Author Archive for Per Bylund

Yellen Wants Austrians on Fed’s Board

6269797026_7936c8edc9_bAccording to a Wall Street Journal article posted online this morning, the Federal Reserve chair(wo)man Janet Yellen expressed that the “economics profession … could benefit from a more diverse range of views.” Delivering introductory remarks at a conference, Yellen stated:

Did the economics profession recruit and promote the individuals best able to bring the energy, the fresh insights, and the renewal that every field and every body of knowledge needs to remain healthy?

Her answer to the rhetorical question is “no.” The Federal Reserve suffers from a discussion that lacks dissenting views. In fact, she specifically noted how the Fed would benefit from a “range of views and perspectives”:

There has been a fair amount of public debate in recent years about the health of the economics profession, prompted in part by the failure of many economists to comprehend the dire threats and foresee the damage of the financial crisis.

[...] I believe decisions by the Federal Reserve Board and the Federal Open Market Committee are better because of the range of views and perspectives brought to the table by my fellow policymakers, and I have encouraged this approach to decision making at all levels and throughout the Fed system.

It seems the system is about to change. So when will we see Austrians take place on the Federal Reserve Board? Not any time soon, the “range of views and perspectives” Ms. Yellen calls for is not “views” or “perspectives” at all – but gender. She is simply working hard to find female Keynesians to take place on the Board. How that could possibly change anything is not entirely clear.

Sweden Hits the Zero Bound

NeutroisThe Swedish central bank Riksbanken has just lowered the interest rate to zero (yes, zero) percent, which was reported at a press conference in Stockholm today. This is a response to a couple of months of deflation, and with it enormous pressure from both politicians and Keynesian know-it-alls to quickly and massively lower interest rates. Of course, the interest rate was already very low and at zero it can get no lower. In other words, we’ve reached the zero bound. Why? Depression phobia.

According to the Riksbanken, they do not expect to raise the interest rate until mid 2016. The decision means, according to media reports, that the central bank now “pays” a negative 0.75 % on banks’ funds held at Riksbanken.

The immediate effect in the financial and money markets was an expected fall of the krona’s (the Swedish currency) exchange rate. To the central banksters, journalists, and pundits this is great news, since this means a booming export sector, more expensive exports, and therefore price inflation to relieve the country from the horror of a possible deflation spiral.

I guess we’ll see. Sweden has a history of manipulating its currency, a standard “solution” in the 1970s and 1980s that led to the country suffering a depression in 1992. During the past two decades, there has been political consensus around cutting down expenditure through rolling back the welfare state, paying back public debt, and lowering taxes – partly to regain the lost confidence. Today’s decision by the Riksbanken is not an outright devaluation of the krona, the preferred measure of “old” Sweden, but has a similar effect.

Update: In an official statement, the Riksbanken notes that the Swedish economy is “relatively strong” and that the economic outlook is “improving,” but that inflation is “too low” (the central bank’s target is 2% price inflation). The only major potential problem is the public’s debt level, which is too high. (Especially mortgages, in a real estate market that is generally considered to be a bubble.) The debt level will not, of course, get lower with lower interest rates. For this reason, many “experts” expect a legal amortization requirement on mortgages in the near future to lower the public’s debt as well as “cool off” the real estate market.

Update 2: In the Q&A following the press conference, Riksbanken chairman Stefan Ingves makes it very clear that there are “no technical limitations” to lowering the interest rate (way) below zero. But this is not necessary at present and is not a measure included in the central bank’s prognosis. It is possible and may be a preferred course of action should the economic situation deteriorate, states Ingves.

Economic Illiteracy is Alive and Well

seattle_minimum_wageAs an academic and economist, few things are as frustrating and mind-boggling as the fervor with which people embrace and display their economic illiteracy. It appears some, and an increasing number of them, consider it to be a quality or even a moral advantage to remain ignorant of basic economics.

Rather than considering economic knowledge, which has often been known and affirmed for centuries, this knowledge is attacked. While the scientific process should be one of fundamental (that is, not just for show) and constant scrutiny and reassessment of accepted conclusions, scientific discourse is not the primary domain for the critique and outright rejection and dismissal of economics. No, the critique is formulated by those who show no understanding for the discipline, its scientific approach, or its findings.

A recent column by economic illiterates Mike Konczal and Bryce Covert in The Nation illustrates clearly what this critique of economics is about. The column, titled The Score: Does the Minimum Wage Kill Jobs?, poses as an examination of the evidence regarding the effects of minimum wage laws, and is intended to settle the debate once and for all. Konczal and Covert seem completely oblivious to the fact that this “score” has long been settled in economics; raising, introducing, or enforcing a minimum wage above the market wage produces a situation with fewer jobs ceteris paribus.

But note that while this score has been settled in economics, Konczal and Covert have a different audience in mind. They address the reality-immune punditry: “Throw a rock into the punditsphere and you’ll hit someone arguing that minimum-wage increases kill jobs,” they begin the column. We are supposed to accept that this rhetorical politicization (“kill jobs”) of an economic law is ridiculous on its face. And economic illiterates probably willingly do so, especially if they belong to the same party camp as the authors. Most who read their column also likely won’t see the authors’ dishonest representation (frequently used by “both sides” in the punditsphere) of the well-established economic truth that artificially raising costs reduces voluntary supply. (Its truthfulness should be obvious, really.) Read More→

Hayek: 40 Years After the Nobel

Friedrich_Hayek_portraitThe Mercatus Center at George Mason University organized an event yesterday at the 40th anniversary of FA Hayek winning the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel (the economics “Nobel Prize”). This great event included a keynote address by Professor Israel Kirzner with the title “Hayek, the Nobel Prize, and the Modern Austrian School of Economics” and a roundtable discussion on Hayek’s influence with Nobel laureates Eric Maskin, and Vernon Smith.

Professor Kirzner’s talk provided a revised history of the Austrian school, arguing that the common perception of a school that more or less “died” after the Socialist Calculation Debate and was then resurrected some three decades later is wrong. On the contrary, Kirzner argued that the “decade 1937-1948″ was one of great scholarly activity by Austrians, and especially Mises and Hayek. This scholarship was primarily aimed at providing better explanations for the Misesian argument that a centrally planned, socialist economy is impossible. Neither Mises nor Hayek changed or adjusted the original argument, but took different paths to elaborate on and explain the argument that the “market socialists” had so fundamentally failed to understand. Read More→

What About the Roads?

Something tells me Walter Block and many others will find this cartoon highly entertaining.

New Book on Austrian Economics and Organization

A new book on Austrian economics that targets economic organization has been published at Palgrave Macmillan. Edited by Guinevere Nell, it features a number of papers in favor as well as critical of Austrian economics and what Austrians have to say about organizing and organization. In a sense, the book invites to a discussion on “post-Austrian” economics by, as is also the sub title, “reaching beyond free market boundaries.”

This book is the first in a two-volume series on where Austrian economics may be, can be, and perhaps should be headed.

Here’s the table of contents:

1. Improving Spontaneous Orders; Randall Holcombe
2. The Problem of Unemployment When Markets Clear; Daniel Kuehn
3. The Corporate Planned Economy; Kevin Carson
4. The Firm and the Authority Relation; Per Bylund
5. Contract, Freedom, and Flourishing; Gus DiZerega
6. On the Perceived Legitimacy of the State; Edward Stringham and Caleb J. Miles
7. Beyond Market Socialism; Andrew Cumbers
8. A Post-Austrian Market Socialism; Guinevere Nell

The book can be purchased as hardcover, e-book, and pdf directly from Palgrave Macmillan or e.g.

Sweden Politically Deadlocked

Sweden_from_ciaUpdated: The poll stations in the Swedish general election closed a mere two three hours ago. With about 60% 90% of voting districts already counted, it looks like the voter turnout has increased – and that voters have caused quite a mess in the parliament. No likely constellation of parties will reach a majority of seats in parliament.

The parliament’s 349 MPs will be distributed proportionally to represent a total of eight parties. The center-right “alliance” four-party government under PM Reinfeldt (marked by * below) has undoubtedly lost the election with a total of 39% to a 44% minority constellation of Three leftist parties. And in the middle is the nationalist/racist party Sweden Democrats as the election’s winner and third largest party in the parliament. The radical feminist party “F!” (Feminist Initiative), it seems, will not make it past the 4% of the popular vote that is necessary to be represented.

To form government requires more pro votes than con votes; most decisions during the four-year period to next election require simple majority.

The results with about 90% counted (with difference to prior election result within parentheses) is as follows:

5.7 % (+0.1) Vänsterpartiet (radical left, formerly the communist party)

31.1 % (+0.4) Social democrats (progressives)

6.8 % (-0.5) Green party (environmentalists)

5.4 % (-1.7) People’s party (social liberal)*

6.2 % (-0.4) Center party (social liberal)*

23.2 % (-6.9) Moderates (conservative party)*

4.6 % (-1.0) Christian democrats*

13.0 % (+7.4) Sweden democrats

3.1 % (+2.7) Feminist initiative

0.8 % Other

The New Sweden and the Old

SWE-Map_Combo2007Coloured.svgAs Sweden is heading for the polls to elect rulers for the next four-year term on  Sunday, it looks like there will be a bunch of winners: the racist party, the feminist party, the green party, and the communist party. The other parties, which are more Sweden-style mainstream, seem to lose, which will leave the parliament in a sort of deadlock with two “blocs” with only minority influence – dependent on at least one of the former parties (likely two – maybe even three).

The Economist has an article discussing the new Sweden, which is nothing like the progressive utopia, and how voters might turn their backs on this improvement. Writes the Economist:

Twenty years ago public spending took an eye-watering 68% of GDP; today the figure is heading to 50%. Although the tax burden remains high by international standards, top rates have been cut, as have corporate taxes. Taxes on gifts, inheritance, wealth and most property have been scrapped. Few Swedes need now to flee into tax exile.

Perhaps we’ll see another wave of Swedish [tax] refugees in the not too distant future. The question is, where will they go?

H/T Jesper.

Projecting Projection: Paul Krugman

749px-Paul_Krugman_BBF_2010_Shankbone-300x239Paul Krugman, an official ranter at a blog hosted at the New York Times, recently wrote a hilarious column on (what he calls) libertarians. As usual, it is not very clear what Krugman is actually talking about, but some of the statements are spot on. At least if we take a step back to look at what Krugman seems to really be saying. It is quite insightful.

The column at first appears to be about some kind of surge in libertarianism within the republican party. But it is really a critique of blind political rants. Writes Krugman:

Libertarians … tend to engage in projection. They don’t want to believe that there are problems whose solution requires government action, so they tend to assume that others similarly engage in motivated reasoning to serve their political agenda — that anyone who worries about, say, environmental issues is engaged in scare tactics to further a big-government agenda.

He then goes on to talk about Paul Ryan, which makes the use of the label libertarian quite confusing, but the general point that people involved in the bickering of political parties tend to project opinions onto their opponents is made quite persuasively. Krugman also writes:

libertarians deal with the problem of market failure both by pretending that it doesn’t happen and by imagining government as much worse than it really is

All we need to do is replace “libertarian” with any label that Krugman uses and “government” with “the market” (and vice versa) to see that there is fundamental truth in these words: “Keynesians/progressives/[whatever] like Krugman deal with the problem of government failure both by pretending that it doesn’t happen and by imagining the market as much worse than it really is.”

But perhaps this is unfair? Well, maybe not: “Keynesians/progressives/[whatever] like Krugman tend to engage in projection.” Of course, my stating this is but a scare tactic.

Was Ronald Coase an Austrian?

Ronald H. Coase was one of the few very influential economists of the 20th century, and was awarded the “Nobel Prize” in economics in 1991. He was hardly an Austrian economist. On the contrary, he was a self-declared socialist – at least in his youth. But there is reason to believe he was well aware of Austrian theories while an undergraduate student at LSE in the 1930s (which was when he wrote one of his most influential articles, “The Nature of the Firm” published in 1937). This is when Hayek gave a series of lectures on capital theory and business cycles at LSE, and later the same year was made part of the faculty.

Coase notes in his reflective work that the whole department was affected by Hayek’s lectures and the content of the latter were part of the discussion among faculty and students for months. At the same time, it would be strange to assume that the leading figure in the department – Lionel Robbins, at the time somewhat of a Misesian – had no impact on Coase. We know that Arnold Plant, head-hunted and employed by Robbins (and mentioned as an Austrian in Hülsmann’s Mises biography), was the faculty member that influenced Coase’s thinking most. So there are several obvious “touch points” between Coasean thought and Austrian economics.

But there is more. Coase was obviously well aware of Mises’s argument against socialism, which he refers to in his 1937 article noting that “economists in the West were engaged in a grand debate on the subject of [economic] planning” (Coase, 1988, p. 8). This (and related) statements in Coase’s lauded 1937 article have been quite overlooked by scholars, but they may very well be important. In fact, as I elaborate on in an article in the September 2014 issue of the Journal of the History of Economic Thought, there is good reason to read Coase’s “The Nature of the Firm” as not primarily a treatise on economic organization in general – but a discussion on economic planning intended to support the market socialist argument in the Socialist Calculation Debate.

Coase not only positions his article in the great debate, but refers to Austrian arguments while seemingly relying on insights borrowed from Hayek’s lectures (but misunderstood). This apparent relationship between Coasean thought and the Austrian framework sheds new light on the modern theory of economic organization, which is often based on or even ”starts with” Coase. (The probably most influential theory is Transaction Cost Economics, developed by Oliver E. Williamson but based on Coase’s contributions.)

My article is here: Ronald Coase’s “Nature of the Firm” and the Argument for Economic Planning (2014, gated). An ungated working paper version, Mises Working Paper #0001/14, is here.

Hayek’s Real Thoughts On Praxeology

One happy camper

One happy camper?

In the introduction to Mises’s autobiography Memoirs, FA Hayek denotes Mises’s “a priori character of economic theory” an “exaggeration” that the latter was “driven to” because other economics scholars did not accept the Misesian argument at face value. Whether this is itself an exaggerated description to make a point about Mises’s psychological state (or theoretical argument?), or – as some may have it – an attack on the master after his passing, the statement is quite interesting as it may reveal Hayek’s actual view of science.

Assuming Hayek actually believed Mises’s Praxeology was an exaggerated response to being misunderstood by the profession, then Hayek would appear to have accepted “part of” the argument. The question, of course, is what “part of” the “a priori character of economic theory” means, if anything. While the research designer needs to balance forces and interpretations in the art of econometrics and statistical manipulation, surely such a balancing act is neither desirable nor scientific in purely deductive theorizing.

Such balancing amounts to balancing the argument that our point of departure is true or balancing the logically stringent deduction from this argument. Both necessarily mean a “balancing” act between truth and untruth. So what is Hayek getting at in this statement? I elaborate on this on my blog Economic Reasoning in a post called Theory, Exaggerated or in Moderation?

The Market on Piketty

piketty_0With all the fuss about the French economist’s tome on capital and perpetually growing inequality, one perspective that is uncommon in the commentary is what “the market” thinks of Piketty’s characterization of it. In other words, do those involved in investing and developing capital agree with Piketty’s analysis?

Whereas one should hesitate to place too much value on individual people’s anecdotes, the “real world” rather than outrageously simplified models should be close to any Austrian’s heart on economic theory. After all, we are proponents of causal-realist analysis of the market and economy. So whereas it may not serve as scientific evidence, this comment by well-known investor Marc Andreessen is as interesting as it is revealing about the “socialist calculation” view of the economy held by the likes of Piketty:

The funny thing about Piketty is that he has a lot more faith in returns on invested capital than any professional investor I’ve ever met. It’s actually very interesting about his book. This is exactly what you’d expect form a French socialist economist. He assumes it’s really easy to put money in the market for 40 years or 80 years or 100 years and have it compound at these amazing rates. He never explains how that’s supposed to happen.

The comment, from an interview in Vox, goes to the core mechanistic assumption in Piketty’s system – and shows why it is wrong: it includes neither uncertainty nor entrepreneurship. Sometimes economists would benefit from listening to “the market.”

Human Action in Swedish

125px-Flag_of_Sweden.svgAs we noted a couple of months ago (here and here), the Swedish Mises Institute (officially the Ludwig von Mises-institutet i Sverige) were organized a crowd funding campaign to finance the translation and subsequent publication of Mises’s magnum opus Human Action in Swedish. They eventually reached (exceeded, actually) their goal of SEK 60,000 (almost $9,000) and are now working on getting the translation done, proofed, and then published. If all goes well, they hope to have the book available already in the fall – at least in a digital format. (This, of course, would require quite a bit of human action.)

Those of you who read Swedish or wish to learn – and this is obviously a great opportunity for Misesians in e.g. Minnesota and Wisconsin with Swedish or Scandinavian ancestry - may want to consider investing in a copy or two of the final product. Keep an eye on the site for updates on how this project progresses. Find the post We Made It! here in English translation.

Nope, Money Ain’t It

gold moneyIt is funny, really, how so many can be so fundamentally in agreement about the worthlessness of a science based on a widespread and complete misunderstanding of what it is about. Who hasn’t heard that economics is all about money? Yet, of course, it isn’t. If economics is about anything, it is about the effects and implications of value. Or, more accurately, the actions that are taken by individuals aiming to achieve something they deem of comparatively higher value. It is important to recognize that

…value is distinct from money and can be studied completely without involving money. In fact, it can often be easier to completely exclude money and instead talk about wants, preferences, or even “utility” to make it clear what is analyzed. And value is a subjective appreciation of something, which necessarily has a tacit component and therefore cannot fully be communicated to others. We can use all sorts of proxies or estimates, but they will never correctly “measure” the value as it is seen or felt by the individual him- or herself. This is not simply because people change their minds and preferences all the time, but because value is fundamentally immeasurable – there is no value unit that can be used to accurately measure the satisfaction felt by the individual achieving it.

Read more in my EconReason post It’s Not About the Money.

Another Economist’s Anti-Economics

download (3)Ha-Joon Chang, development economist at Cambridge University, has published a new book: Economics: The User’s Guide. The Huffington Post publishes a selected excerpt that makes for utterly terrifying reading. Not only does this book “on economics” appear to be written as some form of dismissive narrative (?), but it makes assertions and produces stacks of baseless or misleading statements about economics that supposedly comprise “arguments.” And, to top it off, Chang claims open-mindedness in his narrow-minded “takedown” of economics.

I couldn’t resist going through the statements in the HuffPo excerpt one by one and put light on this shady reasoning. Chang seems happily ignorant of what economic analysis entails. He never produces an argument in the excerpt; the only thing he accomplishes is to advertise how limited his understanding of the field he represents must be.

From my commentary, Ha-Joon Chang, Yet Another Economics Skeptic:

At first glance, this may seem like a worthy criticism – look, economics is supposed to be value-free, but not even its supposed value-free methods are value-free. But it really just amounts to a dishonest application without much relevance even to neoclassical economists. As readers of this blog know all too well, neoclassical economists tend to use “models” based on rather absurd and highly simplified assumptions such as “perfect information.” Well, they also commonly assume “perfect competition,” but Chang somehow misses this point. Instead, he assumes that the use of the Pareto criterion in abstract models under such assumptions is applied directly and thoughtlessly on empirical analyses.

Granted, if we take the Pareto criterion without thinking about it and apply it on an empirical situation akin to the ones we find in the developing world, then it appears rather outrageous. There’s nothing “natural” or equal or just with the starting point, which means the Pareto criterion only cements this situation – where radical change may be more just. In this sense, one can only agree with Chang. Except, of course, for the fact that economists don’t use the Pareto criterion inductively; they use it deductively, which in fact means that it is a criterion only from a starting point that is accepted as “untainted” by politics, privilege, etc.

More here: Ha-Joon Chang, Yet Another Economics Skeptic

Disrupting Economics?

economicsIt has become fashionable to attack and dismiss economics. In an age where the likes of Piketty can become an “authority” in the eyes of the public by writing a tome of scientifically questionable content but that says what people want to hear, it may seem like we are heading for a disruption in the study of economics. Perhaps this is a good thing, considering how economics professors at renowned institutions can get away with - and even be praised for – saying really dumb things like

Economics is a political argument. It is not – and can never be – a science; there are no objective truths in economics that can be established independently of political, and frequently moral, judgments. Therefore,… you should never believe any economist who claims to offer ‘scientific’, value-free analysis.

As Austrians, we have long claimed economics needs to do away with its ridiculous “physics envy” and study the market and economy for what they are. In this sense, we’re both ready for and welcome a disruption. But only if it entails a revolution in the right direction – toward a sound study of the real world. But tis is hardly what progressive unthinkers have in mind; they would rather replace the economic analysis of the world with empty slogans and policy.

As they often remind us, economics is but ideology – it is not science – and therefore cannot be trusted. How can they say this? Because the “Scientific Marxists” claim so. (The contradiction obviously escapes them.)

Economics can be both scientific and different from the statistical “mathturbation” it has often degenerated to. I try to summarize how and why in a recent text, The Fundamental Importance of the Trade-Off.

“But Who Will Build the Roads?”

solar-roadway-bike-pathAs always, the market comes to the rescue through innovative entrepreneurship. And in this case, not only do these entrepreneurs promise to build roads – they will use the roads to generate electricity for sale on the market. So they solve two problems at once. Nay, three – the roads use part of the generated power to keep snow and ice off the surface, thereby making them safe even in cold weather. Wait, four – the roads can display lights to warn drivers of danger ahead such as wild animals.

The venture, called Solar Roadwaysis fully crowd-funded (closing in on double what they requested) but is looking to ”improve” existing government roads (which shouldn’t be all that hard) rather than lay their own. Too bad government doesn’t allow competition.

From Noahpinion to No Clue?

Over at The Week, Noah Smith, an economics professor at Stony Brook University and of online “Noahpinion” fame, attempts a dismissal of the Austrian school of economics. His critique is intended to show that “the Austrian School’s demise came not because its ideas were rejected and marginalized, but because most of them were co-opted by mainstream macroeconomics.” But Smith is obviously far from an expert on Austrian theory (or the history of it).

The argument that Austrian ideas have already been incorporated in mainstream economics has already been repeated by mainstreamers so many times that it would be strange if they don’t believe it by now. It is easy to see where Smith got the “idea” to add to the myth-building. But there was perhaps some truth to it, at least in the 1930s, as Pete Boettke noted in 2002:

By the mid-30′s … the idea of a distinct Austrian program, even in the minds of the Austrians themselves, was seriously waning, in part because the mainstream more or less absorbed the important points the Austrians were making. Mises (1933, 214) had argued that while it is commonplace in modern economics to distinguish between the Austrian, Anglo-American, and Lausanne School, “these three schools of thought differ only in their mode of expressing the same fundamental idea and that they are divided more by their terminology and by peculiarities of presentation than by the substance of their teachings.”

But since then several things have happened and the Austrian and mainstream/neoclassical schools have drifted apart. Not only has the Austrian school further developed and strengthened its theory (by such “minor” works as Human Action and Man, Economy, and State) and seen a resurgence, mainstream economics has stumbled down a very non- (anti-?) Austrian path of unreal assumptions hidden in layers of excessive mathematization, and, thanks to their adherence to Whig theory, lost most of its economic heritage and sound grounding. Read More→

Human Action, Swedish edition

Or is there?

Is there a place in Marxist countries?

The Swedish Ludwig von Mises Institute is working on translating (and will then publish) Mises’s Human Action: A Treatise on Economics into Swedish. Obviously, a Swedish translation will be more accessible to Swedes than the original English, especially for the older generations who are generally less proficient in English. As Swedes are a comparatively highly educated people, it is not impossible that Human Action can end up on the book shelves in the homes of Swedish Average Joes (Sven?).

Perhaps this is an opportunity to get the sound economic reasoning of Mises into the minds of Swedes and then into the highly progressive Swedish political discourse. Who knows, maybe Human Action could potentially play a similar role in Sweden as the samizdat copies of Hayek’s Road to Serfdom played behind the Iron Curtain during the cold war? Whether or not this will actually be the case, Human Action in Swedish would pave the way for Austrian economics in this socialist utopia. Who can argue with such a noble goal?

More information on this project (in English) can be found on the web site along with a call for support.

The Perception of Economics

655px-Bifoklabrille_fcmA recently published article at The Week, with the title “How can we unleash positive animal spirits into the economy? Change the narrative,” provides a clear example of what’s wrong with the perception of economics and why modern economic approaches, possibly aiming to amend the shortcomings “identified” by this perception, is at a loss of explaining anything important.

Perhaps the title of the article, written by John Aziz, is sufficiently telling, but let’s have a look at the assumptions and assertions in the first couple of paragraphs – and how they apply (if at all) to economics. Aziz begins:

Economics is a tough science. People are complicated — they have different (and unstable) desires, react differently to events, and view the world in different ways. Markets are complex interactions between millions of these different people.

It appears Aziz finds it highly problematic for economics that people have different desires. This is indeed a problem for a science attempting to understand or predict those desires. In this sense, I certainly feel for those psychologists working on such issues. But as an economist, it is hard to get puzzled by the statements. Rather, one feels excitement about the “complex interactions” that Aziz mentions. Yes, that’s where it gets interesting – the social phenomena arising due to individuals’ actions independently, in concert, and within an institutional framework. Here’s where the economics is. So let’s see where Aziz takes us from here:

In this respect, understanding the economy requires an understanding of people’s motivations. They invest and spend money (or withhold from investing and spending money) to fulfill certain desires and objectives, such as making a profit, building a nest egg, or simply acquiring useful goods and services. Sometimes these economic decisions are rational. Other times, instincts like greed (during an economic boom) and fear (during and after a bust) can cloud our rationality.

This paragraph is at best puzzling. The first sentence makes no sense: why does understanding “the economy” requiring understanding “people’s motivations”? It does not follow. The economy does not reflect the motivations, but people’s actions based on them. In order to understand what happens to the water when ice melts we do not need to know what the source of heat is. In order to understand the storyline of a novel we do not need to know on what type of machine it was typed or printed. Likewise, we do not need to understand people’s motivations to study the outcome of their actions.

Aziz continues: Read More→