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Economists versus the Economy

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Re: Economists versus the Economy

#41

Post by devinhelton »

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…

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.

Re: Economists versus the Economy

#42

Post by TwoBit »

cs702 wrote: post #4

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 mon…

And how do you know this?

Re: Economists versus the Economy

#43

Post by tomrod »

> Economists claim to make precise what is vague, and are convinced that economics is superior to all other disciplines, because the objectivity of money enables it to measure historical forces exactly, rather than approximately.

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.

Re: Economists versus the Economy

#44

Post by mannykannot »

azernik wrote: post #21
ctchocula wrote: post #19

Paul Krugman's brief rebuttal may be relevant: 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, ineffect…

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.

Re: Economists versus the Economy

#45

Post by mannykannot »

rhizome wrote: post #36
crdoconnor wrote: post #24

Earlier quoted context omitted.

>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.

Ah, yes, Alan Greenspan - the guy who took much of the credit that Paul Volcker earned.

Re: Economists versus the Economy

#46

Post by iopq »

crdoconnor wrote: post #9
dragonwriter wrote: post #6

Earlier quoted context omitted.

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 in…

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…

Inflation causes the value of your investments to increase, so it hurts the people who rely on cash more than people with stock portfolios

Re: Economists versus the Economy

#47

Post by iopq »

edblarney wrote: post #29
Animats wrote: post #11

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.

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.…

> 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

Re: Economists versus the Economy

#48

Post by ianai »

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'.

Re: Economists versus the Economy

#49

Post by AaronFriel »

mannykannot wrote: post #44
azernik wrote: post #21

Earlier quoted context omitted.

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, ineffect…

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/

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