15 ms·

Experts Keep Getting the Economy Wrong

53 points by FactolSarin 8y ago

huffmsa 8y ago
> Last week, while attending an economics conference in Washington, I discovered one particularly clear sign of the economy’s struggles — namely, that it keeps performing worse than the experts have predicted. Sounds like the "experts" aren't that good at their jobs and so are blaming "the economy" for making them look like fools. What do you call an expert poker player who loses every hand? A loser. Money talks, bullshit walks. Economics is a hack field, no matter how many Krugmans pretend they're gods. "Discussing growth without concern for fragility: like studying construction without thinking of collapses. Think like engineer not economist." -- Taleb
blackflame7000 8y ago
I hate articles that call people experts and then build their argument on the assumption that the expert can’t be wrong
- huffmsa 8y ago
  It's what happens when you don't have to prove your expertness with measurable metrics.
SubiculumCode 8y ago
Perhaps, just perhaps, the worldwide rounds and rounds of austerity just didn't work.
alexnewman 8y ago
Warning this is a very difficult subject. Please consider responding before voting me down. Economics is plagued by three major problems. - History - Momentum - Incentives I do not believe it is reasonable to believe that economics is a tool of elite bankers even though they are clearly the most well supported humanity subject in colleges. What I do think what happened was after ww2 we solidified on a ya reserve currency (vs bancor) and an economic model which assumes a loanable funds model. Because so much of central banking is about stability and predictability, the fed has mostly acted along the same framework since the 40s. However, we are starting to see a change in the policy of the english and german central banks. This is probably due to the super toxic italian Euro -> German Euro arb and brexit. Europe is going to deploy australian style relief in the upcoming european economic disaster
gridlockd 8y ago
Why is the income of the 0.01% rising so drastically? Because it is based on assets like stock and real estate, which are inflating at a rate completely detached from the actual economy. Why are asset prices inflating? Because of a policy of easy and cheap money, worldwide. Why is there a policy of easy and cheap money? To "boost" the zombie economies. Why boost the zombie economies? To maintain zombie jobs and prevent unemployment. Why not just take a shortcut and hand out cash directly to the people? Because then all prices, including consumer goods, will inflate. The "solution" isn't tax cuts, it's a massive re-pricing and it'll happen on its own. Something like what happened to Japan in the nineties.
- __ralston3 8y ago
  Love the list/bulleted way that this is presented. Obviously missing a lot of granular points, but at a high level, I think this is spot on
  - thundergolfer 8y ago
    It's missing the fact that the 0.01% are so ridiculously wealthy already because they control fabulously profitable enterprises, and they keep the produced value of those enterprises with insufficient distribution to everyone else. Absent cheap-money, they'd still be in a inequitable position that wouldn't correct itself on its own.
    - gridlockd 8y ago
      > It's missing the fact that the 0.01% are so ridiculously wealthy already because they control fabulously profitable enterprises, and they keep the produced value of those enterprises with insufficient distribution to everyone else. What do you consider "fabulously profitable"? Take a peek here for a reality check: https://insight.factset.com/sp-500-reporting-record-high-net-profit-margin-for-q1-2018 https://insight.factset.com/sp-500-reporting-record-high-net... A "record high" average profit margin only equals to around 10% and at least theoretically that needs to balance out the bad years. > Absent cheap-money, they'd still be in a inequitable position that wouldn't correct itself on its own. Of course inequity will remain, even if everyone lost 90% of their paper wealth, the ratios remain the same. However, you're implying there is a problem with inequity, I submit to you that you need inequity. If all the money were to be expropriated and spread out to all the people, there is nothing left for investment. Individually, the money just doesn't amount to much and it would likely be consumed right away, or used to pay off debt. Over time, that money would accumulate at the top again, but in the meantime, you would have an economic disaster. Of course you could have the government do all the investment, but that just means you shifted all that inequity from private individuals (who at least in theory will use their money somewhat wisely) to a bureaucracy which has no incentive to be efficient. The real problem is that we have a monetary policy that protects poor investment. There is no need for private individuals to manage their wealth properly, to make informed investments, etc. All they need to do is put their money into diversified stocks and real estate, because they can rely on the governments bailing them out if things go south.
grayed-down 8y ago
Just imagine for a moment how different this article would be if the US had a democrat administration. I dare say it would read with a near utopian glow.
- erentz 8y ago
  This makes so little sense in relation to the actual content of the article and even the very clear title, I almost wonder if Russian troll farms now trying to infect Hacker News.
  - dang 8y ago
    Please keep this toxic trope away from here. If you review the site guidelines, you'll see how your comment breaks them. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
- JoshCole 8y ago
  Wrong. The author wrote a similar piece during Obama's tenure with the same thesis that economic experts are routinely underestimating economic weakness.
  - whateveracct 8y ago
    They were being sarcastic I believe.
- SubiculumCode 8y ago
  Why is it the many of those on the right are always convinced they are subject to mass media conspiracy?
- dang 8y ago
  Please keep political flamebait (or any flamebait) off HN.
dmix 8y ago
The author wrote pretty much the same article in 2012 called Obamanomics https://www.nytimes.com/2012/09/30/sunday-review/obamanomics-a-counterhistory.html https://www.nytimes.com/2012/09/30/sunday-review/obamanomics...
rpeden 8y ago
What if we've entered an era where this is the new normal? Where the kind of growth we've seen in the past isn't something we can expect anymore? I'm asking because I'm genuinely curious and I have no idea whether this is a reasonable hypothesis or not. I'm hoping others here can point me toward what I should be reading to learn more.
- harimau777 8y ago
  It seems to me that the primary way that average people can get ahead (at least in America, I'm less familiar with other countries) is by investing; which requires growth. If that went away, I'd be afraid that new generations or people who aren't from rich families would be stuck. I wonder if there are any thinkers that have developed a plan for prosperity without growth that doesn't rely on utopianism?
- moduspol 8y ago
  It's not an unreasonable hypothesis, but it's certainly not new, either. The same hypothesis was made five, ten, twenty, and more years ago. And it was wrong every time. That doesn't mean it's wrong now, but it does invite further retrospection why people thought it might be the case then, why they ended up being wrong, and what potential blind spots might lead to this perspective today.
- Can_Not 8y ago
  We're leaving capitalism to enter into a new type of society. Rentierism. Everything is already owned. Even things you currently own, or don't even exist, are being taken back from you so you can be charged rent for it. It's like feudalism, but you can have as many feudal lords as you want to live under--as a service.
- coldtea 8y ago
  >What if we've entered an era where this is the new normal? Where the kind of growth we've seen in the past isn't something we can expect anymore? You're not allowed to ever think that. Growth will keep on forever, boosted by magic yet uninvented technology if it ever stalls, bypassing all physical resource limits, and at an exponential rate preferably. /s If you really want to learn more, though, avoid all mainstream economists and pundits paid to promote state and business interests.
lucidguppy 8y ago
I think humanity is burnt out on this version of civilization.
dboreham 8y ago
Isn't this just the same as sales forecasts inside a company or software development project schedule estimates? Nobody gets promoted for saying "it's very hard to predict how long it will take to develop software, but it'll probably take a long time, much longer than you'd like". Similarly nobody gets a promotion from forecasting that we're doomed. So there's a built in optimism bias.
- 0815test 8y ago
  The best forecasts are always provided by market indicators. And these indicators seem to be agreeing that we are in stagnation territory, though we might still manage to achieve a nice "soft landing" that doesn't lead to slipping into an outright recession.
burlesona 8y ago
From the article: > Beside a lack of competition, the investment slump stems from what Summers calls the de-massification of the economy. Developers aren’t building as many malls and stores, because goods now go straight from warehouses to homes. Offices don’t need as much storage space. Cellphones have replaced not just desktop computers but also cameras, stereos, books and more. Many young people have decided they’re happy living in small apartments, without cars. My reaction to that is LOL. Those changes represent forward progress, we can have more and better stuff easier than before, and/or our preferences have changed. If that somehow is “the cause” of our “economic suffering,” then maybe it’s time to change the way we measure.
- petermcneeley 8y ago
  Those changes only represent progress if they represent preference choice. However I very much doubt that most people are preferring to have living standards lower than their parents. In order to evaluate preferences you need to observer Choice.
- sesteel 8y ago
  Consolidation, optimization, and related vertical integration in manufacturing leaves people out of the value chain. Many roles will eventually evaporate without competition and/or new advancements. In general, growth follows an S-curve with market saturation and consolidation eventually inhibiting growth. I beleive it will get harder and harder to afford "more and better stuff" over the long term with the way our economic system is set up. I encourage people to take a look at the concept of binary economics which was fathered by Louise Kelso; his ideas gave rise to employee stock ownership programs. My ultimate point is: Labor will eventually evaporate and we, as individuals, should look towards ownership and invest our wealth in companies who will ultimately own production and services.
- njepa 8y ago
  I think the weird part is that as large successful companies are turning to vertical integration, at least many western societies are going the other way.
- mchanson 8y ago
chillacy 8y ago
Every year the GDP grows while inequality gets worse. This is going to come home when most Americans look at the topline stats (GDP and unemployment) getting better while their own lives get worse. Are we optimizing the wrong thing?
- zone411 8y ago
  The inequality in the US is growing but not as fast as you might think from listening to the media: [1]. The real median household income has grown faster since 2010: [2] (the mean household size went from 2.59 to 2.53 during this time [3]) and I think that matters more to an average person than the GDP (as does unemployment like you said). [1] https://fred.stlouisfed.org/series/SIPOVGINIUSA https://fred.stlouisfed.org/series/SIPOVGINIUSA [2] https://fred.stlouisfed.org/series/MEHOINUSA672N https://fred.stlouisfed.org/series/MEHOINUSA672N [3] https://www2.census.gov/programs-surveys/demo/tables/families/time-series/households/hh4.xls https://www2.census.gov/programs-surveys/demo/tables/familie...
- smallnamespace 8y ago
  Yes, it's because of central bank policy since '08, which are equivalent to price controls of assets (bonds and mortgages aren't allowed to be too cheap). This directly benefits asset-holders in general and punishes everyone else. In the past, central banks in this sort of situation might have actually printed money instead. Actual printing of money is good for inequality—it distributes liquidity throughout the economy, encourages inflation, which effectively transfers wealth from current nominal asset-holders to debtors, and depending on how the money gets printed (e.g. use it to pay for a progressive tax credit), it can directly reverse inequality. Why didn't central banks print money? A main reason is because the way printing money works is it has to happen through well-capitalized banks, which didn't exist in the post-crisis era, and it was hugely politically unpopular to bail them out. Also, most people don't understand the Rube Goldberg machine of central bank policy and would've opposed money printing or inflation, even if it would've been the key to a real, broad-based economic recovery.
  - listenallyall 8y ago
deleted 8y ago
[deleted]
franzwong 8y ago
If growth is supported by overborrowing the future, perhaps it is better to have no growth
rdiddly 8y ago
"There are two main culprits. The first is a savings glut." Aaand, this is where they always go off the rails. Still selling that old trope, eh? Looks like we found another "expert" about to "get the economy wrong."
- amanaplanacanal 8y ago
  Yeah that is weird. China was growing like gangbusters when they were saving 50% of their income.

53 points by FactolSarin 8y ago

> Last week, while attending an economics conference in Washington, I discovered one particularly clear sign of the economy’s struggles — namely, that it keeps performing worse than the experts have predicted. Sounds like the "experts" aren't that good at their jobs and so are blaming "the economy" for making them look like fools. What do you call an expert poker player who loses every hand? A loser. Money talks, bullshit walks. Economics is a hack field, no matter how many Krugmans pretend they're gods. "Discussing growth without concern for fragility: like studying construction without thinking of collapses. Think like engineer not economist." -- Taleb

blackflame7000 8y ago

I hate articles that call people experts and then build their argument on the assumption that the expert can’t be wrong

huffmsa 8y ago
It's what happens when you don't have to prove your expertness with measurable metrics.

SubiculumCode 8y ago

Perhaps, just perhaps, the worldwide rounds and rounds of austerity just didn't work.

alexnewman 8y ago

Warning this is a very difficult subject. Please consider responding before voting me down. Economics is plagued by three major problems. - History - Momentum - Incentives I do not believe it is reasonable to believe that economics is a tool of elite bankers even though they are clearly the most well supported humanity subject in colleges. What I do think what happened was after ww2 we solidified on a ya reserve currency (vs bancor) and an economic model which assumes a loanable funds model. Because so much of central banking is about stability and predictability, the fed has mostly acted along the same framework since the 40s. However, we are starting to see a change in the policy of the english and german central banks. This is probably due to the super toxic italian Euro -> German Euro arb and brexit. Europe is going to deploy australian style relief in the upcoming european economic disaster

gridlockd 8y ago

Why is the income of the 0.01% rising so drastically? Because it is based on assets like stock and real estate, which are inflating at a rate completely detached from the actual economy. Why are asset prices inflating? Because of a policy of easy and cheap money, worldwide. Why is there a policy of easy and cheap money? To "boost" the zombie economies. Why boost the zombie economies? To maintain zombie jobs and prevent unemployment. Why not just take a shortcut and hand out cash directly to the people? Because then all prices, including consumer goods, will inflate. The "solution" isn't tax cuts, it's a massive re-pricing and it'll happen on its own. Something like what happened to Japan in the nineties.

__ralston3 8y ago
Love the list/bulleted way that this is presented. Obviously missing a lot of granular points, but at a high level, I think this is spot on
- thundergolfer 8y ago
  It's missing the fact that the 0.01% are so ridiculously wealthy already because they control fabulously profitable enterprises, and they keep the produced value of those enterprises with insufficient distribution to everyone else. Absent cheap-money, they'd still be in a inequitable position that wouldn't correct itself on its own.
  - gridlockd 8y ago
    > It's missing the fact that the 0.01% are so ridiculously wealthy already because they control fabulously profitable enterprises, and they keep the produced value of those enterprises with insufficient distribution to everyone else. What do you consider "fabulously profitable"? Take a peek here for a reality check: https://insight.factset.com/sp-500-reporting-record-high-net-profit-margin-for-q1-2018 https://insight.factset.com/sp-500-reporting-record-high-net... A "record high" average profit margin only equals to around 10% and at least theoretically that needs to balance out the bad years. > Absent cheap-money, they'd still be in a inequitable position that wouldn't correct itself on its own. Of course inequity will remain, even if everyone lost 90% of their paper wealth, the ratios remain the same. However, you're implying there is a problem with inequity, I submit to you that you need inequity. If all the money were to be expropriated and spread out to all the people, there is nothing left for investment. Individually, the money just doesn't amount to much and it would likely be consumed right away, or used to pay off debt. Over time, that money would accumulate at the top again, but in the meantime, you would have an economic disaster. Of course you could have the government do all the investment, but that just means you shifted all that inequity from private individuals (who at least in theory will use their money somewhat wisely) to a bureaucracy which has no incentive to be efficient. The real problem is that we have a monetary policy that protects poor investment. There is no need for private individuals to manage their wealth properly, to make informed investments, etc. All they need to do is put their money into diversified stocks and real estate, because they can rely on the governments bailing them out if things go south.

grayed-down 8y ago

Just imagine for a moment how different this article would be if the US had a democrat administration. I dare say it would read with a near utopian glow.

erentz 8y ago
This makes so little sense in relation to the actual content of the article and even the very clear title, I almost wonder if Russian troll farms now trying to infect Hacker News.
- dang 8y ago
  Please keep this toxic trope away from here. If you review the site guidelines, you'll see how your comment breaks them. https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
JoshCole 8y ago
Wrong. The author wrote a similar piece during Obama's tenure with the same thesis that economic experts are routinely underestimating economic weakness.
- whateveracct 8y ago
  They were being sarcastic I believe.
SubiculumCode 8y ago
Why is it the many of those on the right are always convinced they are subject to mass media conspiracy?
dang 8y ago
Please keep political flamebait (or any flamebait) off HN.

dmix 8y ago

The author wrote pretty much the same article in 2012 called Obamanomics https://www.nytimes.com/2012/09/30/sunday-review/obamanomics-a-counterhistory.html https://www.nytimes.com/2012/09/30/sunday-review/obamanomics...

rpeden 8y ago

What if we've entered an era where this is the new normal? Where the kind of growth we've seen in the past isn't something we can expect anymore? I'm asking because I'm genuinely curious and I have no idea whether this is a reasonable hypothesis or not. I'm hoping others here can point me toward what I should be reading to learn more.

harimau777 8y ago
It seems to me that the primary way that average people can get ahead (at least in America, I'm less familiar with other countries) is by investing; which requires growth. If that went away, I'd be afraid that new generations or people who aren't from rich families would be stuck. I wonder if there are any thinkers that have developed a plan for prosperity without growth that doesn't rely on utopianism?
moduspol 8y ago
It's not an unreasonable hypothesis, but it's certainly not new, either. The same hypothesis was made five, ten, twenty, and more years ago. And it was wrong every time. That doesn't mean it's wrong now, but it does invite further retrospection why people thought it might be the case then, why they ended up being wrong, and what potential blind spots might lead to this perspective today.
Can_Not 8y ago
We're leaving capitalism to enter into a new type of society. Rentierism. Everything is already owned. Even things you currently own, or don't even exist, are being taken back from you so you can be charged rent for it. It's like feudalism, but you can have as many feudal lords as you want to live under--as a service.
coldtea 8y ago
>What if we've entered an era where this is the new normal? Where the kind of growth we've seen in the past isn't something we can expect anymore? You're not allowed to ever think that. Growth will keep on forever, boosted by magic yet uninvented technology if it ever stalls, bypassing all physical resource limits, and at an exponential rate preferably. /s If you really want to learn more, though, avoid all mainstream economists and pundits paid to promote state and business interests.

lucidguppy 8y ago

I think humanity is burnt out on this version of civilization.

dboreham 8y ago

Isn't this just the same as sales forecasts inside a company or software development project schedule estimates? Nobody gets promoted for saying "it's very hard to predict how long it will take to develop software, but it'll probably take a long time, much longer than you'd like". Similarly nobody gets a promotion from forecasting that we're doomed. So there's a built in optimism bias.

0815test 8y ago
The best forecasts are always provided by market indicators. And these indicators seem to be agreeing that we are in stagnation territory, though we might still manage to achieve a nice "soft landing" that doesn't lead to slipping into an outright recession.

burlesona 8y ago

From the article: > Beside a lack of competition, the investment slump stems from what Summers calls the de-massification of the economy. Developers aren’t building as many malls and stores, because goods now go straight from warehouses to homes. Offices don’t need as much storage space. Cellphones have replaced not just desktop computers but also cameras, stereos, books and more. Many young people have decided they’re happy living in small apartments, without cars. My reaction to that is LOL. Those changes represent forward progress, we can have more and better stuff easier than before, and/or our preferences have changed. If that somehow is “the cause” of our “economic suffering,” then maybe it’s time to change the way we measure.

petermcneeley 8y ago
Those changes only represent progress if they represent preference choice. However I very much doubt that most people are preferring to have living standards lower than their parents. In order to evaluate preferences you need to observer Choice.
sesteel 8y ago
Consolidation, optimization, and related vertical integration in manufacturing leaves people out of the value chain. Many roles will eventually evaporate without competition and/or new advancements. In general, growth follows an S-curve with market saturation and consolidation eventually inhibiting growth. I beleive it will get harder and harder to afford "more and better stuff" over the long term with the way our economic system is set up. I encourage people to take a look at the concept of binary economics which was fathered by Louise Kelso; his ideas gave rise to employee stock ownership programs. My ultimate point is: Labor will eventually evaporate and we, as individuals, should look towards ownership and invest our wealth in companies who will ultimately own production and services.
njepa 8y ago
I think the weird part is that as large successful companies are turning to vertical integration, at least many western societies are going the other way.
mchanson 8y ago

chillacy 8y ago

Every year the GDP grows while inequality gets worse. This is going to come home when most Americans look at the topline stats (GDP and unemployment) getting better while their own lives get worse. Are we optimizing the wrong thing?

zone411 8y ago
The inequality in the US is growing but not as fast as you might think from listening to the media: [1]. The real median household income has grown faster since 2010: [2] (the mean household size went from 2.59 to 2.53 during this time [3]) and I think that matters more to an average person than the GDP (as does unemployment like you said). [1] https://fred.stlouisfed.org/series/SIPOVGINIUSA https://fred.stlouisfed.org/series/SIPOVGINIUSA [2] https://fred.stlouisfed.org/series/MEHOINUSA672N https://fred.stlouisfed.org/series/MEHOINUSA672N [3] https://www2.census.gov/programs-surveys/demo/tables/families/time-series/households/hh4.xls https://www2.census.gov/programs-surveys/demo/tables/familie...
smallnamespace 8y ago
Yes, it's because of central bank policy since '08, which are equivalent to price controls of assets (bonds and mortgages aren't allowed to be too cheap). This directly benefits asset-holders in general and punishes everyone else. In the past, central banks in this sort of situation might have actually printed money instead. Actual printing of money is good for inequality—it distributes liquidity throughout the economy, encourages inflation, which effectively transfers wealth from current nominal asset-holders to debtors, and depending on how the money gets printed (e.g. use it to pay for a progressive tax credit), it can directly reverse inequality. Why didn't central banks print money? A main reason is because the way printing money works is it has to happen through well-capitalized banks, which didn't exist in the post-crisis era, and it was hugely politically unpopular to bail them out. Also, most people don't understand the Rube Goldberg machine of central bank policy and would've opposed money printing or inflation, even if it would've been the key to a real, broad-based economic recovery.
- listenallyall 8y ago

deleted 8y ago

[deleted]

franzwong 8y ago

If growth is supported by overborrowing the future, perhaps it is better to have no growth

rdiddly 8y ago

"There are two main culprits. The first is a savings glut." Aaand, this is where they always go off the rails. Still selling that old trope, eh? Looks like we found another "expert" about to "get the economy wrong."

amanaplanacanal 8y ago
Yeah that is weird. China was growing like gangbusters when they were saving 50% of their income.