Post-crash economics: have we learnt nothing? | Hacker News Reader

Post-crash economics: have we learnt nothing?

nature.com

118 pointsokket127 comments

Such a shame nature lends it's name to this absolute drivel. There are reasonable 'mainstream' explanations for the crash. I was fortunate to attend a lecture at my alma mater on that. It had to do with insurance and the difficulty of doing risk analysis and communicating this down the line. The only thing she is right about is that economics is not as exact as physics. But that should be taken as a sign to develop better numerical analysis methods rather than to embrace 'that's just your opinion man' level bs. She does not belong in science at all.

I agree. There's a case to be made that traditional macroeconomic models should incorporate more of the findings of experimental microeconomics that show how humans differ from idealized economic agents --- but this article is not such a case. Instead, it's just postmodern ideological drivel that suggests replacing numbers with advocacy, done under the guise of "ecological economics" and "feminist economics" and emphasizing "the collective over the individual".

This article in Nature is exactly the sort of dead weight that accumulates during economic expansions and that we discard during economic contractions. The article is a move in a tiresome academic status game. It is not useful for describing, predicting, or governing society.

You see this nonsense in every part of academia. The worth of theory is its predictive power, not its ideological purpose or its "values".

I disagree. A traditional economics education is problematic: It naturally (and ostensively ineluctably, from first principles by logical deduction) leads to libertarianism.

> The worth of theory is its predictive power

Naive economics predicts that deregulation leads to higher welfare. That prediction did not pan out.

James Kwak has elaborated on the above points in his book Economism [1].

> It is not useful for describing, predicting, or governing society.

Well, governing society better is precisely what is at stake here. This article might not be the best manifesto for reform of economics education, and might have gone over board a bit with the more fashionable and silly "<adjective> economics", but the fundamental point stands:

People that have taken traditional highly technical undergrad or even graduate economics classes without further context in economic history, political philosophy, etc. should not be left in charge of shaping policy.

[1] https://economism.net

The author's proposal is neither necessary nor sufficient for educating the next generation of leadership in philosophy. It sounds like you think it's "problematic" if economists end up being libertarian. Why is that? Your point about regulation is misplaced: both under- and over-regulation hurt welfare, and there are many instances of regulatory loosening leading to better outcomes, e.g. in cryptography and air travel. Is your position that libetarianism is itself problematic and that education should stamp it out?

Are you implying that “economics” is/are a science that can be expressed through mathematical models?

This author doesn't really explain how their proposed additions to the curriculum would have predicted the subprime mortgage crisis. If the author is going to criticize mainstream economics for being irrelevant, it seems reasonable that they show how using their methods, it could have been predicted.

Ok, if we demonstrate that the movement of the planets is not accurately predicted using a well loved system is it appropriate for us to be held to having to invent a new system before publishing?

It might be that there is another planet, or it might be that our understanding of the universe is incomplete. It seems to me that the information that there is something out there that isn't covered by our predictions is quite useful for directing science.

> Ok, if we demonstrate that the movement of the planets is not accurately predicted using a well loved system is it appropriate for us to be held to having to invent a new system before publishing?

Absolutely not! That would be irrelevant, out of scope, and completely unreasonable.

That said, if you're going to opine that you have a better model, you might be best advised to bring data that demonstrates it.

If just proving wrong, then no. But if you're trying to suggest additions, changes, or an entirely new model, then yes you should have to prove it.

There are shades of grey here. In an absolute sense Newtonian mechanics worked until the systems of measurement got good enough to show that there were problems. Economics seems to be in quite a different situation - it's been shown not to work at all. Economists seem to have very little predictive capability, they predict poorly, measure things that matter little and deliver interventions that alter the wrong things. An alternative doesn't have a high bar to jump.

Well, at least comedians seemed to understand the crisis several months before Lehman crashed: "Subprime Banking Mess" https://www.youtube.com/watch?v=mzJmTCYmo9g "John Bird and John Fortune (the Long Johns) brilliantly, and accurately, describing the mindset of the investment banking community in this satirical interview."

If only there were a branch of economic thought which predicted regular, increasingly intense crises of capital, say, one which was articulated by a bearded 19th century German...

Carl Menger and Joseph Schumpeter! Two of them, and they didn’t utterly fuck up the foundations of their economic analysis by having a shitty labour theory of value.

I fail to see how Marxs LTV is shitty, infact I would say that long term predictions show approaches like Marxs' works a lot better than any praexological or more traditionally neo classical methods.

Steve Keen's Debunking Economics has a good section on the problems with Marx's labor theory of value. IIRC, Marx's original sketch included a good model of the effects of capital, but he later neglected that to focus on labor alone and later Marxists kept that tradition.

> and later Marxists kept that tradition.

[citation needed]

Trying to figure how why asking for evidence for something is considered worthy of a downvote by the people on this orange site. Is it because it was too 'to the point' and not verbose enough?

This is true. The author doesn't mention behavioural economics but I think that that is more the way forward. People are not the simple rational actors of conventional economic theory. They lie, speculate, panic and so on. Bitconnect is a one word disproof of rational agent theory.

I don't know about predicting the mortgage crisis but if you assume humans are human in all sorts of awful ways then you should stick to systems which are simple robust and hard to screw up and time tested rather then the opaque mystery content derivatives that fueled the mortgage bubble. This may have prevented it rather than predicted it.

The prediction thing is tricky as in the joke "The stock market has forecast nine of the last five recessions." There are always people predicting things will go wrong but how do you filter which to take notice of?

Segments of economics have problem deciding whether to be descriptive or prescriptive; a theorist will come up with a proof of what a rational actor would do in a given situation. When it's pointed out that no one does that, the theorist responds that he is uninterested in the economics of stupid people.

Check out Misbehaving by Richard Thaler for the entertaining details.

Ole Peters[1] suggests adding this to the curriculum: https://ergodicityeconomics.com/lecture-notes/

Synopsis: The notes below are our attempt to re-develop economic theory from scratch, namely starting with the axiom that individuals optimize what happens to them over time, not what happens to them on average in a collection of parallel worlds. The latter, surprisingly, is the starting point of the currently dominant form of economic theory.

[1]https://twitter.com/ole_b_peters/status/1041252157956280321

Isn't it better to not teach something that is wrong than teach something just for the sake of teaching?

If you're a hyper-wealthy property owner of the type who can afford to fund an entire economics department, the answer is "no."

So, outside some very obvious heterodox economics departments, I haven't seen this. Do you have some examples mind?

Arguably you have to teach the highly abstracted and mathematical fundamentals of economics first, before you can go and dismantle them (or rather improve on them). Problem is that the latter part is frequently neglected.

From mainstream economics: modern portfolio theory. More approaches derisks the portfolio, minimizes downsides and upsides.

I think the author falsely assumes that academic economists and the people who go on to work in big business, governments and central banks were not aware of the shortcomings of their discipline. I would assume instead that they were. But greed and power was their motivator nonetheless. So I wish good luck for her but I don't think awareness will change the hunger for power or greed in any way.

Probably so. At some point I won some maths-heavy economy textbooks in an undergraduate probability theory competition. It was last updated a few years before 2008 (I would guess no later than 2004), and it is mainstream enough to be a gift agreed upon by large-finance sponsors and financial-applied probability theory professors.

While explaining the market models, the book had quite a few footnotes that briefly mentioned incentive structures at different levels (individual traders, groups inside a company, mortgage-issuers that unload all of the risk…) Sometimes it stayed politically correct («it remains to be seen how this incentive structure will affect market stability»), sometimes not (especially when there were enough historical examples of exactly the same incentive structure leading to the same problems), but it made clear that principal-agent problems in the then-current (and now-current) economy are well-known and easy to describe in mainstream economics.

What book is that?

Economics isn’t science. In science you have the scientific method, control and experimental studies that can validate a hypothesis. that’s pretty impractical to do as an economist. Economists often describe their field as the study of human incentives, which is basically the study of human decision making, which is basically reading minds. It’s a worthy subject of study, but we put far too much faith in it that what’s warrented.

> In science you have the scientific method, control and experimental studies that can validate a hypothesis.

Astronomy, Cosmology, Epidemiology, Geology, Economics. You definitely can’t do experiments in cosmology and good luck with epidemiology or geology. Microeconomics is actually much, much more experimental than most of the rest of that list.

You can make predictions, then test these based on observational data.

The case of the validation of the age of the Earth, something widely accepted as unknowable as late as 1900, and established to within 1% of its accepted value by the 1950s, is a case in point.

It is not possible to go back in time to measure the age of the Earth. It is possible to combine measurements and observations, of radioactive decay, of magnetic switching magnetic orientation in seafloor cores, of corresponding coastlines, of similar (or different) fossil records, of genetic drift noted DNA sequences, of rocks obtained from other bodies (including the Moon and Mars).

Naomi Oreskes has written of the development of plate tectonics from crackpot theory to the foundational concept of all Terrestrial geology, over fifty years, being formally accepted in 1965.

The discovery of helium, Dr. John Snow's Broad Street pump observations, validation of Einstein's space-time predictions through eclipse observations and GPS clock desynchronisation, of black holes, exoplanatary discoveries, use of Cephid variables to validated the expanding universe hypothesis, and measurement of gravity waves, would be examples of scientific experiments in the fields of astronomy,cosmology, epidemiology, and geology.

Economics needs to admit to falsifiability or stop considering itself a science.

The primary barrier to that latter is that special pleading allows economics to continue entertaining numerous highly-attractive falsehoods. Noteably: exemption to the laws of thermodynamics.

As well as lesser sins including an intentional ignorance of much of its own history and formative theory.

Disclaimer: Degreed in economics.

If you've got an economics degree, you should know that it isn't a person not monolithic. Many economists "admit" to falsifiability.

Hear here.

To add to this, econometricians and statisticians are leading the calls for causal inference. Economists embedded in Google, Netflix, Yahoo, Microsoft, etc. are at the forefront of the fields, speaking to how theory and practice play out (sometimes called techonomists).

While economics doesn't lend itself a physics or psychology laboratory to teach its basic principles, that doesn't mean the field isn't concerned with causal impact of policies suggested by theory. Personally, my observation is that making sure falsifiability and generalizability of theory is at the heart of modern economic discussion.

I'm referring to the curriculum as generally taught at the university level. Samuelson & Nordhaus, as I studied it; today likely Mankiw or Krugman.

Or if you prefer to state another text, please do, and the core propositions and principles of the field.

You mean Econ 101 with Mankiw's textbook? That's not a curriculum, that's a single class. Besides, I doubt any undergraduate program really demonstrates what a professional researcher does.

You're being peculiarly careful to reject what I say without answering my questions or offer any concrete alternatives.

Again: if you prefer to state another text (or texts), please do, and the core propositions and principles of the field.

You might have edited the comment after I read it. Or maybe I just read too quickly. In my view, the field of economics is more defined by journal articles and discussions among economists than by textbooks. For many economists, a theory is more compelling if it is accompanied by a formal model, an illustration of the implied dynamics, and a discussion of how observed history is (in)consistent with those dynamics.

I did not.

And you're still evading answering.

Strange, I thought I answered the spirit of the question. You asked what defines the current "thought" of the field, and how it views empiricism, no?

Or are you really curious about how undergraduates are taught, despite the distinction between the undergraduate curriculum and the professional researcher's view? My introductory economics course used Mankiw's textbook. If I remember correctly, it didn't even use calculus. Imagine a university physics course doing that. I think of that more like high school level. Come to think of it, AP Economics probably would have let me skip that class.

Looking over at my bookshelf, I see Wooldridge's "Introductory Econometrics". That's a pretty good one, with plenty of empirical work. I can't spot my macroeconomics textbook, but I remember it evaluating each model by how consistent its predictions were with observed behavior.

... it occurs to me that someone ought to update Wooldridge's exercises for R-language or Python ...

> Economics isn’t science.

It may be instructive here to distinguish between Macro, which has had the problem of not being able to produce scientifically valid models, and Micro which has arguably made gains in predictive modeling of parts of the system. (Sort of like physics, where we have strongly predictive pieces, but no accepted TOE?)

It's as much science as mathematics and astronomy.

What controls and experiments can you do in astronomy?

The scientific method is a thin veneer best left at in the high school curriculum where it belongs. Actual science is vastly more messy and interesting.

You can figure out that there is no luminiferous aether between the planets with an interferometer. You can observe that the light of distant stars is bent by the sun's gravity during an eclipse. You can check that the planets appear in the sky where your celestial mechanics predict them to be. You can find out what elements the stars are made of with a prism.

There are lots of experiments you can do.

The ether was a part of dynamics.

Elements in a star is part of chemistry.

The rest of those are not experiments, they are descriptions of natural phenomena we have no power of repeating. Which goes to show that you can have a science that does not have experiments but does have observations.

We clearly have different definitions of "experiment". Having a theory (e.g. light is affected by gravity), making a prediction (that star that should be behind the sun will be visible) and then doing an observation fits my definition of experiment. It's more difficult to reproduce that measuring the speeds of falling apples, but eclipses are not that rare and you can always come up with other predictions from you theory and do the corresponding observations.

I would rather argue that we can in fact do experiments in economics as well. It's just harder to draw conclusions from the observations because there are lots of variables you can't control for easily.

>I would rather argue that we can in fact do experiments in economics as well.

Fair enough. At least you're consistent. My point was that economics should be no less a science than astronomy.

Then you've never done real science. The term science has become watered down. People confuse the words science and research and think they mean the same thing. They are not. Science is how we verify that reality operates according to how we believe it does. It is the gold standard. It requires more work than just research

>Then you've never done real science.

Done enough to have an MSc in experimental particle physics.

But do you have a point that isn't a personal attack?

>Science is how we verify that reality operates according to how we believe it does.

Drop a feather and bowling ball together. Feather drops last. Law of gravity proved wrong.

Science is the removal of the incidental qualities of a phenomenon until only the essential qualities are left. What is incidental and what is essential depend completely on the context.

> What controls and experiments can you do in astronomy?

http://cse.ssl.berkeley.edu/AtHomeAstronomy/

> The scientific method is a thin veneer best left at in the high school curriculum where it belongs.

Are you seriously belittling the scientific method. It's the central idea within real science.

> Actual science is vastly more messy and interesting.

Actual science relies on the scientific method. Pseudoscience ( like economics, psychology, social "science" ) do not rely on the scientific method.

The problem with economics is that it isn't predictive and testable. That's why you cannot scientifically test capitalism vs communism. Economics is a religion where you worship a prophet ( such as Adams or Marx ) rather than produce testable and verifiable hypothesis.

You can objectively and empirically test assertions in astronomy. You can't in economics.

I agree and disagree.

Economics, as practiced, is profoundly unscientific in numerous deep particulars.

(There are exceptions, though these are largely peripheral and or heterdoxical.)

It need not be, and I've described the fallacy of "no controlled experiments" as regards several other fields in a recent comment. (https://news.ycombinator.com/item?id=17998690)

I'd argue that a principle failing of economics -- and one which can be found to apply to its sibling spin-outs of moral philosophy -- is what W. Brian Arthur has observed: formulation of economic theory, or selection among competing theories for inclusion into pedagogy, virtually always occurs in the context of policy formation. That is, these are inherently political.

And Smith's curt not, that "wealth, as Mr Hobbes says, is power" (incorrectly attributed elsewhere to Marx), plays into the selection of texts for teaching, the granting of tenure, the establishment of departments. Before the Koch brothers were financing, and calling shots oncurricula and faculty, in Florida and at George Mason University, an earlier oil baron, J.D. Rockefeller, was establishing the Chicago School. Each is curiously mute on that intersection of wealth and power Smith highlighted, particularly as concerns monopoly. A topic almost wholly missing from the Libertarian economics bible by Henry Hazlitt.

One wonders why this might be.

There's a very large body of work in fields like critical economic geography (as an extremely introductory and nonrepresentative example, [1][2]) that discuss the affective, pluralistic dimensions to global and local economies, of which I think orthodox economics barely touches on (slightly, somewhat, in neuroeconomics).

I think this is really important. With a better understanding of the limits of human rationality (which is chief among other things) we can begin to unravel the original axioms and assumptions of the neoliberal era, the ones that basically treat humans merely as selfish, individualistic, perfectly-rational economic agents. With a better understanding of this, we can begin to build a society for humans instead of capital.

[1] https://pdfs.semanticscholar.org/f10a/6bae34ac59c7be9b7741fe...

[2] https://onlinelibrary.wiley.com/doi/abs/10.1002/978111838449...

> With a better understanding of the limits of human rationality (which is chief among other things) we can begin to unravel the original axioms and assumptions of the neoliberal era, the ones that basically treat humans merely as selfish, individualistic, perfectly-rational economic agents.

Your comment is the equivalent of saying astronomers need to consider models in which the planets rotate around the sun.

Just as one bit of evidence, we can ask if anyone has ever been awarded the Nobel Prize for studying the things you claim "economics barely touches on". If someone received a Nobel Prize, the field hasn't "barely touched on" it.

2017: Richard Thaler for behavioral economics. His entire career has been devoted to studying the limits of human rationality.

2013: Robert Shiller for his work showing financial markets are not efficient.

2002: Kahneman and Smith for using experiments to study the decision making process.

2001: George Akerlof, whose Nobel Lecture included "Behavioral Macroeconomics".

1978: Herbert Simon, the guy responsible for bounded rationality.

These are just a few names off the top of my head that won a Nobel Prize for work that you say economists aren't doing.

But I think that precisely misses the point.

Yes, orthodox academic economics focuses very deeply on the psychology of decision making, but it doesn't focus very broadly on all the other things I mentioned. I love the work of Kahneman and Tversky (among others) as much as anyone else, but I would still further argue that there's so much more to do, that as far as I know, orthodox economics still mostly ignores other components of society within which economics is imbricated, such as the cultural (overviewed by the John Pickles paper I linked) and the affective (e.g. the unremunerated emotional and affective labor that the author mentions as integral to the functioning of the economy).

Can you argue that this is scope creep? Sure, but you can also go the other way, and argue that any reductionism will always make the model inaccurate. Striking a balance is obviously important here, but I would argue that it is necessary at the very least to try widening the scope, at least a little bit.

Golly, if I didn't know any better I'd think that maybe the field that deals with questions of power and resource allocation might not actually be apolitical, but may be primarily driven by the need to justify existing distributions of power and resources.

Economist here. I think you're mixing political science (power distribution + more) with economics (efficient resource allocation + more). Happy to talk more if you're interested.

You may or may not be fully cognisant of how your field is actually practised, which the original commentator obviously is.

I have lost count of the times that senior people in your field, have happily admitted how their research is targeted towards the desired outcome of its funding source. Which the people funding the research are fully aware of, they just go economist shopping for whatever result they want to back their policy decisions.

The real issue with current economics isn't that it's not a science, it is that it's not practised scientifically. Those who do look at the field scientifically, have learnt a very great deal from the 2008 debacle - but they're not getting published where anybody is going to read them. But that is far from new. Let me present one of the great, sadly overlooked papers of your field:

David Jones, Emerging problems with the Basel Capital Accord: Regulatory capital arbitrage and related issues

https://www.sciencedirect.com/science/article/pii/S037842669...

Written by a researcher at the Federal Reserve in 2000, he pretty much nailed the causes of the 2008 crash, at least 8 years in advance. His reward was that he got to be part of the cleanup judging by his subsequent career - efficient resource allocation indeed.

I think you're overestimating the homogeneity of the field and underestimating the degree to which most economists understand (and in many cases agree with) the issues you're raising. Plus, finance is not the same is economics and you seem to be conflating the two.

Their definitely is a difference between academic economists vs the "economists" who direct policy in the halls of power.

Please name some individuals that come to mind.

Not GP. Krugman frequently makes this point though, and highlights the economic incompetence of Trump's "economists", eg here:

https://www.nytimes.com/2017/10/23/opinion/federal-reserve-j...

https://www.nytimes.com/2018/07/02/opinion/trump-trade-war.h...

I think things are not that simply delineated, and the use of economics to justify existing political arrangements is well documented (eg in James Kwak's book Economism).

Power distribution = resource allocation. Always has, always will. The two are literally measuring the same thing: the amount of money you have is nothing more than the ability to direct resources according to your desires. What better definition of power could there be?

I agree there can be significant overlap. I do not agree that every case of resource allocation is a power distribution. As a case in point, there is a question that HN often asks -- what should I set my consulting rate at? This is inherently an economics question, and there is not often a power distribution discussion of whether the consultant has unique skills that let them charge what may seem to be outrageous sums, or if the consultant is freelancing in common skillsets.

Another point to be clear about is that economics is not solely concerned with resource allocation. Welfare consequences of policy, counterfactual reasoning, causal inference, algorithmic game theory and mechanism design, etc. are all research areas that are applicable to resource allocation but not only used for such.

Of course your consulting rate is a measure of power! The question about your rate is a question of how easy you are to replace. If you have skills (which are a form of capital, which is a form of power) or relationships that are hard to find then you have leverage to negotiate a higher rate. Power is at the heart of that question.

Whenever you are negotiating a rate or salary, you are forming a relationship, and the terms of that relationship depend entirely on your relative levels of power and leverage.

I guess I'll give you one thing though: whereas what two people want from each other can be complicated, power is not a scalar value like electric charge. But in many cases it acts like a scalar, especially if it takes the form of money, which is abstract and transferable.

Can you explain how resource allocation is not a political issue?

I can't, because the overlap with politics certainly happens in a number of contexts. One question we economists do not routinely address is "where do the preferences we study come from?" Often times preferences are politically motivated.

Preferences?

I think what you're missing is that money is one type of power, and that basically the study of economics, politics and culture are all just different ways of studying human relationships, of which inequalities of power are a crucial part. There are two broad types of relationships: relationships of rough equality and relationships of gross inequality of power. The latter are almost always abusive, because if you are in a position of much greater power than someone else, it's just too tempting and easy to take advantage of them. Preferences have little to do with it.

Preferences are the starting point of economic analyses, under the assumption that people pick what they want after who-knows-what a priori decision process.

Money (or, more commonly, assets) is sometimes included in models, but is not a starting point. If you're looking for models where solely wealth=power as an entry point into the field, I suggest political science (mentioned above) or finance. Overlap with economics in toolkit and occasionally questions, yes, but not composing the entirety of economics.

I find your stance disingenuous.

Consider the question the Obama administration faced in 2009 (and the EU then and later): "Should we inject a large fiscal stimulus, or revert to austerity?"

Very obviously, economic and political issues are inextricably intertwined there.

Your notion that economics is a pure, purely descriptive (and somewhat predictive) "tool", while politics concerns itself with values, is not sustainable.

Thank you for demonstrating my point. Economics imagines that it's possible to divorce the two, when it fundamentally is not. When economists do attempt to divorce the two, they inevitable work from a set of political assumptions which reinforce and never directly challenge the existing distribution of resources and power.

It's a very adroit slight of hand that benefits the global economic elite: "Hey there, smart professional, I want you to think VERY hard about this problem of how to efficiently allocate resources. Oh but you're not allowed to question why I, the descendant of a colonial robber baron have the ability to personally deploy the wealth of entire nations, and your definition of efficiency is literally just return on investment, no need to worry about questions like 'will the planet remain habitable' or 'is this system in any way just.'"

Whats the leading economic theory on the economic effects of minimum wage? (Theory- not empiricism)

I love this question. Mostly because what seems like should be a simple thing to answer, isn't. There are certainly strong opinions and much data that support both sides, however.

Neoclassical microeconomics (mostly like what one sees in mid-level undergraduate courses) suggests a minimum wage gives a kink point in individual's budget constraints--implying people may prefer to stay at minimum wage jobs rather than trade time for higher wage jobs, based on preferences. Additionally, if minimum wages rise too high producers will choose to replace labor (people) with capital (machines)--Stigler's argument.

Neoclassical macroeconomics suggests that minimum wage increases may result in inflation (more dollars chasing same number of items), black markets (e.g. hiring illegal immigrants or paying wages under the table), and so on. It is seen as a market distortion.

Labor economics and other sub-fields grant more nuance to these simplistic views. In the simple assessments above, minimum wage policies are at best set up as policies generating economic inefficiencies, at worst painted as immoral policies to support lazy people.

However, we do not live in a neoclassical world. Debates about the economic consequences of minimum wages are still hot topics, decades after they were first engaged, with supporting and detracting evidence. Wikipedia's coverage is a good entry point.[0]

For myself, I tend to come near "Bleeding Heart"/Arizona school libertarian when it comes to social policy--fiscally "conservative" (in that I want to make sure taxes are spent efficiently for the "best" outcomes, which we collectively decide is best), socially liberal, and a foreign dove. The toolkit of analysis emanating from economics does not immediately identify or lend itself to some superior moral framework -- that's on each person to choose themselves. Economics simply helps you identify where waste can occur, whether in the form of bias, inefficient capital deployment, risk, etc. For me, I sleep better at night knowing that my neighbor can afford healthcare and that the janitor I see working tirelessly can put money away for a rainy day.

Some of the more accessible discussions have happened on Barry Ritholtz's blog[1], where one of his contributors defend's Seattle's raising of the minimum wage and resulting impact.

[0] https://en.wikipedia.org/wiki/Minimum_wage#Debate_over_conse...

[1] http://ritholtz.com/2016/12/seattle-min-wage-update/

Yes, this is a great example of how naive neoclassical micro appears to get things wrong. So, my argument is that given the malleability of supposedly purely descriptive and value free economics, the intrusion of politics is inevitable.

Good thread for more specifics on the myriad problems with mainstream economics: https://twitter.com/unlearningecon/status/920325123810447361

Whether mainstream economics has issues is wholly uninteresting, unless you are proposing a different theory with fewer issues. "The academy is flawed" doesn't mean that what the populists feel in their hearts is correct. It's the closest approximation of the truth we have.

The argument is that basic economic training leads to policy prescriptions that advanced economic training (and related fields, such as economic history and political philosophy) repudiate.

So, no need to propose a different theory. Just prominently include the above disclaimer while you're teaching basic economics, and then proceed to teach further economics (and related fields) before the kids go off to work for investment banks.

And the Ptolemaic model of the universe is perfectly adequate for most uses.

Galileo proved its conclusions false. That’s a far cry from asserting that it failed to sufficiently consider his feelings about identity.

>It's the closest approximation of the truth we have.

Since that approximation is not the truth, but a tiny fraction of the truth, is it wrong?

"All models are wrong, but some are useful." --statistician George E.P. Box

Since we’re asking rhetoricals, is it useful to have an approximation of some portion of a system, or nothing at all?

I think it is useful, and that’s a perfect way to describe mainstream economics. What’s frustrating (but predictable) is that there exists an entirely separate branch of economics which makes much more powerful observations about the fundamental nature of capitalist economics, including politics, power, and sociology. But Marxist economics are simply excluded from the Western economic tradition because it makes value judgements which directly and dangerously controversy the interests of the ruling capitalist class. In a healthier world, elements of mainstream economics would be combined with the fundamental Marxist critique of capitalism to produce new systems that are more efficient and less exploitative.

Any serious social sciences / liberal arts program teaches Marx. Often in a core curriculum which is mandatory even for CS majors!

The wrong model? Almost certainly.

A moral infraction? Debatable.

Able to score points in Econ 201? Yes.

You don't need a better theory for the purpose of the discussion.

What you can do - as one example - is take the results of what you know to be flawed not so seriously and when making decisions built-in more leeway for errors and corrections, and strengthen the human side. Incidentally, that is actually very capitalist/liberalist: Give more power away from centers to the root, the local people to make their own decisions, overriding what theory prescribes.

For a concrete tiny example, when I tried to return something at a department store the employee was very afraid to do anything not by the book. She was continuously being watched by cameras too. If she had had the power to actually make decisions it would be much better. Sure, people make mistakes, but I question the solution of making people into programmed "by the rules" drones with no ability to react to local events and use their own brains (if an AI would do that everybody would be gleaming, "look how intelligent our AI is!" - even when the results are far worse than that of even a below-median IQ human brain).

The point is what can change is what you do when you find that your theory is not good enough, and I'd say there are plenty of things to do even if you don't have a better theory (now or ever).

Yeah, and because basically all of mainstream economics has VERY strong ideology built into its foundational assumptions, and its practitioners enjoy a great deal of (largely undeserved) respect and often great power (unlike other more truly scientific fields), the odds that a mainstream economist would look at the failure of their theories and conclude "wow, everything we've been doing is deeply flawed at best" is low. Good luck getting a mainstream economist to dig deeply and take a critical look at the fundamental contradictions within capitalism.

Again, critiquing capitalism != establishing that some alternative is superior.

Karl Marx: "Wealth, as Mr Hobbes says, is power."

https://www.bartleby.com/10/105.html

"I drew an upward sloping curve and a downward sloping curve that meet in the middle, and therefore socialism cannot work."

The 2008 crash called for a massive reassessment of the political and cultural status of economics. It required honest economists to recognize their profession not as a neutral description of the world but as a tool for the powerful to exercise dominion over the rest of us. But "cognitive dissonance doesn't work like that", especially when doing so would mean giving up prestige, lucrative consulting opportunities, the ear of the government. For some reason, those other social sciences don't seem to get invited to nearly such lavish parties...

Of course, many people within and without the profession have been making this argument for decades, since way before 2008. But funny thing, the way power works is - those sort of people are never listened to. Why would that change now?

Edit: For a nice overview of these arguments I recommend the book "Economists and the Powerful" from 2012.

You criticize the social sciences ... because economics is "just about justifying existing power structures". That seems a bit ... well, wrong. Or at least the assumption that social sciences is any different from the worst you ascribe to economics here. NONE of the social sciences, not even English studies, claim to be value free (that would be mighty inconvenient for them. Of course Hamlet only makes sense within the value system of England of that time ... studying it outside of that context just won't work. Likewise criminality happens within a context. Very few bank and ATM robberies in the Soviet Union, everything social happens within a specific context, directed by values).

But ... the social sciences. They're ALL explicitly about something in between studying and justifying existing power structures ... No exceptions. Studying (and justifying) existing society is what the humanities are about. It's the definition.

By contrast economics has a branch that is entirely value free (game theory, imho the hardest part), and most of economics likes to pretend it is value free (and whilst they're not 100% right at that, they're ... let's say 75% right), and only a small part is justifying existing power structures.

Social sciences tell the government what to do like priests do : based on what "it should be" according to how we see society. Economists are more humble, and merely try to say "your choices are A, B, C. These will lead to X, Y, Z". And yes, social scientists resent that the real world should be allowed to influence their perfect world, but ... only the truly insane would follow through.

Note that at no point did I say that makes social sciences worthless.

> The 2008 crash called for a massive reassessment of the political and cultural status of economics

No it did not. You act as if people listened to economists before that. In fact, I would argue the opposite is true: economists triggered (out of self-interest, because they were working at banks) the crisis BECAUSE people went too far of the reasonable path with loans.

That's the big problem that never seems to get through. There are many causes of the crisis, of course. However the actual cause is people ... bought and built houses they could never afford (in other words they used up more resources than they could ever hope to contribute to society). That's the cause of the crisis. The banks attitude and corruption and lying ... actually let those people enjoy their ill-gotten gains for a lot longer than would otherwise have been possible (lying on loans then buying ... ill-gotten is a fair description). Not indefinitely. And of course they're the easy target.

The crisis was far preferable to the alternative : that people would just sit on those resources preventing society from working.

But yeah ... "WEI ! They took my stuff ! And look, they're corrupt !". Well, yes, they're corrupt. That's bad, but sorry to say, it's not the problem.

And yet, funnily enough yesterday morning in the newspaper one particular French, poor family came into an article. They were so poor, it was judged by social workers, that they needed to be given a house (that's one thing France does). A large house that they had "helped design and locate".

Which poor family you ask ? The new cabinet minister. The woman makes 8900 euros per month, just from her main job (she has 4, though granted, they likely pay less), and the husband (who does not have published pay), I must say, likely makes more.

Social workers' judgement ? These people needed to be given a free, 3 bedroom home in a Paris suburb.

>a branch that is entirely value free

I think values are a little bit like the GPLv3. They virally propogate into anything they are even the slightest part of. So while game theory, as maths, is value free, its place in economic theory, its promotion, its funding, its employment, are all eminently value-driven. Seeing parts of a discourse as clean, free of value judgements is to misunderstand value judgements. Information without value has only analytical meaning. Every piece of synthetic judgement implies a value system - people telling you otherwise are generally trying to sell their values through dishonest means.

> I think values are a little bit like the GPLv3. They virally propogate into anything they are even the slightest part of.

Hm... I have a git repo that includes a) some 3-clause BSD licensed code and b) a GPLv3 licensed plug-in.

The GPLv3 licensed plug-in certainly counts as being "part of" this repository.

Could you please explain how the GPLv3 code "virally propogates" across the full repository? How is a patch submitted to the 3-clause BSD licensed code tainted by the GPLv3 plug-in?

Strongly agree about values propagated into everything. Speaking of game theory, I highly recommend Adam Curtis' documentary The Trap. He talks about John Nash, the Cold War ethos and his struggle with schizophrenia, both of which highly influenced his work and view of humankind as utility-maximizing machines. Obviously lots of economic implications, kind of touches on "homo economicus", that sort of thing.

>By contrast economics has a branch that is entirely value free (game theory, imho the hardest part), and most of economics likes to pretend it is value free (and whilst they're not 100% right at that, they're ... let's say 75% right), and only a small part is justifying existing power structures.

If you want to see where the "value" part of an econ paper, study the assumptions. Perfect competition, perfect information, etc. -- these assumptions weren't commonly built in to models because they actually simplified them (there are plenty of better ways to simplify economic models).

They were built in because identifying and exposing the source of the power that feeds you isn't the way to get ahead in this profession.

>However the actual cause is people ... bought and built houses they could never afford

The actual cause was banks giving out loans to people who could never afford them and then disguising that fact, taking commission and passing on the losses to somebody else.

Arguing that it's the fault of the people who took the loans is kind of like loaning all of your worldly wealth to your irresponsible, deadbeat cousin and then blaming him because you just went broke.

> Perfect competition, perfect information, etc. -- these assumptions weren't commonly built in to models because they actually simplified them

Um, what? That's exactly why these things end up in so many models.

> (there are plenty of better ways to simplify economic models).

Such as?

> Of course Hamlet only makes sense within the value system of England of that time

Lit studies usually claim something quite different, namely that you need a sophisticated interpretative framework. The values of that time may or may not be relevant, but usually are not.

The real lesson of the 2008 crash is that long periods of prosperity inevitably produce an accumulation of poor investments, parasitic false beliefs, and outright fraud. At first, the economy is strong enough to shrug off the burden of this detritus, but it eventually accumulates and overwhelms growth. We end up one day having a Minsky moment and clean up the crud accumulated during the growth phase.

The best way to minimize the pain associated with this necessary process is to commit to reason, empiricism, and truth during the growth phase, minimizing the accumulation of uselessness that the eventual economic contraction must discharge.

We have known for hundreds of years that over expansion of debt causes crashes. Maybe I'm missing the point, were economists supposed to stop the expansion of debt?

I liked her comment about mainstream economics' bias toward maximizing "efficiency". It definitely felt like eliminating sources of "deadweight loss" was the primary goal of introductory microeconomics. Nevertheless, most societies today have substantial tax rates, suggesting that there are other priorities than efficiency in the real world.

Interestingly, though, mainstream macroeconomics would probably have predicted (and could have been used to prevent) the 2008 crisis if it had actually been used. Instead, well-positioned economists supported policies that ignored the rapid growth of a housing bubble and the fact that it was driving a substantial portion of total economic output. I would not, for example, call the analysis in Baker's 2002 paper [1] a heterodox analysis, indeed, it was pretty mainstream. It was, however, contrary to the pronouncements of the Federal Reserve.

1. http://cepr.net/publications/reports/the-run-up-in-home-pric...

Mainstream macro economics is 'captured', and they have been behaving like high priests justifying dubious policies. [1]

The 80s onwards have seen massive CEO pay increases, financialization, asset inflation, deregulation, the vulgar celebration of greed by economists and on the other side wage stagnation, increasing inequality, the 2008 crisis and endless bailouts.

Greenspan and others are happy to gloat about cornering labour in Congress [2]. This is an odious statement made without protest from members.

Macro economists can continue to be tone deaf and believe the narratives of emh, rational expectations, 'freetrade' and 'assumptions' that are disconnected from reality but there is now significant dissent and resistance to these narratives. [3]

Evonomics is a good place to start getting a perspective of the scale of problems, and people need to do this untill there is a complete meaculpa and clean up of corporate and vested interests, untill then every single thing macro economists say needs to be questioned and verified.

[1] https://paulromer.net/wp-content/uploads/2016/09/WP-Trouble....

[2] https://www.federalreserve.gov/boarddocs/hh/1997/february/te...

[3] http://evonomics.com/economyths-five-stages-economic-grief/

The idea that economics is formulated as it is to protect the status quo, or to justify the distribution of wealth and power is only partially correct. Economists have a lot to say that elites do not want to hear. The political class, in fact, routinely ignores economists' prescriptions, eg a carbon tax.

Instead, I would say that:

(1) on some issues there is a diversity of opinion among economists and so people pick and choose their ecomist to justify their position

(2) non academic employed economists' pronouncements tend to reflect the interests of their employers (for variety of reasons)

(3) as a class economists defend not the status quo but an ideology that justifies that status quo. for example pareto optimal policies dont really work out when distributions are already highly unequal.

A good book written by members of the student society Maeve discusses here, for those interested: 'The Econocracy' by Earle, Moran and Ward-Perkins

Mentioned in TFA FWIW.

Sure, the world has learned hard to swallow truths that business media won't adopt because it's not aligned with their narrative.

The crash wasn't really about economics, it was more about people abusing financial instruments for short term gains. There would need to be some sort of meta-field that combines economics, finance, banking, politics, etc to properly analyze the cause/effect and predict this.

I think a big problem is that economics - as defined by culture from the enlightenment to about 1980, with markets created by locally rational transactions - isn't as important as the culture that defined it made it to be. For example, the market and the function of the market was seen as an absolute / starting point for an economy. In China it was not possible to simply establish a market, but instead what has happened is that the state created pseudo private enterprises outside of a market system / in the absence of a market system which then underpinned further economic activity. The market of ideas - which is the construction that we put on democracy has been further challenged. The Chinese government employs more than 50m people, and this wide participation in a structured and hierarchical mechanistic system provides another way of managing and legitimising capital allocation.

A functioning free market is the best system we've come with for capital allocation and benefits to consumers.

Even China tends to create competing corporations and to let them compete. In many industries they actually let private players create companies independently.

This is a rhetoric that is being repeated and repeated, but the simplification renders it obsolete. In my opinion. What market is free? Who is your consumer? What about ((yet) unforseen?) externalities? We've come up with a lot more systems and are sticking with this "free" market one, but being technicians, we know that more often than not, not the "best" system endures.

A functioning free market, or at least the best approximation that we can have in practice, requires state intervention.

I think this is a crucial point that is too often overlooked.

Many people think that "free market" means no intervention. While this might be the theoretical definitions, in practice that does not work and the system degenerates.

If a good approximation of a functioning free market can be achieved then it is indeed the best option we have.

I think there is a choice element around "free" as well. I think functional markets can be relatively free (and regulated) but they can also be not free (closed to certain actors, structured with elements of compulsion) and yet also be functional.

Efficient allocations are theoretical (in the sense of not computable within the lifetime of the universe on a real machine) when you move past a handful of actors and a handful of goods. Functional markets don't make efficient allocations - they make allocations that the actors can sustain.

Free markets make efficient allocations in the sense that resources are allocated to what is in demand and competition forces players to increase their own efficiency.

Markets exist no matter what you do. Everything is a market.

Markets are one mechanism for social regulation; there are many others. For example it was common for rulers in past societies to bury large hordes of treasure as offering to the gods. This was done not to store it, but because it increased prestige while reducing actual power. This is not a market. Not everything is a market and attempting to apply market mechanics to things which are not markets (like relationships, education) is a major source of inefficiency and unhappiness.

Everything is a market. Problems arise when this is ignored and, worse, when rules are created that go against the market.

Education, for example, certainly is a market. Demand is high and all parents try to get the best the can for their children, which creates an imbalance between demand and supply for the best education. Where school places are allocated according to catchment areas, houses prices immediately reflect the value of certain schools. That's the market talking.

In the UK, there used to be "grammar schools", which were selective secondary state schools. Most of them have been abolished but not all of them. Getting a place means top free education. Result? Insane competition and huge industry of private tuitions and training books that lockout the poorer. Again the market is at play and tells us that a grammar school place is extremely valuable.

Supply and demand, therefore markets, shape everything.

Everything is NOT a market, that’s a profoundly ideological statement. Check out Karl Polanyi and the distinction between a society with markets vs a market society. We live in a market society, but that is a historically unprecedented state of affairs - historically, many important aspects of society were distributed and regulated through other social forms. It is capitalism alone which commodifies everything under the sun, including land, housing and labor. Many of the most awful aspects of our society are rooted in this historic aberration and the creative destruction it brings with it.

Specifically the interests of the unborn cannot be represented in a market. The unborn have an interest in the use of resources and the exploitation of the environment, and it is a legitimate moral interest, but they are not market actors and their interests cannot be accounted for in a market framework.

You need a big asterisk on that: free* market

There are lots of different markets, different regulations of them, different "freedom" of each market, and we need to take into account which regulations make each market work the best. Engage with this question instead — which problems do markets solve well, and what kind of freedom and regulation do we use to accomplish it?

The Chinese system has evolved since Deng created his state enterprises and there are many markets in China now that have a significant degree of freedom. But not all, and they all started out as regulated hierarchical distribution systems due to 2 million people being slaughtered by Red Guards on top of 20 years of rigorous communism. Deng cracked the chicken/egg issue of development by showing that it is possible to construct the chicken from edicts and then make it pass it's eggs around.

(I like metaphor)

Please discuss rational allocation vis-a-vis the Rule of Capture.

Context: https://news.ycombinator.com/item?id=18005310

it's not that we haven't learned, it's just that the forgetting is so good.

We learned nothing.

Betteridge's Law of Headlines: No, we haven't learnt anything.

Related from 2003 by Jim Sanford: "Confessions of a Recovering Economist" http://www.paecon.net/PAEReview/issue21/Stanford21.htm "I am an economist. It is seventeen days since I last uttered the phrase "supply and demand." But the demon still lurks untamed, within me. Economics is an addiction. Every other addiction has a Twelve Step program, laced with tough love and blunt self-honesty. Why not a Twelve Step program for economists? God knows, we have done enough damage with our arrogant, drunken prescriptions. Here's how each and every economist can face up to their inner demons, and make their own small contribution to setting things right. ..."

From 2010: "They Did Their Homework (800 Years of It)" https://www.nytimes.com/2010/07/04/business/economy/04econ.h... "But in the wake of the recent crisis, a few economists — like Professors Reinhart and Rogoff, and other like-minded colleagues like Barry Eichengreen and Alan Taylor — have been encouraging others in their field to look beyond hermetically sealed theoretical models and into the historical record. “There is so much inbredness in this profession,” says Ms. Reinhart. “They all read the same sources. They all use the same data sets. They all talk to the same people. There is endless extrapolation on extrapolation on extrapolation, and for years that is what has been rewarded.”"

Or from 2011: "Economics for the Rest of Us: Debunking the Science That Makes Life Dismal" by Moshe Adler https://www.goodreads.com/book/show/7197448-economics-for-th... "Why do contemporary economists consider food subsidies in starving countries, rent control in rich cities, and health insurance everywhere "inefficient"? Why do they feel that corporate executives deserve no less than their multimillion-dollar "compensation" packages and workers no more than their meager wages? Here is a lively and accessible debunking of the two elements that make economics the "science" of the rich: the definition of what is efficient and the theory of how wages are determined. The first is used to justify the cruelest policies, the second grand larceny.Filled with lively examples-from food riots in Indonesia to eminent domain in Connecticut and everyone from Adam Smith to Jeremy Bentham to Larry Summers-Economics for the Rest of Us shows how today's dominant economic theories evolved, how they explicitly favor the rich over the poor, and why they're not the only or best options. Written for anyone with an interest in understanding contemporary economic thinking-and why it is dead wrong-Economics for the Rest of Us offers a foundation for a fundamentally more just economic system."

Or harder hitting from a trial lawyer: http://conceptualguerilla.com/essays/essays-on-economics-and... "Old habits die hard. In fact, we still have a “leisure class”. As capitalism has grown so has the wealth and privilege of our leisure class. The old mythologies – gods, the “great chain of being” etc. – are no longer available to justify the existence and perpetuation of our leisure class, something our elites are definitely interested in perpetuating. What was needed was a new “rational” world-view that justified the existence of privileged elites. That rationalization came in the form of a brand new science known as economics, which included a brand new mythology."

Or from 1999: "The Market as God" by Harvey Cox (Harvard professor of religion): https://www.theatlantic.com/magazine/archive/1999/03/the-mar... "A few years ago a friend advised me that if I wanted to know what was going on in the real world, I should read the business pages. Although my lifelong interest has been in the study of religion, I am always willing to expand my horizons; so I took the advice, vaguely fearful that I would have to cope with a new and baffling vocabulary. Instead I was surprised to discover that most of the concepts I ran across were quite familiar. Expecting a terra incognita, I found myself instead in the land of déjà vu. The lexicon of The Wall Street Journal and the business sections of Time and Newsweek turned out to bear a striking resemblance to Genesis, the Epistle to the Romans, and Saint Augustine's City of God. Behind descriptions of market reforms, monetary policy, and the convolutions of the Dow, I gradually made out the pieces of a grand narrative about the inner meaning of human history, why things had gone wrong, and how to put them right. Theologians call these myths of origin, legends of the fall, and doctrines of sin and redemption. But here they were again, and in only thin disguise: chronicles about the creation of wealth, the seductive temptations of statism, captivity to faceless economic cycles, and, ultimately, salvation through the advent of free markets, with a small dose of ascetic belt tightening along the way, especially for the East Asian economies."

See also: "The Impact of Inequality: How to Make Sick Societies Healthier" by Richard G. Wilkinson

And: "The Spirit Level: Why Greater Equality Makes Societies Stronger" by Richard Wilkinson and Kate Pickett

And: "The Price of Inequality" by Joseph E. Stiglitz

Another petition/manifesto by students from 2009: "The True Cost Economics Manifesto" https://blog.p2pfoundation.net/the-true-cost-economics-manif... "“We, the Undersigned, make this accusation: that you, the teachers of neoclassical economics and the students that you graduate, have perpetuated a gigantic fraud upon the world. You claim to work in a pure science of formula and law, but yours is a social science, with all the fragility and uncertainty that this entails. We accuse you of pretending to be what you are not. You hide in your offices, protected by your mathematical jargon, while in the real world, forests vanish, species perish and human lives are callously destroyed. We accuse you of gross negligence in the management of our planetary household. ..."

There is at least one other petition I saw from around then (though with softer words) mainly by economics professors and grad students -- can't find it at the moment.

Or to go way, way back, see Marshall Sahlins: http://www.primitivism.com/original-affluent.htm "Hunter-gatherers consume less energy per capita per year than any other group of human beings. Yet when you come to examine it the original affluent society was none other than the hunter's -- in which all the people's material wants were easily satisfied. To accept that hunters are affluent is therefore to recognise that the present human condition of man slaving to bridge the gap between his unlimited wants and his insufficient means is a tragedy of modern times. ... The world's most primitive people have few possessions. but they are not poor. Poverty is not a certain small amount of goods, nor is it just a relation between means and ends; above all it is a relation between people. Poverty is a social status. As such it is the invention of civilisation. It has grown with civilisation, at once as an invidious distinction between classes and more importantly as a tributary relation that can render agrarian peasants more susceptible to natural catastrophes than any winter camp of Alaskan Eskimo."

Even in the 1980s when I was in college it was clear to many that much of economics was, essentially, am apologetic branch of mathematics with little connection to the real world. My own take on that from around 2008: https://pdfernhout.net/post-scarcity-princeton.html#Some_com...

Economists can't even agree on what caused the Great Depression.

Wow, what Socialist crap that article is, and in Nature of all things! Probably best to steer clear of those books on economy! Anyway, if you look into how trading is done today, and how big firms – especially banks – are allowed to operate, then it's no wonder it goes as it goes. First off no company should be too big to fail. That should be your first warning sign that it's become too oligarchic, if not completely monopolistic. But no, most governments chose to go in the opposite direction, and further corporatize and monopolize the behemots. Well, good luck with that! Now we're probably just moments before the biggest crash in history. People talk about 2008 being this century's 1929. Ha! That was peanuts!

The author's true colors come out when he rails for post-Keynesian economics as an alternative worth studying.

As much as economics ("mainstream" or "orthodox economics" is an expression like "allopathic medicine") is a struggling pre-science that has just in the 90s begun to adopt RCTs, etc -- the alternative these people are saying is snake oil. "Post Keynesian economics" isn't even trying -- it's just a justification for the kind of irrationally exuberant policies that caused 2008 in first place.

Reply on news.ycombinator.com