
Economists versus the Economy - the-enemy
https://www.project-syndicate.org/commentary/mathematical-economics-training-too-narrow-by-robert-skidelsky-2016-12
======
tomrod
> Economists claim to make precise what is vague, and are convinced that
> economics is superior to all other disciplines, because the objectivity of
> money enables it to measure historical forces exactly, rather than
> approximately.

Economist here. Maybe some economists make this very bold, presumptive claim.
But I'll be honest, money very rarely enters into the paradigm; rather
resource allocation and maximizing utility are the common approach. But then
again, I didn't focus solely on financial economics.

The draw for me wasn't mathematical complexity, it was the ability to model
behavioral interactions I witnessed on a daily basis. And I'll be honest--it
is so much fun! The conception, the data collection, the validation of theory.

Anyhow, I now work as a data scientist where I use the theories of economics
and the methods of econometrics (especially game theory considerations) to
really move the ball on our strategy and our marketing. I enjoy the process a
lot and love seeing economists entering the field. Statisticians and
economists make a potent combination.

~~~
soVeryTired
>resource allocation and maximizing utility are the common approach.

Utility maximisation has always struck me as a horrible way to do modelling.
In most cases your results must depend heavily on the form of utility function
you choose. And you always have to make a choice since utility functions are
unobservable.

~~~
spangry
I guess the follow up question to this is: what superior alternative do you
propose we use for evaluating competing government policies?

~~~
js8
I don't think we should ditch "utility" entirely but rather the idea people
are actors that try to rationally maximize utility.

One problem is of uncertainty (this was pointed out by Keynes) - people simply
do not trade higher risk for higher profits, even if the mean value increases
in the mathematical sense. Rather, they set a horizon of uncertainty.

The other big problem is that utility is ill-defined for an individual. We are
competitive beings and value many things for reasons that are related to how
other people value them. This cannot be modeled within the theory of rational
choice. (It's also somewhat related to the fact that supply-demand is not that
great model.)

In other words, we should augment the models to take the above issues (at
least, IMHO those are the biggest problems but certainly not the only ones)
into consideration.

~~~
spangry
I agree.

I think at this point even the most conventional academic economist would
start giving you sideways glances if you asserted that people are always
rational utility maximisers. It seems that most econometric modelling takes a
top-down approach; implicitly making homogenising assumptions about the models
'atoms' (e.g. individuals, firms, states, countries etc.).

I often wonder if the future of economic modelling is to be found in 'agent-
based' models, where you start at the lowest level and aggregate up. This
approach makes it possible to account for the effects of non-homogeneous
actors and to also include 'non-rational' behaviours observed in
experimental/behavioural economics.

I feel that the other issue is how beginner-level economics is taught at
university. I would agree that there's no practical way to teach economics to
beginners without making a bunch of simplifying assumptions and presenting a
bunch of simplified models for study (e.g. a perfectly competitive market).
However, I think the problem is that insufficient effort (if any) is made to
emphasise that these models do not really reflect reality, and are just 'toy
models' to help you develop your analytical thinking.

At best, in a real world context, understanding these models gives you an
analytical framework for reasoning about whether some policy proposal is
pointing in the right or wrong direction, though even that is a pretty fraught
assertion.

EDIT: I figured I'd address some of the comments below regarding randomised-
controlled trials, since its related to agent-based modelling / simulation.
Comments below have pretty much highlighted the crux of the problem with
economics and public policy (albeit without comprehending the implications):
barring the rare 'natural experiment', its virtually impossible to collect
'clean' data that allows comparison of different policies. It's true that RCTs
are being run in a 'public-administration' context, and the idea is gaining
popularity. Most notably, the UK government has run a bunch of RCTs on various
things.

But the crucial thing to note is that these RCTs are generally only run for
'low-stakes' issues. For instance, one of their RCTs involved varying the
wording of their tax authority's "you haven't submitted a tax return" letter
to determine what gets the highest compliance rate.

How comfortable, from an ethical standpoint, would you feel running state-by-
state RCTs to determine the best government healthcare policy? Particularly
given that the outcome in some states will be higher levels of preventable
death and permanent disability? I've chosen healthcare here because the
connection between different policies and higher or lower rates of mortality
is fairly direct. But for any other government policy (of any significance),
you're generally looking at the same sort of stakes. It's just that the
ultimate ill-effects of a bad policy are not immediately apparent, take a long
time to unfold, and often only eventuate at the margins.

------
oli5679
There's a big difference between the economic topics that get the most media
attention, and areas in which the majority of economists work.

I studied economics for 4 years and now work as an economist. I've never met a
colleague/teacher who claimed to be able to forecast inflation/GDP growth over
the next four quarters or correctly identify miss-priced assets.

Some examples of the questions I have seen economists address:

    
    
      - How much might labour supply change following a change in tax policy?
    
      - What is the impact of online advertising through different channels on a company's incremental sales?
    
      - How would a merger between two companies affect the price and quality of their output?
    
      - How can you detect collusion between bidders in tender markets?
    

A lot of the work seemed convincing to me, and lead to insights beyond the
common sense intuition of politicians/businessmen who were familiar with the
domain.

Even if you think economists aren't helpful for predicting inflation/GDP
growth or identifying miss-priced assets (I'm inclined to agree), there are
lots of important questions about market dynamics and policy evaluation where
economics does give us genuine insight. I also find it really fun!

~~~
tomrod
There are a few professional forecasters out there. Everyone wants to read the
tea leaves.

------
ep103
Can anyone lend insight into whether any of the following really hold any
merit?

1) Economists have a structural imperative not to publish their most
meaningful studies. In short, if you find an accurate model for something,
there's a good chance you can make more privately than via publishing.

2) The lack of a professional body for economists leaves open to corruption.
Like the Dean of Columbia's Economics school writing a report praising
Iceland's market reforms prior to 2008, at the behest of Iceland's Chamber of
Commerce.

3) Economics jobs tend to fall into 2 broad categories. Either you're working
for wallstreet analyzing markets, which are, in fact, very free ideal markets
that lend themselves to the mathematical model... or you're working for a
think tank, which almost certainly has an ideological bias.

~~~
conistonwater
Re (2): Glenn Hubbard (the dean you mention) has a relatively long history
(depending on who you ask, of course) of having dubious ideas on economics.
For example: [http://krugman.blogs.nytimes.com/2012/08/10/culture-of-
fraud...](http://krugman.blogs.nytimes.com/2012/08/10/culture-of-fraud/),
Krugman's blog has lots of examples.

So in that context, writing a report "at the behest of Iceland's Chamber of
Commerce" is pretty small potatoes. It's far more likely that they
commissioned a report knowing Hubbard's own views in advance, which makes it
dodgy as hell, but not quite corruption. And in any case, many of those
arguments about market reforms and deregulation really ought to be assessed on
merits (which are objectively poor), with who's paying for them being more of
a side note. It's also arguable that a professional body would not solve these
kinds of problems. It'd be hard to build an argument against a profession by
focussing on just one hack.

Re (1): taking an economics model and pushing it to production involves a
genuinely considerable amount of work. "Make more privately" would mean
something along the lines of getting hired by a hedge fund as consultant.
There are also other incentives involved: first, academia generally urges
people to publish. Second, having a model be published is part of the way it
is accepted by practitioners too: if you just come up with a random model, it
would have to be insanely good to convince anyone to put their money behind
it, otherwise they'll _require_ you to get other people to assess it, and
you'll have to publish it in a peer-reviewed journal. The exception would be
really specialized models, where you think you found an arbitrage opportunity
or something (even then it's not completely clear, see, e.g., the literature
on selling deep out-of-money puts).

~~~
neffy
1) Historically Keynes is certainly known for profiting on foreign exchange
bets, Irving Fisher on the other hand is notorious for predicting multiple
times that the recovery of the 1929 crash was about to begin - and his funds
followed his predictions into oblivion.

2) It was Fredrik Mishkin - and he was paid well over $100,000 for it.

[https://www.utanrikisraduneyti.is/media/Raedurogerindi/Finan...](https://www.utanrikisraduneyti.is/media/Raedurogerindi/Financial_Stability_in_Iceland.pdf)

This is the report, and it's worth reading because it encapsulates just about
everything that is wrong with macro-economics, from theory to corruption.
Understand that all anybody had to do at the time to understand how badly off
the rails the Icelandic Banks were was to look at their balance sheets in
their annual reports.

~~~
ep103
So in most science, if someone comes out with a study saying that (say, for
example) climate change isn't real, they'll be buried under the remaining 99%
that came to consensus in the other direction.

Sure, Industry will bankroll lobbyists to fight any potential change in
government, and fund crackpot theories, but ultimately, the evidence that will
accrue will be damning.

Why wasn't that the case for Iceland? Why doesn't that happen more for
economics as a whole?

Is it a function of time? In economics, people are more focused on sub 10 year
plot lines? Perhaps our understanding of macroeconomics is so poor that we're
surprised by "big changes" every few years, and evidence doesn't get a chance
to accrue? Whereas evidence for climate change can accrue year after year?

------
ctchocula
Paul Krugman's brief rebuttal may be relevant:

[http://krugman.blogs.nytimes.com/2016/12/24/dont-blame-
macro...](http://krugman.blogs.nytimes.com/2016/12/24/dont-blame-
macroeconomics-wonkish-and-petty/)

~~~
crdoconnor
>But his prime examples of economics malfeasance are, well, terrible:

>Policymakers don’t know what to do. They press the usual (and unusual) levers
and nothing happens. Quantitative easing was supposed to bring inflation “back
to target.” It didn’t. Fiscal contraction was supposed to restore confidence.
It didn’t.

>“Supposed to” according to whom? Not basic macroeconomics!

>Look, we had a more or less standard model of macroeconomics when interest
rates are near zero — IS-LM in some form. This model said and says that (a)
monetary policy is ineffective under these conditions (b) fiscal multipliers
are positive and large — in particular, fiscal contraction is strongly
contractionary. And these predictions have been borne out! Huge monetary
expansion didn’t raise inflation; extreme austerity was strongly correlated
with severe economic downturns.

>In other words, policy had exactly the effects it was “supposed to.”

Krugman actually used his ISLM model to decide to remortgage his house in
2003, and in a bout of epic predictive failure, foresaw skyrocketing interest
rates:

[http://www.nytimes.com/2003/03/11/opinion/a-fiscal-train-
wre...](http://www.nytimes.com/2003/03/11/opinion/a-fiscal-train-wreck.html)

"With war looming, it's time to be prepared. So last week I switched to a
fixed-rate mortgage. It means higher monthly payments, but I'm terrified about
what will happen to interest rates once financial markets wake up to the
implications of skyrocketing budget deficits."

Whoops

~~~
smallnamespace
> Whoops

According to the data, not really. Short-term mortgage rates increased
steadily for the next several years; long-term rates also ticked up, but not
by as much.

He basically refinanced his home _exactly_ at the bottom [1].

[1] [http://www.bankrate.com/finance/mortgage-rates-
history-0112....](http://www.bankrate.com/finance/mortgage-rates-
history-0112.aspx)

~~~
crdoconnor
I think we need to change the scales and put it in context:

[http://mortgage-x.com/images/graph/fhfb_contract_rate.gif](http://mortgage-x.com/images/graph/fhfb_contract_rate.gif)

According to the data, yes really.

~~~
bildung
Your graph shows the same as the one from smallnamespace: 2003 was a good year
to refinance because rates were at a bottom.

~~~
crdoconnor
Krugman's bet - in his own words and using ISLM - was that interest rates
would skyrocket because of deficit spending on the Iraq war in 2003. He paid
extra to make this bet.

Where on that graph did rates skyrocket exactly?

~~~
bildung
From the article: "And as that temptation becomes obvious, interest rates will
soar. _It won 't happen right away._ With the economy stalling and the stock
market plunging, short-term rates are probably headed down, not up, in the
next few months, and mortgage rates may not have hit bottom yet. But _unless
we slide into Japanese-style deflation_ , there are much higher interest rates
in our future." (emphasis mine)

That's pretty much what happened:

[http://www.gridgit.com/postpic/2011/09/us-inflation-rate-
his...](http://www.gridgit.com/postpic/2011/09/us-inflation-rate-historical-
chart_259737.png)

Inflation doubled from 2002 onwards, then the housing bubble popped, causing
inflation to fall. Thankfully not into a long-term deflationary spiral,
though.

~~~
crdoconnor
"unless we slide into Japanese-style deflation"

Yeah, that was the best part. "This is going to be awful. It's going to
happen. Unless, that is, the exact opposite of what I'm betting on happening
actually happens".

------
losvedir
I'm not sure if this article brings up anything new but it fans my crisis of
epistemology all the same.

I've always been a good "the academics know what they're talking about"
believer, but lately I've started having doubts.

I went to MIT and many of my good friends and peers went onto PhDs in the hard
sciences (Princeton/CERN, Harvard CfA, CalTech chemistry) so I've always been
impressed, almost reverential, towards them and the discoveries of their
fields.

But as we branch away from physics, astronomy, chemistry, what I used to
almost take on faith I'm now growing doubtful about. This excellent blog
post[0] by Columbia statistics Professor paints the state of modern Psychology
research unflatteringly. And then there's this post[1] looking at a parallel
universe of scientists studying, peer reviewing, and publishing (in their own
journals) parapsychology (being "psychic" and all that). I'd call it "cargo
cult" science, but at much more than a superficial level it resembles many
"real" scientific disciplines in terms of meta analyses, p-values, etc. I
personally majored in Math and Econ, and for my Econ classes I did my fair
share of modeling and teasing out effects from their confounding variables,
etc, and was always a little leery about it all. It doesn't really surprise me
that the Fed has written that Economics, too, is suffering a replication
crisis[2].

But then how far does it go, and where do I go from here? I don't have the
time or inclination to study to an expert level all these soft science fields
and form my own opinions. What fields are as sturdy as particle physics?
Medicine? Biology? Climate change? It's a slippery slope to anti-
intellectualism but I feel myself slipping.

[0] [http://andrewgelman.com/2016/09/21/what-has-happened-down-
he...](http://andrewgelman.com/2016/09/21/what-has-happened-down-here-is-the-
winds-have-changed/)

[1] [http://slatestarcodex.com/2014/04/28/the-control-group-is-
ou...](http://slatestarcodex.com/2014/04/28/the-control-group-is-out-of-
control/)

[2]
[https://www.federalreserve.gov/econresdata/feds/2015/files/2...](https://www.federalreserve.gov/econresdata/feds/2015/files/2015083pap.pdf)

~~~
stephen_g
I think Economics is a fairly big outlier though. There's quite a good book by
Economics Prof. Steve Keen called Debunking Economics, which is very
accessible and goes over how most of the core tenants of neoclassical
(mainstream) economics have been known to be flawed for decades, yet it's all
still taught as fact.

It's not a scholarly work, but references a great deal of scholarly work.

It's fascinating to read and imagine how the profession has not been reformed
in light of these known flaws (and the fact of the huge failure of mainstream
Economics to predict the Great Recession).

There is some hope though in some student movements that are starting to
challenge how economics is taught (like Rethinking Economics and the Post-
crash Economics Society). It may be that like some times in science, the
profession will advance "one funeral at a time" as the new generation comes
in.

~~~
rvern
Neoclassical synthesis is still taught because, even though it's flawed, we
have nothing better. Economists know that the assumptions behind neoclassical
models aren't always fulfilled.

All science is always done with models and we just use the best models we
have, while taking into account their limitations. People don't usually object
to this in other fields, but in economics they do because they have stronger
Opinions about economics than the natural sciences and the models sometimes
disagree with their Opinions. If they had a better model, economists would
welcome it, I'm sure, but they don't and they still want to keep their
Opinions, so instead they blabber about how the current models are flawed.
They're not wrong.

The Marxian school is a dead end and the Austrian school lacks scientific
rigor. There's no point in teaching along with neoclassical synthesis things
that are less rigorous than neoclassical synthesis while also having less
breadth. If they were taught, the situation would be similar to what it is in
psychology, where dubious approaches like psychoanalysis are taught alongside
cognitive psychology.

~~~
damptowel
This is a commonly held belief, but it's wrong, the dominant economic models
in use today are neither rigorous (internally inconsistent, extremely poor
empirical verification, major aggregation errors, lack of essential inputs)
nor representative of an economy (a dynamic system, not an extremely stylized
static equillibrium model). You should read Keen's book, it's point is not
that those assumptions don't always hold, it's that they under _any_ real
world circumstance will invalidate themselves.

------
edblarney
There are two bits of premise I think that are unfair in the article:

1) 'Economists don't know what is going on'. Yes, they do know what is 'going
on'. They can measure it, and tell you.

The sneaky assumption in the question is the assumption that if "they knew
what was gong on, then they would know how to solve it"

This is totally unfair.

Jobs and the economy were never entirely managed through centralized economic
policy. Unless you are a country that is 'way behind others that are good
examples to follow' \- in which case you can make no-brainer investments in
'roads' and 'electricity' ... it's otherwise not possible.

No 'economist' would have ever thought 'we need a good search engine' or
'someone needs to re-jigger electric cars to make them work in our economy'
etc. etc..

It takes entrepreneurs of various sorts - mostly of the 'boring' kind
(carpenters, contractors, restaurant owners, parts manufacturers) etc. to form
the basis of the economy. It's not and never will be managed by economists.

2) The failure of 2008 was not predicted by economists ergo their discipline
is bunk.

This is not fair either. 100% of economists would have predicted the outcome
if they knew the vast scope of homeowners lying on their applications, that
banks were misleading others by packaging crap loans as good ones, that the
ratings agencies were not doing their jobs and actually rating the loans
properly.

Economists depend on 'valid data' in their understanding of the world. Were
the data in 2008 to have been valid, predicting the outcome would have been
trivial.

You could argue that Economists might need a different approach, i.e. to be
more 'in the field' doing their own measurements - sure. But their models were
not wrong, their data was.

~~~
woodandsteel
>This is not fair either. 100% of economists would have predicted the outcome
if they knew the vast scope of homeowners lying on their applications, that
banks were misleading others by packaging crap loans as good ones, that the
ratings agencies were not doing their jobs and actually rating the loans
properly.

It was very widely reported at the time that banks had drastically lowered
their standards for loans, and that this had lead to a boom in housing prices.
And all this was publicaly defended by conservative politicians and
commentators. And it takes only a little thought to figure out the banks were
misleading investors, and the bond rating agencies were helping them out. The
reason the economists didn't figure it out is they lack the needed common
sense.

------
eli_gottlieb
>Policymakers don’t know what to do. They press the usual (and unusual) levers
and nothing happens.

That's not really true if they're _refusing_ to push the Keynesian levers for
ideological reasons.

~~~
gaius
_That 's not really true if they're refusing to push the Keynesian levers for
ideological reasons._

 _snort_ Everyone's a Keynesian when it's time to spend but Keynes also said
to pay down your debts on the upswing of the cycle, and guess what everyone
didn't do?

~~~
eli_gottlieb
Well, I was a teenager before the housing bubble went bust, but I'm just fine
with paying higher taxes in boom times. Don't snort at me: raise my taxes!
It's what I'm already voting for. Tax _me_ and my high-tech salary. It can pay
for schools and trains in my own community, it can pay down the national debt,
etc. Redistribute _my_ wealth, because I'm _exceptionally_ well-off for my age
group.

~~~
r_smart
Why not just make voluntary contributions to organizations you support?
Governmental or otherwise. Why wait for someone to take it from you when you
could give it instead?

~~~
eli_gottlieb
I already do that. I spend more money on _each_ organization I support each
month than I do on cable internet.

~~~
r_smart
So then are there just no organizations other than government that can get
done what you want? Why advocate for higher taxes rather than upping your
voluntary contributions?

I just listened to this [0] Sam Harris podcast episode yesterday so it's kind
of on my mind, though this is admittedly a tangential issue to the podcast.

[0]:
[https://www.youtube.com/watch?v=PxStuUxaZxQ&t=4171s](https://www.youtube.com/watch?v=PxStuUxaZxQ&t=4171s)

------
cs702
I don't agree with everything Skidelsky (the author) writes, but his main
point rings true:

 _" Today’s professional economists... have studied almost nothing but
economics. They don’t even read the classics of their own discipline. Economic
history comes, if at all, from data sets. Philosophy, which could teach them
about the limits of the economic method, is a closed book. Mathematics,
demanding and seductive, has monopolized their mental horizons. The economists
are the idiots savants of our time."_

In other words, they lack what Charlie Munger calls "elementary worldly
wisdom:"
[https://old.ycombinator.com/munger.html](https://old.ycombinator.com/munger.html).

~~~
woodandsteel
I think the very unfortunate narrowness of economics has partly to do with its
history. Economics got going before any of the other social sciences and also
ecological science, and early on had an enormous practical success with the
development of free market theory, and so got the mistaken idea that it could
proceed just fine without these other sciences.

Another problem is that economics is very closely connected to political
policies, so it is very vulnerable to ideological influences.

------
rumcajz
> But no branch of human inquiry has cut itself off from the whole – and from
> the other social sciences – more than economics.

In Bratislava, the town I come from, there's Comenius University which has
many faculties, one of them being Philosohical Faculty. Among many departments
in Philosophical Faculty there's a department of sociology.

There is also a fully separate Economics University, with its own faculties
and departments.

It's a nice example of how the fact that economics is just one of many
subdisciplines of sociology is concealed and instead, an impression is created
that economics can exists as a fully separate discipline independent of any
sociological factors.

------
clavalle
There were plenty of economists that warned of the bubble well before it
popped but they were routinely ridiculed and dismissed since explaining
themselves took longer than a 15 second slot between questions on a news show.

~~~
jpmattia
The fact that so many of them failed to recognize the popping even after it
popped (Ben Bernanke among them) pretty much tells us everything we need to
know.

------
ianai
Let's assume an actual prophet knew what was going to happen in response to
government policies 2, 4, 8 years from now and let that be known. People still
have freewill. People will react to the prophet's words and thereby probably
change reality. I'm assuming the prophet was an actual prophet for the sake of
argument - he/she knew what was going to happen if people didn't react to his
prognostication. But of course people have freewill and are free to change and
they do. That's the problem with all economic forecasts. It truly doesn't
matter how good or bad they are - people can and will change in response if
the forecast gets enough eyes.

That's a small example of what goes on daily in the world of economics and the
global, financial markets. When the Fed makes a decision that later doesn't
work out a valid explanation is, always, 'things changed'.

------
goalieca
I'm familiar with work in he philosophy of science. Is there a growing
interest with he philosophy of economics?

~~~
rhizome
Philosophy is a soft science, so I'm gonna guess "not on your life."

~~~
wfo
Philosophy is not a science at all, it's the mother of all science and it fits
firmly within the humanities. The philosophy of economics is what we now call
'economics' except they've abandoned philosophy. Karl Marx is a philosopher
and was an economist until the current neoliberal econ regime wrote him out of
all the textbooks and retroactively reclassified him so they didn't have to
think about his ideas or those of his followers.

------
dmix
> how to estimate the costs of a project properly – ought to be of interest to
> most people. In fact, the field repels all but connoisseurs of fanciful
> formal models.

Considering how bad humans are at planning most mid/large sized projects (let
alone small ones), how much faith can we put into centralized planning on a
large macro national scale?

Wouldn't the US be better off managing their local economies more directly?
With differing assistance from the federal level. Rather than attempting to
apply a model across a huge diverse national economy?

I feel like Canada (where I'm from) was much more capable at dealing with the
crisis because we had a small more cohesive system and our localized issues
are easily dealt with. I feel that starts to break down at a larger scale.

It would also make politics more predictable and less partisan where you don't
have an economically 'forgotten' class of people disrupting national elections
with protest votes.

The US was founded on federalist ideas and it seems it's decline from economic
greatness (at least towards stagnant growth) has coincided with a divergence
from those ideas to a top heavy centralized government, where the election of
the president has grown to consume 90% of people's attention while only 10% as
much is given to their congress, governors, state legislators, etc. A whole
country complaining about 'Washington elites' as if it were a simple
managerial issue for the next executive to solve rather than the result of a
systemic shift in power toward the executive and federal governments that has
gone unchallenged. Not to mention they seem to increasingly be given all the
blame/praise for whether the economy functions well or not.

~~~
edblarney
"I feel like Canada (where I'm from) was much more capable at dealing with the
crisis because we had a small more cohesive system and our localized issues
are easily dealt with. I feel that starts to break down at a larger scale."

In Canada (where I'm from as well) - we definitely are not an more
sophisticated than anywhere.

Though your point about being 'smaller' I think is valid.

We are simply very conservative, behaviourally. We generally have stricter
rules about most things, our finance execs aren't as aggressive, people are
much less likely to lie on application forms.

We don't 'innovate' with finance, i.e. 'finding new ways to package crap
mortgages to sell them as good' \- that's an Anglo/American thing :)

America is the 'land of the free' Canada has always been about 'order,
stability and peaceful coexistence' \- so it's a cultural thing that exhibits
itself systematically.

I should say one thing: we do have a wicked housing bubble in Toronto, and
economists have been predicting demise for years, and it could very well
happen if foreign buyers lose the ability to spend. A 'Chinese crash' combined
with slightly higher interest rates - would put Toronto in a really, really
dire situation. And we we can't blame economists for that one - the risks are
clear.

~~~
dmix
> A 'Chinese crash' combined with slightly higher interest rates - would put
> Toronto in a really, really dire situation. And we we can't blame economists
> for that one - the risks are clear.

Agreed, I personally hope it results in a new common sense that housing is not
the perfect silver bullet investment for everyone. And hopefully it results in
more capital going to entrepreneurship and business, rather than 90% of people
betting on stable corporate jobs and mortgage payments for their future
financial independence.

There are always economic tradeoffs made in bubbles, as capital is misplaced
and used inefficiently, that are just as costly as the money lost on the
actual investments.

The banks are just as responsible for this too, I've heard ridiculous stories
of middle class people getting offered million dollar mortgages while
small/medium businesses are shutting down at a faster rate than new ones are
being started.

------
soVeryTired
It's possible to graduate from an economics program without knowing what the
IMF does, or how a bank works, or how trade agreements work, or what the major
imports and exports from China are. That suggests to me that something has
gone badly wrong with economics education.

~~~
smallnamespace
As someone who went through an undergrad econ program, I strongly disagree for
a few reasons:

1\. Econ programs focus early on building basic mathematical models; a pretty
normal curriculum is microeconomics, macroeconomics, econometrics (using stats
+ data), and then whatever you want your electives to be (e.g. international
trade economics, labor economics, etc.). Without being fluent in at least the
basic models, you don't have any framework with which to work with other
subtopics, but learning the basics takes most of your time.

2\. The specifics of how banks are run, or central banks work, or what we
trade with China today, is more or less irrelevant trivia unless you _actually
work in that part of finance_ or will become a policy-focused economist, and
you'll have plenty of time in your PhD to figure those details out. Economics
is an extremely broad field and you can easily make a useful career out of,
say, analyzing corporate acquisitions, or doing pure game theory, in which
case how monetary or trade policy is conducted is pretty much irrelevant to
you.

3\. Since graduating, I found my econ education was extremely helpful when
learning how central banks actually print money, or how trade agreements are
put together, because I have a general high-level picture of how things move.
That's in contrast to people who think just because base money is increasing,
there must be inflation -- if you've worked with the models much, you know
they're all approximations, but you get a much better sense for what is a
reasonable vs. unreasonable result.

I mean this is like complaining it's possible to get a CS undergrad degree
without knowing how the Linux kernel works, or getting an CS PhD without
knowing the details of TCP control flow.

Both economics and CS are large fields and practitioners don't all work on the
same thing -- the point of the degree is to provide _a shared language and
foundation_ , not to teach you every practical skill there is, because that's
impossible and the relevant skills change very quickly.

------
Gibbon1
[http://www.economicpolicyjournal.com/2016/10/brad-delong-
end...](http://www.economicpolicyjournal.com/2016/10/brad-delong-ends-up-in-
podesta-emails.html)

~~~
crdoconnor
Exactly. This is the real reason why economists get it so wrong: their
incentives.

Brad DeLong in particular is a real piece of work:
[http://www.nakedcapitalism.com/2016/06/clinton-loyalist-
autc...](http://www.nakedcapitalism.com/2016/06/clinton-loyalist-autclinton-
loyalist-authoritarianism-brad-delong-threatens.html)

~~~
Gibbon1
Sad thing about guys like Delong was the guy they despised for crass careerist
reasons was the one candidate in a long while that would have been open to
hearing them out on their policy proposals.

------
woodandsteel
One of the problems with the economics profession today is a lack of real
societal responsibility. An example is supply-side economics, which is
promoted by conservative politicians, including Trump. The economists all know
it doesn't work, and so they ought to make that clear to the country. But
instead they just sit back and say nothing.

------
macawfish
The root of the word "economy" is from the greek "oikos" (habitat). It is the
same root as that of "ecology".

Economy means "the laws of the habitat", and ecology means "the story of the
habitat".

How can 'smart people' think they are separable?

Imagine trying to do physics or chemistry, except that everything had to
translate into the units of $.

Why is it: my sister is a full time mom on her own dime, whereas a friend of
mine gets paid $14/hr to nanny? (Her clients pay $50/hr and she gets a
fraction of that).

Care for one child, get paid, whereas if you care for another child, you have
to pay? My sister could go work as a nanny and get paid to care for someone
elses' children, but when it comes to taking care of her own, she's running a
loss? To keep up, she goes and cleans those very same peoples' houses.

That's a bunch of nonsense, that two children would have different economic
values. That one family would have to scramble just to keep up while another
family's cup runneth over. The very real work my sister does to care for my
niece is all but invisible in the economist's spreadsheet, while my nanny
friend is considered a working, productive person.

These days I've been taking care of my niece quite often, and my work is not
counted on the spreadsheets of the economists either. That doesn't make it any
less valuable ecologically, spiritually, socially, communally... But
economically, my work is in the red.

The contradictions are endless. People work "for free" all the time, and it
doesn't get counted. In fact, such work is often "discounted" as amateur,
poverty, laziness.

What's much more important, to many economists, and what _is_ counted, is to
sit at some desk somewhere doing busywork in an office so that you can pump
economic power into the pockets of rent suckers. That is counted on the
economists' sheets. That'll get you greasy green paper pieces. So I could be
doing that and walking around with all the clout telling people about my
career and buying people drinks at the bar, and people would pat me on the
back, and my family would be so proud of me, and my friends would envy my bank
account, etc. But I wouldn't get to spend time with my niece.

Until people stop putting up with the madness of mainstream economic religion,
it's just going to continue.

People take monstrous loans that grow and grow, just to have a stable home.
That's the norm. What good does it do anyone? All it really does is uproot
communities on a yearly basis.

I'm not saying there's anything wrong with being nomadic. But when multiple
generations are in exile because of rampant greed all across the board
(homeowners are corroborating by taking those loans out in the first place, by
paying such high prices at the cost of such high debts)... it's a problem.

How much time and human energy is wasted by "breadwinners" doing ritual
busywork at offices 40-70 hours a week? They could be at home doing things
that are _actually useful_ for at least half of that time. Being with kids,
cooking, gardening, reading/studying, exercising, cleaning, fixing stuff...

What counts as "busywork" vs. real productive work is ideologically
relative... and here is where we desperately need spiritual evolution.

------
Animats
Science is prediction, not explanation - Fred Hoyle.

By that measure, economics hasn't qualified as a science yet. The prediction
quality is terrible. That's embarrassing. There's plenty of data. There's
plenty of compute power. By now, economics should have more predictive power
that it demonstrates.

~~~
edblarney
Scientists cannot accurately predict what the temperature in my city will be
next month, so is climatology a science?

Economists could make predictions in isolated systems - the problem is 'the
real world' is complex.

Worse - the economy is made up of human actors, and policy makers, investors,
all of whom make decisions that are not necessarily rational. Ergo, in such
systems, it's pretty hard to determine outcomes.

Economists can spell out for you pretty much what would happen if foreign
purchasers dried up in Toronto, along with a slight increase in rates ... but
we can't be sure if/when that would happen.

~~~
iopq
> Scientists cannot accurately predict what the temperature in my city will be
> next month, so is climatology a science?

weather forecasts have been getting more and more accurate, actually

~~~
edblarney
Weather is inherently unpredictable. They'll never be perfect.

I missed the most important point: because the economy is made up of
intelligent actors - there is a dynamic aspect to economist predictions.

If the weatherman says 'it will be 'very hot' next week' \- this can be right
or wrong, but the weather won't change as a result.

If a prominent economist says 'there will be a recession next month' \-
business leaders may hold up on investment thereby causing a recession, where
none might have been.

So it's pretty hard to predict the future, when your predictions change the
future ;)

~~~
iopq
That just seems like it makes it easier! You predict a recession, you're
wrong, but you end up being right anyway!

------
bwilli123
"The economists are leveraging their academic prestige with secret reports
justifying corporate concentration. Their predictions are often wrong and
consumers pay the price.

If the government ends up approving the $85 billion AT&T-Time Warner merger,
credit won’t necessarily belong to the executives, bankers, lawyers, and
lobbyists pushing for the deal. More likely, it will be due to the professors.

A serial acquirer, AT&T must persuade the government to allow every major
deal. Again and again, the company has relied on economists from America’s top
universities to make its case before the Justice Department or the Federal
Trade Commission. Moonlighting for a consulting firm named Compass Lexecon,
they represented AT&T when it bought Centennial, DirecTV, and Leap Wireless;
and when it tried unsuccessfully to absorb T-Mobile. And now AT&T and Time
Warner have hired three top Compass Lexecon economists to counter criticism
that the giant deal would harm consumers and concentrate too much media power
in one company.

Today, “in front of the government, in many cases the most important advocate
is the economist and lawyers come second,” said James Denvir, an antitrust
lawyer at Boies, Schiller.

Economists who specialize in antitrust — affiliated with Chicago, Harvard,
Princeton, the University of California, Berkeley, and other prestigious
universities — reshaped their field through scholarly work showing that
mergers create efficiencies of scale that benefit consumers. But they reap
their most lucrative paydays by lending their academic authority to mergers
their corporate clients propose. Corporate lawyers hire them from Compass
Lexecon and half a dozen other firms to sway the government by documenting
that a merger won’t be “anti-competitive”: in other words, that it won’t raise
retail prices, stifle innovation, or restrict product offerings. Their
optimistic forecasts, though, often turn out to be wrong, and the mergers they
champion may be hurting the economy.

President Obama promised to fight corporate concentration. Eight years later,
the airline industry is dominated by just four companies. And you’re paying
for it. "Some of the (Economics)professors earn more than top partners at
major law firms. Dennis Carlton, a self-effacing economist at the University
of Chicago’s Booth School of Business and one of Compass Lexecon’s experts on
the AT&T-Time Warner merger, charges at least $1,350 an hour. In his career,
he has made about $100 million, including equity stakes and non-compete
payments, ProPublica estimates. Carlton has written reports or testified in
favor of dozens of mergers, including those between AT&T-SBC Communications
and Comcast-Time Warner, and three airline deals: United-Continental,
Southwest-Airtran, and American-US Airways.

[https://www.propublica.org/article/these-professors-make-
mor...](https://www.propublica.org/article/these-professors-make-more-than-
thousand-bucks-hour-peddling-mega-mergers)

------
known
Economists cannot predict the impact of
[https://en.wikipedia.org/wiki/Parable_of_the_broken_window](https://en.wikipedia.org/wiki/Parable_of_the_broken_window)

