Economics Is A Lost Field

38 pointsby goodmachinealmost 12 years ago

19 comments

dimitaralmost 12 years ago

Like supposedly scientists are split on Evolution, Global Warming and the Age of the Earth?I am a bit unfair, but economists agree on a lot of things like free trade, public health care (for it, since the 60s), price floors and ceilings, carbon taxes, even in Central banks people broadly agree on a 'Taylor rule'-type behavior of managing inflation over the medium term.There is a poll by the University of Chicago of a broad pool of economists from Ivies on a set of propositions and you can see that there is broad agreement on a lot of issues:<a href="http://www.igmchicago.org/igm-economic-experts-panel" rel="nofollow">http://www.igmchicago.org/igm-economic-experts-panel</a><a href="http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_cw5O9LNJL1oz4Xi" rel="nofollow">http://www.igmchicago.org/igm-economic-experts-panel/poll-re...</a>The reason why there appears to be a lot of disagreement is because of at least three reasons:* economists with a esoteric position are more likely to search for the limelight and the media are happy to give them a platform.* special interests are willing to hire economists to agree with them.* Most importantly people don't like to admit they are wrong. Especially if they are vested ideologically or by religion.

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jvmalmost 12 years ago

There are two major counterpoints here. The first, which has already been mentioned, is that economists do agree on many things.The second big point is that the profession actually does (mostly) agree on monetary policy when interest rates are comfortably positive. In the mainstream, it's widely agreed that when interest rates are positive, a) the fed controls inflation and b) the Taylor rule is a good approximation of what the fed should do.When interest rates hit 0 in 2008-9, the field was thrown in disarray. Roughly, neo-Keynesians like Krugman believe the fed no longer controls inflation (or controls it less well) and so fiscal stimulus is necessary to supplement monetary policy. Neo-monetarists like Sumner believe the Fed continues to control inflation, via QE, so the Fed should just continue to use the Taylor rule but use QE instead of interest rates and basically just pump out money as long as the Taylor rule calls for negative rates, echoing Milton Friedman's advice for Japan in the 90's (which Krugman agreed with at the time!!).* According to both those views, monetary or fiscal stimulus have been inadequate.Due to the unprecedented nature of QE an opposing camp has strengthened, arguing that the fed's actions have been reckless and ineffectual. These have been joined by dissenting voices, such as the Austrian real business cycle theorists which have always been opposed to fed intervention in the money supply.The recent crisis raised new problems that the field has yet to grapple with. But finding good answers is likely to be very important. As events proceed, it will hopefully become obvious which concerns and predictions are warranted. I see the process as a healthy scientific debate, not a reason to throw out the whole field.* To be more technical, they actually call for an abandonment of the Taylor rule and its replacement with NGDP level targeting, but in effect those are actually quite similar. One important motivation is to move away from equating interest rates with monetary policy, since interest rates aren't useful at the ZLB.

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JDDunn9almost 12 years ago

The basic problem with economics is mathematical. Economists keep acting like the economy is normally distributed when it is not. For example, the "Black Scholes Model", assumed that the system was normally distributed, differentiable at all points, continuos, etc., which of course was not true. What's worse is that every economist knows this, but they continue to use these faulty formulas because they are afraid of the alternative, chaos.The economy is governed by chaos theory. Just like the weather or earthquakes. Chaotic systems don't have nice little formulas. They are extremely complex, and the slightest miscalculation can produce large changes in outcome. At least with the weather, the core principles are well understood. Scientists can perform experiments on how heat affects pressure and other properties. We can't experiment in economics. The core principles are not well understood. Therefore, economic models are hopelessly lost. Admitting that makes economists look dumb though, so they stick with Calculus and pretend the world is normal.

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JumpCrisscrossalmost 12 years ago

Fluid dynamics is tough. There are a bunch of little particles each doing their own thing with no shits given for the greater cause of their laminar flow. Yet we can still make statistical generalisations that are useful in many cases. We can also make flying toothpaste tubes. We aren't quite sure precisely how those work, but we understand the parametric space well enough to keep clear of the holes in our knowledge. None of this means that we can predict extreme weather, though we have gotten better over the years. Neither does it prevent daredevil pilots and engineers from regularly pushing the flight envelope (and, once in a while, from breaking through).Economics is tough. There are lots of little factors each doing their own thing with no shits given for the greater economy (or theory). Yet we can still make statistical generalisations that are useful in many cases. We can also design and manage monetary and financial systems that allow for unprecedented levels of human wealth and complexity. We aren't quite sure precisely how these work, hell economists can't figure out what the traders and bankers are up to half the time, but we do know where we cross from solidly-footed theory to still-debated hypotheses (even if nobody else cares for the delineation). None of this means that we can fix financial storms, though we have gotten much better over the decades. Neither does it prevent bankers and traders from innovating at the brink of theory.

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Eliezeralmost 12 years ago

I've been impressed by the reasoning behind market monetarism (mainstream credibility: good and rising). They also seem to have a pretty good ante facto grasp on events, in the sense that when e.g. Japan commits to a less tight monetary policy the results (amazingly rising real GDP with little inflation) do not seem like the sort of the sort of thing other pundits would expect, while being the sort of thing you would expect from reading market monetarist blogs. It gives the impression of being the theory that takes the last few years in stride (or earlier decades too of course) whereas the other economic stories I know are busy manufacturing new special explanations for each successive event.Check the sidebar of "The Money Illusion" for an introduction or Google market monetarism.Relevant judgments here: Fiscal policy can't do anything monetary policy can't, so you should generally prefer QE to increased government debt, unless a separate case is made for government investment qua investment; with a properly behaving central bank the fiscal multiplier is exactly zero because the central bank is already stabilizing NGDP. Money is 'tight' or 'loose' in the general economy depending on NGDP growth rates; looking at interest rates or money supply will be exceedingly misleading as to what the effective policy is right now, never mind what it should be going forward.-- Eliezer Yudkowsky

lkrubneralmost 12 years ago

Economists, like most people, want to defend their reputations. When they are proven wrong by events, they find it painful to admit they were wrong. Paul Krugman wrote about this in a recent blog post:<a href="http://krugman.blogs.nytimes.com/2013/06/28/three-unsayable-words/" rel="nofollow">http://krugman.blogs.nytimes.com/2013/06/28/three-unsayable-...</a>

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dkarlalmost 12 years ago

"Lost" implies some kind of regression. The truth is that economics has always been exactly the way the author describes. The economy is full of human actors who are irrational, who act based on their expectation of how others will act, and many of whom study economic theory and follow the pronouncements of economists.Imagine how difficult astronomy would be if stars adjusted their spectra according to their anticipation of spectral trends, which was informed by emotion and by their reading of physics papers. Now imagine astronomers beaming spectral fashion magazines at the sun and being held responsible for skin cancer rates and crop yields. Imagine interest groups representing growers of different crops at different latitudes, as well as sunscreen industry groups, all beaming their own spectral fashion magazines at the sun. If that were the case, I doubt physicists would have had enough confidence in their understanding of the solar spectrum to deduce the existence of a new element from it [1].[1] <a href="http://www.universetoday.com/53563/who-discovered-helium/" rel="nofollow">http://www.universetoday.com/53563/who-discovered-helium/</a>

jlaroccoalmost 12 years ago

What a lame article. I don't even see what the point is. It's just random whining that people in a certain field don't know all the answers. There wouldn't be much point in studying economics (or anything, for that matter) if all the problems were solved and everybody knew all the answers.There was an article on HN just the other day about Voyager 1 entering some unknown region of the universe. The physicists involved had no idea what was going on and all of their predictions turned out to be incorrect. So why no whiny article titled "Physics is a Lost Field"?Macroeconomics is hard. It's nearly impossible to perform experiments validating large scale macroeconomic theories. If there were a way to accurately test the impact of the government borrowing and spending money, then it would be carried out. But realistically there's no feasible way to do that.What's more, the author doesn't propose any solutions. Anybody can say this or that is screwed up. But that doesn't help anything. I'm sure the econ world would love to hear his theories that unquestionably solve the problems once and for all, but of course he didn't offer any.Also, his mention of Freakonomics has me doubting his understanding of economics. The sumo example he mentions is a pretty straightforward application of microeconomics. He then goes on to say, "Freakonomics is, however, silent on monetary or fiscal policy." Monetary and fiscal policy are macroeconomic concepts. Economics is about making decisions and choosing between alternatives - how will people spend their money, what will they choose in this situation, etc. There's more to econ than just growing the national economy.

localhost3000almost 12 years ago

the problem with economics is its self-conscious insistence on being taken seriously as a rigorous, hard(ish) science which leads to an over use of complex, fancy looking mathematical models that, given the subject, require a great many assumptions to "work". in a dynamic, human-created system with constantly changing rules (society) those assumptions are often massive over simplifications or quickly made obsolete with the passage of time. better to think of economics as philosophy with which statistics might be applied rather than a science in and of itself...(i have a graduate degree in economics)

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altozalmost 12 years ago

Economists are no different than the prophets of old. Everyone claims to be speaking the truth. What's sad is that they live off the 1 correct prediction while disregarding the 20 that they completely failed on.The field simply is not a science. It has no predictive value.

pfortunyalmost 12 years ago

Mistaking Economics with Finantial Engineering is a big fail.And blaming Merton & Scholes for the Long-Term Capital Management fiasco is another error:The fact that they (actually Meriwether, but anyway) invested where they should have not (Russian bonds, look at that! like investing in Greek bonds right now) is just an indicator that we are human. Also, it is quite disputable that the intervention was necessary. The Fed acted short-term (which is one of the big mistakes of modern governments) and it might have gone better than predicted.You can just take a look at the performance of Renaissance Technologies along the years to realize that you can make a lot of money if you really invest (human & technological capital) on it. It is hard, but it can be done. And using maths & CS, little more.

ctbeiseralmost 12 years ago

This doesn't prove that economics is wrong. It just proves that something like one of every two economists is wrong. This is not a hard problem to figure out the answer to by looking at historic data either. Read both sides closely, and if you're paying enough attention, you'll figure out which one is right pretty fast.

mbestoalmost 12 years ago

IMO - The underpinning issue with the subject of Economics is that it's often misconstrued as a science. A science implies that what you are studying and testing is reproducible (i.e. the scientific method). However the issue with many of the theories of economics is they are subject to change. Let's say for example you state a theory that says "If X happens, Y will happen". Often in economics, once X happens to a certain point (let's say everyone catches on to the idea that X will always yield Y, so everyone simply goes and does it), Y may no longer happen at the same rate. So really the issue for me is - the people who make fiscal decisions are basing them on unproven (or let's say slightly proven) theories. It's better than nothing (which is the alternative), but still doesn't make it an absolute science.

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ubasualmost 12 years ago

This is "a pox on both houses" disingenuous pablum. Consider their description of the Reinhart-Rogoff affair:This intellectual disagreement over the impact of fiscal decisions has spilled into the public domain with the fight between Nobel Prize winner Paul Krugman and the Harvard Duo of Carmen Reinhart and Kenneth Rogoff. Here is the letter written by Reinhart and Rogoff labeling Krugman‘s comments on their work as “spectacularly uncivil behavior.” The spat is over the impact of debt on economic growth.What the author must have known, but fails to mention, is that Reinhart-Rogoff was wrong due their selective data usage and spreadsheet errors.

graycatalmost 12 years ago

Due to the too frequent economic crises, during my education I considered getting a Ph.D. in economics. I got some famous texts on economics, read some chapters, talked to a famous economics professor, did a big upchuck, concluded that the field was hopeless, and stayed with applied math.Why hopeless? Here are my guesses:Data and Reality. Historically the people studying economies just had far too little data on their subject. By analogy they were trying to understand, repair, or re-engineer a car but had never looked under a car, never popped the hood, didn't know what piston rings were, and still were in doubt if the thing had front wheel or rear wheel drive. In a medical analogy, they had no cadavers to dissect, X-rays, MRIs, blood tests, etc. In an astronomical analogy, they had no telescopes.So, they never did well with what is usually one of the first steps forward for a science -- the descriptive part where we just give a good description of the subject. Astronomy, biology, thermodynamics, chemistry, electricity and magnetism, and more all started with good descriptions of their subjects.Or, for cars, start tinkering, as Henry Ford did, with a lot of time with dirty hands, and only later use finite element analysis to build models of stress and strain in continuum mechanics. Or naval architects had a lot of experience before they moved to towing tanks and the Navier-Stokes equations.Bluntly I had to conclude that the academic economists really just didn't have even a first, good descriptive understanding of a real economy.During WWII for war production planning, Leontief worked on 'input-output' models of the US economy. Good for him. But I was told that the US academic economics community very much did not like his work because it was not 'theoretical' enough as in, say, 'political economy'. So, it looked like academic economics wanted to stay with pomp, pretense, prestige, ignorance, and incompetence.One of my Ph.D. advisors wanted me to take a course in economics so that if I did any work on a committee on a 'public sector' problem, then I could defend myself from attacks by floods of gibberish from academic economists. I've had no desire to do any such 'public sector' work and have not, but I signed up for the suggested course.I wanted to be nice to the professor and not cause trouble. So, during his lecture with a lot of hand waving and free hand curves but no data and nothing convincing, I just took notes and said nothing. Then after class I asked him what he was assuming about his curves -- continuity, uniform continuity, differentiability, continuous differentiability, monotonicity, concavity, pseudo-concavity, quasi-concavity (e.g., in case he was intending to use constraint qualifications for the Kuhn-Tucker conditions for optimality). He was unhappy. Later in the day, I got a message to see my advisor. I was out of the economics course -- the professor claimed that I might disrupt the class. That was not my intention, but good riddance! But that professor's reaction seemed to be a special case of a major 'feature' of academic economics -- have a tightly knit 'club' that wants only true believers and pushes out any skeptics. Or the first rule of Economics Club is never talk about the rules of Economics Club!Net, academic economists know next to nothing important about any real economy. Real economic policy needs much more in data on real economies, insight into reality, good judgment, and real effectiveness with applied math than is common in academic economics.

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theraccoundudealmost 12 years ago

It's also worth searching youtube for "Ben Bernanke was wrong" to see how utterly clueless some of our 'leading' economists can be.

marcosdumayalmost 12 years ago

I have the impression that economists (the real ones, not the politicians that use that title) need an esoteric terminology to protect their field. That'll decouple macroeconomics from policy while it's developed (and it's still embryonic) until nobody can deny their claims anymore.

dredmorbiusalmost 12 years ago

Economics is broken in a number of other ways.The biggest questions to me are growth and sustainability. In the neoclassical world (I studied and degreed in the study) growth factors are all engogenous to economics:The Neoclassical Growth Model, where output is a function of current stocks of capital and labor: Y = A K^α L^(1-α ), and capital accumulation is simply a function of investment and captial depreciation: K = sY - δKThe AK theory, which reduces growth to aggregate capital: Y = AK.The product-variety model (Romer, Dixit & Stiglitz): production as a function of summed intermediate production functions based on capitalThe Schumpeterian model, output is based on a productivity function (technology, assumed to be increasing without limit, and capital.Technology increases. Inputs are perfectly substitutable. Innovation will produce substitutes.And that's straight out of the first chapter of a graduate level text in economic growth (Aghion & Howitt, The Economics of Growth, ISBN 978-0-262-01263-8).Then there's the whole class of heterodox economics: <a href="http://en.wikipedia.org/wiki/Heterodox_economics" rel="nofollow">http://en.wikipedia.org/wiki/Heterodox_economics</a>Among these, the fields of thermoeconomics / biophysical economics / ecological economics, in which a, if not the primary factor relating to economic growth is energy. Many of the contributions to this field come from outside the field of economics, particularly from ecology, biology, and physics, but there are also a number of classically trained economists: Kenneth Boulding, Robert Ayres, Charles A.S. Hall, Robert Costanza, Herman Daly, H.T. Odum, and others. <a href="http://en.wikipedia.org/wiki/Heterodox_economics" rel="nofollow">http://en.wikipedia.org/wiki/Heterodox_economics</a> <a href="http://en.wikipedia.org/wiki/Thermoeconomics" rel="nofollow">http://en.wikipedia.org/wiki/Thermoeconomics</a>Further work is being done by a wide range of people, some with training in finance and business, but "unbrainwashed" (in their own words) by economic orthodoxy. Gail Tverberg of Our Finite world (<a href="http://www.ourfiniteworld.com/" rel="nofollow">http://www.ourfiniteworld.com/</a>) is key among these. Joesph Tainter has an extensive study of collapse of complex societies with profound implications for the Western European, now global, civilization.When I look at the predictions and statements of mainstream economists, I see huge amounts of wishful and/or fuzzy thinking, and a long string of disappointments. When I look at the track record of the energy-oriented heterodoxy, I see a much stronger record. I tend to consider my own degree "economic woo" -- more similar to astrology and alchemy than astronomy and physics.Not that it's _all_ bunk: markets are useful (though highly imperfect, and rare) concepts. Changing the relationship of money to underlying real wealth (which I'm increasingly convinced should be measured in fungible energy units, localized (and yes, that reads "FUEL"), and even predictions of how people generally _do_ behave (though not how they _should_) can be useful. But in planning and plotting a long-term path through the future, I'm increasingly fearful that economics is the wrong tool for the job, and that collectively we're going to have an Alan Greenspan moment, in which we find we've been grossly mislead by our belief system.

jmcgowan79almost 12 years ago

First, one should not rely on consensus or general agreement. Historically, the "consensus" or prevailing theory has been wrong or substantially flawed many times. Furthermore in most scientific fields one can find a number of highly qualified dissidents who do not accept the "consensus." They are often small in absolute number, but an absolute consensus is quite rare. Finally, periods of rapid scientific and technological progress are often characterized by a lack of consensus.Ben Bernanke's Federal Reserve policies are largely the prescription of Milton Friedman and the monetarists. Friedman argued that the Great Depression was caused by allegedly tight monetary policy in the 1930's that resulted in a massive series of runs on banks and crashes. He argued that the Great Depression could have been averted by loose monetray policy along the lines of quantitative easing.For many years, until recently, conservative, business, and libertarian groups embraced Friedman's ideas probably in part because quoted out of context, they shifted the blame for the Great Depression from misconduct and bad decisions by private corporations and wealthy individuals to the federal government and civil servants who provide little funding to conservative, business, and libertarian lobbying groups. Friedman's arguments also argued that the government need only have provided cheap money to prevent/cure the Great Depression rather than activist government programs such as Social Security and the alphabet soup of public works programs such as the Works Progress Administration (WPA).Keynesian economics strongly disagreed with the Friedman/monetarist theory. Keynesians argue that the United Staes did have loose monetary policy in the 1930's and it did not work. They argue that the United States and much of the world was in a liquidity trap, an unusuall situation in which interest rates reach or nearly reach zero but a negative interest rate is needed to produce a revival of consumption and demand. Pouring money into the economy through the Federal Reserve or other central bank won't work. Nor will there be much inflation, because the money just sits in bank accounts unused.In Keynesian economics, absent some extreme positive economic shock like the invention of a new energy source, the government must borrow heavily and spend heavily to restart the economy, pulling it out of the liquidity trap, which it is argued is what World War II finally did in the 1940s.Keynesian economists like Paul Krugman and Dean Baker argue that the United States has been in a liquidity trap since the crash in 2008. The liquidity trap theory makes a prediction that has so far been borne out, that inflation will remain low despite the huge infusion of money from quantitative easing and huge budget deficits. These other folks such as John Taylor, Peter Schiff, Ron Paul, and various other cricits of both Ben Bernanke and the Keynesians like Krugman have been consistently wrong about inflation for the last five years.Sincerely,John