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Economists versus the Economy

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Re: Economists versus the Economy

#31

Post by ianai »

conistonwater wrote: post #14
ep103 wrote: post #7

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 wr…

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 commission…

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.

Re: Economists versus the Economy

#32

Post by rz2k »

ep103 wrote: post #7

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 wr…

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: Economists versus the Economy

#33

Post by jpmattia »

clavalle wrote: post #13

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.

Re: Economists versus the Economy

#34

Post by neffy »

conistonwater wrote: post #14
ep103 wrote: post #7

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 wr…

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 commission…

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.

Re: Economists versus the Economy

#35

Post by ianai »

clavalle wrote: post #16
losvedir wrote: post #8

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…

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 sa…

I tend to use:

"possibly" for 0"maybe" for 0%"probably" for 75%And of course the sarcasm gods dictate that "proba-maybe" means x<10%

Re: Economists versus the Economy

#36

Post by rhizome »

crdoconnor wrote: post #24
ctchocula wrote: post #19

Paul Krugman's brief rebuttal may be relevant: http://krugman.blogs.nytimes.com/2016/12/24/dont-blame-macro...

>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…

To be fair, Alan "flaw in the model" Greenspan was still Chairman of the Fed in 2003.

Re: Economists versus the Economy

#37

Post by rhizome »

dmix wrote: post #25

> 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 direct…

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.

Re: Economists versus the Economy

#39

Post by [deleted] »

losvedir wrote: post #8

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…

[deleted]

Re: Economists versus the Economy

#40

Post by rvern »

stephen_g wrote: post #20
losvedir wrote: post #8

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…

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…

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.

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