
Old economic models couldn't predict the recession. Time for new ones - kawera
http://breakthroughs.csmonitor.com/the-economy
======
toyg
_> very few experts saw it coming._

Meh. Plenty of people saw it coming _eventually_ ; but most of them had a
stake in ignoring it, certain that they could profit handsomely from the
subsequent conditions (which they did: bankers received a massive amount of
money at rock-bottom prices from state actors, which they wouldn't have got
otherwise, and most CxO bonuses were still paid throughout).

The failure was not an academic one, but rather a political one: nobody wanted
to reign in financial speculators. We don't need new theoretical models (or
rather, we don't need them more than we usually do), we "just" need better
politics.

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wycx
For those interested in new models, may I suggest the work of Steve Keen, one
of the economists who did predict the financial crisis. I have been following
Steve's work since the mid-2000s, and it is a more convincing framework for
thinking about the economy than most other things I have read. Examples here
[1] and here [2].

The intellectual bankruptcy on modern neoclassical economics is exposed in
some of the battles Steve has had to fight over the years, such as criticism
for using debt toGDP ratio [3]. If neoclassical economists cannot even
describe how money is created in the modern economy, what meaningful
contribution do they have to describing an economy? [4]

[1] [http://www.debtdeflation.com/blogs/](http://www.debtdeflation.com/blogs/)

[2]
[https://www.youtube.com/user/ProfSteveKeen/videos](https://www.youtube.com/user/ProfSteveKeen/videos)

[3] [http://www.debtdeflation.com/blogs/2009/03/14/rory-
robertson...](http://www.debtdeflation.com/blogs/2009/03/14/rory-robertson-
designs-a-car/)

[4]
[http://www.businessspectator.com.au/article/2012/10/22/commo...](http://www.businessspectator.com.au/article/2012/10/22/commodities/myth-
money-multiplier)

------
dragonwriter
The "very few experts saw it coming" claim is patently false. "Very little
media and popular attention was paid to the warnings from experts -- coming
from several different economic approaches -- that saw it coming because there
was lots of financial interest of lots of powerful people in _not_ having
people concerned about it" would be more accurate, but kind of undermine the
idea that new models are a solution.

Which is not to dismiss the value of "big computing" and agent-based modelling
in economics, just that the Great Recession wasn't a failure of experts to see
where the course led that can be mitigated by having better models.

In any case, if you want to proceed that agent-based modelling can do better
for macroeconomic modelling, than, well, we don't need long advocacy pieces,
we need published research. There's sort of an aside in the article that seems
to suggest that the authors think that economics research funding is
inadequate, which, if it's a real issue the authors are concerned about, is
probably a more fruitful subject for a long advocacy piece than "we need this
particular kind of model for this domain, even though we can't point to a
model of this type that does better in the domain than existing models, just
some good models in related-but-distinct domains."

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sebastianconcpt
Let me guess.. that list of "old economic models" that could _not_ predict
recession completely ignore Austrian Economics or anything of what acuratelly
was predicted by Ludwig von Mises, decades ago. Can I suspect that this is
because no politician wants to act restricted by science?

~~~
czr80
" I do not deny that Austrian economists have made valuable contributions to
economics. Rather, as the sequel will argue, I maintain that: (a) The effort
to rebuild economics along foundations substantially different from those of
modern neoclassical economics fails. (b) Austrian economists have often
misunderstood modern neoclassical economics, causing them to overstate their
differences with it. (c) Several of the most important Austrian claims are
false, or at least overstated. (d) Modern neoclassical economics has made a
number of important discoveries which Austrian economists for the most part
have not appreciated."

[http://econfaculty.gmu.edu/bcaplan/whyaust.htm](http://econfaculty.gmu.edu/bcaplan/whyaust.htm)

------
JSeymourATL
> US investment in developing a better theoretical understanding of the
> economy is very small – around $50 million in annual funding from the
> National Science Foundation – or just 0.0005 percent of a $10 trillion
> crisis.

Hey Economists... There's plenty of money > [http://cagw.org/reporting/pig-
book](http://cagw.org/reporting/pig-book)

------
astr0n0m3r
The authors aren't economists. They are hammers, and they think economics is a
nail.

