8 ms·

Making sense in what fashion, to what end? Investment opportunities? Proposed public policy changes? Where to look for a job? To a large degree the economy is

Making sense in what fashion, to what end? Investment opportunities? Proposed public policy changes? Where to look for a job? To a large degree the economy is unknowable. That's why you can get two economists in a room and receive seven opinions. Don't get me wrong; there's good value there. It's just that economics is an odd mix of philosophy and math. On my more cranky days I call it astrology for people who know calculus. If the economy were knowable to the degree that some economists claim to know it, they'd all be billionaires. So my advice is to scope down your question to something a bit more workable.

smoyer 7y ago
My favorite fight between two economists - https://www.youtube.com/watch?v=GTQnarzmTOc https://www.youtube.com/watch?v=GTQnarzmTOc
- PopeDotNinja 7y ago
  That was excellent.
  - smoyer 7y ago
    We certainly need more educational materials like this - especially in this time of social-distancing. I'm on the board of a small Christian high school and the teachers and students need materials that can be shared via Zoom/Teams/etc. A video like this starts the engagement for everyone and makes it easier to have the follow-on discussion. Plus it's entertaining but the message actually highlights the two mind-sets pretty well!
- ghostpepper 7y ago
  This is actually a sequel to the first "Keynes vs Hayek rap battle" https://www.youtube.com/watch?v=d0nERTFo-Sk https://www.youtube.com/watch?v=d0nERTFo-Sk
  - smoyer 7y ago
    Yes it is ... I like the second video better but I should have mentioned the first as context.
aqqTwxye 7y ago
Economists do not claim to know the economy, much less to the point of becoming rich. They are far more likely to insist that nobody can know such thing. You must be thinking of somebody else.
- hn_throwaway_99 7y ago
  Hardly. Economists may believe in the idea, for example, that you can't time the market, but I have yet to meet an economist who doesn't have very strong ideas about the types of policies or interventions that are good for bad for the economy, and again it often feels like you get 10 economists in a room and you get 10 different diverging opinions.
  - wdfefgrucg 7y ago
    First, strong opinions are not knowledge. In the event that one economist forgets that, the other nine will remind him of it. But that's hardly the case right now. There's a lot of discussion on what should be done right now on the part of economists, but it's very clear that nobody is quite sure of what to do. Which is why there is so much discussion in the first place. Second, knowledge about the economy, specially such that all could become "billionaires", is empirical knowledge and knowledge of particulars such as knowledge of when to time thr markrt. Economists have some conjectural and general knowledge regarding some policies which leads the profession to develop something akin to a consensus on certain issues (10 out of 10 is really a gross exaggeration), such as rent controls. But there has never been a proposition in economics which hasn't found defenders against any supposed consensus, specially nowadays, with the incentives to publish surprising results, and most are conscious of it. The issue with the comparison with any sort of divination is that economists do not claim to be good forecasters.
  - aguyfromnb 7y ago
    >but I have yet to meet an economist who doesn't have very strong ideas about the types of policies or interventions that are good for bad for the economy I have yet to met a person on the street who doesn't have strong opinions about what economic principles should be implemented. >it often feels like you get 10 economists in a room and you get 10 different diverging opinions. I don't understand why this is a bad thing. Progress is made by exploring diverging theories.
tomrod 7y ago
Economist here. Mostly agree with this sentiment. I listened to the National Association of Business Economists webinar yesterday presenting survey expectations for Q2. To say there was difference in opinions is an understatement. Opinion ranged from barely any impact to 50% GDP loss (annualized, so 1/4 of that for a quarter). You hear economists say things like "guns and butter do well in recessions." The same idea applies here: what do people need during this time? That is what creates the market. Outside of that, my only thought is don't pay attention to the short run volatility of the stock market as an indicator for long run economic outcomes.
- DanielBMarkham 7y ago
  I like what I heard Tyler Cowen say a long time ago: a degree in economics is a great way to learn about a lot of ideas that sound good but don't work. (I'm paraphrasing, of course) I thought his point was great. There's some well-trodden ground in economics. If you learn nothing more but where the alligators are, you're probably going to do a lot better on that trip through the swamp you plan on taking. If nothing else, it tends to elevate the conversation.
  - tomrod 7y ago
    Tyler is a gem.
  - thorwasdfasdf 7y ago
    Let's be a bit more specific here before people get the wrong idea. Economics doesn't work for predicting the stock market. Other than that, it works just fine. The principals of supply and demand and huge host of other issues are just fine and work great. It just doesn't translate to predicting equities.
    - rchaud 7y ago
      It doesn't translate to predicting anything, stock market included. Economics is an art, not a science. Society is the petri dish on whch experiments are carried out, and even in the smallest experiments, you can't really isolate environmental variables like you can in say in a physics experiment. Every economic theory is prefaced with "all other things remaining equal", which should invalidate them right then and there. It's ultimately a study of the impact of the decisions societies make, and even then, the metrics it uses are often poor indicators of quality of life. Apartheid South Africa was the continent's bread basket on the basis of its mining output and high GDP per capita. But that wealth was concentrated in the hands of the white minority and not used to improve infrastructure and education for the colonized majority. That was badly needed to fuel long-term growth and build an economy that wasn't dependent on commodities prices.
fartcannon 7y ago
I just call it history. All these models describe what happened before. And that's all they do.
- lonelappde 7y ago
  No they don't. They guess at what happened before.
pinky1417 7y ago
Agree 100%. The whole reason why market economies - economies based on the decentralized mechanism we call "prices" - work better than any other economic system is because they're decentralized. If one person or group of experts could know the current wants/needs of millions of individuals, we wouldn't need prices and that person/group could predict the direction of the economy. Similarly, say all you care about is predicting a recession since that's going to risk your job/business/personal finances etc. As far as I know, there's no way to predict a recession until after you're already in one. Sure, a yield curve inversion has preceded every recession in the past ~50 years, but (1) that's only ~5 recessions (2) the inversion has taken place up to 33 months prior to recession and (3) as the Great Recession taught us once again, just because something has been true for many years in the past (housing prices always going up) doesn't mean it'll hold true in the future. Macroeconomic forecasting is by and large nonsense. The PhD chief (macro)economists from big banks you see on CNBC will, at best, identify some recent trends that could cause the economy to change if said trends continue and, at worst, prognosticate. I wouldn't describe myself as an "economist" since I only hold a bachelor's of science in economics, but the prognosticators do a tremendous disservice to themselves and to the practice of economics. So should you ignore all economic news and analysis?. No. You might be able to make some vague, general, long-term forecasts, like how I believe that the US economy will remain a major economic power 20 years from now (hence why I'm comfortable squirreling away cash into S&P 500 Vanguard index funds) and that Amazon will probably be a major company for most or all of that period, but I don't pretend to know whether inflation will be below 2% for any fraction of that period, if self-driving cars will replace Uber drivers, or if China's per-capita GDP will exceed that of the US. You have to be careful to identify what's not knowable even when everyone else believes that something is knowable. When I did debate in high school (circa mid-late 2000s), we had a topic on whether the US government should increase investment in alternative fuels. Many arguments in favor relied on the assumption that oil prices would continue to rise. Some experts debaters cited even suggested the world had already reached "peak oil." Judges were receptive since they were paying $4.00/gallon for gas. Now, of course, if oil is a finite resource and our consumption/drive habits remain the same, oil prices will have to rise eventually without alternative fuels. But few people, including me, (at least few people who got media attention) realized that the then-high oil prices were both (1) inducing previously cost-prohibitive US oil extraction and (2) weakening the incentive of OPEC's members to keep production low. That was a lesson to me: conventional wisdom about the economy, even "wisdom" from "experts" in a segment of the economy, can be wildly inaccurate. P.S. hot take: while it's clear that humans can and have changed the climate, it's not clear what the tangible effects will be... so while some investment in mitigation may be warranted (especially with respect to obvious pollutants), we should be careful not to incur massive costs today on the assumption that say, Miami will definitely be underwater in 50 years.
jotakami 7y ago
I believe this sentiment is mostly a symptom of the extreme prevalence of charlatans who use economics as a marketing tool rather than a social science. Economics is really just accounting, statistics and psychology. But mostly accounting. I think people get really worked up about the “unknowable” parts and fail to see that accounting can open up tremendous insights if we only take the time to understand it well. If you want to learn about economics for some specific money-making purpose, you’ll probably end up with an incomplete view that frustratingly fails to describe reality most of the time. On the other hand, if you approach the subject simply with an open mind seeking understanding, you will be richly rewarded with deep insights about the structure of society and the human condition.
- xenocratus 7y ago
  After reading quite a lot about economic policies it sounds a lot like some sort of engineering - you have some levers/gadgets that you can use, but you have to understand the consequences of each of them and how the interact with the "real world" of companies and people participating in the economy. Sure, people being certain about what's going to happen and when is akin to snake oil, but using good insight and tools to try and control how people are affected by something like a pandemic seems to me to be the role that economists need to play.
  - caseysoftware 7y ago
    That's the Keynesian view where you can move a lever (cause) and measure the changes (effect). Unfortunately, there are way too many variables, interactions, etc, etc to have any real confidence in those measures. It's further complicated by the idea that the normal tools (primarily interest rate & money supply delivered via subsidies, etc) are beyond their "normal" operating ranges. When the Fed rate was 5% and loans were 8%, lowering rates encouraged borrowing. When the Fed rate is 0.25% and loans are 3-5%, qualified people can get all the money they want.. now what? Do they give money to people who can't pay it back (mortgage crash) or spend it on "shovel ready projects" which take 12-18 months to get started? Alternatively, when consumer spending makes up 70%+ of the economy, consumer confidence is probably the single most important metric. This is less engineering and more psychology at scale.
lucasps99 7y ago
reply one
ashtonkem 7y ago
Then there's the "to what end" part. What decisions are you trying to make with economic advice? Because unless if you're going to make a decision with that information, all it's going to do is freak you out for no benefit.
ericmcer 7y ago
Philosophy, Math maybe some mysticism as well? Beyond that you can't even have a productive discussion about the economy without framing the discussion in humanity and what purpose a society serves. For example if we push forward UBI are we doing that for productivity? human happiness? With our current crisis trying to discern what worldview policy is trying to force the economy to serve helps me understand decisions, especially with regard to things like inflation, consumer confidence, greed/fear, etc.
aguyfromnb 7y ago
>If the economy were knowable to the degree that some economists claim to know it, they'd all be billionaires. The number of professional economists who focus on investing, or even "the economy", is much smaller than most people imagine.
oso2k 7y ago
It's just that economics is an odd mix of philosophy and math. On my more cranky days I call it astrology for people who know calculus. This is the quote of the year, as far as I'm concerned.

smoyer 7y ago

My favorite fight between two economists - https://www.youtube.com/watch?v=GTQnarzmTOc https://www.youtube.com/watch?v=GTQnarzmTOc

PopeDotNinja 7y ago
That was excellent.
- smoyer 7y ago
  We certainly need more educational materials like this - especially in this time of social-distancing. I'm on the board of a small Christian high school and the teachers and students need materials that can be shared via Zoom/Teams/etc. A video like this starts the engagement for everyone and makes it easier to have the follow-on discussion. Plus it's entertaining but the message actually highlights the two mind-sets pretty well!
ghostpepper 7y ago
This is actually a sequel to the first "Keynes vs Hayek rap battle" https://www.youtube.com/watch?v=d0nERTFo-Sk https://www.youtube.com/watch?v=d0nERTFo-Sk
- smoyer 7y ago
  Yes it is ... I like the second video better but I should have mentioned the first as context.

aqqTwxye 7y ago

Economists do not claim to know the economy, much less to the point of becoming rich. They are far more likely to insist that nobody can know such thing. You must be thinking of somebody else.

hn_throwaway_99 7y ago
Hardly. Economists may believe in the idea, for example, that you can't time the market, but I have yet to meet an economist who doesn't have very strong ideas about the types of policies or interventions that are good for bad for the economy, and again it often feels like you get 10 economists in a room and you get 10 different diverging opinions.
- wdfefgrucg 7y ago
  First, strong opinions are not knowledge. In the event that one economist forgets that, the other nine will remind him of it. But that's hardly the case right now. There's a lot of discussion on what should be done right now on the part of economists, but it's very clear that nobody is quite sure of what to do. Which is why there is so much discussion in the first place. Second, knowledge about the economy, specially such that all could become "billionaires", is empirical knowledge and knowledge of particulars such as knowledge of when to time thr markrt. Economists have some conjectural and general knowledge regarding some policies which leads the profession to develop something akin to a consensus on certain issues (10 out of 10 is really a gross exaggeration), such as rent controls. But there has never been a proposition in economics which hasn't found defenders against any supposed consensus, specially nowadays, with the incentives to publish surprising results, and most are conscious of it. The issue with the comparison with any sort of divination is that economists do not claim to be good forecasters.
- aguyfromnb 7y ago
  >but I have yet to meet an economist who doesn't have very strong ideas about the types of policies or interventions that are good for bad for the economy I have yet to met a person on the street who doesn't have strong opinions about what economic principles should be implemented. >it often feels like you get 10 economists in a room and you get 10 different diverging opinions. I don't understand why this is a bad thing. Progress is made by exploring diverging theories.

tomrod 7y ago

Economist here. Mostly agree with this sentiment. I listened to the National Association of Business Economists webinar yesterday presenting survey expectations for Q2. To say there was difference in opinions is an understatement. Opinion ranged from barely any impact to 50% GDP loss (annualized, so 1/4 of that for a quarter). You hear economists say things like "guns and butter do well in recessions." The same idea applies here: what do people need during this time? That is what creates the market. Outside of that, my only thought is don't pay attention to the short run volatility of the stock market as an indicator for long run economic outcomes.

DanielBMarkham 7y ago
I like what I heard Tyler Cowen say a long time ago: a degree in economics is a great way to learn about a lot of ideas that sound good but don't work. (I'm paraphrasing, of course) I thought his point was great. There's some well-trodden ground in economics. If you learn nothing more but where the alligators are, you're probably going to do a lot better on that trip through the swamp you plan on taking. If nothing else, it tends to elevate the conversation.
- tomrod 7y ago
  Tyler is a gem.
- thorwasdfasdf 7y ago
  Let's be a bit more specific here before people get the wrong idea. Economics doesn't work for predicting the stock market. Other than that, it works just fine. The principals of supply and demand and huge host of other issues are just fine and work great. It just doesn't translate to predicting equities.
  - rchaud 7y ago
    It doesn't translate to predicting anything, stock market included. Economics is an art, not a science. Society is the petri dish on whch experiments are carried out, and even in the smallest experiments, you can't really isolate environmental variables like you can in say in a physics experiment. Every economic theory is prefaced with "all other things remaining equal", which should invalidate them right then and there. It's ultimately a study of the impact of the decisions societies make, and even then, the metrics it uses are often poor indicators of quality of life. Apartheid South Africa was the continent's bread basket on the basis of its mining output and high GDP per capita. But that wealth was concentrated in the hands of the white minority and not used to improve infrastructure and education for the colonized majority. That was badly needed to fuel long-term growth and build an economy that wasn't dependent on commodities prices.

fartcannon 7y ago

I just call it history. All these models describe what happened before. And that's all they do.

lonelappde 7y ago
No they don't. They guess at what happened before.

pinky1417 7y ago

Agree 100%. The whole reason why market economies - economies based on the decentralized mechanism we call "prices" - work better than any other economic system is because they're decentralized. If one person or group of experts could know the current wants/needs of millions of individuals, we wouldn't need prices and that person/group could predict the direction of the economy. Similarly, say all you care about is predicting a recession since that's going to risk your job/business/personal finances etc. As far as I know, there's no way to predict a recession until after you're already in one. Sure, a yield curve inversion has preceded every recession in the past ~50 years, but (1) that's only ~5 recessions (2) the inversion has taken place up to 33 months prior to recession and (3) as the Great Recession taught us once again, just because something has been true for many years in the past (housing prices always going up) doesn't mean it'll hold true in the future. Macroeconomic forecasting is by and large nonsense. The PhD chief (macro)economists from big banks you see on CNBC will, at best, identify some recent trends that could cause the economy to change if said trends continue and, at worst, prognosticate. I wouldn't describe myself as an "economist" since I only hold a bachelor's of science in economics, but the prognosticators do a tremendous disservice to themselves and to the practice of economics. So should you ignore all economic news and analysis?. No. You might be able to make some vague, general, long-term forecasts, like how I believe that the US economy will remain a major economic power 20 years from now (hence why I'm comfortable squirreling away cash into S&P 500 Vanguard index funds) and that Amazon will probably be a major company for most or all of that period, but I don't pretend to know whether inflation will be below 2% for any fraction of that period, if self-driving cars will replace Uber drivers, or if China's per-capita GDP will exceed that of the US. You have to be careful to identify what's not knowable even when everyone else believes that something is knowable. When I did debate in high school (circa mid-late 2000s), we had a topic on whether the US government should increase investment in alternative fuels. Many arguments in favor relied on the assumption that oil prices would continue to rise. Some experts debaters cited even suggested the world had already reached "peak oil." Judges were receptive since they were paying $4.00/gallon for gas. Now, of course, if oil is a finite resource and our consumption/drive habits remain the same, oil prices will have to rise eventually without alternative fuels. But few people, including me, (at least few people who got media attention) realized that the then-high oil prices were both (1) inducing previously cost-prohibitive US oil extraction and (2) weakening the incentive of OPEC's members to keep production low. That was a lesson to me: conventional wisdom about the economy, even "wisdom" from "experts" in a segment of the economy, can be wildly inaccurate. P.S. hot take: while it's clear that humans can and have changed the climate, it's not clear what the tangible effects will be... so while some investment in mitigation may be warranted (especially with respect to obvious pollutants), we should be careful not to incur massive costs today on the assumption that say, Miami will definitely be underwater in 50 years.

jotakami 7y ago

I believe this sentiment is mostly a symptom of the extreme prevalence of charlatans who use economics as a marketing tool rather than a social science. Economics is really just accounting, statistics and psychology. But mostly accounting. I think people get really worked up about the “unknowable” parts and fail to see that accounting can open up tremendous insights if we only take the time to understand it well. If you want to learn about economics for some specific money-making purpose, you’ll probably end up with an incomplete view that frustratingly fails to describe reality most of the time. On the other hand, if you approach the subject simply with an open mind seeking understanding, you will be richly rewarded with deep insights about the structure of society and the human condition.

xenocratus 7y ago
After reading quite a lot about economic policies it sounds a lot like some sort of engineering - you have some levers/gadgets that you can use, but you have to understand the consequences of each of them and how the interact with the "real world" of companies and people participating in the economy. Sure, people being certain about what's going to happen and when is akin to snake oil, but using good insight and tools to try and control how people are affected by something like a pandemic seems to me to be the role that economists need to play.
- caseysoftware 7y ago
  That's the Keynesian view where you can move a lever (cause) and measure the changes (effect). Unfortunately, there are way too many variables, interactions, etc, etc to have any real confidence in those measures. It's further complicated by the idea that the normal tools (primarily interest rate & money supply delivered via subsidies, etc) are beyond their "normal" operating ranges. When the Fed rate was 5% and loans were 8%, lowering rates encouraged borrowing. When the Fed rate is 0.25% and loans are 3-5%, qualified people can get all the money they want.. now what? Do they give money to people who can't pay it back (mortgage crash) or spend it on "shovel ready projects" which take 12-18 months to get started? Alternatively, when consumer spending makes up 70%+ of the economy, consumer confidence is probably the single most important metric. This is less engineering and more psychology at scale.

lucasps99 7y ago

reply one

ashtonkem 7y ago

Then there's the "to what end" part. What decisions are you trying to make with economic advice? Because unless if you're going to make a decision with that information, all it's going to do is freak you out for no benefit.

ericmcer 7y ago

Philosophy, Math maybe some mysticism as well? Beyond that you can't even have a productive discussion about the economy without framing the discussion in humanity and what purpose a society serves. For example if we push forward UBI are we doing that for productivity? human happiness? With our current crisis trying to discern what worldview policy is trying to force the economy to serve helps me understand decisions, especially with regard to things like inflation, consumer confidence, greed/fear, etc.

aguyfromnb 7y ago

>If the economy were knowable to the degree that some economists claim to know it, they'd all be billionaires. The number of professional economists who focus on investing, or even "the economy", is much smaller than most people imagine.

oso2k 7y ago

It's just that economics is an odd mix of philosophy and math. On my more cranky days I call it astrology for people who know calculus. This is the quote of the year, as far as I'm concerned.