Interesting piece over at VOX today that highlights an important question – what’s the use of economics? I’ll give my very brief answer. Economics is important because it provides us with a better understanding of how the system works. And when we understand how the system works we can better navigate it and respond to potential problems we encounter. Learning economics is a lot like learning anatomy. If you understand how the human body works you’re better able to deal with how you will use it, benefit from it and potentially respond to problems with it.
But the problem in economics today is that many of the models that economists use are totally broken. Many don’t even input a banking system into their models (or understand how banking works) so they don’t even get one of the most crucial pieces of the monetary system correct. Others believe humans are rational agents making efficient decisions, etc. In other words, our understanding of the “machine” and the resulting economics ends up highly deficient because of these misunderstandings and oversights.
The result is poor economics. And while that’s better than no economics, it’s obviously resulting in a great deal of misunderstanding and misguided policy thinking in the world. I’d like to hope that we’re moving in the right direction, but I don’t have my hopes up.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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