Friday, October 30, 2015

Jason Smith — Moral intuition versus logical intuition

This distinction is key to understanding economics.

A good contemporary macro example in political economy is German Ordoliberal debt-phobia and preference for austerity on moral rather than strictly economic grounds that is driving the EZ into a ditch not only economically but also socially and politically. 

The contemporary view of Ordoliberalism is based on "ordo" meaning "following the rules." People cannot understand how when Germany is prospering under the rules, others won't also — even though both economic theory and accounting shows why this assumption is wrong. The evidence is also overwhelming as the wheels come off in one country after another.

It is also foundational in general for assuming that sound money, sound finance, and a tight fiscal stance  are policy "goods." Almost all economic policy in the world today is infected with this view to some degree, so that the global economy is constrained by lagging demand and faces deflation.

Unless one knows that all money is credit-based and that credit implies an equal amount of debt on another's balance sheet as an accounting identity, the idea that more debt to solve the problem of debt is deeply counterintuitive logically. 

When combined with a moral (normative) view of debt as "bad," sound money, sound finance, and a tight fiscal stance as policy "goods" seem intuitively true and morally satisfying, even though both theory and evidence contradict this assumption.

Information Transfer Economics
Moral intuition versus logical intuition
Jason Smith

Stumbling and Mumbling
On misunderstanding economicsChris Dillow | Investors Chronicle

1 comment:

Ignacio said...

Tom this is used as an ideological weapon against the population, who is 'rule-based', but the elites are not as they are deeply corrupt.

German managerial and capitalist class are excellent at this game and have participated widely in the stripping, sell offs and acquisitions games of Eastern Europe after the USSR collapse.

A lot of people was made billionaire back then, and no other than Mr. Schauble himself was involved in the schemes.

Unfortunately loyalty to the masters is a very human characteristic... no matter what bullshit they sell you.