9th Aug

Tacit knowledge

When I was quite young, I must have seen some sort of TV interview of Hermann Bondi, then the master of a Cambridge college. He said something which resonated with me, which is that in some sense we have an instinctive grasp of Newtonian mechanics. A dog can catch a ball thrown to it, even though it has never seen the equation of a parabola. Maybe this is what is meant. Anyway, it’s an old trope of economics that ordinary people have no intuitive grasp of it. Politicians from Alec Douglas-Home to Margaret Thatcher have been mocked for saying things that betrayed a misunderstanding of modern (probably implicitly Keynsian) ideas of how the economy as a whole works.

Personally, I am not really persuaded that our instincts lead us astray so badly in macroeconomics. I think that we do understand that our consumption is someone else’s income. Keynes wrote about “the paradox of thrift” which is just another version of the fallacy of composition: if we all stop spending, in order to save more, it won’t work because our lack of spending will result in everyone not having an income. This strictly works in a closed economy, obviously, because if we could get foreigners to take all our output, we’d be fine (except that we’d end up having our savings in foreign assets).

Bondi actually wrote a book, “Relativity and Common Sense: A New Approach to Einstein,” which attempted to make Special Relativity intuitively plausible. It’s interesting that he, as a mathematical prodigy, chose to do this without equations.

Wrap

Continued deflation trade running. Driven by the rise of the Delta Variant, possibly. Oil depressed, possibly by new report saying that global warming is more a thing than ever.