Salon states that “dumbed-down output” from some economists are having tragic results.

I look at it differently — I see a disconnect between the way people actually behave and the expectations of economic models. Call it a failure of ideology.

Regardless, here is what Salon claims as the top 10 economic myths having a negative impact:

• Myth 1: Economics is a science.
• Myth 2: The goal of economic policy is maximizing efficiency.
• Myth 3: The economy is a market.
• Myth 4: Prices reflect value.
• Myth 5: All profitable activities are good for the economy.
• Myth 6: Monopolies and oligopolies are always bad because they distort prices.
• Myth 7: Low wages are good for the economy.
• Myth 8: “Industrial policy” is bad.
• Myth 9: The best tax code is one that doesn’t pick winners.
• Myth 10: Trade is always win-win.

Whats the collective view on this? Are they right or wrong?  In the ballpark?

What say ye?

 

Category: Really, really bad calls

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

28 Responses to “Discuss: Does Economics Harm the Public?”

  1. Frilton Miedman says:

    Emphatic agreement with all ten points.

    The recent Reinhart-Rogoff catastrophe sums it well.

    Whether it was intentional omission, a freudian slip or honest error, attempting to mathematically plot reality on a sheet of paper yields way for massive reinterpretation via perception bias.

    The global economy was radically altered for the worse using the 90% assumption from R/R that led to decisions of austerity in the E.U. – likely the exact wrong thing to do at the time.

    The same effect is evident here in the U.S. using the assumption of “trickle-down” & supply-side-only economics while ignoring relevant variables like monopoly and the effect wealthy influence has over political decision-making, – Wealth disparity has climbed to Great Depression levels, coinciding with the advent of trickle down.

    Economics is far more simple than economists would like to believe, but simplifying it might diminish demand for economists.

    • winstongator says:

      The expansionary austerity myth is having the most negative impact today. You can look at Greece, Spain, Portugal, and somewhat to Italy & Ireland, and then to Europe as a whole.

      Lots of people also think that overall falling prices would be helpful, when in reality, the deflationary spiral (why buy today when it will be cheaper tomorrow) and punishing debt levels creates a very bad situation.

      I think many of these are also myths people think economists hold. Are all of these universally held beliefs by economists?

      My favorite myth is that high income earners will work less if their tax rates are increased. There is some observational evidence for the 10 myths listed, but none for that myth.

  2. Dogfish says:

    I would think it’d be difficult to argue against the myths, but I would agree with you that it’s a disconnect rather than any “dumbing down”. That, and, in some spots, intentional intellectual dishonesty, where it serves a purpose (see also: climate change debate, war on terror, etc).

    The problem isn’t with the models as much as how they are wielded. That, and that as a nation we care more about bread and circus bullshit (Zimmerman) than stuff that genuinely affects our lives (Snowden, and even then the focus on where it is rather than what he released… really pulling back the curtain, this situation is).

  3. Woof says:

    Now that you’ve filed it under “Really, really bad calls” I find it hard to say anything in Salon’s defense. Otherwise I would’ve said they’re more right than wrong, but the way they describe the myths (granted, I haven’t read the actual article) are loaded with ill-defined value terminology like value, good, bad and winners.

    What does it mean for a tax code to “not pick winners”?

    • Frilton Miedman says:

      How about consideration for “job creating” tax policy, weighed between Costco – who’s average employee makes $21/hr, and Walmart – who’s average employee makes $8/hr and has to resort to food stamps to live.

      Should we really continue entertaining the delusion that Walmart’s “job creating” contributions to our economy are worth the hidden costs?

      Instead of labelling all wealth as “job creating”, let’s “pick winners” by labelling job creators as “job creators”.

  4. “All profitable activities are good for the economy.”

    profitable?

    Economically profitable? Y

    Financially profitable? N

    lest We forget, “Finance” and “Economics” are not synonyms.

    though, maybe, “Salon”, and the rest of us, should remember..

    ‘yon Rosner nails it, here: “…”The Fed has a lock on the economics world,” says Joshua Rosner, a Wall Street analyst who correctly called the meltdown. “There is no room for other views, which I guess is why economists got it so wrong.”…”
    http://www.huffingtonpost.com/2009/09/07/priceless-how-the-federal_n_278805.html

    and, you know, for additional Study..

    http://www.google.com/search?q=the+Federal+Reserve+is+a+Private+Bank&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a

  5. gfcz says:

    I was very sad for author’s education when reading the article. And not because he is incorrect, indeed every single myth is arguable, rests on assumptions, could not be fully incorporated in serious analytical models etc. etc. . But instead of an argument I just spent 5 min reading someone else’s opinion on something they don’t fully understand.

  6. chartist says:

    Wall Street harms the public….It exacts an unnecessary tax on transactions….It’s a complete den of thieves….I would love to see Wall St. bankers as the new age 7th Calvary about to be mowed down by a public that refuses to take it any longer.

  7. albnyc says:

    Economics doesn’t harm people, economists do.

  8. Angryman1 says:

    Industrial policy cannot exist in a market state. A relic of the nation state.

  9. jaymaster says:

    Economics is a pseudo science on par with sociology.

    But many of those “myths” are also big-time straw men that only some economists believe.

  10. Liferocks says:

    Models are approximations, and as such fall into averaging and weakness of assumptions. The models used for economics are similar in nature to the models used for climate change forecasting; based on historical data, with a large assumption set, projecting a future scenario. The only thing certain is they are incorrect.

  11. Randel says:

    I will go against the grain here, but stay with me for the real problem.

    I studied for the Phd in Economics at Penn in the 80s. Economics is a serious line of inquiry. The problem is too many folks in their economics classes, the professors who teach those folks, the consultants out to simply make big bucks, and political economists driven by ego and power just concentrate on the first four chapters of an economics textbook. In those early chapters are where all the convexity and perfect math assumptions exist which add up and say competition leads to economic efficiency and more wealth, importantly with little role for government. What is forgotten is that the next ten other chapters exist dealing with externalities, market failures, informational asymmetries, and how the endowment of resources including political influence can dominate outcomes. In fact, it might be best to read economics texts from the back page to the front page, so you get the full panoply of nuances, footnotes, and exceptions. You heard it here first, read the texts backwards!

    When you go to a doctor you want a doctor who knows the easy cures and diagnoses, but also the obscure ones. We in our society too easily fall prey to Economic Hucksters and Simpletons who amazingly populate the best universities who preach a particular world view, and who are really more akin to practitioners of religion, but I denigrate true religious studies. Judaism, Christianity, Muslim teachings etc. are upfront and honest about their belief structures. Economic policy pushers do not want to admit that their ideas are “beliefs” and not necessarily science. After WW2 Economics really embraced math so as to look more like a real science, a move with hindsight based on an inferiority complex. Barry’s site so provocatively points out that economics is really the study of behavior and biases.

    Here is a rule of thumb: The economist who too easily hitches to a political candidate or cause is almost by definition going to be a huckster or simpleton. Make sure to turn your yellow light on, and do not be impressed by the game of credentials as it is a form of smoke and mirrors. I know people who are excellent economists who do not have the Phd, but who have a passion for learning truth.

    • ciwood says:

      Thank you for your cogent explanation. Many comments come from emotion but yours is well stated and helps clear up reasons for the misconceptions of economics theory, not fact.

  12. rd says:

    The alchemy was the beginning of modern chemistry and metallurgy and the current state of economics is reminiscent of alchemy. Perhaps one day it will advance to the higher state of sicence today (which still has numerous big questions to solve).

    One of the biggest problems with modern economics is that it tends to simply price everything as a cash equivalent. There are still many valuable activities, impacts, and conditions that are inadequately priced and are often over-valued or undervalued. As a result, economics has been creating imbalances including environmental impacts.

    Some monopolies and oligoplies can create efficiency. For example, it makes sende to deregulate the generation of electricity but it is hard to imagine a “free market” for its delivery to homes – would we really want to have multiple companies stringing power lines in our neighborhood?

    People are not rational, especially in the short-term – ergo the saying “In the short-term the stock market is a voting machine, but in the long run is a weighing machine”. Unfortunately, the impacts of short-term irrationality can lead to massive imbalances that have tremendous impacts to societal psychology that throws off the ability to apply economic theory. A fundamental failure of economics in the 1920s led to the rise of Hitler and Mussolini. and the Great Depression. I don’t think any economic theory today could predict those outcomes or their impacts given the input data available in 1920.

  13. Miguel Palacios says:

    Economics is a highly flawed social science. Neuroeconomics may finally allow us to rewrite economics and take out much of the garbage that is repacked and sold as science…

  14. kaleberg says:

    As far as I can tell, the article is spot on. It is possible to argue that the article is more focused on economics as it is practiced by its popularizers, by politicians and by the professionals that politicians cite and accept advice from rather than the more serious scholarly community of economists. Unfortunately, this is the economics that most people see, hear about and are affected by. A lot of people have spent lots of good money pushing those ten myths among others, and they and their hired guns have profited handsomely, while most people did not do very well. I’m glad to see that there is some push back against the vast wave of propaganda that has led to 30 years of economic stagnation.

  15. jimcos42 says:

    Three things came to mind:

    1. Sturgeon’s Law
    2. Buffett’s “Too Hard” box
    3. Peter Lynch’s 13 minutes a year on economics

  16. BottomMiddleClass says:

    #7 in particular is spot on. Try, just TRY to have a coherent conversation about raising the minimum wage. Even if you can get past the Straw Man Argument (“Why not just raise it to $1000.00 if raising the minimum wage is a good idea?!?”), everyone just knows that raising the minimum wage will force all companies to raise prices and destroy America!

    If Wal-Mart took 1/10th of their 12.7 Billion dollars in American profits last year and gave it to their American employees then 1.4 million workers would could get an extra thousand dollars each. And most of these people would probably spend the money at Wal-Mart! But just thinking this thought makes me a liberal communist traitor.

  17. Moss says:

    The attempt to classify Economics as a science is where the major issues lie. The heavy reliance on models and formulas to explain behavior and thus craft policy has trapped the profession. No doubt ideology and cherry picking various outcomes to validate the theory distorts the process. The incredible influence of finance in the economy and the political arena has distorted rational behavior.

  18. budhak0n says:

    Welcome to the F off and die economy, you’ve earned it ;-) Now go have yourself a heineken, krystal, grey goose, some crap made out of anejo or one of a myriad of micro sheet in Cuba with Jay Z.

    Have a great week.

  19. DeDude says:

    Economics can do a lot of good or a lot of harm depending on how it’s done. Economics can be conducted as a science but it is very challenging to do so. There are no double blind placebo controlled trials in economics. All they have is modeling and as a result the whole field is littered with poorly supported narratives used as guidance for cherry-picking exercises (to “prove” the narratives). The tradgedy is that for the general public a cherry-picked correlation used to claim causation (within a simple narrative), is a lot more convincing than a model containing 10 parameters where some are interacting and others are truly independent. To make things more complicated, the generalized rules and models in one situation (e.g., demand constrained economy, zero bound, slump from financial crisis) are completely different from those that apply in other situations (supply constrained economy, high interest rate, standard cyclical slump). Furthermore, one of the things that at times become a major input is human irrational behavior (try modeling that), so no matter how good a model is it will every now and them be run over by the lemmings or stopped in its tracts by dysfunctional politics. So if your personal wealth or political inclinations disagree with the predictions of a model, then you will eventually get a chance to point at it and say: “see it didn’t work”. If an economist is a real “truth seeker”, then (s)he can do economics as a science, and obtain pretty good (although far from perfect) batting averages. But the field of economics has been so badly littered with incompetents, prostitutes and self serving charlatans that identifying a good economist is like finding a needle in a haystack.

  20. pjschgo says:

    It’s not “economics” as a whole that harms the public, it’s politicians who don’t truly understand economic principles and therefore don’t correctly implement economic policy. We don’t practice counter-cyclical spending. We privatize reward while socializing risk. We blindly apply “free-market” principles to situations for which they’re not the most efficient practice (e.g. social insurance).

  21. Greg0658 says:

    imo the Captain of Costa Concordia did Italy a financial favor – even tho the workers mostly live on floating motels – they still get shore leave and an operation such as this must rely on the local and state economy
    http://abcnews.go.com/International/wireStory/salvage-crews-rush-chance-move-concordia-19667812

  22. hcgoddard says:

    You slipped up on this one.

    Myth 1: Economics is a science.

    Dictionary definition of science is:

    sci·ence

    noun

    1. a branch of knowledge or study dealing with a body of facts or truths systematically arranged and showing the operation of general laws: the mathematical sciences.
    2. systematic knowledge of the physical or material world gained through observation and experimentation.
    3. any of the branches of natural or physical science.
    4. systematized knowledge in general.
    5. knowledge, as of facts or principles; knowledge gained by systematic study.

    Where Economics falls short, as does astronomy, geology, anthropology, sociology, etc., is experimentation, although there has been much in Economics. But not remotely possible in macroeconomics, except by blind and ideological policies.

  23. Willy2 says:

    I’ll reply in a different way.
    • Economics is a science. Agree, but a complicated one. And it includes the science of human behaviour.
    • The goal of economic policy is maximizing efficiency. Disagree.
    • The economy is a market. Agree, but that market is larger than the stockmarket.
    • Prices reflect value. Disagree. Price is what people are willing to pay for something.
    • All profitable activities are good for the economy. Disagree. The economy is a zero sum game. Someone’s profit is also someone’s loss.
    • Monopolies and oligopolies are always bad because they distort prices. Agree.
    • Low wages are good for the economy. Disagree. With lower wages comes less demand.
    • “Industrial policy” is bad. Agree. Too often policy is used to “help” one group at the expense of another group.
    • The best tax code is one that doesn’t pick winners. Agree. Tax policy also distorts the economy. Tax on interest is 40%, on dividends 29%. Interest on muni bonds are tax deductable and “Obamacare” tax exempt. So, investors flock to munis in droves. Instead of this system the IRS shouldn’t tax this kind income at all. The IRS should tax one’s net worth at say, 2% or 1%. This would create a level playing field for all investment classes.
    Tax deductions for interest paid on mortgages should also disappear. Then the true cost of a mortgage would be presented to someone who takes out a mortgage.

  24. Greg0658 says:

    agree its a “complicated science”
    disagree with “zero sum game”
    agree with “Price is what people are willing to pay for something.” they WANT or NEED
    if they WANT it – its efficient
    if they NEED it – it can be abused by the paperpusher and the OpSys for a living

    my house is now a home of stuff I wanted (at the time) and (takes pat on the back) thanks – your Welcome …. but :-( sorry I asked for that distructive stuff – closet is full of defuncts