Economists versus the Economy

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 ;)

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:

  - 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?

A lot of the work seemed convincing to me, and lead to insights beyond the common sense intuition of politicians/businessmen who were familiar with the domain.

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!

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.

>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.

"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...