Economics: The Social science that wishes it wasn't.

[ansutherland]

If you are anything like myself, you likely find economic policy very frustrating. What I find most frustrating about it is that unlike the consensus that scientists reach regarding major scientific theories, such as evolution, no such agreement exists in economics. For decades, nearing a century in fact, we have had the two primary schools of thought, the Classical and Keynesian fighting over who is right, yet no consensus exists. You would think that with the economic collapse we just witnessed we would be a little closer to figuring it out, yet this does not seem to be the case. Worse yet, economics is something that everyone has something to say about, and those opinions can be very dogmatic in nature, yet if the experts can't manage to agree, what hope do we have at understanding which policies best suite any particular situation?

Am I alone on this, or are most of you "sure" of what you know and what needs to be done?

 

[Bar Sinister]

Economics is not called the "Dismal Science" for nothing. In fact it is really not much of a science as there are several competing theories all of which seem to work under the right circumstances, but all of which fail if pushed too far.

For example, unregulated capitalism can lead to rapid economic growth and enormous gains in wealth. However, it also leads to enormous disparity between rich and poor, environmental damage, and eventually to the development of monopolies which eventually destroy the system.

At the same time economic policies aimed at directing everything for the public good and distributing wealth equally tend to stifle creativity, result in low quality goods and services, and require enormous amounts of mind-numbing government regulation.

Even choosing a middle ground between the extremes of capitalism and socialism is difficult as proponents of each argue endlessly about the right mix. The best option seems to be to look at various models worldwide and choose from those that seem to work best.

 

[Kreskin]

It's more like religion than science.

 

[JLM]

If you are anything like myself, you likely find economic policy very frustrating. What I find most frustrating about it is that unlike the consensus that scientists reach regarding major scientific theories, such as evolution, no such agreement exists in economics. For decades, nearing a century in fact, we have had the two primary schools of thought, the Classical and Keynesian fighting over who is right, yet no consensus exists. You would think that with the economic collapse we just witnessed we would be a little closer to figuring it out, yet this does not seem to be the case. Worse yet, economics is something that everyone has something to say about, and those opinions can be very dogmatic in nature, yet if the experts can't manage to agree, what hope do we have at understanding which policies best suite any particular situation?

Am I alone on this, or are most of you "sure" of what you know and what needs to be done?

Yeah, everyone should quit spending money they don't have. :smile:

 

[Dixie Cup]

hear hear JLM - it's easy!

 

[Tonington]

Yeah, everyone should quit spending money they don't have. :smile:

So, companies shouldn't finance to grow, and provide more jobs to the economy?

I don't agree with that at all.

 

[JLM]

So, companies shouldn't finance to grow, and provide more jobs to the economy?

I don't agree with that at all.

Do I understand you to say you are all for spending money you don't have? How are you to be sure you will ever have it? Do you think paying 30% interest (about par for people who are broke) is wise? :smile:

 

[Tonington]

Do I understand you to say you are all for spending money you don't have?

I wouldn't have a university degree otherwise...

Living within means is one thing, living without debt is another. There is such a thing as acceptable levels of debt.

 

[JLM]

I wouldn't have a university degree otherwise...

Living within means is one thing, living without debt is another. There is such a thing as acceptable levels of debt.

There are exceptions to every rule, financing an education is one example of being able to borrow at low interest when you have no money. Acceptable levels of debt would include having collateral you can liquidate to pay the debt. :smile:

 

[Tonington]

There are exceptions to every rule,

Yeah, I know that. That's why I disagreed when you said people shouldn't spend money they don't have. If I own a company, and I can finance an expansion of my business which I expect will last 10 years, and I've paid it back in 3 years, then it was probably worth spending money I never had...

There's plenty of examples, so much so that I wouldn't even really consider it a rule. Living within your means I would though. That means analyzing the debt, is it worth it, can you afford it, can you afford it if interest rates go up. Lots to consider, but you have to be smart with money.

 

[taxslave]

Yeah, I know that. That's why I disagreed when you said people shouldn't spend money they don't have. If I own a company, and I can finance an expansion of my business which I expect will last 10 years, and I've paid it back in 3 years, then it was probably worth spending money I never had...

There's plenty of examples, so much so that I wouldn't even really consider it a rule. Living within your means I would though. That means analyzing the debt, is it worth it, can you afford it, can you afford it if interest rates go up. Lots to consider, but you have to be smart with money.

Debt to make money is not the same as debt because you can borrow . You are right about borrowing for business, education buying a home. All have a reasonable although not 100% chance of payback. However to borrow to go on a holiday is in my view irresponsible even though it is encouraged by lenders. This is part of the reason that credit card interest is so high because there is no security.
I believe that interest rates should be low to make payback easier but make getting the loan in the first place much harder. All high interest rates do is make the rich (lenders) richer and live much more difficult for borrowers.

 

[JLM]

Debt to make money is not the same as debt because you can borrow . You are right about borrowing for business, education buying a home. All have a reasonable although not 100% chance of payback. However to borrow to go on a holiday is in my view irresponsible even though it is encouraged by lenders. This is part of the reason that credit card interest is so high because there is no security.
I believe that interest rates should be low to make payback easier but make getting the loan in the first place much harder. All high interest rates do is make the rich (lenders) richer and live much more difficult for borrowers.

Bingo!