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Richard Alford: Trust in Economists?

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By Richard Alford, a former New York Fed economist. Since then, he has worked in the financial industry as a trading floor economist and strategist on both the sell side and the buy side

The greatest deception men suffer is from their own opinions.

The supreme misfortune is when theory outstrips performance.

Leonardo da Vinci

Noah Smith wrote a column in a recent issue of the Atlantic titled “Should We Trust Economists?” Smith defends the ability of macroeconomics to generate useful insights, even as he expresses a healthy skepticism about the ability of macroeconomic models to provide accurate economic forecasts and to serve as guides to economic policy. While Smith’s diagnosis of the problems of macroeconomic is on target, his prescription, i.e., how non-economists should interpret and use policy suggestions based on macroeconomic models, misses the mark.

Smith’s Diagnosis

The author describes macroeconomists and the current state of macroeconomics:

“They’re fractious, frequently wrong, and have lost much of the public’s faith. But their insights are still valuable — as long as you don’t expect them to predict the future.

….Everyone knows that it’s a bad thing when factories sit gathering dust and potential workers sit idle on their couches. But the best “experts” that we have — academic economists — are in generally ill repute…. They argue bitterly on op-ed pages and can’t seem to agree on the most basic issues…

So are we making a mistake putting our faith in economics?..

To start, we need to talk briefly about what it is economic theorists do. Essentially, they make models, which are mathematical tools that are supposed to describe how the economy functions. The problem is that economists haven’t really built a model of the whole economy that works. A lot of smart people have spent a lot of time creating tools with names like “dynamic stochastic general equilibrium.” But as of this moment, those models can’t really forecast the economy like our meteorologists can forecast the weather. Furthermore, they contain a lot of obviously wrong assumptions….Economists include things like that to make the models easier to use, and they hope that those zany assumptions are actually decent approximations to the way the world really works. But even with these kludges in place, none of the existing models can do much to predict the economy.

Theory isn’t the only problem. Economists don’t really have good enough data to understand how the economy works, either. With chemistry or biology, you can put things in a lab and test them out with controlled experiments. But with macroeconomics — the study of the economy as a whole — you can’t put countries and entire economies in a lab; all you can do is sit there and watch history go by, and try to deduce some patterns. But often enough, those patterns vanish just as soon as you think you’ve found one.

What all this means is that when an economist tells you something that is based on a theory or a model, you should be very, very skeptical. And the more complicated the theory or model is, the more you should be suspicious.

Smith’s Prescription

So when you listen to economists, the key is to try to understand why they think what they think….Most people can understand these basic ideas, and decide for themselves which they think are plausible, and which they think are unrealistic….

On the whole, economists are very smart, perceptive people. Like everyone else, they are liable to overstate their confidence and rely too much on their own unproven theories…”

Observation Regarding the Prescription

The prescription does not fit the diagnosis. The first part of Smith’s prescription is troubling. Does he mean that non-economists should cease being skeptical of a macroeconomic model if in their estimation some of its zany assumptions are relatively less zany than the assumptions of competing models?

At worst, his prescription reads like an invitation to non-economists (and economists) to exercise confirmation bias—the tendency of people to favor information that confirms their beliefs or hypotheses.

With zany assumptions in all macroeconomic models, as well as other modeling and data problems, everyone should be “very, very skeptical” of all the competing models all the time, including their chosen model. All models should be subject to continuous reappraised in light of changes in the economic environment, including variables not reflected in the model. Is the policy having the expected effects on the intermediate and ultimate targets in the anticipated time frame? Do any of the variables have values that are “out of sample”- unseen during the period over which the model was estimated? Are variables deemed unimportant by the model behaving in unusual manners? Is economic performance supported by unsustainabilities ignored by the model? Think of the continuing reappraisal as the economic policy version of “trust, but verify.”

If economic modelers and policymakers had not been so confident of their financial-sectorless DSGE model and instead had paid attention and responded to 1) the increased use of leverage by financial institutions and households, 2) asset prices that were high relative to fundamentals, and 3) their regulatory responsibilities, then we very well might have avoided the recent financial crisis and recession. (Prior to the crisis there was near unanimity among academic economists, freshwater, salt water and others, on the usefulness of the zany assumptions underlying DSGE models.)

Smith is closer to target in the second part of the prescription, although he stops short of fingering the real problem. Not only are economists “likely to overstate their confidence and rely too much on their own unproven theories”, but as policymakers they are likely to place too much confidence in the policies based on their unproven theories. As a result, economists/policymakers have continued to pursue policies that work in the context of their macroeconomic model, despite evidence that the policy is not working as intended or is having undesirable, unanticipated effects on the real economy, e.g., asset price bubbles. It seems that policymakers having fallen victim to the fallacy of reification: treating an abstraction (in this case the model of the economy) as if it were the real thing.

Modeling errors are inevitable, given the complexity and continuing evolution of economic relationships and structures as well as data problems. Consequently, there will be modeling errors and, as a result, policy mistakes. The only question is how big, costly and frequent will they be.

How should non-economists respond to the limitation of economic models? Perhaps they should be most skeptical of policies proposed and instituted by economists/policymakers who are the most dogmatic regardless of the particular dogma they espouse. After all, the more dogmatic the policymaker the more likely he or she will be overconfident and allow minor policy errors to become very costly policy errors. Policy mistakes are inevitable, but big mistakes are avoidable.

This highlights another problem for the non-economist observer. The economists with the highest public profiles are invariably those economists that are the most dogmatic. Both the political sphere and the media favor economists with clear ununanced opinions — President Truman’s “one-handed economist.” Unfortunately, macroeconomics just does not support the degree of certainty that Truman and more recent Presidents desire and that the media favor.

Smith is correct in saying that macroeconomic produces useful insights. However, macroeconomic policy can also contribute to inferior outcomes when economists, policymakers and the public become over confident and ignore its limitations.

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57 comments

  1. igor

    Economics is a pseudo-science. It looks like science with math, and graphics, and peer-review journals, etc, etc,

    - but in reality it’s a BS. Cargo-cult “science”. (pls google “Feynman cargo cult”)

    It’s reason to exist: people need those kind of questions to be answered – and a hordes of “economists”, smelling easy money, jump in with “answers”.

    Also, “economists” serve as propagandists, keeping the unwashed masses under control of the powers that be.

    (You don’t like your job’s going to “china”?! Ooh, you don’t understand! The economics SCIENCE says it’s ok! Are you against SCIENCE?! Are you against NOBEL LAUREATES?! … etc…)

    1. mansoor h khan

      Not completely true. There is plenty of hope based world history.

      Social Credit Ideas of economist Clifford H. Douglas are incredibly aware of our connectedness. His ideas were very much discussed and debated and were in vogue in the first half of the last century. I believe a few of the American presidents even tried to implement them (FDR? Nixon) via a guaranteed income social dividend for all citizens.

      Yes I agree today economics has been co-opted by the creditor class and banksters.

      Money is simple. Bankers have made it complicated because it benefits them dis-proportionately to their contribution to society to keep the usurious system in place.

      The world’s Banking Cartel is equivalent of the modern day corrupt Church of the middle ages which had to be fought and reined in by the protestants and others. But eventually people did bring down to its knees. The Church of the middle ages was just as powerful as the international bankers and their creditor class supports are today.

      The Churche’s power was broken because of the Gutenberg printing press. People started reading and interpreting the bible themselves instead of relying on the priests.

      The only way to fight falsehood (the lie of the usurers in this case) is by spreading and teaching the truth to the general public and this is a painstakingly slow process.

      Inshallah the power of the Global banking cartel will be broken I estimate in the next five to ten years because of Gutenberg printing press version 2 (the internet).

      The cartel is unable to control the information flow on the net and is screwed and knows it. I pray to Allah I will (god willing) see this beast slaughtered before I die. Truth is always victorious (a common hindu saying usually stated in Sanskrit).

      more at:

      http://aquinums-razor.blogspot.com/2011/02/give-500-per-month-to-each-us-citizen.html

      Mansoor H. Khan

      1. Jimbo

        Ahh yess…the wit and widsom of Clifford Douglas:

        Social Credit
        By
        Clifford Hugh Douglas

        No consideration of this subject would be complete without recognising the bearing upon it of what is known as the Jewish Question; a question rendered doubly difficult by the conspiracy of silence which surrounds it. At the moment it can only be pointed out that the theory of rewards and punishments is Mosaic in origin; that finance and law derive their main nspiration from the same source, and that countries such as prewar Germany and postwar Russia, which exhibit the logical consequences of unchecked collectivism, have done so under the direct influence of Jewish leaders. Of the Jews themselves, it may be said that they exhibit the race consciousness idea to an extent unapproached elsewhere, and it is fair to say that their success in many walks of life is primarily due to their adaptation to an environment which has been moulded in conformity with their own ideal. That is as far as it seems useful to go, and there may be a great deal to be said on the other side. It has not yet, I think, been said in such a way as to dispose of the suggestion, which need not necessarily be an offensive suggestion, that the Jews are the protagonists of collectivism in all its forms, whether it is camouflaged under the name of Socialism, Fabianism, or “big business,” and that the opponents of collectivism must look to the Jews for an answer to the indictment of the theory tself. It should in any case be emphasised that it is the Jews as a group, and not as individuals, who are on trial, and that
        the remedy, if one is required, is to break up the group activity.

        Same old Nazi garbage. I’m sure you didn’t know about this aspect of Douglas’s work.

    2. Newtownian

      Igor – would you consider as an alternative the label “proto-science” like alchemy and the earlier variants of astrology?

      Early astrology wasn’t much use for predicting love prospects but it was critical to predicting/quantifying the changes in seasons without which agrarian society would have been in serious trouble.

      Similarly alchemy was darn useful for producing rat poison and gunpowder even if the underlying hypothesized mechanisms were bollocks.

      Similarly Economics has developed a lot of interesting and often useful insights into human behaviour and empirical rules of thumb. I’m thinking here of the phenomenon of ‘depreciation’ which recognises how in making decisions of any kind we are torn between surviving in the present while making contingency preparations for what might happen in the future.

      What is sad is that while the scientific method is now a lot better understood, Economics itself suffers now from being treated more as a religion/dogma than a science. Meanwhile innovative thought appears from discussion here and elsewhere to be suppressed.

      About a week back I listened to a neoliberal politician patronizingly explain the economic facts of life to a group of sceptics. What was remarkable was how he referred to economic LAWS being like Newton’s inverse square Law of Gravity – as somehow immutable and lacking any nuances. For a scientist this was weird because even kindergarten stories of the history of physics show that while Newtonian mechanics is fabulously useful, it is incomplete in so many ways e.g. special relativity, wave theory, electromagnetism, quantum mechanics.

      So I guess I’d say academic economics isn’t so much wrong as being looked at from a perspective which suffers from a lot of problems which aren’t well recognized

      - which is what this great article appears to be about.

      1. igor

        Proto-science?

        Sorry, no. Because today, unlike 000s years ago when the proto-sciences ruled, today we know what real science is.

        And, with this knowledge at hand, today there could be no proto-science around, unless it’s a fraud.

        Even if all those “economists” honestly believe their “research” – even that doesn’t excuse them IMHO.

  2. Hugh

    I agree with igor. Far from being the “best experts that we have”, economists are charlatans and propagandists giving pseudo-intellectual cover to the looting and general criminality perpetrated by the 1% against the rest of us.

    We need to dump them and go back to first principles. An economy is not some independent physical process like plate tectonics. It is a collaborative human enterprise. The first question (or questions) we should ask is why we have an economy, that is what is this collaborative enterprise for, what is its social purpose, and to be more precise what kind of a society do we wish to build and what kind of political and economic structures do we want that both get us there and incorporate the values of that society? Since the economy serves a social function, it can not be separated from politics. The early economic thinkers knew this and wrote in terms of political economy. Somewhere in the late 19th or early 20th century this concept was lost and economics as propaganda was born.

    The splitting of politics from economics and both from their social purpose are not benign phenomena. Money without its social purpose as a medium to distributive society’s resources becomes some weird primordial constituent of the physical universe, like protons, neutrons, and dark matter. An example of reification, it becomes more real than the resources it was meant to give access to. Mythological beasts known as “free markets” appear. Common sense tells us that free markets have never existed, that it has always been a question of who controls them for whose benefit, but with their social and political elements excised they are treated as autonomous creatures that operate according to their own laws. The result of all these lies and confabulations is that society’s purposes, its goods, are replaced by the purposes and goods of the few who use the political process to steal and concentrate the wealth of the many into their hands. Because economic processes are agentless and independent, they can claim that their wealth is just a natural outcome of these processes. In other words, they stole nothing and all their lootings are legitimate. And more than this, any attempt to redistribute their wealth, society’s resources, back to the many would be the real theft.

    Any just and equitable economics and politics must be infused at every step by the social purposes which justify them. If we forget these, as present experience teaches us, we are lost and at the mercy of the wolves among us.

    1. Dan Kervick

      The splitting of politics from economics and both from their social purpose are not benign phenomena.

      One way it is not benign is that it creates the illusion that one can identify and address economic problems in a morally and politically neutral way, proposing solutions that steer clear of politically and professionally dangerous calls for organized political action or structural transformation. The result is an enormous, paralyzing bias toward the status quo. The institutionalized imperative for that kind of neutrality also leads to a preference for highly abstract categorical descriptions of economic ills that project individual psychological traits and activities onto whole societies and eradicate any frank descriptions of underlying internal conflict: it’s all about insufficient “demand”, rising inflation “expectations”, etc.

  3. jake chase

    IMHO there have been only three economists in recorded history whose work was worth reading. They are Henry George, Veblen and Keynes. None of them was first and foremost an economist. A person who knows nothing more than what they told us has every bit of useful economic knowledge he will ever need to understand what’s what and what must be done about it.

    [I know I am slighting Marx. He did some very good historical writing about industrial conditions, but a little bit of Marx goes a long way and his dialectic is a crock]

    Today’s so called economists are the modern equivalent of medieval churchmen and what they practice is religion confounded by high school calculus. Their work would be merely silly if the propaganda apparatus didn’t find it so useful in suppressing intelligent thought and opposition to corporatist pillage.

  4. AbyNormal

    An economist is an expert who will know tomorrow why the things he predicted yesterday didn’t happen today.
    laurence j. peter

  5. dearieme

    I might trust economists a wee bit more if they’d stop pretending that there’s a Nobel Prize in Economics. The first time I see one claim simply that he holds a Swedish Central Bank Prize in Economics, he will soar in my estimation. If you can’t trust the buggers in the little things why should you trust them in the big?

  6. David Lentini

    I agree—the diagnosis is quite frank and fair; the answer is absurd, and dangerously close to asking the public to treat economics as a religion.

    Smith plays the same game that all charlatans and cranks play: Believe me and put faith in my advice, but don’t blame me when I’m obviously wrong. Once we pull the curtain back to see the little man, they cry “Don’t blame me! I’m just a little man!”

    The real problem, which you mention and Smith tactfully ignores, is that econmists have built themselves into powerful policymakers and advisers, precisely because they argue that economics is as reliable and prdictive a science as physics or chemistry. Now that it’s painfully clear they’ve lied and quibbled about their status, they want to now tell us not to hold them accountable becuase, well, economics really isn’t science after all.

    Frankly, lots of academic disciplines, even truly scientific disciplines, are focused on phenomina so complex they can only make crude and unreliable models. The difference is they don’t dominate our policy discussions, courts, and business education.

    I don’t care if economists happily practice their intellectual onanism in the privary of their offices, classrooms, and seminars. But they can’t bring that to the public in the guise of solutions to our problems.

    The answer which Smith again ignores, is simple:

    (1) Publicly declare economcis a non-science, or a science-in-development, aking to chemistry before Boyle and Laviosier or physics before Newton;

    (2) Remove economists from policymaking bodies;

    (3) Stop printing and broadcasing the opinions of economists so frequently;

    (4) Insist that all predictions and pronouncements from econmists include a full disclosure of the assumptions and limitataions of the model(s) used.

    In short, it’s time to a short leash in these ninnies.

    And one more thing. I think it’s time to revisit just what “intelligence” is and who is really “intelligent”. The inability to recognize failure, no matter how good you are at math, is, in my opinion, a lack of intelligence. We need to stop making a fetish out of mathematics and start focuing on the ability of our students and teachers to deal wiht reality.

    Smith’s article—as well as many other mea culpas from economsits— is troubling because he still clings to he idea that econmists are somehow “smart”. What’s smart about repeated failure? Is Smith really telling us that economists are knowingly misleading the public? Are econmists really psychopaths?

    1. mansoor h khan

      David,

      “Publicly declare economcis a non-science, or a science-in-development, aking to chemistry before Boyle and Laviosier or physics before Newton;”

      Who is going to do this? The president? He will be assassinated if he did to that. Ben Bernanke? He too will be assassinated if he did that by the most powerful force on the Planet the international banking cartel and creditor class (the usurers) they represent.

      The only solution is spreading the truth. Teaching the public economics (by the way of Veblen, Keynes, Clifford H. Douglas) is the only way. Think of this task very much like how a new religion spreads like Christianity or Islam. It is very slow and painstaking process but the pain to come (a greater depression) will open people’s mind and the banksters will certainly try to stop the truth.

      We need to teach the public:

      http://aquinums-razor.blogspot.com/2011/11/here-is-how-bankers-game-works.html

      http://aquinums-razor.blogspot.com/2011/08/what-is-relationship-of-money-to.html

      http://aquinums-razor.blogspot.com/2010/11/modern-monetary-theory-there-is-another.html

      http://aquinums-razor.blogspot.com/2011/02/give-500-per-month-to-each-us-citizen.html

      Mansoor H. Khan

      1. David Lentini

        Good point. But I think we do agree that the truth has to be brought to the public. But given the resources that the status quo has available to drown out crticism and control the debate, I think we’ll need something at a high level to start the discussion.

        And while I appreciate you point, I don’t think that asassination is not all that likely. We already see economists like Mankiw and Krugman (and Smith) making public statements that economics can’t be taken too seriously. So, it’s not much of a leap to have a presdiential advisory panel or Congressional hearings on the use of economics in public policy in the wake of the continued failure of our policies. In fact, much of this happened in the ’30s! Perhaps a Green Party victory or an upheaval in the current parties, which I think is a growing likelihood given the increasing agreement of the left and right on the bankruptcy of the “center”, will be the key.

        I envision a panel with real scientists who have demonstrated sound public advocacy (think Richard Feynman), along with well-respected economists, to address the folllowing questions:

        (1) What is a science?

        (2) Does economics meet the requirements of science?

        (3) How reliable is economics at providing reliable forecasts of economic activity and policy advice?

        (4) (Given that the answers to (1)–(3) are likely in the negative) What can be done to improve economics as an intellectual and academic discipline?

        (5) (Given the conclusion that economics is not a science and does not produce reliable policy advice) What should be the role of economists in society, education, and policy?

        (6) Should economics adopt a “Hippocratic Oath”, stating that any policy advice should be first weighed to do no or minimal harm to the public good?

        Of course, the authors you mention should be brought to bear early in the discussion. There is quite a long history of debunking neo-classical, laissez faire economics that has been deliberately buried for generations now. The public needs to see that history addressed.

        1. mansoor h. khan

          David,

          If we can get some our leaders to start a sane discussion about economics that would be great. I am all for it.

          (6) Should economics adopt a “Hippocratic Oath”, stating that any policy advice should be first weighed to do no or minimal harm to the public good?

          To the above point I would add that we need to approach the design of our civilization’s institutions (and the global civilization’s institutions) keeping in mind the principles of justice and mercy.

          Mansoor Khan

          1. igor

            What about if only people who first earned Master or better in Physics are allowed to research and practice Economics?

    2. diptherio

      I think a more elegant solution might be to just re-label economics–call it what it used to be called–a branch of Moral Philosophy.

      This would make economics a sub-discipline of philosophy and people would realize that Milton Friedman and Paul Krugman are just as objective as Heidegger and Nietzsche.

      It would then be clear that neo-classical economics is, simply, an amoral moral philosophy. This might do something to combat the problem that Aldous Huxley highlighted in his introduction to an English edition of the Bhagavad Gita:

      These false and, historically, aberrant and heretical doctrines are now systematically taught in our schools and repeated, day in, day out…And so effective has been the propaganda that even professing Christians accept the heresy unquestioningly and are quite unconscious of its complete incompatibility with their own or anybody else’s religion. [I think secular humanism counts as a 'religion' in this context -dip]

      1. David Lentini

        Perhaps that’s where we’ll end up, if the honest review is done, but I don’t see how we’ll get there directly. The problem is that the same Modernism that brought us the push for economics-as-physics also killed off any serious interest in philosophy. Before we can bring back the idea that philosophical inquiries are valuable, we first have to kill the ideology that we can manage our lives “scientifically”, which, in turn, requires a thorough debunking of neo-classical economics.

        1. mansoor h. khan

          David,

          The public will become much more interested in philosophy as we pass through a global economic collapse/chaos and probably a fossil fuel resource war.

          I believe we are entering a greater depression (The Great Depression on steriods). The current worldview based on mean spirited caplitalism will be seriosly challenged (inshallah).

          mansoor h. khan

          1. mansoor h. khan

            I forgot to mention Chaos/collapse to come not only due to the global banking collapse, fossil fuel depletion but also climate change/global warning.

            All worldviews will be very seriously challenged. In a sense it is the survival of the fittest (the fittest worldview that is). The worldview which is most able to deal with crazyness/chaos to come will not only survive but it will thrive.

            Mansoor H. Khan

          2. F. Beard

            I forgot to mention Chaos/collapse to come not only due to the global banking collapse, fossil fuel depletion but also climate change/global warning. mansoor h. khan

            And in doing so, you go too far. ALL things are possible for God but providing for our mere material needs, especially so. The human heart? There’s the difficulty.

  7. Jackrabbit

    Oh those poor, poor economists! Dragged through the mud by: 1) a few bad apples with inflated egos; 2) headline-seeking media; and 3) policymakers with an agenda.

    We can ALL breathe a sigh of relief that economists are NOT plagued with inherent conflicts of interest and group-think. Whew!
    /sarc

    ===

    And check out this whopper of a straw man:

    >i>Does he mean that non-economists should cease being skeptical of a macroeconomic model if in their estimation some of its zany assumptions are relatively less zany than the assumptions of competing models?

    Economists as divining rods? They have a self-contained mysterious power – you just have to know how to pick the right one.

  8. Carolinian

    Every ruling class needs its priesthood. Whereas once they ruled through “divine right,” now they are backed by a quasi-religious faith in “markets.” The intellectual classes have always played a leading role in flattering and justifying the actions of their patrons.

    1. mansoor h. khan

      Carolinian,

      You are on the right track. Now go to the next logical thought you should be having in your mind.

      So what to do about it?

      I think we all know what to do about it. It is to awaken the people around us to the bullshit perperated on us by the morons among our midst!

      But of course we know in our hearts that the bullshit keeps returing and happening and the people keep suffering and sometimes fighting back. Therein lies the purpose of human life. Yes. It is to fight. Fight the bullshit to the last dying breath.

      I know this is not what you wanted to hear. But this my conslusion of reality.

      Mansoor H. Khan

  9. clarence swinney

    SLOW AND POOR
    The current GDP growth will take twenty years to get back to potential GDP.
    We have a 10 million jobs gap.
    Gairns from income went to top 1% or fewer.
    One percent got 121% increase in income between 2009 and 2011.
    Wages still low where is Minimum wage increase to offset top 1% gain.
    44 million earn minimum wage. 280,000 recent college grads get minimum wage.
    College grads hold large debt.
    Thirteen million homes still “under water”.
    54,000 foreclosed last month.
    Record trade deficit with China.
    Retirement crisis As Republicans talk about cutting elderly benefits.
    Scary! Anyone have answers?

  10. Justicia

    I agree with Mansoor’s program. Each of us can be an avatar of the light by sharing our critical insights with colleagues, friends and family — expose the false prophets:
    “What did [fill in the economist] say yesterday about the crisis we’re in today?”

    The current depression and unfolding environmental crisis will help fracture the ediface by raising doubts and we can use these at every turn shatter theoeconomics.

  11. F. Beard

    Predict the future? Why? So we can abuse the present? Do we think God will allow Himself to be mocked? Or will He resist the proud (James 4:6) and thwart their predictions*? Why not instead do what is right today and let the future take care of itself?

    We know the money system is inherently unjust and inherently unstable, dangerously so. What kind of foundation is that for peace and progress? Yet many think TINA. How cynical is that?

    But here’s a prediction:

    Say to the righteous that it will go well with them, for they will eat the fruit of their actions. Isaiah 3:10

    *I know this from 20 years of stubborn persistence trying to predict the future anyway.

    1. mansoor h. khan

      F. Beard,

      I apologize if I sound like I am predicting the future.

      But my religion encourages me to think about consequences of the behaviors of people around me (Like mean spirited capitalism we practice, practice of usury, fossil fuel depletion, climate change, etc.) and try to address the issues.

      Stern warning of logically highly probable consequences of bad behavior is not predicting the future. That just being a good leader.

      mansoor h. khan

      1. mansoor h. khan

        Also, the comment about “seeing the end of the cartel before I die” is a prayer (a request to Allah) and not a prediction. As you (a practicing christian) surely know that lord can make it happen whenever he wants to.

        Mansoor H. Khan

  12. washunate

    We shouldn’t trust authority figures in general; I don’t think economics is a particularly awful profession.

    Rather, it is the idea that should be considered, and those who make a habit of advancing good ideas should be considered more credible over time, and those doing the opposite, less credible.

    1. Hugh

      The problem is that economists with bad ideas but who defend the status quo of the rich and elites get the money, the positions, and the attention of the government and the press while the rest of us are confined to the margins doing this stuff on our own. It’s not a meritocracy with good ideas floating to the top. It’s more an example of Gresham’s law applied to economic ideas.

  13. mac

    These folks can find and mostly describe what happened, but not why and what will happen is as always a mystery.

    1. mansoor h. khan

      mac,

      Not always a mystery. Natural Sciences are very good at predicting some things.

      Professionals in all fields use patterns and principles (mental models) to solve problems and manage their respective domains of activity. Generally getting a good result. If they did not they would be out of business.

      These patterns and principles are learned in school and/or via experience.

      History gives us a guide on patterns and principles (mental models leading to modes of behavior). Some modes of behavior and principles lead to a better result overall (ie., a more peaceful civilization) than others.

      The overarching management principles we should follow is justice and mercy!

      There are two sources of knowledge (principles and patterns):

      1) Experience (Physics and history fall into this category)

      2) Revelation: This one applies to Believers. If there is sufficient number of them in a community. This can actually work well.

      Mansoor H. Khan

  14. allcoppedout

    Chemistry before Boyle et al (alchemy or chymistry) had much more of modern science in it than economics. Alchemy had a bad press.
    I don’t do religion, but Mansoor sounds like many I’ve heard with a decent statement of their religion as a way of life. Modern politics and its economics handmaiden have long forgotten such decency. To achieve some form of modernity we have to bust the control frauds and produce institutions that control leadership and prevent dictatorship, whether achieved through the ballot box or not. We had good arguments on this long ago, including Machiavelli and Spinoza. Today, Machiavelli might well be a campaigner against corruption.
    http://www.law.kuleuven.be/romrecht/integriteit/egpa/previous-egpa-conferences/rotterdam-2008/rochet.pdf

    The big difference between science and economics is not that we can do experiments in controlled situations in laboratories -we hardly contain the universe in one. It is, of course, handy to be able to do experiments without damned-fool opinion getting in the way (Bacon’s Idols).

    We have social-economic-legal arguments against current practices based on soaked-up opinion (Habermas, Jeanne L Schroeder plus cast of thousands). This doesn’t help much as we become a niche movement of critique (I’m not advocating we stop). We don’t seem to be able to believe we can live in peace and with reasonable equality. I suspect even post-autistic economics still retains an elitism that prevents us looking the data square in the face.

    Dog sulking – his walk is late. Imagine a few books later and a discussion on how we could change economics via new forms of politics taking into account what kind of leaders we generally get and how we might stop that and ensure even ‘we’ wouldn’t just become the new boss, just like the old boss, or the comfortable Marxist driving her Volvo to a weekend retreat in a Wales with no jobs and no homes. It is all tougher than we think. I give way to the dog and his knowledge of how to work on my emotions.

  15. ChrisPacific

    Theory isn’t the only problem. Economists don’t really have good enough data to understand how the economy works, either. With chemistry or biology, you can put things in a lab and test them out with controlled experiments. But with macroeconomics — the study of the economy as a whole — you can’t put countries and entire economies in a lab; all you can do is sit there and watch history go by, and try to deduce some patterns. But often enough, those patterns vanish just as soon as you think you’ve found one.

    I have always thought this argument was a cop-out. Particle physicists studying the Big Bang could say the same thing, but even lacking the ability to construct universes from nothing, they still find ways to test their theories by predicting observable side effects and then measuring them.

    Off the top of my head I can think of a number of ways in which economic theories could be tested to varying degrees of effectiveness:

    – Backtesting using historical data. Granted you have to be extremely careful with this to ensure you’re not finding plausible explanations after the fact, but there are ways to make it somewhat rigorous.

    – Reduction to a simpler version of the problem by testing on a smaller scale, either in geographically isolated communities or by controlled regional experiments (one example was discussed recently on NC, unfortunately I can’t recall the details).

    – Computer simulation, which is commonly used by meteorologists (for example) to predict weather with some accuracy even though they lack the ability to create a scale model of the Earth’s weather systems.

    Even leaving all of that aside and assuming that watching history go by is our only test medium, I’d be happy with simply applying some scientific rigor to that. Let’s have economists make some actual predictions about the future and describe how they follow from their theories, then validate or revise the theories according to the results. If a test cycle might take 10-20 years, so what? If it’s the only way we have to see how theories actually pan out in the real world, then let’s use it to the best of our ability, and not just ignore it or twist the facts to support our own pet theories.

    1. allcoppedout

      The philosophy of science underlying what Chris says is probably ‘modern reliabilism’ – particle physics has to ‘match’ observations of the cosmos and so on.
      http://plato.stanford.edu/entries/reliabilism/

      Sadly, knowledge justification generally is a minefield and very difficult – as a glance at the link will demonstrate.

      I’m quite sure economics is not a science and also that trying to find an underlying epistemology of science is too difficult to serve in creating a scientific method for economics. I’ve tried and failed over many years. Chris’ ideas are on the right track, but under strict knowledge justification I can’t really say this.

      It’s hard for me to resist taking my dog for his daily walks (which are also good for me) and in the past I joined the Labour Party in Tony Blair’s cause, swayed in a similar manner (I now know he was Margaret Thatcher in drag). Argument in economics rarely appeals to me intellectually as I spot it appealing to my emotions or the form Francis Bacon termed Idols. I don’t mind the dog doing this to me because I like him and he is good for me. Standard economic and political argument now just make me feel sick and angry.

      What seems to go on in me is revulsion at the false objective voice in argument as objective as an i-Phone advert. Even the barest deconstruction reveals hidden assumptions and self-interest in the argument and forms of persuasion. Much as I agree with Steve Keen, Yves, Hudson and Black (Jake, Mexico, Hugh, Susan and others in here)I don’t find science – more stuff like my reasons for giving up to the dog. Of course, I don’t really think Maxwell is trying to get me out walking to help control my diabetes, but the relationship and the walking is good for me.

      If we want to discuss trusting economics, we really need an understanding of trust and how it can be good, bad, indifferent and swayed through arts of persuasion.

      There are some ‘human laboratories’ we can look at – anthropology is an example. We can also create them in thought experiments. Science does this – Dawkins uses an example in ‘The Extended Phenotype’ – you have to imagine a Martian who has grown up in a transparent, trusting society looking at human information systems and discovering humans do a lot of distrusting – you then transfer the thinking to cell biology wondering what you we cultured to expect and what other views might be more accurate, only coming to mind by dropping your soaked-up habits. In reverse we might think of the twit crediting Dawkins’ selfish genes with cognitive strategies. In economics, thought experiments are more like Aesop’s Fables.

    2. Justicia

      George Soros (among others) correctly identified the critical problem in treating economics like the physical sciences. Natural phenomena aren’t dependent on human judgement or action. The stock market is entirely dependent on perceived “value” — Keynes’ beauty contest analogy (not who we think is the most beautiful but who we think others will chose as the most beautiful).

  16. nothing but the truth

    “Essentially, they make models, which are mathematical tools that are supposed to describe how the economy functions.”

    actually in the tradition, economists _explained_ how the political economy worked, and did not make mathematical models.

    1. econ

      Kudos!! The vast majority near 95% of economists do not nor are involved in macroeconomic modelling. Go and talk to a practising economist in any sector of the economy and find out what he/she actually does. Get your head out of the text book!

  17. H. Alexander Ivey

    ‘Smith is correct in saying that macroeconomic produces useful insights.”

    would anyone care to name some names and insights? Ha.

    Marx comes to my mind, and Adam Smith, but they are long dead and their insights abused or ignored and tainted with political works in their name. Bagehot too, but he was a journalist.

    Kaynes, but he is also dead and especially suffers from the Marx and A Smith syndrone of being abused and ignored – to his face while he was alive even! The Hicks’ IS-LM model was a deliberate slap.

    Keene and Galbraithe, but they are rarely mentioned in the MSM, and are not in the political arena.

    Our hostess’ policy against ad hominum attacks keeps me from mentioning the usual, alive, suspects.

    1. Lafayette

      STIMULUS SPENDING

      would anyone care to name some names and insights? Ha.

      Yes, I would.

      The British economist John Maynard Keynes in his book, “The General Theory of Employment, Interest and Money”, published in 1936 during the Great Depression; where he first postulated the concept of Stimulus Spending.

      Which is supposedly the duty of the government in order to kick-start the economy by priming the economy with money-in-the-pocket by consumers who spend it.

      And our present economic miasma, now 4 years long, is the direct descendant of the inability by members of the T-Party (T for Troglodyte) to comprehend this simple economic verity.

      “You can bring a horse to water. You can even bring water to the horse. But you cannot make a horse’s ass drink.” (Lafayette, 2013 ;^)

  18. Lafayette

    PREDICTING THE PAST

    RA: So are we making a mistake putting our faith in economics?

    Yes, of course. But we do the same to preachers who ask us to believe in a God for which there is no formal proof. And that God appears in a national motto, “In God We Trust”?

    Why trust “God”, pray tell? That is pure faith.

    But economists surrounded by sexy regression-models, that’s not faith but mathematics. Therefore even more trustworthy?

    We blame economists for not having predicted three recent factual incidents: The SubPrime Mess, The Toxic Waste caused seizure of our Credit Mechanism in the fall of 2008 and the subsequent Great Recession of 2009 (from which we have yet to see the light at the end of the tunnel).

    But how could economists foresee the originating-factor, the SubPrimes – especially when subprime mortgaging and their packaging/resale as Toxic Waste – was under the purview of the Fed or the SEC in New York, both of which are responsible for the range of banking and financial activities?

    What economists do with modeling is to “predict the past”. Yes, the historical numbers are massaged by the regressive-models and, based upon sometimes awful “conditional assumptions”, the models spew forth their “predictions”.

    The past, abracadabra, becomes the present and future!

    C’mon, now pull the other leg …

  19. JD

    Exactly. So, what does any economist have (except a bushel full of on sentence general maxims that have been proven true) except human reality obvious to all of us, that if one make sovereign national money available to people who produce things that people need, in amounts needed to produce them? Can’t we just let it go right there?

  20. igor

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  21. simonjames

    It would then be clear that neo-classical economics is, simply, an alesson lesson beliefs. The difficulty is that the same Modernism that conveyed us the impel for economics-as-physics furthermore killed off any grave interest in philosophy.

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