Economics Is the Deadliest Science

Podcast Summary

• Understanding the societal impact of financial decisions: Making informed decisions requires expert guidance and considering societal implications, as individual choices can have far-reaching impacts including loss of lives.

  Making informed decisions with money requires expert guidance and a clear understanding of complex financial concepts. The NerdWallet Smart Money Podcast, hosted by Sean Piles, offers just that, with a team of personal finance experts providing strategies to help listeners build wealth, invest wisely, shop for financial products, and plan for major life events. However, economics, which can be referred to as the "dismal science," often presents difficult decisions where what's best for the individual isn't always what's best for society. A study conducted by Finnish economists in the 1970s showed that smokers, on average, contributed more to the economy due to their shorter lifespans, but this conclusion overlooked the value of human life. This example highlights the importance of considering the societal impact of individual decisions, especially when it comes to limited resources. Decision-makers, from heads of state to everyday people, must consider the potential consequences of their actions, which can have far-reaching impacts, including the loss of lives. Overall, the key takeaway is the importance of making informed decisions based on expert guidance and a deep understanding of the potential societal implications. Whether it's managing personal finances or making economic policy, the stakes are high, and the right choice isn't always obvious.

• Learning from economic mistakes in history: Throughout history, economies have made costly mistakes, from misguided industrialization efforts to falsified research, highlighting the importance of learning from the past to avoid repeating these errors.

  Throughout history, economies have repeated the same mistakes, with disastrous consequences. From China's ill-advised push for steel production in the late 1950s, which led to the deaths of millions due to the Great Chinese Famine, to current economic crises fueled by falsified research, the field of economics continues to grapple with the consequences of past errors. The Chinese government's attempt to modernize its economy by increasing steel production was theoretically sound, but the execution was disastrous. Instead of investing in high-quality steel smelting plants, farmers were encouraged to build backyard furnaces using whatever fuel they could find, leading to deforestation and a prioritization of steel production over agriculture. The government assumed that industrial development would follow, but the reality was that producing more steel did not create industrial development. This misstep resulted in the deaths of between 15 and 55 million people. Economics, both micro and macro, faces ongoing challenges, with falsified research and the difficulty of conducting experiments at a macroeconomic scale contributing to ongoing debates and mistakes. It is crucial that we learn from history to avoid repeating these costly errors.

• Economic decisions have far-reaching consequences: Economic decisions can impact various populations and the world, with unintended and long-lasting consequences. Approach economic decisions with caution and a long-term perspective.

  Economic decisions, even those with theoretical justifications, can have unintended and far-reaching consequences. The example given was the mass production of steel in Russia during the late 19th century, which led farmers to abandon their fields, caused soil erosion, and produced low-quality steel. This illustrates how economics impacts everyone and requires serious consideration, as the consequences can be significant and long-lasting. It's important to remember that economics is not just about making people wealthy, but about understanding the impact of policies on various populations and the world as a whole. Additionally, untested theories and economic policies can lead to unintended consequences, making it crucial to approach economic decisions with caution and a long-term perspective. Listen to financial podcasts like Motley Fool Money and NerdWallet's Smart Money Podcast for insights and practical knowledge to help make informed decisions with your money.

• Balancing data-driven and philosophical approaches in economics: Effective economic decision-making requires a balance of data analysis and philosophical considerations, acknowledging human values and practical solutions.

  While a data-driven and scientific approach to economics has been effective in maximizing measurable outcomes for the past few decades, it also has its limitations. Economics, being a human-focused science, requires a more philosophical approach that considers the emotional and ideological aspects of economic decision-making. This approach acknowledges that policy makers may not always follow economic advice, and that practical solutions, even if not perfect, may be more effective than theoretical ones. Additionally, applying rigid statistics to economics can lead to solutions that disregard human values, and the unpredictable nature of economies makes it difficult to run controlled experiments. Ultimately, a balanced approach that incorporates both scientific analysis and philosophical considerations is necessary for effective economic decision-making. Listen to NerdWallet's Smart Money Podcast for real-world insights on making smart financial decisions.

• Understanding human values for a balanced economy: Economists should consider human values alongside data for a balanced economy, focusing on equitable distribution and fulfilling people's needs

  An overly data-driven approach to economic decision-making can overlook intangible aspects of human fulfillment and happiness. Economists, as an alternative, could prioritize understanding people's true values and the best ways to achieve them. Angus Deaton, who won the Nobel Prize in Economic Sciences in 2015, advocates for this perspective. Globalization, a significant economic issue, has brought numerous benefits, such as lifting millions out of poverty and offering affordable consumer goods. However, it has also resulted in income inequality and rising costs for essentials like housing, leaving some behind. Global citizens and highly paid workers have benefited disproportionately, creating a divide between them and regular economic participants. Economists, therefore, need to consider both quantifiable data and intangible human values to create a more balanced and equitable economic system.

• Balancing Global and Local Economies: Recognizing interconnectedness of local and global economies and prioritizing policies for both economic growth and human well-being is crucial.

  While individuals contributing to the global economy may seem to add less value to their local communities, they can actually earn more sustainably due to the reach and impact of their work. However, this globalized economy also presents unmeasurable consequences, such as widening income gaps and societal issues, which have been highlighted by economists like Angus Deaton. The solution to these complex problems is not straightforward, as it requires balancing economic growth with human welfare. For instance, considering a simple everyday decision like disposing of trash at a fast-food restaurant, the economic impact of employing someone to clean up versus individuals taking responsibility for their own waste can have significant consequences. Ultimately, it is essential to recognize the interconnectedness of local and global economies and the need for policies that prioritize both economic growth and human well-being.