Economists versus the Economy

> Economists claim to make precise what is vague, and are convinced that economics is superior to all other disciplines, because the objectivity of money enables it to measure historical forces exactly, rather than approximately.

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

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

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

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

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

Some examples of the questions I have seen economists address:

  - How much might labour supply change following a change in tax policy?

  - What is the impact of online advertising through different channels on a company's incremental sales?

  - How would a merger between two companies affect the price and quality of their output?

  - How can you detect collusion between bidders in tender markets?

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

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

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

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

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

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

Paul Krugman's brief rebuttal may be relevant:

http://krugman.blogs.nytimes.com/2016/12/24/dont-blame-macro...

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

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

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

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

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

[0] http://andrewgelman.com/2016/09/21/what-has-happened-down-he...

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

[2] https://www.federalreserve.gov/econresdata/feds/2015/files/2...

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

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

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

This is totally unfair.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

How can 'smart people' think they are separable?

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

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

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

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

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

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

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

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

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

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

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

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

Science is prediction, not explanation - Fred Hoyle.

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

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

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

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

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

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

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

https://www.propublica.org/article/these-professors-make-mor...

Economists cannot predict the impact of https://en.wikipedia.org/wiki/Parable_of_the_broken_window