
Economics Is A Lost Field - goodmachine
http://www.thisviewoflife.com/index.php/magazine/articles/economics-is-a-lost-field
======
dimitar
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:

[http://www.igmchicago.org/igm-economic-experts-
panel](http://www.igmchicago.org/igm-economic-experts-panel)

[http://www.igmchicago.org/igm-economic-experts-panel/poll-
re...](http://www.igmchicago.org/igm-economic-experts-panel/poll-
results?SurveyID=SV_cw5O9LNJL1oz4Xi)

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.

~~~
JDDunn9
Scientists are not split on those issues. Uneducated people disagree with the
scientists. Big difference.

If economists have a handle on things, why did the IMF have to apologize to
Greece for giving them bad advice? Why did the Black-Scholes Model fail?

~~~
saosebastiao
You mischaracterize the disagreement. Scientists disagreeing with each other
is not the same kind as anti science derps claiming that global warming is a
conspiracy. Climate scientists, for example, can agree that the planet is
warming, but they can't agree on whether it is warming at a 12C/century rate
or a 1C/century rate. Most estimates fall somewhere in between, but the range
of disagreement is HUGE in terms of impact and policy response.

And he is right...economists agree on plenty of policy matters. That they
disagree on some of the major problems of our time is not a problem witn the
field. Disagreement on major problems is a tautology.

------
jvm
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.

~~~
EScott11
This is a solid snapshot of the actual state of affairs. What it really does
is demonstrate how nuanced economics is, and how the article ignores these
subtleties which make or break "good" economic policy. For instance, there is
a massive difference between keynesian and neo-keynesian policy which the
article completely ignores.

------
JDDunn9
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.

~~~
pfortuny
You do not understand stochastic analysis. What Black & Scholes did was to
notice that all the randomness can be taken away if all you want to do is

    
    
        * Price a specific type of option under specific conditions.
    

Those conditions _DO_ assume and include randomness. The funny thing is, just
like in the physics of heating (which is the same as brownian motion), there
are values which are deterministic, despite the intrinsic randomness of the
process.

Really, it is not that the Black-Scholes model is differentiable (which is
not).

~~~
JDDunn9
You missed the whole point. Randomness exists in both normal and chaotic
systems. The difference is that in normally distributed systems, randomness
can be predicted.

~~~
thetwiceler
I think you're just spouting a lot of buzzwords, and you're actually
conflating (a) the relevance of chaos theory and (b) criticisms of normal
distributions in economics.

A major recent criticism is of some economic models which have assumptions to
the effect of "returns on this investment will be normally distributed." The
criticism is that evidence seems to suggest that returns are not actually
normally distributed; rather they have "fat tails," meaning that extreme
events are more likely than with a normal distribution. And this error causes
economic models to discount the role of these unlikely extreme events.

The Black-Scholes model effectively models stock prices as Brownian motion.
This boils down to a single assumption: stock prices are the buildup of lots
of very small INDEPENDENT random events (with FINITE variance) that occur over
short times periods; this leads straight to Brownian motion. Brownian motion
is indeed continuous; however, it is nowhere differentiable with probability
1. Because of the assumptions of finite variance and independence, the CLT
tells us that returns will be normally distributed. So here, people pretty
much agree that it's always these assumptions of independence that cause these
models to predict poorly.

This is totally different from chaos theory. First of all, chaotic systems are
not necessarily complex. Here's a chaotic map with a "nice little formula":

    
    
      f : [0,1) -> [0,1)
      f(x) = 2*x (mod 1)
    

While this is chaotic, we can understand much about this map. For example,
each application produces an entropy of 1 bit (see entropy of dynamical
systems...). So this is a map that "produces randomness" in a way. This is
philosophically nice, because probability theory itself doesn't at all explain
how randomness comes about.

~~~
JDDunn9
You can create a chaotic map with a simple formula, but those don't appear
often in the real world. Give me the formula for the weather, or to predict
the next earthquake, or to model turbulence.

If the stock market movements were normally distributed, crashes would be
extremely rare. Something like 1 every 10,000 years. Virtually all economic
models assume something to be true that we know isn't.

~~~
thetwiceler
Once again, don't confuse predictability with ability to understand a system.
We actually have a fairly good understanding of weather dynamics and
turbulence - and I can give you the formula for both of these - the Navier-
Stokes equation! Not the simplest equation, but something understandable (yes,
I know there's a Millenium Prize problem to see if we always get a smooth
solution). We do understand how turbulence arises from this. And we understand
the weather very well.

However, we can't predict the weather, nor can we predict the earthquakes. And
as you correctly point out, the reason for this is chaos. The reason is _not_
that we don't understand the underlying processes that govern these dynamics.
Rather, the uncertainties in our initial conditions increase exponentially
with time (due to chaos) and make long-term predictions unreliable.

------
JumpCrisscross
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.

~~~
dnautics
what do you mean 'we have gotten better at fixing financial storms'? The
financial magnitude of swing in the recent financial crises has been as bad or
worse than the great depression, and to me, it seems like the only reason we
aren't starving in the streets like they were in the 30s is because the green
revolution has made it so that feeding people is no longer largely a
productive capacity problem.

------
Eliezer
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

------
lkrubner
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:

[http://krugman.blogs.nytimes.com/2013/06/28/three-
unsayable-...](http://krugman.blogs.nytimes.com/2013/06/28/three-unsayable-
words/)

~~~
dnautics
it's funny, because he's never admitted he was wrong, himself. Go ahead,
search for it.

~~~
cwp
Ok... I'll bite.

He predicted deflation as part of the economic crisis, which hasn't happened.
He's mentioned that in several posts, most significantly in this one:

[http://krugman.blogs.nytimes.com/2013/04/13/missing-
deflatio...](http://krugman.blogs.nytimes.com/2013/04/13/missing-deflation/)

He also frequently writes about the state of macro economics, the politics
involved, the different camps in the debate and what can be done about it. For
example:

    
    
      So here’s what should have happened: economists propounding these other 
      approaches should have said, “Gosh, I seem to have been wrong. I need to 
      rethink my approach.”
    
      Oh, and by the way, I have done that. As I’ve written before, I rethought my 
      views about liquidity traps and currency crises after the Asian crisis of the 
      late 1990s; I rethought my views about advanced country debt and deficits 
      after making a wrong prediction in 2003 (although in that case my mistake was 
      in not taking my own model seriously enough).
    
    

[http://krugman.blogs.nytimes.com/2012/11/29/varieties-of-
err...](http://krugman.blogs.nytimes.com/2012/11/29/varieties-of-error/)

And that same search will turn up many, many posts where he talks about
intellectual honesty and validity of different arguments, ranging from "this
guy is lying" to "I disagree, but this is a reasonable point of view".

~~~
dnautics
"Notice how Keynesians responded to the partial failure of a prediction: by
asking what they got wrong, and how their model of the world needed to be
adjusted."

One could make that argument about the ptolemaic system and epicycles. While
krugman admits his _prediction_ was wrong, it is a subjective argument as to
whether what Krugman did in the end was to admit his _model_ is really wrong,
or if he decided it needed mere "adjustment". I know where I stand on that
judgment.

~~~
sentenza
I am a physicist working on complex systems. When I read Krugman I get the
vibe of a scientific peer using the scientific method within the constraints
of the information available. Pretty much all other economists that make it
into the mainstream press fall very much short of that. Most don't even have a
falsifiable model.

~~~
dnautics
I'm a biochemist engineering an enzyme, when I read Krugman I get the vibe of
someone who uses the veneer of the structure of the scientific method to
delude himself into thinking that he isn't operating in the realm of
confirmation bias.

I could also be biased: When I was a (math major) undergrad holding study
sessions for lower-level mathematicians at a school with a very prestigious
econ department, I recall the econ students coming to me with problems that
seem to be specifically concocted to satisfy a culture that valued 'make a
model such that you can take the gnarliest derivative possible so that you can
remind everyone that you actually could pass calculus'. Gnarly derivatives, of
course, rarely correspond to honestly measurable quantities (up to error).
There was also NO dimensional analysis, so often equations would have the same
term in an exponent, as a sum, and as a divisor.

In the real sciences for 90% of useful things, we take advantage of taylor's
theorem and call everything locally linear.

------
dkarl
"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] [http://www.universetoday.com/53563/who-discovered-
helium/](http://www.universetoday.com/53563/who-discovered-helium/)

------
jlarocco
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.

------
localhost3000
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)

~~~
gordaco
And don't forget that the object of study is actually sensible to predictions
about it, in multiple ways, which gives a new dimension to that can of worms.

I'd say that the main problem is that economists are using numbers, and they
_really_ want to use them, but they're using them blindly. They'd love to be
treated as physicists, but, sorry, they aren't yet. Economy is a _very_ green
field with little actual prediction capabilities (at least on a macro scale),
and the sooner we accept it, the better.

And the bottom line: never ever trust anyone trying to justify the application
of some economic policy based on mid-term or long-term predictions, no matter
how many numbers may they throw at you.

------
altoz
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.

------
pfortuny
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.

------
ctbeiser
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.

------
mbesto
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.

~~~
jamesaguilar
I don't think your understanding of the word science is universal. For
example, I think it is perfectly scientific to study things that do not repeat
very often, like the big bang or extinction events caused by large objects
striking planets.

When I say science, I just mean the gathering of knowledge through systematic,
empirical means. I think that's what a lot of people mean by it. The problem
with economics is that the empirical tools we have at our disposal are not
very powerful, the data is noisy, and the factor-space is huge.

~~~
mbesto
My point is the definition of science gets misconstrued. The general populous
assumes that something that is scientific is a "truth". We often say "Big Bang
Theory" not the "Big Bang Truth". In economics the line between truth and
theory gets massively blurred (for reasons I'm not going to begin debating
here).

So when the Fed decides to drop the interest rates or a Harvard economics
professor writes a report on how X will cause Y, we consider these to be
absolutes. Meaning, if for every time X happens, there is a reactionary Y that
needs to happen to keep growth consistent. We just believe because they've
created an economy theory to support it, that is must be true.

------
ubasu
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.

------
graycat
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.

~~~
dnautics
Lest we forget though, there is Hayek's "information problem". Econometric
data are by their very nature aggregated, and that fundamentally introduces
bias. How do you choose how to aggregate your data? How do you choose what
relevance that particular aggregation means (from a policy standpoint, or from
a fundamental standpoint)?

A number such as "unemployment", for example, is loaded. Are parents that
could have a job but choose to stay home to take care of children
"unemployed"?

~~~
graycat
Common problem. E.g., how to "aggregate" data in astronomy? For a simple first
cut answer, work hard, get a lot more data, work hard, have some good ideas,
get a lot more data, work hard, etc. So, for astronomy, use spectroscopy to
identify the elements in the star. Use the brightness of the star and the red
shift. Get empirical distributions of various characteristics of the stars and
begin to guess that stars go through stages and where the distributions are
low the stages are short.

So, start by observing, getting a lot of data, and being just descriptive;
economics didn't and still doesn't do nearly enough here. Then look a little
deeper and start to make some sense of it; economics has done next to nothing
here, necessarily so since they didn't get a good grade in the first grade
with the descriptive work. For something with a little promise, e.g.,
Leontief's work , they don't like that and regard it as not acceptable in
Economics Club.

So, with such work, in astronomy get Hertzsprung–Russell diagrams. _Nice_
progress.

Now, continue: Take what is known about weights in the periodic table and
observe that if press together two deuterium atoms to make one helium 4 atom,
then lose some mass and, thus, get some energy. Keep this up across the
periodic table and see that iron has the least such energy. Observe that can
keep pressing light atoms together to get heavier ones, e.g., carbon, oxygen,
..., iron and get off energy. Do a lot of model building of the reactions in
the centers of distant stars. Check with the data, e.g., the
Hertzsprung–Russell diagrams.

Eventually come up with a well tested, apparently quite solid, model of stars.
A _lot_ work, bright ideas, spectroscopy, expansion rate of the universe and
red shift, nuclear physics, etc. Didn't say it was easy.

Much the same in other fields of science that have been successful.

So, if economics wants to copy that _methodology_ , then they need to get
their hands on more data. Then, say, they need to look at the _flows_ that,
intuitively, appear to be generating the data. I know; I know; too soon want a
lot of curves on _propensities_ , and will have a tough time there. Not
guaranteed to be easy. But neither were the other sciences that were
successful.

My view of academic economics is that they sit in small, dark rooms with the
doors closed, hope for a single stroke success comparable with E = mc^2 in
physics, dream up _models_ , essentially of imaginary economies, hope, but not
get very far. So, they don't want to do the first, observational, low level
grunt work of data collection and basic description that astronomy, chemistry,
biology, etc. did.

There have been suggestions that the Princeton econ department has two halves
with one half, then with Bernanke, the more _empirical_. If so, good for the
Fed and the US since we will be less likely to be stuck with crack pot ideas
from "defunct economists".

A danger here: So, with such work with imaginary economies, some to be defunct
economist makes a lot of absurd assumptions and finds some _optimal_ solution
-- maybe he studied some linear programming (Kantorovich, Solow), Kuhn-Tucker
theory (Arrow), Lagrange multiplier theory (Debreu), or dynamic programming
(Samuelson). Then, seeing a real economy and an opportunity for fame, status,
prestige, tenure, lots of undergraduate co-eds for secretaries, he takes the
solution from his imaginary economy and says that that is what the real
economy _should_ do. Bummer. Good way to kill tens of thousands of people from
unemployment, busted homes, street crime, infant mortality, drug abuse,
suicide, etc. Incompetence is a bad thing; incompetent economists are really
ugly things.

Your point about unemployment is an example: Early on I looked at it and
asked, where the heck is the definition, that is, the empirical or
_operational_ definition? Next, one level deeper, what the heck are we really
counting? E.g., might we be partitioning the data in some way that would be
_better_? So here what do we want for _better_? Sure, we want something that
can help us with _reductionism_ , that is, clear _causality_. But the actual
unemployment data is so poorly defined and so "aggregated" that our hope for
anything _causal_ is just smoking funny stuff, like the astronomers calling
stars just points of light and not looking deeper with spectroscopy, the
periodic table, nuclear physics, etc.

Finally I understood what the _empirical_ economists intended to do with data
such as _unemployment_ : They just said, it's a measurement; hopefully it is
done in a consistent way month by month; we agree we don't have a good
definition and that the data is too aggregated and has basic problems in
measurement, but we just take the data as it is; with the data, we will do
just empirical statistical modeling. Then, recognized or not, they have
essentially given up making unemployment data an input to anything
reductionist, causal, or scientific. Suckage. Meanwhile academic economists
are driving late model cars, and millions of people are suffering from
unemployment likely for no very good reasons. Suckage.

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

------
marcosdumay
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.

------
dredmorbius
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 - δK

The 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 capital

The 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:
[http://en.wikipedia.org/wiki/Heterodox_economics](http://en.wikipedia.org/wiki/Heterodox_economics)

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.
[http://en.wikipedia.org/wiki/Heterodox_economics](http://en.wikipedia.org/wiki/Heterodox_economics)
[http://en.wikipedia.org/wiki/Thermoeconomics](http://en.wikipedia.org/wiki/Thermoeconomics)

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
([http://www.ourfiniteworld.com/](http://www.ourfiniteworld.com/)) 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.

------
jmcgowan79
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

