February 13, 2009

• Easy Answers

  There is a lot of bad economic analysis in the newspapers these days (and heck, on Xanga and the blogosphere too).  The thing is, it can be hard to spot… so I thought I’d help pull together some rules of thumb.

  Bad Economics Rule of Thumb #1. The author is predicting about the past

  Economics is HARD man!  Well at least, it’s hard to make economics predictions ahead of time.  However, it is insanely easy to make economics predictions after the fact, and explain why (of course) you knew the answer all along.

  I will show you how easy it is by giving you some brilliant economic analysis, after the fact:

  • We were in a massive real estate bubble that recently ended.
  • The Fed did not police the bubble at all, and in fact helped cause it through low interest rates.
  • Many recent administrations greatly encouraged the bubble by pushing for subprime home ownership (Republicans tend to blame Clinton, while Democrats tend to blame W.)
  • Fannie Mae and Freddie Mac should never have invested so heavily into subprime mortgages.
  • Lehman Brothers should never have been allowed to fail.

  I know this all seems obvious now, but man… does anyone remember how confused everyone was when all this stuff went down?!  It’s easy to “predict” the past… it’s hard to predict the future.

  Bad Economics Rule of Thumb #2: Everything is completely obvious, what are you a frickin’ IDIOT?!

  This stuff is super hard!  Very few people have experience with managing a credit crisis, let alone one in a global economy.  And yet, some people make out like the answer is super duper obvious, and you’re a tool for not understanding everything as clearly as they do.

  This stuff is so dang hard that many of the greatest economic minds of our generation are struggling to get their heads around what’s going on.  Now it’s possible that you are a genius and the answer is completely obvious to you!  But it’s also possible that it just seems obvious because the problem is more complex than you think.

  Bad Economics Rule of Thumb #3: Main Street = Good, Wall Street = Bad

  I see a lot of articles that say, the Bailout did nothing but enrich Wall Street and screw Main Street.  There’s definitely some truth to that.  And to be honest, I hate Wall Street as much as the next guy (probably much, much more). 

  But if our entire financial system melts down completely, Main Street is completely screwed.  I mean, banks are the lifeblood of our economy… we can’t survive without them.

  Was anyone else forced to read that Orwell book, Animal Farm?  The animals take over the farm and start changing, “Four Legs Good, Two Legs Bad!!”  Reminds me of a lot of articles on the economy these days.

  We need both Two Legs and Four Legs to make it out of the Great Depression II in one piece.

  ps in my perfect world, Wall Street survives but they get evicted and have to sell all their fancy cars like in that Eddie Murphy movie, Trading Places.

  —-

  I sure hope that the government figures this all out.  Neither the Bush or the Obama administration has had too much luck so far, and I’m incredibly concerned for the US economy.  But don’t worry: I’ll let someone else figure it out, and then afterward I’ll share the answer with ya.

  How could you not have seen the answer beforehand – it was so obvious!
  

  • 12:34 am
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