ADDED: Notice that it doesn't say "Economists don’t know what they’re talking about." It's just "Economists often don’t know what they’re talking about." So they do know something, just not everything, and it's an area of study that's probably inherently beset by unknowables. Anyway, here's the old Alexander Pope verse:
A little learning is a dangerous thing;
drink deep, or taste not the Pierian spring:
there shallow draughts intoxicate the brain,
and drinking largely sobers us again.
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70 comments:
No different than (INSERT PROFESSION HERE). They get a bad rap because most people don't know enough about economics to recognize they don't know what they're talking about.
Agreed. This is a case where the headline is the article and states a universally accepted fact.
Harry Truman said that he needed a “one handed economist” because they are always saying “On the other hand....” That’s probably in there, but I don’t want to burn a WaPo read.
Economics and climatology have similar qualities.
As with many of the soft sciences, economists said all they had to say long ago, but universities keep cranking them out so they keep writing.
Tommy Duncan said...
Economics and climatology have similar qualities.
Climatology has the potential to be a real science. Its problem is that it's been hijacked by political activists.
Omaha billionaire and owner of the Cubs, Joe Ricketts, had his email hacked. A guy wrote a long story about buying the Cubs. In one exchange, Joe paid $25k to an economist for a one hour talk about the economy. What a waste!
BTW, Laura Ricketts is a whiny idiot.
David Begley said...In one exchange, Joe paid $25k to an economist for a one hour talk about the economy. What a waste!
When I read something like that, I think money laundering. What was he really getting for the 25 G's?
Economics and climatology have similar qualities.
There is an old joke that both sciences begin a proof with “assuming that."
They misspelled “political pundits”.
They do know what they're talking about. They're just wrong as applied to the world.
The last paragraph "What I think can be held against economists — not all, but many — is that they exaggerate what they know and how much they can influence the economy. The aim is usually to gain and retain political relevance and power. But the result is often disappointment, as government performance falls short of promises."...made me think of all the experts advocating human caused climate change, as well.
On the other hand, climate scientists don't know what they're talking about. They're talking about equations and physics that have not been discovered.
"Still, I guess people want an answer: If the question is when markets will recover, a first-pass answer is never."
Paul Krugman
Nobel Prize Economist
The day after the election of Donald Trump.
And WaPo never knows what it's talking about.
That never stopped THEM.
One of my favorite aspects of Nate Silver's book was Silver (an economics major at Chicago, perhaps the top econ department in the world) pointing out the horrible track record of economists' predictions.
If there's anything I've learned in 65 years of living + the entirety of the age of the internet, it's that you need to find out why someone is referred to as an 'expert' and who did the initial referring. From the drafting of college football players, to projecting the next economic week, to predicting the next hurricane season, to creating a nutritional pyramid, the experts are usually proven wrong. It may take a week or a decade, but to quote Firesign Theater: "Everything you know is wrong."
I put the word 'expert' right up there with 'activist' in terms of nebulous meaning.
For economists and pundits, there's never any lasting consequence to being wrong.
"Economists often don’t know what they’re talking about"
Exhibit A: Mr. Paul Krugman, NYT
Supply and demand.
Any economist who thought Obamacare was economically viable should forever be forbidden from commenting on Economics. Similar to how any "scientist" who fell for Al Gore's fairy tale "An Inconvenient Truth" should forever be barred from referring to themselves as Scientists. Further, any news consumer who fell for the Collusion, Kavanaugh or Covington frauds should forever be forbidden from commenting on current events.
"In detailed studies, in which "experts" were asked to make forecasts about the future (predicting which of three possible futures would occur), it was found that the "experts" did no better than well-informed non-experts!
As Tetlock says, “...there is no reason for supposing that contributors to top journals—distinguished political scientists, area study specialists, economists, and so on—are any better than journalists or attentive readers of the New York Times[sic] in ‘reading’ emerging situations.”"
Didn't read the article, but the most interesting thing coming out of economics in the last few decades is really psychology, e.g. the behavioral stuff. That's not much of a science either, but it's been a more fruitful area of speculation and theorizing than neoclassical economics.
There's an old joke that an economist is says, "That may work very well in practice, but its not sound theory."
I didn't read the article either.
This is mostly a critique of macro economics, which I've always regarded as part hubris and part fraud.
Much of this relates to the centrality of the Philips curve in economic thought: the supposed trade-off between employment and inflation.
Institutionally, accepting the Philips curve means you need to have a "Great and Powerful" Fed when in many ways it's a dumping ground for bunch of academic economists behind a curtain turning knobs and pushing levers like the Frank Morgan in the Wizard of Oz. (Many think L. Frank Baum was using the Yellow Brick Road as an allegory for the gold standard when he wrote Oz.)
As I pointed out before, notice the vehemence and nastiness of N. Greg Mankiw of Harvard in opposing Trump's nominees to the Fed Board. You'd think Caligula nominated his horse to the senate!
Keep the Federal Reserve I Love Alive
https://www.nytimes.com/2019/04/11/business/mankiw-moore-cain-federal-reserve.html
And just yesterday Mankiw links to a WSJ piece asking why the Philips Curve doesn't hold as previously thought.
http://gregmankiw.blogspot.com/2019/05/the-fed-should-monitor-wage-trends.html
The U.S. economy, fresh off another strong report, has created an average of 205,000 new jobs a month in 2019, far more than the roughly 100,000 needed to keep up with population growth. The official unemployment rate has fallen to 3.6%, the lowest in 50 years. Historically, such low unemployment has signaled that the economy is at full capacity, which causes wages and inflation to accelerate as employers compete for scarce workers. Yet wage growth has increased modestly, to about 3% a year, and inflation is still running at 1.5%, below the Fed’s 2% target. What’s going on?
Of course, the supply-side critique of this is that employment in the production of more goods and services should not necessarily result in the higher cost of goods and services since there is more output, especially if productivity is increasing.
My final two cents is that a system of national income accounting that counts any government spending the same as private sector output is skewed.
So they do know something, just not everything,
By measurement, but perhaps not by poetry, they don't know any more about their subject than other semi-educated people: "Tetlock also found that specialists [including economists] are not significantly more reliable than non-specialists in guessing what is going to happen in the region they study."
It's very popular among experts these days to cite studies supposedly showing people don't know what's good for them and fail to act in their own self-interest. They conclude credentialed experts should be making decisions for us.
Clearly these experts aren't suffering from an inability to act in their own self-interest.
Economics is a social/ behavioral science. We’re still pretty “young” in social/ behavioral science and that area is all too prone to political bias.
Are there any left wing nuclear physics theories?
Bob Boyd, yes, the tyranny of choice was already a scholarly topic in the 90s when I studied econ as an undergrad.
Bob Boyd said...It's very popular among experts these days to cite studies supposedly showing people don't know what's good for them and fail to act in their own self-interest.
I've read a few of those studies. Not one so much as paused on the vital question of what is in their own self-interest. In each and every case, the authors simply assumed that the authors' own values are what people should pursue.
My final two cents is that a system of national income accounting that counts any government spending the same as private sector output is skewed.
Yes. There are different schools of economic thought; unfortunately, the dominant one is deeply flawed.
The Austrian school, as an example, is very good. It's never cited.
Morning Joe, economist extraordinaire, was railing against the Trump tariffs this morning, saying it would screw the middle class, as though the tariffs would be permanent. Joe is a macro-idiot, Mika being the micro version.
the tyranny of choice
Freedom is Slavery.
A few words about my profession. First off, most economists don't work in the field of macroeconomics, which is the branch that comes in for most of the criticism. Since the late 1970s its been dominated by people pushing the idea that the only acceptable way to do macro is via DSGE (Dynamic Stochastic General Equilibrium) models. These models are mathematically complicated and hard to work with unless you make a lot of simplifying assumptions. But the simplifying assumptions often throw out the baby with the bathwater. In most DGSE models, there is no reason for the social institution of money to even exist. I still don't understand how economists at a central bank can take such models seriously.
But in their defense, macro is hard. Climate models come in for a lot of criticism because even with hundreds of equations, they still do a poor job of out-of-sample prediction. But at least the climatologists are working with inanimate objects and forces. Macroeconomists are trying to model the behavior of people, who are much more complicated. It's not surprising that they have to make a lot of simplifying assumptions. I suspect the problem is insoluble: there is no good way to model the economy. And it's not necessary to do so if all you want is reasonably good monetary policy.
It is inherent in the nature of financial crises that few people see them coming: if they were foreseen, they wouldn't have happened in the first place. The big run-ups in market valuations wouldn't have taken place, and prices wouldn't have had far to fall. It's true that not many economists saw the financial crisis of 2008 coming. I remember quite a few hallway discussions at the Fed in 2006 and 2007 wherein other economists disagreed with my forecasts of coming disaster. I was reading stories of ridiculous mortgage underwriting practices like NINJA (No Income, No Job or Assets) loans and seeing the proliferation of house-flipping television shows, but most dismissed those as mere anecdotes. As the saying goes, the plural of anecdote is data.
However, Scott Sumner, David Beckworth, Nick Rowe and others have made a persuasive case that it wasn't the housing market crash that caused the recession, it was tight money. The recession was less a forecasting error than a policy one. If the Fed was committed to a nominal level GDP target and paid attention to the forecasts inherent in market prices, like the ones coming from the indexed Treasury debt markets, the recession could have been avoided.
"My final two cents is that a system of national income accounting that counts any government spending the same as private sector output is skewed."
My understanding is China counts whatever the asking price is for real estate as GDP, which is why there are 40,000,000 vacant units.
the supply-side critique of this is that employment in the production of more goods and services should not necessarily result in the higher cost of goods and services since there is more output, especially if productivity is increasing.
This is the recovery from 2008 that never happened under Obama. It's just ten years later.
which causes wages and inflation to accelerate as employers compete for scarce workers
There are economists what believe inflation is a monetary phenomenon and presently there are neither too many dollars or too few goods. It supports the theory some economists are wrong.
Lawyers often...?
Krugman is easily explained when you recognize he is an insufferably partisan human being that once contributed to economics but is no longer an economist.
This is the recovery from 2008 that never happened under Obama.
It's that and stimulative tax policy and stimulative regulatory policy and echo boomers approaching maximum consumerism and...
Hayek: The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.
If you're not listening to Econtalk every week you should really start immediately.
By coincidence today's show is:
Neurologist and author Robert Burton talks about his book, On Being Certain, with EconTalk host Russ Roberts. Burton explores our need for certainty and the challenge of being skeptical about what our brain tells us must be true.
You missed the obvious economist joke:
Joe's a great economist; he's predicted five of the last three recessions.
Heh®
Ask 10 economists for an assessment of something, get at least 20 conflicting answers. One of them will likely eventually be proven correct. The economist who made the correct prediction will be hailed as a genius, conveniently overlooking all of the false assessments he has made.
Krugman on election night: The Stock Markets Will NEVER recover because of bad Orange Man.
Over time the business cycle seems to have become less jagged. Maybe they have learned something.......Homer nailed epic poetry first time out. Nobody ever surpassed Louis Armstrong as a jazz musician. Maybe Adam Smith was the high point of economics. They don't stand on his shoulders but rather roll down the slippery slope of his lower colon into the sewage ditch of Marxism. I might have to work on that metaphor. Nobody's ever improved on Shakespeare's metaphors.
The markets this AM are positively giddy over Trump’s economic policies, I see.
Economics is like Law. Some practitioners can know a very limited part of it and be competent with that, but truly seeing the whole picture or even large parts of it is beyond our abilities as humans. They both study macro human interaction which is by its nature unreliable and unpredictable.
"I watched this 60 Minutes segment last night and I liked the artist Marc Bradford. An interesting guys who came out of nowhere with a bold, hardworking approach to visual art uniquely rooted in humble beginnings in his Mom's beauty parlor. His statements were subtle and left much to the observer. And he made great use of color."
Yes, I like the stuff about getting started using the hair salon's end papers as materials (rather than paint).
well not exactly, the teaser rates reset in 2007, the subject of the big short, they leave out what drove the subprime push, government policy,
"If all the economists were laid end to end, they'd never reach a conclusion." George Bernard Shaw
Journalists - they can smell their own.
Milton Friedman knew what he was talking about.
As for predictions, some things, like financial markets, are inherently unpredictable (as economists constantly try to explain). For other things, like the impact of regulations or other policies, there are a lot of complicating factors (it's not a controlled experiment), so economists only can maybe do a bit better than anyone else. It's like asking a doctor to predict the outcome of a cancer treatment.
The real problem is economists like Krugman and others who put politics first. In that way it is like climate science.
(disclaimer: I am an economist)
Politics corrupts science. There is no branch of science more corrupted by politics than economics, with the possible exception of climatology.
Even a blind hog....
Like psychics, get 2 of 10 right, brag about the 2 and ignore the 8.
You are AMAZING!
Economics begins as a philosophy, and involves hypotheses or models that are proposed and tested, then either transition to the scientific or near-domain, or diverge into the dark matter.
My final two cents is that a system of national income accounting that counts any government spending the same as private sector output is skewed.
Skewed how?
Example: Lockheed-Martin sells an F-35 to the government for about $90 million. That's counted on the "income" side of the National Income and Product Accounts as Income received by the employees and shareholders of L-M. On the "expenditure" side, it's counted as part of government expenditures on goods and services, measured as its acquisition cost (being assembled in Texas), with imported parts netted out as part of imports. Within the margin of measurement error after aggregation from different sources, national income = national expenditure.
Nobody's claiming GDP is a perfect measure of "value," but a pretty good measure of output.
Nobody's claiming GDP is a perfect measure of "value," but a pretty good measure of output.
EDH could have a point about the fact that government services are valued at cost. So, for example, that presumes all those salaries at the EPA are paying for services that are worth that much. Or that when Strzok and Page were texting each other about how they would stop Trump, they were providing a service worthy of their salaries.
EDH could have a point about the fact that government services are valued at cost.
What do you propose as an alternative? EDH's subjective valuation of gov't employees' value? Krugman's?
Economists fall into the same trap as sociologists, evolutionary psychologists, global warmists and many others in that their theories start with what they think aught to be and then they fit the "evidence" to fit that thinking. What's astonishing is how willing these "deep thinkers" are in throwing away any contrary evidence.
I see Inga, the resident economist, is hoping for some sort of economic crash to get rid of Trump. Sorry, honey.
China holds a losing hand.
I'm sure we are all eager for your informed opinion.
In this analysis we show that, contrary to public opinion, the greatest share of the tariff burden falls not on American consumers or firms, but on Chinese exporters. We calibrate a simple economic model and find that a 25 percentage point increase in tariffs raises US consumer prices on all affected Chinese products by only 4.5% on average, while the producer price of Chinese firms declines by 20.5%.
The Austrian school, as an example, is very good.
Let’s take this a step further and be explicit: any economist who disagrees with Hayek absolutely doesn’t know what he or she is talking about.
Hell just take market returns on face: S&P up over 12% YTD, over 300% since Nov 2018. A 2% down day is a perfectly normal occurrence absent major macro news.
There are economists, and then there are what I call "the Court Economists," analogous to "court historians." The former look at economic realities of the market, and then see how various actions, such as wage-price controls, will affect that market. The Court Economists, such as Paul Krugman, develop rationales or excuses for expanding the power of their beloved, the State.
Leftie economists said 'tax rates don't matter' and 'tax cuts will lead to larger deficits', too. Boy were they wrong...
then there are what I call "the Court Economists,"
Alan Kreuger who proved that minimum wage made jobs go up.
Obama favorite,
Card, David; Krueger, Alan B. (1995). Myth and Measurement: The New Economics of the Minimum Wage.
Subsequently refuted,
I heard this from an economist.
It seems an economist decided to take up ballooning. He rose and was soon lost, wafted to God-knows-where by an errant wind.
Descending, he spotted a man walking along the road.
"Tell me, sir, just exactly where am I?" he shouted.
Replied the man, "You're in a balloon."
To which the economist replied, "I see that you are an economist, as I am."
Said the man, "Yes, I am, but how did you know?"
"You've given me information that is incontrovertibly true, and at the same time entirely useless."
There was an interesting study, a few years back, showing that economists incorrectly predicted the direction of interest rates 6 months in future -- direction of change, not magnitude -- 75 percent of the time.
They could flip a coin and double their success rate.
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