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When Christopher Nolan was promoting his previous film Interstellar, he made the casual observation that "Take a field like economics for example. [Unlike physics] you have real material things and it can't predict anything. It's always wrong." There is a lot more truth in that statement than most academic economists would like to admit.
[...] several famous Keynesian and neo-classical economists, including Paul Romer, [...] criticized the "Mathiness in the Theory of Economic Growth" and [...] Paul Krugman. In this instance, though, Krugman is mostly correct observing that "As I see it, the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth."
[...] But more fundamentally, as Austrian economist Frank Shostak notes, "In the natural sciences, a laboratory experiment can isolate various elements and their movements. There is no equivalent in the discipline of economics. The employment of econometrics and econometric model-building is an attempt to produce a laboratory where controlled experiments can be conducted."
The result is that economic forecasts are usually just wrong."
"[Levinovitz] approvingly quotes one economist saying "The interest of the profession is in pursuing its analysis in a language that's inaccessible to laypeople and even some economists. What we've done is monopolise this kind of expertise.[...] that gives us power.""
[...] because economics models are mostly useless and cannot predict the future with any sort of certainty, then centrally directing an economy would be effectively like flying blind. The failure of economic models to pan out is simply more proof of the pretense of knowledge. And it's not more knowledge that we need, it's more humility. The humility to know that "wise" bureaucrats are not the best at directing a market "
Economists Are the New Astrologers
(Score: 4, Insightful) by Bobs on Wednesday August 30 2017, @12:42PM (14 children)
Some of "economic theory" is quite good, useful and valuable. Some is not.
First, rather than "astrology" a better analogy is "Economics is like forecasting the weather." It is inexact, probabilistic and imperfect.
More generally, predictions are hard, especially about the future.
Especially predicting what people will do: they screw everything up.
There are several different economic models / methodologies, some of which work better than others. The biggest difference is scale.
https://en.wikipedia.org/wiki/Macroeconomics [wikipedia.org]
https://en.wikiversity.org/wiki/Microeconomics [wikiversity.org]
Because all of the macro economic systems are so fiendishly complex, all the models are incomplete, and imperfect. As the models are incomplete, and complex, people don't really understand them and as they are tangled up in politics and ideology and resource allocations people's beliefs come into play and people's beliefs, passions, faith, politics, fairness, etc impact their opinion about economics.
Some people don't want to accept or even consider things they don't like, and/or don't understand. So they are look for excuses to reject economics entirely.
But economic models, like weather forecasting models can be helpful. Is it going to rain on my house tomorrow? Probably not. But there is a small chance it might - a small, random cloud might rain here but not on the other side of town. Yet if the weather forecast says there is a big hurricane bearing down it makes sense to prepare for it, even if it might not actually happen.
Weather forecasting is imperfect, but still helpful and better than nothing as it can and does provide useful data to factor into planning.
Same with economics.
Yet economic theory like "supply-demand curves" are quite valid and useful. If I am selling a bunch of X for $10, odds are I will sell more if I lower the price to $2.
But not always!
The "tragedy of the commons" is a good insight. - https://en.wikipedia.org/wiki/Tragedy_of_the_commons [wikipedia.org]
Presently are a lot of people who currently are passionate about how government and taxes is always wrong. And in their passion they look for every excuse to object to anything that might contradict their beliefs.
There are imperfections with economics and our understanding of human behavior. But overall economic theory has also helped and contributed useful things to our understanding of how to make human life better.
I see dismissing economics entirely as also about attacking the idea of government and governance.
And some government is better than no government.
We the people have formed an imperfect union to help coordinate things and make things better.
(Score: 1, Interesting) by Anonymous Coward on Wednesday August 30 2017, @12:53PM (12 children)
You will be delighted to hear that the article is not dismissive of economics! It is dismissive of only one school of economics, the mainstream branch of it.
The criticism comes from a school of thought that has at its centre the study of human behaviour. The article is a criticism of the mainstreams drowning of the discipline in mathiness. This is however not the only possible way to study economics.
You might also be please to read economic papers that discuss the moral's and ethics of policy, rather than what level the three letter acronym should be set at.
Your citing the example of Tradgedy of the commons shews that you might be amenable to a Lockean argument for homesteading, in which case the Austrian writings on property ownership may be of interest.
(Score: 5, Interesting) by Bobs on Wednesday August 30 2017, @01:35PM (10 children)
Thanks for taking the time to reply. I have read this article and several others on Mises.
The end goal of this paper, and apparently Mises, is to say economics is bad. Government is bad. Regulalion is bad. We should just let people do whatever they want.
Money quote from the article:
They do NOT say here is a better economic model to understand what is going on. They throw up their hands and say we can't know.
To net out the trivial argument of the paper: we don't know anything, all regulations and regulators are therefore bad.
This is wrong.
Something I find interesting is comparing the boom and bust cycle in the USA and Europe before and after government regulations in the economy in the 30-s and 40's.
It used to be that unregualed markets made lots of money, sucked up all the resources, then crashed. Happened repeatedly, every 30-40 years, multiple times.
Then we started regulating the markets more, especially the financial markets, and things got much, much better.
Then we de-regulated the financial markets and we start getting big busts/crashes again. (2008, ...)
https://en.wikipedia.org/wiki/Business_cycle [wikipedia.org]
I don't have time to dig into it right now - maybe later tonight.
(Score: 2) by jmorris on Wednesday August 30 2017, @02:41PM (6 children)
Actually, if you would read the books before burning them you would know that Mises fully explains the boom bust cycle as a product of government policy, i.e meddling. It allows banks to create money (credit expansion) through fractional reserve banking, this distorts the signals in the economy leading to malinvestment, a bubble blows somewhere and eventually pops. Rinse and repeat.
Moldbug then further clarifies the problem with his Maturity Transformation [blogspot.com], a good introduction to which can be had at the link.
The "market cycle" is not a bug in Capitalism, it is a useful feature in planned economies in that every bust provides an opportunity for new regulation to "fix" a problem it created.
(Score: 0) by Anonymous Coward on Wednesday August 30 2017, @03:56PM
Because we never had boom/bust cycles prior to the development of government? Yeah, that sounds accurate. Please travel in a time machine back and tell our ancestors that they don't have to worry about famine and can just eat their hearts out when times are good.
(Score: 3, Interesting) by Thexalon on Wednesday August 30 2017, @04:40PM (2 children)
Which is demonstrably untrue, since speculative bubbles occurred centuries before the development of anything remotely similar to modern central banking. Are you seriously claiming that all the well-documented economic crises prior to the 20th century (e.g. Dutch tulip mania) couldn't happen?
The only thing that stops a bad guy with a compiler is a good guy with a compiler.
(Score: 1, Informative) by Anonymous Coward on Wednesday August 30 2017, @05:35PM (1 child)
The Dutch Tulip Mania, was NOT an economic crisis.
Speculative bubbles occur because of miscalculation. Miscalculation is amplified by central banking.
You are straw manning by making the demonstrably false claim that all bubbles are caused by central banking. That is your claim. That you supplied. And then refute.
(Score: 1) by khallow on Thursday August 31 2017, @12:51AM
Let's not argue No True Scotsman semantics here. Maybe the mania part wasn't an economic crisis, but the resulting crash to reality sure was.
In other words, speculative bubbles do not occur because of central banking. They are just made more exciting by central banking.
Let us keep in mind that the earlier statement was:
So the grandparent most certainly was not constructing a straw man but instead responding to a real claim.
Further, universal claims are disproven via counterexamples. This is typical logic and reasoning.
(Score: 0) by Anonymous Coward on Wednesday August 30 2017, @05:27PM
I think we can leave the book burning to your less savory compatriots.
(Score: 1) by khallow on Friday September 01 2017, @06:30AM
I'll note here that Moldbug "clarifies" Maturity Transformation as:
This seems at odds with the actual definition [wikipedia.org]:
(Score: 0) by Anonymous Coward on Wednesday August 30 2017, @02:50PM (2 children)
Sounds like you might enjoy reading about the Austrian Business Cycle Theory (aka. ABCT).
It predicts that fiat money will result in boom bust cycles. Look it up it will answer all your questions about booms and busts. It is also fairly self-contained and you don't have to swallow the Austrian Kool-Aid to get value out of it.
This article might not say that there is a better explanation for what is going on, it only says that the mainstream are astrologers and about as accurate, because of the unreliable predictions that the mainstream make.
It is not economics that is bad, it is believing that you can do meaningful predictions about what interfering in the market will do that is false.
They do say that that we don't know, and that we can never ever know, as a matter of epistemology.
You are crafting a straw man by asserting that all regulations and regulators are bad. The articles merely argues that regulations should not be based on the work of astrologers.
The argument, (not presented in this paper), is that economic calculation is impossible. Thus central planning is impossible. The individual humans concerned know better then the bureaucrats. Assuming that humans are selfish, then it stands to reason that we should not place humans in positions where they are responsible for making decisions which place their personal interests against the interests of large numbers of other people.
Power corrupts, and absolute power corrupts absolutely.
Thus by reducing the power to the lowest common denominator, we create a society where the powerful are not permitted to exert their aggression against others.
This is a very different sort of economics to the one that seeks to reach an arbitrary 2% inflation rate, based on a made up measure, by manipulating interest rates.
(Score: 1) by khallow on Thursday August 31 2017, @12:55AM (1 child)
Ok. Consider this thought experiment. We're trying to figure out the consequences of interfering in the market in a certain way. So... we just do it and see what happens. What you are claiming is that somehow we can't then in near identical circumstances make predictions based on what happened before. Sorry I don't buy that economics is that unpredictable.
(Score: 2) by maxwell demon on Thursday August 31 2017, @06:05AM
Actually if economics is just unpredictable, then it is also unpredictable what meddling with it through regulations will do. But that means that it does not matter whether there are regulations or not, because if the regulations had any predictable effect, that would contradict unpredictability. Therefore it is logically inconsistent to claim at the same time that economics is unpredictable, and that regulations are always harmful.
The Tao of math: The numbers you can count are not the real numbers.
(Score: 2) by Bobs on Wednesday August 30 2017, @01:42PM
... I will say I agree that many economists try to be too precise with their numbers and predictions.
Say it is going to get 8% worse vs. 10% worse is a mistake.
And in charts, using a single line rather than a spectrum of increasing and decreasing probabilities would be more accurate, but also harder for lay people to follow.
Gotta run.
Thx.
(Score: 0) by Anonymous Coward on Wednesday August 30 2017, @02:13PM
Thanks Bob. You must be an economist.
- An actual economist