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> A field which cannot predict what will happen next time can't actually inform a policy maker as to whether their policy is useful. That charge could reasonab

> A field which cannot predict what will happen next time can't actually inform a policy maker as to whether their policy is useful. That charge could reasonably be made against economics. From 2008: 'During a briefing by academics at the London School of Economics on the turmoil on the international markets the Queen asked: "Why did nobody notice it?"' [0] [0] http://www.telegraph.co.uk/news/uknews/theroyalfamily/3386353/The-Queen-asks-why-no-one-saw-the-credit-crunch-coming.html http://www.telegraph.co.uk/news/uknews/theroyalfamily/338635...

jinfiesto 10y ago
Economics makes good predictions most of the time. It's a known flaw in the model that the movement of stock prices is fractally distributed. The model assumes normal distribution instead, since it's mathematically much more tractable. This is usually fine, but causes the model to underpredict rare events like the 2008 crash. I don't think this invalidates economics though. That's like saying physics is invalid because the Newtonian model doesn't 100% accurately reflect reality.
- pjmorris 10y ago
  > It's a known flaw in the model that the movement of stock prices is fractally distributed. There's plenty more to the economy, and to economics, and to the crisis than predicting stock prices. Reducing the question to stock prices is avoiding the question, IMO. > That's like saying physics is invalid because the Newtonian model doesn't 100% accurately reflect reality Not really. Newtonian physics is inaccurate in ways that are hard to measure at everyday human scale. The 2008 crisis was pretty noticeable, all over the world. I think an apt physics analogy would be something like getting a nuclear explosion out of starting a fire (technically, out of buying a house), something that's been done successfully for millennia without major incident.
  - jinfiesto 10y ago
    > There's plenty more to the economy, and to economics, and to the crisis than predicting stock prices. Reducing the question to stock prices is avoiding the question, IMO. You're absolutely correct. The point I was trying to make is that the economic model we use drastically under-predicts "rare" events like the 2008 crash. I wasn't trying to make a statement about the "cause" of the crash, so much as state that the model under-predicts such events. > Not really. Newtonian physics is inaccurate in ways that are hard to measure at everyday human scale. The 2008 crisis was pretty noticeable, all over the world. I think an apt physics analogy would be something like getting a nuclear explosion out of starting a fire (technically, out of buying a house), something that's been done successfully for millennia without major incident. All theoretical models are based on arbitrary axioms/assumptions. The degree to which they predict reality successfully is largely predicated by the degree to which the underlying axioms correctly reflect reality. I don't think this is a binary thing. I don't think that the field of economics is "invalidated" because it "failed" to predict the 2008 crash. I might argue that it's "less" correct or reflective of reality than Newtonian mechanics is, but again, I don't think the degree to which our predictive systems represent reality is binary. I don't think that they're either right or wrong, only more or less successful.
stuaxo 10y ago
Some people did, but they were not listened to.
- pjmorris 10y ago
  Yes. And that's one reason why I don't buy arguments about economic 'rigor'. There's a narrative that goes along with the rigor, and the narrative isn't always right.
  - weberc2 10y ago
    I don't understand your grievance with the usage of 'rigor'. I think there's a difference in occasionally failing to predict and (almost?) always failing to predict. When the field that consistently fails is often dependent upon autoethnographies and the like, it's hard not to criticize it for lack of rigor. Economics isn't perfect, but economists aren't basing their predictions on how they felt when they interviewed someone either. It seems to me that rigor is a perfectly valid distinguishing characteristic between the fields.
    - pjmorris 10y ago
      1) How much sense do equilibrium models make when money, and, especially, debt, which functions as money, can be created at the whim of certain participants (central banks, banks, credit-issuing companies) in the 'equilibrium'? It's ironic to me that the logic and analysis of scarcity is associated with the least scarce, most easily created material (money/debt) in the universe. At least with physics, matter can neither be created not destroyed. Feynman: 'There are 10^11 stars in the galaxy. That used to be a huge number. But it's only a hundred billion. It's less than the national deficit! We used to call them astronomical numbers. Now we should call them economical numbers.' 2) If you put a Keynesian economist, a neoclassical economist, and an Austrian economist (just to pick three flavors) in a room together and ask them to sort out what they agree and disagree on, the assumptions they'll make are more about narrative than about rigor... which would suggest that narrative is more important than the rigor folks give it credit for.
  - deleted 10y ago

jinfiesto 10y ago

Economics makes good predictions most of the time. It's a known flaw in the model that the movement of stock prices is fractally distributed. The model assumes normal distribution instead, since it's mathematically much more tractable. This is usually fine, but causes the model to underpredict rare events like the 2008 crash. I don't think this invalidates economics though. That's like saying physics is invalid because the Newtonian model doesn't 100% accurately reflect reality.

pjmorris 10y ago
> It's a known flaw in the model that the movement of stock prices is fractally distributed. There's plenty more to the economy, and to economics, and to the crisis than predicting stock prices. Reducing the question to stock prices is avoiding the question, IMO. > That's like saying physics is invalid because the Newtonian model doesn't 100% accurately reflect reality Not really. Newtonian physics is inaccurate in ways that are hard to measure at everyday human scale. The 2008 crisis was pretty noticeable, all over the world. I think an apt physics analogy would be something like getting a nuclear explosion out of starting a fire (technically, out of buying a house), something that's been done successfully for millennia without major incident.
- jinfiesto 10y ago
  > There's plenty more to the economy, and to economics, and to the crisis than predicting stock prices. Reducing the question to stock prices is avoiding the question, IMO. You're absolutely correct. The point I was trying to make is that the economic model we use drastically under-predicts "rare" events like the 2008 crash. I wasn't trying to make a statement about the "cause" of the crash, so much as state that the model under-predicts such events. > Not really. Newtonian physics is inaccurate in ways that are hard to measure at everyday human scale. The 2008 crisis was pretty noticeable, all over the world. I think an apt physics analogy would be something like getting a nuclear explosion out of starting a fire (technically, out of buying a house), something that's been done successfully for millennia without major incident. All theoretical models are based on arbitrary axioms/assumptions. The degree to which they predict reality successfully is largely predicated by the degree to which the underlying axioms correctly reflect reality. I don't think this is a binary thing. I don't think that the field of economics is "invalidated" because it "failed" to predict the 2008 crash. I might argue that it's "less" correct or reflective of reality than Newtonian mechanics is, but again, I don't think the degree to which our predictive systems represent reality is binary. I don't think that they're either right or wrong, only more or less successful.

stuaxo 10y ago

Some people did, but they were not listened to.

pjmorris 10y ago
Yes. And that's one reason why I don't buy arguments about economic 'rigor'. There's a narrative that goes along with the rigor, and the narrative isn't always right.
- weberc2 10y ago
  I don't understand your grievance with the usage of 'rigor'. I think there's a difference in occasionally failing to predict and (almost?) always failing to predict. When the field that consistently fails is often dependent upon autoethnographies and the like, it's hard not to criticize it for lack of rigor. Economics isn't perfect, but economists aren't basing their predictions on how they felt when they interviewed someone either. It seems to me that rigor is a perfectly valid distinguishing characteristic between the fields.
  - pjmorris 10y ago
    1) How much sense do equilibrium models make when money, and, especially, debt, which functions as money, can be created at the whim of certain participants (central banks, banks, credit-issuing companies) in the 'equilibrium'? It's ironic to me that the logic and analysis of scarcity is associated with the least scarce, most easily created material (money/debt) in the universe. At least with physics, matter can neither be created not destroyed. Feynman: 'There are 10^11 stars in the galaxy. That used to be a huge number. But it's only a hundred billion. It's less than the national deficit! We used to call them astronomical numbers. Now we should call them economical numbers.' 2) If you put a Keynesian economist, a neoclassical economist, and an Austrian economist (just to pick three flavors) in a room together and ask them to sort out what they agree and disagree on, the assumptions they'll make are more about narrative than about rigor... which would suggest that narrative is more important than the rigor folks give it credit for.
- deleted 10y ago