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Applied Economics: Thinking Beyond Stage One by economist Thomas Sowell[0] explores this in good detail, applying it to political and economic policies, in his

by smckk 4y ago

Applied Economics: Thinking Beyond Stage One by economist Thomas Sowell[0] explores this in good detail, applying it to political and economic policies, in his book. Housing policies, medicare and today's problem of defund the police can be better analysed if the framework of second-order thinking is used to view the pros and cons of such policies and their subsequent ramifications. Second-order thinking is a great mental model to have and helps us address some of the cognitive biases that get in our way when making choices. To me this form of thinking is evident in chess, the evaluation necessary to make a single move gets us to look at the consequences after the third and fourth move before a final decision is made. I believe when the time allows for it we should really consider the future ramifications of our actions before making a move. [0] https://www.amazon.com/Applied-Economics-Thinking-Beyond-Stage/dp/0465003451 https://www.amazon.com/Applied-Economics-Thinking-Beyond-Sta...

zen_of_prog 4y ago
Yep, for foreign policy as well [1]. [1] https://www.wsj.com/articles/henry-kissinger-is-worried-about-disequilibrium-11660325251 https://www.wsj.com/articles/henry-kissinger-is-worried-abou...
shaftoe444 4y ago
Came here to post about Sowell and you've beaten me to it. I can't remember the exact quote but he's said that economics is just asking "and then what?".
hamter 4y ago
What are the inputs to this framework? Are we going "What happens if we defund the police?" in isolation or are we asking what happens if we take the money from the police and put it into housing, into medicare, into other social programs? The answers you arrive at might be different. In fact if we extrapolate that line of reasoning out to the capitalist substrate of our economy we might find some surprising second, third+ order effects.
- drekipus 4y ago
  > or are we asking what happens if we take the money from the police and put it into housing, into medicare, into other social programs? The answers you arrive at might be different. There's two different questions. Combining the two will give you both answers you'd expect, not one or the other. And there's way too much going on to try and tackle both at the same time. You could say "defund police marginally increases crime" and "increasing housing greatly reduces crime" but to what extent? And within what timeframes? Defunding the police could provide outcomes immediately, but to provide housing to a point where crime is reduced would most likely be a slow strong growth thing, that will take a generation or two to come about. I'm not saying it's unimportant to look at both, but looking at them separately will be more realistic, and thankfully money is such an abstract resource that things can be separated like that. > "We can find some surprising second and third order effects" I think we don't quite want surprises when it comes to the safety and livelihood of many, and their generations. It takes centuries to grow a forest and only a day to burn it down.
  - petestream 4y ago
    As far as I know one of the arguments for defunding the police is that the police is used as a way for those with the ability to change things to externalize the consequences of their actions. When for example a lack of housing leads to an increase in crime a well funded police prevents those who could increase housing from being affected by the crime and they will therefor not increase housing. Especially as they get many benefits from poverty like cheap labour, a decrease in competition and larger premiums on attractive real estate. So yes I would say they are thinking about the second-order effects. At some point I might read some of Thomas Sowell's writings but from what I've seen so far he honestly seems more of a theologist than a scientist to me.
blackbear_ 4y ago
Another similar book is "Economics in One Lesson" by Henry Hazlitt [1]: > From this aspect, therefore, the whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. The art of economics consists in looking not merely at the immediate hut at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups. [1]: https://www.amazon.com/Economics-One-Lesson-Shortest-Understand/dp/0517548232/ref=sr_1_1?keywords=Henry+Hazlitt+Economics+in+One+Lesson&qid=1660562964&sr=8-1 https://www.amazon.com/Economics-One-Lesson-Shortest-Underst...
- jyriand 4y ago
  Came here to post about Hazlitt and you've beaten me to it.
EVa5I7bHFq9mnYK 4y ago
After subtracting the cost of the book, and time wasted times minimal wage, I highly suspect the average wealth generated by reading it is negative.
- rocketbop 4y ago
  Have you read it? What were your criticisms.
  - EVa5I7bHFq9mnYK 4y ago
    I've read the marketing article posted to HN, and it sounds silly. First order ... second order ... same as all the other motivational nonsense.
- tootallgavin 4y ago
  Is this your assessment of books like Human Action by Mises? It took many months for me to work through both works. Would you say the same for the books by Spivak or Resnick? What about a college degree?
kotenshu 4y ago
The same concept is the gist of a lot of 'Basic Economics', also by Sowell.. Good intentions are not enough. Solutions to one problem will always create incentives for others to exploit.
- mr_toad 4y ago
  Good intentions get votes, and with any luck you can blame any negative downstream effects on your successors.
atq2119 4y ago
Ironically, a lot of economics sound-bites are all about ignoring first order effects in favor of questionable second order effects. I'm mostly thinking here about deficit spending discussions, where it's popular to inject worry about second-order effects creating a drag on the economy, e.g., crowding out. Meanwhile, it completely ignores the fact that the first-order effects are almost always all positive for the economy, e.g. more spending directly translates to higher GDP. (Plus, there are second-order effects that are positive for the economy as well.) So yes, by all means try to understand the second-order effects, but don't let yourself get hoodwinked by people who want you to miss the first-order effects.
- mym1990 4y ago
  Some of this is because the first order effects have come and gone, and media is going to try and focus on the most current and relevant things. As you move through a timeline, second order effects will turn into first order effects and we will come up with a new set of second order effects. Given that, I totally agree with you on the sentiment.
- HardlyCurious 4y ago
  Well, logically the second order negative effects of deficit spending must overcome the beneficial first and second order effects on large enough scales. Otherwise we could just deficit spend ourselves into perpetual prosperity.
  - atq2119 4y ago
    There's a subtlety here, though. It should be obvious that too much deficit spending has negative second order effects overwhelming the first order ones. (An extreme form of this: imagine having the government trying to spend quintillions each year -- that's clearly not going to work without some massive inflation.) It is not at all self-evident that the same is true for all deficit spending, even on an infinite time horizon. Consider, for example, that central banks typically aim to have a ~2% rate of inflation in the long run. Given that, why would it be harmful to forever have a level of deficit spending that keeps the real value of the government debt constant in the long run? Or, ignoring inflation but assuming economic growth, that keeps the ratio of government debt to GDP constant in the long run? Why would that be harmful? (Note: If the government was able to successfully run a balanced budget indefinitely[0], both of those quantities would approach 0 in the limit; some long-run government deficit spending is necessary to keep them constant.) And yes: the stronger claim, which I also support, is that deficit spending is an important ingredient for our prosperity, because it acts as a sort of "prime mover" for pushing up society's overall level of wealth. (As usual, there's a balance to this. Too much of a good thing etc.) [0] There's a lot of historical evidence which suggests that this is impossible anyway because it becomes self-defeating. Balanced budgets ultimately cause or at least contribute to recessions, which cause a budget deficit via reduced tax income and increased social services spending.

by smckk 4y ago

zen_of_prog 4y ago

Yep, for foreign policy as well [1]. [1] https://www.wsj.com/articles/henry-kissinger-is-worried-about-disequilibrium-11660325251 https://www.wsj.com/articles/henry-kissinger-is-worried-abou...

shaftoe444 4y ago

Came here to post about Sowell and you've beaten me to it. I can't remember the exact quote but he's said that economics is just asking "and then what?".

hamter 4y ago

What are the inputs to this framework? Are we going "What happens if we defund the police?" in isolation or are we asking what happens if we take the money from the police and put it into housing, into medicare, into other social programs? The answers you arrive at might be different. In fact if we extrapolate that line of reasoning out to the capitalist substrate of our economy we might find some surprising second, third+ order effects.

drekipus 4y ago
> or are we asking what happens if we take the money from the police and put it into housing, into medicare, into other social programs? The answers you arrive at might be different. There's two different questions. Combining the two will give you both answers you'd expect, not one or the other. And there's way too much going on to try and tackle both at the same time. You could say "defund police marginally increases crime" and "increasing housing greatly reduces crime" but to what extent? And within what timeframes? Defunding the police could provide outcomes immediately, but to provide housing to a point where crime is reduced would most likely be a slow strong growth thing, that will take a generation or two to come about. I'm not saying it's unimportant to look at both, but looking at them separately will be more realistic, and thankfully money is such an abstract resource that things can be separated like that. > "We can find some surprising second and third order effects" I think we don't quite want surprises when it comes to the safety and livelihood of many, and their generations. It takes centuries to grow a forest and only a day to burn it down.
- petestream 4y ago
  As far as I know one of the arguments for defunding the police is that the police is used as a way for those with the ability to change things to externalize the consequences of their actions. When for example a lack of housing leads to an increase in crime a well funded police prevents those who could increase housing from being affected by the crime and they will therefor not increase housing. Especially as they get many benefits from poverty like cheap labour, a decrease in competition and larger premiums on attractive real estate. So yes I would say they are thinking about the second-order effects. At some point I might read some of Thomas Sowell's writings but from what I've seen so far he honestly seems more of a theologist than a scientist to me.

blackbear_ 4y ago

Another similar book is "Economics in One Lesson" by Henry Hazlitt [1]: > From this aspect, therefore, the whole of economics can be reduced to a single lesson, and that lesson can be reduced to a single sentence. The art of economics consists in looking not merely at the immediate hut at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups. [1]: https://www.amazon.com/Economics-One-Lesson-Shortest-Understand/dp/0517548232/ref=sr_1_1?keywords=Henry+Hazlitt+Economics+in+One+Lesson&qid=1660562964&sr=8-1 https://www.amazon.com/Economics-One-Lesson-Shortest-Underst...

jyriand 4y ago
Came here to post about Hazlitt and you've beaten me to it.

EVa5I7bHFq9mnYK 4y ago

After subtracting the cost of the book, and time wasted times minimal wage, I highly suspect the average wealth generated by reading it is negative.

rocketbop 4y ago
Have you read it? What were your criticisms.
- EVa5I7bHFq9mnYK 4y ago
  I've read the marketing article posted to HN, and it sounds silly. First order ... second order ... same as all the other motivational nonsense.
tootallgavin 4y ago
Is this your assessment of books like Human Action by Mises? It took many months for me to work through both works. Would you say the same for the books by Spivak or Resnick? What about a college degree?

kotenshu 4y ago

The same concept is the gist of a lot of 'Basic Economics', also by Sowell.. Good intentions are not enough. Solutions to one problem will always create incentives for others to exploit.

mr_toad 4y ago
Good intentions get votes, and with any luck you can blame any negative downstream effects on your successors.

atq2119 4y ago

Ironically, a lot of economics sound-bites are all about ignoring first order effects in favor of questionable second order effects. I'm mostly thinking here about deficit spending discussions, where it's popular to inject worry about second-order effects creating a drag on the economy, e.g., crowding out. Meanwhile, it completely ignores the fact that the first-order effects are almost always all positive for the economy, e.g. more spending directly translates to higher GDP. (Plus, there are second-order effects that are positive for the economy as well.) So yes, by all means try to understand the second-order effects, but don't let yourself get hoodwinked by people who want you to miss the first-order effects.

mym1990 4y ago
Some of this is because the first order effects have come and gone, and media is going to try and focus on the most current and relevant things. As you move through a timeline, second order effects will turn into first order effects and we will come up with a new set of second order effects. Given that, I totally agree with you on the sentiment.
HardlyCurious 4y ago
Well, logically the second order negative effects of deficit spending must overcome the beneficial first and second order effects on large enough scales. Otherwise we could just deficit spend ourselves into perpetual prosperity.
- atq2119 4y ago
  There's a subtlety here, though. It should be obvious that too much deficit spending has negative second order effects overwhelming the first order ones. (An extreme form of this: imagine having the government trying to spend quintillions each year -- that's clearly not going to work without some massive inflation.) It is not at all self-evident that the same is true for all deficit spending, even on an infinite time horizon. Consider, for example, that central banks typically aim to have a ~2% rate of inflation in the long run. Given that, why would it be harmful to forever have a level of deficit spending that keeps the real value of the government debt constant in the long run? Or, ignoring inflation but assuming economic growth, that keeps the ratio of government debt to GDP constant in the long run? Why would that be harmful? (Note: If the government was able to successfully run a balanced budget indefinitely[0], both of those quantities would approach 0 in the limit; some long-run government deficit spending is necessary to keep them constant.) And yes: the stronger claim, which I also support, is that deficit spending is an important ingredient for our prosperity, because it acts as a sort of "prime mover" for pushing up society's overall level of wealth. (As usual, there's a balance to this. Too much of a good thing etc.) [0] There's a lot of historical evidence which suggests that this is impossible anyway because it becomes self-defeating. Balanced budgets ultimately cause or at least contribute to recessions, which cause a budget deficit via reduced tax income and increased social services spending.