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Pretty much proving today's field of Economics to be a bunch of quackery. In every respectable field of study there are certain basic scientific expectations -

Pretty much proving today's field of Economics to be a bunch of quackery. In every respectable field of study there are certain basic scientific expectations - supporting your positions with evidence and data, reversing your views when your theory has been disproved etc. At the onset of the 2008 crisis, some people very accurately predicted the type of crisis it was (a financial panic) and recommended policies that were tested and proven to work. The mainstream camp however, thought otherwise and most of the world followed their advice. With 4 years of data we now know who was right and who was wrong, and yet that has done almost nothing in the field of Economics. Few high profile economists have reversed their deeply flawed views and the views of those baked by data and correct predictions are still not taken seriously. It's as if the LHC found the Higgs, yet most physicists still denying it exists - the situation really is THAT absurd. Economics is deeply corrupted by politics and the financial interests of its practitioners. If the quacks and charlatans aren't purged soon, the either field will be discredited. You can't practice alchemy or voodoo and expect people to treat you like a scientist.

indiecore 14y ago
>You can't practice alchemy or voodoo and expect people to treat you like a scientist. You can if you have all the money...
ryanmolden 14y ago
>With 4 years of data we now know who was right and who was wrong Do we? I think at best you could argue that what was done was wrong, that doesn't imply the other alternative was right. There exists more than two possible courses of action and thus we can't simply anoint one as right and the other as wrong, they could in fact both be wrong. I think that is one big problem with macro-economics as a science, you can't really have controlled experiments whereby we try each of N hypothesis in turn, controlling externalities, and see which yields the most accurate outcome vis-a-vis the predictions that that hypothesis made. Even repeating what worked N years ago isn't a guarantee of anything, since it is highly unlikely that all the confounding variables are the same.
- martythemaniak 14y ago
  You seem to be implying that because economists can't run clean experiments like physicists, they can't prove or disprove anything, they can't tell us what happened and they certainly can't guide us. At this point I have to ask, how is your view of economics different from theology? What is the point of such a useless field of study? Of course, economics can be useful. Economists have a ton of data and a wide variety of tools with which to conduct their study, and while they can't achieve the purity of physics, economics can still be a valid and useful field of study. The problem isn't economics itself, but practitioners whose views are clouded by politics, ego and money.
  - tolmasky 14y ago
    > You seem to be implying that because economists can't run clean experiments like physicists, they can't prove or disprove anything, they can't tell us what happened and they certainly can't guide us. This is exactly correct. Just because we don't have the means to do the kinds of experiments we want, doesn't mean we get to change the definition of proof. And if you do, you certainly shouldn't call it science. If there was no good way to do a falsifiable experiment in physics we wouldn't say "oh we have a lot of data though, so i guess we should just look at the correlations and assume causation in this case". The question would simply remain open, perhaps indefinitely. This is the most frustrating thing about discussing economics with anyone: if you're truly honest, you should admit that you can pluck examples in history to prove just about anything. Each side will say "oh that's not comparable because ____". And you know what, they're right! Since no two situations are the same, we rely on our "gut" to tell us what variables, despite being different, "didn't really influence or matter". The idea that you can for example draw any conclusions about economic policy from the 50s, a ridiculously unique time where all the production of the world except the US was more or less destroyed, is absurd. The idea that you can look at the effect of ONE policy in Germany, a country of different size, culture, laws, and other policies, and say the same would happen here is equally crazy. It's data sure, but not particularly useful data if you are honest about the science of it. Those techniques would get you laughed out of any other scientific field. > At this point I have to ask, how is your view of economics different from theology? What is the point of such a useless field of study? My view (I am not the op), is that yes, most people who believe in macro economics principles are closer to theologists than scientists. It is indeed quite possibly a useless field of study, given that there are huge disagreements and it doesn't even matter because a politician will usually do something completely based on the next election or special interests anyways, so even if we did know for sure it wouldn't matter. ( a funny article by mr Krugman himself on this: http://www.nytimes.com/2000/06/07/opinion/reckonings-a-rent-affair.html http://www.nytimes.com/2000/06/07/opinion/reckonings-a-rent-... ) Now, there are alternative forms of establishing knowledge other than science (for example there are no experiments in math, and math isnt science), and you can argue that the position "I don't know" can be a very wise one and an economic policy all in itself. But the idea that "doing x will for sure do y" is silly, ESPECIALLY since a timeframe is rarely ever attached to it.
dreamdu5t 14y ago
You can't test hypothesis with no control group and no way to falsify theories. Comparing economics to physics is absurd.
- jrogers65 14y ago
  There has been a silent revolution in the last few decades which has resulted in a new branch of mathematics called Chaos Theory. http://en.wikipedia.org/wiki/Chaos_theory http://en.wikipedia.org/wiki/Chaos_theory It happens to be quite capable of making a science out of traditionally difficult to understand subjects such as economics, psychology and sociology. https://docs.google.com/viewer?a=v&q=cache:naTCJqLey4QJ:web.cenet.org.cn/upfile/41985.pdf+&hl=en&gl=uk&pid=bl&srcid=ADGEESgpq6siYpCHud7iNcHpe-jcDkFz48wVeYhRvfLywy2ZT1lwIXOS5gxsM5oho8JB2r5I71YboHxl7_iADgqtMorjEU-cO_GLE3dcPkWDjIRzgRosjqx4f5mKg4upwCL1sb1tKvGf&sig=AHIEtbQLZht8a0gIPDIY57mbae1jtGXLCA https://docs.google.com/viewer?a=v&q=cache:naTCJqLey4QJ:... The comparison would have been absurd last century, not so much today.
- fijal 14y ago
  How about astrophysics? Climate science? We don't always get a whole lot of experiments to do, sometimes one.
nl 14y ago
There are two groups of economists: scientists who predicted that austerity wouldn't work and would make things worse, and quarks (aka the Chicago school) who recommended it. In most areas of science bad ideas don't disappear, it is just that those who support them die and ideas with some evidentiary support become the new norm. After the response to the 70's oil shocks economists knew that austerity didn't work. Unfortunately measures that are known to work are a political minefield, so those "economists" who don't support it get a lot of support from politicians who don't support it either. In some ways it is similar to evolution or climate change. You can find "scientists" who deny them both. Economics is worse though, because it is so closely tied to politics. Incidentally, Krugman has been writing about Iceland since 2010[1]. [1] http://krugman.blogs.nytimes.com/2010/06/30/the-icelandic-post-crisis-miracle/ http://krugman.blogs.nytimes.com/2010/06/30/the-icelandic-po...
- tsotha 14y ago
  >There are two groups of economists: scientists who predicted that austerity wouldn't work and would make things worse, and quarks (aka the Chicago school) who recommended it. Oh please. The idea that you can spend your way out of debt has been shown to be disastrous over and over, and yet like the Marxist "scientists" before them these Neo-Keynesians are going to claim everything is peachy until even the slowest among us can see they're wrong (and not scientists, either). But like any good faith healer they'll say "You didn't do it hard enough". Does that sound familiar? In the short run austerity is painful. In the long run it's the only option, and putting off the pain only makes it worse when you're out of options. Either you do it honestly by cutting expenditures, or you do it the normal way by printing money. The idea you can derive globally applicable lessons from a country the size of Cleveland is a bit daft.
  - barrkel 14y ago
    If Cleveland had its own currency, you could derive globally applicable lessons. But it doesn't. The "normal way" is much much better than deflationary expenditure cutting. Deflation increases the debt burden in real terms. The underlying reason governments are following austerity is because protecting old people's benefits & pensions (the people on the credit side of the debt, i.e. claims on future production) is more important than growing the economy for young people, because that's how the votes are structured in the economies that matter (Germany in Europe). Politics and demographics are pro-austerity, not economists.
gizmo 14y ago
> The mainstream camp however, thought otherwise and most of the world followed their advice. Not the mainstream -- a vocal minority. Ordinary Macro 101 textbooks predicted the consequences of the policies in the the US and Europe pretty accurately.
- cynicalkane 14y ago
  This. If you look at the right ideas of Macro 101, the success rate is pretty high. Bailouts, demand-side policy, properly applied monetary stimulus, expectations management and confidence. If you look at famous wrong ideas, their failure rate has been pretty high. Austerity, strong currencies, lazy ZIRP stimulus, do-nothing policy, inflation paranoia. What is true in macro before the recession has become more true. The econ pundits who focused on these Macro 101 truths have been mostly right, with the monetary guys being perhaps a little more right than the fiscal stimulus guys. This should not be surprising as the things that are "true" in econ are such by virtue of hundreds of years of examination and highly reasonable philosophy, which anyone who's bothered to study econ would know. Most people who say "econ is not a science" have had little to no experience with people who conduct economics as a science. I understand the cargo-cultists and pundits are much louder voices, but someone good at "science" shouldn't lazily examine the most shallow voices and use that to conclude deep things about a field of study. There's cargo cult science, and then there's cargo cult scientific criticism.
  - tsotha 14y ago
    >This. If you look at the right ideas of Macro 101, the success rate is pretty high. Bailouts, demand-side policy, properly applied monetary stimulus, expectations management and confidence. This is ridiculous. Economies recover from recessions and "Macro 101" people claim victory. But economies recover from recessions if you do nothing. Or you implement austerity measures. >Most people who say "econ is not a science" have had little to no experience with people who conduct economics as a science. People who "conduct economics as a science" have little or no connection to reality. They have grossly oversimplified models that fail to make meaningful predictions and congratulate themselves on the accuracy of their models in the complete absence of evidence. Talk about cargo cult science. Economics isn't a science. It's just a way to fit the world into your political template.
freshhawk 14y ago
I think you are mistaken only in assuming that economists don't know this. It's blatantly obvious as soon as you learn about the philosophy of science. The problem is that economic decisions still need to be made and "confidence" actually is a big factor in how markets react to news. Since you can't start doing science in economics at this point then you better look to your preferred economic philosophy for some pointers and rules of thumb. And you god damn better make sure people have confidence in you (since it literally makes things work better and because then you get less blame for mistakes). Since the creation of a fake Nobel prize in Economics to borrow some of that sweet sweet confidence people have in Physics and Chemistry it's been seen as an image problem. A branding problem. It's very Straussian I suppose, in that "the masses must be lied to for their own good, rulers need to show strength and project confidence" kind of way. It's definitely gotten out of hand in my opinion, so little effort going towards moving economics towards science and so much on religious arguments when all sides know they can't really model or predict anything.
- cynicalkane 14y ago
  The opinion that the Nobel Prize in Economics is a "fake" prize is not shared by the Nobel Foundation, which treats it as equal to Nobel's prizes and awards them in the same way, with the same people, by the same criteria as the other science prizes. They differ only in name as they were named after different benefactors. I wish people would stop saying this. On the other hand, it's a sure sign you don't know what you're talking about. http://www.nobelprize.org/nobel_prizes/economics/ http://www.nobelprize.org/nobel_prizes/economics/
  - fergtrhhty 14y ago
    You are either completely ignorant about what you are writing about or a liar. The prize is NEVER mentioned as a Nobel prize. The diplomas don't mention Nobel prize anywhere. As an irrefutable proof I submit this: http://www.nobelprize.org/nobel_prizes/economics/nomination/ http://www.nobelprize.org/nobel_prizes/economics/nomination/ "The Prize in Economic Sciences is not a Nobel Prize" Please, go spread your misinformation anywhere else.
  - 14y ago
paulsutter 14y ago
Could someone help me out why this Middlebrow Dismissive Comment has been voted up? It contains no information, takes no position, and merely lobs cynical derision at everyone. Marty's other comment in this thread was cogent and interesting, comparing Iceland's actions to earlier crises Sweden and Argentina. But this comment, useless. What am I missing here?
- mcantelon 14y ago
  It would indicate that others share his lack of faith in mainstream Western economics.
- eupharis 14y ago
  It makes a great deal of statements, and does take positions. Factual positions no less. For example: "At the onset of the 2008 crisis, some people very accurately predicted the type of crisis it was (a financial panic) and recommended policies that were tested and proven to work." Position taken. Factual assertion made. Is this true or false? "The mainstream camp however, thought otherwise and most of the world followed their advice." Position taken. Factual assertion made. Is this true or false? "With 4 years of data we now know who was right and who was wrong" Position taken. Factual assertion made. Is this true or false? "Few high profile economists have reversed their deeply flawed views and the views of those baked by data and correct predictions are still not taken seriously. " Position taken. Factual assertion made. Is this true or false? "Economics is deeply corrupted by politics and the financial interests of its practitioners." Position taken. Factual assertion made. Is this true or false? Everything I have seen over the past few years indicates to me his assertions are true. In particular the case of Iceland and Ireland.
  - paulsutter 14y ago
    "some people" recommended "policies that were tested and proven to work"? -- What people, what policies? What position has been taken? "mainstream camp thought otherwise" - otherwise to what? "and followed their advice" - Really? So how is it that Ireland and the US and Iceland all responded very differently, if everyone followed the same flawed advice? "we know who was right and wrong" - Much to my own surprise, we see that most of the solutions have worked to some degree, and the widely predicted great disaster has not occurred. Really the jury is still out.
dxbydt 14y ago
are you saying the only value of econ is its predictive value or the lack thereof ? if some PL hotshot predicts that 10 years from now imperative languages will go the way of the dodo, must we mock his particular prediction or his field in general? shaw is supposed to have quipped "If all economists were laid end to end, they would not reach a conclusion." - but some actually see that bug as a feature. disagreement in social science != quackery
brc 14y ago
Indeed it is odd that many people can agree the best way forwards for GM was to give the shareholders a total loss and the bondholders a severe haircut. But when it comes time for a country to do the same thing - everyone disagrees and says what is needed is for the original bondholders to be made whole by issuing new debt. There is not some miracle line where obvious solutions jump over to being wrong based on size. Defaulting on payments is a scalable strategy, from the underwater home owner to the overly-indebted bank to the hopelessly over-borrowed national government. It's not pleasant for anyone involved, but confronting the problem is far better than trying to sweep it under the carpet. There has arisen a pervasive myth that only debtors should lose when creditors are unable to keep a loan performing. For sure, the rights of the creditor exceed that of the debtor, but it's plain wrong to expect a creditor not to suffer losses when extensive bad loans are found. The problem is that, by being locked into the Euro, Ireland was unable to use the shock-absorber of a floating exchange rate. People rightly dumped their Icelandic currency, because they got burnt. The Icelandic people lost a lot of wealth. The Icelandic government rightly stripped the banks of their independence. But now the decks are cleared and people can get back to working and being productive, and getting their economy growing again. Why people will continue to insist that the best measure for an indebted government is to borrow more money and hope for a miracle of growth to fix the payments is beyond me. The only result from drunkenness is a hangover. You can resume drinking to postpone the symptoms, but they will always arrive, and the further you push it out, the worse it gets.
- justincormack 14y ago
  Ireland is in the EU and it was the EU that apparently decided that losses for senior bank debt holders were not going to happen. This is because of externalities it would probably have bankrupted most banks due to increased borrowing costs and upset the cosy setup where most government debt is funded by banks in southern Europe. But it was not Ireland's problem and Ireland should have made other countries pay to bail out the bond holders.
  - chalst 14y ago
    Ireland really could have chosen to let some banks fail. There was a lot of pressure from countries that were trying to pretend their banking sectors were healthier than they were (esp. Germany), but several people then on the Bank of England Monetary Policy Committee (e.g., Willem Buiter) said it was a mistake for Ireland to guarantee all creditors.
mtgx 14y ago
The funny thing is that the "mainstream economists" should have been discredited since the crisis started. Because none of them was able to predict the crisis, because all of them pushed for the policies that led to that crisis. So of course they weren't going to cry disaster when they proposed it. I remember them being blamed for a while, but in the end nothing has changed.
jvvlimme 14y ago
It is true. John B. Clarck and Edwin Seligman (two leading figures in the development of the Neo Classical Economy) sold out in the late 1800's to the wealthiest of the day and transformed the science of economics into something that is as reliable in predicting the economy and offering solutions as your average fortune teller. The rich industrialists of the 19th century made sure that the universities (on whos board they sat) taught only the flawed neo-classical economy so entire generations of young minds were corrupted. It's thanks to Seligman by the way that we are all paying taxes on the labor we perform while the act of speculation (which destablizes the economy) remains largely un(der)taxed. Economists should go back to basics: Smith, Ricardo, Mill, George, ... and rebuild their field as a true science. I invite everyone to read "The Corruption of Economics" by Mason Gaffney for the full story.
Tichy 14y ago
The fun thing with economic predictions: make enough of them, and some of them are bound to come true. The whole fond business seems to dwell on that, publishing lists of successful predictors by the end of the year. Research has shown that the successes are actually just random, but by cherry picking the success stories you can create a nice story for advertising. In any case, it would be interesting to get more references from you (who predicted what, and what are the suggested steps). I think there are always a lot of people predicting doom for the near future. Every now and then they are bound to be right, but it doesn't prove anything.
kfk 14y ago
There are lots of economists, and I believe is the majority, that actually kept advising to let the banks fail. Economics is a deep and complex field of science, I urge you to get a better grasp of it before doing such shallow statements.
martinced 14y ago
You are right when you say the economics is deeply corrupted by politics. At least mainstrean economics. The problem is one of propaganda first and foremost: the only thing that is widely thaught in universities and that we keep hearing all the times is Keynes. The problem is: Keynesianism is totally unable to predict anything further than two or three years. It also inevitably leads to the country defaulting. There's no other way. There never has been any other way for a country run under the Keynesian dogma. I'll give an example: before the first euro even circulated there have been economists (of course non-Keynesian ones) who predicted the very exact scenario that happened to the eurozone 13 years later. Too many houses in Spain, too many industries in Germany, too many public servants in France and as well the default of Greece and Spain (Greece is going to default again btw and Spain is going to eventually default too). These were quite impressive "predictions" for some. For others it was simply about applying what Friedman has been telling since forever. That's the problem: Keynesianism can only predict up to two or three years in advance and that at the cost of sinking the country. But Keynesianism is precisely what politicians wants to hear: they take it as a free ticket allowing them to create an always bigger public sector (and hence they can feel always more and more "important"). The result? Deeply corrupted economists that happily sing the only song that politicians want to hear. The non-Keynesian economists who precisely predicted the mess we're in today? Nobody is listening to them (well I am for my positions, because it nets me a lot of money but not a single politican want to listen to them). This is really a sad state of affair and it shall stay like that as long as the fraud that Keynesianism is is going to be taught in universities as if it was the holy gospel. Note that the disciples of Friedman who predicted Spain and Greece's defaults did not just say: "Spain and Greece are eventually going to default". They did predict precisely the mechanism, over a decade and a half, that would lead to the defaults. They were already right for Greece and the future is going to prove them correct again. Note that since then they've explained why there's no way on earth Greece is ever going to repay its debt and that inevitably Greece would default again. While the Keynesians are all wrong and keep telling us that more public debt is going to solve all the eurozone issues. The problem is that once countries reach about 100% of public debt (which they inevitably do when run under the Keynesian dogma), there's simply no way out using Keynesian tactics. So, yup, to me Keynesianism is an utter failure and it's going to get uglier and uglier. You don't want to be jobless in Greece today. The fact is: Friedman disciples predicted precisely that in 1999. Keynesians didn't.

indiecore 14y ago

>You can't practice alchemy or voodoo and expect people to treat you like a scientist. You can if you have all the money...

ryanmolden 14y ago

>With 4 years of data we now know who was right and who was wrong Do we? I think at best you could argue that what was done was wrong, that doesn't imply the other alternative was right. There exists more than two possible courses of action and thus we can't simply anoint one as right and the other as wrong, they could in fact both be wrong. I think that is one big problem with macro-economics as a science, you can't really have controlled experiments whereby we try each of N hypothesis in turn, controlling externalities, and see which yields the most accurate outcome vis-a-vis the predictions that that hypothesis made. Even repeating what worked N years ago isn't a guarantee of anything, since it is highly unlikely that all the confounding variables are the same.

martythemaniak 14y ago
You seem to be implying that because economists can't run clean experiments like physicists, they can't prove or disprove anything, they can't tell us what happened and they certainly can't guide us. At this point I have to ask, how is your view of economics different from theology? What is the point of such a useless field of study? Of course, economics can be useful. Economists have a ton of data and a wide variety of tools with which to conduct their study, and while they can't achieve the purity of physics, economics can still be a valid and useful field of study. The problem isn't economics itself, but practitioners whose views are clouded by politics, ego and money.
- tolmasky 14y ago
  > You seem to be implying that because economists can't run clean experiments like physicists, they can't prove or disprove anything, they can't tell us what happened and they certainly can't guide us. This is exactly correct. Just because we don't have the means to do the kinds of experiments we want, doesn't mean we get to change the definition of proof. And if you do, you certainly shouldn't call it science. If there was no good way to do a falsifiable experiment in physics we wouldn't say "oh we have a lot of data though, so i guess we should just look at the correlations and assume causation in this case". The question would simply remain open, perhaps indefinitely. This is the most frustrating thing about discussing economics with anyone: if you're truly honest, you should admit that you can pluck examples in history to prove just about anything. Each side will say "oh that's not comparable because ____". And you know what, they're right! Since no two situations are the same, we rely on our "gut" to tell us what variables, despite being different, "didn't really influence or matter". The idea that you can for example draw any conclusions about economic policy from the 50s, a ridiculously unique time where all the production of the world except the US was more or less destroyed, is absurd. The idea that you can look at the effect of ONE policy in Germany, a country of different size, culture, laws, and other policies, and say the same would happen here is equally crazy. It's data sure, but not particularly useful data if you are honest about the science of it. Those techniques would get you laughed out of any other scientific field. > At this point I have to ask, how is your view of economics different from theology? What is the point of such a useless field of study? My view (I am not the op), is that yes, most people who believe in macro economics principles are closer to theologists than scientists. It is indeed quite possibly a useless field of study, given that there are huge disagreements and it doesn't even matter because a politician will usually do something completely based on the next election or special interests anyways, so even if we did know for sure it wouldn't matter. ( a funny article by mr Krugman himself on this: http://www.nytimes.com/2000/06/07/opinion/reckonings-a-rent-affair.html http://www.nytimes.com/2000/06/07/opinion/reckonings-a-rent-... ) Now, there are alternative forms of establishing knowledge other than science (for example there are no experiments in math, and math isnt science), and you can argue that the position "I don't know" can be a very wise one and an economic policy all in itself. But the idea that "doing x will for sure do y" is silly, ESPECIALLY since a timeframe is rarely ever attached to it.

dreamdu5t 14y ago

You can't test hypothesis with no control group and no way to falsify theories. Comparing economics to physics is absurd.

jrogers65 14y ago
There has been a silent revolution in the last few decades which has resulted in a new branch of mathematics called Chaos Theory. http://en.wikipedia.org/wiki/Chaos_theory http://en.wikipedia.org/wiki/Chaos_theory It happens to be quite capable of making a science out of traditionally difficult to understand subjects such as economics, psychology and sociology. https://docs.google.com/viewer?a=v&q=cache:naTCJqLey4QJ:web.cenet.org.cn/upfile/41985.pdf+&hl=en&gl=uk&pid=bl&srcid=ADGEESgpq6siYpCHud7iNcHpe-jcDkFz48wVeYhRvfLywy2ZT1lwIXOS5gxsM5oho8JB2r5I71YboHxl7_iADgqtMorjEU-cO_GLE3dcPkWDjIRzgRosjqx4f5mKg4upwCL1sb1tKvGf&sig=AHIEtbQLZht8a0gIPDIY57mbae1jtGXLCA https://docs.google.com/viewer?a=v&q=cache:naTCJqLey4QJ:... The comparison would have been absurd last century, not so much today.
fijal 14y ago
How about astrophysics? Climate science? We don't always get a whole lot of experiments to do, sometimes one.

nl 14y ago

There are two groups of economists: scientists who predicted that austerity wouldn't work and would make things worse, and quarks (aka the Chicago school) who recommended it. In most areas of science bad ideas don't disappear, it is just that those who support them die and ideas with some evidentiary support become the new norm. After the response to the 70's oil shocks economists knew that austerity didn't work. Unfortunately measures that are known to work are a political minefield, so those "economists" who don't support it get a lot of support from politicians who don't support it either. In some ways it is similar to evolution or climate change. You can find "scientists" who deny them both. Economics is worse though, because it is so closely tied to politics. Incidentally, Krugman has been writing about Iceland since 2010[1]. [1] http://krugman.blogs.nytimes.com/2010/06/30/the-icelandic-post-crisis-miracle/ http://krugman.blogs.nytimes.com/2010/06/30/the-icelandic-po...

tsotha 14y ago
>There are two groups of economists: scientists who predicted that austerity wouldn't work and would make things worse, and quarks (aka the Chicago school) who recommended it. Oh please. The idea that you can spend your way out of debt has been shown to be disastrous over and over, and yet like the Marxist "scientists" before them these Neo-Keynesians are going to claim everything is peachy until even the slowest among us can see they're wrong (and not scientists, either). But like any good faith healer they'll say "You didn't do it hard enough". Does that sound familiar? In the short run austerity is painful. In the long run it's the only option, and putting off the pain only makes it worse when you're out of options. Either you do it honestly by cutting expenditures, or you do it the normal way by printing money. The idea you can derive globally applicable lessons from a country the size of Cleveland is a bit daft.
- barrkel 14y ago
  If Cleveland had its own currency, you could derive globally applicable lessons. But it doesn't. The "normal way" is much much better than deflationary expenditure cutting. Deflation increases the debt burden in real terms. The underlying reason governments are following austerity is because protecting old people's benefits & pensions (the people on the credit side of the debt, i.e. claims on future production) is more important than growing the economy for young people, because that's how the votes are structured in the economies that matter (Germany in Europe). Politics and demographics are pro-austerity, not economists.

gizmo 14y ago

> The mainstream camp however, thought otherwise and most of the world followed their advice. Not the mainstream -- a vocal minority. Ordinary Macro 101 textbooks predicted the consequences of the policies in the the US and Europe pretty accurately.

cynicalkane 14y ago
This. If you look at the right ideas of Macro 101, the success rate is pretty high. Bailouts, demand-side policy, properly applied monetary stimulus, expectations management and confidence. If you look at famous wrong ideas, their failure rate has been pretty high. Austerity, strong currencies, lazy ZIRP stimulus, do-nothing policy, inflation paranoia. What is true in macro before the recession has become more true. The econ pundits who focused on these Macro 101 truths have been mostly right, with the monetary guys being perhaps a little more right than the fiscal stimulus guys. This should not be surprising as the things that are "true" in econ are such by virtue of hundreds of years of examination and highly reasonable philosophy, which anyone who's bothered to study econ would know. Most people who say "econ is not a science" have had little to no experience with people who conduct economics as a science. I understand the cargo-cultists and pundits are much louder voices, but someone good at "science" shouldn't lazily examine the most shallow voices and use that to conclude deep things about a field of study. There's cargo cult science, and then there's cargo cult scientific criticism.
- tsotha 14y ago
  >This. If you look at the right ideas of Macro 101, the success rate is pretty high. Bailouts, demand-side policy, properly applied monetary stimulus, expectations management and confidence. This is ridiculous. Economies recover from recessions and "Macro 101" people claim victory. But economies recover from recessions if you do nothing. Or you implement austerity measures. >Most people who say "econ is not a science" have had little to no experience with people who conduct economics as a science. People who "conduct economics as a science" have little or no connection to reality. They have grossly oversimplified models that fail to make meaningful predictions and congratulate themselves on the accuracy of their models in the complete absence of evidence. Talk about cargo cult science. Economics isn't a science. It's just a way to fit the world into your political template.

freshhawk 14y ago

I think you are mistaken only in assuming that economists don't know this. It's blatantly obvious as soon as you learn about the philosophy of science. The problem is that economic decisions still need to be made and "confidence" actually is a big factor in how markets react to news. Since you can't start doing science in economics at this point then you better look to your preferred economic philosophy for some pointers and rules of thumb. And you god damn better make sure people have confidence in you (since it literally makes things work better and because then you get less blame for mistakes). Since the creation of a fake Nobel prize in Economics to borrow some of that sweet sweet confidence people have in Physics and Chemistry it's been seen as an image problem. A branding problem. It's very Straussian I suppose, in that "the masses must be lied to for their own good, rulers need to show strength and project confidence" kind of way. It's definitely gotten out of hand in my opinion, so little effort going towards moving economics towards science and so much on religious arguments when all sides know they can't really model or predict anything.

cynicalkane 14y ago
The opinion that the Nobel Prize in Economics is a "fake" prize is not shared by the Nobel Foundation, which treats it as equal to Nobel's prizes and awards them in the same way, with the same people, by the same criteria as the other science prizes. They differ only in name as they were named after different benefactors. I wish people would stop saying this. On the other hand, it's a sure sign you don't know what you're talking about. http://www.nobelprize.org/nobel_prizes/economics/ http://www.nobelprize.org/nobel_prizes/economics/
- fergtrhhty 14y ago
  You are either completely ignorant about what you are writing about or a liar. The prize is NEVER mentioned as a Nobel prize. The diplomas don't mention Nobel prize anywhere. As an irrefutable proof I submit this: http://www.nobelprize.org/nobel_prizes/economics/nomination/ http://www.nobelprize.org/nobel_prizes/economics/nomination/ "The Prize in Economic Sciences is not a Nobel Prize" Please, go spread your misinformation anywhere else.
- 14y ago

paulsutter 14y ago

Could someone help me out why this Middlebrow Dismissive Comment has been voted up? It contains no information, takes no position, and merely lobs cynical derision at everyone. Marty's other comment in this thread was cogent and interesting, comparing Iceland's actions to earlier crises Sweden and Argentina. But this comment, useless. What am I missing here?

mcantelon 14y ago
It would indicate that others share his lack of faith in mainstream Western economics.
eupharis 14y ago
It makes a great deal of statements, and does take positions. Factual positions no less. For example: "At the onset of the 2008 crisis, some people very accurately predicted the type of crisis it was (a financial panic) and recommended policies that were tested and proven to work." Position taken. Factual assertion made. Is this true or false? "The mainstream camp however, thought otherwise and most of the world followed their advice." Position taken. Factual assertion made. Is this true or false? "With 4 years of data we now know who was right and who was wrong" Position taken. Factual assertion made. Is this true or false? "Few high profile economists have reversed their deeply flawed views and the views of those baked by data and correct predictions are still not taken seriously. " Position taken. Factual assertion made. Is this true or false? "Economics is deeply corrupted by politics and the financial interests of its practitioners." Position taken. Factual assertion made. Is this true or false? Everything I have seen over the past few years indicates to me his assertions are true. In particular the case of Iceland and Ireland.
- paulsutter 14y ago
  "some people" recommended "policies that were tested and proven to work"? -- What people, what policies? What position has been taken? "mainstream camp thought otherwise" - otherwise to what? "and followed their advice" - Really? So how is it that Ireland and the US and Iceland all responded very differently, if everyone followed the same flawed advice? "we know who was right and wrong" - Much to my own surprise, we see that most of the solutions have worked to some degree, and the widely predicted great disaster has not occurred. Really the jury is still out.

dxbydt 14y ago

are you saying the only value of econ is its predictive value or the lack thereof ? if some PL hotshot predicts that 10 years from now imperative languages will go the way of the dodo, must we mock his particular prediction or his field in general? shaw is supposed to have quipped "If all economists were laid end to end, they would not reach a conclusion." - but some actually see that bug as a feature. disagreement in social science != quackery

brc 14y ago

Indeed it is odd that many people can agree the best way forwards for GM was to give the shareholders a total loss and the bondholders a severe haircut. But when it comes time for a country to do the same thing - everyone disagrees and says what is needed is for the original bondholders to be made whole by issuing new debt. There is not some miracle line where obvious solutions jump over to being wrong based on size. Defaulting on payments is a scalable strategy, from the underwater home owner to the overly-indebted bank to the hopelessly over-borrowed national government. It's not pleasant for anyone involved, but confronting the problem is far better than trying to sweep it under the carpet. There has arisen a pervasive myth that only debtors should lose when creditors are unable to keep a loan performing. For sure, the rights of the creditor exceed that of the debtor, but it's plain wrong to expect a creditor not to suffer losses when extensive bad loans are found. The problem is that, by being locked into the Euro, Ireland was unable to use the shock-absorber of a floating exchange rate. People rightly dumped their Icelandic currency, because they got burnt. The Icelandic people lost a lot of wealth. The Icelandic government rightly stripped the banks of their independence. But now the decks are cleared and people can get back to working and being productive, and getting their economy growing again. Why people will continue to insist that the best measure for an indebted government is to borrow more money and hope for a miracle of growth to fix the payments is beyond me. The only result from drunkenness is a hangover. You can resume drinking to postpone the symptoms, but they will always arrive, and the further you push it out, the worse it gets.

justincormack 14y ago
Ireland is in the EU and it was the EU that apparently decided that losses for senior bank debt holders were not going to happen. This is because of externalities it would probably have bankrupted most banks due to increased borrowing costs and upset the cosy setup where most government debt is funded by banks in southern Europe. But it was not Ireland's problem and Ireland should have made other countries pay to bail out the bond holders.
- chalst 14y ago
  Ireland really could have chosen to let some banks fail. There was a lot of pressure from countries that were trying to pretend their banking sectors were healthier than they were (esp. Germany), but several people then on the Bank of England Monetary Policy Committee (e.g., Willem Buiter) said it was a mistake for Ireland to guarantee all creditors.

mtgx 14y ago

The funny thing is that the "mainstream economists" should have been discredited since the crisis started. Because none of them was able to predict the crisis, because all of them pushed for the policies that led to that crisis. So of course they weren't going to cry disaster when they proposed it. I remember them being blamed for a while, but in the end nothing has changed.

jvvlimme 14y ago

It is true. John B. Clarck and Edwin Seligman (two leading figures in the development of the Neo Classical Economy) sold out in the late 1800's to the wealthiest of the day and transformed the science of economics into something that is as reliable in predicting the economy and offering solutions as your average fortune teller. The rich industrialists of the 19th century made sure that the universities (on whos board they sat) taught only the flawed neo-classical economy so entire generations of young minds were corrupted. It's thanks to Seligman by the way that we are all paying taxes on the labor we perform while the act of speculation (which destablizes the economy) remains largely un(der)taxed. Economists should go back to basics: Smith, Ricardo, Mill, George, ... and rebuild their field as a true science. I invite everyone to read "The Corruption of Economics" by Mason Gaffney for the full story.

Tichy 14y ago

The fun thing with economic predictions: make enough of them, and some of them are bound to come true. The whole fond business seems to dwell on that, publishing lists of successful predictors by the end of the year. Research has shown that the successes are actually just random, but by cherry picking the success stories you can create a nice story for advertising. In any case, it would be interesting to get more references from you (who predicted what, and what are the suggested steps). I think there are always a lot of people predicting doom for the near future. Every now and then they are bound to be right, but it doesn't prove anything.

kfk 14y ago

There are lots of economists, and I believe is the majority, that actually kept advising to let the banks fail. Economics is a deep and complex field of science, I urge you to get a better grasp of it before doing such shallow statements.

martinced 14y ago

You are right when you say the economics is deeply corrupted by politics. At least mainstrean economics. The problem is one of propaganda first and foremost: the only thing that is widely thaught in universities and that we keep hearing all the times is Keynes. The problem is: Keynesianism is totally unable to predict anything further than two or three years. It also inevitably leads to the country defaulting. There's no other way. There never has been any other way for a country run under the Keynesian dogma. I'll give an example: before the first euro even circulated there have been economists (of course non-Keynesian ones) who predicted the very exact scenario that happened to the eurozone 13 years later. Too many houses in Spain, too many industries in Germany, too many public servants in France and as well the default of Greece and Spain (Greece is going to default again btw and Spain is going to eventually default too). These were quite impressive "predictions" for some. For others it was simply about applying what Friedman has been telling since forever. That's the problem: Keynesianism can only predict up to two or three years in advance and that at the cost of sinking the country. But Keynesianism is precisely what politicians wants to hear: they take it as a free ticket allowing them to create an always bigger public sector (and hence they can feel always more and more "important"). The result? Deeply corrupted economists that happily sing the only song that politicians want to hear. The non-Keynesian economists who precisely predicted the mess we're in today? Nobody is listening to them (well I am for my positions, because it nets me a lot of money but not a single politican want to listen to them). This is really a sad state of affair and it shall stay like that as long as the fraud that Keynesianism is is going to be taught in universities as if it was the holy gospel. Note that the disciples of Friedman who predicted Spain and Greece's defaults did not just say: "Spain and Greece are eventually going to default". They did predict precisely the mechanism, over a decade and a half, that would lead to the defaults. They were already right for Greece and the future is going to prove them correct again. Note that since then they've explained why there's no way on earth Greece is ever going to repay its debt and that inevitably Greece would default again. While the Keynesians are all wrong and keep telling us that more public debt is going to solve all the eurozone issues. The problem is that once countries reach about 100% of public debt (which they inevitably do when run under the Keynesian dogma), there's simply no way out using Keynesian tactics. So, yup, to me Keynesianism is an utter failure and it's going to get uglier and uglier. You don't want to be jobless in Greece today. The fact is: Friedman disciples predicted precisely that in 1999. Keynesians didn't.