Maybe economics is a science, maybe it isn't, but we still have to ask how good its answers are in terms of what we need to know. And, as it turns out, it hasn't been good enough.
Who is this "we", kemosabe? Investment banker, UMC lawyer, or immigrant yard-worker? Economics is a quasi-scientific analytical tool useful for interest advocacy, and that is what is has been from its inception. There will be groups with conflicting interests for a while yet, and they will use economics, parts and whole, formal and substantive, to serve their needs and wants.
I do not get Emerson. Does he really expect Jamie Dimon or Blankfein to surrender to Robert Reich and Jamie Galbraith and say:"Dudes, you got me. I will give up all my power and money because science says I am inefficient?"
I suppose the public deliberative sphere or whatever and the encroachment of economics into politics...aww, there is nothing that new here. Kings promised that taxes, public works, and war would put bread on the table, and actually had to do that more a thousand years ago than Obama does now.
Yves Smith is about the only one to do any decent pushback on Greenspan's FT op-ed, and she isn't that great. The clowns at CT are totally worthless.
A related Yves Smith post on Dodd-Frank but that doesn't contain the quote I wanted. Too much reading.
Something like "Citibank is in 171 countries under 550 different clearing regimes. Do they think they can even understand this?"
Greenspan was far more right that wrong. Global finance is far big and complicated to regulate, and we are far too dependent on it for us to even try to get it under control. We could make a compassionate choice between freedom and feeding the world, and choose food...but leaving it alone will let it collapse under its own weight, which may be worse.
Aww, doesn't matter
Brad DeLong keeps an eye on the North Pole Icecap. Melting Season has just begun.
We're going down, measured in months, not years or decades. Canned food, bottled water, and ammunition.
Emerson told us so; now it's becoming the conventional wisdom.
I'd still quibble and say that problem with economics as a science is that it's corrupt, not that it is inherently epistemically flawed.
But there's an intrinsic lack of rigor that makes it more easily corruptible. There's a huge incentive for climate research to be corrupted, but in practice, people who want to cast doubt on global climate change are very unlikely to be climatologists with respectable credentials. The field is too rigorous to allow people actually working within it to say corruptly stupid things without professional repercussions. Economics can't say the same about itself.
What do you mean "intrinsic"? It's not obvious to me that this hideous marriage between ideology and convenient modelling assumptions had to become accepted as orthodox.
Even under the purest and least ideological of circumstances, it's a social science. Experiments are difficult, and difficult to generalize past their exact circumstances (like all the fundamental truths of psychology discovered through research on American undergrads). That doesn't make social sciences uninteresting or worthless, but it does mean that really proving something is right or wrong in any solid way isn't going to happen in the same way it does in a physical science.
economics as a science is that it's corrupt
As opposed to a pure or moral science?
And lo, the Wayward Priests of Chicago and freshwaters have abandoned the Book of Maynard and fallen into heresy.
Economics, political economy, is the test case for whether post-enlightenment science is religion. The point is not just that perhaps "what is string theory for?" should have priority over "is string theory true?" but that giving priority to "is true?" makes asking "what or who for?" an immoral question, just as much, and exactly in the same way and for exactly the same reasons, that asking "Is Jesus God?" or "Do we need a King?" was an immoral question.
So economics is the primary "science" that legitimates our priests and kings.
To doubt economics, or to condemn it for subjectivity, is to ask whether empiricism organized by theory, peer reviewed by professionals and implemented by humble technocrats, can be the guide for organizing human society. To doubt economics is to doubt science. So dogma and heresy must be the ruling paradigm, always disguised as scholarship and objectivity.
Because subjectivity is revolutionary.
That doesn't make social sciences uninteresting or worthless
Or homogeneous, or not susceptible to multiple levels of analysis, some of them more rigorous than others.
The problem with economics that I can see, is that it attempts to be a predictive science in a fairly unsupportable way. Also "behavioral economists" should, at least in some cases, really learn a little more neuroscience before making sweeping claims.
Ah, that makes sense. The three-way comparison between climate science, psychology, and economics is nice. Throw in, say, physics and you fill in all four sections of the rigor/political pressure Venn diagram.
8: I'm willing to cut behavioral economists considerable slack, as they seem to have the best shot at taking down the absurdities of Uncle Miltie. More rigor is better, but given the stakes I'm perfectly happy with a non-rigorous but effective attack on Homo Economicus.
7 also goes to liberalism.
I suddenly just wondered whether the crowd here would view "Is Jesus God?" or "Do we need a King?" as scientific or empirical questions, rather than expressions of individuality within social institutions.
Oh well. Dogs.
7 also goes to liberalism.
Was somebody arguing that liberalism is a science?
12:Sure. Perhaps too long for this forum. You could call it political philosophy, but is much more socially binding than abstract ethics. The goals and assumptions are unquestionable.
(Does the Senate represent or govern in the fairest and most efficient way possible? Let us gather data from parliamentary countries.)
I'll take it back:the goals and assumptions are questionable, as long as you are scientific about it.
I went through this back when with torture, when my supposed allies were using empirical (doesn't work) or consequentialist (creates enemies) arguments because "It's Wrong." just doesn't work anymore.
10: yeah, I mean, I understand that an incredibly simplistic (and wrong) model of reward and motivation processing is better than an almost incomprehensibly simplistic (and hilariously wrong) model of reward and motivation processing, it just can be hard to listen to sometimes.
I can't read that post title without hearing Dr Octagon.
"Is H2O a gas, or a liquid ...?"
6 Even under the purest and least ideological of circumstances, it's a social science. Experiments are difficult, and difficult to generalize past their exact circumstances (like all the fundamental truths of psychology discovered through research on American undergrads).
Nonetheless, there's a lot of historical data and experience about how economies work, and much of it directly contradicts assumptions frequently made by economists. I think it's pretty clear that the field is corrupted by political pressure, not just by insufficient data.
I find it a little weird that Emerson says economics is more of a science than psychology is; that seems very wrong to me.
I find it a little weird that Emerson says economics is more of a science than psychology is; that seems very wrong to me.
You might notice that I didn't read the linked post, but he says that, really? That's plumb goofy.
I'm perfectly happy with a non-rigorous but effective attack on Homo Economicus.
I doubt that behavioral economics is going to be broadly politically effective, and I fear giving these elite-approved behind-the-curtain "nudgy tools" idf they are effective as policy to the Huckabee administration.
As I said, I don't understand what Emerson thinks he is doing.
Attacking economics specifically weakens the Reichs, Galbraiths, and Krugmans, who are are best fighters within the game.
But he doesn't seem willing to attack science in the way I do, and move to interest-based non-scientific modes of analysis and rhetoric. As in, "Rich people are the evilllll. Guillotines!"
I mean if the question "If we hurt the mega-banks, are we are all gonna die?" is allowed to be an empirical or scientific question, we will most likely be unable to answer or argue it satisfactorily in time, or at all. I'm not sure myself.
But existential risk is what revolution is about. I gotta be free, gotta be me.
Huh, looking, I'm pretty sure there aren't any sciences that pass his test.
|| The apotheosis of Rebecca Black. As Schumann-Heink said of Elektra, "There is nothing beyond [it]. It can go no further."
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15: I understand completely. I have more or less lost faith in economics as anything other than a tool for rationalizing policy preferences, so my tolerance for econobollocks is higher than perhaps it ought to be. I imagine that I'd be more worked up about it if it overlapped with my professional interests more.
there's a lot of historical data and experience about how economies work, and much of it directly contradicts assumptions frequently made by economists.
This doesn't fucking work, and we don't have time.
see 2, DeLong. Disappearing Icecap mean late warmth high pressure over Arctic. Remember last winter? Now add higher oil prices, weaker global economy, the double dip in the States predicted by Reich to an even colder winter. As best case scenario. The Gulf Stream could go.
And god knows what else. Sky blotted out with black swans, as Kunstler said. We are in Collapse.
17.last,18: In the comments he admits that was a little goofy, and that he was thinking of the practice of psychology, not the research.
||
Two dudes just showed up with instructions to take away the two engine blocks that have been in my basement since I moved in. I'm not exactly sure why the engines were there in the first place, and I'm not sure what one does with an old engine block (the one dude explained, "There's a place in Winchester"). That was all a bit strange.
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Instructions from whom? Did they show you ID?
26: I know the one guy from around town, and apparently they had made arrangements with my one housemate (though no one else is home right now). Did I just get shaken down for rusty automotive parts?
Throw in, say, physics and you fill in all four sections of the rigor/political pressure Venn diagram.
Surely a two-by-two matrix would be more meet.
Um, I need a tissue. Puffs are the BEST!
I'm just saying. Are you absolutely sure you could distinguish between a rusty engine block and the Ark of the Covenant? I don't know that I could.
6 Even under the purest and least ideological of circumstances, it's a social science. Experiments are difficult, and difficult to generalize past their exact circumstances (like all the fundamental truths of psychology discovered through research on American undergrads).
If the comparison is climate science, that's an odd tack to take, since climate science shares with economics a paucity of experiments, a focus on modelling, and a reliance on historical data.
The assumptions underlying the models have a basis in experimental data in climate science in a way they don't in econ, though.
And unlike the social sciences, climate science models don't have to account for the distorting effects of ESP.
As I said, I don't understand what Emerson thinks he is doing.
Long time no see, Bib.
Economics has claimed priority over other social sciences based on scientistic arguments which are invalid. This priority has effectively given an imaginary, incomplete, and misleading model of society enormous power over public opinion and dominance over policy decision-making.
I have said many time that economics is a form of expert advocacy, comparable to law. You don't go to a lawyer to find the right answer or the truth about law, you go to a lawyer to be able to argue your point of view in court.
If economics were understood that way, how many people would choose Bernanke over Galbraith? Bernanke is not advocating for us, Galbraith is. A lot of Democrats defer to the Bernankes of the world.
The lack of science isn't the entire lack of rationality and empiricism, but inconsistency and incompleteness. A post-scientific economics would still have a lot to say. Whether it would be as triumphant as post-alchemical chemistry I don't know.
I've already been zinged on the psychology comparison. When I think of psychology I think of clinical and counseling psychology. Experimental psychology seems to have a lot going on. COnsider that passage revised.
Quick, before he leaves again, someone handcuff him to a chair or something.
I'm not leaving. All y'all have to do is link to me.
Are you absolutely sure you could distinguish between a rusty engine block and the Ark of the Covenant?
I keep a spare Nazi around for just this purpose.
Isn't the "law of supply and demand" definitional? "Price is determined by supply and demand" sounds an awful lot like "price is determined by what people are willing to pay" which amounts to "the price is the price." The economists get away with this slippery definition which sounds causal but isn't. It's not like supply is a woman and demand is a man and they have a baby called "price," which is a causal account. "Determined by" is doing too much work here.
a spare Nazi
If yours dies or escapes, that mail order place in Argentina has decent prices.
"Price is determined by supply and demand" sounds an awful lot like "price is determined by what people are willing to pay" which amounts to "the price is the price."
The "law" of supply and demand applies only in conditions close to perfect competition. In conditions of oligopoly or monopoly, the price tends to be determined principally by what the seller feels like charging, since the buyer has nowhere else to go. This is elementary. I can't think of a single market today where "price is determined by supply and demand".
Well, I can't think of a single market in which price ISN'T determined by s&d. You name me a price, and I'll say, "supply and demand." Never wrong!
Price is an expression of demand. Supply is not. The law of supply and demand says that, all other things being magically equal, the price people are willing to pay will be an expression of the interaction of supply and demand. So if you have more of something and people don't want it any more or less, sellers will have to lower the price in order to move the units. Similarly if you have the same number of ipads, but people have decided they're kind of dumb, you'll have to lower the price to get rid of them.
In the real world there are an almost endless number of factor that make things work differently, but economist would say that those are situational deformations of the fundamental priniciple.
41: I am pretty sure the "supply and demand" hypothesis makes at least some specific predictions. If you have a market in equilibrium (i.e. every willing buyer at the going price can find a seller, and vice versa), then generally, adding supply should lower the price and thus increase demand, while adding demand should raise the price and thus increase supply.
Of course there are complications introduced by non-continuous pools of buyers/sellers, price stickiness, blah blah blah, but it does in fact predict that in the long run you will get a different outcome than you would by fixing the price by fiat, or by social convention.
Sounds an awful lot like you're conjuring up something called "demand" and then imputing some causal force to it. If price goes down, you can say "demand decreased." Or I can say "price went down." It amounts to the same thing, hence definitional.
46: Then why aren't all monopoly/oligopoly products priced at infinity?
I can't think of a single market in which price ISN'T determined by s&d
Health care.
51: You're thinking about it backwards. The paradigmatic case is not what's the best after the fact explanation, but what's the best predictor of the effects of an intervention. If something happens to quantity X, then you should anticipate certain changes to quantities Y and Z. Of course, Y and Z can also change for exogenous reasons.
I do agree that "prices are determined by supply and demand" is a bit misleading, and would prefer "supply and demand reach equilibrium by means of price".
I think bjk is being misinterpreted. I think he's saying something like: all the terms in "price is determined by supply and demand" are syncategorematic (a word not in Firefox's dictionary!); none individually refers to things whose flux in the real world can be pointed to as an explanatory factor for the flux in the value of any other. (Or at the least, this applies to "demand".)
On the other hand I have a hard time interpreting him as not taking the piss in offering this line of thought, which he has explicitly disavowed. May be, though, he's just very committed to his art.
(ISTR an example Nancy Cartwright gave using graphs from economics and some other discipline, pointing out that the fact that you have two curves that intersect tells you nothing about how to interpret them or what the significance of the intersection is or anything like that; it was interesting but I don't remember the details at all. At all!)
Emerson!
It's kind of depressing that 37 goes to a princeton.edu domain.
I don't understand any of this! Can we talk about Mighty Morphin' Power Rangers instead? I know all about them! They're the best!
@54
Well, what determines the value of 2/3, the two or the three? It's not like demand is something other than it's value in the ratio. If it were, then what is the status of all the possible price states other than the one on the cash register? But that's all we've got!
I think it was Thomas Shelling who said, the laws of economics are all accounting identities, but what's wrong with that? Knowing identities can be pretty useful.
While demand is often an abstraction, there are cases where it can be quantified (in equity markets, where the number of bids and offers at various prices can be counted).
Microeconomics is much more like a testable, empirical science than macroeconomics, since test cases where theory is expected to work well can be produced and examined. Macroeconomics deserves much of the intellectual criticism that it gets as well as the scorn for damaging decisions advocated by distinguished practitioners. But even macro produces useful empirical results:
http://en.wikipedia.org/wiki/Impossible_trinity
Though it's true that these are more like rules of thumb for practitioners rather than empirical statements which can be expected to be always true under conditions specifiable in advance.
Combining neuroscience with economics is a hot subject now, called, cleverly enough, "neuroeconomics".
I don't know much about neuroscience. Does it have a lot of empirical successes? What I've seen consists of arguments like "Well, area X lights up on brain scans whenever subjects lie back and think of England. This the altruism area of the brain, which proves that faking orgasms is a form altruism."
Though it's true that these are more like rules of thumb for practitioners rather than empirical statements which can be expected to be always true under conditions specifiable in advance.
That's my point about a lot of economics.
The claim to science is the claim to a degree of truth, reliability, and precision beyond the practical rules of craft. Often the difference is so enormous that the rules of craft disappear -- there's no folk physics or craft physics any more, scientific physics has taken over completely., and furthermore, gives unique answer to an enormous body of questions.
Does economics give unique answers? Is there an economic science completely replacing all forms of crafty economics, or do we just have a number of different versions of craft economics?
There is a precise sense in which bjk and Nancy Cartwright are wrong, and claiming something is determined by "supply and demand" has actual empirical content. If price is determined by the intersection of a supply curve and a demand curve, then if some event shifts the supply curve, then we can see multiple points on the demand curve as the supply curve moves. Likewise, if some event shifts the demand curve, then we can see multiple points on the supply curve. So empirically testing supply and demand involves finding such events (or probably more realistically, waving your hands and insisting vigorously that you've found such an event).
I don't know much about neuroscience. Does it have a lot of empirical successes?
Sure.
"Well, area X lights up on brain scans whenever subjects lie back and think of England. This the altruism area of the brain, which proves that faking orgasms is a form altruism."
Reading about fMRI in the popular press probably isn't the best idea.
That said, "neuroeconomics" (which is, basically, behavioral economics in an MRI) is exactly the kind of thing I was talking about in 8.
I think economics is closer to a classic ideology than it is like a form of advocacy. Watching Yglesias try to introduce everything to Econ 101 is like watching theodicy being addressed through natural law philosophy than it is listening to an advocate lay out a case.
63: I've seen actual papers that dumb. If there's something better, I'd be curious to hear what it is.
There is a precise sense in which bjk and Nancy Cartwright are wrong, and claiming something is determined by "supply and demand" has actual empirical content.
Let's not drag Cartwright into it, whose position I can in no way be taken to have accurately characterized or characterized at all.
Her point anyway was about the graph, not about the claim that price is determined by supply and demand. You give someone a graph with a curve labeled "supply" and a curve labeled "demand", you haven't yet told them what to do with those curves. It isn't obvious that the significant thing is the point at which they intersect rather than, say, the area between them.
So empirically testing supply and demand involves finding such events (or probably more realistically, waving your hands and insisting vigorously that you've found such an event).
I think your parenthetical allowance is rather significant here. We know the price changed; why should we think that we have on our hands an event of the supply curve moving but the demand curve staying fixed, or vice versa? Why think we're finding those multiple points on the fixed other curve?
I've never believed that economists actually believed that people are naturally economically rational. I've always thought that they were trying to develop an economic system which would reward the rational and punish the irrational until everyone was rational.
Amartya Sen has pointed out that if you are economically rational according to either of the two most common definitions of the term you are a sociopath.
I have said many time that economics is a form of expert advocacy, comparable to law. You don't go to a lawyer to find the right answer or the truth about law, you go to a lawyer to be able to argue your point of view in court.
But what is the public face of counsel, how do they want to appear in court? They argue the facts, precedents, a little theory maybe rights...iow, what happens in a courtroom looks at least like pseudo-science (I would claim actual science). The "my client is an orphan" comes later.
And how do politicians argue? Again, facts, evidence, reason most of the time. Very few pols that I remember make a habit of saying:"My policy will be bad for the country, but I like it." They want to appear objective.
So it would be like lawyers sitting on opposite sides, introducing BB as working for the banks and JG working for the people, and then to work. Just like in a courtroom, neither side will often say that the other is lying and distorting and doesn't care about the truth. And why isn't that said in a courtroom? Do we not want the jury to be profoundly suspicious of all facts and testimony?
We have had politicians call each other liars, and very soon we are right back to business. George HW Bush, or was it Dole, then describes his tax plan and its effects.
Hell, Marxists will discuss capital flows with neo-classicals, thereby in some sense legitimating the opposition and limiting the discourse.
Sit me down across from Bernanke? I jump across the table.
I think what we want, or need, in our discourse is not fact-finding or logic or science but more negotiation. As they pull me off Bernanke, I say I want 5% U-3. Bernanke says 7% and 3% core inflation. And I go back over the fucking table. This would be truly scientific economics.
And to be fair, DeLong and Krugman and Thoma have gotten a little better at metaphorical table-jumping.
Emerson, is what you want is for DeLong to call his college roommate a lying thieving sack of shit, and to stop arguing the facts and theory? Me too. Good luck.
iow, what happens in a courtroom looks at least like pseudo-science
If only.
65: without knowing which specific paper you mean I'm not sure what to recommend to you.
Physics envy is the "desire to be able to explain 99% of all economic phenomena with three laws. That's what physicists can do in physics. In fact, in economics we have 99 laws that explain maybe 3% of all phenomena."
If Emerson invested more in reading the uncontroversial elements of economics, rather than
government and political policy arguments, the conclusion is/is not a science would be much
different.
Bob, if you want to argue that law is a science, go ahead. If law is a science, economics is a science too. But there are definitions of science such that law, craft knowledge, canon law, alchemy, etc. do not count as science, even though they do have rational content.
And it's generally thought that sciences, compared to other forms of rational, empirical discourse, have enormously greater power, and in the case of physics that's clearly true. This claim to enormously greater power (as well as objectivity and universality) is what is in question when you ask if economics is a science, and I'm saying that economics doesn't make the cut in any of those three ways.
But many economics believe and clain that economics has made the cut. And they leverage this claim into a kind of mystified credibility when it comes to policy questions. And a lot of people take them more seriously than they deserve.
These things I'm saying were crackpot only five years ago, but the same question is now being asked by many others. Thoma even gave me a link.
I'm not really trying to convince you, personally, of anything. If we talked one-on-one we'd discuss entirely different topics. I'm not even necessarily trying to convince economists themselves of anything. But in the general educated public, economists' arguments have a lot more credibility than they deserve.
The government and political policy arguments are the only reasons why anyone cares at all about economics. And very few aspects of economics are without political and policy aspects. It's not like geology.
Geology identifies the gold:silver ratio in the earth's crust, specifies which surface features correlate with ore deposits, and generates tools for detecting any subsurface features at all. Saudi Arabia employs very many geologists, all under the strictest confidentiality agreements.
Microeconomics provides some framework for thinking about the allocation of scarce resources, and a successful macroeconomics (one confined to interest-rate tweaks and capital restrictions, say) would guide making useful money.
Seeing John Emerson's name in the sidebar makes my icy heart leap with joy. It won't be long now til the sex-crazed bears show up. Oh, happy day!
Geology can be economically significant, but it's not really controversial. I suppose that there are denialist arguments about groundwater, and there are arguments about oil reserves, but geology isn't an area of public debate. For example, if one geologist says there are gold reserves somewhere and another one disagrees, if there's gold the one who believes the first geologist will make money, but if there isn't, they'll lose money. There won't be a big public debate.
I have never said that economics is useless and knows nothing. I just say that it's at the craft level, or the advocacy level like law. In relevant situations you absolutely need to know what economists have to say.
For those who have just tuned in, the reason I'm not so much of a crackpot as I was five years ago is that the dominant school of economics regarded the present economic crisis as impossible up until about 2007-2008, and more to the point,there was nothing much that other mainstream economists could do to prove them wrong. The sceptics were non-economists or heterodox economists that no one would listen to.
Emerson, it's really good to see you here.
My geologist friend says that the resource geology problem is secrecy and deception. If a guy says "We were exploring in Sector 615A but found nothing", that may mean "We were exploring in Sector 615A and found something", or it may mean "We never explored Sector 615A".
The medieval canon and civil lawyers who created most of what we now think of as Western Law very much thought that law was a real science. That is, they thought that there were general rational principles of law that one could discover through the use of reason, codify, and apply, much in the same way that we now think of laws of nature. That is what Gratian and the canonists thought they were doing.
There are still strains of this law-as-science thinking in the background of legal writing, particularly in the way lawyers and judges talk about the common law, but most people today would recognize it as a crazy way to think about law.
I actually think economics is in a similar position to law in the middle ages; folks think they've discovered a natural science when in fact they've discovered a bunch of common-sense rules that can change over time and can be usefully applied by advocates with money.
It's awesome to see Emerson here.
There are many Russian geologists who believe that oil is created by chemical reactions within the mantle rather than being decayed organic matter.
http://en.wikipedia.org/wiki/Emmanuil_B._Chekaliuk
This has a bearing on political discussions of finite supply.
There is a lot of very successful empirical neuroscience about things like sensory coding, motor control, learning and habituation, etc., but it tends to be done in animals were you can get away with all kinds of experiments. (For instance, as an acquaintance of mine did, you can wire up a monkey's brain so that a robotic arm is directly controlled from motor cortex, and the monkey can learn to use it.) In humans, most of what we know is extrapolation from other animals, or somewhat odd situations where experiments are possible (e.g., electrical stimulation during brain surgery), or natural experiments due to localized injuries ("neuropsychology"). The brain imaging stuff produces pretty pictures, but the data-analysis issues are horrendous, to the point where people talk about dead fish
and voodoo correlations. Even if you have a handle on the statistics, I don't think anyone has a very good grasp, yet, on how to relate blobs-of-differential-activity to theories of thought processes. I will be perfectly happy, myself, when I can properly calculate information sharing across brain regions; saying what that information is doing will be another project for another lifetime.
Part of the reason that economics is a valuable tool is that people do believe in it more than they should. It also skews decision-making in a direction that a lot of people are OK with, especially the people in finance, etc.
Around 1950 it was decided that government is mostly about economic growth and that economists' arguments were mostly about how to achieve growth. At first the free-marketers (so-called) were out in the cold while various sorts of managed-economy people were in control, but when the Democrats slipped around 1970 the free-marketers took over. And because of the degree of shared belief, and because they had just failed, Democratic economists were in a weak position. The choice was between very few alternatives.
84: I was going to say earlier that I feel like one of the benefits of (less-voodoo-y) fMRI has been confirmatory evidence for things that are basically known from animal or lesion or purely behavioral studies.
That said, it does seem like the best work being done in fMRI has been primarily concerned with the best way to do work in fMRI, and things like intersubject reliability are very much open questions.
At [ my school ] the neuroscience people basically want nothing to do with fMRI, and have left it entirely to the psychologists. What this means for the quality of the statistics I'm not sure, but I have my worries.
On the other hand, I saw a presentation by James Haxby where he talked about an experiment where they could predict from functional imaging which 18 second segment of a movie a subject was watching based purely on functional data from other subjects watching that same movie. That struck me as pretty badass.
It also skews decision-making in a direction that a lot of people are OK with, especially the people in finance, etc.
(For instance, as an acquaintance of mine did, you can wire up a monkey's brain so that a robotic arm is directly controlled from motor cortex, and the monkey can learn to use it.)
That is pretty awesome.
Do people hook tactile visual substitution systems up to blind monkeys?
nosflow wants to build a monkey matrix.
89 -- Monkey Neo can stop time, catch the shit being flung at him, and fling it back to another monkey.
88: if I'm thinking of the same experiment, you can also see the area of the monkey's primary motor cortex devoted to controlling the arm expand to correspond to the arm's size.
Or maybe I'm thinking of a different experiment, where they had a virtual reality arm?
Anyhow. It was cool.
Part of the reason that economics is a valuable tool is that people do believe in it more than they should.
Last week I read a hundred pages based on original documents about agricultural policy in Heian (800-100) Japan. Seed rice was the main store of value, and the medium of exchange. You had Kyoto, the provincial governor, local private managers, and peasant farmers each wanting more seed rice (with another argument about land allotments), and all making the same argument that giving it to them would increase rice production
Economics is the language of politics, especially democratic politics. To the extent other discourses come into play, like the glory of the fatherland or the superiority of our race or religion, I think you are moving away from liberalism, democracy, or egalitarian principles.
Some of this goes to my conceptions of science. I have said before that when I hear a child use an intuitionist or consequentialist argument, she is doing philosophy. She may be doing it badly, but she is doing it.
Listen to the discourse. When Scott Walker says decertifying unions, cutting taxes and cutting services will increase growth and jobs in Wisconsin, tell me the ways to answer him. There is economics, and then there is mass mobilization and social disorder.
John, you don't hate economics. Like me, you just want your economics to dominate. Do you think that discrediting DSGE and FamaLucasPrescott will mean a less powerful economics? I don't like DeLong, Krugman, and Thoma that much either.
Marx turned from philosophy to economics for a reason. The other side, bourgeois capitalists were going to use economics as the controlling discourse and controlling social mechanism, and however bad their arguments and competencies were, Marx had to answer them on their grounds, because the first social question is how are you going to put food on my table. Human potential and rights will always lose if you don't answer that one.
Do you really want to say:"We don't have a science that can solve that problem" especially when the assholes say they do?
When economics made its claim to be a science, a large number of political issues were taken off the table and transformed into technical issues about the application of science. This was a process that happened here and in Europe, after WWII especially. The Democratic Party, which had earlier included populists, progressives, and radicals under its umbrella, was especially dominated by the new technocracy. As a result it became incapable of tdoing politics except in a very narrow technocratic way.
Krugman and DeLong are globalizers and have a lot to answer for. Both now seem vaguely aware that they might have taken a wrong turn around 1994-5, and DeLong has come close to admitting it outright. They're not my heroes, but among the people with some voice in the world they seem to be the most persuadable.
There are a lot of people better than Krugman and DeLong. I'd just like to see the floor open to debate, with the understanding that these are not purely scientific questions, so that the goal isn't to find the one correct answer. That's what the Chicago School and their allies thought, but they've been discredited. I don't think that it would be especially useful to declare that some other school had the correct answer.
And of course, urbanization and industrialization make the economic question paramount, because Lizardbreath isn't a subsistence farmer.
To the degree you say economics is bullshit, LB on the 44th floor in the center of Manhattan should worry about heat, food, light, and healthcare. I am not sure your general project is really reassuring.
Now I do say free market economics is self-cancelling bullshit, but I am calling for revolution and admitting that many will die and so nobody likes me.
And I worry about the grain anyway.
91 88: if I'm thinking of the same experiment, you can also see the area of the monkey's primary motor cortex devoted to controlling the arm expand to correspond to the arm's size.
Really? I would have guessed the robot arm, not appearing to the monkey's brain to be very innervated, wouldn't get much space in the motor cortex. (I'm visualizing those goofy homunculi.)
95: We do grow lettuce in our window boxes. And we have a tomato plant we've kept alive for three years now for sentimental reasons. Occasionally it produces a small tomato.
Also, in an emergency we could eat the dog.
94 - But Emerson, isn't one of the thing that's been causing Krugman and DeLong to speak up about this the idea that the Chicago School -- in particular, proponents of the real business cycle theory, not Friedman-flavored monetarists -- haven't been "discredited" within the profession? This ties into your idea that in economics there isn't a way to discredit yourself other than being heterodox. I mean, are Edward Prescott's students having more trouble finding employment? Are his papers being published in less-reputable journals?
I would have guessed the robot arm, not appearing to the monkey's brain to be very innervated, wouldn't get much space in the motor cortex. (I'm visualizing those goofy homunculi.)
Why would it not appear to be very innervated?
99: I guess it would depend on the number and variety of signals the monkey can send it or receive from it? Which I guess would be far less than a real hand. But I know nothing and just wanted to say "homunculi".
I don't say that econ is bullshit. It's just doesn't have that big extra oomph that physics has. It's more like law.
Snarkout my understand is that the consensus within the field is formed by the methods of academic politics and is unassailable unless a lot of established people radically change their minds. Don't know if that responds to what you said.
96: I was going to explain all the ways I was inexact, but instead here's a cite so you can see for yourself all the ways I was inexact.
But I definitely remember something about one of the homunculi changing shape to accomodate a robot arm.
66: nosflow, you're right. You have to somehow know that the effect is shifting the supply curve and not the demand curve, or vice versa. If you don't know that, then you can't do anything. So evaluating this work requires evaluating the plausibility of these claims. (A typical example is that rainfall in Iowa affects the supply of wheat, but not the demand for bread in California.)
I agree with 94.1 very strongly, and I think it's a better explanation of the deleterious effect of economics than "economics as advocacy".
"Economics as advocacy" is neither good nor bad. Portraying your advocacy as science is bad.
bjk in 41:
Isn't the "law of supply and demand" definitional?
The creationists pull this trick, too. "Isn't survival of the fittest definitional? If you've survived, you are by definition fit; if you're fit, you survived. Darwinism is tautology."
Emerson in 78:
Geology can be economically significant, but it's not really controversial.
Spoken like the elitist liberal that you are. In fact, as bjk could tell you, geology is very controversial.
Creationist geologists have a tough time getting hired at oil companies, but geology would still be a science even if Exxon-Mobile decided it had ideological goals that were more important than finding oil.
Watching economics by way of most policy and political governmental policy debates is like learning biology and medicine by watching General Hospital.
Economics as a positive science skips the normative preferences over ends, and is more analogous to mathematics.
Economics as a positive science skips the normative preferences over ends, and is more analogous to mathematics.
Analogous to mathematics in that it explores the consequences of arbitrary definitions with no reference to objective reality?
That's delusional, Econolicious. To begin with, economics has the relation to policy that biology has to medicine. Dragging in General Hospital is just imbecile.
A very high proportion of the best jobs in economics are with the Federal Reserve and with banks, both of whom have political axes to grind. The Federal Reserve's miserable performance under Greenspan is one of the main issues here.
Second, the supposed science of economics has policy implications which are sometimes put into practice (i.e. put to the test), and recent experience has made it reasonable to believe that some of the recent science is crap.
Economics as a positive, value-free science is a fraud. It tries to be like mathematics. The quants were supposed to revolutionize econ, but for all anyone knows they did more harm than good.
And praise God for sending you to me.
Mainstream economics teach and apply theories that have been known to false or useless for decades. Some articles not about policy:
Emmanuelle Benicourt and Bernard Guerrien. "Is Anything Worth Keeping in Microeconomics? Review of Radical Political Economy, V. 40, N. 3 (Summer 2008): 317-323.
Alan Kirman. "The Intrinsic Limits of Modern Economic Theory: The Emperor has No Clothes". Economic Journal. V. 99, N. 395 (1989): 126-139.
Frederic S. Lee and Steve Keen. "The Incoherent Emperor: A Heterodox Critique of Neoclassical Microeconomic Theory". Review of Social Economy, V. 62, N. 2 (June 2004): 169-199.
My acquaintance is Andy Schwartz; here you can see a movie of one of his monkeys feeding itself with the robot arm.
The General Hospital allusion is bowwowed from http://www.ritholtz.com/blog/2010/01/on-financial-advisors-watching-tv/
I personally have not witnessed much calamity as a consequence of exploring the impact of convexity assumptions on the existence of equilibria, but
Prof. Emerson appears bitter and ill served by his economists.
If you want to put to the test a well known economics result, how many voting systems have been discovered that contradict Arrow's
impossibility theorem on aggregating the ranked preferences of individuals into a whole population ranking ? In the season of march madness
bracketology, surly you've seen a few attempts.
Econolicious, I've been asking this question for five years or more, but it's become a frequent question within the profession, and not just wingers: http://www.google.com/search?hl=en&source=hp&biw=1152&bih=706&q=%22Is+economics+a+science%3F%22&aq=f&aqi=g4g-v1g-sv1g-v2g-sv1g-j1&aql=&oq=
The question has become respectable is because of a global economic disaster which can be attributed in part to orthodox but fallacious economics. So it's not just me who is bitter because he's been ill-served by self-aggrandizing, arrogant morons.
Arrow's 60 year old paper developing Condorcet's 200 year old work is pretty good for what it is, and it's by an economist, and it's like math, but it doesn't have much to do with economics, and if it's the best that profession can bring forward the profession is in serious trouble.
I recently had occasion to watch this year's Oscar-winner in the documentary category, Inside Job. What struck me -- but did not surprise me -- was how many of the economists and politicians interviewed in the course of the film felt perfectly entitled to make really obviously, self-evidently bullshit statements (one of them was caught trying to pretend he didn't know what "conflict of interest" means, another tried to flatly deny the contents of his own CV), fully expecting not to be challenged by the person they're talking to. Some of them hemmed and hawed, others got defensive at the breaking of the Unspoken Rule of Talking to Economists, which basically appears to be "let them bullshit and don't question."
I defy any professed economist to watch that footage and tell me there isn't a severe rot in their profession (as if the meltdown hadn't already made it obvious).
The question "Is Economics a Science?" has exactly the same answer as the question "Is Sex Disgusting?". ie, "only if you do it right".
I personally have not witnessed much calamity as a consequence of exploring the impact of convexity assumptions on the existence of equilibria
That's a pretty harmless activity, but it's a bit of a great big waste of time, given that it doesn't actually tell you much about the object of study, which is (or ought to be) this great big interesting world of business which is all around us. And in many ways, we might consider that it was actually the job of economists to try and work out what was happening in that big old world, and contribute to its more sensible organisation. Or at least, to warn against obviously disastrous courses of action.
Not only did economists screw up in that very important responsibility, it turned out after the fact that somewhat more than half of the economics profession had decided to themselves that it was utterly impossible to gainsay any particular economic state as being better or worse than any other, and yet unaccountably these people continued to draw salaries as economists. HM The Queen was dead right on this one.
In related news, "microeconomics more scientific than macroeconomics" nuh-uh. Loads of micro is speculative unfalsifiable formalist bollocks, and a surprising amount of macro is useful stuff that you can use to, for example, make money in the stock market.
I mean, microeconomists love to pat themselves on the back and say "oh, we make lots of specific and testable predictions", but never quite draw your attention to the fact that 99% of the work they are so proud of is on subjects like sumo wrestling and speed-dating.
It's true, Exxon doesn't hire creatonist geologists. And banks don't hire economists, except as salesmen. So +1 for the "economics is just accounting identities plus the refutation of some "limited pie" fallacies" argument.
What d^2 said. If you want to re-cast economics as a very particular sub-sub-field of constrained optimization with quaint, historically-driven terminology, go ahead, but then the obvious question is why anyone should pay more attention to it than to, say, algebraic geometry, or random graph theory - never mind computer scientists actually developing optimization algorithms.
Alternatively, you could try to study actual processes of production, distribution and exchange, and aim to provide both descriptions of the phenomena, and explanations of the mechanisms generating them, which are increasingly accurate, precise, powerful and reliable. One might call such an enterprise a "positive science" of economics. I wouldn't say it's completely absent, but it certainly doesn't dominate what I read in, say, AER. It's entirely absent from what I referee for Econometrica, but those are statistical theory papers so I guess that's OK.
Actually one thing that economists should be given a degree of credit for is that an awful lot of the best work in statistics has been done and/or invented by econometricians. But this is like NASA talking about non-stick frying pans, or analytic philosophers talking about computer logic - it's all very good and thanks very much for the frying pan, but it doesn't actually represent progress toward the actual problems of the discipline.
Isn't part of the problem for economics (and, you know, NASA) that the problems of the discipline are ill-defined or (less so in the case of NASA) prima facie unsolvable?
I feel like this comment is a betrayal of Isaac Asimov, somehow.
What does it mean to say "the problems of the discipline are ill-defined"? NASA funds all kinds of research on a wide variety of problems. If there's not one or a handful of overarching "problems of the discipline" guiding everything, I think that's probably a sign of a healthy discipline.
They're not ill-defined at all. Economics is about production, distribution and exchange. The problems of the discipline are 1) the understanding of the optimal organisation of production 2) understanding the outcomes of exchange of goods (of which a large subset relates to the special problems of a monetary economy) and 3) the feedback between market exchange outcomes and the production process.
The Soviet Academy used to regard "economics" in the Western sense as a subfield of control engineering and called it "economic cybernetics".
Well, I mean, NASA isn't really a "discipline", obviously, but as an agency I feel like they've often been pulled in contradictory, often unhelpful directions because people can't decide if they're supposed to be primarily about manned spaceflight or primarily about spaceflight or an agency that funds interesting stuff or [ fill in the congress-appeasing blank ].
With economics I think it's a bigger issue, at least insofar as people turning their mathematical firepower to the big questions of sumo wrestling and speed dating, as d^2 says, on the one hand, and justifying horrible financial chicanery, on the other hand, seem at least in part like issues of lack of coherent focus.
125 cont'd: but on the third hand point sort of taken, and I was being sort of glib.
The Soviet Academy used to regard "economics" in the Western sense as a subfield of control engineering and called it "economic cybernetics".
Huh, that makes some things fall into place (namely, why the decision making literature is so full of equations originally applied to turbulent fluid in a tube)
While for a long time economists were the most sophisticated consumers of I think economists are beginning to be left behind on the statistics front. There's been a great deal of progress in modeling very large datasets (see Hastie and Tibshirani's statistical learning book, for example), but economists stick pretty close to sophisticated variants of regression.
yeah, the glory days of economist leadership are behind us and it's true that weaning ourselves off the regression model has been difficult. But I would still guess, sight unseen, that a typical working economist would be a better statistician than a typical natural scientist.
The Soviet Academy used to regard "economics" in the Western sense as a subfield of control engineering and called it "economic cybernetics".
Vis, the excellent Red Plenty.
http://www.guardian.co.uk/books/2010/aug/07/red-plenty-francis-spufford-ussr
I don't know shit about economics (obviously). But I do know that you guys are THE BEST!
Not a fair comparison. Typical hobos are better statisticians than typical natural scientists.
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After Ajay linked to it a couple of weeks ago, I've been watching clips of the Mitchell and Webb Look, which is very funny. So I watched the first episode of Peep Show, by the same two guys. Holy crap! Is that what's like to live in Britain? After one episode, I feel neurotic and claustrophobic. I thought The Office was an outlier, but now I'm beginning to think British TV is one long cry for help.
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re: 133
It's the same two actors/comedians, but they write 'That Mitchell and Webb Look' but only act in 'Peep Show' [which is written by two other writers]. Peep Show is hard core realism, mind.
133: Yeah, the days of "Keeping Up Appearances" are long gone. The "comedy of awkardness" has expanded to include the entirety of British comedy TV shows. They find respite from the grim nihilism of comedy in their standup comedians and chat shows.
I must say, I still don't like the comedy of awkwardness in general, but I think it's pulled off much better in the Mitchell and Webb vehicles than anywhere else I've seen.
I'm going to use the the digression of 133 to point to
http://www.youtube.com/watch?v=VVp8UGjECt4
David Mitchell's entire face and indeed voice into the bargain were made for the comedy of awkwardness.
Since Peep Show is one of the comedy-of-awkwardness shows I can actually tolerate watching, I've always assumed that it was exemplified worse or, at least, to a lesser extent in it than in other such shows.
The unfogereria is not going to be won over with claims of relevance if I rely on pithy Freakonomic examples.
I think a good example of insight from economic models is in,
Michael Spence (2002). "Signaling in Retrospect and the Informational Structure of Markets". American Economic Review 92 (3): 434-459.
See also
http://nobelprize.org/nobel_prizes/economics/laureates/2001/spence-lecture.pdf
Building models in economics is an art and a science. The science part consists of determining analytically the consequences of the assumption that create the structure of the model. The art consists in deciding what to put into
the structure and what to leave out. Putting in too much makes the models intractable and of little use in illuminating the determinants of market performance. Putting in either too little or the wrong structural features makes the
results, though tractable, uninteresting. A natural consequence of this is that
parameters that don't change much from market to market or over time tend
to be suppressed, as a matter of good practice in applied microeconomic theory...
Spence's work explains how or why people choose to seek education (take note, SLACers) to signal their productivity rather than to improve their productivity.
114
The question has become respectable is because of a global economic disaster which can be attributed in part to orthodox but fallacious economics. ...
I don't think faulty economics had much to do with the recent crisis which was largely due to a mass illusion of a sort to which humans seem prone (for psychological reasons).
Well, James, that's really charming. Why didn't you just say Original Sin?
Econolicious, my criticisms of economics are based on its excessive claims, its ideological distortion, its corruption, and its effects on Federal Reserve and government policy. You could list a hundred neat and tidy little examples liek that one and it wouldn't change my mind.
140 I don't think faulty economics had much to do with the recent crisis which was largely due to a mass illusion of a sort to which humans seem prone (for psychological reasons).
Yes, what a disappointing quirk of human psychology. Pity that it's just completely inconceivable that government regulation could keep people from building up a pile of misguided bets that can take down a large chunk of the real economy when they fail. Of course, we're just psychologically unable to regulate any markets, so it's not as if the propaganda of free-market fundamentalists could have had any influence.
142
Yes, what a disappointing quirk of human psychology. Pity that it's just completely inconceivable that government regulation could keep people from building up a pile of misguided bets that can take down a large chunk of the real economy when they fail. Of course, we're just psychologically unable to regulate any markets, so it's not as if the propaganda of free-market fundamentalists could have had any influence.
Of course honest and intelligent regulation would have helped. You have some magic plan to achieve this? And don't just blame the Republicans. The Democrats had control of the House, Senate and Presidency after the 2008 elections and even with the recent crisis basically did nothing to prevent another. One of the main Democrats in charge of housing policy is Barney Frank. Here he is talking nonsense on the floor of the House in 2005 about the housing bubble. He has never shown any interest in effective regulation (such as minimum down payments or other stricter standards for government mortgages) which might be politically unpopular with the housing lobby. Regulations are weak because powerful interests want them to be weak.
(such as minimum down payments or other stricter standards for government mortgages)
We know that government mortgage subsidies were at the bottom - or at least a significant factor - in the housing crash because economics teaches us that this is so.
James, the best economists assured us that what just happened was impossible and could never happen again. Of course, that IS because of Original Sin, but I'm just saying that economics is part of Original Sin.
144
We know that government mortgage subsidies were at the bottom - or at least a significant factor - in the housing crash because economics teaches us that this is so.
No, easy credit encouraged (or at least not effectively regulated) by the government contributed to the housing bubble. The crash was a natural consequence of the bubble.
145
James, the best economists assured us that what just happened was impossible and could never happen again ...
A strange claim. You have some names and citations? Or are these economists just strawmen?
Or are these economists just strawmen?
The strawmen are things like the Efficient Markets Hypothesis....
The crash was a natural consequence of the bubble.
I feel like we've had this discussion before. A crash may have been a natural consequence of the bubble, but the damage could have been more contained if finance hadn't built up lots of leverage betting the bubble would persist. That magnified the damage a lot, and could have been prevented by more sensible risk assessment and regulation.
Of course honest and intelligent regulation would have helped. You have some magic plan to achieve this?
Gee, I don't know... maybe we could start by not promoting the notion that regulations are inherently incapable of creating any public benefit?
149
... That magnified the damage a lot, and could have been prevented by more sensible risk assessment and regulation.
Yes things would work better if peopled behaved better. Once again I would like to see the plan to achieve this.
150
Gee, I don't know... maybe we could start by not promoting the notion that regulations are inherently incapable of creating any public benefit?
Perhaps there are people who claim this but I am not one of them. However I do claim that in practice regulations are often suboptimal and I don't hear any of you guys explaining how to improve matters.
Emerson! Arguing with Shearer! It must be Old Home Week at Unfogged.
How's this for an explanation: We've had massively more bank failures and other financial shenanigans post-repeal of Glass-Steagall than we had while it was in effect.
"Warning that banks will become the dinosaurs of financial services if the Depression-era law is not repealed, [Alan Greenspan] said that the Fed believes banking can be tied to securities underwriting without subjecting federally insured deposits at banks to the risks inherent in the stock market."
154
How's this for an explanation: We've had massively more bank failures and other financial shenanigans post-repeal of Glass-Steagall than we had while it was in effect.
Even if we were to stipulate that the repeal of some Glass-Steagall provisions was a mistake do you have some magic plan to stop Congress from making mistakes?
It really is Original Sin, per James.
It really is Original Sin, per James.
Indeed. The rich and powerful are predestined to be rich and powerful, apparently, and the rest of us can, and will, just go to hell. The only kind of interruption of the divine plan that young Goodman Shearer seems prepared to acknowledge is that of witchcraft ("a magic plan").
do you have some magic plan to stop Congress from making mistakes?
What is this, James? We're not allowed to complain, because everything can only get worse in this worst of all possible worlds? I mean, yeah, it seems that way sometimes, but you do realize you're not presenting any sort of argument, just doomsaying, right?
Economics is a powerful science, so we need to pay attention to its insights into the economy. Economics tells us that public spending is not beneficial, cutting taxes is good in any situation, the minimum wage is bad for everyone, and markets are perfectly efficient.
Economics is a science, as shown by valid micro-theories of limited applicability. Everything else is not taken seriously by the profession, which consists almost entirely of public-spirited researchers in pursuit of truth.
Economics is a science or maybe not - who cares? It's largely irrelevant to public policy. Only politicians and general the general investing public have influence over the economy and they'll always make mistakes. That's why pencils have erasers. Advice they may or may not have received from people claiming expertise in economic policy is beyond the point. You'll never change human nature. Oh well.
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Why did no one tell me that the movie Never Let Me Go pulled off a fantastic adaptation of the book? Maybe my taste is weird, but I think it pretty easily ranks as my favorite film to come out in 2010. And manages the rare feat of having a lot of emotional impact without being manipulative or sentimental. Also, between this movie and her appearance on the latest Belle & Sebastian album, I think I have to retroactively list Carey Mulligan in that celebrity crush thread.
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"Of course honest and intelligent regulation would have helped. You have some magic plan to achieve this? And don't just blame the Republicans. The Democrats had control of the House, Senate and Presidency after the 2008 elections and even with the recent crisis basically did nothing to prevent another. One of the main Democrats in charge of housing policy is Barney Frank. Here he is talking nonsense on the floor of the House in 2005 about the housing bubble. He has never shown any interest in effective regulation (such as minimum down payments or other stricter standards for government mortgages) which might be politically unpopular with the housing lobby. Regulations are weak because powerful interests want them to be weak."
Yes, i do have a plan. No corporate $ in elections, candidates can take no donations at all. The Original Sin was the GOP deciding that campaign bribery was a fundamental right.
Anyway, lets not ignore that GOP is far worse than barney frank, who is great.
Mistakes were made on the veldt.
Arizona has a publicly funded campaign law. That has weakened the corporations and made the activists stronger. Hence Randall Pierce and strong immigration laws.
156
It really is Original Sin, per James.
I am not religious. I believe evolution has shaped humans to be a) selfish and b) prone to group think and that this had something to do with recent events.
158
What is this, James? We're not allowed to complain, because everything can only get worse in this worst of all possible worlds? I mean, yeah, it seems that way sometimes, but you do realize you're not presenting any sort of argument, just doomsaying, right?
Of course you are allowed to complain. It is as they say a free country. And I don't think this is the best of all possible worlds but I don't think it is the worst either. Lots of incremental improvements are possible but you all don't seem interested in discussing specific proposals. I am suspicious of magic bullet proposals in general and I don't think purging a few economics department is a very plausible candidate for one.
162
Anyway, lets not ignore that GOP is far worse than barney frank, who is great.
Ignoring Democratic complicity in the recent unpleasantness suggests you are more interested in scoring partisan political points short term than in making long term improvements.
It's great to watch James regress to fundamentally primitive and magical thinking about Original Sin, it shows the quasi-religious roots of faith in the Market. It's as if when a bridge collapsed the engineer just shrugged and said, well, gravity is a law of nature, there's nothing I can do.
Economics is not a science. By coming up with systematic ways to measure the economy it has been helpful in offering more precision to the historical narrative of the economy, and economic models can be interesting (if often deceptive) thought experiments that can expand one's capacity for thinking about the economy. Perhaps the best way to think about econ (in the sense of the way that will do the least damage to your ability to understand the actual economy) is as a form of doing history that makes heavy use of mathematical tools both to describe events and to propose explanatory mechanisms for them.
The notion that something like neuroscience will make economics more scientific is quite silly -- just as silly as the mid-20th century notion that borrowing some mathematical tools from physics would make economics a science.
Economics is about production, distribution and exchange. The problems of the discipline are 1) the understanding of the optimal organisation of production 2) understanding the outcomes of exchange of goods (of which a large subset relates to the special problems of a monetary economy) and 3) the feedback between market exchange outcomes and the production process.
To me, only the third of these gets close to the real problem of economics, and I'm not sure D-squared meant it in the way I'm taking it. The first is about operations research or management theory, since it seems clear that the best way to produce something when you actually know clearly what it is you want to produce is to use an organized hierarchy of some sort, not a decentralized market. The second gets you somewhere, economics certainly helps you understand markets, but markets are just one aspect of the economy (tightly restricted and managed markets are a key regulatory tool in certain areas of the economy, like equities or futures markets, and economics is massively useful there). The mention of the special problems of a monetary economy is important, but then you have to think about why post-WWII economics systematically ignored and abstracted away from so many of the actual problems of a monetary economy; a lot of economic theory seems to be actively deceptive there. Finally, the feedback between markets and production is key, but only once you understand how relatively small a role markets play in production and exchange compared to the prominence they are given in economics. Which is of course an ideological prominence.
Oh, and I don't think Barney Frank is particularly great...he's witty, abrasive, and gay, so he gets a lot of style points, but he wasn't a very effective leader either before, during, or after the crisis.
@168: or the 19th century notion that the shape of one's head was related to what was in it.
I am suspicious of magic bullet proposals in general and I don't think purging a few economics department is a very plausible candidate for one.
No magic bullets are required. Regular bullets, even nooses, would do the trick.
And James, as for Original Sin, part of our evolutionary inheritance was intelligence. History is full of instances of humans finding more successful ways of organizing societies.
We know that securities regulation works, and that the decision to not regulate various derivatives was a fatal mistake. We know that predatory lending is bad and can be prohibited. We know a lot of other things. Futility is not a law of nature.
170: Yeah, I'm trying to figure out who James is rebutting when he criticizes the Democrats.
147: James, the best economists assured us that what just happened was impossible and could never happen again ...
A strange claim. You have some names and citations? Or are these economists just strawmen?
My name links to me quoting Joe Stiglitz making the same claim. Michael De Vroey has written a book about how orthodox economic theory has no room for involuntary employment. I have only read a paper by him summarizing his book, not the book itself.
By the way, Stiglitz has said that when he was on the CEA, he found it useful to build on Nicky Kaldor's ideas, not on orthodox economics.
Has Shearer ever acknowledged that he knows nothing about academic economics? Albert Hirschman has noted - I think in his Tanner lectures, which are downloadable - that reactionary polemics generally use one of three tropes. If I recall correctly, futility is one of them.
174
Has Shearer ever acknowledged that he knows nothing about academic economics? ...
"Nothing" is an overstatement, I have read Samuelson's book, Krugman's Nobel prize winning papers and glanced through some economics journals. It is my understanding that academic economics has tended towards elaborate mathematical models with tenuous connections to reality.
175: "Perversity" and "futility". Here are Hirschman's Tanner lectures (PDF); I don't know how much they differ from the eventual book, The Rhetoric of Reaction, but the latter is very good. At shorter form, Hirschman on the rhetoric of reform.
173
Yeah, I'm trying to figure out who James is rebutting when he criticizes the Democrats.
Anybody who thinks the Democrats in general and Barney Frank in particular aren't part of the problem.
178: "Jeopardy" would be the third as "futility" was the one mentioned.
172
And James, as for Original Sin, part of our evolutionary inheritance was intelligence. History is full of instances of humans finding more successful ways of organizing societies.
And history is full of examples of people using intelligence for private benefit at the expense of society as a whole. Also intelligence doesn't seem to immunize people against group think.
155: Even if we were to stipulate that the repeal of some Glass-Steagall provisions was a mistake do you have some magic plan to stop Congress from making mistakes?
Well, how was Glass-Steagall passed in the first place? Through magic? No, of course not. It was passed because the capitalists, especially the finance capitalists, had completely screwed up the economy, and we were very close to having a socialist revolution. FDR and the New Deal congresses past G-S and the other financial industry reform legislation in order to save capitalism, because if they didn't, there was every reason to suspect that the next time something went wrong, the far left (or the far right, perhaps) would come in and take things over and upset the apple carts of the then-current ruling class. If we want to see something like G-S reinstated, plus other important checks on the ability of the capitalists to immiserate working people, then we need to be out in the streets, fighting for it!
I've been busy for the last couple days, but now that I'm catching up, allow me to be the first to say: (1) Emerson! and (2) this has been a very interesting comments section to read.
"And history is full of examples of people using intelligence for private benefit at the expense of society as a whole. Also intelligence doesn't seem to immunize people against group think."
James comes out against private enterprise, and markets.
183: This would make me a bad liberal, if I weren't already a lazily mediocre liberal, but I don't find financial regulation much of a politico-emotional mainspring to action. Presumably a large portion of that particular incident of the sin of sloth reluctance is the consequence of spending the whole of my professional life in the Lord's service, making blackberry jam and bond indentures in a small Trappist monastery off Third Avenue as a Jeeves to capitalism's Bertram Wilberforce Wooster having to revise documents in the small hours because of one jurisdiction or another's regulations, but I confess that I would, if offered, concede many a proposed financial reform for a foreign policy that killed fewer people.
I guess Obama has his way of disappointing everybody.
I love this bit from the linked Hirschman:
At the outset the reader is told that he or she has a very poor chance of understanding how society works, since we are dealing with "complex and highly interacting systems," with social arrangements that "belong to the class called multi-loop non-linear feedback systems" and similar arcane "system dynamics" that "the human mind is not adapted to interpreting." Only the highly trained computer specialist can unravel these mysteries. And what revelations does he come up with? "At times programs cause exactly the reverse of desired results." In other words, Joseph de Maistre's vengeful Divine Providence has returned to the stage in the guise of Forrester's "feedback-loop dynamics," and the result is identical: any human attempt to improve society only makes matters worse!
Econolicious, my criticisms of economics are based on its excessive claims, its ideological distortion, its corruption, and its effects on Federal Reserve and government policy...
Did you ever hear economists' claims coming couched with reservations ?
Recognizing confounding factors and trade-offs is a core competency of a practicing economist.
The primary skill of an economist is identifying all of the explanations for various phenomena. Cognitive dissonance is, at its core, the inability to recognize and accept other explanations. I'm oversimplifying, but you get the point. The more your brain is trained for economics, the less it is susceptible to cognitive dissonance, or so it seems.
The joke about economists is that they are always using the phrase "On the other hand." Economists are trained to recognize all sides of an argument. That seems like an easy and obvious skill, but in my experience, the general population lacks that skill. Once people take a side, they interpret any argument on the other side as absurd. In other words, they are relatively susceptible to cognitive dissonance.
185
James comes out against private enterprise, and markets.
Actually private enterprise and markets are an attempt (not always successful) to arrange incentives so that private greed works to the benefit of society as a whole. Adam Smith's invisible hand and all.
Also markets can work against group think as they can reward contrarians like short sellers. The housing bubble might not have grown to such damaging proportions if it had been easier to short the housing market.
I am actually shocked that someone is appealing to Scott Adams as an authority.
"Markets are an attempt" is what socialists say. Libertarians know that markets are the natural order that obtain if grimy democrats don't get in the way of the rich.
Seeing how he's a humorist, it's no surprise that that Scott Adams statement is laughable.
I appreciate the Scott Adams quote, but I don't really need more evidence to support my "Asperger's is what the Internet has in place of everything else that civilization has ever given us" thesis at this time, thank you.
188: This is best exemplified by the way in which economists, when speaking to lay audiences, almost always admit that there are substantial trade-offs involved in adopting a policy of free trade. Or not.
Put differently: "We are the only ones hard-headed and clear-eyed enough to recognize and confront the painful trade-offs and agonizing choices which the world is so full of; all others are mere slaves to wishful thinking" is an element of (a part* of) the economic profession's mythology. It might even be true that, in the abstract, thinking seriously about constrained optimization should encourage an awareness of trade-offs. But like most self-serving myths, this is bullshit.
*: My father, so far as I know, has never peddled this line, but he's a pretty empirical economist.
A question often raised in debates on the subject topic: Do mainstream economists lie to the public about the findings of their supposed science? I don't think citing a creationist pretending Bjorn Lomborg, infamous for lying, is an "economist" is a good way of defending economists.
Empirical evidence does suggest that studying mainstream economics changes how one thinks: Frank, Gilovich, and Regan Does Studying Economics Inhibit Cooperation (1993).
I thought of linking to PAE (Post Autistic Economics ) before reading 194.
189
God, I hate Scott Adams
What was so bad in the Adam's link?
190: Actually, the way the derivatives markets were set up, when people tried shorting bits of the housing market, they ended up feeding the sub-prime machine. There are several good lay accounts of this, e.g. in Yves Smith's Econned, or McLean and Nocera's All the Devils are Here; you can look up detailed references in either one.
More generally, the possibility of short selling stock seems to do little to prevent stock market bubbles. If you don't care for empirical observations, you can always have theory on the limits to arbitrage, or indeed on the conditions needed for markets to select correct beliefs, which start with needed, quite literally, markets in everything, and get less plausible from there.
199
Actually, the way the derivatives markets were set up, when people tried shorting bits of the housing market, they ended up feeding the sub-prime machine. There are several good lay accounts of this, e.g. in Yves Smith's Econned, or McLean and Nocera's All the Devils are Here; you can look up detailed references in either one.
I just finished reading "The Big Short" by Michael Lewis (which tells the story of some people who did make a lot of money short mortgage loans) so perhaps I am a bit biased. But I found Yves Smith's critique rather unconvincing.
199
More generally, the possibility of short selling stock seems to do little to prevent stock market bubbles. ...
Perhaps not but I am pretty sure there are many cases where shorts have exposed fraud in individual stocks. Which seems like a restraining influence in general.
But I found Yves Smith's critique rather unconvincing.
Haven't read the Lewis book, but yeah, I don't get that critique at all.
Sure, shorts created a supply of toxic securities, but shorts weren't creating the demand for those securities, and to the extent that the shorts satisfied that demand, the market wasn't pushing for more bad home loans to be made. I wonder if I'm missing something here.
202
... I wonder if I'm missing something here.
That's how it seems to me too. I think this is a case of if you go against the herd and are proven right people will hate you for it.
I found the following unconvincing as well:
To make Lewis' Manichean perspective stick, he has to omit vital facts that would lead to a more accurate, but complicated, less crowd-pleasing tale. Lewis repeatedly and incorrectly charges that no one on Wall Street, save his merry band of shorts, understood what was happening, because everyone blindly relied on ratings and failed to make their own assessment. By implication, the entire mortgage industry ignored the housing bubble and the frothiness of the subprime market. This is simply false (although with Bernanke and the persistently cheerleading US business media largely missing this story at the time, the "whocouldanode" defense is treated more seriously than it should be). Many people in the credit markets were aware that the risks were increasing in the subprime and residential real estate markets. Every mortgage industry conference during this period had panels on this topic, every credit committee considered it throughout 2005-07.
Since they didn't actually do anything about the obvious problems one suspects that the consideration consisted of thinking up excuses to ignore them.
IIUC, and I probably don't, Yves Smith's point is that demand for shorting the subprime tranches led folks who were packaging subprime mortgages to create another series of essentially artificial products that allowed imvestors to bet on the subprime market even in the absence of actual consumer demand for subprime loans. In other words, the existence of short sellers (ie, folks who wanted to take the othe side of a bet on the subprime market) drove the financial engineers to create new, artificial products linked to subprime mortgages for the shorts to bet against. As a result, there were more financial instruments linked to subprime during the crash than there would have been without the short sellers (since the short sellers were helping to drive demand for products that let you bet on the subprime market without actually owning any part of a subprime loan, and lots of people bought those instruments). Were it not for the short sellers, the folks willing to take bets on the subprime market at all would have been fewer in number and the market would have collapsed sooner and with less pain. In other words, the short sellers increased the size of the action in the casino when it really needed to be shut down completely.
I have no idea whether any of the foregoing is true, but I think what Yves Smith is saying. It's not implausible, and way less implausible than relying on short sellers to regulate bubbles.
204
... Were it not for the short sellers, the folks willing to take bets on the subprime market at all would have been fewer in number and the market would have collapsed sooner and with less pain. ...
This seems doubtful, there is always a basically unlimited supply of people willing to borrow money that they have no hope of paying back and satisifying the demand for mortage based securities by making more such loans seems unlikely to have caused less pain. Bets are zero sum what one better loses another better gains. But actual bad loans are usually negative sum, the defaulting borrower does not benefit by as much as his lender loses.
206
... It's not implausible, and way less implausible than relying on short sellers to regulate bubbles.
Better short sellers than Barney Frank babbling nonsense on the floor of the House.
I like how what's really important to James is not preventing the next crisis -- even though the innocent victims of this crisis included James himself, who lost his job -- but rather making fun of Barney Frank.
To make the experience of reading this thread less depressing, I recommend deliberately reading "short seller" as referring to those who sell shorts, i.e. the undergarments.
207
I like how what's really important to James is not preventing the next crisis -- even though the innocent victims of this crisis included James himself, who lost his job -- but rather making fun of Barney Frank.
Actually back in 2009 (while I was unemployed) I proposed two specific regulatory ideas on my blog (see here and here ) which would (in my opinion) reduce the chances of another crisis. Just calling for more regulation is about as helpful as calling for more prayer.
210:
And what is your guess as to why conversations often go "should we have any regulation at all" instead of "what is the most appropriate regulation"?
James: Your first suggestion won't really help. Investors have learned that the sub-prime mortgage market is dangerous. The next economy-destroying bubble will be in a different market.
Also, the ratings agencies already do grade on a curve. If you compare the historical behavior of municipal bonds and corporate bonds with the same rating, you'll see that the municipal bond has a lower default rate than the corporate bond. (Sadly, I don't know a reference for this off the top of my head.)
212
James: Your first suggestion won't really help. Investors have learned that the sub-prime mortgage market is dangerous. The next economy-destroying bubble will be in a different market.
Investors may be wary for a while but I am not convinced this will last forever. Nothing much has been done to fix the structural problems (paid by the issuer) with the rating agencies and if they start giving mortgage bonds inflated ratings again I am not confident that the idiots who only care about the ratings won't start buying them again.
Also, the ratings agencies already do grade on a curve ...
They grade on a curve in the sense that within categories a AAA credit is generally better than a AA credit etc. But I am proposing something stronger, that they be required to give percentile rankings which would alleviate grade inflation, allow buyers to distinguish quality within categories and reduce the incentive to game the system by constructing the worst possible bonds which will qualify for a particular rating like AAA.
212
... Investors have learned that the sub-prime mortgage market is dangerous. ...
This may be true for private investors risking their own money but it is my understanding the GSEs (Fannie Mae etc) continue to guarantee low (or no) down payment mortgages. Also note the problems with excessive loan to value (LTV) mortgages aren't confined to the subprime market.
212
... If you compare the historical behavior of municipal bonds and corporate bonds with the same rating, you'll see that the municipal bond has a lower default rate than the corporate bond. (Sadly, I don't know a reference for this off the top of my head.)
I believe this is correct. And both are much better than mortgage bonds. Apparently the rating agencies are now claiming that AAA (and other) ratings were never intended to have the same meaning across categories. Which means it is completely absurd for government regulations to privilege AAA debt instruments. Which it is my understanding that they continue to do.