5 ms·

On one hand, overly theoretical economics might not have the predictive power people want, but models tied too closely to past real world events are kind of lik

On one hand, overly theoretical economics might not have the predictive power people want, but models tied too closely to past real world events are kind of like over-fitted models to the stock market: they work until something changes and they don't. Economics is hard, there's a million factors. Why doesn't increasing the minimum wage increase unemployment? Because increasing minimum wage has supply and demand-side effects but also because it doesn't happen in a vacuum, we don't know what happens if you increase minimum wage but keep everything else exactly the same because we've only ever increased minimum wage in the real world, where growth has steadily happened over the years, where there's a ton of other factors. Also because companies won't not hire, they'll just raise prices to compensate if the demand is still there for their products. Every supply/demand curve just puts pressure on prices, which way the price moves and how far depends on many supply/demand curves.

pid-1 5y ago
I'd bet in 50 or 100 years economics will be regarded as the astrology of our times.
- tomrod 5y ago
  Doubtful. Economics is the source of many methodologies in game theory, mechanism design, behavioral game theory, much of political science and voting theory, and has quite imperialistic methods such that quantitative accounting and financial engineering use econometric modeling. Not to mention RCT, causal inference, GIS, and machine learning applications have a lot of conceptual overlap. A safer bet would be that people in 50 or 100 years times will be expecting people in 100 years time to regard it as astrology. Edit: good catch(es), mobile commenting and I missed a key phrase (source of many methodologies).
  - disgruntledphd2 5y ago
    > Not to mention RCT, causal inference, GIS, and machine learning applications RCT's were developed by psychologists (for educational purposes) and promoted by medical statisticians. Causal inference was essentially invented by a computer scientist. You can definitely thank geographers for GIS, and ML is basically a rebranding of statistics by Comp Sci researchers. Game theory I'll definitely concede to economics, but political science is it's own discipline, and shouldn't be regarded as part of economics.
    - huitzitziltzin 5y ago
      Economists generally work in a framework which predates Judea Pearl’s work by at least half a century. Causal inference was not invented by a computer scientist.
      - disgruntledphd2 5y ago
        Do you have some links please?
        tomrod 5y ago
        Rubin model / Rubin-Neyman model https://en.m.wikipedia.org/wiki/Rubin_causal_model https://en.m.wikipedia.org/wiki/Rubin_causal_model Pearl credits it in The Book of Why.
  - jameshart 5y ago
    Economics is the source of political science? Plato would be surprised to learn that.
    - tomrod 5y ago
      Plato didn't call it political science ;) He falls more into political theory anyhow. But to clarify my original point, the methodologies of economics are imperialistic.
  - Retric 5y ago
    Even we accept your premise, that doesn’t mean Economics its self is actually accurate or useful. At a minimum in 100 years I expect current macroeconomic theory to get as much respect as phrenology does. One of the basic failures is you can’t abstract away the underlying mechanics of societies. Changing the federal funds rate doesn’t help if your in the Zombie apocalypse movie. Granted in the real world you might be dealing with drought, soldiers, or empty oil wells rather than Zombies, but the same basic mismatch still applies.
  - imtringued 5y ago
    Economics changed during the great depression it is about to change very soon or we just reset everything and redo the 80 year gold standard cycle. The latter is quite boring and solves nothing.
- ajsnigrutin 5y ago
  Modern physics (a part of) isn't much better... it's basically throwing stuff at the wall, and seeing what comes out.
  - 1980phipsi 5y ago
    Even if they are both about predicting a distribution, you can set up an experiment to isolate an effect and make the distribution more-or-less static over time. Distributions in economics change over time. People react to what other people are doing, sometimes in very non-linear ways. It makes it a hard subject and a different beast than physics.
- socksset 5y ago
  Phlogiston theory always comes to mind for me. I think we will see these fields as attempts at science while completely lacking the instruments to properly study the field so all kinds of nonsense conclusions were drawn. Economics though is so especially perverted because of monetary incentives for economists. A somewhat correct prediction is worth so much but terrible predictions don't really harm much at all. "It is economics!?! It is stochastic, the coin came up heads, not my fault. The theory is still correct". Or maybe in 50 years we will just have an honest econ textbook that is just a 1 page pamphlet that says "When the stock market goes down, print money. Make up everything else as you go along to justify this".
- Mikeb85 5y ago
  Nah, economics is extremely useful. I've put many economic principles to good use in business and life. The problem is when people try to reduce problems to a single model. It's fine when you're learning in the first couple years, but the world is complicated. And the best economists I know work for banks and are pretty sophisticated when it comes to coding n things.
throwaway73838 5y ago
That’s silly. Of course increasing the minimum wage increases unemployment. It’s theoretically proven, and you can observe the evidence in the real world. And it’s simply common sense. Say you have a business which employs ten staff at $10 an hour, who work at 85% capacity, and your business is breaking even. The minimum wage is raised to $11. Now, you have a choice. Either your business starts losing money and will fail, or you lay off one staffer and increase the workload of the other 9. You could also raise prices (which will increase the cost of living and nullify the benefits of increased wages across the board). Or most likely you do both - lay off one staffer and increase prices to make up for the difference in productivity. Your 10th worker is now unemployed, at a time with a great many ‘tenth workers’, and the cost of living has just increased. Sound familiar? Look at the minimum wage of Singapore. There is no minimum wage. And observe their unemployment rate - one of the lowest of any developed nation. These statistics are closely linked, due to the above mentioned facts which have been known for hundreds of years. Economics has been poisoned by vested interests, lobby groups and general ignorance for so long, that people don’t understand that it’s an incredibly simple and intuitive discipline. It’s just that so much profit can be made by obfuscation and promises of ‘free money’. People are extraordinarily easy to fool if they haven’t had a classical education in economics (or an ability to grasp the concepts, which many are counter intuitive).
- Mikeb85 5y ago
  I do have a classical education in economics. And yes, you're right, in a vacuum raising the minimum wage would reduce demand for labour. But we don't live in a vacuum and there's a lot of other factors at play. > You could also raise prices (which will increase the cost of living and nullify the benefits of increased wages across the board) Yes, this is what happens in real life, most of the time. Now the real question is does the increase in price fully nullify the increase in wages? Again, lots of other stuff to consider.
  - tomrod 5y ago
    For the record, what the throwaway username accountholder is missing above is three decades of empirical research and 40-50 years of general equilibrium theory. Card/Krueger have a fascinating paper on minimum wage that really launched the causal inference revolution in applied economics, based on a 1992 policy change.
imtringued 5y ago
If we assume EMH and raising the minimum wage does not raise unemployment then that would imply the current market driven wage for people at the bottom end of society isn't actually at the equilibrium which implis distortive elements like a lack of negotiation power.

pid-1 5y ago

I'd bet in 50 or 100 years economics will be regarded as the astrology of our times.

tomrod 5y ago
Doubtful. Economics is the source of many methodologies in game theory, mechanism design, behavioral game theory, much of political science and voting theory, and has quite imperialistic methods such that quantitative accounting and financial engineering use econometric modeling. Not to mention RCT, causal inference, GIS, and machine learning applications have a lot of conceptual overlap. A safer bet would be that people in 50 or 100 years times will be expecting people in 100 years time to regard it as astrology. Edit: good catch(es), mobile commenting and I missed a key phrase (source of many methodologies).
- disgruntledphd2 5y ago
  > Not to mention RCT, causal inference, GIS, and machine learning applications RCT's were developed by psychologists (for educational purposes) and promoted by medical statisticians. Causal inference was essentially invented by a computer scientist. You can definitely thank geographers for GIS, and ML is basically a rebranding of statistics by Comp Sci researchers. Game theory I'll definitely concede to economics, but political science is it's own discipline, and shouldn't be regarded as part of economics.
  - huitzitziltzin 5y ago
    Economists generally work in a framework which predates Judea Pearl’s work by at least half a century. Causal inference was not invented by a computer scientist.
    - disgruntledphd2 5y ago
      Do you have some links please?
      - tomrod 5y ago
        Rubin model / Rubin-Neyman model https://en.m.wikipedia.org/wiki/Rubin_causal_model https://en.m.wikipedia.org/wiki/Rubin_causal_model Pearl credits it in The Book of Why.
- jameshart 5y ago
  Economics is the source of political science? Plato would be surprised to learn that.
  - tomrod 5y ago
    Plato didn't call it political science ;) He falls more into political theory anyhow. But to clarify my original point, the methodologies of economics are imperialistic.
- Retric 5y ago
  Even we accept your premise, that doesn’t mean Economics its self is actually accurate or useful. At a minimum in 100 years I expect current macroeconomic theory to get as much respect as phrenology does. One of the basic failures is you can’t abstract away the underlying mechanics of societies. Changing the federal funds rate doesn’t help if your in the Zombie apocalypse movie. Granted in the real world you might be dealing with drought, soldiers, or empty oil wells rather than Zombies, but the same basic mismatch still applies.
- imtringued 5y ago
  Economics changed during the great depression it is about to change very soon or we just reset everything and redo the 80 year gold standard cycle. The latter is quite boring and solves nothing.
ajsnigrutin 5y ago
Modern physics (a part of) isn't much better... it's basically throwing stuff at the wall, and seeing what comes out.
- 1980phipsi 5y ago
  Even if they are both about predicting a distribution, you can set up an experiment to isolate an effect and make the distribution more-or-less static over time. Distributions in economics change over time. People react to what other people are doing, sometimes in very non-linear ways. It makes it a hard subject and a different beast than physics.
socksset 5y ago
Phlogiston theory always comes to mind for me. I think we will see these fields as attempts at science while completely lacking the instruments to properly study the field so all kinds of nonsense conclusions were drawn. Economics though is so especially perverted because of monetary incentives for economists. A somewhat correct prediction is worth so much but terrible predictions don't really harm much at all. "It is economics!?! It is stochastic, the coin came up heads, not my fault. The theory is still correct". Or maybe in 50 years we will just have an honest econ textbook that is just a 1 page pamphlet that says "When the stock market goes down, print money. Make up everything else as you go along to justify this".
Mikeb85 5y ago
Nah, economics is extremely useful. I've put many economic principles to good use in business and life. The problem is when people try to reduce problems to a single model. It's fine when you're learning in the first couple years, but the world is complicated. And the best economists I know work for banks and are pretty sophisticated when it comes to coding n things.

throwaway73838 5y ago

That’s silly. Of course increasing the minimum wage increases unemployment. It’s theoretically proven, and you can observe the evidence in the real world. And it’s simply common sense. Say you have a business which employs ten staff at $10 an hour, who work at 85% capacity, and your business is breaking even. The minimum wage is raised to $11. Now, you have a choice. Either your business starts losing money and will fail, or you lay off one staffer and increase the workload of the other 9. You could also raise prices (which will increase the cost of living and nullify the benefits of increased wages across the board). Or most likely you do both - lay off one staffer and increase prices to make up for the difference in productivity. Your 10th worker is now unemployed, at a time with a great many ‘tenth workers’, and the cost of living has just increased. Sound familiar? Look at the minimum wage of Singapore. There is no minimum wage. And observe their unemployment rate - one of the lowest of any developed nation. These statistics are closely linked, due to the above mentioned facts which have been known for hundreds of years. Economics has been poisoned by vested interests, lobby groups and general ignorance for so long, that people don’t understand that it’s an incredibly simple and intuitive discipline. It’s just that so much profit can be made by obfuscation and promises of ‘free money’. People are extraordinarily easy to fool if they haven’t had a classical education in economics (or an ability to grasp the concepts, which many are counter intuitive).

Mikeb85 5y ago
I do have a classical education in economics. And yes, you're right, in a vacuum raising the minimum wage would reduce demand for labour. But we don't live in a vacuum and there's a lot of other factors at play. > You could also raise prices (which will increase the cost of living and nullify the benefits of increased wages across the board) Yes, this is what happens in real life, most of the time. Now the real question is does the increase in price fully nullify the increase in wages? Again, lots of other stuff to consider.
- tomrod 5y ago
  For the record, what the throwaway username accountholder is missing above is three decades of empirical research and 40-50 years of general equilibrium theory. Card/Krueger have a fascinating paper on minimum wage that really launched the causal inference revolution in applied economics, based on a 1992 policy change.

imtringued 5y ago

If we assume EMH and raising the minimum wage does not raise unemployment then that would imply the current market driven wage for people at the bottom end of society isn't actually at the equilibrium which implis distortive elements like a lack of negotiation power.