Economists versus the Economy(project-syndicate.org)
project-syndicate.org
Economists versus the Economy
https://www.project-syndicate.org/commentary/mathematical-economics-training-too-narrow-by-robert-skidelsky-2016-12
20 comments
>resource allocation and maximizing utility are the common approach.
Utility maximisation has always struck me as a horrible way to do modelling. In most cases your results must depend heavily on the form of utility function you choose. And you always have to make a choice since utility functions are unobservable.
Utility maximisation has always struck me as a horrible way to do modelling. In most cases your results must depend heavily on the form of utility function you choose. And you always have to make a choice since utility functions are unobservable.
> And you always have to make a choice since utility functions are unobservable.
If the utility function isn't provided to you directly, then you should infer the functional form from the data with a reasonable prior, and use sampling techniques to show the uncertainty in your answer due to uncertainty in the utility function.
There's nothing wrong with utility functions as a model sense they are exactly dual to any 'reasonable' choice function, meaning the space they model is the same. If you find them mathematically inconvenient, then you can use choice functions directly, but raw choice functions are usually not very helpful for modeling or predicting anything at all.
If the utility function isn't provided to you directly, then you should infer the functional form from the data with a reasonable prior, and use sampling techniques to show the uncertainty in your answer due to uncertainty in the utility function.
There's nothing wrong with utility functions as a model sense they are exactly dual to any 'reasonable' choice function, meaning the space they model is the same. If you find them mathematically inconvenient, then you can use choice functions directly, but raw choice functions are usually not very helpful for modeling or predicting anything at all.
I guess the follow up question to this is: what superior alternative do you propose we use for evaluating competing government policies?
I don't think we should ditch "utility" entirely but rather the idea people are actors that try to rationally maximize utility.
One problem is of uncertainty (this was pointed out by Keynes) - people simply do not trade higher risk for higher profits, even if the mean value increases in the mathematical sense. Rather, they set a horizon of uncertainty.
The other big problem is that utility is ill-defined for an individual. We are competitive beings and value many things for reasons that are related to how other people value them. This cannot be modeled within the theory of rational choice. (It's also somewhat related to the fact that supply-demand is not that great model.)
In other words, we should augment the models to take the above issues (at least, IMHO those are the biggest problems but certainly not the only ones) into consideration.
One problem is of uncertainty (this was pointed out by Keynes) - people simply do not trade higher risk for higher profits, even if the mean value increases in the mathematical sense. Rather, they set a horizon of uncertainty.
The other big problem is that utility is ill-defined for an individual. We are competitive beings and value many things for reasons that are related to how other people value them. This cannot be modeled within the theory of rational choice. (It's also somewhat related to the fact that supply-demand is not that great model.)
In other words, we should augment the models to take the above issues (at least, IMHO those are the biggest problems but certainly not the only ones) into consideration.
I agree.
I think at this point even the most conventional academic economist would start giving you sideways glances if you asserted that people are always rational utility maximisers. It seems that most econometric modelling takes a top-down approach; implicitly making homogenising assumptions about the models 'atoms' (e.g. individuals, firms, states, countries etc.).
I often wonder if the future of economic modelling is to be found in 'agent-based' models, where you start at the lowest level and aggregate up. This approach makes it possible to account for the effects of non-homogeneous actors and to also include 'non-rational' behaviours observed in experimental/behavioural economics.
I feel that the other issue is how beginner-level economics is taught at university. I would agree that there's no practical way to teach economics to beginners without making a bunch of simplifying assumptions and presenting a bunch of simplified models for study (e.g. a perfectly competitive market). However, I think the problem is that insufficient effort (if any) is made to emphasise that these models do not really reflect reality, and are just 'toy models' to help you develop your analytical thinking.
At best, in a real world context, understanding these models gives you an analytical framework for reasoning about whether some policy proposal is pointing in the right or wrong direction, though even that is a pretty fraught assertion.
EDIT: I figured I'd address some of the comments below regarding randomised-controlled trials, since its related to agent-based modelling / simulation. Comments below have pretty much highlighted the crux of the problem with economics and public policy (albeit without comprehending the implications): barring the rare 'natural experiment', its virtually impossible to collect 'clean' data that allows comparison of different policies. It's true that RCTs are being run in a 'public-administration' context, and the idea is gaining popularity. Most notably, the UK government has run a bunch of RCTs on various things.
But the crucial thing to note is that these RCTs are generally only run for 'low-stakes' issues. For instance, one of their RCTs involved varying the wording of their tax authority's "you haven't submitted a tax return" letter to determine what gets the highest compliance rate.
How comfortable, from an ethical standpoint, would you feel running state-by-state RCTs to determine the best government healthcare policy? Particularly given that the outcome in some states will be higher levels of preventable death and permanent disability? I've chosen healthcare here because the connection between different policies and higher or lower rates of mortality is fairly direct. But for any other government policy (of any significance), you're generally looking at the same sort of stakes. It's just that the ultimate ill-effects of a bad policy are not immediately apparent, take a long time to unfold, and often only eventuate at the margins.
I think at this point even the most conventional academic economist would start giving you sideways glances if you asserted that people are always rational utility maximisers. It seems that most econometric modelling takes a top-down approach; implicitly making homogenising assumptions about the models 'atoms' (e.g. individuals, firms, states, countries etc.).
I often wonder if the future of economic modelling is to be found in 'agent-based' models, where you start at the lowest level and aggregate up. This approach makes it possible to account for the effects of non-homogeneous actors and to also include 'non-rational' behaviours observed in experimental/behavioural economics.
I feel that the other issue is how beginner-level economics is taught at university. I would agree that there's no practical way to teach economics to beginners without making a bunch of simplifying assumptions and presenting a bunch of simplified models for study (e.g. a perfectly competitive market). However, I think the problem is that insufficient effort (if any) is made to emphasise that these models do not really reflect reality, and are just 'toy models' to help you develop your analytical thinking.
At best, in a real world context, understanding these models gives you an analytical framework for reasoning about whether some policy proposal is pointing in the right or wrong direction, though even that is a pretty fraught assertion.
EDIT: I figured I'd address some of the comments below regarding randomised-controlled trials, since its related to agent-based modelling / simulation. Comments below have pretty much highlighted the crux of the problem with economics and public policy (albeit without comprehending the implications): barring the rare 'natural experiment', its virtually impossible to collect 'clean' data that allows comparison of different policies. It's true that RCTs are being run in a 'public-administration' context, and the idea is gaining popularity. Most notably, the UK government has run a bunch of RCTs on various things.
But the crucial thing to note is that these RCTs are generally only run for 'low-stakes' issues. For instance, one of their RCTs involved varying the wording of their tax authority's "you haven't submitted a tax return" letter to determine what gets the highest compliance rate.
How comfortable, from an ethical standpoint, would you feel running state-by-state RCTs to determine the best government healthcare policy? Particularly given that the outcome in some states will be higher levels of preventable death and permanent disability? I've chosen healthcare here because the connection between different policies and higher or lower rates of mortality is fairly direct. But for any other government policy (of any significance), you're generally looking at the same sort of stakes. It's just that the ultimate ill-effects of a bad policy are not immediately apparent, take a long time to unfold, and often only eventuate at the margins.
The fact there is no alternative doesn't mean we should use something that we know barely works. This is exactly the problem with economism
That all sounds very clever and all, but there's still a rather important question being left unanswered here: on what basis should a government make decisions? Coin flips? Gut feelings? The phase of the moon?
Let's say you're the King of the United States. One of your noblemen comes in to your palace and says 'Your majesty, I suggest we eliminate corporate taxation and replace the lost revenue with a tax on consumption.' What happens next?
Let's say you're the King of the United States. One of your noblemen comes in to your palace and says 'Your majesty, I suggest we eliminate corporate taxation and replace the lost revenue with a tax on consumption.' What happens next?
Coin flips are actually okay when you don't know something: Create many small experiments instead of trying the "world formula" solution. Also, create an environment where responsibility and decision making authority is as low as possible, not as high as possible - meaning where both the data and the consequences can both be found together.
Oh and use "muddling through" more openly, because that's what life is about no matter how much data you collect. So don't pretend that there even IS an "optimal" answer, and/or that you know it and/or even that anyone can find it. Let's admit that we are all just trying things and that failure IS an option. So create systems that a) actually encourage and allow experimenting, and b) let those fail safely.
Oh and use "muddling through" more openly, because that's what life is about no matter how much data you collect. So don't pretend that there even IS an "optimal" answer, and/or that you know it and/or even that anyone can find it. Let's admit that we are all just trying things and that failure IS an option. So create systems that a) actually encourage and allow experimenting, and b) let those fail safely.
While I respect what you're saying, and agree to a limited extent, I don't agree with the idea that people, and society, are completely impermeable to analysis. Perhaps you truly are neutral on the question of democrats and republicans, and have no preference regarding Hillary, Trump, Sanders or Kim-Jong Un (given your view that we can only understand something through experiment and direct experience, and not through logic, reasoning and extrapolation).
However, if you do happen to have political opinions (that you think are well-reasoned), then you are engaging in this form of 'misguided analysis' that economists also engage in (albeit unknowingly). As for the 'economists' who claim to 'know the optimal answer', I guess I've just been fortunate to have never encountered one. More precisely, I've never run in to one in the various federal economic public policy organisations where I've spent the majority of my career. Where do they hang out?
And good luck designing experiments around, say, national healthcare policy that 'fail safely'. I think you'll find that an alarming number of them end up 'failing deadly'.
However, if you do happen to have political opinions (that you think are well-reasoned), then you are engaging in this form of 'misguided analysis' that economists also engage in (albeit unknowingly). As for the 'economists' who claim to 'know the optimal answer', I guess I've just been fortunate to have never encountered one. More precisely, I've never run in to one in the various federal economic public policy organisations where I've spent the majority of my career. Where do they hang out?
And good luck designing experiments around, say, national healthcare policy that 'fail safely'. I think you'll find that an alarming number of them end up 'failing deadly'.
I don't agree with the idea that people, and society,
are completely impermeable to analysis.
This is just like medicine: You can theorize all you want, but in the end only a clinical trial shows you if your plans actually work. The subject is too complex. All you can do with your models is use them as input into the trials. If you skip trials you will get disaster and failure on an unsafe scale.
And good luck designing experiments around, say,
national healthcare policy
Coin flip sounds good to me. If you honestly don't know how to solve a problem, inventing a discipline for the express purpose of having an authority to point to sounds like the worst possible idea. It makes it much harder to change course if you can't merely say "oh, we should try tails instead due to xyz" because now you've got another institution fighting to justify its own survival.
We need a reason to sound Certain. We should do away with the Fed, etc and systematise on the Oracle. That way when things go wrong we can still say it was the will of the Gods without needing to have an inquiry about it.
Though we would probably just have one about who offended the gods.
Though we would probably just have one about who offended the gods.
You test it, like anything else. The problem with economics is there's not enough data! And the data we have keeps pointing out flaws in our theories
We live in a large nation, why not let a few states trial a program before running it nationally? Move fast and break things isn't good enough when lives and livelihoods are at risk in my opinion.
Controlled experiments (by behavioural psychologists) could probably do very well
Testing on human subjects is limited and I don't think you can build a sample size that is large enough.
Single payer is a great example, Californian or NY voters will likely vote in such a system while Texans would likely opt into a free market approach. Wait a few years and see the outcomes of each policy. Now you can make an evidence based decision rather than a political one.
Single payer is a great example, Californian or NY voters will likely vote in such a system while Texans would likely opt into a free market approach. Wait a few years and see the outcomes of each policy. Now you can make an evidence based decision rather than a political one.
Well, after arguing that it's impractical to run RCTs I guess it's time for a bit of a 'climb-down', because this is a really great idea. I could definitely see this working in a place like the USA, where you have lots of big States with diverging political views.
I wonder what would be the best way to implement something like this? Just spitballing, but what about Federal grants to partially fund the 'treatment' States (with non-participating States acting as controls), with the policy issue and various 'treatments' negotiated between the Fed and State level? And then after that, States sign on using a mechanism similar to California proposition voting during State elections maybe?
Or maybe even push it down to a local government level? I seem to remember somewhere in the US conducting trials of basic income around the 50s or 60s. Maybe there's a model there...
I wonder what would be the best way to implement something like this? Just spitballing, but what about Federal grants to partially fund the 'treatment' States (with non-participating States acting as controls), with the policy issue and various 'treatments' negotiated between the Fed and State level? And then after that, States sign on using a mechanism similar to California proposition voting during State elections maybe?
Or maybe even push it down to a local government level? I seem to remember somewhere in the US conducting trials of basic income around the 50s or 60s. Maybe there's a model there...
> lots of big States with diverging political views.
The thing is, political views don't diverge quite as much as it is being made to seem. Gerrymandering scrambles the signal[0] quite a bit and the Electoral College then magnifies[1] the apparent differences.
[0] http://theweek.com/speedreads/541955/howgerrymandering-works...
[1] http://www-personal.umich.edu/~mejn/election/2016/
The thing is, political views don't diverge quite as much as it is being made to seem. Gerrymandering scrambles the signal[0] quite a bit and the Electoral College then magnifies[1] the apparent differences.
[0] http://theweek.com/speedreads/541955/howgerrymandering-works...
[1] http://www-personal.umich.edu/~mejn/election/2016/
Unfortunately, you then have to contend with assymetric information effects such as self selection, where sick people who are faced with increased expenses under a free market approach move to CA and NY, while healthy people who would pay more under a single-payer approach would move to TX.
Sure, just be sure to make assumptions known. Full rationality is a start, like linear model approximations are a good start, but eventually you do want to consider game theoretic concerns like bounded rationality, strategic behavior, etc.
I guess it is, if you seek analytic solutions to problems. But I personally found the concept utility to be absolutely enlightening as a way of thinking about individual and societal dynamics.
How easy is it to get feedback? How quickly do you see results?
Can you expand a little bit on your question? I'll answer the best I understand your question.
Being in industry with a large firm, feedback is very simple to get, I just go give a talk at an internal seminar.
Results of a model or an implementation? Repeated observations/out of sample analysis often help with validating models. Implementation depends on the project.
Being in industry with a large firm, feedback is very simple to get, I just go give a talk at an internal seminar.
Results of a model or an implementation? Repeated observations/out of sample analysis often help with validating models. Implementation depends on the project.
Sure. I was trying to understand how hard it is for economists to make progress fast. I would imagine an economic model takes months to years to validate. I'm used to getting instant feedback from a computer when writing a program.
Do you see the way economic models are built and tested improving or happening faster? Or is the main barrier not lack of diverse data points, but needing enough time to pass to stress the model.
Do you see the way economic models are built and tested improving or happening faster? Or is the main barrier not lack of diverse data points, but needing enough time to pass to stress the model.
There's a big difference between the economic topics that get the most media attention, and areas in which the majority of economists work.
I studied economics for 4 years and now work as an economist. I've never met a colleague/teacher who claimed to be able to forecast inflation/GDP growth over the next four quarters or correctly identify miss-priced assets.
Some examples of the questions I have seen economists address:
Even if you think economists aren't helpful for predicting inflation/GDP growth or identifying miss-priced assets (I'm inclined to agree), there are lots of important questions about market dynamics and policy evaluation where economics does give us genuine insight. I also find it really fun!
I studied economics for 4 years and now work as an economist. I've never met a colleague/teacher who claimed to be able to forecast inflation/GDP growth over the next four quarters or correctly identify miss-priced assets.
Some examples of the questions I have seen economists address:
- How much might labour supply change following a change in tax policy?
- What is the impact of online advertising through different channels on a company's incremental sales?
- How would a merger between two companies affect the price and quality of their output?
- How can you detect collusion between bidders in tender markets?
Even if you think economists aren't helpful for predicting inflation/GDP growth or identifying miss-priced assets (I'm inclined to agree), there are lots of important questions about market dynamics and policy evaluation where economics does give us genuine insight. I also find it really fun!
There are a few professional forecasters out there. Everyone wants to read the tea leaves.
Can anyone lend insight into whether any of the following really hold any merit?
1) Economists have a structural imperative not to publish their most meaningful studies. In short, if you find an accurate model for something, there's a good chance you can make more privately than via publishing.
2) The lack of a professional body for economists leaves open to corruption. Like the Dean of Columbia's Economics school writing a report praising Iceland's market reforms prior to 2008, at the behest of Iceland's Chamber of Commerce.
3) Economics jobs tend to fall into 2 broad categories. Either you're working for wallstreet analyzing markets, which are, in fact, very free ideal markets that lend themselves to the mathematical model... or you're working for a think tank, which almost certainly has an ideological bias.
1) Economists have a structural imperative not to publish their most meaningful studies. In short, if you find an accurate model for something, there's a good chance you can make more privately than via publishing.
2) The lack of a professional body for economists leaves open to corruption. Like the Dean of Columbia's Economics school writing a report praising Iceland's market reforms prior to 2008, at the behest of Iceland's Chamber of Commerce.
3) Economics jobs tend to fall into 2 broad categories. Either you're working for wallstreet analyzing markets, which are, in fact, very free ideal markets that lend themselves to the mathematical model... or you're working for a think tank, which almost certainly has an ideological bias.
Re (2): Glenn Hubbard (the dean you mention) has a relatively long history (depending on who you ask, of course) of having dubious ideas on economics. For example: http://krugman.blogs.nytimes.com/2012/08/10/culture-of-fraud..., Krugman's blog has lots of examples.
So in that context, writing a report "at the behest of Iceland's Chamber of Commerce" is pretty small potatoes. It's far more likely that they commissioned a report knowing Hubbard's own views in advance, which makes it dodgy as hell, but not quite corruption. And in any case, many of those arguments about market reforms and deregulation really ought to be assessed on merits (which are objectively poor), with who's paying for them being more of a side note. It's also arguable that a professional body would not solve these kinds of problems. It'd be hard to build an argument against a profession by focussing on just one hack.
Re (1): taking an economics model and pushing it to production involves a genuinely considerable amount of work. "Make more privately" would mean something along the lines of getting hired by a hedge fund as consultant. There are also other incentives involved: first, academia generally urges people to publish. Second, having a model be published is part of the way it is accepted by practitioners too: if you just come up with a random model, it would have to be insanely good to convince anyone to put their money behind it, otherwise they'll require you to get other people to assess it, and you'll have to publish it in a peer-reviewed journal. The exception would be really specialized models, where you think you found an arbitrage opportunity or something (even then it's not completely clear, see, e.g., the literature on selling deep out-of-money puts).
So in that context, writing a report "at the behest of Iceland's Chamber of Commerce" is pretty small potatoes. It's far more likely that they commissioned a report knowing Hubbard's own views in advance, which makes it dodgy as hell, but not quite corruption. And in any case, many of those arguments about market reforms and deregulation really ought to be assessed on merits (which are objectively poor), with who's paying for them being more of a side note. It's also arguable that a professional body would not solve these kinds of problems. It'd be hard to build an argument against a profession by focussing on just one hack.
Re (1): taking an economics model and pushing it to production involves a genuinely considerable amount of work. "Make more privately" would mean something along the lines of getting hired by a hedge fund as consultant. There are also other incentives involved: first, academia generally urges people to publish. Second, having a model be published is part of the way it is accepted by practitioners too: if you just come up with a random model, it would have to be insanely good to convince anyone to put their money behind it, otherwise they'll require you to get other people to assess it, and you'll have to publish it in a peer-reviewed journal. The exception would be really specialized models, where you think you found an arbitrage opportunity or something (even then it's not completely clear, see, e.g., the literature on selling deep out-of-money puts).
1) Historically Keynes is certainly known for profiting on foreign exchange bets, Irving Fisher on the other hand is notorious for predicting multiple times that the recovery of the 1929 crash was about to begin - and his funds followed his predictions into oblivion.
2) It was Fredrik Mishkin - and he was paid well over $100,000 for it.
https://www.utanrikisraduneyti.is/media/Raedurogerindi/Finan...
This is the report, and it's worth reading because it encapsulates just about everything that is wrong with macro-economics, from theory to corruption. Understand that all anybody had to do at the time to understand how badly off the rails the Icelandic Banks were was to look at their balance sheets in their annual reports.
2) It was Fredrik Mishkin - and he was paid well over $100,000 for it.
https://www.utanrikisraduneyti.is/media/Raedurogerindi/Finan...
This is the report, and it's worth reading because it encapsulates just about everything that is wrong with macro-economics, from theory to corruption. Understand that all anybody had to do at the time to understand how badly off the rails the Icelandic Banks were was to look at their balance sheets in their annual reports.
So in most science, if someone comes out with a study saying that (say, for example) climate change isn't real, they'll be buried under the remaining 99% that came to consensus in the other direction.
Sure, Industry will bankroll lobbyists to fight any potential change in government, and fund crackpot theories, but ultimately, the evidence that will accrue will be damning.
Why wasn't that the case for Iceland? Why doesn't that happen more for economics as a whole?
Is it a function of time? In economics, people are more focused on sub 10 year plot lines? Perhaps our understanding of macroeconomics is so poor that we're surprised by "big changes" every few years, and evidence doesn't get a chance to accrue? Whereas evidence for climate change can accrue year after year?
Sure, Industry will bankroll lobbyists to fight any potential change in government, and fund crackpot theories, but ultimately, the evidence that will accrue will be damning.
Why wasn't that the case for Iceland? Why doesn't that happen more for economics as a whole?
Is it a function of time? In economics, people are more focused on sub 10 year plot lines? Perhaps our understanding of macroeconomics is so poor that we're surprised by "big changes" every few years, and evidence doesn't get a chance to accrue? Whereas evidence for climate change can accrue year after year?
1) is laughable. Economics is hardly developed enough for someone to a.) come up with a theory "no body else" has and b.) have that theory be specific enough that one individual in a short amount of time could profit greatly from it and c.) studies a topic that's so chaotic the best theories of it are "long term" - i.e. 10s-100s of years, not days. The exceptions to my point here are so widely known as to not be profitable or not really be 'doing economics'
2) By the nature of the work of an economist there will always be people who want to say they're an economist so people will 'follow them'. Everyone has an opinion about the economy. The best system in place is the academic route - university education, accreditation, and peer review. Those aren't perfect. I'm saying they're the best we're likely to get.
3) I'd say economists either work in academia, government, or private enterprise. In academia they're refining theories, teaching, and publishing. In government and private they're running numbers. In private enterprise, I'd say they're expected to tell who ever what that person wants to hear in the way they want to hear it.
2) By the nature of the work of an economist there will always be people who want to say they're an economist so people will 'follow them'. Everyone has an opinion about the economy. The best system in place is the academic route - university education, accreditation, and peer review. Those aren't perfect. I'm saying they're the best we're likely to get.
3) I'd say economists either work in academia, government, or private enterprise. In academia they're refining theories, teaching, and publishing. In government and private they're running numbers. In private enterprise, I'd say they're expected to tell who ever what that person wants to hear in the way they want to hear it.
re:1) Possibly so for some subjects in microeconomics. And, I'm sure there are things that would be called "dark patterns" here that are determined by economists helping corporations determine their pricing. With respect to macroeconomics, the insights suggest choices in public policy that advance a given goal. They could be dishonest about their conclusions and try to benefit a specific group than the one they claim will benefit, but even then they still require the public policy to be implemented, which is different than being able to trade on things in secret.
re:3) Two categories outside of academia are economists working at Federal Reserve banks and the small economics groups at other banks and a few of the largest corporations. Much of the work at the Federal Reserve banks goes to waste, because of the political stakes around the Fed and attempts to co-opt its influence. Almost everyone is muzzled from saying anything publicly, because it will be intentionally misunderstood, and become part of a political excuse to limit the Fed system's independence. It is a loss for general economic understanding, but probably has prevented some economic interference by crackpots in Congress.
At the banks there are a few roles. Sometimes in a period of uncertainty their job is to supply a high level picture and a few operating theories to work with when deciding how to react through the trading day. Sometimes the job is to provide a plausible narrative for justifying why they are trading in a market that is not sustainable over the long term, but is still making the bank money that year. The weakness behind 2008 were not an unknown secret even if no one knew exactly how and when the crisis would occur. And yet, the people at the bank using your research wouldn't find your analysis useful if your advice was to just stay out of the market. Furthermore, there are plenty of people on Wall Street who are brilliant and great at their finance jobs, but have no understanding of the material in a typical intermediate macroeconomics course, because it simply is not relevant to their daily performance.
re:3) Two categories outside of academia are economists working at Federal Reserve banks and the small economics groups at other banks and a few of the largest corporations. Much of the work at the Federal Reserve banks goes to waste, because of the political stakes around the Fed and attempts to co-opt its influence. Almost everyone is muzzled from saying anything publicly, because it will be intentionally misunderstood, and become part of a political excuse to limit the Fed system's independence. It is a loss for general economic understanding, but probably has prevented some economic interference by crackpots in Congress.
At the banks there are a few roles. Sometimes in a period of uncertainty their job is to supply a high level picture and a few operating theories to work with when deciding how to react through the trading day. Sometimes the job is to provide a plausible narrative for justifying why they are trading in a market that is not sustainable over the long term, but is still making the bank money that year. The weakness behind 2008 were not an unknown secret even if no one knew exactly how and when the crisis would occur. And yet, the people at the bank using your research wouldn't find your analysis useful if your advice was to just stay out of the market. Furthermore, there are plenty of people on Wall Street who are brilliant and great at their finance jobs, but have no understanding of the material in a typical intermediate macroeconomics course, because it simply is not relevant to their daily performance.
Paul Krugman's brief rebuttal may be relevant:
http://krugman.blogs.nytimes.com/2016/12/24/dont-blame-macro...
http://krugman.blogs.nytimes.com/2016/12/24/dont-blame-macro...
tl;dr - the policymakers who made the decisions were not economists, they were politicians who ignored economists' advice. Namely, they refused to embrace fiscal measures (deficit spending, including through the self-triggering methods of the welfare state) and relied entirely on "confidence-building" measures and on the monetary tools available to central banks - which were, as economists' models predicted, ineffective in the prevailing circumstances.
If economists, collectively, had demonstrated a bit more prescience before 2008, they might have had a bit more credibility afterwards. Nor does it help that it seems you can find a distinguished economist on either side of any issue that matters.
Outside of some people involved in the very-much off the books and unregulated bond markets, I doubt many economists had much to go off of. Before default rates rose catastrophically in a short period of time (I think, two and a half years or so?) there was no visibility into what would quickly become a failing market.
The complex instruments being bought and sold, likewise, there were economists who looked at those things and said, "Wait a second, you can't bundle a bunch of correlated instruments and expect to create an uncorrelated one." Some of these economists decided to make a great deal of money betting against the banks. Others decided not to because of the adage that the market can stay irrational longer than one can stay solvent. Still, I don't think many academic economists had visibility into what was going on in the mortgage bond market, and it's not like banks were advertising statistics on their predatory - and sometimes illegal - lending.
I think on a variety of important issues, it's possible to read the economists and find a broad consensus. Perhaps some outliers, but where there's data, there's often consensus. I follow the IGM Forum[1] which surveys a broad swathe of economists on issues, and quite often on issues I thought might be partisan, the economists show a decided consensus opinion I was unaware of.
[1] http://www.igmchicago.org/
The complex instruments being bought and sold, likewise, there were economists who looked at those things and said, "Wait a second, you can't bundle a bunch of correlated instruments and expect to create an uncorrelated one." Some of these economists decided to make a great deal of money betting against the banks. Others decided not to because of the adage that the market can stay irrational longer than one can stay solvent. Still, I don't think many academic economists had visibility into what was going on in the mortgage bond market, and it's not like banks were advertising statistics on their predatory - and sometimes illegal - lending.
I think on a variety of important issues, it's possible to read the economists and find a broad consensus. Perhaps some outliers, but where there's data, there's often consensus. I follow the IGM Forum[1] which surveys a broad swathe of economists on issues, and quite often on issues I thought might be partisan, the economists show a decided consensus opinion I was unaware of.
[1] http://www.igmchicago.org/
Your reply about why the economists failed to predict the 2008 crash is an example of the problem the article is about. The economists didn't need a lot of technical information. They just needed to know that for a couple of hundred years banks had been careful about who they gave mortgages to because if they defaulted they would take a loss, but then they started bundling and selling them, so they felt safe to make it far too easy to get a mortgage. And that the bond rating agencies had a severe conflict of interest because they were paid by the people selling the bonds. And that credit default swaps are unregulated insurance.
Except for the cds part, all that was common knowledge. A little common sense would tell you this was a recipe for disaster, and in fact this was pointed out by people like Dean Baker at the time. The question is why the great majority of economists didn't take 30 seconds to look at the facts and agree, and the answer seems to be they simply lack common sense.
Except for the cds part, all that was common knowledge. A little common sense would tell you this was a recipe for disaster, and in fact this was pointed out by people like Dean Baker at the time. The question is why the great majority of economists didn't take 30 seconds to look at the facts and agree, and the answer seems to be they simply lack common sense.
No, economists agree that global carbon tax and free trade (by >85%) are good.
>But his prime examples of economics malfeasance are, well, terrible:
>Policymakers don’t know what to do. They press the usual (and unusual) levers and nothing happens. Quantitative easing was supposed to bring inflation “back to target.” It didn’t. Fiscal contraction was supposed to restore confidence. It didn’t.
>“Supposed to” according to whom? Not basic macroeconomics!
>Look, we had a more or less standard model of macroeconomics when interest rates are near zero — IS-LM in some form. This model said and says that (a) monetary policy is ineffective under these conditions (b) fiscal multipliers are positive and large — in particular, fiscal contraction is strongly contractionary. And these predictions have been borne out! Huge monetary expansion didn’t raise inflation; extreme austerity was strongly correlated with severe economic downturns.
>In other words, policy had exactly the effects it was “supposed to.”
Krugman actually used his ISLM model to decide to remortgage his house in 2003, and in a bout of epic predictive failure, foresaw skyrocketing interest rates:
http://www.nytimes.com/2003/03/11/opinion/a-fiscal-train-wre...
"With war looming, it's time to be prepared. So last week I switched to a fixed-rate mortgage. It means higher monthly payments, but I'm terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits."
Whoops
>Policymakers don’t know what to do. They press the usual (and unusual) levers and nothing happens. Quantitative easing was supposed to bring inflation “back to target.” It didn’t. Fiscal contraction was supposed to restore confidence. It didn’t.
>“Supposed to” according to whom? Not basic macroeconomics!
>Look, we had a more or less standard model of macroeconomics when interest rates are near zero — IS-LM in some form. This model said and says that (a) monetary policy is ineffective under these conditions (b) fiscal multipliers are positive and large — in particular, fiscal contraction is strongly contractionary. And these predictions have been borne out! Huge monetary expansion didn’t raise inflation; extreme austerity was strongly correlated with severe economic downturns.
>In other words, policy had exactly the effects it was “supposed to.”
Krugman actually used his ISLM model to decide to remortgage his house in 2003, and in a bout of epic predictive failure, foresaw skyrocketing interest rates:
http://www.nytimes.com/2003/03/11/opinion/a-fiscal-train-wre...
"With war looming, it's time to be prepared. So last week I switched to a fixed-rate mortgage. It means higher monthly payments, but I'm terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits."
Whoops
> Whoops
According to the data, not really. Short-term mortgage rates increased steadily for the next several years; long-term rates also ticked up, but not by as much.
He basically refinanced his home exactly at the bottom [1].
[1] http://www.bankrate.com/finance/mortgage-rates-history-0112....
According to the data, not really. Short-term mortgage rates increased steadily for the next several years; long-term rates also ticked up, but not by as much.
He basically refinanced his home exactly at the bottom [1].
[1] http://www.bankrate.com/finance/mortgage-rates-history-0112....
I think we need to change the scales and put it in context:
http://mortgage-x.com/images/graph/fhfb_contract_rate.gif
According to the data, yes really.
http://mortgage-x.com/images/graph/fhfb_contract_rate.gif
According to the data, yes really.
If the 2008 crisis hadn't happened, do you really think interest rates would be where they are now? I think it's easy to imagine a very different tail on that curve post-2008, which would have left the 2003 low intact.
If you're asking Krugman to have predicted the 2008 crisis in 2003, I think that's a bit much.
If you're asking Krugman to have predicted the 2008 crisis in 2003, I think that's a bit much.
Your graph shows the same as the one from smallnamespace: 2003 was a good year to refinance because rates were at a bottom.
Krugman's bet - in his own words and using ISLM - was that interest rates would skyrocket because of deficit spending on the Iraq war in 2003. He paid extra to make this bet.
Where on that graph did rates skyrocket exactly?
Where on that graph did rates skyrocket exactly?
From the article: "And as that temptation becomes obvious, interest rates will soar. It won't happen right away. With the economy stalling and the stock market plunging, short-term rates are probably headed down, not up, in the next few months, and mortgage rates may not have hit bottom yet. But unless we slide into Japanese-style deflation, there are much higher interest rates in our future." (emphasis mine)
That's pretty much what happened:
http://www.gridgit.com/postpic/2011/09/us-inflation-rate-his...
Inflation doubled from 2002 onwards, then the housing bubble popped, causing inflation to fall. Thankfully not into a long-term deflationary spiral, though.
That's pretty much what happened:
http://www.gridgit.com/postpic/2011/09/us-inflation-rate-his...
Inflation doubled from 2002 onwards, then the housing bubble popped, causing inflation to fall. Thankfully not into a long-term deflationary spiral, though.
"unless we slide into Japanese-style deflation"
Yeah, that was the best part. "This is going to be awful. It's going to happen. Unless, that is, the exact opposite of what I'm betting on happening actually happens".
Yeah, that was the best part. "This is going to be awful. It's going to happen. Unless, that is, the exact opposite of what I'm betting on happening actually happens".
To be fair, Alan "flaw in the model" Greenspan was still Chairman of the Fed in 2003.
Ah, yes, Alan Greenspan - the guy who took much of the credit that Paul Volcker earned.
I think we can forgive Krug for believing in Greenspan's scam. Information asymmetry and all that.
Thanks, I enjoyed that anecdote.
I'm not sure if this article brings up anything new but it fans my crisis of epistemology all the same.
I've always been a good "the academics know what they're talking about" believer, but lately I've started having doubts.
I went to MIT and many of my good friends and peers went onto PhDs in the hard sciences (Princeton/CERN, Harvard CfA, CalTech chemistry) so I've always been impressed, almost reverential, towards them and the discoveries of their fields.
But as we branch away from physics, astronomy, chemistry, what I used to almost take on faith I'm now growing doubtful about. This excellent blog post[0] by Columbia statistics Professor paints the state of modern Psychology research unflatteringly. And then there's this post[1] looking at a parallel universe of scientists studying, peer reviewing, and publishing (in their own journals) parapsychology (being "psychic" and all that). I'd call it "cargo cult" science, but at much more than a superficial level it resembles many "real" scientific disciplines in terms of meta analyses, p-values, etc. I personally majored in Math and Econ, and for my Econ classes I did my fair share of modeling and teasing out effects from their confounding variables, etc, and was always a little leery about it all. It doesn't really surprise me that the Fed has written that Economics, too, is suffering a replication crisis[2].
But then how far does it go, and where do I go from here? I don't have the time or inclination to study to an expert level all these soft science fields and form my own opinions. What fields are as sturdy as particle physics? Medicine? Biology? Climate change? It's a slippery slope to anti-intellectualism but I feel myself slipping.
[0] http://andrewgelman.com/2016/09/21/what-has-happened-down-he...
[1] http://slatestarcodex.com/2014/04/28/the-control-group-is-ou...
[2] https://www.federalreserve.gov/econresdata/feds/2015/files/2...
I've always been a good "the academics know what they're talking about" believer, but lately I've started having doubts.
I went to MIT and many of my good friends and peers went onto PhDs in the hard sciences (Princeton/CERN, Harvard CfA, CalTech chemistry) so I've always been impressed, almost reverential, towards them and the discoveries of their fields.
But as we branch away from physics, astronomy, chemistry, what I used to almost take on faith I'm now growing doubtful about. This excellent blog post[0] by Columbia statistics Professor paints the state of modern Psychology research unflatteringly. And then there's this post[1] looking at a parallel universe of scientists studying, peer reviewing, and publishing (in their own journals) parapsychology (being "psychic" and all that). I'd call it "cargo cult" science, but at much more than a superficial level it resembles many "real" scientific disciplines in terms of meta analyses, p-values, etc. I personally majored in Math and Econ, and for my Econ classes I did my fair share of modeling and teasing out effects from their confounding variables, etc, and was always a little leery about it all. It doesn't really surprise me that the Fed has written that Economics, too, is suffering a replication crisis[2].
But then how far does it go, and where do I go from here? I don't have the time or inclination to study to an expert level all these soft science fields and form my own opinions. What fields are as sturdy as particle physics? Medicine? Biology? Climate change? It's a slippery slope to anti-intellectualism but I feel myself slipping.
[0] http://andrewgelman.com/2016/09/21/what-has-happened-down-he...
[1] http://slatestarcodex.com/2014/04/28/the-control-group-is-ou...
[2] https://www.federalreserve.gov/econresdata/feds/2015/files/2...
It's a slippery slope to anti-intellectualism but I feel myself slipping.
Au contraire. You may be being truly intellectual for the first time. Do you know the motto of the Royal Society, the organization most responsible for the birth of modern science? "Take nobody's word for it." That is the essence of science -- replication and verifying things for yourself. You are not anti-intellectual just because you question the authorities in charge of a particular institution (academia).
What fields are as sturdy as particle physics? Medicine? Biology? Climate change?
IMO, fields where there isn't a quick feedback loop between controlled, real-world experiments and obvious result are almost all unsound. That includes macroeconomics, psychology, long-term nutrition, etc. In these situations, you can always play with the variables to get pretty much any result. Thus academics who either are good at playing politics and PR, or who have a politically convenient message, will rise to the top, not the academics who are rigorous and honest. You can find good academics, but they are rare and usually aren't the famous and acclaimed ones.
Au contraire. You may be being truly intellectual for the first time. Do you know the motto of the Royal Society, the organization most responsible for the birth of modern science? "Take nobody's word for it." That is the essence of science -- replication and verifying things for yourself. You are not anti-intellectual just because you question the authorities in charge of a particular institution (academia).
What fields are as sturdy as particle physics? Medicine? Biology? Climate change?
IMO, fields where there isn't a quick feedback loop between controlled, real-world experiments and obvious result are almost all unsound. That includes macroeconomics, psychology, long-term nutrition, etc. In these situations, you can always play with the variables to get pretty much any result. Thus academics who either are good at playing politics and PR, or who have a politically convenient message, will rise to the top, not the academics who are rigorous and honest. You can find good academics, but they are rare and usually aren't the famous and acclaimed ones.
I think Economics is a fairly big outlier though. There's quite a good book by Economics Prof. Steve Keen called Debunking Economics, which is very accessible and goes over how most of the core tenants of neoclassical (mainstream) economics have been known to be flawed for decades, yet it's all still taught as fact.
It's not a scholarly work, but references a great deal of scholarly work.
It's fascinating to read and imagine how the profession has not been reformed in light of these known flaws (and the fact of the huge failure of mainstream Economics to predict the Great Recession).
There is some hope though in some student movements that are starting to challenge how economics is taught (like Rethinking Economics and the Post-crash Economics Society). It may be that like some times in science, the profession will advance "one funeral at a time" as the new generation comes in.
It's not a scholarly work, but references a great deal of scholarly work.
It's fascinating to read and imagine how the profession has not been reformed in light of these known flaws (and the fact of the huge failure of mainstream Economics to predict the Great Recession).
There is some hope though in some student movements that are starting to challenge how economics is taught (like Rethinking Economics and the Post-crash Economics Society). It may be that like some times in science, the profession will advance "one funeral at a time" as the new generation comes in.
Neoclassical synthesis is still taught because, even though it's flawed, we have nothing better. Economists know that the assumptions behind neoclassical models aren't always fulfilled.
All science is always done with models and we just use the best models we have, while taking into account their limitations. People don't usually object to this in other fields, but in economics they do because they have stronger Opinions about economics than the natural sciences and the models sometimes disagree with their Opinions. If they had a better model, economists would welcome it, I'm sure, but they don't and they still want to keep their Opinions, so instead they blabber about how the current models are flawed. They're not wrong.
The Marxian school is a dead end and the Austrian school lacks scientific rigor. There's no point in teaching along with neoclassical synthesis things that are less rigorous than neoclassical synthesis while also having less breadth. If they were taught, the situation would be similar to what it is in psychology, where dubious approaches like psychoanalysis are taught alongside cognitive psychology.
All science is always done with models and we just use the best models we have, while taking into account their limitations. People don't usually object to this in other fields, but in economics they do because they have stronger Opinions about economics than the natural sciences and the models sometimes disagree with their Opinions. If they had a better model, economists would welcome it, I'm sure, but they don't and they still want to keep their Opinions, so instead they blabber about how the current models are flawed. They're not wrong.
The Marxian school is a dead end and the Austrian school lacks scientific rigor. There's no point in teaching along with neoclassical synthesis things that are less rigorous than neoclassical synthesis while also having less breadth. If they were taught, the situation would be similar to what it is in psychology, where dubious approaches like psychoanalysis are taught alongside cognitive psychology.
This is a commonly held belief, but it's wrong, the dominant economic models in use today are neither rigorous (internally inconsistent, extremely poor empirical verification, major aggregation errors, lack of essential inputs) nor representative of an economy (a dynamic system, not an extremely stylized static equillibrium model). You should read Keen's book, it's point is not that those assumptions don't always hold, it's that they under _any_ real world circumstance will invalidate themselves.
I blame language. As with all models, the further we move from blissfully perfect abstraction the less certain we can be about our model's predictions. But our language isn't very lenient with expressions of uncertainty.
We speak about a single psychology study's findings with the many of the same words of concrete certainty that we do with the deepest mathematical theorems because that is what is most natural. We say something is true when we really mean that we're pretty sure something is true under certain conditions. We assume that everyone understands the touch of chaos underneath the words based on the context. But they don't. And we don't either. We know better but we fool ourselves more or less by accident and repetition and it shakes us when contradictions inevitably arise from messy reality.
And on the other end of the spectrum, if any uncertainty at all is spoken of it seems to cast the whole statement into doubt.
The language of statistics and uncertainty is cumbersome and unnatural. If I could wish for anything and have it come true for the sake of advancement of humanity it would be for a standard modifier or tense for levels of uncertainty. I would trade that increase in complication for the reduction of confusion.
We speak about a single psychology study's findings with the many of the same words of concrete certainty that we do with the deepest mathematical theorems because that is what is most natural. We say something is true when we really mean that we're pretty sure something is true under certain conditions. We assume that everyone understands the touch of chaos underneath the words based on the context. But they don't. And we don't either. We know better but we fool ourselves more or less by accident and repetition and it shakes us when contradictions inevitably arise from messy reality.
And on the other end of the spectrum, if any uncertainty at all is spoken of it seems to cast the whole statement into doubt.
The language of statistics and uncertainty is cumbersome and unnatural. If I could wish for anything and have it come true for the sake of advancement of humanity it would be for a standard modifier or tense for levels of uncertainty. I would trade that increase in complication for the reduction of confusion.
I tend to use:
"possibly" for 0<x<40% where x is the probability of some event
"maybe" for 0%<x<50%
"probably" for 75%<=x<=100%
And of course the sarcasm gods dictate that "proba-maybe" means x<10%
"possibly" for 0<x<40% where x is the probability of some event
"maybe" for 0%<x<50%
"probably" for 75%<=x<=100%
And of course the sarcasm gods dictate that "proba-maybe" means x<10%
All models are wrong, some models are useful. And what is useful is subjective.
The Newtonian model works brilliantly at human-scale resolution. But if you are a quark, it is totally unconvincing. So the quarken-creatures' understanding of physics would have developed totally differently.
Similarly, SM/GR seems basically fine at solar-system resolution. But at an intergalactic scale it's completely unworkable – "regular" matter is only 5% of the universe! You are not going to get very far through the galaxy on that.
In reality, even "hard" science is very squishy. It's closely tied to the sort of creatures doing it, and different creatures would have done it differently. "Our" physics can answer a lot of questions – unless you want to leave the galaxy or learn about 95% of the stuff in the universe in which case we have no idea. But that doesn't matter (yet) because what we've got is good enough for a bunch more planetary expeditions.
Similarly, economics has solved some problems and not solved others. The difference is, lots of the "unsolved" problems seem quite urgent. Dark energy might be useful someday, but minimum wage theory would be useful right now.
But that has nothing whatsoever to do with science, or with correctness (all models are incorrect). It has more to do with our goals as a society, and how closely our discoveries map onto problems we think are urgent. A quarken society would have completely different set of priorities than we do, and the way they think about "sturdiness" would be entirely different as a result.
The Newtonian model works brilliantly at human-scale resolution. But if you are a quark, it is totally unconvincing. So the quarken-creatures' understanding of physics would have developed totally differently.
Similarly, SM/GR seems basically fine at solar-system resolution. But at an intergalactic scale it's completely unworkable – "regular" matter is only 5% of the universe! You are not going to get very far through the galaxy on that.
In reality, even "hard" science is very squishy. It's closely tied to the sort of creatures doing it, and different creatures would have done it differently. "Our" physics can answer a lot of questions – unless you want to leave the galaxy or learn about 95% of the stuff in the universe in which case we have no idea. But that doesn't matter (yet) because what we've got is good enough for a bunch more planetary expeditions.
Similarly, economics has solved some problems and not solved others. The difference is, lots of the "unsolved" problems seem quite urgent. Dark energy might be useful someday, but minimum wage theory would be useful right now.
But that has nothing whatsoever to do with science, or with correctness (all models are incorrect). It has more to do with our goals as a society, and how closely our discoveries map onto problems we think are urgent. A quarken society would have completely different set of priorities than we do, and the way they think about "sturdiness" would be entirely different as a result.
Some of the problem is it's much harder to judge softer fields from the outside. There is plenty of great research in Education for example, but it's much harder to evaluate without a lot more domain specific knowledge.
[deleted]
There are two bits of premise I think that are unfair in the article:
1) 'Economists don't know what is going on'. Yes, they do know what is 'going on'. They can measure it, and tell you.
The sneaky assumption in the question is the assumption that if "they knew what was gong on, then they would know how to solve it"
This is totally unfair.
Jobs and the economy were never entirely managed through centralized economic policy. Unless you are a country that is 'way behind others that are good examples to follow' - in which case you can make no-brainer investments in 'roads' and 'electricity' ... it's otherwise not possible.
No 'economist' would have ever thought 'we need a good search engine' or 'someone needs to re-jigger electric cars to make them work in our economy' etc. etc..
It takes entrepreneurs of various sorts - mostly of the 'boring' kind (carpenters, contractors, restaurant owners, parts manufacturers) etc. to form the basis of the economy. It's not and never will be managed by economists.
2) The failure of 2008 was not predicted by economists ergo their discipline is bunk.
This is not fair either. 100% of economists would have predicted the outcome if they knew the vast scope of homeowners lying on their applications, that banks were misleading others by packaging crap loans as good ones, that the ratings agencies were not doing their jobs and actually rating the loans properly.
Economists depend on 'valid data' in their understanding of the world. Were the data in 2008 to have been valid, predicting the outcome would have been trivial.
You could argue that Economists might need a different approach, i.e. to be more 'in the field' doing their own measurements - sure. But their models were not wrong, their data was.
1) 'Economists don't know what is going on'. Yes, they do know what is 'going on'. They can measure it, and tell you.
The sneaky assumption in the question is the assumption that if "they knew what was gong on, then they would know how to solve it"
This is totally unfair.
Jobs and the economy were never entirely managed through centralized economic policy. Unless you are a country that is 'way behind others that are good examples to follow' - in which case you can make no-brainer investments in 'roads' and 'electricity' ... it's otherwise not possible.
No 'economist' would have ever thought 'we need a good search engine' or 'someone needs to re-jigger electric cars to make them work in our economy' etc. etc..
It takes entrepreneurs of various sorts - mostly of the 'boring' kind (carpenters, contractors, restaurant owners, parts manufacturers) etc. to form the basis of the economy. It's not and never will be managed by economists.
2) The failure of 2008 was not predicted by economists ergo their discipline is bunk.
This is not fair either. 100% of economists would have predicted the outcome if they knew the vast scope of homeowners lying on their applications, that banks were misleading others by packaging crap loans as good ones, that the ratings agencies were not doing their jobs and actually rating the loans properly.
Economists depend on 'valid data' in their understanding of the world. Were the data in 2008 to have been valid, predicting the outcome would have been trivial.
You could argue that Economists might need a different approach, i.e. to be more 'in the field' doing their own measurements - sure. But their models were not wrong, their data was.
>This is not fair either. 100% of economists would have predicted the outcome if they knew the vast scope of homeowners lying on their applications, that banks were misleading others by packaging crap loans as good ones, that the ratings agencies were not doing their jobs and actually rating the loans properly.
It was very widely reported at the time that banks had drastically lowered their standards for loans, and that this had lead to a boom in housing prices. And all this was publicaly defended by conservative politicians and commentators. And it takes only a little thought to figure out the banks were misleading investors, and the bond rating agencies were helping them out. The reason the economists didn't figure it out is they lack the needed common sense.
It was very widely reported at the time that banks had drastically lowered their standards for loans, and that this had lead to a boom in housing prices. And all this was publicaly defended by conservative politicians and commentators. And it takes only a little thought to figure out the banks were misleading investors, and the bond rating agencies were helping them out. The reason the economists didn't figure it out is they lack the needed common sense.
>Policymakers don’t know what to do. They press the usual (and unusual) levers and nothing happens.
That's not really true if they're refusing to push the Keynesian levers for ideological reasons.
That's not really true if they're refusing to push the Keynesian levers for ideological reasons.
Yeah, it's not exactly a mystery what is happening; many central bank policy makers (contrary to the optimistic but unsourced charters toon of QE expectations in TFA) have been quite blunt about the limitations of monetary policy, while in many large economies that have substantial impact on the global situation (especially, but not exclusively, the US) the authorities with power over fiscal policy have refused to intervene (or intervened in the opposite direction that would be represented by the "usual levers") for ideological reasons. The results have been predictably disastrous, but it's not a failure of mainstream economics.
EDIT: Which is not, at all, to say that there aren't real problems in economics, just that the article here isnt identifying the and is instead pushing a narrative that has been repeatedly advanced to pass of responsibility for dereliction of duty by legislators onto, well, anyone else.
EDIT: Which is not, at all, to say that there aren't real problems in economics, just that the article here isnt identifying the and is instead pushing a narrative that has been repeatedly advanced to pass of responsibility for dereliction of duty by legislators onto, well, anyone else.
I'd say it was as much practical as it is ideological. Keynesian spending is inherently inflationary and creates jobs.
As a member of the 1%:
* Inflation is your enemy. It not only causes the value of your cash holdings to decline, it causes the value of the money you lent out to decline.
* Creating jobs is your enemy. If you employ people you want as little competition for labor as possible to reduce your wage bill and the wage bill of the companies you invest in.
As a member of the 1%:
* Inflation is your enemy. It not only causes the value of your cash holdings to decline, it causes the value of the money you lent out to decline.
* Creating jobs is your enemy. If you employ people you want as little competition for labor as possible to reduce your wage bill and the wage bill of the companies you invest in.
The definition of "ideological" in this circumstance is, "targeted at maintaining the wealth and interest of a particular class at the expense of other classes and the economy as a whole". In this case, yes, opposition to Keynesian measures has been targeted at maintaining the value-capture by "the 1%" (by now even more just rentier asset-owners than those whose capital does real work in fields like technology, really) at the expense of the skilled-professional class (the most common Hacker News user), the semi-skilled middle class, the smallholder class (probably including start-up founders), and the broad working class as a whole.
> I'd say it was as much practical as it is ideological.
The disagreement isn't practical (over what broad effect given policy will have), it's ideological (over what broad outcome is desirable).
That the ideology is often sslf-serving (if arguably only in fairly myopic perspective) for lawmakers who are also part of the economic elite doesn't make it any less ideological, it just explains the attraction of the ideology to those actors.
The disagreement isn't practical (over what broad effect given policy will have), it's ideological (over what broad outcome is desirable).
That the ideology is often sslf-serving (if arguably only in fairly myopic perspective) for lawmakers who are also part of the economic elite doesn't make it any less ideological, it just explains the attraction of the ideology to those actors.
Inflation causes the value of your investments to increase, so it hurts the people who rely on cash more than people with stock portfolios
I'm not sure that is going to be true of the stock market. Many firms now have record cash holdings[0] so by buying stock you are essentially buying a slice of a pile of money. I argue the reason many firms stock price keeps going up hasn't been a rise in demand but instead a limit on supply as stock buybacks are also at record levels[1].
[0]http://mobile.nytimes.com/2016/01/24/magazine/why-are-corpor...
[1]https://hbr.org/2014/09/profits-without-prosperity
[0]http://mobile.nytimes.com/2016/01/24/magazine/why-are-corpor...
[1]https://hbr.org/2014/09/profits-without-prosperity
Inflation doesn't cause the real value of investments to increase, because the real value is the nominal value relative to general prices (and inflation is increase in general prices.)
That's true in the general sense, but low interest rates lead to higher inflation AND better stock market performance. So having lower interest rates benefits people with stock market portfolios and hurts people who have mostly cash.
Bond returns are fixed, I think. So even though inflation is fine for stock investors it's bad for bond investors.
That's not really true if they're refusing to push the Keynesian levers for ideological reasons.
snort Everyone's a Keynesian when it's time to spend but Keynes also said to pay down your debts on the upswing of the cycle, and guess what everyone didn't do?
snort Everyone's a Keynesian when it's time to spend but Keynes also said to pay down your debts on the upswing of the cycle, and guess what everyone didn't do?
Well, I was a teenager before the housing bubble went bust, but I'm just fine with paying higher taxes in boom times. Don't snort at me: raise my taxes! It's what I'm already voting for. Tax me and my high-tech salary. It can pay for schools and trains in my own community, it can pay down the national debt, etc. Redistribute my wealth, because I'm exceptionally well-off for my age group.
Why not just make voluntary contributions to organizations you support? Governmental or otherwise. Why wait for someone to take it from you when you could give it instead?
I already do that. I spend more money on each organization I support each month than I do on cable internet.
So then are there just no organizations other than government that can get done what you want? Why advocate for higher taxes rather than upping your voluntary contributions?
I just listened to this [0] Sam Harris podcast episode yesterday so it's kind of on my mind, though this is admittedly a tangential issue to the podcast.
[0]: https://www.youtube.com/watch?v=PxStuUxaZxQ&t=4171s
I just listened to this [0] Sam Harris podcast episode yesterday so it's kind of on my mind, though this is admittedly a tangential issue to the podcast.
[0]: https://www.youtube.com/watch?v=PxStuUxaZxQ&t=4171s
...But that doesn't make them wrong. That just makes society spineless when it's time to start the unglamorous work paying back.
Being impossible in practice because of political dynamics isn't particularly great for a policy suggestion, though.
You simply need to change the dynamic. We have the Fed, which is structured to insulate our monetary policy from politics, and it has worked quite nicely for the past 70 years. It's not insane to imagine doing something similar for at least some aspects of our fiscal policy.
I don't agree with everything Skidelsky (the author) writes, but his main point rings true:
"Today’s professional economists... have studied almost nothing but economics. They don’t even read the classics of their own discipline. Economic history comes, if at all, from data sets. Philosophy, which could teach them about the limits of the economic method, is a closed book. Mathematics, demanding and seductive, has monopolized their mental horizons. The economists are the idiots savants of our time."
In other words, they lack what Charlie Munger calls "elementary worldly wisdom:" https://old.ycombinator.com/munger.html.
"Today’s professional economists... have studied almost nothing but economics. They don’t even read the classics of their own discipline. Economic history comes, if at all, from data sets. Philosophy, which could teach them about the limits of the economic method, is a closed book. Mathematics, demanding and seductive, has monopolized their mental horizons. The economists are the idiots savants of our time."
In other words, they lack what Charlie Munger calls "elementary worldly wisdom:" https://old.ycombinator.com/munger.html.
I think the very unfortunate narrowness of economics has partly to do with its history. Economics got going before any of the other social sciences and also ecological science, and early on had an enormous practical success with the development of free market theory, and so got the mistaken idea that it could proceed just fine without these other sciences.
Another problem is that economics is very closely connected to political policies, so it is very vulnerable to ideological influences.
Another problem is that economics is very closely connected to political policies, so it is very vulnerable to ideological influences.
And how do you know this?
> But no branch of human inquiry has cut itself off from the whole – and from the other social sciences – more than economics.
In Bratislava, the town I come from, there's Comenius University which has many faculties, one of them being Philosohical Faculty. Among many departments in Philosophical Faculty there's a department of sociology.
There is also a fully separate Economics University, with its own faculties and departments.
It's a nice example of how the fact that economics is just one of many subdisciplines of sociology is concealed and instead, an impression is created that economics can exists as a fully separate discipline independent of any sociological factors.
In Bratislava, the town I come from, there's Comenius University which has many faculties, one of them being Philosohical Faculty. Among many departments in Philosophical Faculty there's a department of sociology.
There is also a fully separate Economics University, with its own faculties and departments.
It's a nice example of how the fact that economics is just one of many subdisciplines of sociology is concealed and instead, an impression is created that economics can exists as a fully separate discipline independent of any sociological factors.
There were plenty of economists that warned of the bubble well before it popped but they were routinely ridiculed and dismissed since explaining themselves took longer than a 15 second slot between questions on a news show.
The fact that so many of them failed to recognize the popping even after it popped (Ben Bernanke among them) pretty much tells us everything we need to know.
Then they can take a short and make large sums.
Let's assume an actual prophet knew what was going to happen in response to government policies 2, 4, 8 years from now and let that be known. People still have freewill. People will react to the prophet's words and thereby probably change reality. I'm assuming the prophet was an actual prophet for the sake of argument - he/she knew what was going to happen if people didn't react to his prognostication. But of course people have freewill and are free to change and they do. That's the problem with all economic forecasts. It truly doesn't matter how good or bad they are - people can and will change in response if the forecast gets enough eyes.
That's a small example of what goes on daily in the world of economics and the global, financial markets. When the Fed makes a decision that later doesn't work out a valid explanation is, always, 'things changed'.
That's a small example of what goes on daily in the world of economics and the global, financial markets. When the Fed makes a decision that later doesn't work out a valid explanation is, always, 'things changed'.
I'm familiar with work in he philosophy of science. Is there a growing interest with he philosophy of economics?
Philosophy is a soft science, so I'm gonna guess "not on your life."
Philosophy is not a science at all, it's the mother of all science and it fits firmly within the humanities. The philosophy of economics is what we now call 'economics' except they've abandoned philosophy. Karl Marx is a philosopher and was an economist until the current neoliberal econ regime wrote him out of all the textbooks and retroactively reclassified him so they didn't have to think about his ideas or those of his followers.
> how to estimate the costs of a project properly – ought to be of interest to most people. In fact, the field repels all but connoisseurs of fanciful formal models.
Considering how bad humans are at planning most mid/large sized projects (let alone small ones), how much faith can we put into centralized planning on a large macro national scale?
Wouldn't the US be better off managing their local economies more directly? With differing assistance from the federal level. Rather than attempting to apply a model across a huge diverse national economy?
I feel like Canada (where I'm from) was much more capable at dealing with the crisis because we had a small more cohesive system and our localized issues are easily dealt with. I feel that starts to break down at a larger scale.
It would also make politics more predictable and less partisan where you don't have an economically 'forgotten' class of people disrupting national elections with protest votes.
The US was founded on federalist ideas and it seems it's decline from economic greatness (at least towards stagnant growth) has coincided with a divergence from those ideas to a top heavy centralized government, where the election of the president has grown to consume 90% of people's attention while only 10% as much is given to their congress, governors, state legislators, etc. A whole country complaining about 'Washington elites' as if it were a simple managerial issue for the next executive to solve rather than the result of a systemic shift in power toward the executive and federal governments that has gone unchallenged. Not to mention they seem to increasingly be given all the blame/praise for whether the economy functions well or not.
Considering how bad humans are at planning most mid/large sized projects (let alone small ones), how much faith can we put into centralized planning on a large macro national scale?
Wouldn't the US be better off managing their local economies more directly? With differing assistance from the federal level. Rather than attempting to apply a model across a huge diverse national economy?
I feel like Canada (where I'm from) was much more capable at dealing with the crisis because we had a small more cohesive system and our localized issues are easily dealt with. I feel that starts to break down at a larger scale.
It would also make politics more predictable and less partisan where you don't have an economically 'forgotten' class of people disrupting national elections with protest votes.
The US was founded on federalist ideas and it seems it's decline from economic greatness (at least towards stagnant growth) has coincided with a divergence from those ideas to a top heavy centralized government, where the election of the president has grown to consume 90% of people's attention while only 10% as much is given to their congress, governors, state legislators, etc. A whole country complaining about 'Washington elites' as if it were a simple managerial issue for the next executive to solve rather than the result of a systemic shift in power toward the executive and federal governments that has gone unchallenged. Not to mention they seem to increasingly be given all the blame/praise for whether the economy functions well or not.
"I feel like Canada (where I'm from) was much more capable at dealing with the crisis because we had a small more cohesive system and our localized issues are easily dealt with. I feel that starts to break down at a larger scale."
In Canada (where I'm from as well) - we definitely are not an more sophisticated than anywhere.
Though your point about being 'smaller' I think is valid.
We are simply very conservative, behaviourally. We generally have stricter rules about most things, our finance execs aren't as aggressive, people are much less likely to lie on application forms.
We don't 'innovate' with finance, i.e. 'finding new ways to package crap mortgages to sell them as good' - that's an Anglo/American thing :)
America is the 'land of the free' Canada has always been about 'order, stability and peaceful coexistence' - so it's a cultural thing that exhibits itself systematically.
I should say one thing: we do have a wicked housing bubble in Toronto, and economists have been predicting demise for years, and it could very well happen if foreign buyers lose the ability to spend. A 'Chinese crash' combined with slightly higher interest rates - would put Toronto in a really, really dire situation. And we we can't blame economists for that one - the risks are clear.
In Canada (where I'm from as well) - we definitely are not an more sophisticated than anywhere.
Though your point about being 'smaller' I think is valid.
We are simply very conservative, behaviourally. We generally have stricter rules about most things, our finance execs aren't as aggressive, people are much less likely to lie on application forms.
We don't 'innovate' with finance, i.e. 'finding new ways to package crap mortgages to sell them as good' - that's an Anglo/American thing :)
America is the 'land of the free' Canada has always been about 'order, stability and peaceful coexistence' - so it's a cultural thing that exhibits itself systematically.
I should say one thing: we do have a wicked housing bubble in Toronto, and economists have been predicting demise for years, and it could very well happen if foreign buyers lose the ability to spend. A 'Chinese crash' combined with slightly higher interest rates - would put Toronto in a really, really dire situation. And we we can't blame economists for that one - the risks are clear.
> A 'Chinese crash' combined with slightly higher interest rates - would put Toronto in a really, really dire situation. And we we can't blame economists for that one - the risks are clear.
Agreed, I personally hope it results in a new common sense that housing is not the perfect silver bullet investment for everyone. And hopefully it results in more capital going to entrepreneurship and business, rather than 90% of people betting on stable corporate jobs and mortgage payments for their future financial independence.
There are always economic tradeoffs made in bubbles, as capital is misplaced and used inefficiently, that are just as costly as the money lost on the actual investments.
The banks are just as responsible for this too, I've heard ridiculous stories of middle class people getting offered million dollar mortgages while small/medium businesses are shutting down at a faster rate than new ones are being started.
Agreed, I personally hope it results in a new common sense that housing is not the perfect silver bullet investment for everyone. And hopefully it results in more capital going to entrepreneurship and business, rather than 90% of people betting on stable corporate jobs and mortgage payments for their future financial independence.
There are always economic tradeoffs made in bubbles, as capital is misplaced and used inefficiently, that are just as costly as the money lost on the actual investments.
The banks are just as responsible for this too, I've heard ridiculous stories of middle class people getting offered million dollar mortgages while small/medium businesses are shutting down at a faster rate than new ones are being started.
Canada (where I'm from) was much more capable at dealing with the crisis because we had a small more cohesive system
By my reading (http://www.nber.org/digest/dec11/w17312.html), Canada hasn't had the US crises infect them due to centralization.
By my reading (http://www.nber.org/digest/dec11/w17312.html), Canada hasn't had the US crises infect them due to centralization.
It's possible to graduate from an economics program without knowing what the IMF does, or how a bank works, or how trade agreements work, or what the major imports and exports from China are. That suggests to me that something has gone badly wrong with economics education.
As someone who went through an undergrad econ program, I strongly disagree for a few reasons:
1. Econ programs focus early on building basic mathematical models; a pretty normal curriculum is microeconomics, macroeconomics, econometrics (using stats + data), and then whatever you want your electives to be (e.g. international trade economics, labor economics, etc.). Without being fluent in at least the basic models, you don't have any framework with which to work with other subtopics, but learning the basics takes most of your time.
2. The specifics of how banks are run, or central banks work, or what we trade with China today, is more or less irrelevant trivia unless you actually work in that part of finance or will become a policy-focused economist, and you'll have plenty of time in your PhD to figure those details out. Economics is an extremely broad field and you can easily make a useful career out of, say, analyzing corporate acquisitions, or doing pure game theory, in which case how monetary or trade policy is conducted is pretty much irrelevant to you.
3. Since graduating, I found my econ education was extremely helpful when learning how central banks actually print money, or how trade agreements are put together, because I have a general high-level picture of how things move. That's in contrast to people who think just because base money is increasing, there must be inflation -- if you've worked with the models much, you know they're all approximations, but you get a much better sense for what is a reasonable vs. unreasonable result.
I mean this is like complaining it's possible to get a CS undergrad degree without knowing how the Linux kernel works, or getting an CS PhD without knowing the details of TCP control flow.
Both economics and CS are large fields and practitioners don't all work on the same thing -- the point of the degree is to provide a shared language and foundation, not to teach you every practical skill there is, because that's impossible and the relevant skills change very quickly.
1. Econ programs focus early on building basic mathematical models; a pretty normal curriculum is microeconomics, macroeconomics, econometrics (using stats + data), and then whatever you want your electives to be (e.g. international trade economics, labor economics, etc.). Without being fluent in at least the basic models, you don't have any framework with which to work with other subtopics, but learning the basics takes most of your time.
2. The specifics of how banks are run, or central banks work, or what we trade with China today, is more or less irrelevant trivia unless you actually work in that part of finance or will become a policy-focused economist, and you'll have plenty of time in your PhD to figure those details out. Economics is an extremely broad field and you can easily make a useful career out of, say, analyzing corporate acquisitions, or doing pure game theory, in which case how monetary or trade policy is conducted is pretty much irrelevant to you.
3. Since graduating, I found my econ education was extremely helpful when learning how central banks actually print money, or how trade agreements are put together, because I have a general high-level picture of how things move. That's in contrast to people who think just because base money is increasing, there must be inflation -- if you've worked with the models much, you know they're all approximations, but you get a much better sense for what is a reasonable vs. unreasonable result.
I mean this is like complaining it's possible to get a CS undergrad degree without knowing how the Linux kernel works, or getting an CS PhD without knowing the details of TCP control flow.
Both economics and CS are large fields and practitioners don't all work on the same thing -- the point of the degree is to provide a shared language and foundation, not to teach you every practical skill there is, because that's impossible and the relevant skills change very quickly.
From a community college, maybe. Try that on a research university and see how that goes for yourself. Principles are taught well, and with the proper background and insight.
Exactly. This is the real reason why economists get it so wrong: their incentives.
Brad DeLong in particular is a real piece of work: http://www.nakedcapitalism.com/2016/06/clinton-loyalist-autc...
Brad DeLong in particular is a real piece of work: http://www.nakedcapitalism.com/2016/06/clinton-loyalist-autc...
Sad thing about guys like Delong was the guy they despised for crass careerist reasons was the one candidate in a long while that would have been open to hearing them out on their policy proposals.
One of the problems with the economics profession today is a lack of real societal responsibility. An example is supply-side economics, which is promoted by conservative politicians, including Trump. The economists all know it doesn't work, and so they ought to make that clear to the country. But instead they just sit back and say nothing.
The root of the word "economy" is from the greek "oikos" (habitat). It is the same root as that of "ecology".
Economy means "the laws of the habitat", and ecology means "the story of the habitat".
How can 'smart people' think they are separable?
Imagine trying to do physics or chemistry, except that everything had to translate into the units of $.
Why is it: my sister is a full time mom on her own dime, whereas a friend of mine gets paid $14/hr to nanny? (Her clients pay $50/hr and she gets a fraction of that).
Care for one child, get paid, whereas if you care for another child, you have to pay? My sister could go work as a nanny and get paid to care for someone elses' children, but when it comes to taking care of her own, she's running a loss? To keep up, she goes and cleans those very same peoples' houses.
That's a bunch of nonsense, that two children would have different economic values. That one family would have to scramble just to keep up while another family's cup runneth over. The very real work my sister does to care for my niece is all but invisible in the economist's spreadsheet, while my nanny friend is considered a working, productive person.
These days I've been taking care of my niece quite often, and my work is not counted on the spreadsheets of the economists either. That doesn't make it any less valuable ecologically, spiritually, socially, communally... But economically, my work is in the red.
The contradictions are endless. People work "for free" all the time, and it doesn't get counted. In fact, such work is often "discounted" as amateur, poverty, laziness.
What's much more important, to many economists, and what is counted, is to sit at some desk somewhere doing busywork in an office so that you can pump economic power into the pockets of rent suckers. That is counted on the economists' sheets. That'll get you greasy green paper pieces. So I could be doing that and walking around with all the clout telling people about my career and buying people drinks at the bar, and people would pat me on the back, and my family would be so proud of me, and my friends would envy my bank account, etc. But I wouldn't get to spend time with my niece.
Until people stop putting up with the madness of mainstream economic religion, it's just going to continue.
People take monstrous loans that grow and grow, just to have a stable home. That's the norm. What good does it do anyone? All it really does is uproot communities on a yearly basis.
I'm not saying there's anything wrong with being nomadic. But when multiple generations are in exile because of rampant greed all across the board (homeowners are corroborating by taking those loans out in the first place, by paying such high prices at the cost of such high debts)... it's a problem.
How much time and human energy is wasted by "breadwinners" doing ritual busywork at offices 40-70 hours a week? They could be at home doing things that are actually useful for at least half of that time. Being with kids, cooking, gardening, reading/studying, exercising, cleaning, fixing stuff...
What counts as "busywork" vs. real productive work is ideologically relative... and here is where we desperately need spiritual evolution.
Economy means "the laws of the habitat", and ecology means "the story of the habitat".
How can 'smart people' think they are separable?
Imagine trying to do physics or chemistry, except that everything had to translate into the units of $.
Why is it: my sister is a full time mom on her own dime, whereas a friend of mine gets paid $14/hr to nanny? (Her clients pay $50/hr and she gets a fraction of that).
Care for one child, get paid, whereas if you care for another child, you have to pay? My sister could go work as a nanny and get paid to care for someone elses' children, but when it comes to taking care of her own, she's running a loss? To keep up, she goes and cleans those very same peoples' houses.
That's a bunch of nonsense, that two children would have different economic values. That one family would have to scramble just to keep up while another family's cup runneth over. The very real work my sister does to care for my niece is all but invisible in the economist's spreadsheet, while my nanny friend is considered a working, productive person.
These days I've been taking care of my niece quite often, and my work is not counted on the spreadsheets of the economists either. That doesn't make it any less valuable ecologically, spiritually, socially, communally... But economically, my work is in the red.
The contradictions are endless. People work "for free" all the time, and it doesn't get counted. In fact, such work is often "discounted" as amateur, poverty, laziness.
What's much more important, to many economists, and what is counted, is to sit at some desk somewhere doing busywork in an office so that you can pump economic power into the pockets of rent suckers. That is counted on the economists' sheets. That'll get you greasy green paper pieces. So I could be doing that and walking around with all the clout telling people about my career and buying people drinks at the bar, and people would pat me on the back, and my family would be so proud of me, and my friends would envy my bank account, etc. But I wouldn't get to spend time with my niece.
Until people stop putting up with the madness of mainstream economic religion, it's just going to continue.
People take monstrous loans that grow and grow, just to have a stable home. That's the norm. What good does it do anyone? All it really does is uproot communities on a yearly basis.
I'm not saying there's anything wrong with being nomadic. But when multiple generations are in exile because of rampant greed all across the board (homeowners are corroborating by taking those loans out in the first place, by paying such high prices at the cost of such high debts)... it's a problem.
How much time and human energy is wasted by "breadwinners" doing ritual busywork at offices 40-70 hours a week? They could be at home doing things that are actually useful for at least half of that time. Being with kids, cooking, gardening, reading/studying, exercising, cleaning, fixing stuff...
What counts as "busywork" vs. real productive work is ideologically relative... and here is where we desperately need spiritual evolution.
Science is prediction, not explanation - Fred Hoyle.
By that measure, economics hasn't qualified as a science yet. The prediction quality is terrible. That's embarrassing. There's plenty of data. There's plenty of compute power. By now, economics should have more predictive power that it demonstrates.
By that measure, economics hasn't qualified as a science yet. The prediction quality is terrible. That's embarrassing. There's plenty of data. There's plenty of compute power. By now, economics should have more predictive power that it demonstrates.
It does, but working prediction models make money in the private sector (Wall Street), so you'll never see them.
Scientists cannot accurately predict what the temperature in my city will be next month, so is climatology a science?
Economists could make predictions in isolated systems - the problem is 'the real world' is complex.
Worse - the economy is made up of human actors, and policy makers, investors, all of whom make decisions that are not necessarily rational. Ergo, in such systems, it's pretty hard to determine outcomes.
Economists can spell out for you pretty much what would happen if foreign purchasers dried up in Toronto, along with a slight increase in rates ... but we can't be sure if/when that would happen.
Economists could make predictions in isolated systems - the problem is 'the real world' is complex.
Worse - the economy is made up of human actors, and policy makers, investors, all of whom make decisions that are not necessarily rational. Ergo, in such systems, it's pretty hard to determine outcomes.
Economists can spell out for you pretty much what would happen if foreign purchasers dried up in Toronto, along with a slight increase in rates ... but we can't be sure if/when that would happen.
> Scientists cannot accurately predict what the temperature in my city will be next month, so is climatology a science?
weather forecasts have been getting more and more accurate, actually
weather forecasts have been getting more and more accurate, actually
Weather is inherently unpredictable. They'll never be perfect.
I missed the most important point: because the economy is made up of intelligent actors - there is a dynamic aspect to economist predictions.
If the weatherman says 'it will be 'very hot' next week' - this can be right or wrong, but the weather won't change as a result.
If a prominent economist says 'there will be a recession next month' - business leaders may hold up on investment thereby causing a recession, where none might have been.
So it's pretty hard to predict the future, when your predictions change the future ;)
I missed the most important point: because the economy is made up of intelligent actors - there is a dynamic aspect to economist predictions.
If the weatherman says 'it will be 'very hot' next week' - this can be right or wrong, but the weather won't change as a result.
If a prominent economist says 'there will be a recession next month' - business leaders may hold up on investment thereby causing a recession, where none might have been.
So it's pretty hard to predict the future, when your predictions change the future ;)
That just seems like it makes it easier! You predict a recession, you're wrong, but you end up being right anyway!
"The economists are leveraging their academic prestige with secret reports justifying corporate concentration. Their predictions are often wrong and consumers pay the price.
If the government ends up approving the $85 billion AT&T-Time Warner merger, credit won’t necessarily belong to the executives, bankers, lawyers, and lobbyists pushing for the deal. More likely, it will be due to the professors.
A serial acquirer, AT&T must persuade the government to allow every major deal. Again and again, the company has relied on economists from America’s top universities to make its case before the Justice Department or the Federal Trade Commission. Moonlighting for a consulting firm named Compass Lexecon, they represented AT&T when it bought Centennial, DirecTV, and Leap Wireless; and when it tried unsuccessfully to absorb T-Mobile. And now AT&T and Time Warner have hired three top Compass Lexecon economists to counter criticism that the giant deal would harm consumers and concentrate too much media power in one company.
Today, “in front of the government, in many cases the most important advocate is the economist and lawyers come second,” said James Denvir, an antitrust lawyer at Boies, Schiller.
Economists who specialize in antitrust — affiliated with Chicago, Harvard, Princeton, the University of California, Berkeley, and other prestigious universities — reshaped their field through scholarly work showing that mergers create efficiencies of scale that benefit consumers. But they reap their most lucrative paydays by lending their academic authority to mergers their corporate clients propose. Corporate lawyers hire them from Compass Lexecon and half a dozen other firms to sway the government by documenting that a merger won’t be “anti-competitive”: in other words, that it won’t raise retail prices, stifle innovation, or restrict product offerings. Their optimistic forecasts, though, often turn out to be wrong, and the mergers they champion may be hurting the economy.
President Obama promised to fight corporate concentration. Eight years later, the airline industry is dominated by just four companies. And you’re paying for it. "Some of the (Economics)professors earn more than top partners at major law firms. Dennis Carlton, a self-effacing economist at the University of Chicago’s Booth School of Business and one of Compass Lexecon’s experts on the AT&T-Time Warner merger, charges at least $1,350 an hour. In his career, he has made about $100 million, including equity stakes and non-compete payments, ProPublica estimates. Carlton has written reports or testified in favor of dozens of mergers, including those between AT&T-SBC Communications and Comcast-Time Warner, and three airline deals: United-Continental, Southwest-Airtran, and American-US Airways.
https://www.propublica.org/article/these-professors-make-mor...
If the government ends up approving the $85 billion AT&T-Time Warner merger, credit won’t necessarily belong to the executives, bankers, lawyers, and lobbyists pushing for the deal. More likely, it will be due to the professors.
A serial acquirer, AT&T must persuade the government to allow every major deal. Again and again, the company has relied on economists from America’s top universities to make its case before the Justice Department or the Federal Trade Commission. Moonlighting for a consulting firm named Compass Lexecon, they represented AT&T when it bought Centennial, DirecTV, and Leap Wireless; and when it tried unsuccessfully to absorb T-Mobile. And now AT&T and Time Warner have hired three top Compass Lexecon economists to counter criticism that the giant deal would harm consumers and concentrate too much media power in one company.
Today, “in front of the government, in many cases the most important advocate is the economist and lawyers come second,” said James Denvir, an antitrust lawyer at Boies, Schiller.
Economists who specialize in antitrust — affiliated with Chicago, Harvard, Princeton, the University of California, Berkeley, and other prestigious universities — reshaped their field through scholarly work showing that mergers create efficiencies of scale that benefit consumers. But they reap their most lucrative paydays by lending their academic authority to mergers their corporate clients propose. Corporate lawyers hire them from Compass Lexecon and half a dozen other firms to sway the government by documenting that a merger won’t be “anti-competitive”: in other words, that it won’t raise retail prices, stifle innovation, or restrict product offerings. Their optimistic forecasts, though, often turn out to be wrong, and the mergers they champion may be hurting the economy.
President Obama promised to fight corporate concentration. Eight years later, the airline industry is dominated by just four companies. And you’re paying for it. "Some of the (Economics)professors earn more than top partners at major law firms. Dennis Carlton, a self-effacing economist at the University of Chicago’s Booth School of Business and one of Compass Lexecon’s experts on the AT&T-Time Warner merger, charges at least $1,350 an hour. In his career, he has made about $100 million, including equity stakes and non-compete payments, ProPublica estimates. Carlton has written reports or testified in favor of dozens of mergers, including those between AT&T-SBC Communications and Comcast-Time Warner, and three airline deals: United-Continental, Southwest-Airtran, and American-US Airways.
https://www.propublica.org/article/these-professors-make-mor...
Economists cannot predict the impact of https://en.wikipedia.org/wiki/Parable_of_the_broken_window
Economist here. Maybe some economists make this very bold, presumptive claim. But I'll be honest, money very rarely enters into the paradigm; rather resource allocation and maximizing utility are the common approach. But then again, I didn't focus solely on financial economics.
The draw for me wasn't mathematical complexity, it was the ability to model behavioral interactions I witnessed on a daily basis. And I'll be honest--it is so much fun! The conception, the data collection, the validation of theory.
Anyhow, I now work as a data scientist where I use the theories of economics and the methods of econometrics (especially game theory considerations) to really move the ball on our strategy and our marketing. I enjoy the process a lot and love seeing economists entering the field. Statisticians and economists make a potent combination.