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As a mechanical engineer (not a hard science), economics has always looked more like history than science. As in, you can build models to show what happened, bu

As a mechanical engineer (not a hard science), economics has always looked more like history than science. As in, you can build models to show what happened, but not what will happen. Edit: I think Ive had my mind changed enough in this thread to edit this. It's obviously a very deep subject and I've been convinced it has predictive qualities. I definitely dont think of dry equations though, more like psychology, and politics. But I'm looking forward to learning about it and possibly having my mind changed yet further.

ChadNauseam 4y ago
Econ is great at predicting the future. Let’s say your uncle tells you about his new stock trading strategy that’s guaranteed to make him 10% returns per month. Will he be rich two years from now? Econ’s efficient market hypothesis predicts he will not. Or let’s say the president of Japan announces a plan to beat deflation once and for all. He says that next year, he’ll fire their central bankers and hires the ones from Venezuela, give them a 100% annual inflation target, and promise them millions of USD in bonuses if they meet or exceed that target. Even though this plan is going into effect next year, what will you see the next day? (Assuming people believe the president is serious.) Econ predicts you will start seeing inflation immediately. And we see effects like these all the time when looking at how the actions of central bankers effects the economy – if Powell says he’s going to change interest rates, there’s a reaction in the markets when he makes the announcement and not one when he makes the actual change.
- thfuran 4y ago
  >Let’s say your uncle tells you about his new stock trading strategy that’s guaranteed to make him 10% returns per month. Will he be rich two years from now? That depends on whether the stock he bought was GME.
- fezfight 4y ago
  So a bit of psychology in there, eh? Pretty neat field, if you ask me.
- tsimionescu 4y ago
  These are not predictions, they are assumptions. The difference being they are in no way quantifiable. Econ has lots of equations, but it can't actually predict anything beyond some broad directions like you show, and even those are sometimes wrong. There was even a story (no idea if true, so maybe of limited relevance...) of a reverse bank run happening in Japan, with people rushing to deposit money to save a failing bank.
colinmhayes 4y ago
There's a big difference between micro and macro. Macro is basically predictions as you say because in the end it's largely underpinned by market expectations which are not always rational. Micro on the other hand looks at the choices of individuals, which are by definition at least somewhat rational. Individuals will always make the choice that they believe will maximize their utility, so the whole thing is really just equations whose derivative you set equal to 0 in order to maximize/minimize.
- JumpCrisscross 4y ago
  > which are by definition at least somewhat rational Or can be demonstrably arbitraged to take advantage of the irrationality in a tangible, quantifiable and repeatable way. Put-call parity, substitution, et cetera.

ChadNauseam 4y ago

Econ is great at predicting the future. Let’s say your uncle tells you about his new stock trading strategy that’s guaranteed to make him 10% returns per month. Will he be rich two years from now? Econ’s efficient market hypothesis predicts he will not. Or let’s say the president of Japan announces a plan to beat deflation once and for all. He says that next year, he’ll fire their central bankers and hires the ones from Venezuela, give them a 100% annual inflation target, and promise them millions of USD in bonuses if they meet or exceed that target. Even though this plan is going into effect next year, what will you see the next day? (Assuming people believe the president is serious.) Econ predicts you will start seeing inflation immediately. And we see effects like these all the time when looking at how the actions of central bankers effects the economy – if Powell says he’s going to change interest rates, there’s a reaction in the markets when he makes the announcement and not one when he makes the actual change.

thfuran 4y ago
>Let’s say your uncle tells you about his new stock trading strategy that’s guaranteed to make him 10% returns per month. Will he be rich two years from now? That depends on whether the stock he bought was GME.
fezfight 4y ago
So a bit of psychology in there, eh? Pretty neat field, if you ask me.
tsimionescu 4y ago
These are not predictions, they are assumptions. The difference being they are in no way quantifiable. Econ has lots of equations, but it can't actually predict anything beyond some broad directions like you show, and even those are sometimes wrong. There was even a story (no idea if true, so maybe of limited relevance...) of a reverse bank run happening in Japan, with people rushing to deposit money to save a failing bank.

colinmhayes 4y ago

There's a big difference between micro and macro. Macro is basically predictions as you say because in the end it's largely underpinned by market expectations which are not always rational. Micro on the other hand looks at the choices of individuals, which are by definition at least somewhat rational. Individuals will always make the choice that they believe will maximize their utility, so the whole thing is really just equations whose derivative you set equal to 0 in order to maximize/minimize.

JumpCrisscross 4y ago
> which are by definition at least somewhat rational Or can be demonstrably arbitraged to take advantage of the irrationality in a tangible, quantifiable and repeatable way. Put-call parity, substitution, et cetera.