Monday, 13 October 2014

Why people don't like economics

Fascinating and demoralising reading the comments following the announcement of the 'Nobel' winner in Economics, Jean Tirole.  (I put Nobel in speech marks as some point out that it's not really a Nobel prize, except that's what everyone calls it, hey ho.).

Several commentators disparage economics and assume it's akin to astrology or voodoo. Interesting - I wonder what level they studied the subject to?

Can you imagine declaring mathematics or physics  'alchemy' or 'wizardry' and assuming that everything mathematicians do is somehow intellectually spurious? I'm sure we'd all look upon the commentator as some poor ignoramus merging out of the dark ages with mud and nettles in his hair.

The logic of economics is incredibly solid - whether it is based on deductive reasoning or empirical evidence. It begins with simple statements such as 'humans wish to better their lives' and then proceeds through how exchange and the division and specialisation of labour, augmented by monetary media enables more people do improve their lives.

However, the subject has been hijacked by political thinkers who prefer to ditch the great principles in favour of political (or banking) interests. According to these thinkers - people aren't to be trusted, government intervention in the people's lives is great and necessary, banking needs to be run on a fractional reserve basis which then requires a great big central bank to print money when the banks and the indebted governments get into debt. Debt is normal, savings are evil, inflation is fantastic (because it shifts wealth from the working people to the banking and governing elites), wars produce wealth and regulations create a happy people.

In such an Orwellian world of double-speak, it's not surprising that economics gets a bad rap.

But it's not economics as such that is at fault - it is BAD ECONOMICS. Just as you can have faulty reasoning in physics, maths, etc., it's quite possible to have economists infer falsely, ignore data (and history), and who prefer to use a kind of alchemy (read any Fed Reserve announcements) to suggest that they know what they're doing.

Proper economics explains quite reasonably why such authorities or academics (a) do not know what they're talking about (b) have no grip on the economy as they pretend and (c) are committing long rejected fallacies.

Another reason why some people may not like economics is the same psychological reason that they may not like gravity. It holds them back. Instead, we should embrace the principles of gravity to help us move forward and likewise the principles of sound economics (none of that statist and central bank rubbish) can empower and enrich all of us.

For instance: if you want your country to grow richer it requires the rule of law, transparent government, low taxes, sound money, and a free enterprise culture. That in turn usually creates the conditions for enhanced productivity via capital investment. Governments can help the process of wealth accumulation by getting out of the way. We've known this for two centuries - but many so-called economists (i.e., those with a political agenda) prefer to ignore the principles and history.

Saturday, 11 October 2014

Multitasking does not schools let us down in conditioning us not to focus?

One of the fashionable elements to productivity (and education) over the past twenty years is the concept of multitasking. Multitasking is the supposed ability to get more than one task done at a time: multitasks bask in a personal glory of how efficient they are.

The problem is that the evidence doesn't stack up.

Sitting in my living room or in the kitchen to do work was one of the most unproductive things I did. I had no focus and am easily distracted by family and phones. It's something I'd been warning my pupils about for years - don't study in the kitchen (or on the kitchen floor next to the Aga, Millie!) or in front of the tv...find somewhere quiet. And there was I struggling to get things done! So I moved offices into a relatively undisturbed environment and, hey, productivity has gone up! Less stress too.

I was guilty of trying to multitask and multitasking simply does not work..

As I wrote in an earlier blog, focus requires effort. Focus implies dealing with one thing at a time - preferably until it is done. Trying to focus on two or more things at once is counterproductive and leaves one stressed and relatively unsuccessful in completing tasks and chores.

Research from Stanford University, USA, backed up sceptics intuition that multitasks were not godlike humans completing several tasks at one. The researchers basically stated that multitaskers are fooling themselves. When working, we concentrate and focus on one thing at at time - when we shift that focus, there is a mental effort required to engage in the new task and its requirements. That can take from a few seconds to a few minutes while the brain literally re-orients itself. Shifting back to the original task, or a third task, has another corresponding hit on the mind's energy patterns.

One quick way I like to show this with pupils is to ask them to draw some mirror images of shapes - curly shapes that require a lot of right brain focus; once they are engaged and zoned in to the spatial reasoning task, I ask them a simple maths question such as 'what is 6x4+5'? Their pencil can feel the shifting brain patterns as they dig around for the maths files, they give you an answer and then return to what they were doing. The disturbance or 'task switching' saps their energy.

John Gatto in his famous Dumbing Down book on American education made a pertinent comment. If his lesson were disturbed by an outsider once, he could handle it, twice, it become more awkward to get back into the flow, three times and he lost the plot. It's about the same for me.

Multitaskers may reply, ah, but I can have a conversation while making a coffee. Sure - making a coffee has been internalised and has become such an ingrained habit as to warrant very little conscious brain power. Try the same in someone else's kitchen and you'd be stumbling for things and words.

The research also led to the banning of mobile phone use in the car in many areas. Texting takes up way too much brain capacity and although 'you can drive' at the same time, your driving skills are as severely impaired as if you were drunk! Hyman et al in 2009 did research on people walking while taking on their mobile and not noticing a clown on a unicycle whizz past. Academic fun...but with a serious twist - what if you were on the phone and you didn't notice that kid on the bike...? Poignant. One thing at a time, my friends!

Schools sometimes run on the idea of multitasking. When children are put at tables with their colleagues to learn, they inevitably have to run a multitasking programme of doing their work, conversing with another pupil, engaging in God knows what psychological games with the others at the table (shall I appear a know it all? shall I appear dumb? perhaps I'll stare at that girl opposite to make her squirm...) The old fashioned one or two joined desks facing the front policy were more conducive to productivity: the children's focus was on the lesson, not on their friends.

I've asked several pupils about how well they can concentrate in local primary schools - not very well, is the anecdotal evidence. Not surprising.

Then school curricula jump around from maths to science to geography to French to ... A mixed curriculum is inevitable in a school since we want to expose the pupils to a broad education, as we don't know a priori  what will fire their minds but the overall effect is akin to having to multitask through the day. Imagine as an adult just getting into the algebra and just about to 'click' and go 'ah-hah!' when someone pulls you away to listen to French - with much disruption in between so you forget everything you've just learned. 'What did you do at school today?' 'Not much...' Well, the kids did, they just can't remember it!

Such conditioning can snow ball into a lack of attention and inability to focus academically. Then the kid goes home and watches TV and if you've ever counted the number of scene changes on the telly, you'll find another reasoning why many people can't focus on a task for too long. Then there are online or video games...same problem!

Now, I'll raise my hand and plead guilty of attempting multitasking - I'm just so damned interested in everything that's going on around me, so I'm building up new habits to drop some tasks I do daily to focus on 'The One Thing' - great book by the way. I work on my weaknesses daily and tell my pupils how distracted I can get with the world's libraries at my finger tips or six different articles to write while trading the stock market and home tutoring. So, guilty .... but I'm doing something about it!

Wow, I've been able to write undisturbed for twenty minutes, but now the phone's ringing and I'm on call, so I'd shift attentional patterns and see who it is. Bye!

Dr Alex Moseley

Friday, 10 October 2014

Should economists or historians advise governments?

From a review on, historians argue that when politicians swapped adviser type from historian to economist, the result was dreadful...

There is a point to be made - and a point to be conceded. Here's a quick summary of the article:

"According to historians David Armitage and Jo Guldi, authors of a new book called The History Manifesto, historians ceded authority to economists by losing their long view. They stopped studying broad stretches of time, refused to analyze long-term trends over centuries or even millennia. Instead, according to Armitage and Guldi, they gave in to "short-termism," focusing on obscure moments in history that weren't relevant to the public sphere....History, they suggest, helps us understand that there are many possible outcomes any any given situation, but that certain courses of action are more likely to succeed. Unlike economics, whose sole preoccupation in our finance-obsessed era is the near-term profit motive, history offers a way to place our tiny lifespans in a narrative that spans dozens of generations — perhaps even reaching into a future where capitalism is no longer our dominant form of economic organization. After all, economic systems rise and fall just like empires. That's the kind of perspective we need to take, if we hope to prosper for centuries rather than for the next quarter."

There's a lot of good critique herein: it's not just (some) economists who are caught up in short term analysis, but psychologists, sociologists, and historians: many undergraduates from a variety of disciplines note that they do not (and are told not to) study texts from before 1990 - as they are somehow antiquated and have been superseded by recent events (as if innovations in the mobile phone industry has rendered obsolete all human thought prior to that). Could we do philosophy without studying Plato...and what about art history?!

But to claim that economics is to blame for this short-termism is to confuse particular methodologies within economics (and hence the relevant advisers' beliefs and policies) with the logic of economics.

The logic of economics does not change. It was there before people started trading and it was there in the Soviet Union (Lenin's rhetoric notwithstanding), and it will be there forever the future.

The problem is whether economists are applying economic logic at all - or whether they are mere mouth pieces for some political party or government. "Soviet economists" for instance, were not espousing a new kind of economics but ignoring much economic logic in favour of ... wait for it ... a historical theory about humanity's political evolution. Central planning was far removed from the great insights of economics thinkers through the ages. Similarly, regression analysis and econometric modelling (derived, incidentally from the Soviet mentality of central planning through mathematical modelling) is also far removed from economic logic: its aim is to supply political and banking (and if you don't know it, banking is inherently political) interests with answers deemed appropriate for scamming. Ok, a bit critical - back testing on the stock market is useful - but all it does is highlight the waves and troughs of collective action as it occurred in the past: tomorrow is, after all, another day. Economics avoids (or should avoid) quantitative predictions about price movements, never mind gross statistics such as GDP or unemployment. There are too many factors or noise to be precise. Qualitative statements can certainly be made though - in the absence of X, we expect Y to increase. By how much? No one knows or can know.

Many economists today are employed to espouse government policy - or carefully to watch the government advisers for any hints and insights into what political manoeuvres may be in the making. But what both 'teams' are doing is not economics but politics. 

If Ghengis Khan had employed 'economists' to rule his empire, would we have trusted them?

History is critical: it does provide us with the long duree as Braudel says (as reported in the review), and unfortunately, most economists do not read history. Most that I've met don't read at all - that alone encouraged me to read philosophy for my doctorate rather than economics. Most students in the postgraduate department I was in had not read (or even opened, I suspect) Adam Smith's great tome, The Wealth of Nations. And many critics of economics have not read it - they make so many assumptions about poor Smith that's it's not funny: economic illiteracy is rife.

So what about swapping historians for economists? What do historians have to offer? One thing they don't offer is economic logic - but they also come to the table with their own preconceptions of what history is about and accordingly where we may be going (with out any economic logic of course). The UK's Prime Minister, Gordon Brown, was a historian from my alma mater, Edinburgh - and his lack of economic (well, basic financial) logic had him selling  gold as the price fell. But not to place blame on a single historian playing economics - after all, many economists play the markets badly - we must be aware that historians come to the table with their own prejudices about how to read and interpret history. There are schools of thought dominated by certain political philisophies such as the Whig view or he Marxist view and these in turn colour how the past is viewed.

Certainly, history is the study of the past, but what to study and how to interpret it is open-ended and subject to change as viewpoints and ideologies change. Historians want to recreate what it was like but that is to necessarily impose a modern mindset on the past, no matter how much we try to rid ourselves of our current conditioning. 

Economic logic is different. Just like mathematical logic it seeks to avoid imposing political, ethical, or aesthetic judgements on economic activity. It starts with the basic assumption that people want to improve their lives and then the logic pursues what that means. They may want more peace, they may want more money, they may want healthier lives...what value they choose is irrelevant to the logic. How they go about it is.

What most people moan about when they complain about economics are issues such as poverty and injustice. But they are not created by economics! Governments, tragically enough, are usually to blame for injustice and poverty , but that's another story. The economist looks at the situation and explains why some people are poor relative to others, and usually we find out it's because the poor live on poor lands, do not engage in trade, don't have much capital to empower their labour, are engaged in internecine warfare, or just don't like material wealth (economics does not say that people should be wealthy, it's more interested in the logic of wealth creation, or lack of). As humans, we are wont and quick to make normative judgements on all sorts of matters, but that's not what economic logic is about. 

Economics will explain why a minimum wage can create unemployment. People may complain about the logic but the logic does not change if we are rich or poor, in power or out of power. It will explain the tools for wealth creation (free trade, rule of law, sound money, a desire for material improvement...) but it does not judge whether wealth creation is a good thing in itself. It's just that most people for some reason want to be better off and economics can explain how to enrich oneself and one's nation. 

Economics gets the rap a lot. Certainly the profession hasn't made it the most loved subject in the world - the more 'scientific' and mathematical it has become, the more our economies seem to be in disarray . If physicists were failing to launch satellites on a regular basis, we would certainly be challenging them to examine their models more closely. Yet when the US has created credits out of thin air and pretends to be the world's reserve currency, not only are we in for a shock at some point, but we should be examining closely the premises of the model and questioning whether the economists behind the policies are really economists or politicians. You'll find it's the latter. Every time. 

But that's another story too. 

Tuesday, 7 October 2014

China's renminbi as world reserve currency?

Reported in USA Today, Money section...(7th Oct, 2014)

Main point:

China is making moves to become part, technically or fundamentally, of the world's reserve currencies as a member of the IMF's Special Drawing Right department. As the world's second largest economy, the Chinese government does have a point - as more and more international trade is denominated in yuan, the argument is that such a large currency provider should be part of the mainstream. Indeed, the UK government has recently issued renminbi denominated bonds with the Bank of England holding proceeds. Over the next decade, we should expect increasing renminbi flows through the commercial and central banks similar to the flows we get from the Euro and Sterling.

Secondary point:

It also makes sense in many respects from a Sino-political point of view. If China pushes for world reserve currency status, the USA would finally be sidelined economically and politically: the American century will have ended and the Chinese would begin. Much has been discussed about China's economic and political growth over the past two decades. Some worried about a single party, undemocratic state gathering so much wealth and power, others content to see a more even balance of power emanating around the world.


Whatever the political implications - which are always difficult to assess while they are proceeding - the economic implications are at once obvious but at another glimpse less obvious.

A large currency joining the international markets makes sense. It will be touted as providing greater stability and a political economic balance to global financial markets: an Asian counter balance to the mighty dollar-euro axis. Culturally, the Chinese government will have to accept more transparency in its dealings (especially gold flows), and that in its turn will give the renminbi greater kudos and accordingly help China attract more foreign investment and allow its banks to flourish around the world too.

Nice story. But the downside - and not something to concern central bankers or international banks who are more likely to welcome another club member - is less obvious. Or it will be to the mainstream media.

China prints money. Just like the other members of the club. It creates money and hence 'value' out of thin air. The Bank of China is as inflationist as all the other central banks (inflationism = the policy of devaluing a currency). The renminbi is a paper currency. And that mean that the BofC has no brake on what it can print.

Ironically, the Chinese were the first to place with paper currency a thousand years ago. They banned it because of its powerful and detrimental economic effects. Wise move. Now some of that wisdom has been forgotten - probably by high flying Chinese economists indoctrinated in western monetary economics at our top universities!

Another big inflater on the bloc is likely to unleash more global inflation - world price indices would tick up and an up and the poor of the world will wonder quietly why their lives are getting harder and why famine and poverty are never curtailed. Political theorists will create complex theories on why the South is being exploited by a West-East partnership. And wars will break out in areas of high poverty and unemployment and disaffection.

On the other hand, gold bugs are aware that China has imported tonnes of the stuff over the past decade - China could take a golden opportunity to attach the renminbi to gold and profit massively by becoming the ultimate world currency (gold never left that spot - it has only been politicians dreaming that the gold standard ended). Now that would be something!

(Is it so far fetched? James Rickard's in his excellent Currency Wars elaborates on the thesis).

Monday, 6 October 2014

10 quick law of attraction policies to get re-elected again and again

We are what we think and we get the policies we want: so rather than put the policies in the negative (don't wage war), put policies into the positive (seek peace). Here's a tentative list for politicians from The Economics Circle ( on creating a healthy abundancy in the economy:

1 Embrace wealth creation
2 Embrace the potential that lies dormant in the poorer members of society
3 Cultivate the investment and entrepreneurial skills of the middle classes
4 Attract investors, entrepreneurs, and the mega rich to share their wealth, ideas, and motivation
5 Explain how the basic laws of society provide the framework in which we all can flourish
6 Celebrate profits
7 Celebrate freedom and innovation
8 Celebrate international cultural and political differences and embrace peace and freedom as a principle
9 Increase people's disposable incomes to help investment and savings flourish
10 Promote sound monetary policies, 100% fractional reserve banking, and gold as money.

Simple really.

Sovereign debt video