(no subject)

[cblj_backup]

Man, economics is hard.

Nourishing the brain is a constant process, especially for someone like me whose brain does not retain stuff very well. One of the ways I find new stuff to temporarily pack into my head is through inherited magazine subscriptions from people who don't work here anymore. Currently I "subscribe" to ARTnews, The New Yorker (I think this one's about to expire), and Fortune. Could be worse, could be Forbes. Seriously, fuck Forbes.

But I do read Fortune, because it's about economics, and I don't know much about economics.

There are very few things I can't comprehend at least a portion of, if I put my mind to it, but anything past long division is a mystical ancient rite to me. Economics stands at this weird midpoint between sociology and mathematics, which makes it a struggle, but not downright impenetrable like most math is.

I mean, for example, I don't understand the stock market. But then apparently nobody else does either, so I feel heartened. I find it kind of hilarious that our entire economic system is based on something that reacts to mass emotion, but I suppose there's a certain romance in that. I'm less amused by the fact that all my 401K investment information reminds me that investing is risky and I could lose money. Really? That's great, because I'm being legally forced to gamble 3% of my yearly income on it. Who thought up that genius plan? So I treat that money like it doesn't exist, and that makes investing a lot more fun.

I do spend a lot of time googling stuff like "what is a national interest rate" and "how do dividend stocks work". I sure hope the internet's not lying to me.

Comments

[ncp.livejournal.com]

Try reading "The Economist" instead. I don't read it too often, but when I do, I'm always impressed by their international perspective and articles about real-world problems, not just finance (which, frankly, no one can understand). I find myself disagreeing with their perspective often, but their reporting is always broad and balanced.

[brewsternorth.livejournal.com]

I should do that too now and again. Like the WSJ they do some *non*-economic reporting; *un*like the WSJ said reporting isn't made of fail.

[concretesphinx.livejournal.com]

You don't have to invest in the stock market with your 401K if you don't want to. Usually when people are younger they put your money in the stock market because it's high risk/high return and you can afford to take more risks when you don't need the money for a while. But you absolutely can talk to the investment company that handles your retirement account and have it put in bonds and securities and funds that have little to no risk with a lower potential return.

[copperbadge.livejournal.com]

Well, no, but even bonds apparently aren't secure? I have a "safety" bond that I shift money into periodically, but even that has the warning notice on it.

[mediumajaxwench.livejournal.com]

There are no guarantees in investing, unless you're putting everything in a savings account insured by the federal government, and even then there's always a small chance that the government will do something extremely stupid and kill the FDIC. If there weren't any risk there wouldn't be any return, but you need the return in order to make up for the loss of value due to inflation.

The best way to make sure yourself secure is to make sure your portfolio is diversified - so that the small chance of losing money on anything is spread out among a lot of anythings. This doesn't just mean having lots of different kinds of stocks, but having some stocks and some bonds and some securities, and different kinds of each and so on.

And take comfort that you're saving now, time gives you security too because the stock market does gain lots of value over time. See the graph in the middle of this page (http://www.freerepublic.com/focus/f-chat/2085951/posts) for an idea of how it gains value over time. You may lose money in the short term, but not as much as you will make in the long term, which you can see because the stock market as a whole has gained a lot more value in the last twenty years than it lost in even the most recent really nasty recession.

Because money is itself a giant fiction that we tell ourselves about how things have value, it's not something that you can ever derive one hundred percent total certainty of security from. But you can get pretty close by diversifying and investing early.

[ysabet.livejournal.com]

I totally admit, economics always brings the Glooper from TPratchett's Making Money immediately to mind. Somehow it really *does* make more sense to me if I think of money as water (and it sure explains terms like 'cashflow' and 'liquid assets', doesn't it? Not to mention 'financial drain'...)

[evilstorm.livejournal.com]

I know someone who swears blind that economics is like cardiology, what with the flow and supply and demand and all that.

[firynze.livejournal.com]

For some reason, I get Forbes. I stopped getting it for two years, and then it magically started appearing in my mailbox again. I...am kind of afraid of this.

[julia-reynolds.livejournal.com]

My favorites about investing:

http://www.amazon.com/Wealthy-Barber-Updated-3rd-Commonsense/dp/0761513116

http://www.amazon.com/Richest-Man-Babylon-Bestselling-Financial/dp/1615890149/ref=pd_sim_b_7

http://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Larimore/dp/0470067365/ref=sr_1_1?s=books&ie=UTF8&qid=1307468456&sr=1-1

[ataralas.livejournal.com]

Dude, I very nearly have a PhD in physics—I am no math slouch—and economics makes my eyes glaze over and drool drip from my mouth.

I think it's mostly that I just can't bring myself to care about money, as long as I have enough to pay my rent, put food on my family table, and set some aside for the future.

[copperbadge.livejournal.com]

LOL, well, part of it too is that it's all theories.

[thestrand.livejournal.com]

Sorry, but this really bothers me:

ECONOMICS IS NOT FINANCE

[copperbadge.livejournal.com]

They do tie into each other though, and it's fundamentally impossible to know much about Finance without knowing about Economics, as far as I'm aware.

Also, capslock bold is usually considered a little bit rude if not followed by some actual helpful info. Just, FYI.

[thestrand.livejournal.com]

Sorry, it was a bit abrupt wasn't it? I was having a terrible day and the idea of actually explaining myself was just exhausting. Plus, I usually make a hash of all econ-related explanations and generally wind up reinforcing the view I was attempting to discredit. Anyway, you've guilted me into this now, so enjoy haha.

I would agree that finance does tie into economics, but only certain fields within economics. It's perfectly possible for someone working in finance to have almost no knowledge or experience in economics, and likewise, for an economist to be clueless about finance (example: me). Whilst a fairly large proportion of economists do go into finance (since it pays so much better than being a professional economist), it's more about the transferable skills they've picked up rather than the econ foundation. Actually, most of the large banks also recruit a lot of arts students.

On the economics side: I would say that a good understanding of finance is only really necessary in certain aspects of macroeconomics (and I suppose if you were looking at particular household decisions in micro). For example, financial economics (obviously!) and how this ties in with risk attitudes etc (certain areas of behavioural economics also) or the macro side of international economics. As long as you can grasp that agents can save through bonds (and a bit about yield curves, arbitrage etc but not much), you can pretty much get through undergrad, most of postgrad (depends what you specialise in I suppose) and your professional life without knowing anything about finance. Though of course, extending models/theories etc to incorporate individuals' saving behaviour + the financial environment to more closely approximate reality is always good!

The thing is, money doesn't play as large a role in economics as most people think. From my experience, the majority of people, even those who've taken introductory courses in econ (basically useless, and actually these sort of people are much more irritating because they're convinced that everything is about drawing graphs and supply+demand), don't really have that great an idea of what the field of economics covers. I generally get asked about investment advice or if I'm lucky (but not that lucky because I'm more of a micro girl) about unemployment/inflation etc. It's just frustrating sometimes because what about industrial economics (eg. competition, structure of mkts), health economics, development economics, political economy, behavioural or experimental economics? What about growth theories, search models or the application of game theory? Or the divide between theory + empirical/applied, or that between positive and normative economics (and the philosophical issues brought up)? I know it doesn't seem so, but economics is pretty much related to everything since it's all about choices. I'm not saying it's perfect (far from it), and it is flawed in its reliance on utility (and the preference satisfaction view of welfare) and use of assumptions, but do you know how complicated people are?! And insights from behavioural econ/psychology are being used, so that's something.

I know that I haven't explained myself particularly well and have probably come across as some sort of rabid economist, but I hope you got something from this. And actually I don't really like being an economist, but at this point I'm not really qualified to do anything else!

[copperbadge.livejournal.com]

Yeah, I've totally had days where I just want to yell, and the idea of defining everything is tiring *nods*

I would imagine that, while you claim to have no clue about finance, you would follow it a lot better than someone with no economics grounding -- there's just a lot of terminology and a lot of system function that isn't there for me, which means I have to look up about every third word I encounter. Plus I work with a bunch of guys who are in finance but have econ degrees, so perhaps I'm biased :D

As long as you can grasp that agents can save through bonds

Now, see? I have no clue what this means. :D

You didn't do a bad job actually. I know that economics is in large part about behaviour as well as function, which is what I find so terrifying -- that the basic building block on which our country functions is inextricably intertwined with emotion, and to some extent mob mentality, and neither of those things tend to be rational...

[sabra-n.livejournal.com]

Econ can be an awfully nifty analytical tool. It also makes a terrible substitute for a life philosophy, and yet people persist in treating it (well, its capitalist/Western iteration) as such, and so I've kind of ended up hating the field overall.

Finance is just straight-up boring. I have the same retention problem you do with it - it just goes in one ear and out the other because I really can't bring myself to care about attempts to pretend that 80% of this stuff is anything other than glorified gambling run by rich people in order to make themselves richer.

...Wow, I really woke up on the cynical side of the bed this morning. I'm off to study state civil procedure. Much less depressing. :P

[brewsternorth.livejournal.com]

Heh, I think I know what you mean with regard to your first point.

[riari.livejournal.com]

Ah economics. The class in college I dropped two times until I was pretty much forced to take it. Even then I had to make myself pay attention in classes so I could get a passing grade. Not my best subject no.

[elainasaunt.livejournal.com]

This was me.

[dreamwaffles.livejournal.com]

Personally, I view the economy/stock market like Peter Pan's fairies.

CLAP YOUR HANDS IF YOU BELIEVE!

[mousapelli.livejournal.com]

yeahhhh...our state keeps making noises about forcing the public school teachers to switch to 401ks rather than defined benefits retirement plans (because they wouldn't have to pay as much or anything in, in theory, when higher risk = higher returns).

we keep being like, um no, please to be paying us the retirement money you said that you would pay us when you gave us our contracts, thx.