This is a great example showing how little we understand economics, which is very ironic: economics is the study of something that is 100% man-made, yet we cannot explain many of its aspects. Heck I am more confident in physicists able to explain physics, and mathematicians able to explain mathematics, than in economists able to explain economics. This is why topics such as basic income guarantee [1], Bitcoin and cryptocurrencies, inflation vs deflation, capitalism vs socialism, etc, are all so debated. Nobody agrees on anything because quite frankly, we don't know how to make the economy work optimally. I would not be surprised if, 50 or 100 years from now, widely accepted views on economics will completely change.
> This is a great example showing how little we understand economics, which is very ironic: economics is the study of something that is 100% man-made, yet we cannot explain many of its aspects. Heck I am more confident in physicists able to explain physics, and mathematicians able to explain mathematics, than in economists able to explain economics.
Physicists and mathematicians often have the advantage that if they run an experiment / solve a problem by using the same inputs, they can expect the same output. Obviously this is not the case for economics, which at its core is driven by human interactions. Not only does it often have many, many variables, but they're also difficult to control.
In my estimation, it's actually impressive we have as good a grasp as we do on economics.
What I find surprising is that a Soviet style state run economy has not proven to be more successful. By exercising central control they should have been able to drastically reduce the number of variables and with sufficiently sophisticated planning maybe eventually gained a competitive advantage. I guess unfortunately it collapsed before the advent of powerful enough computer systems.
Look into the "Knowledge Problem". It's all very strange, and the naive first blush is that you'd be right. Turns out not to be true.
One version of the theory states that price information is just that - information - and you can't replace that with even excellent planning.
You could call China a hybrid of a planned/free economy, but as it's moved more to something akin to free markets, wealth has gone up, especially for the poorest there. This may be as close to an experiment as we can get in economics. Chinese Communism was never quite Soviet style Communism, but the results begin to look suspiciously like data.
I don't think there ever will be a computer powerful enough to solve such a large scale planning problem. On top of that, I don't think it is even possible to get the data for it. Each person has his own personal "utility function" which he is trying to maximize and it is locked inside his brain.
It may be dated, but some writers and economists hold that people aren't even consciously aware of their own preferences. So even if you could gather the data from what people way they want, there would still be error.
One of the most colorful examples of this comes not from economics, but a strange book on advertising called "The Hidden Persuaders". It also talks about erotic images airbrushed into the ice cubes of whiskey ads :) When I'd first heard of "Mad Men", I'd hoped it would be about that, but it wasn't.
You say it wasn't successful but they industrialised to an extent that they were one of the dominant superpowers within a generation. Aside from China, another planned economy I can't think of any other examples of that pace of economic development.
The thing is centralized economy planning can never be the most efficient solution, no matter how powerful computer systems. The economy consists of individuals who drive supply and demand. They know best what they need and that's a simple and elegant solution.
I don't understand why even try to centrally plan the economy. It's stupid and doesn't make sense. Even if it was possible it would require resources to centrally run it. There would be no competitive edge because the economy is based on the people who participate in it. The information is already out there. It's publicly accessible. Centrally planning it would create an unnecessary middleman and break the perfect solution.
> we don't know how to make the economy work optimally
What's optimally? Seems that many people passionately disagree on this point and may help explain our difficulty in determining what should be done.
Additionally, economics is a young discipline that's more about trying to figure out unreproducible complex human behavior than something that can be replicated in a lab.
How do you explain something that has potentially unlimited inputs, and whose many inputs/actors do not act sensibly or in their best interest at all?
If you could fully explain an economic system down to the finest detail, you could more less accurately forecast all the human behavior within that system.
Economics describes emergent phenomena. And widely-held beliefs about economics affects the behavior of the thing being studied. This is self-referential interaction highly amplified.
> ...economics is the study of something that is 100% man-made
I take exception with the idea that economics is a human construct. Economics, in the broader sense of the term is about decision making and getting most out of limited resources.
Macro-economics is probably more like story telling or history rather than a hard science. It's a shame that it went the quantitative route over the years. No one tries to attribute an R^2 to a general's decision and their outcomes. I think modern macro-economics is suffering from scientism.
From Wikipedia: Scientism is belief in the universal applicability of the scientific method and approach, and the view that empirical science constitutes the most authoritative worldview or most valuable part of human learning to the exclusion of other viewpoints
>economics is the study of something that is 100% man-made, yet we cannot explain many of its aspects. Heck I am more confident in physicists able to explain physics, and mathematicians able to explain mathematics
You could easily argue that mathematics is something that is man-made.
True, but mathematical objects, unlike people, always behave rationally.
If anything, events like negative interest rates simply illustrate how ridiculous the classical economic notion of the "rational actor" is in the real world.
This is a great example showing how little we understand economics, which is very ironic: economics is the study of something that is 100% man-made, yet we cannot explain many of its aspects. Heck I am more confident in physicists able to explain physics, and mathematicians able to explain mathematics, than in economists able to explain economics. This is why topics such as basic income guarantee [1], Bitcoin and cryptocurrencies, inflation vs deflation, capitalism vs socialism, etc, are all so debated. Nobody agrees on anything because quite frankly, we don't know how to make the economy work optimally. I would not be surprised if, 50 or 100 years from now, widely accepted views on economics will completely change.
[1] There was a great HN post from yesterday: https://news.ycombinator.com/item?id=9004287