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Economics

"All models are wrong, but some are useful".

Thoughts

  • Most economics is speculation without stakes.

  • Observe the underlying incentives.

    • Who profits the most?

    • Who suffers the most consequences directly from one’s actions?

    • How to (re)align the incentive structures?

  • There is always an opportunity cost (even if good things happen). Always ask:

    • "What is the trade-off?"

    • "Under what conditions would my idea be a bad idea?"

  • Politicians/bureaucrats are incentives to practice first-order thinking (anticipating the immediate results of their actions/policy). It's what gets them re-elected.

    • By "solving" one problem that way they create a bigger one down the road. They compound problems.

    • Solution: solve for the long term. Practice second-order and n-th order thinking.

      • "What are the consequences in 10 hours? 10 months? 10 Years? 100 years?"

  • The demand curve slopes downward: if something becomes more expensive you do less of it.

  • Markets work when both parties benefit from a trade.

  • Understanding the price system tell us what ends up where doing what.

  • The more growth you have, the bigger your margin of error. When in doubt optimize for growth.

    • "What actions can I take now that will produce compounding returns?"

    • "Am I on a track where my knowledge compounds?"

  • Leave small crises to resolve themselves. Step in for huge ones.

  • Debt is easy, but it's not the answer. Bureaucrats love it: no one gets fired for adding more debt.

    • Private debt shouldn't become public debt. Taxpayers shouldn't pay for bailouts.

  • Crony capitalism is rent-seeking as a service. Warning signs:

    • Wealth is seen as a zero-sum game.

    • Wanting economic gain without any real risk.

    • High positions are equated with wealth, prestige and status.

    • Competition is seen as inconvenient and battled with special permits, grants, tax breaks.

  • Decentralised systems withstand more than centralised systems.

  • Governments use taxes to create demand for their currency. After Adam Smith:

    "A prince, who should enact that a certain proportion of his taxes should be paid in a paper money of a certain kind, might thereby give a certain value to this paper money"

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