Nobody knows
I studied economics in graduate school (Master’s degree from Rutgers in 1983) and what I can tell you from being an “expert” is that it’s an amazing social science in the sense that no one understands the essential subject matter.
It emerged in the 18th century via the thoughts and writings of Quesnay, Mirabeau, and Turgot in France and Smith and Ricardo in England. So, let’s see, that makes almost 250 years of theorizing. We all live in and depend upon The Economy every day, so an understanding of how it works, what’s going on, figures to be of some interest. But after 250 years of attempting to explain it, no one knows.
What academic economists do is try to create explanatory and predictive models and then debate about which model explains and predicts better. You’d think empiricism would have proved somebody right by now. But it hasn’t.
What does adjusting the money supply do? Milton Friedman said excessive monetary stimulus would result in inflation, but the enormous credit injections associated with the 1987 crash, Y2K, 9/11, the crises of 2008 and 2020 have not resulted in inflation. Friedrich Hayek said governments need to balance their budgets like anyone else does. John Maynard Keynes said, nope, it’s advisable for governments to run deficits during recessions. But Keynes said continual deficit spending would result in unsustainable levels of sovereign debt. Stephanie Kelton says: nope, deficits are good for the economy. Daniel Tenreiro says: nope, you’re wrong.
Factors to model: Production, consumption, governmental expenditures, international trade, investment levels, bank reserves, interest rates, bond yields, speculation, arbitrage, credit expansion, asset prices, globalization, socialization, monopolization, central bank policies, fractional reserve lending, currency manipulation. Not to mention: supply and demand. The “science” very much gives the impression of the scenario where ten blind people try to provide a description by touching various parts of an elephant’s anatomy. What I concluded in my Master’s Thesis is that only God knows how a modern, complex economy really works.
