Did FDR's policies help us get out of the Great Depression?

[Kevin_Kennedy]

I don't think borrowing is a future tax.

What's precisely the difference between taking money now, and taking money now with a promise for it to be repaid with interest? It still deprives the economy of capital, and you don't have to wait for the effects to be seen. Stimulus checks never do anything for precisely this reason.

When the government borrows money, it eventually has to be repaid. Since the government produces nothing, it has take money from the private sector. Thus, the private sector is taxed to pay back money borrowed by the government.

 

[Toro]

The problem with assuming that markets will always meet demand is that this assumes that humans are always rational. This is a central tenant in neoclassical economics, and it is especially true as a premise for the Austrian and Chicago schools.

In reality, this is not the case. Human beings are not always rational. Crowds are not always rational. The human being that economists assume to exist would look very odd to psychologists or sociologists. Clinical experiments have shown that human beings often act irrationally. Not only that, we are now learning that the human brain is wired to act irrationally, at least in terms of how we organize our selves economically. Humans often act rationally but not always.

There are two newer branches of economics that are coming to the fore that study these behaviors. They are behavioral economics, which applies psychology to economics, and neuroeconomics, which incorporates physiology into economics. I highly suggest that everyone pick up a book or two and read up about these two branches of economics.

 

[xsited1]

There are two newer branches of economics that are coming to the fore that study these behaviors. They are behavioral economics, which applies psychology to economics, and neuroeconomics, which incorporates physiology into economics. I highly suggest that everyone pick up a book or two and read up about these two branches of economics.

Are there any trading systems that take advantage of this new research?

 

[Toro]

Are there any trading systems that take advantage of this new research?

Not that I am aware of. However, both conclude that buying assets when they are cheap is a better than buying when assets are expensive.

Behavioral economics is very valuable in trying to understand investors' cognitive biases. If you understand your cognitive biases, you can alter your behavior to be a better investor. For instance, a common bias is "anchoring" where investors anchor their expectations to whatever you paid for the asset. For example, if you bought Cisco stock at $50 in 2000, you are likely to hang onto it until it reaches $50, even though the value of the stock may now be $25. If you can get away from thinking that Cisco is worth $50 because that is what you paid for it, then you are more likely to make rational economic decisions.

Neuroeconomics explains the economic decisions you make based on what is occurring in your brain. People are not hardwired to trade stocks, for instance. Most people lose money trading stocks because they buy when they get excited and sell when they get scared when in fact you should be doing to opposite. Our behavior has its roots in evolution. Our brains are wired to survive by hunting buffalo or deer on the plains, as our ancestors once did, and to avoid pain at all costs, which is why investors often dump stocks just before they rebound.

Interestingly, rationality is the way to beat our cognitive and physiological biases. Investors who act rationally in markets tend to do better than those who don't, especially at critical points of greed and fear.

 

[mash107]

The problem with assuming that markets will always meet demand is that this assumes that humans are always rational. This is a central tenant in neoclassical economics, and it is especially true as a premise for the Austrian and Chicago schools.

In reality, this is not the case. Human beings are not always rational. Crowds are not always rational. The human being that economists assume to exist would look very odd to psychologists or sociologists. Clinical experiments have shown that human beings often act irrationally. Not only that, we are now learning that the human brain is wired to act irrationally, at least in terms of how we organize our selves economically. Humans often act rationally but not always.

There are two newer branches of economics that are coming to the fore that study these behaviors. They are behavioral economics, which applies psychology to economics, and neuroeconomics, which incorporates physiology into economics. I highly suggest that everyone pick up a book or two and read up about these two branches of economics.

Mises, in his magnum opus, contends that a person always tries to act in to increase satisfaction (or remove dissatisfaction), and that doesn't necessarily mean he'll act in his best economical interests. This dissatisfaction might very well be a very irrational fear to the outside world, so it may seem like he's acting irrationally, but he's only acting to reduce dissatisfaction.

This is why Austrians are very much opposed to gathering empirical data, and relying on it for crucial decisions, that generalize about a population. Since a market is nothing more than a collection of free actors, how can one really make predictions about how they are to behave if they all are satisfied in a different way? Not to say all empiricism is useless. It can verify hypotheses drawn. For example, Toro verified what we all know, on the previous page, through empiricism-- the freer the economy is, the wealthier the poor people are. Needless to say, though, Austrians treat economics less of a subdivision of mathematics and more of a sociology.

I've not yet finished reading 'Human Action', but I plan to read it all once I get time.