Principles of Economics Review (Part 1) \ stacker news ~bitcoin

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546 sats \ 6 comments \ @jimmysong 17 Jul 2023 bitcoin

Saifedean's Principles of Economics kicks off strongly, addressing a common flaw in economic literature: either they lean into pseudo-scientific approaches, like Keynes', leading to nonsensical interpretations, or they dedicate too much energy debunking these approaches, sacrificing readability. Saifedean intended to create the book he wished he had at 18, and it seems he's on track to deliver an accessible introduction to Austrian economics.

Chapter 1 zeroes in on the fundamental building block of economics: human action. Saifedean argues that the essence of economics lies not in aggregate statistics but in individual human actions. Unlike atoms that behave predictably, humans have diverse goals, making the tendency to treat them as a static collective amidst changing circumstances a serious mistake.

Interestingly, Saifedean notes that Keynesians' preference for a quantitative approach mimics hard sciences, driven by a desire for the prestige associated with subjects like chemistry and physics. This pursuit led to unproven assertions that have become dogma and harmful economic frameworks that persist today.

Saifedean argues that isolating human action for quantitative analysis is unfeasible, as actions are inherently embedded in their social context. No lab can replicate the complex, multifactorial outcomes of individual actions. Hence the constant need to update Keynesian theories. The ease with which these are manipulated after the fact to account for any phenomena removes their predictive power, undermining their value as knowledge.

Lastly, Saifedean contrasts Keynesian and Austrian approaches to the issue of minimum wage. As he notes, humans act to optimize their well-being, not to satisfy bureaucrats. The prevalence of Keynesian economics in government is rooted in the need to justify laws that limit freedom. Keynesianism provides this justification, making it an appealing choice for policymakers.

Overall, it's a very strong start to the book and if this post gets enough likes, I'll continue this review as I go through it.

@saifedean

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193 sats \ 2 replies \ @SimpleStacker 17 Jul 2023

Interestingly, Saifedean notes that Keynesians' preference for a quantitative approach mimics hard sciences, driven by a desire for the prestige associated with subjects like chemistry and physics. This pursuit led to unproven assertions that have become dogma and harmful economic frameworks that persist today.

I agree with this. Though I would argue that at this point, it's not just the Keynesians but all of mainstream economics (unless Saifedean means to say that all mainstream economics is Keynesian). Modern economics is obsessed with "scientific and mathematical rigor", at the expense of more historical and dialectical perspectives.

It's at the point now where you can go through an Economics PhD program and not even take a class in the history of economic thought. [Source: I went through an Economics PhD program without taking a class in the history of economic thought.]

I'm all for mathematical and scientific rigor. Mathematical models and econometric analysis have their place. But I believe that in mainstream economics, the marginal benefit of more "rigor" has diminished below its marginal cost.

I'll give you an example of how this plays out. For certain fields, especially macro, every paper needs some kind of mathematical model. And not only do you need a model, you need to be able to prove the existence and uniqueness of its equilibrium. Proving existence and uniqueness of equilibria in a complex system is very difficult. So what do the economists do? They make simplifying assumptions that make the model less realistic but easier to solve.

In other words, the need for mathematical proof takes priority over the realism and predictive power of the model. To go even further, the simplifications are often made so that the model can explain at least one aspect of reality--at the expense of other aspects. This renders the overall predictive power of the model less, as it is a case of overfitting to the phenomenon that the model seeks to explain.

Thanks for the review. I might pick up this book as well, once I clear through the rest of my reading backlog.

2 sats \ 1 reply \ @Undisciplined 17 Jul 2023

Not only can you go through a PhD program without taking History of Economic thought, it's hard not to. Many programs don't even offer one and aside from George Mason, I don't think it's a core part of any programs.

What I feel Austrian's tend to miss, or at least misstate, is the valuable role of abstract mathematics in economic theory. While the same tools of applied analysis that are so useful in physics are rightly criticized, the set theory and ordinal analysis used by Kenneth Arrow is extremely powerful and goes unsung.

Not coincidentally, proper use of higher mathematics tends to find results unpopular with the regime, like the impossibility of designing a fair voting system. Or, relatedly, that talking about aggregate welfare is inherently nonsense.

21 sats \ 0 replies \ @SimpleStacker 18 Jul 2023

Arrow's Impossibility Theorem is one of the most beautiful results from theoretical economics. There are a lot of other super useful ideas resulting mathematical analysis, including a bunch from auction theory.

But, yeah, overall the point still stands. Modern economics has overemphasized mathematical models to an unhealthy degree. Bringing back historical and dialectical methods would bring a necessary counterbalance, and would likely make the discipline more useful to society overall.

22 sats \ 1 reply \ @dgy 17 Jul 2023

Keynesians' preference for a quantitative approach mimics hard sciences, driven by a desire for the prestige associated with subjects like chemistry and physics

It also helps in terms of testability in exams. In all university studies there are exams involved at the end. An exam in which students have to solve some partial derivative calculus not really related to economics is easier to review than to read and review essays with stringent arguments.

0 sats \ 0 replies \ @SimpleStacker 18 Jul 2023

This is a really great point, but I think it mostly applies to the undergraduate level. Profs should have the time to grade essays for grad-school sized classes.

But yeah, with undergrads it'd be nearly impossible, with core econ classes having upwards of 100 students in one class.

That being said, I would not want to make undergrad econ less quantitative. More quantitative classes serves the students better. I want employers to know that my students have taken rigorous classes in calculus, optimization, and statistics.

The thing is, what's good for the individual may not be best for society when applied to the whole. If all econ students know is mathy stuff, that might be good for them in the job market, but if none of them know their history it limits the generation of future economists from thinking beyond the current system. (I think that's what's going on with all the high-paid normies unwilling to learn about Bitcoin and think about monetary history)

1 sat \ 0 replies \ @era_sed 17 Jul 2023

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