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I think Nassim is standing on shaky ground here, although we do not have the full text of his remarks. I do not think our understanding of real world economics

I think Nassim is standing on shaky ground here, although we do not have the full text of his remarks. I do not think our understanding of real world economics and the way that our economy actually works is adequate to state anything about the impact of one strategy versus another. Academic Economics certainly is not adequate to predict anything in the real world with any degree of reliability. Time series analysis of indicators does not provide insight into the causes and effects of complex events. No one seems to be trying to model the impact of various strategies and compare them to observations. Policy makers really need better, experimentally validated tools to help them make decisions. We need an experimentally verifiable model that allows rational comparison of strategies. It would be nice to have some experimental validation of the belief systems of the current economic pundits. Me, I doubt that the unfettered free market economy can deliver what is promised. Without better understanding, we will continue to fly blind, waste resources, and make sub-optimal decisions.

fauigerzigerk 16y ago
How do you imagine experimental validation in a macro economic context?
Locke1689 16y ago
I do not think our understanding of real world economics and the way that our economy actually works is adequate to state anything about the impact of one strategy versus another. Academic Economics certainly is not adequate to predict anything in the real world with any degree of reliability. Time series analysis of indicators does not provide insight into the causes and effects of complex events. No one seems to be trying to model the impact of various strategies and compare them to observations. This is what makes this not Hacker News, in my opinion.
lzw 16y ago
I would like to point out that the understanding of real world economics is developed enough to make very accurate predictions. For instance, I knew in late 2000 or early 2001 that there would be a housing boom, a housing bubble, and a banking crisis when it burst. I was a slacker so it wasn't until 2003-2004 that I started putting money behind this scenario and I profited on the way up and on the way down. (I was way too conservative in retrospect.) I applied economic principles (and not my own genius, I just knew who to read) with real money and profited greatly as history unfolded as predicted. The school of economics that told me about this upcomming bubble and predicted it using the same theories they have used for nearly 100 years is the Austrian School, and you can learn more about them at http://mises.org http://mises.org. I know much of what is presented in mainstream media, the NYT and in many college courses seems complicated to the point of uselessness, and certainly we had Bernanke and Greenspan both claiming there was no housing bubble, even when it was well on its way in 2006-2007. It is not that economics is so very complicated, it is that these people have a vested interest in pretending like economics is unpredictable. Their interest is in unlimited government spending, and so they constantly talk about deflation (never a real fear) to justify an inflationary policy which is also known as "letting the government spend whatever they wish to buy votes and gain power." Of course you doubt that an "unfettered" free market economy can deliver what is promised because you've never seen one, and instead all your life you've seen government interventions result in disaster, and then said disaster being blamed on "free market principles". Like california, which banned the generation and sale of electricity in the state blaming "deregulation" for the energy crisis. Complete with well orchestrated ENRON show trial. It is not ignorance that causes these suboptimal decisions, it is poltiicians putting one over on you. FWIW, the Austrian Schools predictions go back many years, including accurately predicting the great depression, the fall of communism-- not just that it would fall, but how exactly it would fall and why-- 70 years in advance, etc. I believe the ability to make predictions is the mark of a science. I shouldn't care that most people buy the government nonsense that economics is "just too complicated"... because I am able to profit from the ability to make these predictions. But I see so many lives destroyed by this, and needlessly, deliberately, by people who are either extremely ignorant, or dishonest, that it drives me up the wall. (And so I post here, knowing that I risk being downvoted into oblivion, not for failing to provide a wealth of information or a relevant perspective, but for not goosestepping along with the party line.) As long as you believe it is impossible, you won't hold them accountable when they cause disaster. I can predict the next two bubbles... they are already well under way. The bond market bubble is the next one to pop. I expect we'll have a crisis in some form before the end of 2012, though timing is hard to predict. The question is, how are they going to inflate their way out of that one-- because the prime candidate for the crisis is a failed bond auction. (The fed appears to be printing money and buying at its own treasury auctions already to keep them from failing... this is hidden, but the clues are there, and as a result, buyers are getting wary...who knows when they will be spooked.) AT some point after that the next bubble- the bubble in the value of the US dollar, will burst. We'll have hyperinflation, most likely, unless our government takes as sharp turn towards responsibility.... but how long that takes to play out is unclear. What is clear is that we have benefited from exporting our inflation for the past 70+ years, under Bretton Woods and other agreements, and this was viable so long as we were a major exporter, and our government was solvent. But the soverign debt crisis sweeping europe right now is hitting countries whose (real) debt to GDP ratio is similar to ours or lower--- and our debt is growing at an unprecedented clip. It is not hard to make predictions, even with some understanding of the timing. Economics works. The problem is what is passed off as "economics" in popular culture is, most of the time, simply political ideology pretending to be economics.
- waterlesscloud 16y ago
  I voted you up, even though I don't know that I agree with your coming predictions. But I've been thinking about a similar topic tonight, as I read columnists and reporters talking about how complex financial instruments are these days and how no one really understands them. Because the basics of them aren't all that complicated. CDOs, CDSs. ETFs, whatever. None of them are particularly complex concepts. Anyone with a CS degree has mastered concepts many times more complex. I accept that the details get tricky, but the details of lots of things get tricky, and a lot of people make solid livings being responsible in managing tricky concepts. None of these financial instruments are magic. I'm a curious layman, I get the gist of all of it. And then there's people who claim their variable rate mortgage was too complicated to understand. Come now. So I was thinking that it's really just in everyone's interest to pretend this stuff is hard to understand, that it's complicated, that it's magic. Because then no one is responsible. And then, as the saying goes, was I enlightened. The housing bubble was easy to see. Everyone saw it. Many, perhaps most, ignored it. Because they wanted to. It let them gamble and not be responsible. From Joe Homebuyer to James J. Investmentbanker IV. Some things are complicated, sovereign bonds and currencies among them. There are many reasons that nearly all the powers that exist want to keep that music going, and they have many tools at their disposal. I honestly don't know what will happen there, which is why I'm not sure I agree with your predictions in those areas. There's real magic at work there, and it's one of the few areas where make-believe becomes reality. The US has a very strong hold on centrality in the global economy, and I can't see how it's cleanly broken without severely damaging anyone who has the power to break it. That's the magic part.
  - lzw 16y ago
    Currencies are a really interesting thing. After I started to get into commodities and read up on the history of central banks-- the creature from jekyll island is a good book on the subject-- I found I started tobsee money fundamentally differently..... I see the paper in my wallet like i see the huge bundles of worthless notes from Zimbabwe.... Worthless. I know intellectually that I can exchange it, but knowing it's eventual and intrinsicev value changed my relationship with it. And in doing so, I realized just how strongly I'd been conditioned, emotionally, and thru rationalizations, to see this paper as money. Not sure if that resonates. One thing I'd like to also put yor ear is the idea of moral hazard. Even when everyone was in denial about the bubble, and trying to not be the greater fool, they had in the back of their heads the moral hazard.... Knwoing if it was really bad, they'd get bailed out by the government. Im not talking about banks, but about real estate agents and home buyers, etc...and they were right!
cturner 16y ago
You're asking after 'experimental validation' but vague on detail. It's a difficult topic. Economics is not a sandbox. For macroeconomic topics, you can't create a cluster of equal samples and then test them. And where you have tools to predict what will happen, you may be changing the future due to the feedback loop. If somebody writes a paper demonstrating that a market will go up over a certain period, they may influence readers and cause the market to go up sooner. Soros discusses this feedback loop at length in _ The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What it Means_, which is a book about his philosophy dressed up to sell copies in the wake of the crisis. The issue of scientific approaches to testing economic theories is a major fault-line within economics. Me, I doubt that the unfettered free market economy can deliver what is promised. What promise, and by whom? The alternative to a free market is the various degrees of intervention that are making it not-free. Often, this means government interference. Tariffs and other forms of pork-barreling. It was a major achievement for humans to reach a point where we could isolate power structures from trade. We've since moved a long way from it. The free market is cheap to maintain, simple, scalable, transparent and - by definition - free of political interference. It is not a system, it is an absence of system. It doesn't make promises. Without better understanding, we will continue to fly blind, waste resources, and make sub-optimal decisions. This will always happen. You can't predict the future reliably, and where you do, you may change it. It's a dud goal to want to create super-hacker economists who knowingly steer the economy. The best we can do is to create simple, well-understood circumstances that everyone knows, and where everyone is subject to the same rules.
- lzw 16y ago
  Fortunately, free market economists, such as the Austrian School and the Chicago School are so marginalized by the dominant neo-Keynsians that you can't make the claim that they have had enough influence to make their predictions into self fulfilling prophecies! Wait, no, that's unfortunate, actually. Considering all the lives that have been destroyed as result.
  - _delirium 16y ago
    It would take a pretty strange view of academic economics to believe that the Chicago school has been generally "marginalized", while the neo-Keynesian school has been "dominant". At least in U.S. economics departments of the past few decades, they've traded dominance on and off, and I'm not sure either has enjoyed a measurably greater period of dominance. Chicago-school economics was dominant in the 1980s and 1990s, and especially in the late 1980s neo-Keynesianism was almost completely marginalized in academia. It's now made a comeback post-financial-crisis, and currently has the upper hand, but Chicago-school economists haven't exactly disappeared, and are still prominent at many of the top schools.

fauigerzigerk 16y ago

How do you imagine experimental validation in a macro economic context?

Locke1689 16y ago

I do not think our understanding of real world economics and the way that our economy actually works is adequate to state anything about the impact of one strategy versus another. Academic Economics certainly is not adequate to predict anything in the real world with any degree of reliability. Time series analysis of indicators does not provide insight into the causes and effects of complex events. No one seems to be trying to model the impact of various strategies and compare them to observations. This is what makes this not Hacker News, in my opinion.

lzw 16y ago

I would like to point out that the understanding of real world economics is developed enough to make very accurate predictions. For instance, I knew in late 2000 or early 2001 that there would be a housing boom, a housing bubble, and a banking crisis when it burst. I was a slacker so it wasn't until 2003-2004 that I started putting money behind this scenario and I profited on the way up and on the way down. (I was way too conservative in retrospect.) I applied economic principles (and not my own genius, I just knew who to read) with real money and profited greatly as history unfolded as predicted. The school of economics that told me about this upcomming bubble and predicted it using the same theories they have used for nearly 100 years is the Austrian School, and you can learn more about them at http://mises.org http://mises.org. I know much of what is presented in mainstream media, the NYT and in many college courses seems complicated to the point of uselessness, and certainly we had Bernanke and Greenspan both claiming there was no housing bubble, even when it was well on its way in 2006-2007. It is not that economics is so very complicated, it is that these people have a vested interest in pretending like economics is unpredictable. Their interest is in unlimited government spending, and so they constantly talk about deflation (never a real fear) to justify an inflationary policy which is also known as "letting the government spend whatever they wish to buy votes and gain power." Of course you doubt that an "unfettered" free market economy can deliver what is promised because you've never seen one, and instead all your life you've seen government interventions result in disaster, and then said disaster being blamed on "free market principles". Like california, which banned the generation and sale of electricity in the state blaming "deregulation" for the energy crisis. Complete with well orchestrated ENRON show trial. It is not ignorance that causes these suboptimal decisions, it is poltiicians putting one over on you. FWIW, the Austrian Schools predictions go back many years, including accurately predicting the great depression, the fall of communism-- not just that it would fall, but how exactly it would fall and why-- 70 years in advance, etc. I believe the ability to make predictions is the mark of a science. I shouldn't care that most people buy the government nonsense that economics is "just too complicated"... because I am able to profit from the ability to make these predictions. But I see so many lives destroyed by this, and needlessly, deliberately, by people who are either extremely ignorant, or dishonest, that it drives me up the wall. (And so I post here, knowing that I risk being downvoted into oblivion, not for failing to provide a wealth of information or a relevant perspective, but for not goosestepping along with the party line.) As long as you believe it is impossible, you won't hold them accountable when they cause disaster. I can predict the next two bubbles... they are already well under way. The bond market bubble is the next one to pop. I expect we'll have a crisis in some form before the end of 2012, though timing is hard to predict. The question is, how are they going to inflate their way out of that one-- because the prime candidate for the crisis is a failed bond auction. (The fed appears to be printing money and buying at its own treasury auctions already to keep them from failing... this is hidden, but the clues are there, and as a result, buyers are getting wary...who knows when they will be spooked.) AT some point after that the next bubble- the bubble in the value of the US dollar, will burst. We'll have hyperinflation, most likely, unless our government takes as sharp turn towards responsibility.... but how long that takes to play out is unclear. What is clear is that we have benefited from exporting our inflation for the past 70+ years, under Bretton Woods and other agreements, and this was viable so long as we were a major exporter, and our government was solvent. But the soverign debt crisis sweeping europe right now is hitting countries whose (real) debt to GDP ratio is similar to ours or lower--- and our debt is growing at an unprecedented clip. It is not hard to make predictions, even with some understanding of the timing. Economics works. The problem is what is passed off as "economics" in popular culture is, most of the time, simply political ideology pretending to be economics.

waterlesscloud 16y ago
I voted you up, even though I don't know that I agree with your coming predictions. But I've been thinking about a similar topic tonight, as I read columnists and reporters talking about how complex financial instruments are these days and how no one really understands them. Because the basics of them aren't all that complicated. CDOs, CDSs. ETFs, whatever. None of them are particularly complex concepts. Anyone with a CS degree has mastered concepts many times more complex. I accept that the details get tricky, but the details of lots of things get tricky, and a lot of people make solid livings being responsible in managing tricky concepts. None of these financial instruments are magic. I'm a curious layman, I get the gist of all of it. And then there's people who claim their variable rate mortgage was too complicated to understand. Come now. So I was thinking that it's really just in everyone's interest to pretend this stuff is hard to understand, that it's complicated, that it's magic. Because then no one is responsible. And then, as the saying goes, was I enlightened. The housing bubble was easy to see. Everyone saw it. Many, perhaps most, ignored it. Because they wanted to. It let them gamble and not be responsible. From Joe Homebuyer to James J. Investmentbanker IV. Some things are complicated, sovereign bonds and currencies among them. There are many reasons that nearly all the powers that exist want to keep that music going, and they have many tools at their disposal. I honestly don't know what will happen there, which is why I'm not sure I agree with your predictions in those areas. There's real magic at work there, and it's one of the few areas where make-believe becomes reality. The US has a very strong hold on centrality in the global economy, and I can't see how it's cleanly broken without severely damaging anyone who has the power to break it. That's the magic part.
- lzw 16y ago
  Currencies are a really interesting thing. After I started to get into commodities and read up on the history of central banks-- the creature from jekyll island is a good book on the subject-- I found I started tobsee money fundamentally differently..... I see the paper in my wallet like i see the huge bundles of worthless notes from Zimbabwe.... Worthless. I know intellectually that I can exchange it, but knowing it's eventual and intrinsicev value changed my relationship with it. And in doing so, I realized just how strongly I'd been conditioned, emotionally, and thru rationalizations, to see this paper as money. Not sure if that resonates. One thing I'd like to also put yor ear is the idea of moral hazard. Even when everyone was in denial about the bubble, and trying to not be the greater fool, they had in the back of their heads the moral hazard.... Knwoing if it was really bad, they'd get bailed out by the government. Im not talking about banks, but about real estate agents and home buyers, etc...and they were right!

cturner 16y ago

You're asking after 'experimental validation' but vague on detail. It's a difficult topic. Economics is not a sandbox. For macroeconomic topics, you can't create a cluster of equal samples and then test them. And where you have tools to predict what will happen, you may be changing the future due to the feedback loop. If somebody writes a paper demonstrating that a market will go up over a certain period, they may influence readers and cause the market to go up sooner. Soros discusses this feedback loop at length in _ The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What it Means_, which is a book about his philosophy dressed up to sell copies in the wake of the crisis. The issue of scientific approaches to testing economic theories is a major fault-line within economics. Me, I doubt that the unfettered free market economy can deliver what is promised. What promise, and by whom? The alternative to a free market is the various degrees of intervention that are making it not-free. Often, this means government interference. Tariffs and other forms of pork-barreling. It was a major achievement for humans to reach a point where we could isolate power structures from trade. We've since moved a long way from it. The free market is cheap to maintain, simple, scalable, transparent and - by definition - free of political interference. It is not a system, it is an absence of system. It doesn't make promises. Without better understanding, we will continue to fly blind, waste resources, and make sub-optimal decisions. This will always happen. You can't predict the future reliably, and where you do, you may change it. It's a dud goal to want to create super-hacker economists who knowingly steer the economy. The best we can do is to create simple, well-understood circumstances that everyone knows, and where everyone is subject to the same rules.

lzw 16y ago
Fortunately, free market economists, such as the Austrian School and the Chicago School are so marginalized by the dominant neo-Keynsians that you can't make the claim that they have had enough influence to make their predictions into self fulfilling prophecies! Wait, no, that's unfortunate, actually. Considering all the lives that have been destroyed as result.
- _delirium 16y ago
  It would take a pretty strange view of academic economics to believe that the Chicago school has been generally "marginalized", while the neo-Keynesian school has been "dominant". At least in U.S. economics departments of the past few decades, they've traded dominance on and off, and I'm not sure either has enjoyed a measurably greater period of dominance. Chicago-school economics was dominant in the 1980s and 1990s, and especially in the late 1980s neo-Keynesianism was almost completely marginalized in academia. It's now made a comeback post-financial-crisis, and currently has the upper hand, but Chicago-school economists haven't exactly disappeared, and are still prominent at many of the top schools.