
Are we wrong about equality? - rjyoungling
http://economist.com/briefing/2019/11/28/economists-are-rethinking-the-numbers-on-inequality
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salawat
I find that some of the ways economists just fudge data to be downright
disturbing. That those are then cheery-picked and offered as input to
policymakers is even more concerning.

As a for instance; take the claim that the Reagan years policymaking only
caused a _seeming_ boom in numbers due to the fact that people were no longer
sheltering earnings in corporations, therefore there had to be a matching
decrease elsewhere.

The issue I have with that is that money sheltered in a corporation controlled
or heavily influenced by a particular individual is still essentially
indistinguishable from being income for that person. It just resides in a
nominally transparent legal fiction, that economists are not willing/confident
to pierce. If you don't understand those circumstances or take them into
account, the map you draw of the territory becomes downright dangerous to the
ones using it rather than the help you nominally set out for it to be.

I understand that gaggles of economists are _trying_ to provide alternate
slices of data, but from the research point of view, if you are not looking at
the real to gather your data, you're playing fantasy football. Which frankly,
given the I'll-conditioning of the economic problem scares the shit out me.

~~~
rjyoungling
'if you are not looking at the real to gather your data, you're playing
fantasy football.'

Well put my friend.

Your comment has made me curious about your stance on Hayekian economics v.
Keynesian.

~~~
salawat
That is... a lot to unpack, to be frank. I tend to try to integrate the non-
economic philosophies of both thinkers into what I believe their understanding
of the systems in question were, and by no means do I distill out anything
necessarily useful or predictive, merely seductively correlated with what I've
seen unfold in my lifetime.

However, so as not to disappoint, I will voice some opinions. I think there
may be something to the Austrian school, and I don't necessarily buy Hayek's
critics propensity for saying that he's trying to have his cake and eat it to
as A) a reason to dismiss him outright and B) not a demonstration of the
importance of his points with regard to the folly of trying to centrally plan
an economy; something that I've recently come to realize we have been slowly
degenerating toward in the United States. It just doesn't seem like it because
you have to look at the meta-structure of decision making outside economics in
order to realize the staggering shrink in the number of inputs to increasingly
large chunks of capital as businesses undergo the process of merging and
consolidation.

While the central planning we engage in tends to openly constrain itself to
the money supply and interest rates, we still have the problem that there is
precious little information truly at hand in order to make meaningful
decisions. When decision making is distributed widely, you have a tendency for
quick reversion to the mean to the degree that is most appropriate for the
conditions in which economic activity is happening (Hayek point). The farther
away you are the less fine grained your grasp on the the local aspects of the
economic problem, but the greater your potential leverage, as when everyone
looks up at you for cues, what you say has a way of going a long way (Keynes);
not saying/doing anything, therefore is to actively make a non-interventionist
decision, which means that spontaneous organization may happen, but not as
quickly(Keynes' attitude toward action projected into Hayek's framework).
Keynes seems to air on the side of doing something being better than nothing;
as at least taking action in the long run tends to preserve some level of
unity or at least preseeve momentum that can be redirected through
policymaking as long as it is there, which I don't think is necessarily wrong.
Though I think the Austrian's are safe in pointing out that odds are, you will
make the problem worse by actively interfering and making decisions on which
you have no information to safely make.

I've sat and watched QE deliver exactly what ABCT predicts. Regular
interventions necessitated to forestall higher and higher stakes recessions
that have spread wider and wider through the tighter and tighter integration
between respective economies, and the rapidly centralizing tendency of merger
friendly business environments. On the other hand, The prescription the
Austrian's tout is unpalatable, or at least useful to me in that it insists
the economy will sort itself out if you do nothing, so let the economy do it.
I find in Keynes, however, that in the event of a crisis, you can shorten the
recovery time by providing the judge required to get people to do the
necessary business of transacting through stimulated demand. Economic activity
(day to day life) wishes/needs to continue. However, the fact you're in the
situation you're in leads me to believe that the Austrian's have a salient
point. If you keep mucking with and distorting the market, instead of letting
it stabilize on what it can sustain, you steer the economic problem into novel
areas undeniably; just as undeniably as you set the stage for an eventual
highly disruptive reckoning when the bubble bursts.

So what does it all come to? I think the Austrian school of thinking is
overall centered around the idea of the economy tending toward a distributed
steady state driven by the non-human environmental factors, and the human
responses to those factors. An Austrian economic model may end up leading to
economic activity growing to fit it's container so to speak, but only slowly
generate an overall increase in the size of the economic pie.

Keynesian economics, however, encourages risk taking and moonshots. Who needs
sustainability within the container, when with enough economic oomph thrown at
the problem, you can just right out of the container, get a second economic
beach head going somewhere else, keep the size of the pie growing for
everyone, and when things go south, pump every lever you can to get growth
going in some new direction. The biggest issue I see with Keynes' system as a
whole is the dismissal of Hayek's implicit assertion of a rational yet
incomplete foundation for economics as far as the perspective of a
practitioner is concerned.

So it does make sense to me the Austrian school is shunned, yet kept around
like some voodoo doll by modern economists. It fundamentally undermines the
field in substantial ways, but contains nuggets of how the non-
macroeconomically inclined will fundamentally react in the abscence of active
macroeconomic pressure.

That is to say, most people uneducated in economics at all tend to assume an
Austrian model unconsciously. The Keynesian approach, while predominant, does
not seem to line up at all with natural intuition without guided thought.
Which ironically comes back to the two major differences in the two schools
economic philosophies.

Hayek: Just leave it alone Keynes: Do what you must to keep people
transacting. If people feel nervous about where money is going to come from,
drop interest rates. Once people are transacting regularly, start pulling the
rates back up in order to control inflation.

Where both seem to fail nowadays, is in the consequences of smoothly bridging
the transition between a highly interconnected growth optimized economy, and
an economy physically constrained by the perception of elevated risk of death
in the context of conducting the business of transacting. Neither model has
any real oomph without people being willing or able to engage in business
actdue to physical environmental constraints trivially.

For what it is worth, the Austrian's are neck to neck with the Keynesians as
far as this latest crisis goes from my point of view. By doing nothing, the
economy shifted to try to maximize its capability to transact whilst keeping
the transactors specially separated. Depending on whether you view the coming
stimulus from Congress as an act of monetary policy, or just the economy
readjusting itself; you could safely make the argument that some of
eitherschool is at work.

This is why I hate economics. It always seems to have had the answer in a
post-facto rationalization sense, but it always seems to feel like a coin-flip
making the decision of which way to go. Keynesian economics is probably the
worst in terms of PR generators for economics though. If there is anything out
there that makes people hate banks, it's the natural distaste that comes from
someone else mucking about without _knowing_ what they are doing. In that
sense, you can't help but appreciate the Austrian's "your idea is as good as
mine" approach.

~~~
rjyoungling
Thank you for taking the time to write such an eloquent, in-depth exposition
of your POV. Highly enlightening.

This is, in part, why I feel it's flimsy criticism when people attack macro-
economists, without clearly articulating where they disagree or preferably
offer a better theory.

It's just such an incredibly complex field. And unlike mathematics where you
can control all the variables and construct a proof that lasts till the end of
time, in economics you're dealing with many hidden, dynamic variables (which
are susceptible to butterfly effects). It's hard to run the experiment again
sort-a-speak.

Thanks again. Thoroughly enjoyed reading your take.

