Why being a macroeconomist means never having to say you're sorry(reason.com)
reason.com
Why being a macroeconomist means never having to say you're sorry
http://www.reason.com/news/show/134059.html
18 comments
it's impossible to gauge the effects of any policy decision ever if it is applied universally. The only way to determine the effect of a policy is to apply it specifically to smaller groups and try to tease the effect out while controlling for various other factors. In a situation like a global economic meltdown, you simply don't have time to study the efficacy of the policy.
It's damn near impossible, but it has been done. The books "Super Crunchers" and "Freakonomics" have discussions of how and when it's been done successfully
It's damn near impossible, but it has been done. The books "Super Crunchers" and "Freakonomics" have discussions of how and when it's been done successfully
I love that they can be successful if unemployment rises or falls.
Um, no it isn't impossible at all. It's called statistics and all sorts of government organizations collect a bunch of them. While it is impossible to finely estimate, it is nothing like impossible to come up with pretty good estimates.
And for what it's worth, industrial output has fallen at a pace faster than during the beginning of the Great Depression. That we haven't seen similar knockon effects (30% unemployment?) is most likely due to government stimulus ala Keynes. Now it is fair to claim that the economy has more services and less goods, so the GD isn't a perfect comparison, but it is pretty good.
See, eg, (industrial output) http://voxeu.org/files/image/eichengreen_update_fig1.gif
(world trade -- more important now than then) http://voxeu.org/files/image/eichengreen_update_fig3.gif
(industrial output, 4 big europeans) http://voxeu.org/files/image/biigeuro.gif
Source: http://voxeu.org/index.php?q=node/3421
And for what it's worth, industrial output has fallen at a pace faster than during the beginning of the Great Depression. That we haven't seen similar knockon effects (30% unemployment?) is most likely due to government stimulus ala Keynes. Now it is fair to claim that the economy has more services and less goods, so the GD isn't a perfect comparison, but it is pretty good.
See, eg, (industrial output) http://voxeu.org/files/image/eichengreen_update_fig1.gif
(world trade -- more important now than then) http://voxeu.org/files/image/eichengreen_update_fig3.gif
(industrial output, 4 big europeans) http://voxeu.org/files/image/biigeuro.gif
Source: http://voxeu.org/index.php?q=node/3421
You can get some important and interesting insights from economic statistical data, but macroeconomics is a series of just-so stories, at best; it isn't even really the same thing as microeconomics. Microeconomics deals, in part at least, with things you can run experiments on, with actual controls. Macro, not so much; like politics, you can find a macro pundit to give pretty much any conclusion you'd like, even when they mostly agree on micro.
[Edit: apparently I'm just rephrasing the article summary. I guess I should have read it before ranting...]
[Edit: apparently I'm just rephrasing the article summary. I guess I should have read it before ranting...]
Of course these people will still be trotted out whenever someone wants a new law. Every politician loves having people who can justify any policy they want to enact without fear of contradiction.
I have always been skeptical of what prophetic capabilities of economists. Their predictions on rise and fall of the greenback, oil prices, share market performance have mostly fell flat on face.
Remember how the league of global economists were forecasting that oil prices would shoot beyond $200 in no time. Until the oil price took an u-turn and plummeted to around $40 within six month.
very good at explaining past events. terrible at predicting the future.
Remember how the league of global economists were forecasting that oil prices would shoot beyond $200 in no time. Until the oil price took an u-turn and plummeted to around $40 within six month.
very good at explaining past events. terrible at predicting the future.
very good at explaining past events.
They aren't that good at that either.
They aren't that good at that either.
Well, I guess, they indeed are good at making things up. especially when they have the benefit of hindsight.
If you want an example of how they are bad at this, look at the Great Depression. There is still a great deal of disagreement to this day about its cause and how it was overcome.
"Regarding the Great Depression. You're right, we [the FED] did it. We're very sorry. But thanks to you, we won't do it again."
— Ben Bernanke, in a speech at Milton Friedman's 90's birthday, 2002
“It's almost worth the Great Depression, to learn how little our big men know.”
— Will Rogers
— Ben Bernanke, in a speech at Milton Friedman's 90's birthday, 2002
“It's almost worth the Great Depression, to learn how little our big men know.”
— Will Rogers
"We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and now if I am wrong somebody else can have my job. I want to see this country prosper. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises. I say after eight years of this administration, we have just as much unemployment as when we started. And enormous debt to boot."
-- Henry Morgenthau, U.S. Secretary of the Treasury during the administration of Franklin D. Roosevelt
-- Henry Morgenthau, U.S. Secretary of the Treasury during the administration of Franklin D. Roosevelt
And yet this is a field that has a Nobel set aside for it whereas mathematics is treated like a stepchild.
I believe that Nobel's family is quite opposed to this-they believe that the prize's relationship to the Nobel prize is an attempt to elevate economics up to the level of physics or chemistry.
At least it isn't a real Nobel.
Peer review only helps when the peers have a clue. By the articles own admissions, no one has any real idea of how to do macroeconomics that predicts the real world. Without the discipline of reality, peer review becomes group-think. In macro they develop all sorts of claims and mathematics that have no connection to what actually happens. But with so many different approaches and claims some actually seem to predict what happens, just as some stock pickers seem to predict stock prices, though it is mostly random.
Not a bad article, but it doesn't go far enough. Most macroeconomists use false assumptions and bad models to make terrible predictions. It's hard to accept that a field like this can be dominated by people making the most basic of errors, so many observers can't bring themselves to reject these methods wholesale.
that's the reason why macrofund managers, like george soros are called speculators.
They have claimed that the handouts have been effective in saving jobs despite the trend towards higher unemployment still occurring like America. It's impossible to truly gauge the effects of the handout on the economy.