Economic heuristics

I think it fair to say that whatever we once thought we knew about economics, we no longer know. Saying so, I am not talking that much about economics theory, which few have ever comprehended, and whose relationship with reality has been so remote for so long that this might be a blessing. I am instead talking about the economic heuristics that govern what most people think about the way that the economy works.

No. The two things everyone needs to know, the base heuristics of the subject, are:

1) Incentives matter

2) There are always opportunity costs.

These haven’t changed and they’re not going to either. Not that Spud acknowledges either of them but then that’s what explains his misunderstanding of the subject under discussion.

20 thoughts on “Economic heuristics”

  1. I think it fair to say that whatever we once thought we knew about economics, we no longer know. Saying so, I am not talking that much about economics theory,

    Man who knows fuck all about economics still knows fuck all about economics.

  2. “I think it fair to say that whatever we once thought we knew about economics, we no longer know. ”
    Is that the royal “we”?
    Alzheimers has struck in Ely?
    Symptoms have certainly been obvious for some time.

  3. “I am not talking that much about economics theory, which few have ever comprehended, and whose relationship with reality has been so remote for so long…”

    His pomposity and self-regard are titanic. He proclaims in writing that he is one of the few who have truly comprehended economic theory – a claim that shows that his “relationship with reality has been so remote for so long”. How long can his psyche survive such grandiose ego-inflation?

  4. There’s also two very simple heuristics that aren’t 100% perfect* but I’m pretty sure most people can comprehend and still are generally true:

    1. As prices (costs) rise demand goes down.
    2. As prices (costs) rise supply goes up.

    Which is of course why incentives matter and opportunity costs matter…

    * Economics is of course identifying what the imperfections and exceptions are

  5. Dennis, On The Front Lines Fightin' Them Chlorinated Chickens

    Spud writing about heuristics?

    I’d suggest that what his post suggests is that sometime yesterday he tripped and fell face-first into an open dictionary.

  6. Bloke in North Dorset

    “I think it fair to say that whatever we once thought we knew about economics, we no longer know. Saying so, I am not talking that much about economics theory …”

    WTFs he on about now? Economics is no more a theory than biology or physics are. Its a subject area, there’s plenty of definitions but they all revolve around something like:

    What Is Economics?
    Economics is a social science concerned with the production, distribution, and consumption of goods and services. It studies how individuals, businesses, governments, and nations make choices on allocating resources to satisfy their wants and needs, trying to determine how these groups should organize and coordinate efforts to achieve maximum output.”

    Economists produce plenty of theories that can be tested but to say we no longer know is deranged even by his standards. Some of those theories might be falsified, in which case they are wrong and get discarded but claiming we knew something and now don’t beggars belief.

  7. Dennis: Oppressor, Warmonger, Capitalist and Consumer of Petroleum Products

    Last month he was on Youtube saying he was going to explain economics to the foul smelling herd.

    This week he’s on Tax Research UK saying economics is beyond comprehension of the foul smelling herd.

    I think it’s now safe to say he’s lost interest in his Youtube project which, given a subscriber level of under 1,200 people, seems justified.

    The other thing to note is this: Either Spud did the vast majority of his videos in one day or he only owns one shirt.

  8. I’d change one word in your ”
    “Economics is a social science concerned with the production, distribution, and consumption of goods and services. It studies how individuals, businesses, governments, and nations make choices on allocating resources to satisfy their wants and needs, trying to determine how these groups should organize and coordinate efforts to achieve maximum output.”

  9. Try again.

    I’d change one word in your ”What Is Economics?” definition, BoM4

    “Economics is a social science concerned with the production, distribution, and consumption of goods and services. It studies how individuals, businesses, governments, and nations made choices on allocating resources to satisfy their wants and needs, trying to determine how these groups should organize and coordinate efforts to achieve maximum output.”

    Economics is a historical subject. It can tell you what happened in the past. It can’t tell you what’s happening right now. let alone the future.
    And I’m not even sure about its historical aspect. Economics is far too influenced by the theories of economists. Very often they can’t agree about what has happened.

  10. Umm … I teach macro. A lot.

    I tell students from day one that one of the hardest parts of macro is unlearning all the polluted thinking that passes for macro outside the classroom.

    I get most of that viewpoint from theory.

    But my guess is that most of what I want them to unlearn are the exact same heuristics your source seems so fond of.

    It’s not like we haven’t been telling people FOR DECADES that they’ve got macro all wrong: it’s not a team sport with sides, politicians and bureaucrats are not acting in your best interest, do not think everything is about winners and losers, often more than one participant wins, don’t mistake the count of a thing for the thing itself, know the difference between stocks and flows, understand the difference between an identity and an equality, do not ignore the circular flow, opinions are cheap while informed thinking is not, there is never one big cause but rather dozens of small ones, history doesn’t repeat itself often enough to be really helpful, politicians do repeat the same mistakes made by others (successes sometimes too), labels are not as important as incidence … I could go on.

  11. “I think it fair to say that whatever we once thought we knew about economics, we no longer know.”

    What’s this “we” shit, kemo sabe?

  12. I think he feels economic theory fails because all his ideas are based on theoretical humans. Ones who, for example, are happy to pay more tax.

    Economic theory based on real human nature is quite successful. Real humans don’t like paying tax, no matter how much “better” it would be to do so.

  13. A guy outside just started his Porsche. What a wanker! Why do those cars make such a racket? Can’t they afford proper engineers?

  14. So Much For Subtlety

    Diogenes August 7, 2020 at 7:48 am – “A guy outside just started his Porsche. What a wanker! Why do those cars make such a racket? Can’t they afford proper engineers?”

    Is this ironic? Most sports car companies employ people to make sure the engine makes that sound. There are a lot of people who will custom you some thing to make it even louder.

    It is true for motorcycles too. Harley Davidson designs their exhaust system to be artificially loud. Royal Enfield was sold off to some Indians and they do too.

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