Many talk about the macroeconomic aspects to support their investments, but does it really matter?
Macroeconomic analysis is very useful for central banks and governments. As far as fiscal and monetary policy is concerned, macroeconomic data are vital. Economists are not very good at making predictions. That is, they cannot tell you the exact date of the next crash, but they are more effective at applying tools to solve problems. Is there a lot of inflation? There is a solution to that. Is there deflation? There is another tool for that. Is there unemployment? There are also tools for that. It’s all one big data reading, tools, re-reading data, new tools.
Now, economists who do not work in a central bank or for the Ministry of Economy can always go into academia. In the academic world, papers and more papers are written. It is all about obtaining data, making hypotheses, refuting old assumptions and revealing new findings. Academics aspire to have their findings taken into account by decision makers. Generally, progress is small, gradual and specific. Economists are essentially scientists working like other scientists.
If you want to engage in heated economic debates with radical approaches, it is best to go to politics and the media. In the public arena, economics was talked about all the time, but in a very poor way. Imagine for a second an astronomer or an astronaut at a conference of planners. Well, that’s basically how an economist feels in the middle of a public debate on economics.
People usually ignore economists in the discussion about economics. That’s basically how you build a rocket and ignore physicists. In economics, the gap between expert opinion and public opinion is extremely large. In other words, the ideas of professional economists are radically different from the ideas of ordinary people. This is not the case with astrophysicists, doctors, mathematicians, engineers, or chemists, for example. The big difference is that people do not trust the expertise of economists. In other words, in the collective imagination, anyone knows more than an economist.
In a survey conducted by Stefanie Stantcheva, Abhijit Banerjee, and Esther Duflo, “Me and Everyone Else: Do People Think Like Economics?” MIT, 2019, we are told that only 25% of the public trusts economists. Only politicians were rated less highly. Those who predict the climate in the news got a much better rating. Unbelievable, but true.
Abhijit V. Banerjee and Esther Duflo, winners of the 2019 Nobel Prize in Economics, talk about this in their book “Good Economics for Hard Times”. One of the explanations for this enormous problem of “confidence” of economists is the above-mentioned gap between the opinions of experts and those of the public. Do the earth planners trust NASA?
It is clear that many of the economic positions we hear in the press do not come from the latest economic theory. In fact, they come from different political ideologies. That explains a lot. How is it possible that a young millennial speaks today like a libertarian from the 1970s? How is it possible that economists from the last century whose theories have been refuted many times in the academic field are still being cited? And how is it possible that inflation is being raised as our main problem in the midst of the worst deflationary crisis in our recent history? Political passions.
Politics easily becomes dogma. And dogmas do not update themselves over time. For example, today’s computer scientists have different tools that the computer scientists of the 1970s did not have. Many fields have advanced in recent decades. The economy has also advanced a lot. However, politics still dominates economic positions. If you are right-wing, you subscribe to the right-wing booklet. If you are from the left, you subscribe to the libretto of the left. And if you are libertarian, you subscribe to the libertarian libretto. Here the latest economic theory is not taken into account.
The Bitcoin community is full of libertarians. That’s why, for an economist, listening to a bitcoin is like time travel. Which is very curious. Because in crypto space, macroeconomics is always used as a reason to buy Bitcoin. Libertarians have been promoting the purchase of gold as a protection against bad macroeconomics for more than 100 years. Usually, the narrative of the catastrophe is used. The world is on the verge of collapse, buy gold. The world is on the verge of collapse, buy Bitcoin.
In studies by Abhijit V. Banerjee and Esther Duflo, we are also told that economists seem to be much more optimistic about the economy than the general public. In other words, there is a correlation between optimism and economic knowledge.
The story of the Wizard of Oz (1900), for example, presents us with a pessimistic view of monetary management, promoting a return to the gold standard after the panic of 1893. It has been 127 years since the panic of 1893 and many are still talking about the collapse of the dollar with the same arguments.
However, as investors, macroeconomics does not matter much. In fact, discussing economic issues does not help much. As investors, the important thing is to understand that the economy moves in cycles. A long term investor does not care much about whether inflation this year will be 1.5% or 2.1%. Over the next 20 years, macroeconomic data will be different every year. Many things could happen and most of them are unknown.
The macroeconomic debate is a waste of time. An investor’s time is better spent designing a diversified and balanced investment portfolio. The task is to buy good assets at good prices and hold them for a long time. In this regard, my recommendation to the reader friend is to separate policy from investment. Your portfolio should be designed with objectivity. The politics of the moment, macroeconomic criticism, and fashionable ideology are bad reasons to invest.
Gold is a perfect example that pessimism is not a good advisor for an investor. Let’s go back to 1893 as a reference. $100 in gold versus $100 on Wall Street in 1893? Which strategy proved more profitable? In the long term, optimism has proven to be the best attitude for the investor (by far). Therefore, the investor should always look for undervalued assets with great investment potential, in good times and in bad times. Today the dollar is up, tomorrow it is down. We must learn to live with cycles. But the investor must continue on his eternal quest. Buying Bitcoin, because someone says the dollar will collapse is not very smart. You have to buy Bitcoin, because it’s at a very good price and has a great future. It’s as simple as that. Be an investor.