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Hi all,

Been doing a bit of study into economics as of late. Just finished watching this video: https://www.hooktube.com/watch?v=9V3RlJdIXVY

So I need to ask, which economics is best economics?

As of late I've been skewing towards the Austrian school of economics, which itself is born from classical economics, however within that branch, there are several other types including Chicago school, and even Keynesian economics.

Now I know that Keynesian economics doesn't work, because in practice the government doesn't actually cut back on spending during a boom, and instead just uses it as an excuse to print or borrow more money.

But I'm split on Austrian and Chicago schools of thought. The difference seems to be that one believes in using mathematics and past history to prove or disprove economic theory, whilst the Austrian school uses logic.

On one hand, the use of empirical data has a high tendency to produce a flawed outcome, especially if one doesn't take into account certain factors. But on the other hand, it's real world results that expose things that mere ideas don't always take into account.

What is poal's opinion?

Hi all, Been doing a bit of study into economics as of late. Just finished watching this video: https://www.hooktube.com/watch?v=9V3RlJdIXVY So I need to ask, which economics is best economics? As of late I've been skewing towards the Austrian school of economics, which itself is born from classical economics, however within that branch, there are several other types including Chicago school, and even Keynesian economics. Now I know that Keynesian economics doesn't work, because in practice the government doesn't actually cut back on spending during a boom, and instead just uses it as an excuse to print or borrow more money. But I'm split on Austrian and Chicago schools of thought. The difference seems to be that one believes in using mathematics and past history to prove or disprove economic theory, whilst the Austrian school uses logic. On one hand, the use of empirical data has a high tendency to produce a flawed outcome, especially if one doesn't take into account certain factors. But on the other hand, it's real world results that expose things that mere ideas don't always take into account. What is poal's opinion?

(post is archived)

[–] • 1 pt

I haven't looked into the Chicago Economics before, but a few years back I started to dabble in Austrian Economics. One of the best sources on it is the Mises Institute, mises.org .

They have a lot of good information on the Austrian school of thought and you can grab any of the books you could possibly want on it through this link https://mises.org/library/books for free

[–] • 1 pt

There are a few few different theories floating around. There's even American economics, which is somewhat protectionist. Which doesn't really make sense according to Austrian economic theory.

Thanks for the resource, I've used mises in the past to great effect when debating "climate change".

[–] • 1 pt

These various schools of thought are models; like any scientific model, they are necessarily incomplete and imperfect. Each will tend to work pretty well in certain domains and not others.

There's no one right answer. When you find the right answer, keep it to yourself, and enjoy your billions.

Of course many people will apply layers of partisanship over these models, and defend them or advance them for partisan reasons, and that will tend to complicate things too.

Also, a note about rationality - it's a term of art that means something different in economics than it does in regular speech. One is rational if one choses the thing they prefer, even if they are being foolish, inconsistent, or illogical. If I want that third donut, it's rational to eat it, even if I'll regret eating it two minutes later. All that matters is that, at the moment of choice, I preferred it to my other available options.

What is irrational is deciding that something is my preferred choice, and then not choosing it. That kind of irrationality is extremely rare in real life, and would undermine any economic theory.

[–] • 0 pt

Thanks for the reply mate.

I agree on grounding your definition of reality to the time that the action took place. That makes a lot of sense.

But I disagree on your definition of "rationality", maybe you could clear this up for me:

First, many people don't choose their preferred choice, the most obvious reason being price. I would prefer to have X product, but it's too expensive, so I'll settle for Y instead.

Really, I thought rationality was defined as a fair/consistent price. IE, people will pay the market rate for that donut, but they won't spend $10,000 on each one.

My base assumption would be that people want the highest quality, or perceived quality, at the lowest price. But they're also lazy, so there's a sweet-spot regarding effort/time invested in searching/bargaining for such a product, and buying the thing or not. For example, if I was a poor uni student, I would (and did) spend a lot of my time searching for the best cheap computer that was in my budget. Whereas when you're well off, it wouldn't be worth your time to search for such a thing, and you'll just go into a store and pay retail price for whatever fits your fancy.

In this case, irrationality would be buying or selling at a rate that is vastly different from the market rate. For example, if stock X is trading for $100/share, buying at $1,000/share, or selling at $10/share is irrational. Yes, the price can change wildly if it's crashing or booming, but even then, if trades are being made at $100/share, then selling at $99.99 or even $99.90 will work, so there's no reason to sell so cheap.

What do you think about my hypothesis? Does it make sense?

[–] • 1 pt

This seems to be a very common discussion point, even among professional economists.

As you pointed out, there are many things that factor into the _cost_ of good, including the price. The _cost_ is the total of what you forsake to have the good - including your time, effort, risk, annoyance, attention, and so on.

IMO, the only logically consistent way to look at this is to start from the observation that every choice means forsaking some other option (which always includes doing nothing). Therefore, cost of any choice is the value, to you at that moment, of the next-best option, which was forsaken.

Rationality simply means executing your preferred choice. That's all it has to mean. All the confusion vanishes once you accept this definition.

This approach clarifies a lot of common errors. If I prefer a nice TV to the cheap one, but it costs too much, then my preferred _choice_ is the cheap TV, even if my preferred _TV_ was the expensive one. My choice takes everything else that I regard as significant into account.

Here's an old exam question that really nails the point home:

You are hungry, and you have five dollars in your pocket. There is exactly one place to get food, which offers a tuna sandwich for $3.50 and a ham sandwich for $4.50. You would rather buy either of these sandwiches than go hungry.

What is the _cost_ of the ham sandwich?

"$4.50" is incorrect. That is the _price_.

"A tuna sandwich and $1.00" is the correct answer.

[–] • 0 pt

I need/want to study more about the various schools; from what I've dabbled in I think I personally tend toward the Austrian school as a dogma, but whether it accurately explains what actually occurs in all cases, I don't know.

Is there a school that can predict macroeconomics from microeconomics? At its heart, isn't economics a study of human decisionmaking? So it has to account for our rationality and irrationality individual by individual. The "real economics" is only that which actually happens - if I buy a pack of bacon, or decide where to eat lunch based on an advertisement or coupon, or decide which car to buy based on safety ratings, or pay for expedited shipping because I need something NOW, or determine an hourly pay rate for my employee, etc.

Economists attempt to encompass quite a bit in their theories; I don't envy them.

[–] • 1 pt

With regards to rationality and irrationality, I think that's going a bit deeper in the fundamentals.

I can't find it on mobile, but if you search on youtube you can find a quick summary/review of Thomas Sowell's "A conflict of visions": it's done in the style of someone drawing illustrations with a marker. The summary alone is really eye opening, the book is on my to-read list.