Why Economists Are Always Wrong

No matter what School of Economics one subscribes to, they are all wrong. People treat the social sciences like they are a true science which they are not. When we hold the theories they espouse up against history, we see how they all fail miserably.

Unfortunately, the world of cryptocurrency is infected with the cancer. People know very little, it seems, about money, capital flow, and what makes an economy productive. Instead, they adopt a theological outlook at is both lazy and incorrect.

Nevertheless, we have people all over the world parroting to these people, few who will ever listen enough to learn. Alas, we can only start to poke holes in their obvious ineptitude.

Over the last century, we saw a flood of ideas that all stem from one central premise: governments can affect the business cycle.

This has been proven repeatedly to be false yet we have academics like Klaus Schwab who continually promote this idea. It is why the Great Reset will fail miserably.

Ironically, this is also what led to the equally flawed Austrian School of Economics, which is as invalide as Keynesian.

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Economics Is Not Reality

We have a situation where the three primary schools of economics are Keynesian, Chicago (who tend to be monetarists), and Austrian. All are religions with their ardent supporters.

In the end, they all are outdated and obsolete as we end 2022.

Keynesian

This was a direct affront on the business cycle and the idea of the invisible hand as put forth by Adam Smith. Many of Keynes ideas stemmed from Karl Marx. Hence we see the basis of Marxist thought.

Marx believed that the business cycle could be averted. Through the idea of government control, equality could be achieved by restricting the booms and busts, something that he saw as benefiting the wealthy. He even went so far as to exhibit, and rightly so, how deflation was a burden that was felt disproportionately by the working class. For this reason, the elimination of the business cycle was paramount.

Keynes, early in his career, promoted this idea. Ironically, he spent the later half of his life fighting against it. He realized the economy is a lot bigger along with more complex than any single entity.

Monetarist

This is similar to the monetarist in the belief that manipulation of the economy is possible. Instead of redistribution (direct), they opted to view the altering of interest rates as the ability to control the economy. Central banks have repeatedly shown how this is a total failure.

Another problem is monetarists look at every problem through the lens of the money supply. Considering the fact that money is ever changing, even identifying it is impossible.

For example, today money is basically currency that pays interest. This is due to the fact that government debt is used as collateral. Therefore, any increase on intrest rates has no effect because governments are the largest debtor. This only serves to increase the cost of debt servicing since politicians do not cut spending. Hence, interest rates have no impact in this regard.

Austrian

Global capital flow is not on the radar of the Austrians. They pack their theology with neatly honed ideas that are obliterated simply by the flow of capital.

We hear a lot of reasons for the 1920s boom and insame speculation. The reality is that was caused by World War 1. Capital also flees danger and seeks safety. Thus, when WWI started, where do you think the money in Europe went? It all fled to the US.

A century later, what do you think is happening? We have capital from all over the world fleeing into US dollar denominated assets. When capital flows into a country, it increases the domestic money supply. It has nothing to do with fiat currency, Fed money printing, or any of the other reasons people give for the increase in assets.

Capital flow tells the entire story.

Economic Power

A currency is backed by the economic power that supports it. This was the case dating back to the Roman times. Many want to romanticize about sound money and commodity backed. If that was the case, immitation money would have excelled.

Currency was put out by dominate empires. Efforts were made to ride that by other countries (empires) producing immitations such as with the Floral. In some cases, the metal content was the same or even higher as the original. Yet it was valued less.

The reason for this is that, as Empires conquered lands (whether it was the Romans or the British centuries later), they were able to increase economic productivity. Trade, commerce, and other forms of production took over.

If we go back over the last 150 years, we see the same thing. The British Pound was the reserve currency. This coincided with Britian being the financial capital of the world. WHen that title moved from London to NYC, things changed completely.

The USD is so powerful not because of oil like so many claim but because the economic power supporting it is unrivaled. Each time China, or any other country) buys US Treasuries or writes debt denominated in USD, it is only feeding into this proposition. Banks offer more favorible rates on USD denominated debt because they can hedge by selling it to Wall Street. This is only due the financial might that is presently in place with the dollar.

China is a dollarized economy. It is the world's top exporter with its largest customer being the US. That country pays in USD. At the same time, China is a major importer of food and energy, also prices, for the most part, in dollars. This makes the #2 economy basically dependent upon this currency.

That is the economic power of the USD. It is something overlooked by most since they only want to think in terms of these archaic, outdated Economics models that academia put out a century ago.

It is why the economists are always wrong. Unless they managed money globally, they do not follow the capital flow aspect to this. Hence why we get so many absurd claims that do not come true even after decades of screaming.


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As you said economists are always wrong. Unless they managed money globally

Is that Mean peoples who are managing
Money globally are always right?

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No they are not always right but if they step back and look at things, they will at least understand how the things work.

International money managers tend to understand capital flow, this is an important piece of the equation.

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If their are international money managers then same group of people definitely will try to become international cryptocurrency managers, we are lucky we are building on decentralized blockchain

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That's absolutely true and though there are instances in the past that they are wrong, there will be plenty in the future too.

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They are always wrong because the foundation of their indoctrination/education has always been more lies, less truth.

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I agree that no economist can actually predict and fully explain the economy. Because the economy is so big and complex that no human, no team of super smart humans with super computers to help them could ever accurately know everything they would need to know to manage an economy. But I think you're being too hard on the Austrians. A BIG part of the Austrian school of economics is pointing out that economists DO NOT have all the answers, in contrast to the Keynesian school that elevates economists to god like status.

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(Edited)

I started writing a similar reply, then I had to take a break. When I came to finish it, I saw your reply and decided you said it better than I could.

I greatly respect @taskmaster4450le and generally agree with his perspective. Although I agree that his oversimplified summary of Keynesian and Monetarist viewpoints is generally accurate, I disagree with his assessment of the Austrian School.

Also, I'm not sure one could ever paint the Austrian School with a single brush. Austrian's are such independent and critical thinkers that they represent more a process of critical thinking than any single conclusion.

My dissertation advisor for my entrepreneurship doctorate published a short book a few months ago that summarizes his Austrian perspective on what “the economy” is and how to understand it (How to Think About the Economy: A Primer). One might say it’s a non-economics (or anti-economist) view of the economy.

I would love to hear @taskmaster4450le’s critical assessment of the book.

It can be downloaded for free here.

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That anti-economist part caught my eye! I'll see if I can find some time to give it a read. I've been very anti-economist, anti-political since forever. That's what end up getting me to respect Austrians & Libertarian types. They want less of the stuff I hate. They don't believe these elected or unelected "think tanks" & "leaders" have what it takes to manage a complex system like the world we live in. !LUV your comment.

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They don't believe these elected or unelected "think tanks" & "leaders" have what it takes to manage a complex system like the world we live in.

Sure they do.

How many times have they said that more money printing is wrong and the Fed should stop it?

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Reason Austrians ask to stop money printing is because it's another way government start messing around with economy. Messing around with economy is not governments job. Austrian view as I understand it is FED or just any central bank should not exist. There's already countries like Monaco, Panama, Andorra that don't have a central bank.

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"Austrian's are such independent and critical thinkers that they represent more a process of critical thinking than any single conclusion."

Yes! I challenge anyone to find someone Hans Herman Hoppe agrees with!

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I challenge anyone to find someone Hans Herman Hoppe agrees with!

Without question, the Austrian School is a thinking man’s group, which is one of the things that drew me to it. Along with the fact that Austrian Economics endeavors to explain entrepreneurship rather than assume it to nonexistence or irrelevance (which in no way reflects reality). There’s no such thing as “economic equilibrium” and when economists talk about “perfect competition” they’re imagining a false reality where zero competition exists or can exist, which of course excludes all possible entrepreneurial activity.

I challenge any non-Austrian to explain how their economic models elegantly incorporate entrepreneurial action, uncertainty, and heterogenous value preferences — undeniable economic realities that their models either completely ignore or assume away. I’m not sure if this is what @taskmaster4450le was getting at with his original post, but I think it’s relevant nonetheless.

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Austrians track record is no better than the other schools. Milton Friedman was brilliant yet many of his view based upon his monetarist school were way off. He was the same as the Keynesians, just using a different approach.

It is easy to defend what we like or believe in. How many times as Austrians talked about hyper inflation, USD collapse, and money printing?

How about their view of commodity backed money, the gold standard, and the value of money?

Hostorically wrong. Why?

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I don't think the Austrians are wrong about commodity backed money, gold standard, or value of money. I think time will prove them very right.

However the criticism of hyper inflation, USD collapse, etc is valid. Again, I think time will prove them right, but if you went full Austrian in the 1990's and pulled your money out of the market, you would have lost out on tons of gains.

I think Austrians are right, but even Austrians themselves admit that they can't time the market for shit.

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The dollar isn't going away and I don't think the economy is easy to explain. It's full of so many parts so a lot of them will get things wrong. Even a broken clock is right twice a day. The factors going into everything make it hard for anyone to really predict anything even if they manage the money globally.

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What would it take for the Chinese Yuan to take over as the global currency?

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You have written too well about the economy. All what you have spelt out are all inline to the truth. There is constant inflation and because of this, the banks has also decided to increased their interest rate.

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Economists are like teachers from school or university where they know all the theories in the world, but when they come to practice they are clueless. Simply trying to guide yourself upon theory is not working anymore and you need to get your hands in the dirt to understand the new wave of tokenomics that comes out especially out of crypto.

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