For those of you who read up on economics, which school of thought do you associate yourself with the most and why?
As a bonus, any econ book recommendation is also appreciated.
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Austrian.
Why Austrians?
The Austrian economists are only people who actually get it right. Keynesian's clearly fail to grasp how the real world operates and are going to drag us all into central banking hell.
There’s a direct correlation between my age and how much I find myself agreeing with Keynesian ideals. Kind of grew out of my Austrian phase since college ended, but I still think Friedman and Hayek have a lot of value in their ideas.
Why do you think that is?
Funny, because for me (and most I imagine) it's the opposite. You are more Keynes when younger and move away as you get older
B4 studying economics i naively thought all these 'schools of thought' economists thought the way they did purely because of theory and mathematics. Came to realise which school you agree with stems a LOT from politics, liberalism, all that stuff. Kinda disappointing tbh, turns econ into an art imo, and makes it more accessible to the politics, history, geography kids, u get the idea.
Prefer studying financial econ these days, Fama and Shiller came to believe the stuff they did purely out of the theory and evidence imo
Traditionally Economics *was* an art. Most early studies of thought pre-date calculus entering the zeitgeist of economic applications. It was only after someone looked at the social science and found that you could derive models from it that it became the math heavy practice it is today academically.
yep, many people miss that Adam Smith was a philosopher. Wealth of Nations is hundreds of pages of unintelligible ramble. And many of the big boys running the show up until the mid 1800s were philosophers. Not like those theories are of any use today - it's already been distilled into modern economic thought. But as neat as I think quantifying economics is, u gotta admit the way economics likes to make things more complicated than it rlly is is annoying as fuck. And after all that math, there's no real answer lol. That's why I heavily prefer finance these days (or at the very least, financial economics) - although we also deal with fundamental uncertainty, things are at least more definite than economics, financial models are clearer than economic models. Way less headaches and anxiety
Generally Keynesian, despite the slow erosion of my trust in government.
Can you have both a distrust in government and a Keynesian view? I always saw them as mutually exclusive.
Not trust in government as a whole, just the current government and other leadership alternatives. Canadian here before anyone dumpster dives into the whole Biden / Trump thing.
Chicago, full stop. And yes, for once Chicago did something right.
Austrian school.
Economics in One Lesson by Henry Hazlitt was a book I read in high school which gave me a basis for my views.
New Keynesian, as far as general schools of thought outside of straight up mainstream econ. Generally though heterodox econ theories are really interesting to study but aren't mainstream for a reason (Austrian, Feminist, Post-Keynesian, etc.).
Econ related book I've read recently I enjoyed was "Systemic Risk, Crises, and Macroprudential Regulation". Not a light-econ book though its a fairly dense read.
Austrian. Start with Hayek and Mises, then move on and take the Rothbard pill.
From a public policy perspective, and in the context of inflationary cycles, I'm a supply-sider. I genuinely don't understand how anyone who is even partially educated could disagree with supply-side economics (after decades--maybe centuries--of proof across the world). I also don't understand how there are still people who promote Keynesianism after its endless failures, particularly in the last 2-3 years years where we've engaged in "chief Keynes" and it's turned into an inflationary nightmare. In fact, we probably haven't even experienced the worst yet--2023 is probably going to be ugly economically and this demand-side garbage is the primary reason for it.
I started out as an econ major, but I saw many of the things the_lonely_traveler mentioned fairly quickly and moved to finance on the assumption that finance would be more objective.
Supply-side in the past decades has to put it simply failed the bottom 90% of America.
The general logic behind supply-side goes as follows:
If we create business friendly conditions, provide tax breaks, de-regulate etc. this will incentivize businesses to expand and create more innovation leading to more jobs and a better impact on the economy.
This is true only if the business (among other things): a) operates in a monopolistic competition environment, b) has a limited geographical scope and c) a predictable labor market supply curve. a) is important because if the company already has substantial market share they are not going to organically expand. They are going to use M&A to start buying out competitors and once they do that, create "synergies" by laying off workers, depressing wages, and raising prices because they have such a large share of the market and can do so. b) is important because without this companies can just off-shore jobs and then the net gain that Americans get is negative. No new factories or plants are being opened to benefit the working class as supply-side states. c) is important because wages and QOL are not just a function of labor demand but labor supply. If labor supply outpaces labor demand, wages are going down regardless. This is something we see today as illegal immigration continues to grow, suppressing wages on the jobs that still exist in the US here.
As you can see, where I'm going with this is that supply-side economics is a complete failure with large corporations. Absolute failure. These busineses need to be taxed and regulated more compared to mom and pop shops not less, and even being given bailouts. We have a completely corrupt system today where the villans are rewarded and the heroes punished in the American economic landscape.
Few thoughts:
1) For demand-side inflation to occur we have to assume that consumption increased significantly due to stimulus payments. For this to be true you have to assume that the amount of the stimulus payment was significantly more than the amount of income that person had earned previously AND that the excess money was actually going towards discretionary spending. For the most part, people who live paycheck to paycheck are putting a $600 check towards their rent payment, credit cards, student loans, etc. and saving the rest. They are NOT for the most part taking a trip to Disney with that money or hoarding up tons of groceries. So, there's really no reason to believe when you look at the dollar amounts that the stimulus checks in and of themselves caused a substantial amount of inflation
2) Continuing off of 1) the problem isn't the stimulus checks themselves, it's the fact that such checks hit the deficit and the government had to print money to pay such checks. To me, this is a problem caused by a combination of excessive supply-side policies (wealthy corporations not paying enough taxes) and poor government planning when it comes to spending money. Emergency checks should NOT cause this sort of situation, because the government should have a cumulative surplus and emergency money on hand
3) Even when 1) and 2) cause inflation, consumers should NOT be in such a situation where they are now where real wages have signfiicantly declined, relative to costs of essentials which have risen 20-30+% YoY. The fact is because corporations are so large and the pandemic saw record deal flow (market consolidation), we now have but a handful of major corporations in each industry that control the market and hence are keeping prices sky high without adjusting wages. Corporate greed and market consolidation are major drivers to the reason people are suffering. If we assume consistent margins, inflation should roughly mean a 20% higher salary, but 20% higher costs leading to no net gain or loss fo the average person. In reality, we are seeing maybe a 5% higher salary but 20-25% higher costs of essential goods, leading to many facing extreme hardship. Just look at financials yourself and you can see that corporate margins, even during this period of difficulty are growing. Not shrinking, not even remaiing the same but growing. Additionally, accumulated wealth among the top 1% rose significantly during the pandemic, not went down or stayed the same. This goes against any of the principles of monopolistic competition and emphasizes the point that corporatism in the US is quickly driving us towards an oligopolistic economic state where only the top 5% will gain and the rest suffer.
You wrote a mountain of words and are wrong about nearly every single thing. I genuinely don't even know where to start.
That's not the logic. It's factually true and has been proven true countless times, from current Greece and Ireland to the UK in the 1980s to Chile from the 1970s and beyond. And its opposite has been proven suboptimal as we've seen countless times, from the Netherlands and the UK in the 1970s to the U.S. during the Great Depression. The only time demand-side economics has revived an economy is during WW2 when the entire world was destroyed except the United States.
You're making a bunch of assertions as if they are fact or true prima facia or universal truths. There's no way for someone to respond to this mountain of assertions because there are absolutely individual instances, for example, in which one could show supply-side tax cuts being used by a company for M&A and share repurchases. But we also have seen entire economies turned around--Chile, Greece, Ireland, the United States--through supply-side policies (free trade, lower marginal tax rates, deregulation, privatization).
As I can see supply-side economics is a failure with large corporations. Says who? You? Because you say so?
Again, a bunch of meaningless words. I cover the banking sector--that's what I do professionally. Banks have been sitting on record liquidity/deposits for the last 2 years. You're trying to logic through how stimulus checks may or may not have caused an inflationary spiral. We created countless trillions of dollars in new money and deposited it in the bank--the risk-free rate was driven down to record lows as the central bank purchased all of the debt created to generate this new cash, which stimulated consumer and commercial demand. Inflation happens when too much money chases too few goods. All of your parsing of the stimulus check logic is completely pointless. We printed money to stimulate demand and we got inflation. That's what always happens when you shift demand on the supply/demand curve.
No school of thought. Buying into a school of thought is handicapping yourself in all arenas. It becomes an ideology and is the reason economics is political. Take the parts that are true from each and every school. The parts YOU specifically find to be true. Don't trust the experts because for them to have become an expert they had to buy into at least one school of thought. That's not to say they are all wrong but they must buy into the lesser bits of dogma in order to publish and become a public intellectual. Economics is not a science.
I studied economics and saying this is directly demonstrating how useless much of my degree was. Because economics is not a science much of it must be founded on opinion. Most economic research is overtly biased and manipulates the data cleaning stage to get the numbers they want. Look at the trend in economic research over the past 10 years. Researchers are basically going back and demonstrating how almost all past studies are bunk. That’s the whole trend. There is a reason economists arent rich and every year The Economist magazine releases their predictions for the year and without fail they are largely inaccurate. They are hardly better than guessers. Data from the past is simultaneously too poor to make predictions with and too poor to extrapolate economic theories from.
You'd be dumbfounded at how many graduate level economics classes that specialize in micro, macro, or econometrics theory make assumptions about their models that the professor explicitly states have already been proven wrong by history, are clearly leaving out an important characteristic of business, or are clearly wrong even from a non-empirical standpoint. I recall in one class a model that was used to describe entrepreneurs and managerial skill. The model assumed from the outset that all large companies maintain the same manager/managers, aka, CEO, CFO, etc. from a companies birth till its death. As we all know this is patently absurd. Other models assume you cannot learn managerial skill without getting further education and degrees which completely goes against the vast number of people who are simply promoted in the natural progression of a career. Other assumptions like "well we are going to assume here that all firms are taxed identically there is no industry specific or company specific advantage" or "across this industry we must assume homogenized goods". These are not models just being shown as a demonstration of the history of economic models. These are the models that places like the World Bank use now! When you hear statements about the development of nations or a new economic statistic that shows the key to growth just know that its bullshit. The models that these findings come from assume away the real world and as a result become useless and it is borderline unethical to call these findings science. Get out of economic theory while you still can before you find yourself accepting useless dogma and move into the realm of thinking for yourself.
I appreciate what you're saying--and I've even broadly made your argument before--but there are broad conclusions one can reach based on historical experience. The U.S. under JFK and Ronald Reagan's supply-side policies, the UK under Margaret Thatcher's supply-side policies, Chile under advisory of Milton Friedman, and Ireland and Greece's fundamental supply-side reforms (and then maybe less obviously pre-Covid Trump policies) all provide hard evidence that certain supply-side economic policies actually do boost economic growth and/or government revenues. Alternatively, we have vast amounts of evidence that contrary policies (e.g., the current policies of late Trump/current Joe Biden, those under Richard Nixon/Jimmy Carter, Dwight Eisenhower, UK Conservatives under Boris Johnson, the Great Depression-era policies of Hoover and FDR, all which would broadly be considered "Keynesian") fail to optimize growth/revenues and/or contain inflation. And notice how an honest assessment suggests that there is no innate partisanship built-in to supply-side vs demand-side economics. For example, current UK Prime Minister Liz Truss is a supply-sider; her predecessor from last month of the same party is a demand-sider. JFK, a Democrat, was a supply-sider; Richard Nixon, a Republican, a demand-sider. Reagan a Republican supply-sider; Hoover a Republican demand-sider.
We shouldn't be dogmatic about any specific policy (e.g., free trade is good and optimal, but we shouldn't allow outright property theft on the altar of ideology), but there are economic principles that are simply universally correct and those that are, at best, sub-optimal. To your point, we don't need to be economic academics to observe what works and what doesn't--but since we do know what works and what doesn't we can declare adherence to certain universal principles without being narrow-minded.
Reagan inherited a prosperous American and managed to via corporatism slowlly (and still to this day) dismantle the great days of America. Economically he is the worst president the US has had in history outside of FDR.
I’m not much of a fan of the use of models at all in economics and have always seen it as more of philosophy, I guess. Its extremely difficult, if not impossible, to model human behavior and reasoning.
You’re right about economics being political. I’ve always been more libertarian and have found Austrian economics to lend itself to that. I’m curious if you can really separate economics and politics, though. They tend to go hand in hand.
I don't have any real comment, I just wanted to post this clip here:
More of a niche subject within economics but I just finished reading Boom and Bust: A Global History of Financial Bubbles. Highly recommend it given the context of today's macro environment.
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