12 ms·

Post-crash economics: have we learnt nothing?

118 points by okket 8y ago

travbrack 8y ago
We learned nothing.
- js8 8y ago
  Betteridge's Law of Headlines: No, we haven't learnt anything.
fogetti 8y ago
I think the author falsely assumes that academic economists and the people who go on to work in big business, governments and central banks were not aware of the shortcomings of their discipline. I would assume instead that they were. But greed and power was their motivator nonetheless. So I wish good luck for her but I don't think awareness will change the hunger for power or greed in any way.
- 9mit3t2m9h9a 8y ago
  Probably so. At some point I won some maths-heavy economy textbooks in an undergraduate probability theory competition. It was last updated a few years before 2008 (I would guess no later than 2004), and it is mainstream enough to be a gift agreed upon by large-finance sponsors and financial-applied probability theory professors. While explaining the market models, the book had quite a few footnotes that briefly mentioned incentive structures at different levels (individual traders, groups inside a company, mortgage-issuers that unload all of the risk…) Sometimes it stayed politically correct («it remains to be seen how this incentive structure will affect market stability»), sometimes not (especially when there were enough historical examples of exactly the same incentive structure leading to the same problems), but it made clear that principal-agent problems in the then-current (and now-current) economy are well-known and easy to describe in mainstream economics.
  - whycombinater 8y ago
    What book is that?
elvinyung 8y ago
There's a very large body of work in fields like critical economic geography (as an extremely introductory and nonrepresentative example, [1][2]) that discuss the affective, pluralistic dimensions to global and local economies, of which I think orthodox economics barely touches on (slightly, somewhat, in neuroeconomics). I think this is really important. With a better understanding of the limits of human rationality (which is chief among other things) we can begin to unravel the original axioms and assumptions of the neoliberal era, the ones that basically treat humans merely as selfish, individualistic, perfectly-rational economic agents. With a better understanding of this, we can begin to build a society for humans instead of capital. [1] https://pdfs.semanticscholar.org/f10a/6bae34ac59c7be9b7741feef9c1566757caf.pdf https://pdfs.semanticscholar.org/f10a/6bae34ac59c7be9b7741fe... [2] https://onlinelibrary.wiley.com/doi/abs/10.1002/9781118384497.ch34 https://onlinelibrary.wiley.com/doi/abs/10.1002/978111838449...
- bachmeier 8y ago
  > With a better understanding of the limits of human rationality (which is chief among other things) we can begin to unravel the original axioms and assumptions of the neoliberal era, the ones that basically treat humans merely as selfish, individualistic, perfectly-rational economic agents. Your comment is the equivalent of saying astronomers need to consider models in which the planets rotate around the sun. Just as one bit of evidence, we can ask if anyone has ever been awarded the Nobel Prize for studying the things you claim "economics barely touches on". If someone received a Nobel Prize, the field hasn't "barely touched on" it. 2017: Richard Thaler for behavioral economics. His entire career has been devoted to studying the limits of human rationality. 2013: Robert Shiller for his work showing financial markets are not efficient. 2002: Kahneman and Smith for using experiments to study the decision making process. 2001: George Akerlof, whose Nobel Lecture included "Behavioral Macroeconomics". 1978: Herbert Simon, the guy responsible for bounded rationality. These are just a few names off the top of my head that won a Nobel Prize for work that you say economists aren't doing.
  - elvinyung 8y ago
    But I think that precisely misses the point. Yes, orthodox academic economics focuses very deeply on the psychology of decision making, but it doesn't focus very broadly on all the other things I mentioned. I love the work of Kahneman and Tversky (among others) as much as anyone else, but I would still further argue that there's so much more to do, that as far as I know, orthodox economics still mostly ignores other components of society within which economics is imbricated, such as the cultural (overviewed by the John Pickles paper I linked) and the affective (e.g. the unremunerated emotional and affective labor that the author mentions as integral to the functioning of the economy). Can you argue that this is scope creep? Sure, but you can also go the other way, and argue that any reductionism will always make the model inaccurate. Striking a balance is obviously important here, but I would argue that it is necessary at the very least to try widening the scope, at least a little bit.
archgoon 8y ago
This author doesn't really explain how their proposed additions to the curriculum would have predicted the subprime mortgage crisis. If the author is going to criticize mainstream economics for being irrelevant, it seems reasonable that they show how using their methods, it could have been predicted.
- sgt101 8y ago
  Ok, if we demonstrate that the movement of the planets is not accurately predicted using a well loved system is it appropriate for us to be held to having to invent a new system before publishing? It might be that there is another planet, or it might be that our understanding of the universe is incomplete. It seems to me that the information that there is something out there that isn't covered by our predictions is quite useful for directing science.
  - hanniabu 8y ago
    If just proving wrong, then no. But if you're trying to suggest additions, changes, or an entirely new model, then yes you should have to prove it.
    - sgt101 8y ago
      There are shades of grey here. In an absolute sense Newtonian mechanics worked until the systems of measurement got good enough to show that there were problems. Economics seems to be in quite a different situation - it's been shown not to work at all. Economists seem to have very little predictive capability, they predict poorly, measure things that matter little and deliver interventions that alter the wrong things. An alternative doesn't have a high bar to jump.
  - Kalium 8y ago
    > Ok, if we demonstrate that the movement of the planets is not accurately predicted using a well loved system is it appropriate for us to be held to having to invent a new system before publishing? Absolutely not! That would be irrelevant, out of scope, and completely unreasonable. That said, if you're going to opine that you have a better model, you might be best advised to bring data that demonstrates it.
montalbano 8y ago
A good book written by members of the student society Maeve discusses here, for those interested: 'The Econocracy' by Earle, Moran and Ward-Perkins
- dredmorbius 8y ago
  Mentioned in TFA FWIW.
sgt101 8y ago
I think a big problem is that economics - as defined by culture from the enlightenment to about 1980, with markets created by locally rational transactions - isn't as important as the culture that defined it made it to be. For example, the market and the function of the market was seen as an absolute / starting point for an economy. In China it was not possible to simply establish a market, but instead what has happened is that the state created pseudo private enterprises outside of a market system / in the absence of a market system which then underpinned further economic activity. The market of ideas - which is the construction that we put on democracy has been further challenged. The Chinese government employs more than 50m people, and this wide participation in a structured and hierarchical mechanistic system provides another way of managing and legitimising capital allocation.
- ElBarto 8y ago
  A functioning free market is the best system we've come with for capital allocation and benefits to consumers. Even China tends to create competing corporations and to let them compete. In many industries they actually let private players create companies independently.
  - GijsjanB 8y ago
    This is a rhetoric that is being repeated and repeated, but the simplification renders it obsolete. In my opinion. What market is free? Who is your consumer? What about ((yet) unforseen?) externalities? We've come up with a lot more systems and are sticking with this "free" market one, but being technicians, we know that more often than not, not the "best" system endures.
    - ElBarto 8y ago
      A functioning free market, or at least the best approximation that we can have in practice, requires state intervention. I think this is a crucial point that is too often overlooked. Many people think that "free market" means no intervention. While this might be the theoretical definitions, in practice that does not work and the system degenerates. If a good approximation of a functioning free market can be achieved then it is indeed the best option we have.
skookumchuck 8y ago
Economists can't even agree on what caused the Great Depression.
bjhoops1 8y ago
Golly, if I didn't know any better I'd think that maybe the field that deals with questions of power and resource allocation might not actually be apolitical, but may be primarily driven by the need to justify existing distributions of power and resources.
- bjhoops1 8y ago
  Good thread for more specifics on the myriad problems with mainstream economics: https://twitter.com/unlearningecon/status/920325123810447361 https://twitter.com/unlearningecon/status/920325123810447361
  - closeparen 8y ago
    Whether mainstream economics has issues is wholly uninteresting, unless you are proposing a different theory with fewer issues. "The academy is flawed" doesn't mean that what the populists feel in their hearts is correct. It's the closest approximation of the truth we have.
    - robertAngst 8y ago
      >It's the closest approximation of the truth we have. Since that approximation is not the truth, but a tiny fraction of the truth, is it wrong?
      - abakker 8y ago
        Since we’re asking rhetoricals, is it useful to have an approximation of some portion of a system, or nothing at all?
        bjhoops1 8y ago
        I think it is useful, and that’s a perfect way to describe mainstream economics. What’s frustrating (but predictable) is that there exists an entirely separate branch of economics which makes much more powerful observations about the fundamental nature of capitalist economics, including politics, power, and sociology. But Marxist economics are simply excluded from the Western economic tradition because it makes value judgements which directly and dangerously controversy the interests of the ruling capitalist class. In a healthier world, elements of mainstream economics would be combined with the fundamental Marxist critique of capitalism to produce new systems that are more efficient and less exploitative.
speedplane 8y ago
Economics isn’t science. In science you have the scientific method, control and experimental studies that can validate a hypothesis. that’s pretty impractical to do as an economist. Economists often describe their field as the study of human incentives, which is basically the study of human decision making, which is basically reading minds. It’s a worthy subject of study, but we put far too much faith in it that what’s warrented.
- antt 8y ago
  What controls and experiments can you do in astronomy? The scientific method is a thin veneer best left at in the high school curriculum where it belongs. Actual science is vastly more messy and interesting.
  - adrianN 8y ago
    You can figure out that there is no luminiferous aether between the planets with an interferometer. You can observe that the light of distant stars is bent by the sun's gravity during an eclipse. You can check that the planets appear in the sky where your celestial mechanics predict them to be. You can find out what elements the stars are made of with a prism. There are lots of experiments you can do.
    - antt 8y ago
      The ether was a part of dynamics. Elements in a star is part of chemistry. The rest of those are not experiments, they are descriptions of natural phenomena we have no power of repeating. Which goes to show that you can have a science that does not have experiments but does have observations.
      - adrianN 8y ago
        We clearly have different definitions of "experiment". Having a theory (e.g. light is affected by gravity), making a prediction (that star that should be behind the sun will be visible) and then doing an observation fits my definition of experiment. It's more difficult to reproduce that measuring the speeds of falling apples, but eclipses are not that rare and you can always come up with other predictions from you theory and do the corresponding observations. I would rather argue that we can in fact do experiments in economics as well. It's just harder to draw conclusions from the observations because there are lots of variables you can't control for easily.
kebman 8y ago
Wow, what Socialist crap that article is, and in Nature of all things! Probably best to steer clear of those books on economy! Anyway, if you look into how trading is done today, and how big firms – especially banks – are allowed to operate, then it's no wonder it goes as it goes. First off no company should be too big to fail. That should be your first warning sign that it's become too oligarchic, if not completely monopolistic. But no, most governments chose to go in the opposite direction, and further corporatize and monopolize the behemots. Well, good luck with that! Now we're probably just moments before the biggest crash in history. People talk about 2008 being this century's 1929. Ha! That was peanuts!
Dowwie 8y ago
Sure, the world has learned hard to swallow truths that business media won't adopt because it's not aligned with their narrative.
projektfu 8y ago
I liked her comment about mainstream economics' bias toward maximizing "efficiency". It definitely felt like eliminating sources of "deadweight loss" was the primary goal of introductory microeconomics. Nevertheless, most societies today have substantial tax rates, suggesting that there are other priorities than efficiency in the real world. Interestingly, though, mainstream macroeconomics would probably have predicted (and could have been used to prevent) the 2008 crisis if it had actually been used. Instead, well-positioned economists supported policies that ignored the rapid growth of a housing bubble and the fact that it was driving a substantial portion of total economic output. I would not, for example, call the analysis in Baker's 2002 paper [1] a heterodox analysis, indeed, it was pretty mainstream. It was, however, contrary to the pronouncements of the Federal Reserve. 1. http://cepr.net/publications/reports/the-run-up-in-home-prices-is-it-real-or-is-it-another-bubble http://cepr.net/publications/reports/the-run-up-in-home-pric...
thanatropism 8y ago
The author's true colors come out when he rails for post-Keynesian economics as an alternative worth studying. As much as economics ("mainstream" or "orthodox economics" is an expression like "allopathic medicine") is a struggling pre-science that has just in the 90s begun to adopt RCTs, etc -- the alternative these people are saying is snake oil. "Post Keynesian economics" isn't even trying -- it's just a justification for the kind of irrationally exuberant policies that caused 2008 in first place.
your-nanny 8y ago
it's not that we haven't learned, it's just that the forgetting is so good.
vertline3 8y ago
We have known for hundreds of years that over expansion of debt causes crashes. Maybe I'm missing the point, were economists supposed to stop the expansion of debt?
your-nanny 8y ago
The idea that economics is formulated as it is to protect the status quo, or to justify the distribution of wealth and power is only partially correct. Economists have a lot to say that elites do not want to hear. The political class, in fact, routinely ignores economists' prescriptions, eg a carbon tax. Instead, I would say that: (1) on some issues there is a diversity of opinion among economists and so people pick and choose their ecomist to justify their position (2) non academic employed economists' pronouncements tend to reflect the interests of their employers (for variety of reasons) (3) as a class economists defend not the status quo but an ideology that justifies that status quo. for example pareto optimal policies dont really work out when distributions are already highly unequal.
throw2016 8y ago
Mainstream macro economics is 'captured', and they have been behaving like high priests justifying dubious policies. [1] The 80s onwards have seen massive CEO pay increases, financialization, asset inflation, deregulation, the vulgar celebration of greed by economists and on the other side wage stagnation, increasing inequality, the 2008 crisis and endless bailouts. Greenspan and others are happy to gloat about cornering labour in Congress [2]. This is an odious statement made without protest from members. Macro economists can continue to be tone deaf and believe the narratives of emh, rational expectations, 'freetrade' and 'assumptions' that are disconnected from reality but there is now significant dissent and resistance to these narratives. [3] Evonomics is a good place to start getting a perspective of the scale of problems, and people need to do this untill there is a complete meaculpa and clean up of corporate and vested interests, untill then every single thing macro economists say needs to be questioned and verified. [1] https://paulromer.net/wp-content/uploads/2016/09/WP-Trouble.pdf https://paulromer.net/wp-content/uploads/2016/09/WP-Trouble.... [2] https://www.federalreserve.gov/boarddocs/hh/1997/february/testimony.htm https://www.federalreserve.gov/boarddocs/hh/1997/february/te... [3] http://evonomics.com/economyths-five-stages-economic-grief/ http://evonomics.com/economyths-five-stages-economic-grief/
fouc 8y ago
The crash wasn't really about economics, it was more about people abusing financial instruments for short term gains. There would need to be some sort of meta-field that combines economics, finance, banking, politics, etc to properly analyze the cause/effect and predict this.
pdfernhout 8y ago
Related from 2003 by Jim Sanford: "Confessions of a Recovering Economist" http://www.paecon.net/PAEReview/issue21/Stanford21.htm http://www.paecon.net/PAEReview/issue21/Stanford21.htm "I am an economist. It is seventeen days since I last uttered the phrase "supply and demand." But the demon still lurks untamed, within me. Economics is an addiction. Every other addiction has a Twelve Step program, laced with tough love and blunt self-honesty. Why not a Twelve Step program for economists? God knows, we have done enough damage with our arrogant, drunken prescriptions. Here's how each and every economist can face up to their inner demons, and make their own small contribution to setting things right. ..." From 2010: "They Did Their Homework (800 Years of It)" https://www.nytimes.com/2010/07/04/business/economy/04econ.html https://www.nytimes.com/2010/07/04/business/economy/04econ.h... "But in the wake of the recent crisis, a few economists — like Professors Reinhart and Rogoff, and other like-minded colleagues like Barry Eichengreen and Alan Taylor — have been encouraging others in their field to look beyond hermetically sealed theoretical models and into the historical record. “There is so much inbredness in this profession,” says Ms. Reinhart. “They all read the same sources. They all use the same data sets. They all talk to the same people. There is endless extrapolation on extrapolation on extrapolation, and for years that is what has been rewarded.”" Or from 2011: "Economics for the Rest of Us: Debunking the Science That Makes Life Dismal" by Moshe Adler https://www.goodreads.com/book/show/7197448-economics-for-the-rest-of-us https://www.goodreads.com/book/show/7197448-economics-for-th... "Why do contemporary economists consider food subsidies in starving countries, rent control in rich cities, and health insurance everywhere "inefficient"? Why do they feel that corporate executives deserve no less than their multimillion-dollar "compensation" packages and workers no more than their meager wages? Here is a lively and accessible debunking of the two elements that make economics the "science" of the rich: the definition of what is efficient and the theory of how wages are determined. The first is used to justify the cruelest policies, the second grand larceny.Filled with lively examples-from food riots in Indonesia to eminent domain in Connecticut and everyone from Adam Smith to Jeremy Bentham to Larry Summers-Economics for the Rest of Us shows how today's dominant economic theories evolved, how they explicitly favor the rich over the poor, and why they're not the only or best options. Written for anyone with an interest in understanding contemporary economic thinking-and why it is dead wrong-Economics for the Rest of Us offers a foundation for a fundamentally more just economic system." Or harder hitting from a trial lawyer: http://conceptualguerilla.com/essays/essays-on-economics-and-ideology/mythology-of-wealth/ http://conceptualguerilla.com/essays/essays-on-economics-and... "Old habits die hard. In fact, we still have a “leisure class”. As capitalism has grown so has the wealth and privilege of our leisure class. The old mythologies – gods, the “great chain of being” etc. – are no longer available to justify the existence and perpetuation of our leisure class, something our elites are definitely interested in perpetuating. What was needed was a new “rational” world-view that justified the existence of privileged elites. That rationalization came in the form of a brand new science known as economics, which included a brand new mythology." Or from 1999: "The Market as God" by Harvey Cox (Harvard professor of religion): https://www.theatlantic.com/magazine/archive/1999/03/the-market-as-god/306397/ https://www.theatlantic.com/magazine/archive/1999/03/the-mar... "A few years ago a friend advised me that if I wanted to know what was going on in the real world, I should read the business pages. Although my lifelong interest has been in the study of religion, I am always willing to expand my horizons; so I took the advice, vaguely fearful that I would have to cope with a new and baffling vocabulary. Instead I was surprised to discover that most of the concepts I ran across were quite familiar. Expecting a terra incognita, I found myself instead in the land of déjà vu. The lexicon of The Wall Street Journal and the business sections of Time and Newsweek turned out to bear a striking resemblance to Genesis, the Epistle to the Romans, and Saint Augustine's City of God. Behind descriptions of market reforms, monetary policy, and the convolutions of the Dow, I gradually made out the pieces of a grand narrative about the inner meaning of human history, why things had gone wrong, and how to put them right. Theologians call these myths of origin, legends of the fall, and doctrines of sin and redemption. But here they were again, and in only thin disguise: chronicles about the creation of wealth, the seductive temptations of statism, captivity to faceless economic cycles, and, ultimately, salvation through the advent of free markets, with a small dose of ascetic belt tightening along the way, especially for the East Asian economies." See also: "The Impact of Inequality: How to Make Sick Societies Healthier" by Richard G. Wilkinson And: "The Spirit Level: Why Greater Equality Makes Societies Stronger" by Richard Wilkinson and Kate Pickett And: "The Price of Inequality" by Joseph E. Stiglitz Another petition/manifesto by students from 2009: "The True Cost Economics Manifesto" https://blog.p2pfoundation.net/the-true-cost-economics-manifesto/2009/08/09 https://blog.p2pfoundation.net/the-true-cost-economics-manif... "“We, the Undersigned, make this accusation: that you, the teachers of neoclassical economics and the students that you graduate, have perpetuated a gigantic fraud upon the world. You claim to work in a pure science of formula and law, but yours is a social science, with all the fragility and uncertainty that this entails. We accuse you of pretending to be what you are not. You hide in your offices, protected by your mathematical jargon, while in the real world, forests vanish, species perish and human lives are callously destroyed. We accuse you of gross negligence in the management of our planetary household. ..." There is at least one other petition I saw from around then (though with softer words) mainly by economics professors and grad students -- can't find it at the moment. Or to go way, way back, see Marshall Sahlins: http://www.primitivism.com/original-affluent.htm http://www.primitivism.com/original-affluent.htm "Hunter-gatherers consume less energy per capita per year than any other group of human beings. Yet when you come to examine it the original affluent society was none other than the hunter's -- in which all the people's material wants were easily satisfied. To accept that hunters are affluent is therefore to recognise that the present human condition of man slaving to bridge the gap between his unlimited wants and his insufficient means is a tragedy of modern times. ... The world's most primitive people have few possessions. but they are not poor. Poverty is not a certain small amount of goods, nor is it just a relation between means and ends; above all it is a relation between people. Poverty is a social status. As such it is the invention of civilisation. It has grown with civilisation, at once as an invidious distinction between classes and more importantly as a tributary relation that can render agrarian peasants more susceptible to natural catastrophes than any winter camp of Alaskan Eskimo." Even in the 1980s when I was in college it was clear to many that much of economics was, essentially, am apologetic branch of mathematics with little connection to the real world. My own take on that from around 2008: https://pdfernhout.net/post-scarcity-princeton.html#Some_comments_on_the_PU_Economics_department_and_related_research_directions_from_a_post-scarcity_perspective https://pdfernhout.net/post-scarcity-princeton.html#Some_com...
timwaagh 8y ago
Such a shame nature lends it's name to this absolute drivel. There are reasonable 'mainstream' explanations for the crash. I was fortunate to attend a lecture at my alma mater on that. It had to do with insurance and the difficulty of doing risk analysis and communicating this down the line. The only thing she is right about is that economics is not as exact as physics. But that should be taken as a sign to develop better numerical analysis methods rather than to embrace 'that's just your opinion man' level bs. She does not belong in science at all.
- atmosx 8y ago
  Are you implying that “economics” is/are a science that can be expressed through mathematical models?
- quotemstr 8y ago
  I agree. There's a case to be made that traditional macroeconomic models should incorporate more of the findings of experimental microeconomics that show how humans differ from idealized economic agents --- but this article is not such a case. Instead, it's just postmodern ideological drivel that suggests replacing numbers with advocacy, done under the guise of "ecological economics" and "feminist economics" and emphasizing "the collective over the individual". This article in Nature is exactly the sort of dead weight that accumulates during economic expansions and that we discard during economic contractions. The article is a move in a tiresome academic status game. It is not useful for describing, predicting, or governing society. You see this nonsense in every part of academia. The worth of theory is its predictive power, not its ideological purpose or its "values".
  - FabHK 8y ago
    I disagree. A traditional economics education is problematic: It naturally (and ostensively ineluctably, from first principles by logical deduction) leads to libertarianism. > The worth of theory is its predictive power Naive economics predicts that deregulation leads to higher welfare. That prediction did not pan out. James Kwak has elaborated on the above points in his book Economism [1]. > It is not useful for describing, predicting, or governing society. Well, governing society better is precisely what is at stake here. This article might not be the best manifesto for reform of economics education, and might have gone over board a bit with the more fashionable and silly "<adjective> economics", but the fundamental point stands: People that have taken traditional highly technical undergrad or even graduate economics classes without further context in economic history, political philosophy, etc. should not be left in charge of shaping policy. [1] https://economism.net https://economism.net
quotemstr 8y ago
The real lesson of the 2008 crash is that long periods of prosperity inevitably produce an accumulation of poor investments, parasitic false beliefs, and outright fraud. At first, the economy is strong enough to shrug off the burden of this detritus, but it eventually accumulates and overwhelms growth. We end up one day having a Minsky moment and clean up the crud accumulated during the growth phase. The best way to minimize the pain associated with this necessary process is to commit to reason, empiricism, and truth during the growth phase, minimizing the accumulation of uselessness that the eventual economic contraction must discharge.

118 points by okket 8y ago

travbrack 8y ago

We learned nothing.

js8 8y ago
Betteridge's Law of Headlines: No, we haven't learnt anything.

fogetti 8y ago

I think the author falsely assumes that academic economists and the people who go on to work in big business, governments and central banks were not aware of the shortcomings of their discipline. I would assume instead that they were. But greed and power was their motivator nonetheless. So I wish good luck for her but I don't think awareness will change the hunger for power or greed in any way.

9mit3t2m9h9a 8y ago
Probably so. At some point I won some maths-heavy economy textbooks in an undergraduate probability theory competition. It was last updated a few years before 2008 (I would guess no later than 2004), and it is mainstream enough to be a gift agreed upon by large-finance sponsors and financial-applied probability theory professors. While explaining the market models, the book had quite a few footnotes that briefly mentioned incentive structures at different levels (individual traders, groups inside a company, mortgage-issuers that unload all of the risk…) Sometimes it stayed politically correct («it remains to be seen how this incentive structure will affect market stability»), sometimes not (especially when there were enough historical examples of exactly the same incentive structure leading to the same problems), but it made clear that principal-agent problems in the then-current (and now-current) economy are well-known and easy to describe in mainstream economics.
- whycombinater 8y ago
  What book is that?

elvinyung 8y ago

There's a very large body of work in fields like critical economic geography (as an extremely introductory and nonrepresentative example, [1][2]) that discuss the affective, pluralistic dimensions to global and local economies, of which I think orthodox economics barely touches on (slightly, somewhat, in neuroeconomics). I think this is really important. With a better understanding of the limits of human rationality (which is chief among other things) we can begin to unravel the original axioms and assumptions of the neoliberal era, the ones that basically treat humans merely as selfish, individualistic, perfectly-rational economic agents. With a better understanding of this, we can begin to build a society for humans instead of capital. [1] https://pdfs.semanticscholar.org/f10a/6bae34ac59c7be9b7741feef9c1566757caf.pdf https://pdfs.semanticscholar.org/f10a/6bae34ac59c7be9b7741fe... [2] https://onlinelibrary.wiley.com/doi/abs/10.1002/9781118384497.ch34 https://onlinelibrary.wiley.com/doi/abs/10.1002/978111838449...

bachmeier 8y ago
> With a better understanding of the limits of human rationality (which is chief among other things) we can begin to unravel the original axioms and assumptions of the neoliberal era, the ones that basically treat humans merely as selfish, individualistic, perfectly-rational economic agents. Your comment is the equivalent of saying astronomers need to consider models in which the planets rotate around the sun. Just as one bit of evidence, we can ask if anyone has ever been awarded the Nobel Prize for studying the things you claim "economics barely touches on". If someone received a Nobel Prize, the field hasn't "barely touched on" it. 2017: Richard Thaler for behavioral economics. His entire career has been devoted to studying the limits of human rationality. 2013: Robert Shiller for his work showing financial markets are not efficient. 2002: Kahneman and Smith for using experiments to study the decision making process. 2001: George Akerlof, whose Nobel Lecture included "Behavioral Macroeconomics". 1978: Herbert Simon, the guy responsible for bounded rationality. These are just a few names off the top of my head that won a Nobel Prize for work that you say economists aren't doing.
- elvinyung 8y ago
  But I think that precisely misses the point. Yes, orthodox academic economics focuses very deeply on the psychology of decision making, but it doesn't focus very broadly on all the other things I mentioned. I love the work of Kahneman and Tversky (among others) as much as anyone else, but I would still further argue that there's so much more to do, that as far as I know, orthodox economics still mostly ignores other components of society within which economics is imbricated, such as the cultural (overviewed by the John Pickles paper I linked) and the affective (e.g. the unremunerated emotional and affective labor that the author mentions as integral to the functioning of the economy). Can you argue that this is scope creep? Sure, but you can also go the other way, and argue that any reductionism will always make the model inaccurate. Striking a balance is obviously important here, but I would argue that it is necessary at the very least to try widening the scope, at least a little bit.

archgoon 8y ago

This author doesn't really explain how their proposed additions to the curriculum would have predicted the subprime mortgage crisis. If the author is going to criticize mainstream economics for being irrelevant, it seems reasonable that they show how using their methods, it could have been predicted.

sgt101 8y ago
Ok, if we demonstrate that the movement of the planets is not accurately predicted using a well loved system is it appropriate for us to be held to having to invent a new system before publishing? It might be that there is another planet, or it might be that our understanding of the universe is incomplete. It seems to me that the information that there is something out there that isn't covered by our predictions is quite useful for directing science.
- hanniabu 8y ago
  If just proving wrong, then no. But if you're trying to suggest additions, changes, or an entirely new model, then yes you should have to prove it.
  - sgt101 8y ago
    There are shades of grey here. In an absolute sense Newtonian mechanics worked until the systems of measurement got good enough to show that there were problems. Economics seems to be in quite a different situation - it's been shown not to work at all. Economists seem to have very little predictive capability, they predict poorly, measure things that matter little and deliver interventions that alter the wrong things. An alternative doesn't have a high bar to jump.
- Kalium 8y ago
  > Ok, if we demonstrate that the movement of the planets is not accurately predicted using a well loved system is it appropriate for us to be held to having to invent a new system before publishing? Absolutely not! That would be irrelevant, out of scope, and completely unreasonable. That said, if you're going to opine that you have a better model, you might be best advised to bring data that demonstrates it.

montalbano 8y ago

A good book written by members of the student society Maeve discusses here, for those interested: 'The Econocracy' by Earle, Moran and Ward-Perkins

dredmorbius 8y ago
Mentioned in TFA FWIW.

sgt101 8y ago

I think a big problem is that economics - as defined by culture from the enlightenment to about 1980, with markets created by locally rational transactions - isn't as important as the culture that defined it made it to be. For example, the market and the function of the market was seen as an absolute / starting point for an economy. In China it was not possible to simply establish a market, but instead what has happened is that the state created pseudo private enterprises outside of a market system / in the absence of a market system which then underpinned further economic activity. The market of ideas - which is the construction that we put on democracy has been further challenged. The Chinese government employs more than 50m people, and this wide participation in a structured and hierarchical mechanistic system provides another way of managing and legitimising capital allocation.

ElBarto 8y ago
A functioning free market is the best system we've come with for capital allocation and benefits to consumers. Even China tends to create competing corporations and to let them compete. In many industries they actually let private players create companies independently.
- GijsjanB 8y ago
  This is a rhetoric that is being repeated and repeated, but the simplification renders it obsolete. In my opinion. What market is free? Who is your consumer? What about ((yet) unforseen?) externalities? We've come up with a lot more systems and are sticking with this "free" market one, but being technicians, we know that more often than not, not the "best" system endures.
  - ElBarto 8y ago
    A functioning free market, or at least the best approximation that we can have in practice, requires state intervention. I think this is a crucial point that is too often overlooked. Many people think that "free market" means no intervention. While this might be the theoretical definitions, in practice that does not work and the system degenerates. If a good approximation of a functioning free market can be achieved then it is indeed the best option we have.

skookumchuck 8y ago

Economists can't even agree on what caused the Great Depression.

bjhoops1 8y ago

Golly, if I didn't know any better I'd think that maybe the field that deals with questions of power and resource allocation might not actually be apolitical, but may be primarily driven by the need to justify existing distributions of power and resources.

bjhoops1 8y ago
Good thread for more specifics on the myriad problems with mainstream economics: https://twitter.com/unlearningecon/status/920325123810447361 https://twitter.com/unlearningecon/status/920325123810447361
- closeparen 8y ago
  Whether mainstream economics has issues is wholly uninteresting, unless you are proposing a different theory with fewer issues. "The academy is flawed" doesn't mean that what the populists feel in their hearts is correct. It's the closest approximation of the truth we have.
  - robertAngst 8y ago
    >It's the closest approximation of the truth we have. Since that approximation is not the truth, but a tiny fraction of the truth, is it wrong?
    - abakker 8y ago
      Since we’re asking rhetoricals, is it useful to have an approximation of some portion of a system, or nothing at all?
      - bjhoops1 8y ago
        I think it is useful, and that’s a perfect way to describe mainstream economics. What’s frustrating (but predictable) is that there exists an entirely separate branch of economics which makes much more powerful observations about the fundamental nature of capitalist economics, including politics, power, and sociology. But Marxist economics are simply excluded from the Western economic tradition because it makes value judgements which directly and dangerously controversy the interests of the ruling capitalist class. In a healthier world, elements of mainstream economics would be combined with the fundamental Marxist critique of capitalism to produce new systems that are more efficient and less exploitative.

speedplane 8y ago

Economics isn’t science. In science you have the scientific method, control and experimental studies that can validate a hypothesis. that’s pretty impractical to do as an economist. Economists often describe their field as the study of human incentives, which is basically the study of human decision making, which is basically reading minds. It’s a worthy subject of study, but we put far too much faith in it that what’s warrented.

antt 8y ago
What controls and experiments can you do in astronomy? The scientific method is a thin veneer best left at in the high school curriculum where it belongs. Actual science is vastly more messy and interesting.
- adrianN 8y ago
  You can figure out that there is no luminiferous aether between the planets with an interferometer. You can observe that the light of distant stars is bent by the sun's gravity during an eclipse. You can check that the planets appear in the sky where your celestial mechanics predict them to be. You can find out what elements the stars are made of with a prism. There are lots of experiments you can do.
  - antt 8y ago
    The ether was a part of dynamics. Elements in a star is part of chemistry. The rest of those are not experiments, they are descriptions of natural phenomena we have no power of repeating. Which goes to show that you can have a science that does not have experiments but does have observations.
    - adrianN 8y ago
      We clearly have different definitions of "experiment". Having a theory (e.g. light is affected by gravity), making a prediction (that star that should be behind the sun will be visible) and then doing an observation fits my definition of experiment. It's more difficult to reproduce that measuring the speeds of falling apples, but eclipses are not that rare and you can always come up with other predictions from you theory and do the corresponding observations. I would rather argue that we can in fact do experiments in economics as well. It's just harder to draw conclusions from the observations because there are lots of variables you can't control for easily.

kebman 8y ago

Wow, what Socialist crap that article is, and in Nature of all things! Probably best to steer clear of those books on economy! Anyway, if you look into how trading is done today, and how big firms – especially banks – are allowed to operate, then it's no wonder it goes as it goes. First off no company should be too big to fail. That should be your first warning sign that it's become too oligarchic, if not completely monopolistic. But no, most governments chose to go in the opposite direction, and further corporatize and monopolize the behemots. Well, good luck with that! Now we're probably just moments before the biggest crash in history. People talk about 2008 being this century's 1929. Ha! That was peanuts!

Dowwie 8y ago

Sure, the world has learned hard to swallow truths that business media won't adopt because it's not aligned with their narrative.

projektfu 8y ago

I liked her comment about mainstream economics' bias toward maximizing "efficiency". It definitely felt like eliminating sources of "deadweight loss" was the primary goal of introductory microeconomics. Nevertheless, most societies today have substantial tax rates, suggesting that there are other priorities than efficiency in the real world. Interestingly, though, mainstream macroeconomics would probably have predicted (and could have been used to prevent) the 2008 crisis if it had actually been used. Instead, well-positioned economists supported policies that ignored the rapid growth of a housing bubble and the fact that it was driving a substantial portion of total economic output. I would not, for example, call the analysis in Baker's 2002 paper [1] a heterodox analysis, indeed, it was pretty mainstream. It was, however, contrary to the pronouncements of the Federal Reserve. 1. http://cepr.net/publications/reports/the-run-up-in-home-prices-is-it-real-or-is-it-another-bubble http://cepr.net/publications/reports/the-run-up-in-home-pric...

thanatropism 8y ago

The author's true colors come out when he rails for post-Keynesian economics as an alternative worth studying. As much as economics ("mainstream" or "orthodox economics" is an expression like "allopathic medicine") is a struggling pre-science that has just in the 90s begun to adopt RCTs, etc -- the alternative these people are saying is snake oil. "Post Keynesian economics" isn't even trying -- it's just a justification for the kind of irrationally exuberant policies that caused 2008 in first place.

your-nanny 8y ago

it's not that we haven't learned, it's just that the forgetting is so good.

vertline3 8y ago

We have known for hundreds of years that over expansion of debt causes crashes. Maybe I'm missing the point, were economists supposed to stop the expansion of debt?

your-nanny 8y ago

The idea that economics is formulated as it is to protect the status quo, or to justify the distribution of wealth and power is only partially correct. Economists have a lot to say that elites do not want to hear. The political class, in fact, routinely ignores economists' prescriptions, eg a carbon tax. Instead, I would say that: (1) on some issues there is a diversity of opinion among economists and so people pick and choose their ecomist to justify their position (2) non academic employed economists' pronouncements tend to reflect the interests of their employers (for variety of reasons) (3) as a class economists defend not the status quo but an ideology that justifies that status quo. for example pareto optimal policies dont really work out when distributions are already highly unequal.

throw2016 8y ago

Mainstream macro economics is 'captured', and they have been behaving like high priests justifying dubious policies. [1] The 80s onwards have seen massive CEO pay increases, financialization, asset inflation, deregulation, the vulgar celebration of greed by economists and on the other side wage stagnation, increasing inequality, the 2008 crisis and endless bailouts. Greenspan and others are happy to gloat about cornering labour in Congress [2]. This is an odious statement made without protest from members. Macro economists can continue to be tone deaf and believe the narratives of emh, rational expectations, 'freetrade' and 'assumptions' that are disconnected from reality but there is now significant dissent and resistance to these narratives. [3] Evonomics is a good place to start getting a perspective of the scale of problems, and people need to do this untill there is a complete meaculpa and clean up of corporate and vested interests, untill then every single thing macro economists say needs to be questioned and verified. [1] https://paulromer.net/wp-content/uploads/2016/09/WP-Trouble.pdf https://paulromer.net/wp-content/uploads/2016/09/WP-Trouble.... [2] https://www.federalreserve.gov/boarddocs/hh/1997/february/testimony.htm https://www.federalreserve.gov/boarddocs/hh/1997/february/te... [3] http://evonomics.com/economyths-five-stages-economic-grief/ http://evonomics.com/economyths-five-stages-economic-grief/

fouc 8y ago

The crash wasn't really about economics, it was more about people abusing financial instruments for short term gains. There would need to be some sort of meta-field that combines economics, finance, banking, politics, etc to properly analyze the cause/effect and predict this.

pdfernhout 8y ago

Related from 2003 by Jim Sanford: "Confessions of a Recovering Economist" http://www.paecon.net/PAEReview/issue21/Stanford21.htm http://www.paecon.net/PAEReview/issue21/Stanford21.htm "I am an economist. It is seventeen days since I last uttered the phrase "supply and demand." But the demon still lurks untamed, within me. Economics is an addiction. Every other addiction has a Twelve Step program, laced with tough love and blunt self-honesty. Why not a Twelve Step program for economists? God knows, we have done enough damage with our arrogant, drunken prescriptions. Here's how each and every economist can face up to their inner demons, and make their own small contribution to setting things right. ..." From 2010: "They Did Their Homework (800 Years of It)" https://www.nytimes.com/2010/07/04/business/economy/04econ.html https://www.nytimes.com/2010/07/04/business/economy/04econ.h... "But in the wake of the recent crisis, a few economists — like Professors Reinhart and Rogoff, and other like-minded colleagues like Barry Eichengreen and Alan Taylor — have been encouraging others in their field to look beyond hermetically sealed theoretical models and into the historical record. “There is so much inbredness in this profession,” says Ms. Reinhart. “They all read the same sources. They all use the same data sets. They all talk to the same people. There is endless extrapolation on extrapolation on extrapolation, and for years that is what has been rewarded.”" Or from 2011: "Economics for the Rest of Us: Debunking the Science That Makes Life Dismal" by Moshe Adler https://www.goodreads.com/book/show/7197448-economics-for-the-rest-of-us https://www.goodreads.com/book/show/7197448-economics-for-th... "Why do contemporary economists consider food subsidies in starving countries, rent control in rich cities, and health insurance everywhere "inefficient"? Why do they feel that corporate executives deserve no less than their multimillion-dollar "compensation" packages and workers no more than their meager wages? Here is a lively and accessible debunking of the two elements that make economics the "science" of the rich: the definition of what is efficient and the theory of how wages are determined. The first is used to justify the cruelest policies, the second grand larceny.Filled with lively examples-from food riots in Indonesia to eminent domain in Connecticut and everyone from Adam Smith to Jeremy Bentham to Larry Summers-Economics for the Rest of Us shows how today's dominant economic theories evolved, how they explicitly favor the rich over the poor, and why they're not the only or best options. Written for anyone with an interest in understanding contemporary economic thinking-and why it is dead wrong-Economics for the Rest of Us offers a foundation for a fundamentally more just economic system." Or harder hitting from a trial lawyer: http://conceptualguerilla.com/essays/essays-on-economics-and-ideology/mythology-of-wealth/ http://conceptualguerilla.com/essays/essays-on-economics-and... "Old habits die hard. In fact, we still have a “leisure class”. As capitalism has grown so has the wealth and privilege of our leisure class. The old mythologies – gods, the “great chain of being” etc. – are no longer available to justify the existence and perpetuation of our leisure class, something our elites are definitely interested in perpetuating. What was needed was a new “rational” world-view that justified the existence of privileged elites. That rationalization came in the form of a brand new science known as economics, which included a brand new mythology." Or from 1999: "The Market as God" by Harvey Cox (Harvard professor of religion): https://www.theatlantic.com/magazine/archive/1999/03/the-market-as-god/306397/ https://www.theatlantic.com/magazine/archive/1999/03/the-mar... "A few years ago a friend advised me that if I wanted to know what was going on in the real world, I should read the business pages. Although my lifelong interest has been in the study of religion, I am always willing to expand my horizons; so I took the advice, vaguely fearful that I would have to cope with a new and baffling vocabulary. Instead I was surprised to discover that most of the concepts I ran across were quite familiar. Expecting a terra incognita, I found myself instead in the land of déjà vu. The lexicon of The Wall Street Journal and the business sections of Time and Newsweek turned out to bear a striking resemblance to Genesis, the Epistle to the Romans, and Saint Augustine's City of God. Behind descriptions of market reforms, monetary policy, and the convolutions of the Dow, I gradually made out the pieces of a grand narrative about the inner meaning of human history, why things had gone wrong, and how to put them right. Theologians call these myths of origin, legends of the fall, and doctrines of sin and redemption. But here they were again, and in only thin disguise: chronicles about the creation of wealth, the seductive temptations of statism, captivity to faceless economic cycles, and, ultimately, salvation through the advent of free markets, with a small dose of ascetic belt tightening along the way, especially for the East Asian economies." See also: "The Impact of Inequality: How to Make Sick Societies Healthier" by Richard G. Wilkinson And: "The Spirit Level: Why Greater Equality Makes Societies Stronger" by Richard Wilkinson and Kate Pickett And: "The Price of Inequality" by Joseph E. Stiglitz Another petition/manifesto by students from 2009: "The True Cost Economics Manifesto" https://blog.p2pfoundation.net/the-true-cost-economics-manifesto/2009/08/09 https://blog.p2pfoundation.net/the-true-cost-economics-manif... "“We, the Undersigned, make this accusation: that you, the teachers of neoclassical economics and the students that you graduate, have perpetuated a gigantic fraud upon the world. You claim to work in a pure science of formula and law, but yours is a social science, with all the fragility and uncertainty that this entails. We accuse you of pretending to be what you are not. You hide in your offices, protected by your mathematical jargon, while in the real world, forests vanish, species perish and human lives are callously destroyed. We accuse you of gross negligence in the management of our planetary household. ..." There is at least one other petition I saw from around then (though with softer words) mainly by economics professors and grad students -- can't find it at the moment. Or to go way, way back, see Marshall Sahlins: http://www.primitivism.com/original-affluent.htm http://www.primitivism.com/original-affluent.htm "Hunter-gatherers consume less energy per capita per year than any other group of human beings. Yet when you come to examine it the original affluent society was none other than the hunter's -- in which all the people's material wants were easily satisfied. To accept that hunters are affluent is therefore to recognise that the present human condition of man slaving to bridge the gap between his unlimited wants and his insufficient means is a tragedy of modern times. ... The world's most primitive people have few possessions. but they are not poor. Poverty is not a certain small amount of goods, nor is it just a relation between means and ends; above all it is a relation between people. Poverty is a social status. As such it is the invention of civilisation. It has grown with civilisation, at once as an invidious distinction between classes and more importantly as a tributary relation that can render agrarian peasants more susceptible to natural catastrophes than any winter camp of Alaskan Eskimo." Even in the 1980s when I was in college it was clear to many that much of economics was, essentially, am apologetic branch of mathematics with little connection to the real world. My own take on that from around 2008: https://pdfernhout.net/post-scarcity-princeton.html#Some_comments_on_the_PU_Economics_department_and_related_research_directions_from_a_post-scarcity_perspective https://pdfernhout.net/post-scarcity-princeton.html#Some_com...

timwaagh 8y ago

Such a shame nature lends it's name to this absolute drivel. There are reasonable 'mainstream' explanations for the crash. I was fortunate to attend a lecture at my alma mater on that. It had to do with insurance and the difficulty of doing risk analysis and communicating this down the line. The only thing she is right about is that economics is not as exact as physics. But that should be taken as a sign to develop better numerical analysis methods rather than to embrace 'that's just your opinion man' level bs. She does not belong in science at all.

atmosx 8y ago
Are you implying that “economics” is/are a science that can be expressed through mathematical models?
quotemstr 8y ago
I agree. There's a case to be made that traditional macroeconomic models should incorporate more of the findings of experimental microeconomics that show how humans differ from idealized economic agents --- but this article is not such a case. Instead, it's just postmodern ideological drivel that suggests replacing numbers with advocacy, done under the guise of "ecological economics" and "feminist economics" and emphasizing "the collective over the individual". This article in Nature is exactly the sort of dead weight that accumulates during economic expansions and that we discard during economic contractions. The article is a move in a tiresome academic status game. It is not useful for describing, predicting, or governing society. You see this nonsense in every part of academia. The worth of theory is its predictive power, not its ideological purpose or its "values".
- FabHK 8y ago
  I disagree. A traditional economics education is problematic: It naturally (and ostensively ineluctably, from first principles by logical deduction) leads to libertarianism. > The worth of theory is its predictive power Naive economics predicts that deregulation leads to higher welfare. That prediction did not pan out. James Kwak has elaborated on the above points in his book Economism [1]. > It is not useful for describing, predicting, or governing society. Well, governing society better is precisely what is at stake here. This article might not be the best manifesto for reform of economics education, and might have gone over board a bit with the more fashionable and silly "<adjective> economics", but the fundamental point stands: People that have taken traditional highly technical undergrad or even graduate economics classes without further context in economic history, political philosophy, etc. should not be left in charge of shaping policy. [1] https://economism.net https://economism.net

quotemstr 8y ago

The real lesson of the 2008 crash is that long periods of prosperity inevitably produce an accumulation of poor investments, parasitic false beliefs, and outright fraud. At first, the economy is strong enough to shrug off the burden of this detritus, but it eventually accumulates and overwhelms growth. We end up one day having a Minsky moment and clean up the crud accumulated during the growth phase. The best way to minimize the pain associated with this necessary process is to commit to reason, empiricism, and truth during the growth phase, minimizing the accumulation of uselessness that the eventual economic contraction must discharge.