Economics for Smarty-Pantses
A couple weeks ago, Darwin approvingly posted a link on his blog to a post called “Economics for Dummies” by a guy named, I believe, Bernard Brandt, which purported to be an exposition of the cause of and cure to society’s recent financial troubles. I have a lot of respect for Darwin’s opinion in such matters, but I found the post underwhelming and said so, laying out some of the substantive problems I had with his analysis.
Well it seems that I attracted the guy’s attention, as he now has up a long post responding to my critique point by point. The style of this second “lecture” is the same as the first, fully of sappy condescension with lots of “now you see boys and girls” and so forth. In defense of this style, Mr. Brandt cites C.S. Lewis, Mark Twain, and Richard Feynman as examples of writers who were able to explain complex and difficult ideas in a way that was easy for people to understand. And indeed, at least in the case of Lewis and Feynman, Mr. Bradnt is absolutely right. Both men were famous for their simple explanations of complex issues. It is therefore notable that the style of both men’s writings is very different than the style employed by Mr. Brandt in his two posts. Lewis and Feynman were brilliant men, but their writings are utterly free of condescension. One never gets the sense reading their work that one is being talked down to, or that they are “dumbing things down,” or that they think you ought to be grateful they are even bothering to explain a particular point. The general tone of Mr. Brandt’s posts, by contrast, is that of someone who thinks he is a lot smarter than everyone else (indeed, he even mentions his Mensa-level IQ. Perhaps he should run for Vice President), and who thinks everything he is saying is so obvious, the only reason one could fail to see it is because they are stupid (or, apparently, illiterate).
Nor is the substance of the second post much improved from the first. To take one example, in his original post, Mr. Brandt offered the following explanation of the nature of a recession:
What happens occasionally, though, is that people in the Market sometimes pay a lot more for those little pieces of paper than the product which they are connected with are really worth . . . When this happens, some people get kind of smart, and realize that they’ve bought a lot of vapor rather than substance. And then they also get kind of smart, and decide that they are going to sell their pieces of paper before others get wise as to the fact that those pieces of paper have no value. But then more and more people get really dumb, and decide that they will sell at any price, just so they can get a little back from what they paid for. When this happens to a stock or set of stocks, they call it a market adjustment. When it happens to a whole market, they call it a recession. And when it happens to all of the markets in the world, they call it a depression.
When I responded that defining a recession as being when the stock market goes down was inaccurate, Darwin’s basic response was along the lines of ‘Dude, it’s just a joke,’ which made me think that I was perhaps taking the whole thing too seriously. With his response post, however, Mr. Bandt has apparently decided to double down on a bad bet. Here is his explanation of what he meant by the bit about recessions:
I think that a fair and true reading of what I had said would be that if stocks have come to have far more than their real (or “fundamental”) value, and if in a panic they lose that extra value, this is what is called a “market adjustment”. And if this happens to most or all of the stocks in a market, and for a long time, that is what is called a “recession.” I would advise you to pay more mind to what you read, young Master Adder.
Since I’ve been accused of not being able to read, let’s look at this passage very closely. According to Mr. Brandt, a “market adjustment” is what happens “if stocks have come to have far more than their real (or “fundamental”) value, and if in a panic they lose that extra value.” So if stocks are overvalued, and then lose that “extra” value, so that their prices reflect their real value, this is a market adjustment. And a recession, according to Mr. Brandt, is when there is a market adjustment for the price of most or all stocks that lasts for a long time. So a recession, it would seem, is defined as when most stocks come to represent their real value for a long time period.
This, of course, is not what a recession is. A recession, as typically defined, is two or more consecutive quarters of negative economic growth. Having stock prices fall to reflect their real value might occur just prior to or during some recessions, but there is no necessary connection between the two events, and indeed, one might think that having stock prices reflect their real value for long periods of time is actually a good thing.
In short, Mr. Brandt’s explications remind me less of Lewis or Feynman than they do of Bertrand Russell’s explanation of the logical claim “from a contradiction anything follows.” They sound nice; the problem is that they just aren’t accurate.
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