Sunday, March 10, 2013

And the Confusion Made the Brain Go ‘Round

Depending on which professional economists you listen to, the monetary and/or fiscal policy components of Abenomics will or will not work. There’s no consensus there. It’s as if astronomers couldn’t agree which was revolving around the other, the Earth or the Sun. Is economics more numeromancy than science or what?


Matt D said...

I think some of the ruling paradigms though aren't even questioned, this is a good article in regards to that:

Imagine there were a large pond that froze over in the winter. A boy decides to go ice skating there one day. Someone else sees this and does the same. Soon there are many people ice skating there. From above you can see a spontaneous order has taken place. This order is unplanned and undesigned, yet dependent on each individual actor.

Now say a person begins to skate in a reckless way, the order gets disturbed. So a rule is made and everyone agrees to enforce that rule, so as the order doesn't get disturbed again. So now we have one rule. If another problem arises, maybe we'll make another – or adjust that one rule.

Rules in society are a bit like this. We don't really know what it is we are doing … imagine if someone tried to go to the center of that skating ring and tried to direct all the skaters, "hey, you go left, over there in the red sweater, a little faster …" It'd be a disaster.

To me the argument is over how can we best direct all these skaters, and is thus a bit frivolous. No wonder no one can agree. At best we have to work on the ground rules … we have to sort of guess what's wrong with our current set of rules that is creating the problem. But there is so much interference from the top, it's hard to get a feel as to which individual player's actions are creating the problem.

Nationalism and national self-interest further complicates things.

Jun Okumura said...


The BOJ isn't dominating the profession in Japan, I'll say that. In fact, its long-time critics are about to take over.

Matt D said...

There's a great deal of irony in your response, if you stop to think about it. Certainly these critics believe in monetary policy as do those they are criticizing. That's the point I was making. It's at least conceivable that the free market should be left to work out such things as interest rates ... but there are very few respectable economists who would suggest this, I think.

I don't think historically there has ever been a situation where all major world powers had a fiat currency – and all major world powers were looking to rapidly expand the monetary base. We've never seen anything like this.