A couple of philosophers of science complain in the New York Times:
The trouble with economics is that it lacks the most important of science’s characteristics — a record of improvement in predictive range and accuracy.
This is what makes economics a subject of special interest among philosophers of science. None of our models of science really fit economics at all.
The irony is that for a long time economists announced a semiofficial allegiance to Karl Popper’s demand for falsifiability as the litmus test for science, and adopted Milton Friedman’s thesis that the only thing that mattered in science was predictive power. Mr. Friedman was reacting to a criticism made by Marxist economists and historical economists that mathematical economics was useless because it made so many idealized assumptions about economic processes: perfect rationality, infinite divisibility of commodities, constant returns to scale, complete information, no price setting.
Mr. Friedman argued that false assumptions didn’t matter any more in economics than they did in physics. Like the “ideal gas,” “frictionless plane” and “center of gravity” in physics, idealizations in economics are both harmless and necessary. They are indispensable calculating devices and approximations that enable the economist to make predictions about markets, industries and economies the way they enable physicists to predict eclipses and tides, or prevent bridge collapses and power failures.
But economics has never been able to show the record of improvement in predictive successes that physical science has shown through its use of harmless idealizations. In fact, when it comes to economic theory’s track record, there isn’t much predictive success to speak of at all.
On August 15, 1971, President Richard Nixon announced a freeze on all wages and prices in America for three months. From the perspective of 2013, this sounds like I'm making it up. But it really happened and was popular at the time. Milton Friedman was the loudest voice predicting it would turn out to be a bad idea (which it did).
My recurrent point is that that the set of possibilities for which people are interested in predictions is a tiny fraction of all possibilities. In the past it seemed like a pretty good idea to freeze all the prices in the country. Today, nobody is interested in the opinions of economists on why that would turn out poorly. That's not the fault of economists.
People want predictions for situations that are hard to predict. Who will win the tennis tournament? Interesting. Can a woman tennis star beat a male tennis star? No longer interesting. Which question is more important in that the right answer is broadly applicable? The boring one. But noticing the pattern that boring predictions are more important than exciting predictions is meta-boring, so nobody notices.
yeah, two big complaints are
ReplyDelete1) no one can predict the stock market and
2) economists assume markets are 'efficient'
whadayado...
The irony is that for a long time economists announced a semiofficial allegiance to Karl Popper’s demand for falsifiability as the litmus test for science, and adopted Milton Friedman’s thesis that the only thing that mattered in science was predictive power.
ReplyDeleteIf liberals were committed to those principles they wouldn't be so committed to global warming. They would also have realized that we're unlikely to close the achievement gap.
The GDP and standard of living in formerly Soviet countries went down enormously after price controls were lifted in the early 1990s. Most of the people who went through that would consider Steve's Nixon example to be an unrepresentative fluke.
ReplyDeleteWho's right? Likely no one. The system is too complex for predictions to be made. In each case a million other factors interferes. A government's price policy can't be studied in a vacuum. Controlled experiments cannot be designed. The whole field of economics is useless. I'm sure that politicians do better when the follow their hunches than when they consult economists.
We got a natural test of predictive power when the Great Recession started. A lot of economists, especially on the libertarian or Austrian side, predicted inflation or even hyperinflation from quantitative easing and budget deficits. The straight Keynesian analysis was that this was wrong. The last few years have shown the inflation whiners screwed up about as badly as it's possible to miss in economics.
ReplyDeleteBy the way, a good rule of thumb whenever you hear someone railing against quantitative easing is to note why they're against it. Then go back a few years to when it started and check to see if they warned about inflation. If they haven't apologized or explained why they were wrong, it's a safe person to ignore.
Steve's Nixon example to be an unrepresentative fluke.
ReplyDeleteI don't think you'll find an economist anywhere outside of an old tenured Moscow U relic that thinks price controls are a good idea.
"By the way, a good rule of thumb whenever you hear someone railing against quantitative easing is to note why they're against it. Then go back a few years to when it started and check to see if they warned about inflation. If they haven't apologized or explained why they were wrong, it's a safe person to ignore."
ReplyDeleteWhere do you not see inflation? Have you seen food prices lately? Have you noticed packages getting smaller?
You have inflation in food products and deflation in hard assets like real estate.
The straight Keynesian analysis was that this was wrong.
ReplyDeleteThe Keynesian argument for stimulus hasn't covered itself in glory, here or in Japan.
http://www.aei-ideas.org/2013/04/new-obama-budget-says-us-wont-hit-pre-great-recession-unemployment-levels-before-2023/
(This understates the real unemployment rate due to the decrease in the labor force participation rate.)
As for inflation, the increase in the money supply has been offset by a decrease in the velocity of money, from a Friedmanite standpoint.
http://research.stlouisfed.org/fred2/series/M2V
"...it's a safe person to ignore."
ReplyDeleteIt's not just safe, it is necessary to ignore all economists, including Keynesians. Economics is worse than astrology ever was. Astronomy grew out of astrology, but I can't imagine a serious discipline ever growing out of economics. Economics is a bunch of political opinions (nothing wrong with those in themselves) supported by math-like nonsense. The purpose of this math-like nonsense is to impart undeserved weight to those opinions, to fool people into taking those opinions more seriously than they would have otherwise. It's a confidence trick. When this math-type nonsense is used to predict outcomes, the results are always random.
"I don't think you'll find an economist anywhere outside of an old tenured Moscow U relic that thinks price controls are a good idea."
ReplyDeleteYes, and I don't think you will find a truly rational person anywhere who cares about what any economist thinks. Wrong credential to pull here, regardless of whether or not you're an economist yourself.
More World War T stuff:
ReplyDeleteIn the past month or so, there have been a few media stories like this one:
Transgender Woman Dies After Beating in Front of NYPD Precinct
Off the top of my head, I remember two others (all were featured on Yahoo "News").
Very little about the Dog Bites Man stories that are the everyday fare on the interracial crime beat.
But it's fair to guess there will be more stories on T-persecution as we trudge (prance?) onward.
Oh God, I remember Nixon's wage and price controls only too well. When he went on TV to announce them, I had to take a tranquilizer to keep from putting a brick through the screen.
ReplyDeleteCan a woman tennis star beat a male tennis star? Not interesting.
ReplyDeletePredictions on that question really are uninteresting, unlike predictions about price controls, where your point is good.
That's because all theories of sex and gender - from extreme biological to extreme cultural - predict that the man will beat the woman, assuming no big age differences or whatever (like Riggs and King). This is different from your price control example, where some economists really predicted it would work.
By the way, your "woman/male" juxtaposition is still jarring to me, maybe because, like you, I'm old enough to remember a time before Phil Donahue replaced the word "man" by "male."
Russian standard of living decline was more a factor of stats matching reality and devaluation of the ruble making food imports more expensive. Under the Soviet price control regime ordinary people got a pittance of crap and connected high ranking insiders caviar and cream. After it ordinary people got the same as did connected high ranking insiders but nobody pretended any more.
ReplyDeleteDavid Levine argues (contra a philosopher of science) that economics has improved in its ability to make predictions, because decades ago it had approximately zero ability to make predictions.
ReplyDeleteThe trouble is Steve, that saying that a freeze on wages and prices is not a good idea is really stating the obvious - there is nothing deep or profound about making that observation.
ReplyDeleteAnyone with any knowledge of markets (ie realtors) knows perfectly well that rising prices are merely a symptom of scarcity. 'Banning' price increses won't make that shortage magically disappear, it will only manifest in another way (ie homelessness). It's just a simple and obvious observation rather in the same way that the price of tomatoes plummets in the summer - you don't Friedman's bombast to know that.
Nixon was, of course, a politician. Politician do political things ie court popularity.
Austrian economists apparently don't believe their own propaganda about inflation because they argue that current minimum wages laws keep wages propped artificially above the levels which clear the market for labor. In other words, we wouldn't see this downward pressure on wages if we lived in an inflationary era. They also tend to support open borders and more massive immigration to push wages down further.
ReplyDeleteAs for the damaged caused by wage and price controls, does that take into account how much of the economy in normal times operates according to administered prices, for example, ones written into contracts? Imagine how much trouble you'd have in budgeting your money if, say, your hourly wage changed on a daily basis like commodities prices, so that even if you work 40 hours every week, your weekly paychecks would vary all over the place; while your mortgage or rent payments every month would do the same.
The key insight to remeber is Stanislaw Ulam's observation that 'there is not a single proposition in the social sciences that is both not true and non-trivial'. 'Trivial' here, of course, means trivial in the mathematical sense, ie a statement which is damn nearly self-explanatory obvious and requires no deeper thought and explanation. Real science and mathemaatics is characterised by the sublime, the hidden, the awe inspring, insights that you'd never thought possible, but once uncovered seem to fit perfectly like a glove. Think of the Darwinian and Mendelian odyssey, Crick and Watson - and where that's got us today. Think of the way that abstract paper theory really set out radio and TV decades before the engineers could actualize it - think of the computer revolution. The real awe-inspiring moments come in higher mathematics when masses of abstract theory and equatio manipulation really pull out a simple, beautiful and pofoundly explanatory result seemingly out of the thin air. Here philosphers claim that mathematics exists in a transcendtal time and space outside the human sphere, and the profundity has an independent existence outside our mundane world or minds, the results have always been and always will be, humans just stumble upon them (with luck and damned hard work).
ReplyDeleteThe deepest thing *any* economist can tell you is that if you restrict supply, people will bid more for what you've got. Something any 10 year old school boy with a pocket full of baseball cards could tell you. Don't let economists try to con you that all their masses of hot air and guff say anything deeper - it doesn't.
ReplyDelete> 1) no one can predict the stock market and
> 2) economists assume markets are 'efficient'
These statements do not contradict each other, rather they are the same thing.
Both means that there is no significant information relevant to the price of an item being traded, that isn't reflected in the price of that item.
This is almost like a law of thermodynamics. You cannot create energy ex nihilo, and the stock market is not a cornucopia.
Economic Theory as a formal, mathematical discipline is quite respectable. And gives valuable insights.
"Under the Soviet price control regime ordinary people got a pittance of crap and connected high ranking insiders caviar and cream."
ReplyDeleteThe lifestyle of Soviet leaders cost a few times more than the lifestyle of ordinary citizens. At the same time the lifestyle of Western leaders (of industry, banking, etc., in other words the real powers that be) cost millions of times more than the lifestyles of ordinary Western citizens. The billionaire owners of Western media accused men like Brezhnev, whose lifestyle was comparable to that of a middling American lawyer, of bathing in caviar. That says more about Western media than about Soviet leaders.
"Russian standard of living decline was more a factor of stats matching reality..."
The decline of standard of living was seen not just in economic stats, but in life expectancy and other health stats.
>you hear someone railing against quantitative easing... if they warned about inflation
ReplyDeleteDebt did soar, whatever you say about the global warming hockey stick, US debt hockey stick is there, no squinting needed. Recent US wars were scams/rackets so no post-war boom on the horizon. No post-war either, but I digress. What will happen to that debt? You may chose not to pay a debt, You may increase your revenue, you may decrease your expenses, you may inflate prices. Time passes and eventually due dates are due. This is as boring a prediction as it gets, but one needs to be reminded every once in a while.
OK, the lifestyle of Western billionaires cost thousands, not millions of times more than that of ordinary Western citizens. I was responding to a Whiskey comment, so I guess some of his hyperbole rubbed off on me. It's still a difference of several orders of magnitude.
ReplyDeleteLike the “ideal gas,” “frictionless plane” and “center of gravity” in physics, ... No. The first two are useful idealisations of reality, the third a fully defined abstraction that involves no idealisation.
ReplyDelete
ReplyDeleteHayek's 1974 Nobel acceptance speech on the follies of 'scientism' in the social sciences--
It seems to me that this failure of the economists to guide policy more successfully is closely connected with their propensity to imitate as closely as possible the procedures of the brilliantly successful physical sciences - an attempt which in our field may lead to outright error. It is an approach which has come to be described as the "scientistic" attitude - an attitude which, as I defined it some thirty years ago, "is decidedly unscientific in the true sense of the word, since it involves a mechanical and uncritical application of habits of thought to fields different from those in which they have been formed."
http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1974/hayek-lecture.html
Shortages of basic goods in Venezuela due to currency and price controls.
http://www.usatoday.com/story/money/business/2013/05/16/venezuela-toilet-paper-chavez/2165405/
The Fed will not acknowledge that it is suppressing prices, that what it is doing is a species of price controls. Interest rates are prices, and the Fed is manipulating them at the level, & they’re manipulating them on the yield curve! James Grant
One ponders what are the resultant shortages. Senior income? Employment? Wage growth?
In Defence of Economics...but not Economists
ReplyDeleteThe idea that economics should be able to predict anything outside of patterns(price control=scarcity) is deeply fallacious and is down to 3 interest groups:
1.Economists who suffer from physics envy.
2.Financial community who wants to beat the market
3.Politicians who want to control or direct the economy
That the economic profession has been a lousy forecaster has been true since they started doing it. After WWII newly confident Keynesians almost all predicted a return to depression.Instead we had 1946, perhaps the single biggest growth year of USA!
http://mises.org/journals/rae/pdf/rae5_2_1.pdf
Paul Samuelson and many other top economists consistently predicted in each edition of their textbooks that the Soviet Union would overtake America in GDP. The goalpost kept moving in each edition. Lol
http://marginalrevolution.com/marginalrevolution/2010/01/soviet-growth-american-textbooks.html
Alan Greenspan made his name on Wall Street as a predictor. His company almost went bankrupt and the media still hailed him as a genius who should get the FED chair...which he did with GWBush like consequences.
http://www.lewrockwell.com/1970/01/murray-n-rothbard/rothbard-saw-through-greenspan/
It is a wonder that economists still have any credibility.
Time to reread Hayek's nobel prize in economics where explained the problem with economists to their faces.
http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1974/hayek-lecture.html
"The last few years have shown the inflation whiners screwed up about as badly as it's possible to miss in economics."
ReplyDeleteLet me guess, Mr. Einstein, you haven't been long 30-yr zeroes this year when the Fed talked winding down QE? Imagine when it really happens.
Is it really credible that these two humanities professors have enough granular knowledge of econometric literature (and the background to interpret it) that they could make an accurate and authoritative statement on the evolution of the 'predictive' power of economics? Do they have an alternative to economics to explore and understand this aspect of the social world?
ReplyDeleteI'm with you, but only halfway.
ReplyDeletePeople want two kinds of predictions.
1. Exactly what you say - near 50-50 odds sporting events. This enables colorful interpretations of the result and investments in each moment with continuous and intensely emotional drama - exactly what action films are trying to simulate, 'will the hero barely make it against foes that seem just as likely to win?' Every little slip or success can prove critical to the final result.
2. Actionable Intelligence for Scientific Public Policy regarding highly complex and chaotic phenomena. We want Economists to give us a theory that can tell us how to build a regime where we can stabilize and regulate things like employment, prices, and growth, but without those crude and rough Socialist / War-Economy tactics. We demand power, competence, and knowledge where the nature of things leaves us impotent, incompetent, and ignorant. Economists are paid in the currencies of their profession to respond to that demand signal.
I suspect one role many of these theories have is to give eilites in need of some policy decisions some kind of shared language and basis for discussing them. Sometimes, simply being able to get to a consensus over what to do is important, even if that consensus occasionally involves eye of newt and wing of flea.
ReplyDeleteSo, any boring predictions on our impending Glorious Adventure in saving Syria from the Syrians? I'm thinking the boring prediction is that we will smash their conventional army, leave an ungovernable mess (not hard given where they are now), and eventually decide it's a swamp and leave a chaotic mess behind. But that also seems sorta like the "Bjorn Borg will beat Billie Jean King" sort of prediction--boring and depressing and not really welcome.
ReplyDeleteI wonder if we can manage to go to war with Iran after this, also on WMD issues. That stuff *never* gets old.
A gyroscope has one moving part. If you push it in direction A, it moves off in different direction B.
ReplyDeleteAn economy has a trillion moving parts . . .
All you need to know in order to predict that wage and price controls will not turn out well -- or to make any other useful prediction in economics for that matter -- is the general shape of the laws of supply and demand and of the law of diminishing returns. That plus a little human psychology. That's not what mathematical economics is about however. So I think the Marxists were right in this particular case. The kind of economics practiced in academe today -- i.e., mathematical economics -- is largely a waste of time. Or in econo-speak, the point of diminishing returns in the use of the machinery of mathematics was reached a long time ago. You don't need algebraic equations, let alone calculus, to know there is an inverse relation between price and demand for example. Adam Smith did fine with words alone.
ReplyDeleteAnonymous wrote:
ReplyDeleteBy the way, a good rule of thumb whenever you hear someone railing against quantitative easing is to note why they're against it.
I respond:
That's a two way street. Examine the motives of people who are for it. QE is done almost exclusively for the benefit of the value of stock exchanges, i.e. flea markets for long ago issued shares of common stick in publicly traded corporations. Almost all QE proponents have close links to stock brokerage. Present company included.
"The GDP and standard of living in formerly Soviet countries went down enormously after price controls were lifted in the early 1990s."
ReplyDeleteAbout this time the Russian mafia and the likes of Marc Rich were robbing Soviet eastern Europe blind. I wonder how much of the GDP damage was attributable to that?
"Good questions outrank easy answers"
ReplyDelete-Paul Samuelson
The late, great Enoch Powell was an intellectual giant - and undoubtedly the greatest statesman Britain produced after WW2.
ReplyDeletePowell was never an economist - he was a Classics professor, but he cleaved to classical economics at a time when that was distinctly unfashionable. A case in point is the post-war housing crisis in 1950s Britain. At that time, the ruling orthoxy was that 'rent-control' was necessary in order for the poor to be 'adquately accomodated'. Powell argued against it, saying,(correctly), that 'rent-control' was self-defeating in that it removed any incentive for landlords to procure new properties and for the market to work is 'magic' and allocate resources where they are actuall needed. Similarly, Powell always argued against the 'prices and incomes' pliicies that dominated UK economic life from the late 40s to late 70s. They never worked quoth Powell, and they never did. Basically, muscle unions destroyed them every single time, and thumbed their noses at their less skilled bretheren. Any knowledge of markets will tell you that workers earn what they can command, so the policy was doomed to failure.
All this was known for centuries before Friedman and his self-publicizing bombast.
>Is it really credible that these two humanities professors have enough granular knowledge of econometric literature (and the background to interpret it) that they could make an accurate and authoritative statement on the evolution of the 'predictive' power of economics? Do they have an alternative to economics to explore and understand this aspect of the social world?<
ReplyDeleteHow much alchemy do you understand? Do you have an alternative way to turn lead into gold? (You win if you answer "economics.")
Good post. Judging economics by unemployment forecasts three months ahead is like judging physics by rain forecasts three months ahead. When economists do make a strong, counter-intuitive, and useful statement about prediction such as "Stock prices follow a random walk", people like those historians of science don't believe us, and prefer to follow the snake oil salesmen.
ReplyDeletehttp://youtu.be/7ibQvQUpMTg
ReplyDeleteLooks bloody shupid.
"Aaron Gross said...
ReplyDelete"That's because all theories of sex and gender.....
By the way, your "woman/male" juxtaposition is still jarring to me, maybe because, like you, I'm old enough to remember a time before Phil Donahue replaced the word "man" by "male.""
I am old enough to remember a time before queer theorists replaced the notion of "sex" with "gender". That's why I don't use the word "gender".
I don't use the word "male" to describe a man when "man" will do. Although - to be fair - "male" isn't a bad term to describe p-whipped drones like Phil Donahue.
http://cdni.wired.co.uk/1920x1280/a_c/Bradley_Manning_US_Army-1.jpg
ReplyDeleteLooks like Himmler.
Could Himmy been a closet-fruiten?
Here's what is perhaps a better analogy to how people think of economists. "Physics isn't really a science. Just look--- it can't even tell us how to create energy without burning stuff, except by pitiful attempts like nuclear, solar, and wind power that don't really work!"
ReplyDeleteOr, as Whistler said (somthie like this), "two plus two will always equal 4, despite the demand of the critic for 5 and the whine of the amateur for 3"
Here's what is perhaps a better analogy to how people think of economists. "Physics isn't really a science. Just look--- it can't even tell us how to create energy without burning stuff, except by pitiful attempts like nuclear, solar, and wind power that don't really work!"
ReplyDeleteOr, as Whistler said (somthie like this), "two plus two will always equal 4, despite the demand of the critic for 5 and the whine of the amateur for 3"
After Nixon's problem-plagued wage and price controls were lifted, the Powers That Be moved on to suppress wages and prices in other ways:
ReplyDelete- Women in the workforce
- Open borders immigration
- Manufacturing to Asia
- Big military buildup to protect "free trade," i.e. no interruptions in commodity supplies
- Surreptitious market interventions to suppress the prices of oil and gold.
All of these have suppressed inflation so as to support the money-printing regime.
Keynesians laugh at the Austrians for predicting inflation in 2008. But Americans are not laughing about having their job market destroyed by the money printers' "free trade" policy.
Ultimately the money-printing regime is doomed. Money printing is a form of stealing, and as time goes on, more and more people worldwide will become angry enough to use force to put a stop to this stealing. That's my economic prediction.
The problem with the economy today is that a healthy economy depends at bottom on high standards of morals and ethics. As the Left has destroyed our system of morals and ethics, and glamorized instant gratification; our economy has reflected the complete lack of morals and ethics possessed by the victorious Left. We are not doing economic things in the U.S. that simply used to be considered criminal and counterproductive only a couple of decades ago.
ReplyDelete>The decline of standard of living [in the USSR] was seen not just in economic stats, but in life expectancy and other health stats.<
ReplyDeleteThe USSR had a rough patch in its 70-year history - losing 8 or 10 million people in war, with attendant damages to survivors.
If you want to see economics at its most revealing - a world where up is down, and Oceania is always at war with Eastasia until it isn't - then check out this piece. It caused spluttering indignation even among hard-core Marxists, for example Richard Wolff. The point is that economic talk is but a creature of power. Every Attila needs a witch doctor to manufacture soothing rationalizations of state actions. Why would our state be exceptional in this regard?
Economics isn't like normal scientific enquiry because it is not played against nature but against other people.
ReplyDeleteConsider something like climate. We know more about climate than we used to before Al Gore needed a topic to investigate so as to garner some press attention for his Presidential run. We still don't know all that much, but we definitely know more than we did thirty years ago. There has been quite a bit of fraud from the interested parties like Michael Mann but nature herself has always played fair.
Now contrast that with economics. Basically we are trying to predict the behavior of people who are self aware and capable of reacting to our current understanding. If you observe that B regularly follows A. The 'others' may decide to now have A follow B. There can be a lot of money in these kind of moves. Once everyone's read Milton Friedman his advice is no longer quite so useful.
Games are not like simply observing nature. It's as if once the sun notices that you know that it rises in the east - it decides to rise in the west.
Albertosaurus
Chimpanzee emulates Miley Cyrus.
ReplyDeleteBoomers became conservative in method and style if not so much in ideology.
ReplyDeleteSam said...
ReplyDeleteIn Defence of Economics...but not Economists
1.Economists who suffer from physics envy.
Physics envy, classic, I love it. I have a degree in geology and the word also applies to alot of geologists. The hard-science is being cut away so they can attract more students.
The people arguing that it was self evident that wage and price controls wouldn't work are swimming in the post-stagflation environment that didn't exist back then. A lot of economists and virtually the entire political class was for wage and price controls, including Nixon and his economist Fed chairman Arthur Burns. In fact, Nixon who was a Keynesian, was criticized for not imposing them sooner. Economists like Samuelson continued to push for them throughout the 1970's, and Samuelson was one of the more centrist Keynesians around. People like Galbraith who was a left icon at the time thought they would be great, because in his mind they had "worked" in WW2.
ReplyDeleteIn fact, the postwar Attlee government in Britain maintained controls and rationing long after the war was over, even though the US got rid of them nearly as soon as the ink was dry on Japanese surrender. When Reagan lifted controls on oil prices in 1981, virtually every expert polled by the media predicted that prices would rise a lot, but in fact the retail price of gasoline fell something like 40 percent within 5 months of decontrol. This was after the price had increased by a factor of 10 in the decade following the imposition of controls by Nixon. You are taking for granted things learned in the last 40 odd years as being self-evident and trivial, but they were not in the 1960's and 70's.
All you need to know in order to predict that wage and price controls will not turn out well -- or to make any other useful prediction in economics for that matter -- is the general shape of the laws of supply and demand and of the law of diminishing returns. That plus a little human psychology. That's not what mathematical economics is about however. So I think the Marxists were right in this particular case. The kind of economics practiced in academe today -- i.e., mathematical economics -- is largely a waste of time. Or in econo-speak, the point of diminishing returns in the use of the machinery of mathematics was reached a long time ago. You don't need algebraic equations, let alone calculus, to know there is an inverse relation between price and demand for example. Adam Smith did fine with words alone.
ReplyDeleteEconomics seems to be where all the sperg-fantasists are ending up, since science and engineering are pretty hard on their Star Trek-fairy tale worldview.
ReplyDeleteThe key insight to remember is Stanislaw Ulam's observation that 'there is not a single proposition in the social sciences that is both not true and non-trivial'.
ReplyDeleteSurely this should read 'true and non-trivial'.
It's worth pointing out that Austrian economics is not synonomous with monetarism (which could be forgiven given the popular conflation of Hayek with Friedman), and that Friedman is not held in high esteem by Austrians. Indeed, von Mises has been quoted, 'Friedman is not an economist. He’s a statistician.'
Somewhere around 1995 I predicted that boy-girl sex was dead. I based my conclusion on nothing more than the fact that women had decided to wear all black, a trend which continued right up until last year or so (colors seem to have returned). I couldn't see how the celebration in sex could co-exist with the ubiquity of death/depression, and then after several years Roissy showed up to confirm that women had turned into something never seen before. People told me I was wrong because condom sales kept going up, but I think my prediction turned out to be right, and I think the hostility of young people to baby-boomers is mostly jealousy that we had so much sex in the '70's.
ReplyDeleteAnon @ 906
ReplyDeleteWhat kind of idiot are you? They game inflation stats by refusing to list energy costs and food prices. Who are you going to believe? The government or your lying eyes?
I stopped in to visit Karl Marx’s boyhood home in Trier during a 2012 trip to southern Germany. It is a huge, handsome, 19th-Century burgher’s house, brightly painted and kept up beautifully.
ReplyDeleteI walked in the front door and into the lobby where a clerk was supposed to be selling tickets for the tour. It was empty. There was no clerk. There were no other visitors. Just me.
Beethoven’s house in Bonn, ramshackle, with sagging floors and low ceilings, was packed.
Can a woman tennis star beat a male tennis star? No longer interesting.
ReplyDeleteHow about, "Can the first female US Navy SEAL beat a randomly selected Russian Spetsnaz in anything physical?"
Economics deals with optimization of scarce resources that have alternatives uses. How are those types of issues obvious at face value? How is using mathematics to calculate optimal quantities or optimaly efficient courses of action mathematically trivial?
ReplyDeleteThese philosophers of science should do some real science or moral philosophy and actually contribute to society and not let their brains atrophy with sophistry.
Don't make this a complicated issue. The vast majority of economists are shills for the mega-corporations and hedge funds..who do you think endows every economics chair at every major economics department? Economists may be mathematically highly adept, but most of what they do is garbage in-garbage out stuff(look at the garbage three time Putnam Exam champion Gabriel Carrol is putting out as a Microsoft Fellow at Micirosoft..autistic economics indeed).
ReplyDeleteMillions of Ordinary Native Born White Americans are the final word and verdict on the economic facts.
Amomg the fatal flaws of neo-classical economics and its offspring, the very malignant neo-liberal economics, is that it pretends that the economy doesn't depend on the healthy functioning of ecosystems. Neo-Classical economics is perpetual motion machine "physics". And honestly, this is the cancer the drives post-1965 immigration policy. All this nonesense about the blessings of imported nonwhite diversity is just lipstick..not on a pig...but on the rotting corpse of a cancer patient...this is what happens when you sweep economic externalities under the corpse.
The only thing of value that neoclassical number crunching economics has contributed to science is sparse matrices..but it can't do anything interesting-deep and usefull with sparse matrices(garbage in garbage out). But this was just a fluke.
Crucial Point:the most important data points-and the only ones that matter-are the labor market experiences of millions of Ordinary Native Born White Americans with globalized labor markets.
Bill Blizzard and his Men
Speaking of Appalachia-West Virginia specifically where the Battle for Blair Mountain took place-Steve..isn't it interesting that the revolting display of Liberal "High" Culture at the Video Music Awards last was night was embodied..literally ..in the bodies of two young White Women with significant Appalachian ancestry-West Virginia specifically..of course, I am referring to Mylie Cyrus..and the very repellant Lady Gaga.
Speaking of Appalachia-West Virginia specifically where the Battle for Blair Mountain took place-Steve..isn't it interesting that the revolting display of Liberal "High" Culture at the Video Music Awards last was night was embodied..literally ..in the bodies of two young White Women with significant Appalachian ancestry-West Virginia specifically..of course, I am referring to Mylie Cyrus..and the very repellant Lady Gaga.
ReplyDeleteLady Gaga is Italian and French-Canadian. Cyrus is from Tennessee.
Re price controls -- the U.S. experience with price controls in WWII didn't turn out too badly (and the experience with lifting them in Russia was, as someone pointed out above, disastrous). That isn't because economics has nothing interesting to say about price controls -- there really is a relationship between price controls and shortages. But that is just one factor among a very large number of pragmatic, political, and values questions around why one might want to control prices. The extent and impact of shortages will also depend on social norms and sociological issues that go beyond economic prices.
ReplyDeleteIt is interesting that most neoclassical economists are fine with supporting legislated monopolies/effective price controls that work through the patent system, because it's oh-so-important to reward the producer in that case and not the consumer. Indeed, shortages result, but the price is seen as worth it and uncontroversial...even though there is really no good empirical evidence on whether the true marginal innovation benefit of the massive profit rewards created by our current IP system.
Somewhere around 1995 I predicted that boy-girl sex was dead.
ReplyDelete"Girls & Boys"
Blur - released 1994
Street's like a jungle
So call the police
Following the herd
Down to Greece
On holiday
Love in the 90's
Is paranoid
On sunny beaches
Take your chances looking for
[Chorus]
GIRLS WHO ARE BOYS
WHO LIKE BOYS TO BE GIRLS
WHO DO BOYS LIKE THEY'RE GIRLS
WHO DO GIRLS LIKE THEY'RE BOYS
ALWAYS SHOULD BE SOMEONE YOU REALLY LOVE
Avoiding all work
Because there's none available
Like battery thinkers
Count your thoughts on 1 2 3 4 5 fingers
Nothing is wasted
Only reproduced
Get nasty blisters
Du bist sehr schon
But we haven't been introduced
[Chorus]
Anonymous said...”We got a natural test of predictive power when the Great Recession started. A lot of economists, especially on the libertarian or Austrian side, predicted inflation or even hyperinflation from quantitative easing and...The last few years have shown the inflation whiners screwed up about as badly as it's possible to miss in economics.”
ReplyDeleteNo they haven't. You (no doubt inadvertently) underlined the point. Economics is not a science for many reasons, one of which is the malleability of the terms. “Inflation” can be calculated many ways. The methodology used to calculate the Consumer Price Index (CPI) has been changed a number of times in the past 30 or so years, most recently in 1995. The CPI as calculated pre-1995 is currently running about 5.7%. The CPI as calculated in 1980 is currently just under 10%. The CPI as currently calculated is about 2%.
Similar games are played with the unemployment rate. Including the long-term discouraged workers in the broadest measure (U6) as they were prior to 1994 has unemployment running over 20%. But in your world “whiners” not liking inflation approaching 10% and unemployment in the 20’s are screwing up “as badly as it’s possible to miss” to you. Got it.
See John Williams’ excellent website for more on this: http://www.shadowstats.com/
ReplyDeleteWhat kind of idiot are you? They game inflation stats by refusing to list energy costs and food prices.
Where did this meme come from, and why do the know-it-alls promoting it never check the Bureau of Labor Statistics site? That bureau reports both 'headline inflation' (including food and energy prices) and 'core inflation' (excluding such prices). They do this because food and energy prices tend to be volatile (in both directions).
economics can predict some things pretty well. but it often misses on big issues that matter (assuming the people doing the predictions are making a good faith effort to predict, and are not deliberately blowing smoke for some behind the scenes reason.)
ReplyDeletescope is the most important factor. economics as a field, as understood and practiced today, cannot predict activity across a space as large as the entire world, and sometimes not even for a space as large as one of the bigger nations. there are simply too many variables for existing economics tools to handle them all, and it's similar to asking meteorology to predict weather across a similarly large area.
i guess the problem for economics is that the accuracy of the predictions for large areas with many variables has not improved much, whereas in meteorology the accuracy has steadily increased decade by decade.
here's a chart which shows 6 weather prediction services and how accurate they have been over time. note they steadily get more accurate year by year, as they throw more sensors, more computers, and more math at the problem.
http://cliffmass.blogspot.com/2012/03/us-fallen-behind-in-numerical-weather.html
although there is divergence. while all 6 are getting better over time, the best guys are increasingly more accurate than the worst guys. the takeaway here is that the best weather service is pretty accurate out to 9 days whereas the worst service was somewhat accurate out to only 6 days. or whatever the numbers were, i don't remember exactly. the point: the predictive ability is diverging by several days, and that is becoming a big enough difference to be important. at least meteorology has this problem. economics hasn't advanced to such a situation yet.
when you are trying to predict what all humans in the world will do with money, an aggregate behavioral prediction, it's as hard as trying to predict global weather. from that perspective, what a physicist does is easier than what an economist does if you ask them to predict something worldwide in scope. for the physicist, the number of variables is cut way down, by 2 orders of magnitude probably. when you have inanimate objects operating under basic forces which are the same everywhere, once a principle is elucidated and the mechanism described, you can extrapolate to the whole universe. where as for economics, every human has a brain, which, there is a whole separate field, psychology, just for brains. for predictive purposes, brains are not well described, and poorly modeled, to say the least. they are the most complicated thing we know.
"We got a natural test of predictive power when the Great Recession started..."
ReplyDeleteum, most of the money created went to banks, which then used the free money to make more free money. most of the newly created money wasn't distributed to the, what do they call it, M1 money supply. it wasn't circulated. it's the federal reserve and treasury playing paddycake, to the limit of what the constitution allows (the constitution does not allow them to deal directly, it requires at least one intermediate step that prevents total collusion, in principle anyway. this is why it is a big question as to whether obama will appoint summers to be the FR chairman - with lew as treasury secretary, the white house will effectively control both the FR and treasury, circumventing that constitution check and balance).
it did create inflation - in stock prices. that was one of the intended effects. to create a psychological wealth effect, and to drive savers into the market, to seek higher returns on their money. that, and to keep interest rates down.
we'll see how the federal reserve does when it tries to get out of the 2 trillion in bad paper which it has accumulated on it's balance sheet. who will buy it? that will tell the story about whether the austrians or the keynesians were correct. or maybe the result will be somewhere in between. but probably not. it will probably be bad.
also, there has been general inflation, to the tune of probably 4% of 5%. not hyperinflation, but BLS is just flat out wrong with their 2% inflation report every time. and now they're even saying inflation is 1%. total BS.
one thing that's interesting to me is whether it is possible to even cause much inflation anymore with respect to the dollar, because it has been so devalued, that each additional inflating action has less effect. cut the value in half, then again, then again, and again, another 20 times, until you're at the point where you have to increase the money supply so much to cause an additional halving of the value that it's an astronomical amount of money creation.
my basic question is that, if QE works, why not just do it all the time, perpetually? why didn't they do this all the time in the past, and why even stop with the current plan. simply juice the markets continuously. there's no downside, only upside. hit control-P on that printing press and bombs away eternally.
there has to be a reason you don't do this stuff and why there isn't a historical record of similar banking maneuvers. isn't this pretty much like an i-banker doing coke. i do coke, so i can do more work, so i can make more money, so i can buy more coke, so i can do more work, so i can make more money...eventually, you crash. except, QE isn't even precipitating anymore work. america does less work under QE than before it.
Milton Friedman said "We economists don't know much, but we do know how to create a shortage. If you want to create a shortage of tomatoes, for example, just pass a law that retailers can't sell tomatoes for more than two cents per pound. Instantly you'll have a tomato shortage. It's the same with oil or gas."
ReplyDeleteRe price controls -- the U.S. experience with price controls in WWII didn't turn out too badly (and the experience with lifting them in Russia was, as someone pointed out above, disastrous)
ReplyDeleteCommodities such as gasoline, car parts, tires, and meat were rationed in the strict, actual sense during WWII.
Consumer appliances and consumer automobiles were simply not manufactured in USA during that war.
So how can you say that price controls worked during WWII?
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... although there is divergence. while all 6 are getting better over time, the best guys are increasingly more accurate than the worst guys. the takeaway here is that the best weather service is pretty accurate out to 9 days whereas the worst service was somewhat accurate out to only 6 days. or whatever the numbers were, i don't remember exactly. the point: the predictive ability is diverging by several days, and that is becoming a big enough difference to be important. at least meteorology has this problem. economics hasn't advanced to such a situation yet.
You're inadvertently alluding to the late Ed Lorenz, the discoverer of the limits to weather prediction and the founder of chaos theory. From Wikipedia:
During the 1950s, Lorenz became skeptical of the appropriateness of the linear statistical models in meteorology, as most atmospheric phenomena involved in weather forecasting are non-linear.[2] His work on the topic culminated in the publication of his 1963 paper Deterministic Nonperiodic Flow in Journal of the Atmospheric Sciences, and with it, the foundation of chaos theory.[2][5]
...
Lorenz built a mathematical model of the way air moves around in the atmosphere. As Lorenz studied weather patterns he began to realize that they did not always change as predicted. Minute variations in the initial values of variables in his twelve-variable computer weather model (c. 1960) would result in grossly divergent weather patterns.[2] This sensitive dependence on initial conditions came to be known as the butterfly effect (it also meant that weather predictions from more than about a week out are generally fairly inaccurate).[11]
Lorenz went on to explore the underlying mathematics and published his conclusions in a seminal work titled Deterministic Nonperiodic Flow, in which he described a relatively simple system of equations that resulted in a very complicated dynamical object now known as the Lorenz attractor.[5]
...
DD:
Chaos theory, also called dynamical systems theory, shows that weather prediction more than about ten days in the future will always become inaccurate, no matter how much more powerful atmospheric sensors and computers become.
Conclusion: the best 6 weathermen will never do much better than the worst 6 weathermen predicting farther into the future.
Inference: the same is probably also true for economists.
This article is a mess mainly because it makes no distinction between micro and macro. I assume that it is talking about macroeconomics, since it uses the Fed as an example and talks about Friedman. And indeed macro adherents sometimes are indistinguishable from religious fanatics.
ReplyDeleteIn fact, one branch of micro contains the critique mentioned in the article. Behavioral economics seeks to determine how economic actors behave, not in theory, but through actual experimentation and empirical observation.
The comments demonstrate again that the level of ignorance about economics is pretty profound. A few simple propositions need to be understood.
ReplyDelete1) Keynesianism, in all its various modern forms, is not economics. It is not a science. Keynesianism is solely a pseudo-scientific justification for the exercise of state power. The state needs a rationale to transfer money to the members of the Ruling Class and its voters. The state hires Keynesians to dress up its thievery with pseudo-scientific jargon.
2) The same can be said for modern Monetarism. The state needs to set up a central bank to be able to print money to benefit the rich members of the Ruling Class. To provide a rationale, the state hire Monetarists.
3) Of course, recent years have been a real world experiment in whether or not Keynesianism (running annual $1 trillion deficits) and Monetarism (printing more than a trillion in new USD) will improve economic conditions. Newsflash. It hasnt. Application of both types of voodoo economics failed other than to precipitate another bubble in the stock market that none of the US central bankers can see. (One of the prerequisites to being a US central banker is the inability to see the bubbles as you create them. It must be a phenomenon like color blindness.)
4) Real economists are called classical or Austrian. They are ignored by the state, because they do not provide the rationale for the growth of the state. In fact, generally speaking real economics provides strong support for a very much smaller state, a libertarian state, if you will.
Modern Keynesians and Monetarists are 21st century versions of court astrologers. Don't confuse them with real economists.
I think the problem is, as with global warming, that government employs most of the scientists and government does not reward success, government rewards those who say what it wants. Government wants economists to say the current depression ending/boom is going to continue.
ReplyDeleteI think it would be relatively easy to have a real science of economics but it would have to have a professional body which would get rid of those with a record of being wrong.