Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

How Effective Is Economic Theory?

nationalaffairs.com

Post reply on HN
Print view View original

41–50 of 63 posts

Re: How Effective Is Economic Theory?

#41

Post by nerfhammer »

paganel wrote: post #23
dhfhduk wrote: post #10

Discussions like this always seem a little strange. Sure, they're important, but taken out of context they're counterproductive and even harmful. This is the problem: what is the alternative? The pet theory of a madman or sociopath? The difficult truth is that everyone has an economic theory, whether they admit it or not. The question is, whose theories do we want to pay attention to? People who spend their lives arg…

> Sure, lots about classical economic theory is really ridiculous, and the source of a lot of problems, but then you change those things and then move on. That's the thing, it has proven really, really hard to "change those things". I'm looking at the latest (still current?) economic/financial crisis. Lots of "economic theory tells us this should never happen"-things did in fact happen, and consistently so (there was…

> Lots of "economic theory tells us this should never happen"-things did in fact happen.

What economic theory said which things should never happen exactly?

Re: How Effective Is Economic Theory?

#42

Post by maxxxxx »

I know the economy is much more complex than let's say physics. But at least I would like economists to backtest things that happened. For example, the large tax cuts that happened during the Reagan, Bush and probably Trump years could be tested and it could be determined if the promised increase in investment and whatever really happened. At least the economists that make it to the media don't seem to have interest in checking whether their theories actually worked out.

Re: How Effective Is Economic Theory?

#43

Post by bachmeier »

marcosdumay wrote: post #37
bachmeier wrote: post #12

Earlier quoted context omitted.

If that's what you took from his paper, you didn't understand it. He is specifically arguing against DSGE models, a popular methodology for studying business cycles, but one that has been unsuccessful. That is not the same as arguing that all of macro is useless. It's not different from saying that criticism of imperative programming means all of computer programming is useless.

If the community does not take status and funding away from failed models, it ceases doing science. As a group, economists aren't letting DSGE go. There are many economists trying to do the right thing, but overall the area has a deep problem.

You're not going to take funding away from DSGE models because it's mostly individual researchers writing programs for themselves.

Ricardo Reis argues that macro has largely moved beyond real business cycles with frictions[1]. I'm not as optimistic as him, but DSGE is no longer as prestigious as it once was.

[1] http://personal.lse.ac.uk/reisr/papers/17-wrong.pdf

Re: How Effective Is Economic Theory?

#44

Post by tnecniv »

I'd be interested in hearing someone with knowledge talk about how these models get used in practice. From an engineering perspective it seems like actually applying them would be very hard.

For example, how good are parameter estimates and how do we know if they are good? If I was designing a controller for a plane, I can spend a lot of time getting good parameters for the plane model and design a controller that looks good in simulation. However, when I take the plane out, it might not be stable (or doesn't meet some other metric I designed for) because the parameters changed due to a variety of physical factors and/or the model is a model and thus doesn't account for anything. So I go back and forth tweaking the controller design until I get something that works. That process isn't really feasible when it comes to economies, though.

Re: How Effective Is Economic Theory?

#45

Post by quantum_state »

An interesting article ... but not sure it's that accurate to compare economics to physics ... the closest situation comes to mind would be the phenomenon of turbulence ... which still is more manageable than economics since the controlling principles are known and controlled experiments can be performed ... on the other hand, an economic system involves many many agents of different scales, most of time seemingly rational but certainly emotional, interacting nonlinearly at all scales, without much chance of controlled experiments ...

Re: How Effective Is Economic Theory?

#46

Post by lliamander »

GhostVII wrote: post #34
pdonis wrote: post #31

Earlier quoted context omitted.

> what is the alternative? To not commit an entire society to a single economic theory. Which means getting rid of a lot of the centralized control mechanisms that currently require just such a commitment. > whose theories do we want to pay attention to? Since no one has a theory that is good enough to make useful predictions, as far as public policy is concerned, the answer is "none of them". > There's also the diff…

> To not commit an entire society to a single economic theory. Which means getting rid of a lot of the centralized control mechanisms that currently require just such a commitment. Isn't that just another economic theory?

> Isn't that just another economic theory?

Yes, in the same way we could formulate a medical theory that says "we don't know enough about disease to know whether our treatments are effective, so we aren't going to create a standard diagnostic manual". Prior to the last couple centuries, that would probably have been an improvement.

No, in the sense that, compared to most economic theories, you can't really use this theory to justify a particular group being given access to government power.

Re: How Effective Is Economic Theory?

#47

Post by lliamander »

pdonis wrote: post #31
dhfhduk wrote: post #10

Discussions like this always seem a little strange. Sure, they're important, but taken out of context they're counterproductive and even harmful. This is the problem: what is the alternative? The pet theory of a madman or sociopath? The difficult truth is that everyone has an economic theory, whether they admit it or not. The question is, whose theories do we want to pay attention to? People who spend their lives arg…

> what is the alternative? To not commit an entire society to a single economic theory. Which means getting rid of a lot of the centralized control mechanisms that currently require just such a commitment. > whose theories do we want to pay attention to? Since no one has a theory that is good enough to make useful predictions, as far as public policy is concerned, the answer is "none of them". > There's also the diff…

Indeed. It would be nice if it were a choice between government by Science vs. Superstition, because then the answer would be easy.

In reality it's more like "psuedo-scientific mismanagement" vs. "mostly civilized confusion". Neither of these scenarios is particularly appealing, but I'd rather take the confusion.

Re: How Effective Is Economic Theory?

#48

Post by woodandsteel »

paulpauper wrote: post #33
paganel wrote: post #23

Earlier quoted context omitted.

> Sure, lots about classical economic theory is really ridiculous, and the source of a lot of problems, but then you change those things and then move on. That's the thing, it has proven really, really hard to "change those things". I'm looking at the latest (still current?) economic/financial crisis. Lots of "economic theory tells us this should never happen"-things did in fact happen, and consistently so (there was…

I think you're overestimating the power of economists and putting too much blame on them. The 2008 crisis was not cased by economists; rather, it was caused by MBAs who approved mortgages that should have never been approved in the first place. This generated short-term gains for these financial institutions that paid the price years later.

>it was caused by MBAs who approved mortgages that should have never been approved in the first place.

But the point is the economists should have seen that was happening, so we could think about the government stopping it, or at least to put the public on guard. Instead the economics profession, with a few exceptions like Dean Baker, told the world that things were going just fine.

I mean, what is the point of even having an economics profession if it can't help us make intelligent decisions on economic matters?

Re: How Effective Is Economic Theory?

#49

Post by woodandsteel »

lkrubner wrote: post #20
dhfhduk wrote: post #10

Discussions like this always seem a little strange. Sure, they're important, but taken out of context they're counterproductive and even harmful. This is the problem: what is the alternative? The pet theory of a madman or sociopath? The difficult truth is that everyone has an economic theory, whether they admit it or not. The question is, whose theories do we want to pay attention to? People who spend their lives arg…

Still, one can argue with fundamental assumptions, and if those are wrong, then whole entire branches of knowledge, including decades of work by many bright individuals, comes into question. Regarding economics, there are some fundamental assumptions that are often criticized. For instance, in the mid 1700s, Charles Townsend asserted the fundamental laws of economics were these: 1,) Man's want, wishes, needs and desi…

I agree. I think a lot of the problems with the economics profession today are due to the fact that when it was originally got established, it never properly worked out its basic assumptions. One major problem area here is thinking out the relation of economic science to the other social sciences.

In spite of such major deficiencies, economic science was very lucky and promoted the free market, which was in many ways an amazing success. As a consequence economists got the mistaken idea their science was basically sound, and never set about thinking out its basic assumptions.

Re: How Effective Is Economic Theory?

#50

Post by dragonwriter »

woodandsteel wrote: post #48
paulpauper wrote: post #33

Earlier quoted context omitted.

I think you're overestimating the power of economists and putting too much blame on them. The 2008 crisis was not cased by economists; rather, it was caused by MBAs who approved mortgages that should have never been approved in the first place. This generated short-term gains for these financial institutions that paid the price years later.

>it was caused by MBAs who approved mortgages that should have never been approved in the first place. But the point is the economists should have seen that was happening, so we could think about the government stopping it, or at least to put the public on guard. Instead the economics profession, with a few exceptions like Dean Baker, told the world that things were going just fine. I mean, what is the point of even…

> But the point is the economists should have seen that was happening

A large number of economists (in academia, public institutions, and private finance firms), all across the ideological spectrum (Austrians, Keynesians, and every other flavor) did see it happening.

People didn't respond to then, probably because the existence of a bubble isn't a problem, as long as you can delude yourself to thinking you'll be able to time the market so you won't be holding the ball when it pops.

> Instead the economics profession, with a few exceptions like Dean Baker, told the world that things were going just fine.

Baker was far from the only prominent economist pointing to a bubble. In fact, economists were warning about the housing bubble and the fact that it would have to burst before the first dot-com bubble burst (or even expanded) back as far as the mid-1990s. That may actually be the real problem: the warnings had been around for so long no one took them seriously any more; as controversial as identifying a bubble can be, it's a lot easier to identify it than time when it will pop ,and the longer it is pointed to without popping, the more likely people are to convince themselves it's just a permanent feature of the market and not a bubble that will pop.

Post reply on HN