Comments on: The ‘laws of economics’ don’t exist A clear-eyed view from Zachary Karabell Thu, 06 Feb 2014 10:10:54 +0000 hourly 1 By: BP50 Tue, 23 Apr 2013 01:31:55 +0000 Recent increases in the money supply have not caused inflation because the Fed is paying banks interest on excess reserves- most of this new money is not circulating so it cant cause more inflation.

By: TimWorstall Mon, 22 Apr 2013 13:54:14 +0000 When proclaiming the Emperor has no clothes it helps if you know what clothes actually are.

“Because the “laws of economics” say the supply of money will cause inflation if overall output stays the same. In the developed world, clearly, there has been an increase in money supply via the Federal Reserve, the Japanese Central Bank and to a lesser extent the European Central Bank, yet growth is minimal everywhere. While there is no statistically discernible inflation as of yet, the “laws” strongly indicate that there soon will be.”

Said “laws” state that the velocity of money falls in recessions. And it is the combination of the amount of money and its velocity of circulation which determines inflation.

US money supply has recovered to trend but velocit has not. Eurozone velocity has recovered but money supply has not.

The “laws” of economics tell us that either situation will lead to no or negligible inflation, indeed, to the deflation we see in some eurozone periphery countries.

The inflation will come if and when both money supply and velocity return to past trend.

By: Giovanni_I Sat, 13 Apr 2013 20:28:38 +0000 One issue the author raises when he says: “While there is no statistically discernible inflation as of yet…” is that we have not yet even agreed on the system of measurement. It seems that Mr. Karabell is referring to Core CPI inflation which excludes food and energy, costs which may be trivial to well off citizens but are along with housing the vital expenditures of most people in the US as well as across the world. By excluding those critical costs the measurement of impacts is fundamentally impaired and leads to a distorted view of current conditions. This prevents a real evaluation of the validity of economic ‘laws’ such as they may be.

See also a/inflation-charts for another way that the measurement of inflation has been gerrymandered to make the testing of economics scientifically invalid. While I am not proposing to say which economic ‘laws’ do exist I believe that a serious analysis of them cannot take place until the methods of their measurement are more accurate.

Fascinating discussion about science and whether economics can be included as such in the comments. I believe that economics someday may have the tools to make better models of macro events but will ultimately be limited in their accuracy by the fact that the subjects are human.

One thought that occurs to me is that somewhat like how our understanding of physics developed (as discussed above), economics will be better understood from a macro perspective if it is detached from provably flawed micro concepts like rationality and utility until such time as the knowledge of how to model individual behavior advances.

By: dhlii Fri, 12 Apr 2013 15:54:15 +0000 Mr. Karabell is concurrently right and wrong. The “laws of economics” are the intersection of the laws of physics, nature, and human behavior. They are not mathematically perfect or rigid, neither are they meer suguestions.
Nor do they depend on perfect rationality. They depend on the interaction of real immutable physical facts, as well as patterns of human behavior that whether rational or not, whether variable or not still remain within narrow ranges for the overwhelming majority of people.

It is theoretically possible that governments can act in ways that “violate the laws of economics” without experiencing the consequences those “laws” predict – but the probability is minuscule.

It is wrong – immoral even evil for government to act contrary to those laws while expecting, predicting and trying to persuade people that they will not apply.
It is possible that tomorow every single human could wake up and behave in the specific irrational manner required for the “laws of economics” not to work. But just as we can expect the sun to rise tomorow, it is likely that all of humanity will not suddenly behave entirely differently tomorow.

The “laws of economics” are not invariable and immutable. Nor do they presume perfect rationality. But they are based on human behavior and have an extremely high probability of proving true. They do not require rational or perfectly predictable human behavior, just not universally unpredictable irrational human behavior.

By: reality-again Fri, 12 Apr 2013 11:53:15 +0000 The author makes a good point –

There are no laws as in physics (you can’t break them), and no laws in the sense of state laws (you could get punished if you get caught breaking them).

There are observed patterns in the behavior of individuals, groups and organizations.
Such patterns can be circumstantial, transient, evolving, misinterpreted or misunderstood.

By: Kaleberg Fri, 12 Apr 2013 03:51:12 +0000 Right now, we have no laws of economics. There are laws of accounting, and we mock them at our peril, but they are generally ignored by economists whose arguments often make no accounting sense.

Also, do economists actually argue that economic laws have moral weight? You’ll notice that physicists, biologists, chemists and accountants don’t. The laws may be right or wrong, but not good or evil. If economists are talking about morality and not money, goods and services, then they are promulgating religion, not science.

By: PseudoTurtle Thu, 11 Apr 2013 22:37:48 +0000 @ Benny27 —

I apologize if I have offended you. It was not my intent. Sometimes I become too forceful in making comments.

What I was trying to tell you is contained in my last comment above, about the markets being ready to crash again, mainly due to wealthy bailouts we cannot afford, and over 40 years of neocon taxes, free trade and the removal of banking regulations.

2008 was a redux of 1929, but the misguided attempts to rescue the wealthy class to avoid the “mistakes” of the Great Depression has simply made things much worse.

We have, in my estimation, reached the limits of the massive global bubble we are in before it bursts again.

That is my point, and the only point that really matters right now.


By: Benny27 Thu, 11 Apr 2013 22:21:17 +0000 You tell me I am wrong while agreeing about the practice of economics. I admit to ignorance of physics, and I am still learning. You seem attached to classical economics, as if that is what is practiced today. perhaps you really do just prefer to shout about things, rather than deal with details. I don’t expect you to teach me anything in particular, but I am mystified as to what your problem is regarding economics. You say my view is wrong when I agree with you word for word….

By: PseudoTurtle Thu, 11 Apr 2013 22:15:47 +0000 @ Benny27 —

I want to make one last point before I sign off for today.

Your ideas for both economics and physics are seriously outdated. I cannot make up for your lack of education. Only you can do that for yourself.

The proof of quantum mechanics lies in the medium we are both using to dispute our notions of science — it’s called electronics, and its all around you every day, not hidden at all.

The same is true for economics. Its impact is felt by nearly everyone in the global economy today. And that impact is not good, since it is destroying this planet we live on.

The same principle applies to both of your opinions — they are wrong, but only you can change them.

The question is will you? And before it is too late?

The global economy is on the verge of collapse again. The DOW, for example, closing at 14,865 today based solely on $3 trillion on its way to $4 trillion of “wealthy welfare” that is not getting through to the real economy and now hitting new highs as a result, which is proof there is something seriously wrong with the global economy.

THAT is a truth which cannot be avoided, and will become all too obvious when it crashes again as it did in 2008.

In fact, it may already be far too late to do anything about it.

Meanwhile, we sit here arguing about how to rearrange the deck chairs as the US economy slides underwater.

It is all very sad and pointless, mainly because it was totally preventable, if we had paid attention to what the wealthy class was doing with taxes, free trade and the destruction of banking regulations.

What is even more sad and pointless is that most people simply don’t have a clue as to what is going on, nor do they care.

They will quite soon.

By: Benny27 Thu, 11 Apr 2013 22:04:43 +0000 Pseudo, Interesting take, I am not sure why you feel the need to be hostile, I am essentially agreeing with you. I say that Adam Smith is wrongly used to justify the neo-liberal (you say neo-con) positions of commenters and pundits today. Adam smith predicted that they would attempt to distort the market etc. And we see that they do. What does this have to do with the Efficient market hypothesis and other modern tropes of economics?

I am not aware of the details of Quantum Physics, so correct me if I am wrong. Newton first exploded the notion that things needed to touch to interact (as you also mention), but modern quantum theory refers to events that occur at the subatomic level, not the macro world of aeroplanes and humans. So in what way does the recent discoveries in physics invalidate the utility of Naturalistic Science? Otherwise stated, who cares about field theories, when we are trying to solve human problems such as economic policy changes?

So what exactly are you trying to teach me? My thesis is that economics is a field of political science, and the only truth to be found anywhere in human understanding will come from modern science, not from economics or speculative philosophy, for instance. Your condescension about Adam Smith is unnecessary, because you are telling me what I already know: businesses act in self interest, and tend to work toward conspiracies against the public. I just add the fact that his “toward the betterment of all” notion refers to his own nation, at the expense of others. That is why he spends long tracts of his work. explaining policies that England should adopt. He also said that division of labour would prove efficient, but it would also turn man into a low beast-like machine, robbing him of his human characteristics (a low fidelity paraphrase, of course).

So is he recommending division of labour or not?