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Indeed, one has to be careful with the term "magical thinking". Using it can easily deteriorate to name-calling, and I'd say that the author fails because of th

Indeed, one has to be careful with the term "magical thinking". Using it can easily deteriorate to name-calling, and I'd say that the author fails because of that. I'm not a big fan of the prevailing belief in monetary policy as the go-to policy tool, but monetary policy itself isn't magical thinking at the same level as rubbing crocodile teeth to a banana tree. Unlike the true magic thinking of millenias past, there is an underlying transmission mechanism to monetary policy: raising interest rates can reduce the rate of investment in some sectors (probably mostly housing), and conversely, decreasing interest rates can increase the rate of investment. This transmission mechanism may not always work. For example, when people have too much debt to begin with, decreasing interest rates isn't going to have a great effect. For another, changing interest rates is a very blunt tool without the possibility for fine-tuning (which means that relying on only monetary policy is a bad idea, see also the Eurozone). Similarly, fiscal policy is far from magical thinking as the author wants us to believe. When the government buys things, that has clear and direct real-world effects. It's dishonest to put it at the same level as performing a rain dance. One can and should criticize policy ideas, of course, but just painting with the broad brush of "magical thinking" isn't helping. It doesn't clarify or enlighten.

throwaway729 10y ago
I really like your post and I think you're on to something, but I want to be pedantic about one point I think is important: > Unlike the true magic thinking of millenias past, there is an underlying transmission mechanism This doesn't distinguish it from magical thinking. Witches transmitted demons using magic... or whatever. What distinguishes it from magical thinking is that the transmission mechanism is 1) based upon empirical observations; and 2) far more importantly, is a refutable theory. So even if we can't prove or disprove the theory with high statistical confidence using a single experiment, we can formulate specific hypotheses that test the veracity of the theory and then try to refute those hypotheses. Either in controlled but very small scale settings, or by finding naturally occurring data sets that prove or refute the theory. Many economic theories are vaguely similar to evolution in this one respect[1]. The problem with theories of this variety is that if you know a priori what you want to be true, then you can amass evidence. So you have to be intellectually honest with yourself, or you're just hiding your magical thinking with a pile of complexity. [1] But extremely different in many other ways... I mean for this comparison only to point out a single similarity -- that neither theory's complete set of claims can be directly tested experimentally, but we can still think about these theories scientifically. Of course the comparison between evolution and any particular economic theory more-or-less stops there...

throwaway729 10y ago

I really like your post and I think you're on to something, but I want to be pedantic about one point I think is important: > Unlike the true magic thinking of millenias past, there is an underlying transmission mechanism This doesn't distinguish it from magical thinking. Witches transmitted demons using magic... or whatever. What distinguishes it from magical thinking is that the transmission mechanism is 1) based upon empirical observations; and 2) far more importantly, is a refutable theory. So even if we can't prove or disprove the theory with high statistical confidence using a single experiment, we can formulate specific hypotheses that test the veracity of the theory and then try to refute those hypotheses. Either in controlled but very small scale settings, or by finding naturally occurring data sets that prove or refute the theory. Many economic theories are vaguely similar to evolution in this one respect[1]. The problem with theories of this variety is that if you know a priori what you want to be true, then you can amass evidence. So you have to be intellectually honest with yourself, or you're just hiding your magical thinking with a pile of complexity. [1] But extremely different in many other ways... I mean for this comparison only to point out a single similarity -- that neither theory's complete set of claims can be directly tested experimentally, but we can still think about these theories scientifically. Of course the comparison between evolution and any particular economic theory more-or-less stops there...