer to the experts.

But when it comes to economics, you see the political agenda warp it. The hatred of Paul Krugman is entirely outside of the field of economics.

If someone viscerally reacts to the mention of Paul Krugman, its a huge sign they've been brainwashed. I know because I was. I came of age in the late 1990s and early 2000s and Paul Krugman became a target of right wing media - by the way he worked for Ronald Reagan's White House. My father was a right winger and I reacted to his name with aversion and chuckles by some sort of Pavlovian response.

Problem was: I never read what he wrote. When I got further into economics education, I challenged myself by reading his works. Turns out, he isn't radical at all. He's actually very level headed, and makes no claim of being 100% accurate and infallible.

His sin was to dare criticize Bush's tax cut as not budget deficit reducing and highly skewed towards the rich. It was. And he was correct, Bush turned the Clinton surpluses into persistent deficits. He was also a vocal critic of the Iraq War, so right win media vilified him. He was extra correct about that too.

He was actually was saying more or less what the field of economics said at the time - tax cuts do not pay for themselves in a good economy. The only argument you can make when they pay for themselves is in a severe recession and those tax cuts have to be temporary, like 1-2 years tops. In that case it operates exactly like government spending.

I used to read Tyler Cowen's blog a lot (www.marginalrevolution.com). He was what I'd call a "counter point" to reading Paul Krugman. But something happened the past few years with Tyler Cowen - he's become a cranky old man. I think a lot of men in particular forget what its like to be young as they get older and start to see the wisdom they learned in their age as something they can use to make fun of the young.

I noticed it in another Conservative Economist that actually got me into economics - Thomas Sowell. I used to read his op eds and his books got me into economics but I noticed he turned more "get off my lawn" as he got older. I really think its narcissism mixed with old age that makes some people forget that young people are always somewhat stupid, so writing op eds making fun of college kids doing something is the comedic equivalent of a sex joke - its easy and low effort.

Tyler Cowen's blog was really silent on politics during the Trump years - and I was ok with that it fit his theme. He did 1-2 blog posts dismissing Jan 6th as not a big deal, then when Biden took office he started blogging a lot about "wokeness." I'd say he's revealed himself to say what we all make fun of "libertarians" for - they are actually Republicans that just like to smoke pot. However, supposedly he's a teetotaler. Of course, he has also been blogging about how people should give up drinking. It fits with the "I'm a wild old sage, why don't people accept my wisdom?" mindset that highlights a extreme lack of self awareness.

If you want to learn about economics, I highly suggest Carton Introduction to Economics - https://www.amazon.com/Cartoon-Introduc ... 0809094819

There is a macro economics. It is very well done and explains the state of the field very well. The difference between reading that series and getting a graduate degree is with a graduate degree you would learn how they arrived at that point and the methods used. But there is no secret knowledge we are keeping from the public.

I mean if China were to declare war on us, we'd just take it. So from a political point of view, them owning US land is probably a geo political stabilizer. There are a lot of rich people over there that would have second thoughts about escalating hostilities with the US.

However, the real vulnerability is in Taiwan. They have an insane percentage of the worlds chip manufacturing. If China invades Taiwan their threat is "you may take our land, but we hold the world by the microchips."

One bias that a lot of economists have is the "everyone just wants to trade and get rich" bias. I would say that applies to a lot of liberal arts "experts." They spend a lot of time hanging around with like minded people who see that the best way for the world to get rich is cooperation and not geopolitical rivalry.

And its true - it is the best way. But when a guy like Putin comes around (or a Hitler) who does it all for ego and doesn't care, it throws their predictions wrong.

So, while I would say that China owning US land is a strong reason for them not to start problems with us, the reality is their leader can try all dissenters with treason and have them shot. He would know that there would be statues of him for centuries if not thousands of years if he retakes Taiwan.

Good to hear from an economist here. I look forward to seeing more of your insights.

Yep. One thing that's scary to me is the apparently growing number of people, here in the U.S.A., who believe in various grand-conspiracy claims about the Federal Reserve and want to abolish it. Abolishing the Federal Reserve would be an absolute disaster, it seems to me.


What kinds of policies do you consider to be economically sound ways of counteracting excessive wealth accumulation?

Last edited by Mona Pereth on 12 Oct 2022, 9:17 pm, edited 1 time in total.

Question about trade deficits:

Does this not result in increasing inequality? And, if indeed "current account" deficits result in increasing inequality, wouldn't that be a sound reason to oppose "trade deficits" -- at least if one regards increasing inequality as a bad thing?

Or am I missing something here?

(Of course, some attempted remedies for trade deficits might still have unintended consequences.)

I feel pretty safe in saying that most of the population ONLY knows "economics" as mangled for them by economically illiterate politicians. That is, just-so stories of dubious logic to justify what they were going to do anyway for ideological or selfish reasons. If they know anything, it seems to be half-memories of long-superceded theories or the ravings of diploma-mill crankcases. This has not done the reputation of the subject any favours. It's like if politicians were constantly sounding off about the "science" of dephlogistonated aether.

ok thanks, thats a few things to think about

This is actually an interesting point because it is true.

One of the fallacies of neoliberalism and the way free trade was sold to the West in the 1980s-1990s was that while there may be "winners," and "losers" in trade, if the country as a whole is better off you can just tax the winners to compensate the losers.

It works in an algebraic model.

But in reality, the "winners" just buy lobbyists to prevent any compensation.

A lot of American tech companies basically took technology developed at publicly funded US universities (for the most part, anyways), and made trillions of market value by offshoring production to Asia. They benefited greatly from free markets.

In neoliberal trade theory, this is, "great, cool lets tax them more to compensate the high school educated worker who now makes $8 instead of $15 with benefits

In reality, the winners bought lobbyists and use that to keep compensation out of the question.

The field of economics has slowly been realizing this. For example, Paul Krugman - a guy that could be said to be the face of free trade in the 1980s and 1990s - wrote an op ed not too long ago saying we got it wrong. There is growing evidence that the rapid globalization hit rural America hard and there was no compensation.

So, when it comes to economics, there are two things to remember:

1) what is optimal

2) what is probable

1) What is optimal is people should be for more education spending, more social safety nets for people left out of globalization, etc.

2) What is probable is some anti free trade nationalist comes along and shuts the whole thing down because people are suspect of "free money from the government" and xenophobia is a powerful marketing tool.

In Europe, there are left wing as well as right wing nationalists who both agree in less free trade.

In the US, the closest thing we have to a left wing nationalist is Bernie Sanders. (For the record, I viscerally hate Bernie Sanders as a person but he can be correct about a lot of things but is dishonest about a lot as well).

I really love this example of yours as a way to think about economic policy and, well, a lot of political policy:

To be fair historically I think the American left has been pretty sceptical of free trade. The Clintons and Obama were generally free traders, but Biden has been more protectionist, “buy American”, etc. There were some Democrats prepared to come out swinging for free trade in the last campaign, but I think most people have forgotten than John Delaney and Michael Bennet ever ran.