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View Full Version : Economists - come on, admit it, you were wrong!


DJofSD
08-21-2013, 11:27 AM
Economists Need to Admit When They’re Wrong (http://www.bloomberg.com/news/2013-08-21/economists-need-to-admit-when-they-re-wrong.html)

In the popular imagination, scientists do their job by testing theories against the facts and deciding what’s right. In reality, what matters most is figuring out what’s wrong -- an endeavor in which the economics profession has been failing spectacularly.

Calling it as he sees it.

Looks spot on to me.

Clocker
08-21-2013, 12:19 PM
In the popular imagination, scientists do their job by testing theories against the facts and deciding what’s right. In reality, what matters most is figuring out what’s wrong -- an endeavor in which the economics profession has been failing spectacularly.

The problem is that economics is not a science, but many economists, especially academics, insist on treating it like one. One of the big differences is that you cannot do controlled experiments in economics, like you can in a hard science like chemistry. So economists always have an excuse when something happens contrary to theory or predictions. The result should have been X, but A, B, and C happened, so the result was Y. My model was correct, but conditions changed.

The biggest sinner in this regard is NY Times economist Paul Krugman. Krugman is the world's biggest and loudest Keynesian economist. His core belief is that deficit-financed stimulus spending is the only solution to the economic stagnation of the last 5 years.

Deficit-financed stimulus spending has never worked, and Obama's stimulus program was a total flop. And Krugman always has the same excuse. Krugman's answer is always the same. The stimulus didn't work because the stimulus spending wasn't enough. It would have worked if the spending had been large enough. Most economists do the same thing.

johnhannibalsmith
08-21-2013, 12:23 PM
The problem is that economics is not a science, but many economists, especially academics, insist on treating it like one. One of the big differences is that you cannot do controlled experiments in economics, like you can in a hard science like chemistry. So economists always have an excuse when something happens contrary to theory or predictions. The result should have been X, but A, B, and C happened, so the result was Y. My model was correct, but conditions changed.

...

Completely agree, which is why as much as I'd like to, I refuse to subscribe to any single economic theory as being the right one.

Clocker
08-21-2013, 12:52 PM
I refuse to subscribe to any single economic theory as being the right one.

That depends on the theory. Many theories vary only in the degree to which the economy can or should be managed by the government.

I subscribe to the theory that, as bad as it may be at times, the free market makes better economic decisions than the government. The role of the government is to provide basic services such as national defense, common infrastructure, and protect the rights of citizens. The latter includes protection from fraudulent business practices, enforcement of contracts, etc. Other than that, the role of government is to provide a stable economic environment that promotes economic growth.

johnhannibalsmith
08-21-2013, 12:58 PM
.. I subscribe to the theory that, as bad as it may be at times, the free market makes better economic decisions than the government. The role of the government is to provide basic services such as national defense, common infrastructure, and protect the rights of citizens. The latter includes protection from fraudulent business practices, enforcement of contracts, etc. Other than that, the role of government is to provide a stable economic environment that promotes economic growth.

As a default position, really on nearly any subject economic or otherwise, so do I.

I'm willing to concede that government can augment or mitigate the potential failures or pain that can arise from a purely free market approach to everything in actual practice, but unfortunately, government rarely is interested in or capable of doing it effectively or as altruistically as they allege. So, in the end, less government in general becomes the better proposition. But theoretically speaking, it's still hard for me to back either horse without a little bit of hedging.

badcompany
08-21-2013, 01:31 PM
The problem is that economics is not a science, but many economists, especially academics, insist on treating it like one. One of the big differences is that you cannot do controlled experiments in economics, like you can in a hard science like chemistry. So economists always have an excuse when something happens contrary to theory or predictions. The result should have been X, but A, B, and C happened, so the result was Y. My model was correct, but conditions.

In addition, they have the fallback "It would've been worse had we done nothing." It's a versatile excuse for failure, as it can't be falsified.

Clocker
08-21-2013, 01:34 PM
In addition, they have the fallback "It would've been worse had we done nothing." It's a versatile excuse for failure, as it can't be falsified.

This is the core of the administration's mantra about jobs created or saved. The Obama stimulus spending saved billions and billions of jobs.

Magister Ludi
08-21-2013, 05:21 PM
"The only function of economic forecasting is to make astrology look respectable." - J. K. Galbraith

Ocala Mike
08-21-2013, 07:10 PM
"The only function of economic forecasting is to make astrology look respectable." - J. K. Galbraith


And this:
"Economics is extremely useful as a form of employment for economists."

RunForTheRoses
08-21-2013, 08:16 PM
http://en.wikipedia.org/wiki/Essays_in_Positive_Economics

http://www.ppge.ufrgs.br/giacomo/arquivos/eco02036/friedman-1966.pdf

Robert Goren
08-21-2013, 10:36 PM
I am amazed how many people here think that doing the same things that caused recession in 2008 will get us out of it. Doing more of those things will only dig us in deeper. The supply side economics and less regulation that was popular failed the country badly in the long run despite the short time boom of 2003-7. Slow sustained that includes everybody and limits (but does not completely do away with) risk is the way to go. If we learned anything, it is that we can't let the banks gamble away the country's future. The shot at making a lot of money by gambling with the depositors is too much for some bank employees to resist. It going take us a lot longer to dig out us of the hole their greed puts us in They did long term harm to the country. Greed is included in the seven deadly sins for a reason. You can not base an economy on it. An economy needs to based on hard word and innovation to survive in the long run. That is what needs to be rewarded.

Tom
08-21-2013, 11:24 PM
It is always nice to blame others. The Boogie man is your friend.

Clocker
08-22-2013, 12:38 AM
I am amazed how many people here think that doing the same things that caused recession in 2008 will get us out of it.

Which of those thing are you referring to? The sub-prime mortgage bubble, which resulted from the policies of Clinton and Bush to encourage home ownership regardless of ability to afford a mortgage? Which was greatly exacerbated by the Democratic Congress, begining after the 2006 election, led like a cavalry charge by Barney Frank and Chris Dodd. (Both Democrats, lest we forget.)

Or perhaps you mean the easy credit binge at the hands of the Federal Reserve, when Greenspan and Bernanke kept interest rates artificially low to support asset prices?

Or perhaps you mean the federal policy of not holding bad actors accountable for their sins, instead bailing them out because they were too big to fail? Greenspan saw the danger of this, warning of what he call moral hazard, even as he encouraged it by pumping money into the economy.

My memory might be failing with age, but I don't remember anyone here recommending a return to those policies. But I do see our "leaders" in Washington slowly migrating ever closer to the same old cliff every day.

Capper Al
08-22-2013, 05:03 AM
Economics used to belong to the study of political science a couple of hundred years or so ago. The arguments were not on how to maximize the economy but on how to distribute the wealth. Along came a few economist who introduced mathematical reasoning into the picture and from that point on we became bipolar and not understanding our premise for our reasoning. Is it for maximizing wealth or taking care of the population at large?

Globalization is a prime example. The math points out that in the long run free trade will maximize wealth. Meanwhile, our middle class must shrink for this to happen. Now if we could somehow say that all profits made today from globalization had to be kept in the bank until life was better for us all then they wouldn't be so quick to export our work because the rich, like us, want our money now. The interplay here is between maximizing wealth and globalization verse taking care of our own while we progress through globalization. One view is mathematical and the other is political.

Robert Goren
08-22-2013, 09:21 AM
Which of those thing are you referring to? The sub-prime mortgage bubble, which resulted from the policies of Clinton and Bush to encourage home ownership regardless of ability to afford a mortgage? Which was greatly exacerbated by the Democratic Congress, begining after the 2006 election, led like a cavalry charge by Barney Frank and Chris Dodd. (Both Democrats, lest we forget.)

Or perhaps you mean the easy credit binge at the hands of the Federal Reserve, when Greenspan and Bernanke kept interest rates artificially low to support asset prices?

Or perhaps you mean the federal policy of not holding bad actors accountable for their sins, instead bailing them out because they were too big to fail? Greenspan saw the danger of this, warning of what he call moral hazard, even as he encouraged it by pumping money into the economy.

My memory might be failing with age, but I don't remember anyone here recommending a return to those policies. But I do see our "leaders" in Washington slowly migrating ever closer to the same old cliff every day.It was the securitization of bad mortgages and credit default swaps and their trading by the banks. The Recession started with the failure of the 7th largest bank in the country and it was reveal that most if not all the large banks were nearly as bad shape. It, like most recessions, was the result of weakness in the banking system. Plain and simple. That recession never happens if the banks were in good shape. It had little to do with Washington other than Washington did not require the banks to be on a more solid foundation. Those decisions for most part were made by GWB appointed regulators. Your entitled to your opinions about the way government operates and the future consequences from those actions , but at least get the facts straight about causes of 2008 recession. You and others of your ilk have been predicting the country will fall back into recession and hyper inflation in less than a year since the recovery started in the spring of 2009. you have been wrong for three straight years. There is no reason to believe you will all of sudden be correct based on your track record and repeated proven wrong theories. You and the rest of your ilk have let your ideology get in the road of proven economic facts.

Tom
08-22-2013, 10:17 AM
Besides all that, we now have a solid foundation of of 17 trillion dollars in debt to built on.

Good on ya.

Robert Goren
08-22-2013, 10:43 AM
Besides all that, we now have a solid foundation of of 17 trillion dollars in debt to built on.

Good on ya.You been saying the debt will kill us in the near future for years, you have been wrong repeatedly. Why should we think your correct now. It is not the debt I am worried about. It is what the banks may be hiding from the regulators that worries me. Bad banking practices is what history says causes almost all Panics, Recessions and Depressions, not government debt.

johnhannibalsmith
08-22-2013, 10:49 AM
It was the securitization of bad mortgages and credit default swaps and their trading by the banks. The Recession started with the failure of the 7th largest bank in the country and it was reveal that most if not all the large banks were nearly as bad shape. It, like most recessions, was the result of weakness in the banking system. Plain and simple. That recession never happens if the banks were in good shape. It had little to do with Washington other than Washington did not require the banks to be on a more solid foundation. Those decisions for most part were made by GWB appointed regulators. Your entitled to your opinions about the way government operates and the future consequences from those actions , but at least get the facts straight about causes of 2008 recession. You and others of your ilk have been predicting the country will fall back into recession and hyper inflation in less than a year since the recovery started in the spring of 2009. you have been wrong for three straight years. There is no reason to believe you will all of sudden be correct based on your track record and repeated proven wrong theories. You and the rest of your ilk have let your ideology get in the road of proven economic facts.

I'm with you on the one hand, but I still don't see how you can to this day post the same speech every time it comes up and attach zero responsibility to government and it's essentially mandated lending standards to why those risky securities that you loathe so much became so prevalent to the point of undermining everything. Lenders were coerced into taking risks that they wouldn't otherwise in the name of the meaningless "fairness" principle. They tried to pass that unsustainable risk along. It turned into a mess. Fine, hate them as much as I do in general, but it's hard to just pretend that they were the genesis of the problem. As Clocker said, they reacted to a government stupidity for votes scheme with a scheme of their own. Exactly why I posted earlier that if A is the problem and B is the solution, then we're in big trouble letting it ride on B.

JustRalph
08-22-2013, 11:28 AM
You been saying the debt will kill us in the near future for years, you have been wrong repeatedly. Why should we think your correct now. It is not the debt I am worried about. It is what the banks may be hiding from the regulators that worries me. Bad banking practices is what history says causes almost all Panics, Recessions and Depressions, not government debt.

I didn't worry about it for years. But it was 1-3 trillion. At 17 trillion, it's a whole different story. You can't possibly believe that continually pushing it down the road isn't dangerous?

Some people on this board have children and grand kids that are going to have to solve this problem eventually. As it stands they are going to be the first generation of Americans that are not going to be better off than the last. these kids living at home at 30 yrs old are a carbon copy of Japan's lost decade, which is now half wy through its 2nd decade. We are becoming Japan, and that's alright with the left. In Japan they are known as "parasite singles"

America is going the same route. But we are choosing it via Congress and the "parasitic" 47%

Tom
08-22-2013, 11:46 AM
You can't possibly believe that continually pushing it down the road isn't dangerous?

Yes he can! :lol:

PAS - don't tell him Obama is in bed with the banks.

Clocker
08-22-2013, 11:48 AM
I didn't worry about it for years. But it was 1-3 trillion. At 17 trillion, it's a whole different story. You can't possibly believe that continually pushing it down the road isn't dangerous?



That is government accounting. It doesn't include money we owe people in the future, unfunded future liabilities like Social Security and pensions, with absolutely no clue as to a source of revenue. We have to keep borrowing just to keep up with current spending and debt payments. It's like being out of work and having an endless stream of rent payments ahead of you, and your only option is to borrow more to pay the rent. It isn't technically debt until it is due, but it is real.

Current estimates of debt and unfunded liabilities are at the very least $80 trillion, and likely well over $100 trillion. And neither side has a clue about the problem. The Dems want to increase spending a lot, and the Republicans think that fiscal responsibility is to cut the spending increases down to smaller increases.

Clocker
08-22-2013, 02:30 PM
It had little to do with Washington other than Washington did not require the banks to be on a more solid foundation.

So the subprime bubble had nothing to do with the recession. And neither the government nor the Federal Reserve had anything to do with the subprime bubble. And the bubble bursting had no effect on the real economy, especially the housing market. And the fact that Fannie and Freddie were trading hundreds of billions of dollars worth of subprime back securities had nothing to do with the shaky financial sector or the housing bubble. And the Federal Reserve hammering interest rates down to the ground had nothing to do with the huge availability of credit that investors used to run up the derivatives market.

Those decisions for most part were made by GWB appointed regulators.

Major deregulation of banks, especially investment banks, was done by the repeal of the Glass-Steagall Act in 1999. For those keeping score, that was during the Clinton administration, and Bill Clinton was a major advocate of the repeal.

As to specific regulation of credit default swaps and other derivatives, I cite the following from Wiki:
The Commodity Futures Modernization Act of 2000 (CFMA) is United States federal legislation that officially ensured the deregulation of financial products known as over-the-counter derivatives. It was signed into law on December 21, 2000 by President Bill Clinton. It clarified the law so that most over-the-counter (OTC) derivatives transactions between “sophisticated parties” would not be regulated as “futures” under the Commodity Exchange Act of 1936 (CEA) or as “securities” under the federal securities laws.

Clocker
08-22-2013, 03:31 PM
Economics used to belong to the study of political science a couple of hundred years or so ago. The arguments were not on how to maximize the economy but on how to distribute the wealth.

Modern economics as we know it began with Adam Smith in the late 18th century. What you are describing was known then, and should still be known now, as "social philosophy".

Distribution of wealth is not an economic issue, it is a political issue. That doesn't stop politicians from using economic theories that they are clueless about to justify their social engineering impulses. Obama and his cronies claim to use the economics of Keynes to support their socialism. Keynes wouldn't have a clue what they were talking about.

Along came a few economist who introduced mathematical reasoning into the picture and from that point on we became bipolar and not understanding our premise for our reasoning. Is it for maximizing wealth or taking care of the population at large?

There is something bipolar here, but it isn't economics. There is no "mathematical reasoning" in economics. There is quantitative analysis of historic data to test theories, to analyze trends, and to make forecasts. This is called econometrics. The theory drives the analysis, not vice versa.

Globalization is a prime example. The math points out that in the long run free trade will maximize wealth.

No, reality points out that globalization is inevitable. Theory points out possible ways to make the best of it. Econometrics, or math if you prefer, tests the theories against historic data to see if the theories have validity.

Tom
08-22-2013, 03:52 PM
We observe the laws of economics, we don't write them.
They do not come for a vote, and there are no waivers from them.
When you try to alter the outcome, you screw up the whole thing.

Like forcing banks to make loans based factors other the ability to pay them back. A social program - putting people into homes they could not afford - had to pay the economic consequences. We would like to have everyone in a nice home, but we cannot afford that dream. Instead of giving everyone a loan, the proper course would have been to give everyone a job so they could afford to get their own loans. But that was not he warm and fuzzy road that libs like to go down......even though they are always dead-ends.

Clocker
08-22-2013, 04:16 PM
We observe the laws of economics, we don't write them.
They do not come for a vote, and there are no waivers from them.

We are in the middle of an administration that is based on the assumption that it is above such laws.

When you try to alter the outcome, you screw up the whole thing.


Sometimes you try to drain the swamp and find yourself butt-deep in alligators. I am afraid that Obama's charmed life is going to allow him to get out of office before the alligators arrive.