Economics [i]

General Discussion about Macroeconomics

Introduction

With this brief article, I’m going to test the reaction of you, my readers to a different style of article. I am trying to determine if you accept shorter articles with fewer explanations, or if you prefer longer, descriptive articles. As already announced, in the future I’m planning a mix of brief articles and, of course, the well-known bigger analyses.

But now let’s start with the article.

I’m going to explain what I criticize the most about today’s macroeconomics theory that is taught in the universities. And especially, what real-world consequences this problem brings. To underline this problem, I’m going to explain a real-world example.

The big question

The subject of macroeconomics, taught in schools and universities, is very interesting (at least for me). I assume that by studying macroeconomics, one can learn the most about how the world is functioning. I didn’t study it. That’s why I spent hundreds of hours reading books about macroeconomics. And I think that I learned a lot.

One can learn a lot about short, middle, and long-term considerations. One can learn a lot about money, work, capital, and many more topics; in other words, the basics of how the world works.

Nevertheless, there is one thing that I didn’t read in any book. The big question is how to factor geopolitical considerations into the macroeconomic calculations. Don’t get me wrong. There are indeed mechanisms, factors, and variables in macro-economic formulas for political considerations. But the biggest challenge here is that they are not, and can never be, objective. Thus, the resulting calculations are by definition always wrong or unstable.

Let’s use a macroeconomic formula that considers future geopolitical developments with a “geopolitics parameter.” Yes, I do simplify things here (as always) so everyone can follow. An individual who is using the formula usually makes some personal assumptions or is relying on assumptions by other individuals or organizations. Neither an individual nor a national organization can be objective. Usually, based on my experience, certain organizations estimate most parameters very accurately. But not geopolitical developments. Either the own country/block/alliance estimates them far too optimistic, or superior structures simply provide the numbers based on political considerations.

Geopolitics

What is missing is a more or less internationally recognized institution that provides the most realistic geopolitical developments for economists. With this, nations could calculate their economic developments based on (mostly) realistic assumptions, as opposed to the present fiction-based assumptions. I’m not talking necessarily about a mathematical factor or parameter. It also is possible to talk about good old written predictions, that could/should also be taken into consideration.

This protocol doesn’t exist currently. Yes, there are international private organizations are carrying out such activities. But their results are not being used in the calculations of national or international decision makers. Organizations which provide results to politicians and decision makers are more or less forced to work with heavily biased considerations or assumptions. Hence, the results which are being presented to the decision makers are fictional instead of solid forecasts. Fiction, that everyone is willing to consume. The decisions that are being made based on such fictional considerations often are so wrong that it is required to re-adjust the decisions continuously to match reality.

What is the solution? As of now, I do not see one. The right place to give an unbiased analysis as to where geopolitics is going would be the UN. Unfortunately, the UN structure is predetermined to be influenced by its powerful members. Hence, such an estimation would, again, be biased. A need exists for an internationally-recognized organization that assesses current geopolitical trends and provides unbiased estimations upon which governments can build economic forecasts.

I’m well aware that such thoughts are fiction.

That’s why we are forced to read, in the big Western economical outlets/magazines, daily fictional economic forecasts. Thus, it is impossible to alter course and steer the ship back to the right direction.

Example

I regularly read Western economics magazines. There is a big, well-known German economics magazine that I like to read. It is less biased compared to other Western magazines. I won’t name it here to avoid getting into any kind of trouble. 😊 But even though it is one of the less biased (from my point of view) Western magazines, it is still biased. It also provides two very good weekly podcasts with well-known and recognized economists. I listen to these podcasts every week. It gives one a feeling of what is currently being discussed in politics, since these people are also consulting for the German government.

At least one of these two podcasts is unwittingly very funny, especially since February 2022. Before, it was often close to the reality. After that date, it became comical. Why? Week after week calculations and predictions have been made based on the assumption that Russia will collapse within a few weeks, and that the war will be lost by Russia within weeks. Well, week after week after week. That on its own is already unwittingly funny. But it became even more funny after the speakers (very renowned economists) started to admit slowly but surely that things are not working the way they thought. And then, a few months later, panic began to spread. Everything is lost?

Oh boy.

I made the right assumptions; hence my predictions were far closer to reality than theirs. Not because I’m a better economist than they are. I’m not a full economist, anyway. No, these people are better economists by orders of magnitudes. But you know the well-known phrase? Crap in, crap out. If you feed the best algorithm (economist) with crap, it can only produce crap. If these people would be fed with realistic assumptions, they could undoubtedly provide politics with the best possible forecasts.

The problematic part of all of this is the following: I have the feeling that at least one or two of the people I’m talking about know very well what is going on. One can read it between the lines. But they can’t name it. It would be, so I think, bad for their career. Hence, they rather embarrass themselves regularly instead of telling the truth.

That’s a problem with real-life consequences. Politics are steering their ship into the next iceberg, while they are at the same time thinking they know exactly what they are doing.

I didn’t write this article to bash/embarrass European economists. I wanted to highlight a problem that is causing deterioration of welfare of the public because of bad economic decisions, based on biased forecasts of economists.

As a European, I’m concerned about this fact and, of course, I’d like to help somehow. If we leave geopolitics aside, we all should look to how we can work with the situations we are in to get the best possible outcome for the people. Increasing the welfare of the people by trying to provide the best possible economic forecasts to decision makers would, of course, be a very good and not politicized step in the right direction.

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[i] Edited by Piquet (EditPiquet@gmail.com)