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Comment by jrm4 | Hacker News Reader

Economics is .. mostly just not good as a discipline. Micro can be pretty useful to individuals, but Macro is literally no better than astrology, and perhaps worse because people have a better sense of astrology's limitations.

It's important to study economics primarily not because "it's good at predicting things," but more to understand how most everything is made up and then people use economics to back into ideas.

Roughly, the problem is not just "All models are wrong, and some are useful," but additionally that "many models are harmful and unchecked."

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>> Macro is literally no better than astrology,

Macroeconomics:

"Macroeconomics is a branch of economics that studies how an overall economy—the market or other systems that operate on a large scale—behaves"

Astrology:

"The divination of the supposed influences of the stars and planets on human affairs and terrestrial events by their positions and aspects"

Astrology is irredeemable. If current macroeconomics is no better than astrology, that is an opportunity.

>> Micro can be pretty useful to individuals

This is the crazy part. Micro relies on assumptions that just aren't true. Micro is much closer to astrology than macro. If you build an extensive mathematical framework on top of assumptions that are not just false, but sort of crazy, you've got nothing.

> Micro relies on assumptions that just aren't true

I'm going to assume this refers to the rational actor assumption? If so, it's like Econ 102 that this is an Econ 101 simplifying assumption, similar to our ignorance of friction and turbulence in Physics 101.

> I'm going to assume this refers to the rational actor assumption?

Yes. And:

* More is better

* Demand curves are smooth

* Demand curves are deterministic

* Everything happens on the margin

* Information is free

* Ethics does not influence behaviour.

* Nature allows steady states

That are the flawed assumptions just off of the top of my head.

If you spend years studying economics (like I did) then some these assumptions get questioned some of the time. But they all break down, regularly.

The micro economic models work in snapshots, but the interesting part is in the breakdown.

The models are useful when they are not very interesting.

“I love the observation that in Chapter 1 of an economics textbook, they'll say, 'We're just describing people as they are. People are rational, and this is how it goes.' And then, in Chapter 2, they'll say, 'And most people fail to'--you know, 'respect the sunk costs.' And they never even notice that there's a small tension there.”

— Mary Hirschfeld, discussing her book, Aquinas and the market.

She touches on a lot of the points you mention.

I guess what I would say on this is: Consider your average Microeconomics 101 and Macroeconomics 101.

Micro will probably give the average person a few useful tools for business, because it's pretty easy to see where the model is just a model, but basic supply/demand stuff might come in handy.

Macro, on the other hand, will literally make you dumber.

This seems exactly backward. Macro is the useful one based on data, micro is the hand-wavy made up stuff based on assumptions of human behavior.

Don't look at the inputs, look at the outputs. Good data in still equals garbage out if your models are no good.

Dictionary definitions? This observation suffers from the exact same problem that economics does.

Theory and practice are very often completely different.

Macroeconomics does work though. Central banks do a pretty good job of tuning the knobs that steer GDP or inflation towards the direction where they want it to go. You just have to recognize that these aren't and can't replace structural reform.

>Central banks do a pretty good job of tuning the knobs that steer GDP or inflation towards the direction where they want it to go.

We'll see.

We have. Look at the Wikipedia page on history of recessions as a place that makes it clear.

> Macro is literally no better than astrology

Pop economics is notoriously bad. But if the popular version of a science were its judgement, physics and climatology fare little better.

Concepts like unemployment, production and risk premiums were macroeconomic inventions. Would you prefer nobody thought or talked about credit crises, the relationship between mortgage rates and housing prices or business cycles? Because before 19th-century macroeconomic theorizing, concepts like inflation were colloquial [1].

[1] https://en.wikipedia.org/wiki/Inflation#Classical_economics

> Micro can be pretty useful to individuals, but Macro is literally no better than astrology

Macro brought a whole new dimension to the economic thought. Example: Due to leaving out the macro dimension when deciding the fate for Greece in the eurocrisis, they forced them to lower the income of all people by 20% or something. Because the neoliberal labour market theory (micro) assumes the labour market functions like a normal market. They assumed the lower wages would be subsidized by higher employment (lower price of goods = higher demand). The opposite was the case. Unemployment increased drastically. And it's very simple to understand why. The income is cut by 20% -> the demand is automatically cut by 20% -> companies don't have incentive to employ new people -> instead they let people go despite the low wages so they can maximize their profits. This chain of events does not exist in micro.

Another fundamental aspect is savings and debt. People don't realize, that every new savings in an economy have a debt counterpart in the same amount. So to say for example: "the government has to decrease it's debt" means nothing without explaining who should make less savings / more debt in return. This accounting logic can be used in cases like Germany with their export surplus: If everyone in Germany is saving (private households, companies and government), then who is the debt counterpart? The foreign countries. Then one should ask whether such a sitution is sustainable, were one country always saves while all it's trade partners always have to make debt. Obviously not. Micro economists would find ways to put a "everything perfect" stamp on Germany though. Because they are stuck on a micro level.

Honestly, you're doing a good job proving my point.

In your first example, you're just offsetting some ostensibly bad macro with different macro. And I see no compelling reason to strongly favor theory 2 over theory 1, given the same problem that's endemic to pretty much all macro, you can't treat this like a "scientific experiment." Change the variables a bit and you could probably come up with a different outcome.

To be clear, I 100% stand on my astrology point -- but I also say that to punch up astrology a little bit. For both macroeconomics and astrology, neither has very good predictive power of the sort that you should rely on, but both have the potential to kind of jog our brains a little bit to open up paths to interesting ideas.

They're equal.

I think the aggregate demand curve slopes downwards. I think this because of macroeconomic theory.

Because of this model, I can make predictions on how government spending/borrowing affects consumption and investment. There is good empirical evidence for this.

Do you not agree?

Why is this astrology?

A disproportionate number of prominent women in my life are Scorpios. There was good empirical evidence, then, that my daughter would be one too -- and lo and behold, that's what she was born as.

If you look enough you can find roughly equal solid empirical evidence in astrology, especially if you honestly include hits and misses.

Out in the world, the accuracy, and consequently the utility, of human beings advising one another on actions based on macroeconomic theory has been pretty similar to astrology.

"Roughly equal solid empirical evidence in astrology" feels like a very strong citation needed. Where's astrology's "you can reduce inflation by raising the interest rate" or "actually the Phillips Curve empirical relationship won't remain stable when used as a policymaking tool, here's why..."?

This whole argument is roughly "lol, these computer people call themselves scientists and yet my computer has bugs in it".

Ask the astrologists, I'm sure they will give you ones that are exactly as accurate as the ones the economists will give you.

There's a certain irony to critiquing the evidence basis of a discipline with "I don't know anything about this, but I'm sure it's exactly as accurate anyway".

I didn't say "I don't know anything." I'm telling you -- I am certain you could find it because astrologists and macroeconomists are all over the place enough such that you could cherry pick correct ones.

But whilst any idiot can cherry pick many many examples of economists (or physicists or biologists or computer scientists or meteorologists or basically any other field) predicting things with great confidence which turned out to be incorrect or using a model which didn't work very well, you can't cherry pick examples from astrology in which someone predicted a relationship between variables which turned out to be so robust even their greatest rivals consisted it was correct.

Fyi, modern macroeconomics is essentially a flavour of microeconomics. They call it microfoundations for macro. They share all the important formalisms like general equilibrium. Macro is just where the inadequacies of that formalism are most evident because it gets the most attention outside academia.

That is a style of teaching, and a wee bit ideological. Not a description of "modern macroeconomics"

> People don't realize, that every new savings in an economy have a debt counterpart in the same amount...

This is the model macroeconomists use, but they've repurposed the word "savings" to something that isn't a particularly good idea.

Someone who has $1,000 & invests it into - say - buying a solar panel doesn't have any savings but has made their future more comfortable through investment but has no savings. If they instead put the money into savings the evidence I've seen is it will go to some profligate spender who will likely make the future worse for everyone (like a money-losing Uber or a wormongering government).

This is why macroeconomics can reasonably be compared to astrology - the words have so little connection to what people understand that they are useless. People make the mistake of thinking savings are desirable, not understanding that formal language has separated the idea of savings (accounting identities) and investment (making life better).

S=I is tautological, from the definition of the model.

One guy had $1000 and no solar panels, another guy has $0 and 1 solar panel, maybe they trade.

What changes about your definition of savings and investment if they do or don't trade?

Nothing.

> People make the mistake of thinking savings are desirable

as compared to what?

> not understanding that formal language has separated the idea of savings

I assure you every economist knows the difference between putting money in a bank and manufacturing a car.

S=I says nothing about the usefulness, causality, or predictions about the economy. It would be like determining the state of a business by whether their assets equal liabilities.

If assets != liabilities, you have an accounting error, not an unprofitable business.

Oh yeah, I forgot the economists had repurposed "investment" formally to mean something useless too. I'm using the word in the informal sense of gaining control of capital, not in the sense of a flow in an economic model. Sorry for not being clear there.

I don't use the word in the sense of S=I because some savings go to things that I don't recognise as investment (because they are value-destructive).

> as compared to what?

Value add. As you demonstrate in your $1,000 example, if S=I the value of both is largely meaningless. The important part of what is happening is the value-add from the manufacturing of the solar panel and the trade itself, neither of which is being quantified by the dollar value.

We can also observe that until the person with the money spends it, the only person who has experienced a material improvement in their life is the person who ended up controlling the solar panel.

Too much capital at the moment is going in to activity that destroys value (I like to cite Uber as an nice example). People learning more about accounting identities just confuses them because they stop looking at whether activities add or destroy value. The technical terms for saving and investment aren't useful for improving people's lives and it doesn't matter if they get them wrong.

But the fact that people don't know about these simple truths, is not that the "macroeconomic theory" is not understandable to the average person, it's that they are never teached about it. All they are teached or hear about is the micro garbage from mainstream economists, because we live in a world of neoliberalism.

Why would they need to know technical accounting identities? What do you expect them to do differently if they understood?

Seriously? If these fundamental truths would be known, then politicians couldn't easily make stupid decisions against these thruths. Economies and peoples lives get in trouble by ignoring them.

Yes seriously. They aren't fundamental truths, they're variables in a model used by economists.

What do you think people would do differently? Which policies do you expect to change? The politicians already have access to the best economic advice they care to listen to. The most likely scenario where they make the same choices for the same reasons.

> The politicians already have access to the best economic advice they care to listen to. The most likely scenario where they make the same choices for the same reasons.

No they would not. I brought two examples: Greece unemployment and German export surplus. Under neoliberal advice, in both cases it led to a disaster. Not because some variables were wrong, but because the underlying theory is wrong. The neoliberal theory does NOT account for the fact that labour has to buy all the produced goods, which in turn means, supply and demand are NOT independent variables on the labour market (the wages one gets paid are used to buy things and thus have an effect on other jobs). Macro does account for this fact and comes to better solutions. Politicans did NOT get the correct advice, because micro is mainstream.

That example is poorly cited and, in all likelihood, an example of you misunderstanding how politicians make decisions.

I'm not sure what you think they do, but I guarantee that they do not sit down and start with questions about what is the most economically savvy policy. The outcomes are too economically unhinged for that to be the process.

Typically the decisions politicians don't make sense in any framework except asking if they might survive one more election.

In this case the so called "Troika" made the decisions. A cooperation between the european central bank, the european comission and the international monetary fund. I guess anyone would expect that these organisations have the best people at hand. And that may be true when it comes to the neoliberal theory.

Why is it so hard for you to accept that there are two contradicting theories with one of them being mainstream while the other is not? You know what the IMF did when they realized their theory failed? They essentially wrote that in future, it might be necessary to force companies to employ people when wages are cut at the same time. This proposal is in stark contrast to the neoliberal theory, because this theory is wrong and did not work.

Well I guess this leads to nowhere. I give you the last word if you want =)

I know of a number of astrologers, such as Ray Merriman (USA) and Christine Skinner (UK), who made some pretty accurate predictions about the markets and the economy in general.

There is a sufficient number of astrologers that eventually some will happen to individually make a certain number of accurate predictions.

Just like the macroeconomists!

ever feel like igneous rocks are just bullshit?

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