Economics: A complete waste of time

Before I start this article, I have to place a small disclaimer: at its highest level, economics indeed has validity. When properly developed, studied and presented, economics does have its place. However, 95%+ of economists are complete morons who are barely able to add fractions. This article should really read as “why 95% of economists are completely clueless morons with nothing even remotely valuable to say.”

With that in mind, economics is a complete waste of time. The field itself is a joke, barely more valuable that astrology. I’d like to compare it to history and philosophy, but even historians tend to prefer to stick to facts and philosophy can be based purely on logical constructs. Unlike those two, economics is the science of extreme simplifications and random guessing based on nonsensical theories that simply don’t apply to our world. If ledaders took decisions based on the alignment of stars instead of economical data, I’m not so sure we would be that worse off.

Economics is the art of sounding smart when you have nothing to say

In my entire life, I have never heard an economist with something important, relevant or even informative to say. They all rehash the same hackneyed bullshit year after year with a complete disregard for facts or the utter complexity of human nature itself. I’m not saying that smart economists don’t exist, I’m saying I never heard one talking. They’re almost as bad as “technical analysts” and worst in some ways.

Take the following set of data and how an economist would react, for instance

News Economist's reaction
The USD Dollars keep strengthening Imported goods are going to cost less, thus production in the US will decrease!
The IMF lowers its growth production for 2016 The economy is slowing!
The oil barrel drops below $30 Consumers are going to save money at the pump, this will stimulate the rest of the economy!
The fed raises its interest rate to 0.25% It will cost more to borrow! The economy will cool down!
US car sales better than expected – beats forecast Strong consumer demand for non-cyclicable goods show resilience of US economy blah blah

The problem with all those “insights,” of course, is that they are what they are: guesses. You have no idea on how specifically any of these elements are going to affect an extremely complex system with millions of actors.  You have no idea what will happen when you do or don’t do something. Just because some economical theory somewhere says that inflation will flatter when interest rates go up doesn’t mean that this will actually happens.

I’ve always laughed at the concept of a recession in the first place because it’s the dumbest idea in the entire economical field. Take this, for instance:

GDP growth rate 2015Q1 2015Q2
-0.1% -0.2%

PANIC!!!!!!! WE HAVE A RECESSION ON OUR HAND! Business are going to cut left and right, everyone will be homeless, consumer spending will crash, the economy is slowing down, blah blah blah.

The very concept of a “recession” is retarded beyond belief. The definition of a recession is two consecutive of negative GDP growth. Even if that happens, who cares? Who gives a damn about what the GDP (Growth Domestic Product) does anyway?

Even if the GDP goes down, is it really that dramatic?

I’m supposed to believe that that if the GDP goes down, things will go down for me too. In my entire life, I’ve never been able to meet one person who could explain me why. Let’s say for instance I work in finance and the mining sector crashes. The mining sector crashes and the total GDP crashes by 1%. My salary remains the same and nothing else change in my life. Why exactly should I care about a negative GDP growth?

I was told that a lower GDP lead to fewer jobs and lower salaries. Based on what? What if, again, finance grows and mining crashes. What if we lose 50,000 jobs in mining but create 65,000 jobs in finance? The GDP is lower, yet the  total amount of jobs is higher.

“But the employment rate will be lower! Less people will work!”

Again this is something that is grossly oversimplified and makes little sense for one simple reason: it assumes that people want to work.

I’m going to go on a tangent here and say that I believe most people wouldn’t work if they were given the choice. Aside from people with a true calling (perhaps 5% of the population) and a couple of whackos who seriously like doing menuous, barely useful job, I like to tend that eventually, robots will do 90% of jobs that are currently occupied by humans. If more people choose not to work – perhaps staying home to take care of their families or pursuing other interests – where’s the problem? Let’s say that out of those 50,000 miners who lost their jobs, half of them go back to school to study something else and the other half decide to stop working. Why is that so bad?

But let’s go back to the point main: apparently, a lower GDP will make my life harder in a way or another. I’m not exactly sure how, but let’s assume it will. I still don’t understand the relevance of two consecutive quarters of negative GDP growth. It’s not like things aren’t going to bounce back. Take the following scenario, for instance:

GDP growth rate 2015Q1 2015Q2 2015Q3
-0.1% -0.2% 4.5%

Here we go, here’s your recession you morons.

I always laughed at the idea that the economy was “cyclical” too. According to those idiots, you can make free money by simply riding out the waves. Economy starts to do poorly? You can safely short all stocks since we are at the end of a cycle. Stocks start to do well? Buy, the economy is “restarting!”

All of that makes no sense, of course.

What if I told you most economical elements, such as demand, importation, exportation and so on, are stochastic elements? Stochastic by nature means they are “random.” If there were really cycles in the economy, you could predict ahead of time and thus make free money. Say for example that that housing boom cyclke is ending; go ahead and short the stocks of companies holding a lot of house. According to you, houses prices will go down for several years, so this is free money.

IIfit worked that way, everyone would do it.

Some might mention that when you look at the stock market, you clearly see periods of growth and crashes. But all of this is in your head. Similarly:

Just because it might have happened that way in the past doesn’t mean it will happen this way in the future.

Recently, there was an article about how stocks could enter a bear market. A bear market is defined by a 20% drop from the top – because that totally makes sense. Why isn’t it 15% or 25%, I have no idea: someone looked at his screen and decided that 20% was “it.”

So if stocks fall 19.9% from the top, we are perfectly fine. But if they fall an extra 0.1%, we are toast. We are in a “bear market,” whatever that means, and stocks are bound to fall more, right? Right? Based on what, the law of round numbers? Do you seriously think that there is someone, somewhere, that looks at his screen and screams, “Shit, stocks are down 20%, this means my stocks are going to keep falling. I better sell everything and buy back later.”

Recently, I wrote an article on deflation, basically saying that deflation wasn’t all that bad and certainly nothing to be afraid of. The post was submitted to reddit where commenters promptly started circlejerking about it. Their main argument was mostly that using rage comics was not a credible way to carry a point. In other words, these people prefered to attack the form rather than the font, probably because the font in itself is not attackable.

No, deflation doesn’t scare me, and just because some economic theory told me I should be doesn’t mean that I will. Let’s read a few “arguments” from that website.

argument 1

You know, gasoline was $0.60 when I was really young. Then it moved to $0.80, then $1.00 when I was starting college, then $1.20 and I really started flipping out and considered abandoning my car,  and then $1.55, which is the highest price I ever saw for a liter of gasoline. I remember one night where I basically flipped out at gas prices and started screaming – literally. I called it a scam, which it was. Today, gas prices stand at $1.00 per liter. Is it really that cheaper? If you did a ten year moving average of the prices of gasoline, I’m not so sure it would be that cheaper.

I suppose that, in general, you refer to prices of commodities and how commodities prices can go up and down. On this, I would like to bring the FSComeau theorem, version 2:

“When the price of a commodity goes up, the price of the transformed product goes up as well. When the price of a commodity goes down, the price of the transformed product doesn’t.”

In others, prices go up when they should go up, but they don’t go down when they should. The last time the oil barrel was trading below $30, gas was at $0.40 per liter. Today it’s at more than twice of that. Yes, I know taxes went up, but my point still stands. I can’t recall a single item whose price significantly went down.

Minerals today are basically worthless. Zinc, copper and the rest are now at multi-years levels. Do you think pipes, cars, tools and other finished goods are cheaper? Of course not. Of course fucking not. Prices for those items simply stopped going up – the rest of items I purchased kept going up, of course. And when zinc starts going up again, these items are going to steadily rise in price again.

I’ll repeat it: In my entire life, I have never seen the price of a single item go down significantly. Ever. As far as I’m concerned, deflation is a myth. A chimera.

black friday

I think this is a troll, but in the unlikely scenario that it is not (you never know with “economists”) I have to say that you fail to understand the concept of a sale. And if you compare this year’s black friday with last year’s, or any year before that, you’d realize that even Black Friday prices have been rising year over year.

alibaba 300

Contributor*

Good thing you deleted your account because both my points still stand. My minimal risk trade would have worked exactly as I planned it and Alibaba’s stock is going to rise 100% one year – one year. It’s one of the most solid long-term holds in today’s market.

deflation

I didn’t advocate for deflation you strawman argumenting idiot, I simply said there was nothing to be afraid of.

The rest of the comment goes on to discuss the Long Depression. Because that’s totally relevant. Compare one concept to a very complicated and advanced crisis caused by hundreds of factors, one of them just happening to be deflation. And I fail to see how even higher prices would have helped people caught in the Long Depression anyway.

some other moron

I like how you accuse my article of being a hot ball of garbage, then proceed to precisely agree with my article. Fucking idiot.

grapeban

You know, Grapeban, I didn’t choose to publish ragecomics just for the hell of it: I tried to make it simple to understand.

I don’t see how anyone can disagree with my rage comic. Sure, you can wait a year or two to purchase a house if you think prices are going down, but the fact remains that when you need a house, you need a house. 90%+ of people today want to buy a house to start a family; they’re not going to rent an apartment forever. Again, they can wait a few years, but eventually, they want “their” house. They want their oldest son to have their room, they want a patio, they want a finished basement, etc.

The point I make in my comic about housing prices is very clear: nobody bases his purchase decisions on whatever the Bank of Canada or FED thinks will happen to house prices. People buy a house given their means and the general location and whether they want a house or not, and whether and how long they can wait for it. That’s it.

I still don’t understand what’s so bad about prices going down. I guess nobody has explained it to me. “It’s going to cost me less money for more goods! How horrible!”

The rest of the reddit posts devolves into weird arguments based on stupid oversimplified crap. Here’s the top voted comment in the thread:

answer

According to this guy, the entire economical system – meaning every business, every industry, every transaction, every commodity and every single price in our modern society – can be summed up by the following graph:

AD-AS economy

AD-AS economy

That’s it. Forget the bayesian modeling, Market Chain Monte Carlo, fixed income dynamic modeling, conic optimization and all the other stuff: everything you need to know about “price level” can be summed up with two lines and a curve. Some firms runs simulations on computers that are amongst the top 100 most powerful on Earth, but apparently, they do it for nothing because the graph above does just a fine job.

This shows just how far economists have their heads up in their own asses

Let’s go back to Integralds’ argument: basically, if there are too many goods and prices go down, it’s a good thing (I possibly agree here, if goods were overpriced in the first place). But if there is too much a weak a demand and prices go down, it’s a bad thing. Why?

What if the good is overpriced in the first place?

Let’s take a computer, for instance. It sells for $5,000 and nobody buys it; the demand goes down. The firm reduces the price to $1,000 and now people are buying it. Where’s the problem?

If there is no demand for a good, there’s a reason for it.

The author then comes to the conclusion that deflations leads to lower salaries. Based on what? What you want to believe? What a book told you to believe? Guesswork? That’s a big, big stretch here. He jumps from one single, simple element to a very complicated (and false) conclusion.

Say you earn $10,000 a year and spend exactly $10,000 a year. Your salary is cut to $8,000 but at the same time, prices go down and you now spend $8,000. Where’s the problem?

You still have the exact same items! Sure, it sucks to earn less money, but does it really change anything? Let’s take the opposite form:.

Say you earn $10,000 a year and spend exactly $10,000 a year. Your salary is increased to $12,000 but at the same time, prices go upand you now spend $12,000.

Again, does it really change anything? You get the exact same items you used to get a year ago. Are you really “happy” about that 20% salary increase?

It goes without saying that your salary is only relevant when compared to general inflation. But even inflation is general is a finicky concept because, with a few exceptions, you can easily substitute one good for another. Say an apple and an orange both cost $1.00; the price of an apple rises to $2.00 while the price of an orange stays the same. Perhaps you will eat more oranges and less apples, don’t you think?

The AD-AS theory is exactly what it is: a theory.  It’s not the panacea to every problem in the world; it’s a guess on how some things work. Some theory have some solid foundations that are backed by logical constructs, observed empirical evidence and serious, reliable studies (theory of evolution, theory of gravity, etc.), some are like the AD-AS theory. To blindly believe in something just because the word “theory” was added in the mix doesn’t make sense. Would you believe all of Freud’s work simply because it’s a theory?

When I think about economics, I think about the science of gross oversimplifications, random arbitrary assumptions and guesswork. What if prices go down but salaries remain the same, for instance? You won’t hear Integralds discuss that possibility. On the opposite, what if inflation goes up while salaries go down? Is inflation still a “good” thing?

It’s borderline stupid to assume that deflation is necessarily a bad thing. Whether it is “bad” or “good” depends on far more many factors, many of them far too complicated to be accurately predicted or modelised in any kind of reliable way. Economics the science of guessing and I would say that, except when you consider the highest level, it’s barely more reliable than reading tea leaves. It is based on a set of rules with little factual or logical basis; you just “assume” that people and countries are going to react in a way or another.

Let’s attack one last form of economical reasoning before I lose my mind:

“Okay, but what if people are losing their jobs and thus unable to buy goods, and thus prices go down as a result. “

Not necessarily. Perhaps the company will maintain its prices and simply sell less items.

“But if the prices don’t go down, no one will buy the good and the factory will close down.”

Let it close down, then. Then prices will go back up. Or they won’t and the goods were too expensive in the first place.

“But with prices lower, more people lose their jobs and, as a result, prices keep going down.”

Again, not necessarily. There’s a minimum amount of goods we need and a minimum of people necessary to produce those goods. If companies could have the same output with fewer workers, they’d do it. And if they don’t do it already, in a financial crisis, they certainly will. What’s with people obsession about saving jobs at all cost anyway? Should we pay people to do nothing just so we can pretend our economy runs well?

It’s not like companies are going to produce their goods at a loss – not for an extended period of time, anyway. Eventually, they’ll just stop producing these goods. What if 10 companies produce item A, and all of a sudden, the demand for item A drops by 50%? Chances are around 5 companies will disappear, or that some of these companies will operate at less than 100% of their capacity. Perhaps all 10 companies will survive, but will produce only 50% of what they used to make. Such is the nature of capitalism and, on a more general scale, a free market. I still don’t get why people don’t agree that deflation is not necessarily a bad thing. If prices have to go down so that more people will buy their goods, where’s the problem?

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