
Magical Thinking - duozerk
http://www.salientpartners.com/epsilon-theory/magical-thinking/
======
jtolmar
I found it kind of funny that the author's big conclusion was less state-
directed action, leaning on the thought that somehow the economy will work out
for everyone as long as we get out of its way well enough. A type of magical
thinking.

Unfortunately economics is split between an evidence-based field that
occasionally changes its mind when its wrong, and a proliferation of "schools"
and "think-tanks" that provide a selection of justifications to do what you
already wanted to do. The science of how governments should handle money is
too important not to be made into a political football.

~~~
acidbaseextract
I think his conclusion is more subtle than that. It's not that getting out of
the way of the economy means it will all work out—far from it. Rather,
continuing to buy into the magical thinking of the current priest-kings (i.e.
state-directed action) opens the doors to much nastier alt-priests (e.g.
totalitarianism).

The specific process? Further buying into our current priest-kings puts
pressure on them to make their magic work. Magical thinking eventually fails,
inevitably. Then the historical process of succession of priests kicks in
because "we need the eggs" (to use the article's phrasing), and the more we
need the eggs, the more nasty the alt-priests we'll turn to in search of eggs.

~~~
throwaway729
_> ... more subtle_

Subtlety != non-magical. Confusing subtlety and depth with rigorous thinking
-- or even worse, scientific thinking -- is a common confusion people fall
into when engaging with economic theory. Both professionally and as a side
interest, both on the left and on the right.

Existence of a large literature base, a big set of jargon, logically rigorous
arguments, and mathematical models and theorems does not preclude
fundamentally magical thinking.

If you disagree, go read some Christian Apologetics. Portions of the field are
more rigorous and have far more subtlety than most economics. But sorry, it's
still fundamentally rooted in (literally) magical thinking.

 _> priest-kings... alt-priests_

So we've replaced magical thinking with jargon-y name calling. Progress...?

~~~
acidbaseextract
Yeah I totally agree. I tried to read some of the guy's other articles as the
ideas are really interesting, but man are they buried in jargon.

------
wbillingsley
We've entered an era where there is a not-so-quiet battle occurring within the
system. This doesn't so much show through in "Trump" as in the criticisms of
Trump, Brexit, the Australian push for a plebiscite on same-sex marriage, etc.

Let's leave aside for the moment the question of whether any of the policies
or people is right or wrong.

It has recently become commonplace for elected officials to get away with
arguing that they have a moral imperative not to listen, and not to give a
greater opportunity for people to voice their views. Each of these topics is
frequently decried not just as wrong but as "populism". The Australian
plebiscite is opposed because a public debate might be harmful. A remarkable
feature of Clinton's "deplorables" comment was that the focus just ended up on
the number (is it really 20% of Americans that are deplorable?) not the
inversion of the electoral relationship -- that the politician was casting her
judgment on the electorate, rather than the electorate casting their
unrestrained judgment on the politician. If you listen to Obama's speech at
the University of Queensland before the Brisbane G20, though the audience
applauded loudly when he talked about progressive measures, when he mentioned
standing up for democracy in the region there was _almost silence_ from the
audience.

We have reached a point where we would rather our governments disengage from
the public than risk them hearing our opponents. We're not sure about standing
up for democracy because, y'know, my neighbour might not agree with me on
something that dammit they should be required to.

And that is even though the two sides of politics are closer in policy than
they used to be. Back in the 80s, it was nationalisation versus privatisation;
unilateral disarmament vs mutually-assured-destruction. Now it's mostly about
the tone of the debate, and rhetoric about emotive symbolic policies that
aren't realistic (do you seriously think a wall would actually get built? or
have any effect if it was?)

And the trouble is, while here we are telling them to stop listening to those
ignorant dissenters on one set of issues, somehow we mysteriously think they
will listen to us when we dissent on other issues -- economics, trade, etc.

We're building a system where we cannot influence economic policy because
we're too busy telling the government "whatever you do, don't listen to
people".

~~~
eli_gottlieb
>It has recently become commonplace for elected officials to get away with
arguing that they have a moral imperative not to listen, and not to give a
greater opportunity for people to voice their views. Each of these topics is
frequently decried not just as wrong but as "populism".

Well yes, of course. If you actually listened to the people, you'd have to
stop passing trade deals that put capital over labor and the environment, pass
universal health care, fix public education, fix basic infrastructure, tax the
rich and the upper-middle class more (not out of justice, but because that's
where the money is), enforce corporate taxation for once (again, because
that's where the money is), stop wasting money on "military" projects the
military itself doesn't even want, and numerous other policies about which
there is a large consensus among the bottom 90% of the population but apathy
or controversy among the top 10%.

So instead we hear about the dangers of "populism".

~~~
yummyfajitas
Yes, we should actually listen to the people.

Then you'd need to pass some counterproductive feel-good measures that make
white non-workers feel like they have a higher status. E.g. build a giant wall
patrolled by bastards and rapers to keep out Osama bin Lopez.

You'd have to make peaceful Chinese, Indians and Africans poorer, just so that
a few wealthy Americans could maintain their existing social status. The
consumers of goods produced by the Chinese are harmed by this, but that's a
diffuse harm that's too complicated for most people to understand.

You'd have to Leave, because a bunch of voters think "Leave" means "Pakistanis
leave the UK" rather than "you need a visa to take a weekend Ryanair to
Amsterdam". (I suppose that last bit would be good for Amsterdam.)

You'd need to throw more money at education and eliminate all accountability
(it makes me angry little Johnny isn't in the 95'th percentile? your
standardized tests are broken!), and ignore the unpleasant sounding policies
that would really help (e.g.
[http://econlog.econlib.org/archives/2016/09/value-
added_and....](http://econlog.econlib.org/archives/2016/09/value-
added_and.html) ).

Oh yeah, and we'd spend more money on all the free ponies, while
simultaneously lowering taxes on ourselves and only raising them on other
people. You want to raise taxes on the rich, I'd like to raise taxes on gays
and Mexicans, so we'll split the difference and only tax rich gay Mexicans.

If we listened to the people, all we'd do is push policies where the benefits
are obvious and the harms require a little mental effort to understand (or are
only inflicted on unsympathetic minorities). We'd push policies based on being
emotionally pleasing rather than actually being beneficial.

------
carsongross
The fonts make it nearly unreadable, but it's a good article, well worth
reading through. Two thoughts:

My hope for the alt-priest replacement is Steve Keen, who seems like the only
guy with a reasonable explanation why orthodox economics is so consistently
useless, and a concrete policy suggestion (modern debt jubilee).

Which gets to my second thought: the current problem is not productivity
growth and, in any event, productivity growth is a shibboleth (just pouring
more gasoline in the engine and belching more exhaust into the sky produces
more useless plastic tchotchkes, for God's sake). The current problem is debt.
A very specific debt. It is the debt slavery being forced on our young people
in the form of education debt and housing debt. It is crushing family
formation, particularly among the most educated.

No children, no future. Not with a bang but a whimper.

~~~
klipt
As sympathetic as I am to the idea that housing is too expensive etc., how
exactly would you stop a debt jubilee from being gamed? If my mortgage is
going to be forgiven, shouldn't I find the biggest, most expensive house
possible, take out a huge mortgage to buy it, then wait for my mortgage to be
forgiven / paid off by the jubilee?

~~~
fineline
Keene's suggestion is basically a flat universal payment, if you have debt it
must be used to pay down debt first.

[http://www.debtdeflation.com/blogs/manifesto/](http://www.debtdeflation.com/blogs/manifesto/)

I don't really get how it's supposed to work though. What would ensure it
increased consumption and productive investment, rather than just further
fuelling asset price inflation.

~~~
carsongross
It's supposed to work because Keene's models suggest it would work: the
failure in the economy is not one of underproduction (we have dramatic
overcapacity and, if anything, overproduction) but rather a lack of monetary
power in the broader consumers hands, caused by the burden of private debt.

It's unorthodox, but I buy it. Or, at least, I'd rather try his solution than
keep trying the failed policies of both the orthodox and keynesians.

------
calpaterson
The trouble with "magical thinking" as it is used here is that it is simply a
more pejorative way of saying "unjustified belief".

Once you substitute the term "magical thinking" for "unjustified belief" the
article becomes a lot more banal because really there are a lot of ways to be
wrong and there is no particularly meaningful way to group all these ways
together. Perhaps the central bankers do have unjustified beliefs about the
efficacy of monetary policy. But there isn't a meaningful intellectual link -
despite the considerable intellectual drippings of this article - between FOMC
meetings and prehistorical tribal religion.

~~~
jonstewart
Quite. It's very effective at convincing that magical thinking/group think are
a huge risk, but it's not at all convincing that the Fed is engaging in
magical thinking. Ironically, it merely asserts it is so instead of engaging
in the empiricism it clamors for. My first thought when I read:

"Oh my god, are we really saying that the entire FOMC decision-making process
comes down to whether there’s a good jobs report on Friday? Why don’t we just
inspect the entrails of a goat?"

was... well, incorporating a jobs report into the decision-making process,
what's so wrong with that?

I'm not a macro-economist and so perhaps I lack the background to critique
this post effectively. But it just seems like more doom and gloom. The great
thing about gloom and doom in finance is that eventually someone will be right
and say "I told you so", but it's still usually just magical thinking, too.

------
kawa
Interestingly the way the author understood the joke with the eggs doesn't
speak to well of him: A human can't lay eggs, so the only sensible conclusion
is that the deluded person isn't the brother who thinks that he is a chicken
but the guy who thinks that a chicken is in fact his brother.

So when he is using the joke to explain that we accept deluded behavior
because "we need the eggs", it's in fact him who has a deluded way to think
about the situation.

~~~
YeGoblynQueenne
>> the only sensible conclusion is that the deluded person isn't the brother
who thinks that he is a chicken but the guy who thinks that a chicken is in
fact his brother.

That's _one_ possible interpretation- another one is that both the man and his
brother are delusional and the joke is absurdist (there are no eggs). That's
the one espoused by the author.

------
camperman
"Amazingly enough, the U.S. can still grow its way out of the massive debt
we’ve taken on. I know … hard to believe. But it’s true. The power of
compounding is truly inexorable, and it’s amazing what a steady 3.5% growth
rate on a huge economic base can do to make manageable even trillions of
dollars in debt."

Oh, the irony. In an outstanding article about the dangers of magical
thinking, the author slips into magical thinking. The power of compounding is
indeed truly inexorable. It's also exponential. It doesn't matter how big the
economic base is - a 3.5% compound growth rate will always be defeated by a 7%
compound interest rate on borrowed money. Or a 5% one. Or even a 4% one.
Always. It's just mathematics. The higher rate will always run away from the
lower one. At a certain inevitable point, the unit time growth in the higher
rate will exceed the growth of the lower rate. In economic terms, that's when
all your output goes just to interest payments.

That's not very manageable.

~~~
jbooth
3.5% would be defeated by 7%, that's right.

What's the going-rate for US bonds again, right now? It's like 0.1%, right?
And hasn't been above 3% since the early 80s, if I remember right?

~~~
beat
Someone made a really interesting point a while back, I don't remember who -
that the economy _needs_ deficit spending, because it creates those T-bills.
They're the safe investment of last resort. Think of the triangle of
risk/liquidity/return - US bonds are the lowest risk except for actual cash,
with very high liquidity. If US Bonds fail, it's because the entire economy
collapsed. The dollar would be worthless, the government no longer in control.
If you don't trust stocks, real estate, gold, etc, then T-bills are for you.

Take away the deficit spending, and you take away the safe haven for money to
retreat when things start destabilizing in the higher-risk categories. So all
the "magical thinking" economics that starts with the assumption that deficit
spending is evil and we should have zero deficit? There are consequences
beyond the taxpayers paying interest here.

~~~
jbooth
Not to mention, the social security surplus is entirely invested in those
bonds and has been for 80 years or whatever. They'd have to figure something
else out if there were none for sale.

~~~
lintiness
you're the one who posted the return on these bills. it's pretty clear they
need to figure something else out anyway, right?

~~~
jbooth
Not necessarily. They're looking to stash the money someplace safe that keeps
up with inflation, not to make gains.

~~~
camperman
Inflation in the US is 0.1% or less? Uh huh.

~~~
jbooth
More like 1%. Sometimes the rate is higher than inflation, since 2008 it's
been lower.

The point is that SS administrators would rather lose a small amount of value
than put that giant-ass lump of money into the market. It creates risk, and
more importantly, creates a situation where the government is manipulating
stock prices with their picks due to the massive size of the trust fund.

------
carapace
I really hope these massive systems we're building don't turn out to be our
version of the stone gods of the Easter Islanders.

~~~
0xdeadbeefbabe
Those are still around.

~~~
carapace
True, but the Islanders aren't. (Well, a few still are.)

------
Roboprog
I suppose 2 things would help

* Raise taxes on the very rich, and use it to hire people to keep the commons in order.

* Get lazy people to go back to school and study to do non-basket-weaving subjects to more efficiently make things that each other need, without sucking ever more raw materials. (I've had this talk with an adult child, but "I don't like school" \- enjoy your minimum wage unproductive life, then)

Yeah, we're screwed. Those suggestions are offensive to both parties now, I
think: both the rich and the poor have to give something up.

~~~
0xdeadbeefbabe
Uh aren't lazy people too lazy to be offended. Converting lazy people to not
lazy people seems like the real problem.

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rainhacker
Interesting read. But I don't get how the author's (or anyone else's) idea
falls outside solipsism. His conclusion is also a product of his mind. Why is
it not susceptible to be considered a magic spell ?

> What I’m saying is that the old good magic of small-l liberalism and
> technological innovation in the service of man rather than the replacement
> of man is pretty darn powerful itself, and the stories still inspire

------
dandelion_lover
Related
[https://en.wikipedia.org/wiki/Magical_thinking](https://en.wikipedia.org/wiki/Magical_thinking)

------
0xdeadbeefbabe
Personally, I love being reminded that I'm not progressive and I haven't
escaped the same old silliness of 1600 or 1500.

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YeGoblynQueenne
Specifically, _mathemagickal_ thinking.

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lintiness
there is NOTHING magical in thinking that managing global interest rates
PREDICTABLY impacts economic behavior.

------
draw_down
Good grief.

