Category Archives: Science and the scientific method

Richard Alford: Why Economists Have No Shame – Undue Confidence, False Precision, Risk and Monetary Policy

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.

In theory, there is no difference between theory and practice. In practice, there is. – Yogi Berra

Economic policymakers, pundits and academics continue to forecast the future course of the economy and predict the effects of possible policy initiatives with an air of scientific certainty. The high degree of confidence expressed in their forecasts, predictions and commentary continues unabated despite:

1. Only a small minority of economists and none of the central banks and treasury/finance ministries anticipated the financial crisis and the recession, and

2. At most only one of the currently competing macroeconomic models (which embody significantly different structures and implications for economic policy) can serve as a sound basis for policy.

The confidence and false precision in these forecasts and policy prescriptions reflect a continuing unwarranted faith in the models.

Insider Report on Big Pharma’s Corrupt Marketing and Phony Science

Francois T pointed to a post at the blog Health Care Renewal that summarizes an important insider report at the British Medical Journal on how much so-called medical research is of dubious validity, and performed to give talking points for marketing rather than to improve the lives of patients.

The reports on the corruption is big Pharma “research” are so rife that this account hardly qualifies as news. For fun, I dug up the notes from a 2004 study in which I interviewed some experts on drug company marketing. The reason? Even then, it was seen as the most effective, and a big financial services client was keen to see what techniques they could adopt from it. Even then, it was clear “research” was seen as key to effective selling. Per one interviewee, on sales reps:

Gerd Gigerenzer: On How Decisions are Really Made, Versus How Economists Say They Should Make Decisions, and Why the Folks in the Real World Often Have it Right

This is a bit of a sleeper of a presentation from the recent INET conference. It was from a session titled “What Can Economists Know?” which might cause willies among non-economists as being too much about epistemology and not enough about issues that might give insight, say, into why the overwhelming majority of economists in early 2007 thought a global financial crisis was impossible.

This talk by Gerd Gigerenzer is about heuristics, and why they are often superior to the more formal methods of analysis and decision-making fetishized by economists.

Guest Post: Study: Genetically Modified Corn Increases Body Weight in Rats

GM Food Increases Body Weight in Rats

Cathy O’Neil: Economists Don’t Understand the Financial System (Quelle Surprise!)

By Cathy O’Neil, a data scientist who lives in New York City and writes at mathbabe.org

A bit more than a week ago I went to a panel discussion at the Met about the global financial crisis. The panel consisted of Paul Krugman, Edmund Phelps, Jeffrey Sachs, and George Soros. They were each given 15 minutes to talk about what they thought about the Eurocrisis, especially Greece, the U.S., and whatever else they felt like.

It was well worth the $25 admission fee, but maybe not for the reason I would have thought when I went. I ended up deciding something I’ve suspected before. Namely, economists don’t understand the financial system, and moreover they don’t get that they don’t get it. Let me explain my reasoning.

Paul Davidson: What Makes Economists So Sure of Themselves, Anyway?

By Paul Davidson, America’s foremost post-Keynesian economist. Davidson is currently the Holly Professor of Excellence, Emeritus at the University of Tennessee in Knoxville. In 1978 Davidson and Sydney Weintraub founded the Journal for Post-Keynesian Economics. Davidson is the author of numerous books, the most recent of which is an introduction to a post-Keynesian perspective on the recent crisis entitled ‘The Keynes Solution: The Path to Global Prosperity’.

Introduction by Philip Pilkington

In a recent interview I asked the US’s leading post-Keynesian economist and founder of the Journal of Post-Keynesian Economics, Paul Davidson to discuss what is known as the ‘ergodic axiom’ in economics. This is a particularly important axiom as it allows mainstream economists (including left-wing Keynesians like Paul Krugman and Joseph Stiglitz) to claim that they can essentially know the future in a very tangible way. It does this by assuming that the future can be known by examining the past.

Without this axiom the whole edifice of mainstream theory rests on very shaky grounds.

The Trouble with Principles: Or, How to Not Lose Friends and Alienate People When Learning Economics (#OccupyWallStreet, #OWS)

By Jake Romero, an economics student at Portland State University. You can reach him at jvc613 (at) gmail.com

Economics has always been something of a battleground, but in November a group of about seventy Harvard students opened a new front in the ongoing hostilities: its introductory pedagogy. In solidarity with the Occupy movement, the students staged a walkout of their principles course to protest what they called its “inherent bias.”

In his rebuttal in the New York Times, Greg Mankiw countered that his teaching is careful to avoid policy conclusions and that its subject matter falls squarely within the current mainstream of the discipline. Narrowly correct, he nonetheless profoundly missed the broader points that his students, to be fair, seemed unable to articulate fully.