
Who Are These Economists, Anyway? (2009) [pdf] - wormold
http://www.levyinstitute.org/pubs/Thought_Action.pdf
======
johnnybowman
For anyone looking for a cohesive macroeconomic theory drawing from the
economists mentioned here (e.g. Minsky, Godley, and others at the Levy
Institute), I highly recommended taking a gander at Modern Monetary Theory

a brief overview: [https://www.thenation.com/article/the-rock-star-appeal-of-
mo...](https://www.thenation.com/article/the-rock-star-appeal-of-modern-
monetary-theory/)

A not so brief overview: [http://neweconomicperspectives.org/2011/06/modern-
money-theo...](http://neweconomicperspectives.org/2011/06/modern-money-theory-
primer-on.html)

~~~
nonidentified
TL;DR: MMT starts by saying that governments that manage their own currencies
have unlimited spending ability – they can simply create money when they need
it. And that's obviously true, to the extent that people are willing to accept
that money in exchange for their goods and services (an extent which is not
infinite). Then, building on that premise, MMT basically claims that nobody
needs to get hurt when governments create money out of thin air. The
explanations for this are pretty wonky and hard to follow, but they amount to
saying that the theory generally predicts no harmful inflation of the
currency.

Analysis: Hasn't mankind already concluded that governments can't just create
and spend money boundlessly without harming the economy and the people who
constitute it? I'm looking at Argentina, Venezuela and Zimbabwe right now,
where the governments have each created money to finance their spending, and
people are truly suffering as a result. And those are just some contemporary
examples – human history offers many more, and they're quite consistent. If
MMT doesn't predict inflation as a result of arbitrary creation of currency,
then it seems we can conclude MMT is incorrect.

Radical alternative theory: Governments should be fiscally responsible,
practicing balanced budgets and promoting currency stability. Outlandish,
true. But it turns out that historically this has been a very winning formula.
More efficient economies, less corrupt governments, fewer innocent people
getting hurt.

~~~
RobertoG
>>" If MMT doesn't predict inflation as a result of arbitrary creation of
currency, then it seems we can conclude MMT is incorrect."

That is not at all what MMT says and I don't understand how an honest reader
of the MMT literature would arrive to that conclusion.

What they say is that public debt and public deficits are irrelevant (there
goes your "outlandish true" of balanced budgets) but they also say that
inflation is the most important constraint in public spending.

>> And that's obviously true, to the extent that people are willing to accept
that money in exchange for their goods and services (an extent which is not
infinite)

In the MMT framework, there is always demand for the currency in what taxes
have to be payed. That's obviously true. That doesn't mean that inflation is
not a factor.

By the way, most cases of hyperinflation in history, including the infamous
Zimbabwe, are due to a supply shock
([http://bilbo.economicoutlook.net/blog/?p=3773](http://bilbo.economicoutlook.net/blog/?p=3773)).

~~~
simula67
> What they say is that public debt and public deficits are irrelevant (there
> goes your "outlandish true" of balanced budgets) but they also say that
> inflation is the most important constraint in public spending.

I heard this story in a debate between an MMT economist and an Austrian
economist

Imagine a husband and wife having the following conversation :

 _Husband : Let 's go and buy a new mansion, a Lamborghini and a private jet

Wife : Are you sure we have enough money to do all that ?

Husband : Well, if we don't, I can always pick up my shotgun and hold up the
nearby bank

Wife : Are you crazy ? You could go to prison. Or get shot by the police

Husband : Well, I know that. But I just wanted to point out that not having
enough money was irrelevant. Going to jail or getting shot was the most
important constraint from spending all that money._

~~~
hn0
This misses THE central point of MMT, the fundamental difference between
currency issuer (souvereign authority) and currency user (households, firms,
regional governments, etc).

------
leroman
For me the sad part of "economics" and their number trickeries is the
unsustainable usage of natural resources. I could argue all they really did is
inflate current value and allow "loaning" from future resources to boost the
current economy. Global warming in this context is the (possibly too late)
push back in this systems equilibrium.

~~~
mr_overalls
Regard for natural resources is actually a pretty mainstream idea in
economics. The concepts of tragedy of the commons, public goods, pollution as
a negative externality, etc. are quite well-established.

[https://en.wikipedia.org/wiki/Environmental_economics](https://en.wikipedia.org/wiki/Environmental_economics)

~~~
leroman
I'm far from knowledgeable on the technicalities of economics (I'm in the
software engineering business), but observing the dialogue that takes place
between economists and seeing the results, its hard to accept economists
actually make effort to factor this in, my experience is that they are only
reacting to public outcry.

I find it hard to believe they even have the tools to factor environmental
impact into their models. (don't tell me factoring damage due to sea rise as a
"tool".)

------
forapurpose
IMHO the important question is, as consumers of expertise, how do we manage
its risk? Can we predict the risk, the likelihood and/or magnitude of
failures?

One issue might be our standards of 'success' and 'failure' for economists and
other experts. The standard probably shouldn't be, 'predict 100% of economic
events accurately', though that's an ideal to strive for. IIRC, some
geologists were put on trial in Italy for failing to predict an earthquake;
AFAIK there's no known way to do it reliably. Is 'predict 75% accurately'
realistic for economics? Too high? Too easy? Is the thing even measurable? I
don't know. And when the housing market crashes, saying 'I got the other 3
predictions right' doesn't matter much to people nor is it evidence that you
weren't incompetent in this case. Maybe a standard should be, 'no incorrect
predictions on critical issues' (i.e., it's better to say nothing than risk
being wrong), but maybe that would result in no predictions on critical
issues; also, in many situations such as earthquakes, no prediction infers the
null hypothesis: No earthquakes today. Regardless, likely any standard should
rely on degree of error: The housing market predictions weren't off by a few
percent but by orders of magnitude.

Can we create a model that accurately predicts where expertise fails and its
magnitude? Perhaps large errors simply occur in unstable systems which have
high magnitude variation in outcomes (e.g., earthquake or no earthquake), and
thus unavoidably larger errors. Also, I'd expect accuracy to correlate with
(high volume of quality research + consensus). If there's consensus based on
low volume of quality research, that seems ripe for failure. Based on only a
little research, it was popularly said (I don't know if it was consensus of
scientists) in the 1970s that there would be an ice age soon; that was wrong.
Based on a mountain of research, scientific consensus accurately has predicted
global warming. But I'm guessing at the factors involved in predicting the
risk of expertise. Has anyone researched this?

~~~
AlexCoventry
Why trust expertise as such? If an expert can't give a convincing argument for
their claims, why believe them?

~~~
forapurpose
> If an expert can't give a convincing argument for their claims, why believe
> them?

IME, there's weak correlation between an expert's persuasiveness to a non-
expert on one hand and the truth on the other hand:

* As an expert in my field, I could convince non-experts of almost anything; they have no idea what I'm talking about: Is it true? Have I omitted key things? Twisted other things? I wouldn't do that, but I've seen others do it. As an example we're all familiar with, U.S. intelligence officials have said, 'we're only collecting metadata about U.S. citizens, not content, so don't worry'. Obviously these experts knew that bulk collection of metadata is just as invasive as content, but it convinced the non-experts who don't understand that.

* In fields in which I'm non-expert, I used to think I could evaluate expert claims based on their persuasiveness. I was wrong - I was a mark, a sucker; I was the kind of person that propagandists, experts in persuasion, count on; my overestimation of my own powers, my ego, was my weakness. Eventually I observed a pattern: Later, when more facts came out or I knew more, what had been persuasive was actually BS. And a key point: It hadn't _become_ wrong; it was always wrong and I had been conned by it. And what about those situations where I just never learned I was wrong, and the con continued indefinitely? In fields where I read a variety of experts and have some minor sophistication, I've learned that newspaper op-eds, which many find persuasive (people love to send them to me to read) are not infrequently dogs-t piled on a foundation of horses-t, with a few grains of truth sprinkled on top.

IME, the general wisdom that most people gain through years of painful
experience is that persuasiveness has a small place, but far more you need to
learn who to trust with what, who not to, and how to tell the difference.
That's the only solution.

~~~
AlexCoventry
Obviously that's a risk, but so is blind faith in trusted experts. I don't
think your examples really relate to this situation, because there wasn't a
convincing expert argument that the housing bubble was economically
sustainable, the arguments that it was unsustainable were simply ignored by
trusted experts, for the most part. I mean, I think I found Nouriel Roubini
through a post by Brad DeLong, but I don't think DeLong ever actually
addressed his concerns.

~~~
forapurpose
> blind faith in trusted experts

C'mon. There is no way anyone could actually read my original comment and
think I advocated blind faith in experts.

~~~
AlexCoventry
Fair enough. I didn't intend to attack that straw man.

------
wormold
I posted this because the writing is so excellent that I found it a pleasure
to read.

------
dpwm
One point which I haven't seen made here is that perhaps economics is a
reductionist approach to something which cannot be easily modelled in a
reductionist way.

Nobody here expects everything we know about Physics to become largely
irrelevant tomorrow. But deep within is the assumption that the underlying
models we build today will hold true tomorrow. An electron will always be an
electron.

Now let's look at biology: a frog today may not be a frog two-hundred years
ago. Microbiologists are finding new species that simply didn't exist 50 years
ago. But there's a shred of something fundamental there at the physical level:
a reaction involving biological building blocks can be deemed to be as true as
hundred years from now; whether or not organisms develop more stable sets of
chemical reactions.

Psychology and social sciences are changing because people are changing and
their environment is changing. Pretty much the only thing that remains
constant is that people have fundamental needs. As people become aware of
cognitive biases, and more are exploited by them, suppressing them becomes not
just an issue of utility but of survival.

Yet somehow, we expect economics, which in many ways is the study of a very
dynamic system which builds on social sciences where the underlying rules are
changing and the very reductionist terms we are using are changing, to yield
results which are accurate and work at all times. Can we build better
macroeconomic models? Almost certainly. Will they be valid in 100 years time?
That depends.

If we think to Physics, Thermodynamics gives a field that seems to be
universally true -- if you come up with a model that violates the second law
of Thermodynamics, it's fair to say your model is wrong. It doesn't matter if
you're studying distant stars or subatomic particles. At the same time its
predictions are somewhat vague -- we can derive upper and lower bounds on
things, and say with an almost certain degree of belief what cannot happen and
use this to derive models that are consistent.

We don't seem to have much like that for economics, although if we focus on
resources we can clearly see there is a physical upper bound. That seems like
it might be a better direction to approach the problem in than from the end
were even the idea that employers employ people to create more value than the
money they pay them cannot be taken to be universally true.

Of course, nobody has any incentive for denying most Physics, with the
exception of the 2nd law of thermodynamics -- because there is immense money
to be made by charlatans promising infinite energy in exchange for lots and
lots of money. Given economics deals with matters that can have direct
implications for those with lots of money, we would be naive to not assume the
same to have happened there.

------
cs702
Mainstream macroeconomic theory -- both in its "freshwater" and "saltwater"
traditions -- has become mainstream because of a variety of reasons. The OP
quotes Keynes:

"That it reached conclusions quite different from what the ordinary
uninstructed person would expect added, I suppose, to its intellectual
prestige. That its teaching, translated into practice, was austere and often
unpalatable, lent it virtue. That it was adapted to carry a vast and logical
superstructure, gave it beauty. That it could explain much social injustice
and apparent cruelty as an inevitable incident in the scheme of progress, and
the attempt to change such things as likely on the whole to do more harm than
good, commended it to authority. That it afforded a measure of justification
to the free activities of the individual capitalist, attracted to it the
support of the dominant social force behind authority."[a]

That rings true: New macroeconomic theories can become mainstream only if they
earn the support (for example, by favoring the vested interests) of
educational institutions, governmental institutions, and -- last but not least
-- the business establishment.

[a]
[https://ebooks.adelaide.edu.au/k/keynes/john_maynard/k44g/co...](https://ebooks.adelaide.edu.au/k/keynes/john_maynard/k44g/complete.html)

------
peterashford
As an economics neophyte, I found this engaging, if a little beyond me. Can
someone explain it in 5yo terms?

~~~
neilwilson
Economists have more in common with priests than scientists.

~~~
fwdpropaganda
That's the vibe of the article, but of course it's nonsense.

Economists' objective is to collect observations and use that to build
predictive theories. Therefore in intent (and largely in method, depending on
the area of economy) they are exactly like scientists. Whether they are
successful at it or not is another question.

In practice economists guess a lot, as do priests and research scientists, and
many other people. (Clarification: I use here "research scientists" to
distinguish them from people who have been trained as scientists but in their
day-to-day don't really occupy themselves with questions with unknown answers.
Of course, those people don't guess at all. They are usually either
teacher/professors or engineers.)

~~~
cdancette
what's not nonsense is to view humans as rational beings, and the free market
as the perfect system.

What it says is that economists should include more psychology and less
mathematics in their theories.

~~~
fwdpropaganda
> what's not nonsense is to view humans as rational beings, and the free
> market as the perfect system.

> What it says is that economists should include more psychology and less
> mathematics in their theories.

Those are some really groundbreaking ideas, I can't believe no one has thought
of that before.

[https://en.wikipedia.org/wiki/Behavioral_economics](https://en.wikipedia.org/wiki/Behavioral_economics)

~~~
cdancette
Of course some people thought of this. That's explanained in the article

------
michaelbuckbee
The academic side of economics pushes towards norms like Math and Physics
(that's what gets you prestige). AKA you come up with something like the
Black-Scholes model and you've got yourself a Nobel Prize [1].

Which is cool, but skips over the aspects of economics related to
unpredictable bags of meat buying things that are more like
psychology/sociology and other "soft" sciences [2]

On that note: one thing I didn't see mentioned in the article or the
discussion here was prediction markets. Prediction markets are interesting as
its a meeting point of the two sides. "Think your model is better? put $50 in
and we'll see in a month". I really wish they were more widely used/officially
accepted, but the stigma of "betting" has pretty well killed them.

1 - [https://www.investopedia.com/university/options-
pricing/blac...](https://www.investopedia.com/university/options-
pricing/black-scholes-model.asp) 2 -
[https://xkcd.com/1520/](https://xkcd.com/1520/)

~~~
digi_owl
Never mind that said Nobel is the ultimate insider price, given out by the
Swedish national bank and set up long after Nobel was dead.

------
ajmarsh
Is there a rating agency for economists and their predictions?

