

Freshman Economics Won't Quite Be the Same - cwan
http://www.nytimes.com/2009/05/24/business/economy/24view.html

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ZeroGravitas
Seems like a bit of a fluff piece. I doubt it will change one iota.

Mark Shuttleworth, bizarelly, hits the nail on the head with his blog entry
about University generally called "It’s the ability to learn tools, not the
tools themselves": <http://www.markshuttleworth.com/archives/28>

"I hated economics at university because it epitomised the disposability of
old knowledge. The problem was that first-year economics was basically a
history lesson disguised as a science lesson. We learned one classical set of
ways of looking at the world, and how to apply them to assess an economy. This
was a bit like learning science circa 1252 and being told that you need to be
able to draw up an alchemical recipe for lead-to-gold conversions that could
pass for authentic in that era.

Then in second year they said “luckily, the world has since decided that those
ideas are utter crap, you can’t really manage an economy using them, but
here’s a new set of ideas about economics”. So we set about learning economics
circa 1910, and being expected to reproduce the thinking of the Alan
Greenspan’s of that era. The same people who orchestrated 1929-1935 and all
the economic joy that brought the world. We knew when we were studying it that
the knowledge was obsolete. And of course, when I looked into the things we
were supposed to study in third year, fourth year and masters economics
programs the pattern repeated itself."

I'm assuming he studied economics in South Africa, it's the same in the UK.
I'm guessing it applies in the US too.

~~~
ericwaller
It's funny because that's actually what I liked the most about an intro
economics class (at an engineering school): that it was more philosophy plus
illustrative math than anything like a science.

But I had to laugh at this line:

 _The textbook answer to recessions is simple...the central bank can cut
interest rates._

That _really_ depends on who wrote your textbook

------
joshhart
There were a lot of signs that we were in a housing bubble. Why is it
difficult to understand that subprime mortgages + leveraging & rampant house
flipping created inflated, unsustainable prices?

~~~
bwd
Bubbles are inevitable. The United States experienced a huge one less than ten
years ago in the equity markets. The bubble isn't the crisis, leverage is the
crisis. The real lesson from the events of the last two years is not that you
have to keep bubbles from happening because you can't. The real lesson is that
you have to protect yourself from the consequences of a bubble by avoiding
excessive leverage. The last bubble wasn't so damaging to the financial system
because there are strict regulatory limits placed on the amount of leverage
that you can use in equity investing.

~~~
cwan
I think leverage made the difference - but at the same time, leverage ratios
of European banks are significantly greater than that of US banks. There are
others who have also said that it was the bubble in excess capital/credit
which made the difference between this one and the tech / real estate bubbles
of the past. This excess capital was caused by a number of factors that
included the USD as a reserve currency (which is why those like Stiglitz now
think that a move away from this is a good thing - though this is happening
because of the massive borrowing by the current US Administration) and
prolonged low interest rates by the Federal Reserve,

~~~
bwd
I think the Europeans have problems just as bad as the Americans, but it looks
different because of national organization. Most of the problems in America
are in California, Florida, and Nevada. If these were separate countries
rather than separate states, then the situations would look more similar with
some having crushing problems (like Iceland and Britain) and others seeming
relatively unscathed locally but affected by the global nature of the
downturn. European banks have taken a huge beating, and there have been
multiple bailouts. I also consider it likely that there are still
unacknowledged problems in other banks that seem healthy so far. The pain
filters down more readily to average Americans and Brits because they were the
ones borrowing money for houses they couldn't afford and because continental
political systems have stronger social support systems. I expect that it will
likely take the European economies longer to recover than the Americans unless
the US government borrows so much money that it starts to affect its de-facto
credit rating.

~~~
Agent101
Not many people bought houses they couldn't afford in the UK. We haven't had
huge numbers of repossessions in the UK (fewer than the 1991 recesssion so
far). Our banks were more exposed to the american housing market (than
europes), and banking is a large part of our economy so we get hit worse when
it goes down the tubes.

------
edw519
I don't care what you do with Freshman Economics as long as you keep it out of
the Sciences.

After 6 Economics courses and an MBA, I'd prefer these sentiments: (sorry, I
couldn't resist)

"An economist is an expert who will know tomorrow why the things he predicted
yesterday didn't happen today." Laurence J. Peter

"An economist is an individual who can tell you 364 ways to make love to the
member of the opposite sex, but never has done so." Quoted in John von Neumann
by Norman Macrae

"A banker is a fellow who lends you his umbrella when the sun is shining and
wants it back the minute it begins to rain." Mark Twain

"Earth provides enough to satisfy every man's need, but not every man's
greed." Gandhi

"The first lesson of economics is scarcity: There is never enough of anything
to satisfy all those who want it. The first lesson of politics is to disregard
the first lesson of economics." Thomas Sowell

"What is studied [in modern formal analysis] is a system which lives in the
minds of economists but not on earth. I have called the result 'blackboard
economics'. The firm and the market appear by name but they lack any
substance." Ronald Coase, Nobel Prize Winner in Economics.

"Give me a one-handed economist! All my economists say, "on one hand... on the
other." Harry Truman

"Every time history repeats itself the price goes up." No name

"Teach a parrot the terms "supply and demand" and you've got an economist."
Thomas Carlyle

