Paul Krugman has a good article out this morning on the difficult process of changing people’s minds about certain things. He wonders how so many people can still argue that the Fed has created the risk of high inflation and other ideologically driven positions that have turned out to be so wrong since 2009. More importantly, he wonders about the best response to changing their minds. How do you get someone, who ardently believes in a position, to change their minds? Krugman admits that he often engages in attacks which highlight the error in thinking and attracts attention:
3. Point out the wrongness in ways designed to grab readers’ attention — with ridicule where appropriate, with snark, and with names attached. This will get read; it will get you some devoted followers, and a lot of bitter enemies. One thing it won’t do, however, is change any of those closed minds.
I don’t know if this is the ideal approach though. As someone who has some rather outside-the-box views on both economics and finance, I constantly find myself engaged in the battle to change minds. My approach has always been operational in nature. I try to explain how things work and I let the cards fall where they will. This has worked fairly well for me over the years and it’s resulted in a pretty strong track record of macro predictions. And that’s the thing – I try my best not to show why people are wrong without explaining in detail WHY. Telling someone they’re bad at math does not make them understand math. You have to teach them why they are bad at math so they can understand it and change their mind.
For instance, when lots of people predicted that QE would result in high inflation back in 2009 my approach was to understand QE for what it is at its operational level and then decipher whether there was a powerful transmission mechanism by which it could create inflation. I wrote countless posts and papers and even a book explaining how QE works at an operational level. One of the more common refrains back in 2009 was that banks would “lend out” their reserves thereby leading to a spike in the broad money supply and then leading to inflation. But if you understood how the monetary system works and how banks work you knew this was totally misguided. And as I’ve explained countless times over the years banks don’t lend their reserves to non-banks. They lend first and find reserves later if they must. You could show, operationally, why the logic in the hyperinflation theme was wrong. It’s nice that my low inflation prediction turned out correct, but there’s more strength in the argument when you can explain the HOW rather than just giving some opinion.
If we can explain how things work at an operational level then a prediction about the future is much more powerful because it shows the student or reader how to interpret the reasoning behind the prediction. This, in my opinion, is a much more powerful tool than simply pointing out errors with ridicule. Yes, some people deserve ridicule at times, but they also deserve to be shown how and why their reasoning was wrong. It’s sort of the whole “teach a man to fish” thing. If we teach people to understand the economy in an operational manner they can better understand how to interpret it in certain environments.
Education is an extremely powerful tool. When we look at the monetary world for what it is and not what we want it to be (as many economists do) then we come away with a much better understanding of how things might unfold. But education is a hard row to hoe. And we all have to remain open-minded about our approaches because the monetary system is a very dynamic world. What looks correct today could look very wrong tomorrow. So we’re all learning to some degree, but it’s in the learning that we become better. Education is a long row. But one that’s worth continually hoeing.
NB – Speaking of education, if you haven’t seen my education section on the Orcam website please get your butt over there. Surely you don’t have anything better to do if you’re reading this article in the first place!
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.