It's sad that someone like the author would spend so much time avoiding understanding basic economics like subjective value, marginal value, voluntary exchanges etc. There are plenty of economics who never use any maths and help in understanding finance without resorting to this kind of silly critic
I don't know how you can prove the existence of voluntary exchange in the real world. Also neoclassical economics tends to get marginal cost structures completely wrong. When you ask them, companies report constant or falling marginal cost. The text book authors that do the study then proceed to teach their students that marginal cost must rise. I am not sure I should trust people like that. If they are willing to straight up lie about this, what are they going to lie about next?
The thing about economics is that you can keep studying and studying and get none the wiser. All the low hanging fruit are still there to pick but nobody is interested in that research because it is the equivalent of going from geocentrism to heliocentrism.
The "obvious" conclusions you can derive from a continuous neoclassical model make no sense the moment you add multiple goods because at that point you now need to run NP hard optimization algorithms to get an equivalent answer. Yes, the proverbial corn economy works if all you care about is corn.
From my perspective neoclassical economics is just a disguised form of centrally planned communism so that capitalists can claim the supposed benefits of communism for themselves, while they do something different behind the scenes. Communism should be rejected because it is not possible to implement it and so should neoclassical economics. This leaves us with a lot of research opportunities that nobody is willing to take.
> I don't know how you can prove the existence of voluntary exchange in the real world.
You mean that in a "what is free will anyway" form? Or is there something definable that you contest?
> The "obvious" conclusions you can derive from a continuous neoclassical model make no sense the moment you add multiple goods because at that point you now need to run NP hard optimization algorithms to get an equivalent answer.
I don't think many economists would disagree with that equivalence. They seem to always hint very strongly at it, but never actually articulate it. Exactly why do you think it's a problem?
Overall, I have some strong criticism of modern economics. You seem to be bothered by the same kind of thing, but I can only sympathize with your complaint about continuous models.
You had me for 2 paragraphs. But claiming that a branch of economics is trying to implement communism but somehow hide in plain sight, is a real stretch. Like a giant leap over the grand canyon stretch. Is there anything to this argument?
I really would like to know. I read a recent theory that late stage capitalism does naturally morph into socialism, as a way for the rich to quell dissent in the poor. But not sure that is what you are going for here.
Another way to think about it is that prices come from a game where one player wants the number to be higher and the other wants it to be lower, and the players can walk away. That's a voluntary exchange.
I don't know why you think the existence of this game needs to be proven when it's a game people play all the time? It's very unlikely that you've never shopped for anything.
Not every purchase is entirely voluntary. Some purchases happen under pressure. The amount of pressure varies quite a bit.
Not convinced that an article which mentions religion more times than it mentions risk and doesn't mention growth expectations at all tells us very much...
But then, these navel-gazing critiques of capitalism only work in a vacuum. Why do these men in suits assemble in these temples of finance to perform these arcane rituals, to utter these numerical incantations? It's weird, right? They must be searching for god, or maybe they never got enough love growing up. Couldn't have anything to do with actual human experience telling us that the market is the most resilient and efficient (if not always the most fair) way of deciding, as a society, how to employ our scarce resources in a useful way. The people who buy and sell abstract claims on collective human endeavours must do so out of some deep-rooted spiritual malaise and it can't be related in any way to their own very mundane desire to put food on the table and maybe even spend a couple of weeks a year in a tropical location with people they love.
No, we should probably get rid of all this weird ideological baggage. (What do we replace it with? Oh, that's not my department...)
You're missing the point of the essay actually. It's like complaining that an essay written by an atheist about church doesn't talk about sin and salvation.
No, I'm entirely getting the intended point of the essay, I just think that missing the 101 stuff makes the point that the author doesn't understand the subject matter he's attempting to do a hatchet job on.
I wish there were more books or studies on how Economics is really a form of Psychology. It seems like the economic theories that delve into why humans do what they do seem more 'real', or uncovering something about human nature that can be applied.
given how hard it is to replicate studies in Psychology, maybe the 'rational economic actor' theory, while obviously wrong, still makes better predictions that any theory that more accurately models the humans involved? After all, one of the main things that makes real humans different from rational actors is our unpredictability.
This is a great introduction to how valuation of public stocks works. In short, market capitalization is positively correlated with gross margin rates and negatively correlated with earnings volatility and the discount rate, which is a leading indicator for FFR.
This is confusing. At one point risk is an essential component of ritualized calculations, but then the same formulas enable ignoring climate change? Also seems wrong at the core as what we know of economics shows symbols and counting used to track commodities and the regular production and trade of commodities then leading to lending and futures and so on which indicates that however abstract and ritualized everything emerges from and continues to be based on humans meeting their essential and perceived needs.
A thing is only worth what someone is willing to pay for it. Valuation by formula is a pseudo science because every thing you do is ultimately subjective.
What someone is willing to pay for something is very arbitrary and will be influenced by such pseudo science valuation formulas if they set the price first. Price anchoring as a form of a self fulfilling prophecy.
Diamonds are worth a fraction of what Debeers wants for them, but people still pay it because those are the only prices they've ever seen. On the other hand, printers are worth far more than they sell for, yet nobody would consider paying the actual price for them.
I don’t disagree that property value is a ritualized social fiction, but there are some glaring errors in this.
Namely they define value = future earnings / discount rate, and then when showing the example with Amazon use past earnings.
Clarification: typically[1] future earnings = sum of all future cash flows, which is different than profits. Businesses (or a music catalog) keep making money and don’t just pay out once.
It’s an arbitrary formula too, but they’re not staying consistent with their arbitrary formulas.
And there is some effort to find a mathematical basis for the discount rate, e.g. CAPM [2]. Actual asset prices often are inconsistent with this and other models of the discount rate. Lots of hand wringing ensues and nobel prizes in economics are dolled out.
An interesting read. The basic premise of juxtaposing an explicit religion with finance seems to be that the latter is an implicit religion.
Like the discount rate itself, this seems am arbitrary rhetorical choice.
I agree, at a very high level of abstraction, insofar as both a community of faith and finance are about rendering the future "somewhat predictable", though, in that sense, the future resembles the weather.
Readit News
The thing about economics is that you can keep studying and studying and get none the wiser. All the low hanging fruit are still there to pick but nobody is interested in that research because it is the equivalent of going from geocentrism to heliocentrism.
The "obvious" conclusions you can derive from a continuous neoclassical model make no sense the moment you add multiple goods because at that point you now need to run NP hard optimization algorithms to get an equivalent answer. Yes, the proverbial corn economy works if all you care about is corn.
From my perspective neoclassical economics is just a disguised form of centrally planned communism so that capitalists can claim the supposed benefits of communism for themselves, while they do something different behind the scenes. Communism should be rejected because it is not possible to implement it and so should neoclassical economics. This leaves us with a lot of research opportunities that nobody is willing to take.
You mean that in a "what is free will anyway" form? Or is there something definable that you contest?
> The "obvious" conclusions you can derive from a continuous neoclassical model make no sense the moment you add multiple goods because at that point you now need to run NP hard optimization algorithms to get an equivalent answer.
I don't think many economists would disagree with that equivalence. They seem to always hint very strongly at it, but never actually articulate it. Exactly why do you think it's a problem?
Overall, I have some strong criticism of modern economics. You seem to be bothered by the same kind of thing, but I can only sympathize with your complaint about continuous models.
I really would like to know. I read a recent theory that late stage capitalism does naturally morph into socialism, as a way for the rich to quell dissent in the poor. But not sure that is what you are going for here.
I don't know why you think the existence of this game needs to be proven when it's a game people play all the time? It's very unlikely that you've never shopped for anything.
Not every purchase is entirely voluntary. Some purchases happen under pressure. The amount of pressure varies quite a bit.
Dead Comment
But then, these navel-gazing critiques of capitalism only work in a vacuum. Why do these men in suits assemble in these temples of finance to perform these arcane rituals, to utter these numerical incantations? It's weird, right? They must be searching for god, or maybe they never got enough love growing up. Couldn't have anything to do with actual human experience telling us that the market is the most resilient and efficient (if not always the most fair) way of deciding, as a society, how to employ our scarce resources in a useful way. The people who buy and sell abstract claims on collective human endeavours must do so out of some deep-rooted spiritual malaise and it can't be related in any way to their own very mundane desire to put food on the table and maybe even spend a couple of weeks a year in a tropical location with people they love.
No, we should probably get rid of all this weird ideological baggage. (What do we replace it with? Oh, that's not my department...)
Diamonds are worth a fraction of what Debeers wants for them, but people still pay it because those are the only prices they've ever seen. On the other hand, printers are worth far more than they sell for, yet nobody would consider paying the actual price for them.
Namely they define value = future earnings / discount rate, and then when showing the example with Amazon use past earnings.
Clarification: typically[1] future earnings = sum of all future cash flows, which is different than profits. Businesses (or a music catalog) keep making money and don’t just pay out once.
It’s an arbitrary formula too, but they’re not staying consistent with their arbitrary formulas.
And there is some effort to find a mathematical basis for the discount rate, e.g. CAPM [2]. Actual asset prices often are inconsistent with this and other models of the discount rate. Lots of hand wringing ensues and nobel prizes in economics are dolled out.
[1] https://en.m.wikipedia.org/wiki/Discounted_cash_flow [2] https://en.m.wikipedia.org/wiki/Capital_asset_pricing_model
Like the discount rate itself, this seems am arbitrary rhetorical choice.
I agree, at a very high level of abstraction, insofar as both a community of faith and finance are about rendering the future "somewhat predictable", though, in that sense, the future resembles the weather.