Macroeconomic analysis is very useful for central banks and governments. Macroeconomic data are crucial for fiscal and monetary policy. Economists are not very good at making predictions. That said, they can’t tell you the exact date of the next crash, but they are more effective at using tools to help solve problems. Is there a lot of inflation? There is a solution for that. Is there deflation? There is another tool for that. Is there any unemployment? There are tools for that too. It’s all great data reads, tools, data re-reads, new tools.
However, economists who do not work in a central bank or for the Department of Commerce can always devote themselves to the academic world. In the academic world, papers and more papers are written. It’s about obtaining data, hypothesizing, refuting old assumptions, and uncovering new knowledge. The scientists aim to ensure that their results are taken into account by the decision-making authorities. In general there are few, gradual and specific advances. Economists are essentially scientists who work like other scientists.
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If you want to participate in heated economic debates with radical approaches, your best bet is to turn to politics and the media. There was talk of economics in public all the time, but very badly. I mean, hardly anyone knows what they’re talking about. Do you imagine for a second an astronomer or an astronaut at a flat earth conference? This is basically what an economist feels in the middle of a public economic debate.
Generally people ignore economists when discussing economics. This is basically how you build a rocket and ignore the physicists. In business, the gap between expert opinion and public opinion is extremely large. This means, The ideas of professional economists are radically different from the ideas of the common man. This is not the case with astrophysicists, doctors, mathematicians, engineers or chemists, for example. The big difference is that people don’t trust economists’ expertise. In other wordsIn the collective imagination, everyone knows more than an economist.
In a survey by Stefanie Stantcheva, Abhijit Banerjee and Esther Duflo: “Me and everyone else: Do people think like business?” MIT, 2019, we’re told Only 25% of the public trust economists. Only politicians got worse results. Those who predict the weather on the news got much better results. Strange but true.
Abhijit V. Banerjee and Esther Duflo, winners of the 2019 Nobel Prize in Economics, discuss this in their book “Good Economy for Difficult Times”. One of the explanations for this major problem of “confidence” economists is the aforementioned gap between the opinions of experts and those of the public. Do Flat Earthers Trust NASA?
It is clear that many of the economic positions we hear in the press do not come from the latest economic theory. Actually, come from different political ideologies. That explains a lot of things. How is it possible for a young millennial to speak like a libertarian from the 70s today? How is it possible that economists of the last century, whose theories have been repeatedly refuted in the academic field, are still quoted? And how is it possible that inflation is our main problem in the midst of the worst deflationary crisis in our recent history? Political passions.
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Politics easily becomes dogma. And dogmas are not updated over time. For example, computer scientists today have various tools that computer scientists didn’t have in the 1970s. Many areas have evolved over the past few decades. The economy has come a long way too. However, Politics still dominate positions in economic affairs. If you’re on the right, subscribe to the book on the right. If you’re coming from the left, subscribe to the brochure on the left. And if you are a libertarian subscribe to the libertarian script. The latest economic theory is not taken into account here.
The Bitcoin community is teeming with libertarians. Because of this, listening to a bitcoiner is like traveling back in time for an economist. Which is very curious. Because in the crypto space, macroeconomics is always used as the reason to buy Bitcoin. Libertarians have been promoting gold purchases as a hedge against bad macroeconomics for over 100 years. Typically the disaster narrative is used. The world is about to collapse, buy gold. The world is about to collapse, buy bitcoin.
We are also told in studies by Abhijit V. Banerjee and Esther Duflo that economists seem to be far more optimistic about the economy than the general public. This means, There is a connection between optimism and economic knowledge.
The story of the Wizard of Oz (1900), for example, shows us a pessimistic stance on currency management and encourages a return to the gold standard after the panic of 1893. 127 years have passed since the panic of 1893 and many still use the same arguments to speak of the collapse of the dollar.
As an investor, however, macroeconomics does not play a major role. Indeed, the economic debate is of little use. As an investor, it is important to understand that the economy moves in cycles. A long-term investor doesn’t care if inflation is 1.5% or 2.1% this year. Macroeconomic data will be different every year for the next 20 years. Many things could happen and most of them are unknown.
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The macroeconomic debate is a waste of time. An investor’s time is better invested in creating a diversified and balanced investment portfolio. The task is to buy good assets at good prices and keep them for a long time. With this in mind, I recommend the reader friend to separate the investment policy. Your portfolio must be designed objectively. Current politics, macroeconomic criticism, and fashionable ideology are bad reasons to invest.
Gold is a perfect example of how pessimism is not a good advisor to an investor. Let’s take the year 1893 again as a reference. $ 100 in gold versus $ 100 on Wall Street in 1893? Which strategy was the most profitable? In the long run, optimism has proven to be (by far) the best attitude for the investor. Hence, in good times and bad, the investor should always look for undervalued assets with great investment potential. Today the dollar rose, tomorrow it fell. We have to learn to live with cycles. But the investor must continue his eternal search. Buying bitcoin because someone says the dollar is going to collapse isn’t very smart. You have to buy bitcoin because it is at a very good price and has a great future. It’s that simple. Be an investor.