Folk Economics

See "Crypto and the Power of Folk Economics" (NYT, 7 Feb 2022) for important wisdom by Tressie McMillan Cottom on the dangers of oversimplifying complex systems, using bad metaphors (and bad models), allowing deceptive behavior to go unchecked, and accepting code-shifting for naked profit. Society needs regulations to protect the most vulnerable. Cottom writes of recent bubbles:

... a prime breeding ground for predatory schemes. In a recent newsletter, Paul Krugman likened crypto to subprime mortgages: low-information borrowers with narrow margins for losing money taking on risky financial products that extract profit for elite asset holders at the top. One might say, the risk and reward structure is shaped like a pyramid. ...

and

Folk economics refers to the very human impulse to describe complex economic processes in lay terms. The most popular example is talking about the national budget like a household budget. ... we like thinking about a system as complex as the budget in simple terms. Doing so makes us feel informed and in control. Knowing just enough to use a system is more than sufficient for everyday life. But oversimplifying complex financial instruments and the obscure rules of markets makes us vulnerable. We start to believe that these things are as intuitive as our folk models, and do not need oversight or even a clear-use case. ...

... like many other bubbles and frauds in the past, and like many examples of bad science ...

(cf Money Wisdom (2001-05-20), Bubble Busters (2002-02-06), Back to Normal (2008-11-13), Harry Browne Rules of Financial Safety (2019-12-24), Shiller Price Earnings Ratio (2021-03-29), ...) - ^z - 2022-02-22