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Economists Suck!

On several occasions in the past I have commented on my lack of confidence in economics. In general I trust experts (as I will have noted here in the past, especially regarding topics such as evolution, cosmology, and climate change) but there are experts and then there are “experts”. Some expertise depends on evidence and some depends on dogma. Guess which category I think most economists fit into?

If experts in most other areas had failed as badly as economists have we would have stopped talking to them years ago. We have stopped listening to experts in some other areas which aren’t science based: philosophy and theology would be two good examples, so maybe it’s time economics joined that group.

Why am I embarking on this rant at this time? Because I blame economists, and politicians who follow the theories of economists, for many of the world’s current problems, especially the current financial crisis.

It’s easy for a group to be tempted by the perception of purity or beauty in a theory. This happens in maths all the time but maths theories can be easily verified against established principles and if they don’t measure up they are abandoned. The same thing happens even more in fundamental theoretical physics. It is tempting to want to believe beautiful theories such as string theory but because physics is a science the extra step or empirical confirmation is required first.

This doesn’t seem to happen in economics. When a particular theory is followed and the outcome isn’t what was promised the usual answer is more of the same. Lack of controls was clearly the cause of the latest financial crisis yet people who follow the standard economic zeitgeist are still calling for even less controls.

Earth to economists: Your theories don’t work, OK? Free market theory is pretty but it’s a pretty lie. Everyone loses. We need a new theory, and this time test it against reality!

There are a few economists who get it. One from the Bank of England has said: “I think one of the great errors we as economists made was that we started believing the assumptions of economics, and saying things that made no intellectual sense. We started to believe that what were assumptions were actually a description of reality, and therefore that the models were a description of reality, and therefore were dependable for policy analysis. With hindsight, that was a pretty significant error.”

Actually, most of us non-economists could see that it was a significant error before the inevitable disaster resulted. We didn’t need hindsight because we weren’t blinded by ideology. Yeah, economist suck!

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  1. August 7, 2012 at 8:20 am

    It does seem regrettably frequent that economists have such a widespread set of views, and such contradictory views, that it appears that they have no clue as to what is really on the economic horizon. I think economists are guilty of attaching their politics to their economics and advising on policies accordingly. Another regrettable event has been the rise in ratings agencies, who set economic consensus which is then blindly followed by politicians seeking to hold onto an economic status set by a group of cronies who are able to hold the whole world to ransom by threatening downgrades.

    http://youngleftie.wordpress.com/

  2. ojb42
    August 7, 2012 at 8:59 am

    No one thinks that economics is easy and that it must be almost impossible to formulate accurate theories. But if that is the case economists should just admit it and say “we really don’t know, so we recommend not following any extreme economic action”.

    And yes, the rating agencies are a problem. But they are a natural part of the system and it’s the system as a whole which is the real problem.

  3. August 7, 2012 at 11:18 pm

    Whilst I agree with your overall thesis, I disagree with some of the detail.

    You speak of ‘economists’ and ‘free market economists’ at times as if the two are interchangeable – they aren’t. There are a wide spectrum of economic views out there, and the free marketers (or the neoclassical school) are one of the nuttiest of all. They have (or did have) a disproportionate voice, in a route of influence running through Rand, Greenspan, Reagan, Thatcher, and so on. I see it as a school of economic thought that gained prominence due to the beauty of the theory and the political potency of that way of thinking. But they can’t be said to speak for the economic establishment as a whole, and these days a Krugman or Stiglitz or Shiller (who has precisely predicted the last two major crisis) is far more representative.

    In addition, the lack of success in predicting financial crisis does not invalidate the profession, just as the lack of success in making multi-year daily weather forecasts does not invalidate meteorology. There are plenty of things that economists can predict reasonably accurately, then areas of greater grey, and then the impossible (ie a 20 year economic forecast or an exact modelling of the impact of a tax cut). A scientist, particularly a physicist, operates in a profession in which the making of predictions is easier than in almost any other (if only we could predict the motions of cancer as we predict the motions of the planets). Out here in the social sciences, we live in an environment of reflexivity, chaos theory, behavioural complexity, free will. We would be very irrational to expect progress to be as easy as it is the fixed physical realm. And yet within this complex environment significant progress has been made.

    And why the dig at philosophers!

  4. ojb42
    August 7, 2012 at 11:32 pm

    Yes, I admitted this post was a “rant” so I was engaging in a certain amount of hyperbole and oversimplification for rhetorical effect! Also, I did say “There are a few economists who get it” so I acknowledged some diversity of opinion.

    Agreed, it is primarily the extreme neo-liberal school I have most problems with but they seem to have the most influence. Again this post was to express my indignation at what has happened and shouldn’t be taken too seriously (I admitted it was a rant in paragraph 3).

    I totally agree that economic forecasts are difficult and uncertain but the impression I get from many economists is that “if you follow what we say everything will be OK”. If the uncertainty exists they should admit it and we shouldn’t be blindly following their theories.

    I love philosophy (and yes, I know there are some philosophers who do use a more scientific approach) but I don’t think it is taken seriously by policy makers. When was the last time you heard of a philosopher having a significant influence on a major decision?

  5. August 8, 2012 at 8:24 am

    Well it’s a high quality rant! And you have a point. The overconfidence of economists is very frustrating.

    This is an incredible book on that topic – http://www.amazon.com/Future-Babble-Expert-Predictions-Worthless/dp/0525952055/ref=pd_sim_b_2

    Well I think that philosophy in a way undergirds almost all other disciplines (even science) in such a way that it has tremendous (usually indirect) influence on almost all facets of society. But I get your frustration with the field. I just finished Bertrand Russell’s extensive History of Western Philosophy, and its hard to avoid the conclusion that the majority of history’s most famous philosophers have been nuts!

    Steve

  6. ojb42
    August 8, 2012 at 9:03 am

    Thank you. It’s good to see you are someone who really appreciates a quality rant!

    Haven’t read the book but I have heard of the research showing experts’ predictions are extremely inaccurate. It’s an interesting phenomenon.

    So much of what we have now comes from Greek philosophy, and others of course. I guess you could make a case to say philosophy underpins everything else.

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