T Nation

1929, 2000, 2011


#21

Interesting topic - What is(was) taught in intro macro classes where you went to school?

I had been reading Austrian literature from the age of 17 and was under the impression that mainstream econ was almost entirely Keynesian. When I actually took an intro macro class ( last year ) I found this to not really be the case. Example(relevant) - We were taught that the phillips curve DOES NOT hold in the long run ie - in the long run the classical dichotomy holds and there is no relationship between unemployment and inflation(we even went through how Friedman predicted this in the late 60s and was subsequently proven correct by the great inflation of the 70's and 80's), the conclusion drawn from this was that policy makers should be very hesitant about inflating in the short term to drive down unemployment as it's only a short term fix with costly trade offs. Interestingly todays policy seems to be ignoring these lessons....

I was expecting the course to be quite painful but was pleasantly surprised, mainstream econ and Austrian theory seemed to generally be in agreement over the long term.

Thoughts?


#22

Another quick example - I had come under the impression that mainstream econ disregarded savings as the fundamental driver of economics growth. In class we were taught that the "pillars" of economic growth are savings, modest taxation, property rights etc.... I was definitely expecting to hear that consumption was the main driver of growth.


#23

Go here

http://mises.org/

From here you will be able to get all you need to know, order books, free materal and blogs.

This is the top of the line Austrian economic school.(this is just their internet site they do have a real school).


#24

My comment was meant to be broad. It's not just this thread, but any number of threads where the subject of macro economics comes up.

It's probably mostly a matter of a lack of familiarity of economic terminology. It's easy to quickly get lost in a subject when a sentence is primarily composed of a bunch of terms with which one is not at all familiar.

It's kind of like getting all kinesio-geeky on someone who knows nothing about anatomy/physiology talking about, the anterior origination insertion of the psoas major as it relates to the extension or flexion of the superior type II fast twitch fasicles of the posterior chain...

So as an example, the above chart states...

"As of the 10th of December 2010 (S&P 500 @1240) US non-financials were 74% overpriced according to q and quoted shares, including financials, were 73% overpriced according to CAPE."

Now that sentence may as well be written in Martian for all I understand it...


#25

Thank, John. I'll check that out...


#26

Would you pay $140,000 for a home that you could have built for $100,000? No. The $140,000 home is overpriced by 40%. THAT is the q ratio. The price of that home has to drift downward toward $100,000.

Would you pay $60,000 for a home you could have built for $100,000. No. The $60,000 is underpriced by 40%.

CAPE is an adjustment added to the PE ratio. When stocks have a price-to-earnings ratio of more than 15, they are historically overpriced. Things being generally equal, why pay $20 for a share that earns me a dollar, when I could pay $10 for a similar stock that earns me a dollar? So, PE below 12 or so is good (in the general market) while 18 and above is a GTFO of this market signal.


#27

I would recommend Human Action (they have a new pocket book for $10) and Hazlitt's Economics in One Lesson: http://fee.org/library/books/economics-in-one-lesson/#0.1_L2


#28

I'd buy a house for 60k that was built for 100k.

I don't buy anything above $10 P/E averaged over the past years.


#29

It never hurts to get more knowledge but lets be frank, if anybody here was as absolutely certain as they claim to be about these things and had a track record of being correct, they'd have no time to post on T-Nation because they would be spending all of their time in their office at Goldman Sachs.


#30

This is false.


#31

Okay fine, who posting in this thread has become incredibly wealthy through their superior understanding of econimics and investments pertaining to it? Because if you can accurately project economic trends you should absolutely be very wealthy.


#32

â??There is nothing so disastrous as a rational investment policy in an irrational worldâ??

John Maynard Keynes

Also:

â??The best way to destroy the capitalist system is to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.â??

John Maynard Keynes


#33

You are presuming several things, that the person has the capital and wants to invest. As Warren Buffett said in his last letter, anyone could see that automobiles were the next great thing, but which one of the 30 manufactures was a good investment. Being able to predict trends doesn't equal being able to allocate capital correctly.


#34

Very true, another example - Even though it would have been easy to see how flight would revolutionize the world the airline industry as a whole has destroyed capital.