Ignorance of economics is more relevant than ignorance of evolution
Promoted by Brendan
A recently released Gallup poll revealed that [gasp] people on the street are ignoring scientific evidence in favor of age-old beliefs and traditions. DailyKos's own thereisnospoon characterizes the level of belief in Biblical Creationism amongst the Republican electorate as "scary," and goes so far as to say that we "cannot allow" these people to determine our leadership based on their "willful ignorance" of current scientific consensus on the issue of evolution.
I found it hard to summon up much concern over the poll. What didn't destroy me yesterday ain't going to destroy me today. It would seem to me that if the success of a democratic republic depended on a scientifically oriented, non-superstitious citizenry, this Republic would never have survived for 200+ years. The fact is, education is spotty, learning is imperfect, people are on average...average, and biases are passed on from generation to generation like so much dinner china. And so it goes.
But I don't really want to get into yet another creation/evolution debate here. What's interesting to me is that there is a certain other area, not so much talked about in these circles, where the public also exhibits ignorance and/or disregard for the consensus of scholars and experts in the field. I am referring to economics: a field of study which inarguably has far more pertinence to effective government and the everyday bread-and-butter issues of society than evolution.
George Mason economics professor Bryan Caplan has a very convincing and well-written paper over at the Cato Institute entitled "The Myth of the Rational Voter: Why Democracies Choose Bad Policies"
, in which he explores how the public's views on fundamental economic issues diverge greatly from the consensus views of learned economists.
Caplan identifies four main types of bias that infect the public's understanding of economics:
Economic policy is the primary activity of the modern state. And if there is one thing that the public deeply misunderstands, it is economics. People do not grasp the "invisible hand" of the market, with its ability to harmonize private greed and the public interest. I call this anti-market bias. They underestimate the benefits of interaction with foreigners. I call this anti-foreign bias. They equate prosperity not with production, but with employment. I call this make-work bias. Finally, they are overly prone to think that economic conditions are bad and getting worse. I call this pessimistic bias.
If Caplan stopped here, I guess it would be pretty easy to dismiss these assertions of bias as just typical libertarian rambling-- I'm no apologist for Cato Institute libertarians when the stray from the facts, trust me . But Caplan offers convincing evidence of public bias on each of the four counts, particularly relying on a survey of 250 PhD economists and 1510 citizens done by Harvard University, the Washington Post, and the Kaiser Family Foundation.
NOTE: As you read the following examples, keep track of whether you agree more with the PhD economists or the general public.
Anti-market bias: When asked why the economy was not doing better than it was, survey respondents were asked: "Are business profits too high?" The general public tended to consider high business profits as a major factor in weaker economic performance, while economists tended strongly to answer that the higher business profits were no factor at all in weaker economic performance.
When asked "Which do you think is more responsible for the recent increase in gasoline prices-- oil companies trying to increase their profits or the normal law of supply and demand?" More than 70% of the public fingered the oil companies, while over 90% of economists thought that supply and demand was the bigger factor.
Anti-foreign bias: When survey respondents were asked to rate the economic damage caused by companies sending jobs overseas, the public tended to rate the damage as severe, while the economists rated the damage as minor. And when asked if "too many immigrants" were a factor in weakness in the economy-- again, the public saw the large number of immigrants as doing major damage to the economy, while a strong consensus among the economists concluded that the immigrants were doing no damage at all to the economy.
Make-work bias: When asked whether increased use of technology in the workplace was good for the economy, the economists were nearly unanimous that increased technology was beneficial to the economy. The general public, ostensibly worried about being put out of work by robots and computers, showed a good deal of ambivalence. And when asked about the economic damage caused by companies downsizing, the public tended to answer that major damage was caused to the economy by downsizing, while the economists saw minor damage or no damage at all. Says Caplan:
The popular stance rests on the illusion that employment, not production, is the measure of prosperity. In contrast, for economists and the enlightened public, downsizing proves the rule that private greed and the public interest point in the same direction. Downsizing superfluous workers leads them to search for more socially productive ways to apply their abilities. Imagine what would have happened if the farms of the 19th century never "downsized." Greed drove these changes, but they remained changes for the better.
Pessimistic bias: When asked: "Do you expect your children’s generation to enjoy a higher or lower standard of living than your generation, or do you think it will be about the same?"-- economists were much more likely than the public to predict a higher standard of living for the next generation.
The inevitable question arises: is the public biased, or are the economists biased? Aside from the fact that the economists have studied the economy more closely than the general public and have likely have a greater body of evidence to draw upon in forming their opinions, the study also found that the more educated a person is, the closer their opinions match the economists. This tends to support the thesis that it is the public, not economists, who are biased. And Caplan points out that the survey found that economists tend to be moderate Democrats, not conservative Republicans.
I urge you to read Caplan's entire piece... it's about 20 pages, but it is extremely clearly written, well-argued, and full of great quotes and info. Look out in particular for a really sharp debunking of the criticism of economists as "free market fundamentalists."
If the public indeed has a great deal of systematic error and bias in its assumptions and opinions about the economy, we can certainly expect that the public's preferred remedies to economic problems (real and imagined) will be flawed as well. Yet amongst some circles of populist thought, the will of the people is held up as pure, inviolate: the people want universal health care, damn the cost-- it will pay for itself over time, why? because it must. To my eye, we need to look back less than five years to Medicare Part D to see the results when you don't get to see the price tag on a policy up front.
In the bigger scheme of things, I think that we as Democrats need to consider closely the expert opinions of the economists in our discussion of issues that affect the economy-- often times, when the most informed experts contradict populist Democratic proposals, we give far too much weight to the opinions of the public as opposed to the experts on the economy when forming policy. When we want to form a policy regarding global warming, we wouldn't think of paneling a group of average Joes and Janes off the street and ask them how the weather's been; we listen to the experts, as we should. It should be the same when considering matters with consequence to the economy-- including healthcare, immigration, trade, and on down the line. Populism has its place in determining which issues should receive attention, but it is an overrated dynamic when formulating policy. We need politicians that will listen to expert opinion even when it flies in the face of popular opinion. One needs to go no farther than the abortive effort at immigration reform in the Senate this past week to see about 90 politicians who were far too sensitive to the whims of the voters to get a sensible law passed.
Democrats should heed the voters, always-- but listen to the experts consistently on all issues. Whether a politician believes in creation or evolution is way down at the bottom of my radar screen-- heck, some of these pols seem to think the world wasn't created fully until the doctor slapped their own screaming behind in the delivery room. Doesn't matter much to me, as long as they listen to the experts on the issues that really matter and use their knowledge to create good sound policy.
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Excellent dairy!
Well done!
I was pondering about the different tacks to 'it's the economy stupid' this morning, as I sipped my coffee. (What if GoRight ran our economy..... shudder, :)
My biggest problem is I cynically don't trust the 'experts'.
As we have seen in the global warming debate, some experts say this and some experts say that. Both being completely contradictory interpretations of the same facts. So I come at experts opinions with a healthy dose of skepticism when it comes to trusting their facts. Statistics is a game that can be twisted and the 'methodolgies' can always be questioned.
My second problem is economists tend to view things from a whole different perspective than the populace, and that point of view is the problem. As in are they are sponsored by drugs companies, or oil exectuvies, or hedge funders. They focus on the 'big' picture economics, of nations and not the people who can be so dramatically affected by the numbers that economists like to play with. I would like to see a stronger focus on the micro-or small business sector, vs the macro, the huge bubble of money that floats around the world that gets picked at by hedge funders, and mergers.
I whole heartedly agree that progressives should focus on a practical economic model that can translate into a core ideology for a wholesome new way of doing business, that supports local economies and is a part of the global picture as well.
I openly admit to a strong bias against free market fundamentalists, who in my view have been changing the way our country does business by privatizing everything because the market does it best. 'They' want to privatize the post office, our public schools, parks, government programs like FEMA, everything. I don't see it as working. The system is being underfunded and choked with beauracracy.
The VA, or CSAP tests are perfect examples ''measuring' everything to death, and then studying the numbers, while the people get left behind. The VA as 7,000 different categories for disability (a paperwork nightmare) when they could have a simple four. Meanwhile they are behind the 'processing of claims' by about 400,000, understaffed and underfunded. What kind of business model is that? Putting numbers before people.
There is a simple principle that you can apply, put people before profits. People are always a companies most valuable resource. The policies I see being put forth put profits before people, and value stock value over all else.
And I also see over-regulation for 'your own good' as being a nightmare of pettiness that can often forego common sense.
I hope lots of folks chime on this topic we we can all learn more.
Thanks skymutt.
It is the economy, stupid.
Cynicism
I'd have to say that anyone who recognizes that their lack of trust in experts is partially due to their own cynicism really doesn't have much of a problem. In effect, you are essentially admitting that the experts are probably right more often than you are willing to allow, but though experience you know that the so-called experts are not infallible, and since you can't at all times be sure exactly where the experts are off-base, you mistrust expert opinions that contradict your own experiences and assumptions. Perfectly natural, IMO. The difference between yourself and some people is that you seem to be willing to challenge your own assumptions as well as expert opinion. The anti-intellectuals will constantly challenge expert opinion but will never look in the mirror at their own biases.
I'd never suggest that economists don't tend to study the areas of the economy where there are large sums of money involved. Of course this happens-- but it's not like this effect is unique to economists-- geologists, as a group, tend to concentrate their studies on the rocks where the petroleum hangs out, while other worthy rocks are neglected. More medical researchers try to find a cure for cancer than a cure for ALS because more people get cancer and there's far more money in a cure for cancer than a cure for ALS. Economists, of all people, would tell you that the lure of profits motivates people. I bet if you dug deep into the economic literature, however, you'd find that many economists are doing work in diverse areas of the economy, and not only doing the bidding of the big boys and the big money, much as there are geologists who study every corner of the earth and not just the portions of the earth that can be exploited for economic value.
skymutt: wise and powerful... enlightened...
Wrong on so many levels
The scientific illiteracy of the population *is* destroying you, it's just moving too slowly for you to notice. It's destroying you by denying you life saving medicine through embryonic stem cell bans. It's destroying you by allowing environmental degradation to continue apace. It's destroying you by investing badly needed resources in boondogles like ballistic missile defense or actively harmful technologies like nuclear power plants.
Don't kid yourself that the idiocy of a great many americans isn't a direct threat to your future.
Just. So. Wrong.
If there is any field where the "experts" and "scholars" in the field should be ignored it is most certainly economics. Why? Because economics is on par with astrology in terms of it's capacity to make accurate predictions, which is the only meaningful measure of a field of human knowledge.
Seriously, it used to be a common joke that economists were as bad as the weathermen at predicting the future but the meteorologists got better.
If you get ten economists together can they correctly tell you what will happen to the stockmarket tomorrow much less ten years from now? No. In fact if you get ten economists together you won't even get a majority answer much less a consensus answer.
There's a reason for that. They quite simply don't know what the hell they are talking about. In physics we can answer important questions frequently to a dozen or more significant digits. Economists are lucky if they answer a 50-50 question right,because their "science" is merely a collection of folk tales and myths devoid of any intellectual rigor.
You seriously want to listen to these people?
An advanced degree in economics almost qualifies a person to flip burgers.
And the economists are clearly wrong. Business profits come at the expense of two main groups: their customers and their employees. Those groups would by and large spend the money they make leading to additional transactions and a strengthening of the economy. Meanwhile businesses are more likely to make investments in infrastructure, offshore investments, and long term investments like bonds that do little to help the national economy and may actually harm it.
Strike 1 for the economists.
Strike 2 for the economists. Since oil companies have been having record profits it's obvious (to anyone who isn't an economist) that the oil companies have been raising prices in excess of their actual costs going up. They have capitalized on the smoke screen of rising costs hoping to fool people into thinking that's what has gas so costly. Only one group seems to have fallen for it.
Downsizing doesn't hurt the economy? You have to be kidding me. Having scores of unemployed people doesn't hurt the economy? Losing actual production capability in order to boost stock price is a winning scenario?
Only an economist could be that blind. In the real world the economy doesn't benefit by having people not working. Businesses may benefit, but that's not the same thing.
This guy you quote is an idiot, and I don't use that term lightly. Has he ever worked in the real world? Has he ever gone through a round of downsizing? My company just layed off about 10,000 people in the last two years. 1,000 were managers. The other 9,000 were not superfluous and the process of doing it has lead to a lot of hardship in trying to actually get the job done. There was absolutely no good reason to make the layoffs except that the stock was down and you can raise stock prices by firing people, no matter how much doing so undercuts the company's actual competitiveness.
Strike 3.
But they don't. Look at economic's "greater body of evidence." It's a terrible mish mash of conflicting terminology. They can't even agree on which basic measures are appropriate to answer a given question, and with out that critical first step there is no way to collect meaningful data and establish any kind of consensus about what it means.
Or we could look at at the dozen or so industrialized nations that have well functioning universal health care. France for instance. We could do a simple bit of math and ask how many states there are with well functioning public systems (answer: many) vs how many states there are with well functioning private systems (answer: none). Many is greater than none, even if you majored in economics.
The other side already has the faith based policy thing covered, no reason to make the dems do it too.
No. I cannot emphasize this enough: there are experts when it comes to physical sciences becasue the physical sciences are well developed regimes of knowledge. There is not one living expert today on economics. Why? Because our knowledge of the field is beyond infantile. It hasn't even been concieved yet. Our current economists are nothing more than con men and fools who mistake mummery for meaning and think themselves wise. There is no reason on earth to give them any credence or special treatment until they prove their theories can make predictions better than random guesses. As we can see above they have a long way to go.
You have to learn the difference between the physical sciences and the social "sciences." The former are mature fields of study that make huge contributions to our understanding of the world. The latter are immature fields that are still mostly charlatanism and fakery because they have not yet found a solid bedrock on which to anchor their studies.
When was the last time you heard of a revolution in physics? Never really. Quantum was a huge deal but it's all marginal. It doesn't change our understanding of physics beyond the incredibly tiny scale one iota. That's because physics is basically right. It's solidyly founded. Similarly the chances that we're going to suddenly discover that DNA is wrong, or the periodic table of elements is wrong is virtually nil. Those things are well established. They are essentially facts.
Every few years there are revolutions in psychology, sociology, political science, economics, and so on. Why? Because these fields are at sea. They have established exactly nothing, settled nothing. They flail about with competing theories based upon personal preference and politics. And I'm talking not about fringe esoteric matters but the very central arguments of their fields.
Example- economists are still divided on the question of "supply side economics." Why? There is no good reason that economists should not have settled the question decisively in the THREE DECADES that the matter has been highly visible in public policy circles. And yet they can't. That they fail even to answer such a root critical question to the understanding of national economics is direct proof that their field of study is, as yet, without rigorous basis.
Maybe some day there will be real "economic scientists." That day is still a long way off. For the moment economics professors should have columns right next to the horoscope, and for the same purpose.
I came. I saw. I posted.
Veni, Vidi, Bitchy.
Attempting to pick some points of discussion out of this rant...
Not going to say that a better informed public would be of great benefit to us all, but answer me this: at what point in history has the American public been better informed? Yet we have not destroyed ouselves or our society yet.
Great comparison. There are a lot of similarities between meteorologists and economists. People who mistrust meteorologists make a lot of the same charges about meteorologists that people who mistrust economists make about economists. Lots of global warming skeptics make a big deal about how the experts were so far off on the high side in predicting the number and severity of hurricanes during last year's season. And there's no disputing that the experts were way off in their predictions last year. The difference between you and me apparently is that I don't have the audacity to call those meteorologists 'idiots'. They may have been wrong in their predictions, but they still know a hell of a lot more about the weather and climate than I do.
The (incorrect) assumptions here being that while layoffs occur at one company, jobs could not be possibly be being created in equal or greater numbers at other companies; and that companies require the same amount of human labor over time to maintain constant production, even as technology advances.
LOL at the implication that all managers are superfluous, while all "peons" are productive. You truly do live in a black-and-white world of your own imagination apparently.
Please try to separate the concept that downsizing in general is particularly damaging to the economy as opposed to the idea that ompanies always downsize in perfectly rational ways. Some economists might argue that if a company is so dumb as to lay off their most productive workers, the economy in general is better off to free up this labor to work at smarter companies.
France also has 9% unemployment, while our unemployment is less than 5%. Economists might make a connection between France's higher tax rates to pay for universal health care and the higher unemployment rate, while you tend to look at things like universal health care in a vacuum.
skymutt: wise and powerful... enlightened...
I think you make a mistake
when you trivialize laying of 10,000 workers, and deny Tliaoc's first hand knowledge of what has happened at his company.
There is a business model out there that puts profits over people that inflates the stock value at the cost of the quality of the services provided.
You can't treat people like numbers and turn around and expect them to loyal little lock step employees that help a CEO get a bigger severance package at the exepense of treating good employees as if they are meaningless pesky costs at the bottom of a profit spreadsheet.
It is the economy, stupid.
Look
I don't deny that layoffs are tough on people. I've been laid off myself once. "Blindsided" is the word that comes to mind. Caught me totally off guard.
I don't trust tlaloc to give an objective account of the layoffs at his company when he starts out with the ridiculously biased blanket statement that managers are superfluous while rank-and-file workers are productive. This kind of appeal to the proletariat might work on Martin da Yoica, but it falls real flat with me. Business requres both good managers and good line workers. To essentially state that management has no role in production kind of damages a person's credibility across the board.
I feel I have a record of criticizing business when I feel that businesses engage in practices that are cruel or unnecessarily harmful to their own workers. I have my limits in terms of what i think constitutes fair compensation for corporate execs. The difference between tlaloc and me is that I try to see things from both sides-- from the perspective of business and from the perspective of the worker. Tlaloc only is looking at things from the worker's perspective.
skymutt: wise and powerful... enlightened...
That me be true
But the workers perspective has taken quit a stab in the back in our most recent history....... so I think it helps to balance things out even if you think his view is a little over the top.
It is much harder for the voice of the worker to be heard these days. We are being assualted on all sides..... illegal immigrants take our jobs, visa immigrants take our jobs, and our jobs are being shipped overseas, as seemingly we stand by helpless as 'the experts' tell us what is good for us only we are just too stupid to understand.
It is the economy, stupid.
A punic victory
I may have one the argument but the proof harms us all.
You should try reading what I say as oppossed to thinking what I might say based on some 1950 preconception of someone elses words. It is not the management but the ownership which I am oppossed to.
Well, it's been a while. How's the American economy? Recessions and job cuts yet? Who'd a thunk it. Oh wait... me. Remeber the good old days? When you could trade pieces of paper with less developed countries and steal the local populaces resources, print more paper and steal more. When the slice of capital apportioned to you by your masters would pay for food, housing AND medicine.
"its this business that screws the economy", "it was that law passed which screwed the economy", blah blah blah. Wake up and smell the coffee (if you can afford the coffee or the time to sleep),
ECONOMICS IS SCREWING YOU
Ironic how communism was thought of as turning mankind into a souless machine uncapable of critical thought. Where "individualism will be lost" in favour of "the collective". Take a long hard look at your world as it shapes the common man into a tool of the capitalist system.
I just want to say how cool I think it is
to have such strikingly different perspectives meeting here and arguing about politics, economics, foreign policy, etc. Without taking sides in this discussion I think every viewpoint adds to the total conversation.
That's all, I'll get out of the way now, carry on =)
Come, my friends. 'Tis not too late to seek a newer world -- Tennyson
Meh.
Managers in large corporations are very likely to be stakeholders in the company thru stock or stock options. This kind of compensation, often reinforced with performance bonuses, really blur the distinction between manager and owner in the modern corporation. Executive level management is almost always compensated with ownership stakes. So I don't see much of a point here.
Me too, brother! But I'm not ready to trade in capitalism for communism just because of a recession, even a severe recession. This is a head cold for the economy, maybe the flu. It is not likely to be fatal for our capitalist system. We've had recessions before and have come back-- many times.
I dunno about you, but if I ever started feeling like I had "masters" or was a "tool of the capitalist system", I'd quit my job and do something else. I actually did that once when I had a tedious corporate job that I didn't like. It can be done.
skymutt: wise and powerful... enlightened...
Managers in large corporations
I'm not sure what you mean here. Since my oppossition is ownership in general, what does it matter if 1 person owns the world or 20? The land and the majority of people will still be controlled by the few.
Of course not, the people in power seek to perpetuate thier system, not destroy it. It's only when the people want to end capitalism that it will end. Recessions, depressions, poverty, massive wealth inequality and the rest are reasons to change, its the people who do the changing.
But what was this something else? Unless it was absolute self sufficientcy I guess it was still within the confines of the capitalist system, money exchange, profit, capital ect. Your master is the money, but who is the master of money? I call us "tools of the system" in the way we unconsciously maintain and perpetuate it.
Also
"France also has 9% unemployment, while our unemployment is less than 5%. Economists might make a connection between France's higher tax rates to pay for universal health care and the higher unemployment rate, while you tend to look at things like universal health care in a vacuum."
Are the people in France marching in the streets against universal health care? And linking unemployment and health care might be disengenious, as it is a very easy game to play statistics to mean whatever you want them to mean.
Where are the mobs of folks in Canada protesting against their health care system?
You pay for people without health care either in higher taxes or higher health care premiums, whether you want to admit it or not. That is the gist of Arnolds argument for changing the health care system in California.
The biggest harm to health care in this country comes from insurance companies.
It is the economy, stupid.
Are the people in France
The French may not be marching in the streets against Universal Health Care, but they are indeed marching in the streets regarding their unemployment rate. As far as the link between a higher tax burden to support expanded entitlements and higher unemployment-- I will only say that I'm not an economist and I can't say for sure that there's a solid cause-and-effect relationship there, but it certainly seems that there could be a link. And I'm not at all offended when an economist studies the situation and concludes that there could be a link there, because if a proposed solution to our health care situation was destined to cause higher unemployment, wouldn't we want to be warned of that in advance?
BTW, I had to comment several times in my diary on DailyKos to clarify that I am not fundamentally against the idea of Universal Health Care. I simply am reserving judgement for the time being until I see the full debate on any plan that is put forth, including the expert opinion of economists. Like you, I'm cynical... we were burned by Medicare Part D and we'll be paying not billions but trillions over the long haul for that poorly concieved program. Its the nature of these big-ticket entitlements that once they're in place, there's no going back, so you better measure twice before you cut once.
skymutt: wise and powerful... enlightened...
Medicare Part D
was written by the free market God's who are true believers that unregulated markets are THE answer to all problems in the world, literally.
The free market God's are the ones that literally thought that supply side economics would form a more perfect government in Iraq.
It has been a miserable failure yet they still insist that the ideology of free markets creates conditions for fantastic government. It just does NOT work.
There MUST be some balance between; driven by the pure profit motive and serving societies greater good.
It is the economy, stupid.
Not true
It's just the opposite of what you say. The libertarian 'free market' economists like Bruce Bartlett hate Medicare Part D with a passion, as you would expect them to hate any new big government entitlement. It is an area where I am in strong alliance with the free market crowd.
No, by and large, Medicare Part D is another atrocity foisted upon us by the Neocons. I can only guess at their motive. Perhaps it was a simple pander to get senior votes. The neocons are such ideological whores that it is hard to apply logic to some of the decision-making processes.
skymutt: wise and powerful... enlightened...
Tell Bruce
to find another name for his philosophy. That free markets is associated with the neoconservative ideology gives it a bad name.
Medicare D is the free market privatization plan at work. The motive is destroying everything FDR, whom they despise with a passion, ever stood for.
It is the economy, stupid.
Sing it Sister
and hallelujah!
\
I'm still coming to grips with the dunderheads who thought there could be a program that gets drugs to a mass amount of people who didn't have them that wouldn't increase profits of the companies supplying said drugs.
responses
True but you have to keep in mind that our capacity to destroy ourselves is advancing very fast. Nuclear weapons didn't exist before 60 years ago. The first bombs were powerful but not a global threat. Now we have an arsenal that can render the surface of the earth lifeless. Our industrial capacity has grown incredibly so that if we wished to we could easily deforest the remaining US forests in short order. As this capacity for self destruction increases we need to make sure our understanding of the world tries to keep pace.
The meteorologists *also* make a lot of correct predictions. Can you honestly say the same for economists as a whole? I see no evidence of such. If the Meteorologists made tons of errors, had no consensus position, and were right less of the time than random guessing would indicate then they should be ridiculed and ignored. That isn't the case for meteorologists, though.
Why on earth would you assume greater job creation than job destruction? That's the kind of thing a skeptical person like me would like to see proven. Can you prove that layoffs in one area somehow cause job creation in others, and furthermore that they do in amounts equal to or excess of the jobs destroyed? Cause if not your argument falls apart.
We *know* jobs are destroyed. You want to *hope* jobs are created. Hope is not an adequate basis for a field of study.
It's true that such a dichotomy is not accurate. However I didn't really make such a statement. And it is literally true that managers produce no value, they at best facilitate the "peons" to create value through their work. In one sense then, managers are superfluous, as in you could have a company with no managers and while it may not produce a good product it would still produce something. A company with no workers cannot function, except as a parasitic organization of other companies that do have workers.
Except you were trying to prove to me that downsizing was helpful. We already know why it hurts- people suddenly lose employment. You are taking the position that there is some hidden benefit that out weighs the obvious negative.
The burden of proof is on you. The first explanation offered by the person you quote doesn't hold up because we know for a fact that companies do not *always* get rid of superfluous employees. So now you'd have to show that the harm of people losing their jobs and the harm caused by companies slitting their own throats is outweighed by the benefit of some subset of downsizing companies trimming off fat.
Honestly I don't think that's a proposition you can come close to proving.
Our unemployment is not 5%. It's closer to 10% actually. The problem is that economists in this country have taken to giving "unemployment" a very peculiar definition that makes it seem smaller than it is. For instance they discount people who are not employed but who have given up all hope of find a job and have ceased looking. Those people are still unemployed to everyone except the economists.
See what I mean about the ridiculousness of a field that can't even settle on root definitions? It's as if physicists across the country had different definitions of momentum and each insisted their way was the right way.
http://www.autodogmatic.com/index.php/sst/2007/01/06/p419
I came. I saw. I posted.
Veni, Vidi, Bitchy.
Why on earth would you
I don't "assume" greater job creation than job destruction. It's not "hope" on my part; it is a fact. The BLS publishes net job creation statistics every week. One of the main complaints about the current recovery is that job creation is not as robust as in previous recoveries-- somewhere in the neighborhood of 2 million jobs per year over the past 4 years or so. But that's still approximately 8 million more jobs now than there were 4 years ago in this country. That's despite the fact that layoffs occur all the time.
Okay, let's use a sports analogy. Joe Montana and Steve Young were highly skilled quarterbacks who both were on the roster of the San Fransisco 49ers for a time in the late 80s and early 90's. Only one could play quarterback for the team at one time. Montana was let go by the 49ers and was signed by the Chiefs. Both went on to have productive years simultaneously, and thus offensive production in the league was increased by the "layoff" of Montana by the 49ers.
If a company X feels that it does not need certain employees, isn't it likely that in most cases that labor is actually more needed in other jobs in the economy, regardless of whether tcompany X is making a perfect decision in its layoffs? If your wife hates you and wants a divorce, isn't it possible that you may be happier in some other relationship with another woman, even if your wife doesn't have valid reasons for hating you? Yet divorce is an "obvious negative..."
One of your better points. It is true that it is hard to make direct comparisons between unemployment rates in different countries. Anecdotally, I will remind you, however, of the riots in France from the disaffected, unemployed youth, and assert that we haven't had those sorts of riots here, perhaps because people can find jobs. And I really don't think that it's fair to lay the politics involved in formulating official definitions of unemployment at the feet of economists, when politicians have the interest in jobbing the numbers while economists have more of an interest in the availibility of good, consistent data.
skymutt: wise and powerful... enlightened...
I don't "assume" greater job
two notes:
1) given what I've already shown about the lack of consistent or intelligent measures why should we trust BLS data, especially as it comes from the government and is therefor biased towards giving a rosy outlook? As i recall the BLS data is garnered from surveys of various businesses, what reason do we have to believe these unvetted replies are remotely accurate?
2) Even if we accept the data as accurate it makes no distinction between a part time job at dennys and an executive vice presidency at IBM. They are equal in this measure, and yet surely you'd agree that a laid off EVP (as if) who subsequently served burgers would not be an economic plus.
No, I don't see that as being supported by the facts at all. Companies all too often throw away employees because what they value is not in fact productivity but stock price. If they can raise the stock and all theyhave to do is cripple the company most execs will jump at it because they have no investment in the company actually doing well. They are invested in the bogus perception that it is doing well on wall street.
Furthermore when company X throws away those valuable employees there is no reason to think they will end up finding work in the short or even long term that is in their field and at a level commensurate or above where they were. Most likely they will work dead end jobs they are not particularly suited for until a similar position to what they did becomes available at which point they are low man on the totem pole.
Here's where the analogy you used breaks down: most employees are not Joe Montana. That is they aren't famous across the nation with another employer just salivating to offer them a similar position. They may be damn good employees but they're functionally anonymous.
Imagine if you were the greatest footbal QB of all time, only you didn;t play professionally. You get laid off from your job at a warehouse. Do you get scooped up by the Chiefs? Nope, not because you suck but just because they don't know you.
I'm sure all the world famous layoff-ees like Joe Montana come out just fine. But there aren't enough of them for me to really care, and certainly not enough for me to base policy on them.
France has a lot of social problems. And Americans frankly are used to being taken advantage of as far as work.
You think there aren't politicians who try to play fast and loose with defined terms of physics, chemistry , and biology? There are, I promise you. But they have a hard time because those fields have a robust and widespread universal set of definitions. Every chemist in the world can tell you what a salt is. There's no contention about the matter. The same is not true of econmists and their measures.
You can think of a given field of knowledge as a language. The mutually agreed terms then are the alphabet of that language. With this analogy it is clear that economists are merely speaking gibberish at each other. They can't communicate meaningfully, and until they do their field is going no where.
I came. I saw. I posted.
Veni, Vidi, Bitchy.
responses
I don't know... What reason do we have not to believe the data is not as advertised? Certainly if the data were rigged, a whistleblower might step have stepped forward at some point... do you have a link along those lines?
The unemployment rate is a little different than raw numbers of jobs-- the definition of unemployment has been adjusted a couple times in the past few decades in order to lower the rate by a few ticks. But it's harder to rig a raw number. Part-time jobs are included in the job stats but AFAIK thats the way it's been for many years.
Funny how you diss management as superfluous until you can use them to make a point... If executives were truly superfluous, their compensation merely sucks up the revenues of the company, money that rightfully should be distributed amongst the productive workers. The non-productive exec gets laid off and goes to work at Dennys, where he/she is at least productive and adds value to the overall economy. This would be a net plus for the economy.
Perception only goes so far. Public companies must submit detailed quarterly and annual reports under federal securities law. Fraud is always a possibility, but there have been some high profile top-level execs who have been sent to prison (finally) for fraud, and that's been a positive I think. The market generally only likes big job cuts where it sees a plan for recovery. Big money investors are surprisingly interested in indications of strong long-term performance when they have millions invested in a company's stock.
Most o the time when employees are laid off, it's because the company can't figure out how to make a profit with those employees. That implies that those employees have not been very productive, and I don't say that as a negative about the skills of those employees at all, because the problem is often bad management or market factors beyond the control of the company. Usually when a company hires, they have a plan for how to profit from the additional labor. So when you get laid off and then get hired on elsewhere as low man on the totem pole, you may very well be more productive at your new job than the old job, even if you are earning much less.
It's pretty clear that you are biased against fields where there is imperfect information. It's very unfair to compare economics to physics in these terms. Physicists often conduct experiments in very controlled environments where most of the variables are known. It's neither good nor bad; it's the nature of the discipline. Economics often attempts to model extremely complex real world situations where it's impossible to list all the possible variables. This is also neither good nor bad; it is the nature of the discipline.
Your assertion that economists can't communicate meaningfully is pretty thin, given that you provide not a shred of evidence for it and you've already made clear your contempt for economists.
skymutt: wise and powerful... enlightened...
biases
That's not the way it works, Skymutt. You can't just assume the data is okay you have to be able to show that it is. There are any number of plausible reasons why such surveys might be falsified, it is up to the people using the data to show that they weren't.
True, but since you seem to find management valuable I thought you'd agree with the example.
In the stock market perception is everything. It is the only thing. Granted that perception may be influenced by real world considerations but more often it is not.
I came. I saw. I posted.
Veni, Vidi, Bitchy.
That's not the way it works,
It's perfectly legitimate for me to assume that the data is reasonably accurate. The census is done with surveys along these lines, and while we know that people are missed in the census, I have no reason to believe that the census for my city was not accurate to within a few thousand people.
There are thousands of these surveys each month and I don't have them. I can't show that they aren't falsified, but I can't think of any good reason why a business would lie on such a survey. There's certainly no reason for massive numbers of businesses to lie on the surveys.
If you want to pick apart the BLS's methodology, it's on their site.
Day to day, week to week, month to month, perceptions move a stock price, as the market makes it's best guess as to how a company will perform based on imperfect information. Perception is only one factor not related to performance that can move a stock in the short term. For example, sometimes a big institutional investor will need to adjut its portfolio and will relentlessly sell a stock for weeks, driving the price down. Other times, short sellers of a stock will panic and a stock can rise sharply for days as the shorts cover their positions. Over the long term though, perfomance trumps perception for most stocks. There are certain stocks that are trading vehicles which can move over the medium term on a lot of factors other than the performance of the company. But these stocks are in the minority.
The stock market, as another very complex system with many unknown variables at play, will naturally baffle someone who wants every phenomena in the world to operate as consistently as things do in physics.
Name me one company, just one, that has a stock price that has not been influenced by performance over the long haul. I have invited you to divulge your employer before, so that we can diagnose the poor performance of the stock. I used to trade semiconductor stocks, so I know just enough about the industry to be dangerous :-)
Poor analogy. Economics will always be the study of economies. It will never be anything different. Economies already exist in the present day and economists are studying them.
Alchemists, on the other hand, had no knowledge of atoms and could not study atoms and the atomic nature of matter, while atoms and their interactions are the entire basis of chemistry.
If you insist on comparing a social science to the physical sciences and expect exact parallels everywhere, you will endlessly frustrate yourself. Economists will never be able to conduct experiments iunder carefully controlled conditions as their conterparts in the physics department do. It is not a matter of the field "coming together" at some point in the future.
Hogwash, but I'll bite-- find me a link to just one example of such a debate between economists, so that we can dissect it.
skymutt: wise and powerful... enlightened...
Examples
And why does the price subsequently go down? Because there is a perception that the stock must be weaker if people are unloading it.
Let's take an example that will maybe lay this idea to rest.
Intel stock is at $22.36
AMD stock is at $13.80
There is simply no comparison perfomance wise though. In the PC market (AMD's best market by far) Intel has about an 80% share of the market whereas AMD is looking at 10%. In the Server market AMD is a bit player. In the mobile market (cell phones and such) I don't believe they are doing all that well either.
In the first quarter of 07 AMD lost money ($600 million of it). Intel made $1.6 billion profit. In fact AMD's net worth is about what Intel spends on R&D every year.
There is simply no comparison between the two in terms of performance and yet AMD's stock is valued at a substantial percentage of what Intel's stock goes for.
Why?
Because perfomance has nothing to do with it. Were stock price really performance based you should see at least a 100x difference between the two.
Done.
Based on what I've said you can figure out who I work for pretty easily, but I like to maintain a small amount of plausible deniability as far as work vs net.
No it's a perfect analogy. The alchemists *were* studying atoms they just didn't know it yet. They slowly built up their knowledge of superficial, and often false, relationships until bit by bit they worked down to a more fundamental understanding that became chemistry.
Similarly economists today make crude and often false attempts to divine the relationships brought about by the fundamental rules of economics, of which economists are mostly ignorant. At some point their field will undergo a transformation and become really useful, and when it does most likely it will look nothing at all like what we think of as economics. And it is quite likely that those future economists will take on some different name to distinguish their field of knowledge from the mess that came before. Just like Alchemists becoming chemists, and astrologers becoming astronomers.
If they want to be called and treated as scientiists then they have to be able to do science. If they cannot that's fine but I suggest they stop adopting the trappings if they can't fill the role.
Alright, let's see.
Here's an example of two economists debating the outlook for 2005:
http://online.wsj.com/public/resources/documents/econoblog12302004.htm
The first economist says that
What is the second economists first statement?
They can't agree on what constitutes a post recession recovery because one of them defines it by job growth and the other by GDP growth. This is exactly what I'm talking about.
The first economist replies:
They are merely talking past each other on this issue because they don't have a fundamental agreement on what a post-recession recovery means.
I came. I saw. I posted.
Veni, Vidi, Bitchy.
And why does the price
More accurately, if there are more sellers than buyers at a given time and price, the price will go down.
Sure, there is a panic selling effect when a stock falls sharply. There is also panic buying when a stock rises sharply. These are all short term phenomena causing short-term fluctuations in price. Over the long haul, performance and prospects are what matter.
Good-- I used to trade AMD and Intel, so I know something about their stocks.
First of all you exhibit a fundamental ignorance of the stock market right off the bat-- the ratio of the share price of the two stocks is totally insufficient to measure the market value of the two companies. Intel has 5.8 billion shares outstanding @ $22, while AMD has only a little over 500 million shares outstanding @ $14. Intel's market capitalization, the value that the market has put on the compnay, is 5.8 billion x $22 = $130 billion, while AMD's market cap is 500 million x $14 = around $7 billion. So Intel is worth nearly 20 times what AMD is, or, in other terms, AMD is only worth about 5% of the mighty Intel. So you see, when you understand the stock market, you see that AMD's stock is not valued at a "substantial percentage" of Intel's stock.
AMD's gains on Intel over time in stock price in the past 6 or 7 years have to do with the fact that AMD has gained market share on Intel over that period AND the fact that AMD has become more competitive with intel in higher margin, more expensive chips. In the late 90's, AMD's chips were only included in extremely low end machines. They didn't have a server chip at all. The didn't have a processor for mobile computers. They had a reputation for cheap, shoddy chips. Now, several years later, their products are competitive with Intel, and not just at the low end of the market. Their chips are powerful, and at various times, they have had chips that rivalled intel's best performing chips. They arguably beat intel to market with a viable 64 bit server chip. They have chips for mobile computers. At various times, gamers and other power users have preferred AMD's chips to intel-- this would have been an incomprehensible scenario back in the days of AMD's K5 and k6, which they could barely give away most of the time.
This is why their stock has gained on Intel's-- they have gained on Intel as a company over a period of time. It is related to PERFORMANCE.
As far as quarterly earnings, anyone who trades semiconductor stocks knows that earnings are 1) highly cyclical and 2) are subject to wild fluctuations quarter to quarter due to many factors within the industry. I don't keep up with AMD and Intel quarter to quarter like I used to, but I can say there, also, AMD's earnings and sales, over time, have gained on Intel when looking at the long haul. Investors also look beyond present sales and profits and see that AMD has gained on Intel technologically and has emerged as a viable competitor technologicaly to Intel, which could lead to greater market share and earnings in the future-- in a market where Intel still dominates in market share, it has more to lose, while AMD has little to lose and much to gain.
Based on this, a valuation of AMD that represents only 5% of the valuation of Intel might seem meager to some. When I traded the stocks, I sure considered AMD to be low (it was probably valued at about 2%-3% of intel at the time)-- my general trade was to buy AMD and sell (short) Intel, and the trade did very well for me, with exceptions (9-11 burnt me bad). Sorry to have sold your company short, but I did it many times from 2000-2002, because I felt it was overvalued with respect to AMD.
Not at all. Reread the discussion. There is no disagreement overthe technical definition of recovery. All economists would define expanding GDP growth as "recovery;" the debate is over how signifiant/strong the recovery was. They are using the same terms. Whether they are talking past each other (i.e. not being responsive to each other's points) is really beside the point-- that's simply a function of their failure to listen to each other in that particular exchange or their eagerness to get their own points across. That could happen in a discussion in any discussion amongst scientists and does not indicate any failure of the discipline under discussion.
skymutt: wise and powerful... enlightened...
Not so.
First off you are changing the terms of the discussion. I never said anything about the total market capitalization, I spoke specifically to stock price. And with good reason. Companies do NOT fire workers to rais their market capitalization because that number has no real affect on the people doing the firing. They do it to raise the stock price which does have a direct monetary affect on the execs. You arbitrarily chose to skip topics. Which I have to say is very typical for economists, as we saw before.
Second off your conclusion is still wrong. AMD having a capitalization of 5% DOES in fact make it a pretty significant percentage of Intel's given the situation of the two companies. In case I need to remind you Intel is making money and AMD is losing. Intel is many dozens of times larger than AMD in terms of net worth. Intel has eight times the market share of AMD in AMD's best market and Intel competes in markets that AMD doesn't. A 20x difference is rather ludicrously small given all that.
All of that is true and none of it comes close to explaining the discrepency. it is a rationalization. An attempt to play off decisions made completely arbitrarily as if they had some rational meaning when they quite clearly don't.
If AMD made a chip tomorrow that was the best chip ever made and far superior to anything Intel had in the pipe much less on the market what would happen? Would AMD stock suddenly double intel's? No. Why not? Because perfomance has NOTHING to do with the matter. I'm not sure how many ways you want me to prove this to you before you accept it, but it is fact. The stock market has only the vaguest connection with reality at all and none whatsoever to any objective measure of performance.
AMD has risen, because they have become percieved as a hot company. And even in the face of momentus set backs in the last few years that perception of being hot has seen them through so that their stock is still quite high.
I'm sure it may have worked well for you but you have to understand that it was based on nothing rational. A total market capitalization of AMD at 1% of Intel is probably way too high. 2-3% is ridiculous and 5% is astronomical. Again there is simply no comparison between the two in terms of what they are able to do (i.e. performance).
That was my point- they cannot agree on what is the right measure to determine how successful a recovery is because they have no common definition of what that means.
No they don't disagree (that they said) on what a recovery is, that's besides the point. They cannot measure the recovery due to ta total lack of common definition of the issue.
It is the reason they talk past each other that is key, and no that does NOT happen in discussions between competent physical scientists.
I came. I saw. I posted.
Veni, Vidi, Bitchy.
First off you are changing
Market Cap (for all intents and purposes) linearly varies with stock price. Stock price goes up 10% ==> market cap goes up 10%. So I don't understand your point. To discuss the market value of the companies, it was essential for me to bring up their market caps. Stock price is a meaningless metric when comparing the relative total market value of two companies.
You're looking at one quarter. AMD has made money in past years. In 2000, I'm quite sure that it earned more per share than Intel. But earnings quarter to quarter in the smaller semiconductor companies swing wildly, which I explained before, partly because the new fabs are so costly to smaller companies. Sales can tend to give a better idea of where a company is headed. In terms of sales, AMD is certainly bigger than 1/20th the size of Intel.
Again, the market considers that AMD is growing faster than Intel, which adds a growth premium to AMD's stock.
If you don't think AMD's stock price moves on every bit of news released regarding capabilities of planned chips, scraps of information about production difficulties, etc. etc. etc. you are crazy. Not saying that all traders have complete information, nor perfect understanding of the info that does come out. But they can't get enough of that stuff (technical info). And they wil