I recently wrote that I no longer plan to read any more long-form versions of economic theory. (Actually, that may be a lie – I still have one such book left on my shelf that I’ll probably get around to.) That being said, it won’t preclude me from following my regular assortment of blogs and the occasional article that touches on the subject. But, as a going concern, my interest is more in the ideas and people that have done something tangible, not who just sit around bloviating in ivory towers.
Nevertheless, as a final report of sorts, I want to summarize what I’ve taken away from my self-styled syllabus, covering much of my reading in the past few years. Not Keynesian, nor Austrian, but Binarian…
-The money supply is kind of endogenous, but not to an infinite degree. Still, the interest rates set by the Fed very much impact whether or not the consequences will be perilous. When the Fed makes money easier, and makes the cost of borrowing for investment (or anything else) lower, the tendency to speculate (for both good and bad) is encouraged. And sometimes we end up with bubbles.
-As a corollary to that first point, the neoclassical view is that the money supply is exogenous – as in, the Fed increases base money which then correlates to greater lending by banks. For those that support the endogenous position, the banks create loans before they have the reserves, and the Central Bank simply accommodates that behavior after the fact with management of the money supply. However you slice it, though, the Fed is playing a role. And, it is a rhetorical question and already answered above, but do we think that higher costs or lower costs on debt are more likely to lead to overshooting of expectations and less restraint in the up-front analysis by a potential borrower?
-Once an entitlement program is designed and implemented, you can forget about trying to get rid of it later. Politicians want to get re-elected, so doing something unpopular in the short term (even if the more distant pay-off is credible) is not in their playbook. That’s why the deficits that we face now are structural, not cyclical. And you can only imagine how much worse they will be when interest rates return to more normalized (i.e., higher) levels.
-No, a slight decrease in the rate of growth of astronomical deficits should not be deemed a reduction or austerity. Put differently, it is always a choice between what's realistic and wishful thinking. Wishful thinking still seems to be winning out.
-There can be no boom without a bust, despite what J.M. Keynes would have you believe.
-In a world fraught with uncertainty, as is often acknowledged by economists of all stripes, it is almost comical how all of these “scientists” can be so utterly certain of their own positions and theories. As compared to the investor, who has to tread much more carefully with his convictions, and definitely must be guided by the facts.
-The gold standard may not be the ideal solution for what ails us, but it’s clear that its cessation has facilitated massive distortions over time.
-Capitalism is a bit unstable, but that feature allows the shrewd to get ahead. Having winners and losers is the name of the game. Not do-overs when you’re too big to fail.
Reading about economics has been an eye-opener. It started at a pivotal moment in my life and helped me to navigate some tricky times. Ultimately, it has fostered my contrarian side and made me more skeptical. All of which is healthy.
