Lately, I have been spending an inordinate amount of time with economists.

This past month, I have been at several dinners (party of 8) with them, spent time in the woods of Maine chatting them up, listened to their debates on economic policy, even spent time in a canoe fishing with them. Propriety — and Chatham House Rules — prevents me from naming any of the wonks, but it includes Chief Economists at major Wall Street firms, government entities, professors, with a few Nobel laureates thrown in for good measure.

This has led me to an interesting chain of thought about economists in general, and the failure of economics the discipline specifically. Note that I find economists to be intelligent, engaging and often charming. My references here are not to the people who call themselves economists, but rather to their work product that we call “economics.”

Long time readers know this is an an area of interest to me for many years (see the list after the jump). Way back in 2009, I gave 10 reasons Why Economists Missed the Crises. All 10 of the reasons given remain in force today, and may even be stronger.

In the intervening years, I have reached a few conclusions. This is worthy of much deeper study and analysis than the short shrift given here, but until then, I have a few ideas I wanted to jot down. If you have any intelligent thoughts on this subject, be sure to share them in comments.

Based on my time spent with Economists, here are a few anecdotal observations:

Issues of Economists & Economics

1. Economics is a discipline, not a Science. Physics can send a satellite to orbit Jupiter, Economics cannot tell you what happened yesterday. This is an enormous distinction, and has led to a) the “Physics Envy,” and b) an unnecessary emphasis on mathematical complexity.

2. Models are of limited utility. People forget that (as George Box has noted) models are imperfect depictions of reality. If you become overly reliant on them, you encounter a minefield of problems. Several analysts have told me that if the Fed cannot model something, than to them, it does not exist. Think about the absurdity of that viewpoint — and its impact on policy.

3. Contextualizing data often leads to error. This is more complex than it appears. What I mean by this is that everything that economists consider has to be forced into their intellectual framework; since everything is viewed through the imperfect lens of Economic Theory, the output is similarly imperfect — sometimes fatally.

4. Narrative drives most of economics. This is the corollary to the context issue. Everything seems to be part of a story, and how that story is told often leads to critical error. Think about phrases like “stall speed”, “second half rebound”, “muddle through”,  “Minsky moment”, “austerity”, “escape velocity”, etc.  All of these lead to rich tales often filled with emotional resonance.

5. Economists are loathe to admit ‘They Don’t Know.’ This trait is common to many professions, but I suspect the modeling issue may be partly to blame. Whenever I see forecast written out to 2 decimal places, I cannot help but wonder if there is a misunderstanding of the limitations of the data, and an illusion of precision. To paraphrase, “Only the people who understand both the data and its limitations will not get lost in the illusion of precision.”

6. A tendency to confuse correlation with causation.  This is one of the oldest statistical foibles known to mankind, and yet economics remains rife with it at the highest levels. Look no further than the Fed’s obsession with the Wealth Effect for a classic correlation error; I shudder when I think about what other arenas they are fundamentally lost in.

7. The Peril of Predictions. I cannot figure out why economists seem to be so wed to making predictions, given how utterly miserable they are at it. Items 1 and 5 might be a factor.

8. Sturgeon’s Law: Lastly, there is a wide dispersion of talent in Economics, and following Sturgeon’s Law, many of the rank & file are simply mediocre.

One last note: This is not, as Paul Krugman has referenced, a debate as to which subgroup of economists are right or wrong; rather, its a set of observations of the species as a whole.

Perhaps this post is mis-titled; Instead of Blame the Economists it should read Blame Economics.

 

 

 

 

Previously:

The Mystery of the Awful Economists (RealMoney.com, 3/2/2005)

Mystery of the Awful Economists, part 2 (April 2005)

Mystery of the Awful Economists (Part III) (April 2005)

The Illusory World of Economic Forecasting (September 19th, 2006)

RIP Chicago School of Economics: 1976-2008 (December 23rd, 2008)

Why Economists Missed the Crises (January 2009)

Read It Here First: “What Good Are Economists?” (April 25th, 2009)

The Hubris of Economics (November 4th, 2009)

Wall Street analysts and economists have this recession recovery wrong  (Washington Post, July 2011)

The False Deities of Economists  (June 19th, 2012)

Economists: Things We Are Ignorant About (November 4th, 2012)

The Big Picture: On the Efficient Market Hypothesis (2005-09)

The Big Picture: On Prediction Markets (2004-09)

 

Category: Really, really bad calls, UnGuru, UnScience

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

75 Responses to “Blame the Economists . . .”

  1. Here are those prior 10 reasons why economists have done so poorly:

    1. An inherent upward bias is built into ALL Wall Street research — including economic research;

    2. Ideological rigidity prevented creative thinking;

    3. Non-critical acceptance of official data from BEA, BLS, Commerce led to only a passing familiarity with reality;

    4. Institutional rejection of negative analyses remains endemic;

    5. Traditional (non-behavioral) economic analysis seems to have difficulty with human irrationality;

    6. Political Bias; (Right wing during GOP Presidencies; Left Wing during DEM Presidencies);

    7. Corporate bias — Stock option compensation — skewed views too optimistic;

    8. “Timing” is very different from Analysis;

    9. Factoring in excessive leverage and liquidity is exceedingly difficult from a traditional economic perspective (Derivatives especially);

    10. Herding instinct is powerful;

  2. rd says:

    I think there is another one.

    There are distinctive schools of thought in economics. Since the data tend to be sparse and oten of poor quality, they tend to selectively use data that fits their own viewpoint of economics without extensive acceptance and review of data that could contradict it.

    As an engineer, we are always very watchful for data that could disprove our fundamental thesis on how system is working. We know that we have to use models to explain and predict things, but the world is a very complex place with numerous nuances that can invalidate your model very quickly. Even in physics, you go through various models depending on the specific conditions you are working in, Newtonian, qunatum, general theory of relativity, string theory etc. Yet there are still things out there like the apparent dark matter and dark energy that are not yet explained – we know that something is out there because the existing models break down at that scale. Economicsas a profession have so far largely refused to accept this reality and so we end up with endless pissing contests between monetarists, Keynesians, Austrians etc..

    • ds1234 says:

      Yes, that’s good old confirmation bias.

      It is a force to be reckoned with for sure.

      It’s one of the reasons why very, very few humans can interpret data correctly and why it is more important for students to take logic and cognitive psychology courses than economics courses, as the content of the latter must often be unlearned before graduates enter the workforce.

    • G Stockus says:

      I like the piece.

      After trading bonds for many years, this was my way to condense the unending economic babble.

      Markets, economy are like watching football with no sound on the TV. You get what you know and see of the game.

      Turn on sound a bit and that crowd noise is all the analysts economists and media monkeys that taken collectively make for loud background.

      But give me a good game commentator, someone who knows the game intimately and has the trained eye to see how and why plays unfold, and I learn and see something I may not have otherwise. His ability to predict the game outcomes may still be no better than a monkey, but his description of the game makes me get the game more…and after 40 yrs of watching, I’m still learning.

      Hard pressed to name a list but Rosenberg comes to mind…over the last 10 yrs his stuff provided more insights than most…even if he didnt always call the outcome, I learned something.

      There are guys that are good, and add value, even if they can’t predict squat.

  3. [...] Barry's just about had it with the economists he hangs out with.  (TBP) [...]

  4. [...] – NY Fed Economists: The Case for Admitting You Just Don’t Know – Bloomberg Blame the Economists . . . – The Big [...]

  5. arto13 says:

    FINALLY!! After a few years of reading and learning about economics/investing, finally, FINALLY, FINALLY! someone confirms what I strongly have felt in the pit of my stomach: given that it’s sooooooooooo friggin obvious how complicated and UNPREDICTABLE economics and the Markets are, how in the hell can people make forecasts that go out to TWO decimal points!!!!!!!!
    ANY FORECAST LESS THAN TWO DIGITS IS SELF DECEPTION!!!!!!!!

    The top guys do this! Sad. Very sad.

    It’s as irrational as the markets they are studying :))

    • Iamthe50percent says:

      Don’t the market analysts do the same? After making a prediction that a multinational multi-billion dollar company is going to earn (after Byzantine accounting and Tax rules) 65 cents a share they go berserk if the actual number is 64 cents a share and the stock drops five percent because they “missed” the estimate, ignoring that the estimate was just that – an estimate.

      The late W. Edwards Deming pointed out that industrial incentive programs often reward or punish results that are just statistical fluctuations in a production process with random elements. I submit that most bonus programs make the same error.

  6. econimonium says:

    I think the issue for economists, as it is for traders, is that it all goes out the window when you let you ideology get in the way of the numbers and the interpretation. Then it becomes an issue (similar to Finance) when the issue is “well, what do you *want* the numbers to say”. The numbers are the numbers and trends are trends. As a discipline (I think that’s an awesome way to describe it) there is nothing wrong with trying to make sense of data…it’s what you do and I do every day. But when you bend these to fit a preconceived ideology, the interpretation is doomed.

    And you’re right, this isn’t an area like physics where you can prove that Einstein was right using GPS time on the ground and time on a satellite because the actual central point of Economics, human behavior, has no maths to describe it. And all of the discipline’s data has human behavior at the core. Whenever that happens, models *can* describe expected pathways, but also can fail miserably. So all of them should stop trying to be scientists and go back to being behavioralists. It would save them lots of embarrassment. And if they’re going to use math, drop the ideology. That would also save many of them a lot of derision.

    • Iamthe50percent says:

      Bingo! But they shouldn’t stop trying to be a Science. They should recognize that Psychology is the root cause. Macroeconomics has to arise from Microeconomics which has to arise from Psychology and also Anthropology since some behavior is culturally and socially determined. Take the often stated “The purpose of a business is to make the most money possible, nothing else”. If that was true then all businessmen should be thieves since that is the easiest way to make the most money. Just take it. Lie, cheat, steal, extort. IOW become Goldman Sachs.

      • calloftheloon says:

        Here is the thing though – they already do! Daniel Kahneman won a nobel prize for work pointing this out back in the 1970s. Once someone’s one a nobel prize for an insight, it’s pretty safe to say that it’s been accepted by the field. It’s now gotten to the point where textbooks have been written for grads and even undergrads about the role of behavioral economic and the flaws with rational expectations theory. Most everyone knows that the things we teach in econ 101 are wrong, but they necessary to understand because they provide a context for everything else that follows. I like to say that the exact wrong number of economics courses to take is 1.

        Sometimes I think that people look at the pundits on Fox News as the exemplars of modern economics, rather than going to the literature.

        Here’s a good summary of the old news that psychology plays an important role in decisions: http://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.27.1.173

      • lrh says:

        Thanks for the link. It looks like a great summary.

        But is it really safe to say that the Nobel Prize guarantees the general acceptance of an insight? Has anybody asked “What would economists conclude today if they really accepted the insights of Kahneman and Tversky?” That could give us a yardstick, couldn’t it?

        Confirmation bias is so strong. I’d be happy if Nobel was a pill that cured the bias.

      • S Brennan says:

        What a strange thing to say:

        “I like to say that the exact wrong number of economics courses to take is 1.”

        Economics stands alone in education, first grade arithmetic, or science, or history, or…[you get the point] is better than none. The only way “one” class is bad is if it is teaching falsehoods and then to add:

        “but they necessary to understand because they provide a context for everything else that follows.”

        Implies that your “discipline” rests on a foundation of falsehoods.

      • Note Kahneman is a psychologist, not an economist — his research is helping to move an entirely different field

  7. peterkrause says:

    Consider the long and tortured path that psychologists have travelled, through breakthrough drugs like thorazine and procedures including lobotomies, yet they now have some very concrete and exciting understanding of the brain’s makeup and chemical processes that informs our understanding of human behavior like never before.

    Perhaps economists are coming ’round the mountain soon with exciting stuff of their own. Personally I like that the heat of markets draws them fluttering ever near; the occasional scorched wing and periodic thoracic sizzle makes the whole thing more fun.

    • rd says:

      If only.

      It seems that the ones with the failed predictions are able to keep coming back. As far as I can tell, economists have Teflon-coated asbestos wings so they can repeatedly get burned without any apparent impact.

  8. [...] esse tema está aparecendo com força… hoje (6-8) apareceu mais um do [...]

  9. The Limerick King says:

    The Econs are bad by design
    Their job is to help Kleptos shine
    If power they add
    And Kleptos are glad
    The job they are doing is fine

  10. coleyc says:

    You must divide “the discipline” into 2 parts, micro and macro. Micro is far closer to science than Macro which happens to be still stuck in witchcraft mode. Economists missing our economic realities are really just permanent macro tourists but with no skin in the game.

    • Interesting point, taken under advisement.

    • Frwip says:

      BS.

      Anyone working in an industrial sector knows the devastation the “cult of NPV” has created in many places. Same goes for urban management where presumably sophisticated models have been used to justify horrendous policies and have failed catastrophically. And then, there is the whole sector of finance, the living embodiment of applied microeconomics…

      Micro has the same problems as macro and fails as badly in the real world.

  11. kapil says:

    Forecasting economics is as easy and straightforward as forecasting the markets. This article could be describing market analysts without changing too many words. There are too many variables and they are constantly changing so it is usually just a guess. Both groups make bold predictions because that is what sells and people usually forget about the predictions quickly. (Its not what you say but how you say it!)

  12. denim says:

    Economists observe symptoms. Some understand the disease. FDR began the cure. A new outbreak started in the Jimmy Carter; Alfred Kahn era circa 1970. Obama is clueless.
    FDR: “Liberty requires opportunity to make a living – a living decent according to the standard of the time, a living which gives man not only enough to live by, but something to live for.
    For too many of us the political equality we once had won was meaningless in the face of economic inequality. A small group had concentrated into their own hands an almost complete control over other people’s property, other people’s money, other people’s labor – other people’s lives. For too many of us life was no longer free; liberty no longer real; men could no longer follow the pursuit of happiness.
    Against economic tyranny such as this, the American citizen could appeal only to the organized power of government. The collapse of 1929 showed up the despotism for what it was. The election of 1932 was the people’s mandate to end it. Under that mandate it is being ended.
    The royalists of the economic order have conceded that political freedom was the business of the government, but they have maintained that economic slavery was nobody’s business. They granted that the government could protect the citizen in his right to vote, but they denied that the government could do anything to protect the citizen in his right to work and his right to live.
    Today we stand committed to the proposition that freedom is no half-and-half affair. If the average citizen is guaranteed equal opportunity in the polling place, he must have equal opportunity in the market place.
    These economic royalists complain that we seek to overthrow the institutions of America. What they really complain of is that we seek to take away their power. Our allegiance to American institutions requires the overthrow of this kind of power. In vain they seek to hide behind the flag and the Constitution. In their blindness they forget what the flag and the Constitution stand for.”
    http://www.austincc.edu/lpatrick/his2341/fdr36acceptancespeech.htm
    http://en.wikipedia.org/wiki/Alfred_E._Kahn
    http://thoughtmaybe.com/the-century-of-the-self/
    http://thoughtmaybe.com/by/adam-curtis/

    • Iamthe50percent says:

      “These economic royalists complain that we seek to overthrow the institutions of America. What they really complain of is that we seek to take away their power.”

      Wow! That eerily brings to mind that cry that systemic collapse would occur if the TBTF banks were not bailed out. Roosevelt took action. Obama caved.

      • denim says:

        The bailout was Bush, Paulson, and Bernake’s multipartisan baby. Senators Obama and McCain were midwives.
        “No Bailout Deal After McCain, Obama, Bush Meeting
        Bernanke, Paulson Head Back to the Hill”
        By JENNIFER LOVEN and JULIE HIRSCHFELD DAVIS, Associated Press | September 25, 2008

        “WASHINGTON — Urgent efforts to lash together a $700 billion rescue plan for the national economy appeared to be stalling tonight, hours after key lawmakers had declared they had reached a deal.”
        “Treasury Secretary Paulson and the Federal Reserve chairman, Ben Bernanke, sped to Capitol Hill to try to revive or rework the proposal that President Bush said must be quickly approved by Congress to stave off economic disaster.”

        AP Photo/Pablo Martinez Monsivais
        President Bush, forth from left, meets with Senator McCain, Senator Obama, right, and congressional leaders in the Cabinet Room of the White House, today in Washington to discuss the proposed bailout of the financial industry.
        http://www.nysun.com/national/bush-mccain-obama-huddle-on-bailout-deal/86620/

  13. RW says:

    Need to think about this a bit more but #2 looks way off base. A theory grounded in some belief system can produce models that become reified because they reinforce the theory and, eo ipso, the belief system but models imply mechanisms and that is where failure to falsify really bites: It is all too easy and possible to say that something is so because the theory and therefore its models say so but when the question is asked, “well, how is that supposed to work, exactly,” there is no empirically verifiable answer or even a particularly sensible answer; e.g., the folks who declared the USA was on the verge of ‘bankruptcy’ could write diatribes ALL IN CAPS but could not explain, step-by-step, how it was possible.

    NB: Agree that distinguishing between micro-econ and macro makes some sense but need to be careful because of scale; e.g., chemists can get biology incredibly wrong because they try to ramp up what they know but the way(s) aggregates and self-organizing systems function cannot be fully accounted for by the mechanisms of lower scales.

    • RW says:

      Meant to write ecology rather than biology in my comment above (to strengthen contrast) but the point remains the same.

  14. Oral Hazard says:

    And no “discipline” is more politicized and subject to abuse, because policies that are based on economic theories from one school of thought or another have everything to do with picking socioeconomic winners and losers, whether the elite moneyed class or the proletariat, debtors or creditors.

  15. calloftheloon says:

    As a professional economist (with a degree in physics no less!) I think I should respond.

    First, it sounds like you’ve been talking to older macroeconomists. A lot of the older guys focused on “theory” but that’s really gone by the wayside. Most economists I know in their thirties will say something like “Yeah, I wrote a theory paper in grad school to show that I could.” Much of cutting edge economics involves working with administrative data and conducting experiments. Most of my colleagues also are currently focused on behavioral issues where we study the breakdowns in rational utility. It’s a useful model, but these days honored more in the breach, Rather than rewriting the point, I’ll link to this: http://noahpinionblog.blogspot.com/2013/08/the-death-of-theory.html?showComment=1375773681338

    Focusing on “theory” is also more common in Macro, where data is either really messy or doesn’t exist. It would be great if we lived in a better world and Congress would fund perfect data collection. As it is, people do the best with what they have. This isn’t always that bad. I regularly talk with people who, and do analyses involving “longitudinal tax data using several billion observations.” Not as rich as financial data, but not nothing.

    We shouldn’t oversell Physics. Like I said, I majored in physics. But sending a probe to Jupiter relies on Newtonian Mechanics which is 400 years old and an approximation that is entirely wrong. Have there been new physics discoveries since the 1970s? Yes, mostly confirming old theories like the Higgs boson using the standard model. It doesn’t take much more than pointing out things like Quantum Gravity or Dark Matter to see the holes in our knowledge of physics. One way of putting it is that physics has been inordinately successful by limiting itself to the questions where it succeeds. Ask a physicist to use his models to predict the evolution of humans beginning with the lifecycle of stars and you’ll get an answer, but maybe not a good one. The natural sciences are very good at what they do, but don’t oversell their perfection.

    One of the most common phrases I hear in seminars is “I don’t know.” Maybe people respond differently when put on the spot or an answer is demanded, but I’ve never found economists to be loathe to deny their limited knowledge. There’s a bunch more I could write, but I would encourage you to separate your criticism of macro theory from the last century, from cutting edge applied micro. They both are “economists” but are worlds apart as to their current scientific capabilities.

    • Good points, but:

      Why should we ask a “physicist to use his models to predict the evolution of humans beginning with the lifecycle of stars” ?

      Or are you suggesting we are asking economists the wrong questions?

  16. calloftheloon says:

    Also, there’s a lot of attribution bias. I can’t recall how many times some older economist-turned-pundit has gone onto Fox news spouting things that most professional economists would denounce, only to later hear “all economists say” while citing this fool as a source.

    Or it’s someone who failed out of grad school, but got hired by Heritage and still calls themselves an “economist” because they have a bachelors degree that required no statistics training. Or the person with the “Ph.D.” from the unranked degree mill no one’s ever heard of.

    All are routinely held up as shining examples of “the economics profession,” but none are taken seriously by those actually interested in gaining knowledge about human interactions.

    A lot of knowing how to cogently criticize the current limits of economics lies in discerning the charlatans.

    The saddest case is probably people like the historian Niall Ferguson, who once did good work but then got lured by the punditocracy and became hacks. I know for the next couple decades I’ll have to listen to people using him as an example of “the flaws of modern economics.”

    • Iamthe50percent says:

      In rebuttal, I offer a man who did not fail out of prestigious grad schools, whose PhD is not from an unranked degree mill, has every honor under the Sun, but still is dreadfully terribly always wrong – http://en.wikipedia.org/wiki/Lawrence_Summers#Academic_economist

    • ds1234 says:

      An odd interpretation, considering that many of the most visible charlatans, especially in policy circles, either possess advanced degrees from Ivy League institutions or are employed by them.

      Spotting these particular charlatans, who so often move from one town to the next, impersonating someone different everywhere they stop, requires no more than having read Huckleberry Finn.

      Besides, “cogent criticism” of the current limits of (macro)economics relies on the pretty simple recognition that, like any other field of study, it possesses at least some limitations.

      Yet it routinely claims straight-faced omniscience. That at least should raise an eyebrow.

  17. Petey Wheatstraw says:

    There is no accounting for fraud, and fraud is a structurally significant part of our economic system. The answer to the equation of 1+1= x, depends on how the numbers are mangled and the formula is tortured. By my highly self-esteemed economic analysis, the answer is 8.26%.

  18. peggysue says:

    BR,
    Agree totally with your points and overall conclusions.

    However, would add that economists have lost their way over the last 20 years or so and are getting worse at an exponential rate. Could the growth of media of all kinds have encouraged economists to become pundits fighting for audience share?

    Economists seemed to be much less visible and toxic( ??) 40 years past.

    Also agree that the micro version has much more of a “scientific” basis.

    Peggy

  19. Greg0658 says:

    take it you mean #3 definition*

    DISCIPLINE
    1 : punishment
    2 (obsolete): instruction
    3 : a field of study
    4 : training that corrects, molds, or perfects the mental faculties or moral character
    5a : control gained by enforcing obedience or order
    5b : orderly or prescribed conduct or pattern of behavior
    5c : self-control
    6 : a rule or system of rules governing conduct or activity

    http://www.merriam-webster.com/dictionary/discipline

    * (in a tone of NOT nailing you for the giddyness of it – but for growth – AND not casholla growth)

    ~~
    IF God invented numbers & All this – It despises cash (imo)
    time to re-invent the OpSys for forward movement

  20. faulkner says:

    Consider reordering your observations to clarify your points:

    1. All models have limited utility. Some fields recognize this more readily (physics) than others (economics).
    2. Contextualizing data leads to particular observations. Theories, models, metaphors, narratives, even social context matters. The facts only become ‘the facts’ and assume their organization and importance in light of these contexts.
    3. Narrative models drive most (macro) economics (in contrast to some natural sciences).
    4. Narratives encourage predictions – a peril when fact and fiction are conflated/confused.
    5. Narratives confuse correlation with causation – which makes for a good story and bad science.
    6. Experts (including economists) are loathe to admit ‘They Don’t Know,’ especially when they have a good story to tell for which they are being well paid.
    7. Hence, Economics is a practice, or discipline, not (yet) a Science.
    8. Sturgeon’s Law: Many practitioners are simply mediocre.

    The problem is that economics, and economists, examine changes in events over time, and the models most readily available and understood by the public/political class are narrative.

    Another important point is that the sciences have been developing over centuries from the observable, inanimate, regular, and linear to the indirectly observable, animate, irregular and non-linear, and economics is at the extreme of these. Meanwhile, we still don’t know what gravity is, how much we are part of our environment (latest: many good micro-organisms), or even how we think, though we are making progress.

    Our mistake is ascribing old fashioned scientific rationalism to economics. It’s still too soon, and it will at least be reflexive when we get there, meaning it will be too hard for most people to understand.

  21. VRWC says:

    “Models are of limited utility. People forget that models are imperfect depictions of reality. If you become overly reliant on them, you encounter a minefield of problems.”

    Agreed…. I wonder what other fields have become overly dependent upon models?

    Models where we barely understand the inputs, much less the conclusions that the models spit out.

    This couldn’t be true of global warming climate models too…. could it?

    • Anonymous Jones says:

      Of course it could.

      Who denies that the models might contain errors? [And seriously, if anything, climate scientists have been in the forefront of chaos theory and how small changes in starting points cause enormous perturbations in observed results]

      The relevant issues for climate change are: What is the current consensus on the model? And what is the current confidence in the data? And the consensus and confidence are strong. Not completely certain, but better than the known alternatives.

      You have apparently confused certainty with science. If you held everything to the standard that you apparently hold climate science, you’d never leave your house because you’d be uncertain whether the outside world still existed or whether the zombie apocalypse had happened while you were sleeping.

      Try to hold the things you don’t like to the same standard of proof that you hold the things you do. [hopeless, I know, but maybe just think about it for a second?]

  22. Is Economics a Science or a Religion?

    Is economics a science or a religion? Its practitioners like to think of it as akin to the former. The blind faith with which many do so suggests it has become too much like the latter, with potentially dire consequences for the real people the discipline is intended to help.

    The idea of economics as religion harks back to at least 2001, when economist Robert Nelson published a book on the subject. Nelson argued that the policy advice economists draw from their theories is never “value-neutral” but foists their values, dressed up to look like objective science, on the rest of us.

    • pekoe says:

      It is so hard on our minds, to be aware of the world and its limitations. it is painful because as we tube down the river, we dimly hear the distant sound of…a waterfall? Not sure. We should not complain about economists because, paradoxically, it is good that economists and shamans are inept at what they do. It gives hope prevents tyranny.

      1. Shamans and economists serve the power centers of the day, with rare exceptions that are subject to sometimes lethal consequences (think Jesus and Marx).
      2. If shamans or economists could make accurate predictions, we can be pretty certain that this power would be used for the most part to further enslave humanity. Somehow. Maybe I am clueless and that is already happening (re BR’s prior postings on growing inequality, maybe economists and their savage morality really have been at work).
      3. Shamans and economists each hold themselves out to be experts about THE POWER (God or money) with the ability to intercede on behalf of the supplicant. It is good that they are ineffectual, with caveats of item 2 above.
      4. Shamans and economists each claim to predict the future through the examination of entrails or datasets, respectively. Neither are successful with predictions prospectively, but each make a good living with triumphant explanations, retrospectively. No economist has yet consistently and reproducibly predicted next year’s GDP with an error of less than plus or minus 25%. Re item 2 above, all I can say is “Praise Be!” Same logic applies to market analysts.
      5. Uncertainty is the origin of all this pointless prognosticating, but paradoxically, uncertainty is also the origin of hope.

    • favjr says:

      I tend to agree with Nelson’s thesis — at least as it describes how economics is used in the public policy arena. You get a whiff of it whenever you hear someone proclaim a “belief” in some broad and vague economics-related concept like “free markets” or “common ownership”, without pausing to even question whether the object of belief actually exists as defined.

      This leads to equated the belief with some kind of moral purity and then teleological magical thinking, which runs like — “if we structure our society in accordance with my beliefs about economics, we will reach a utopia or nirvana.” Therefore, anything contrary to my beliefs is an evil to be stamped out because it stands in the way of our manifest destiny.

      The English philosopher John Gray (in Black Mass and other writings) expands on this notion to discuss how beginning with the French Revolution, the philosophies that became the modern social sciences have come to replace deity-based religions as new quasi-religions that have become the driving forces in politics and government.

  23. Orange14 says:

    I thought Calloftheloon was Noah Smith but he usually posts under his own name but that’s neither here nor there.

    I would disagree with #1 a bit as I do think they can tell you what happened yesterday to a pretty good extent. They can also do a lot of models based on past data but cannot really do a good job on macro predictions as we all know.

  24. [...] Economists, like everyone else, loves narrative.  (Big Picture) [...]

  25. Mike.R says:

    BR – I think it would be great to see you back on Econtalk with Russ Roberts with a discussion dedicated to this topic this since it’s a theme you both hit on over and over again, despite different biases. I enjoyed your conversation on Bailout Nation.

  26. AlexGato74 says:

    First, sorry for my poor english.

    I am Economist and, since the first year of the studies, I had thougth, and now think so too, similar than you.

    Economics is a Social Science and then, is so dificult to dominate for humans than wheather science. That is because the elements influencing are too many and many complex.

    The diference between Economics and Weather is the results of errors.

    However, there is one thing similar: Is no posible to make experiments in both sciences.

    Or can it?

    Maybe the most neoliberal economists have faith and now aré making social experiments, maybe the rest of them only use the theory to keep the economic power in the hands of the usual people.

    Both poibilities are not good.

    At last, the past is the only real font of data for economists and there are evidences that Keynes’s theory run.

    • jj2me says:

      Supply and Demand is a model. (Krugman said so in a blog entry sometime within the last week.)

  27. Sovavia says:

    What are you talking about?

    Economists, the tried and true, are the voices of progress and beacons of hope, raging against the dying of the light.

    “The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas.”

    Adam Smith
    David Ricardo
    John Stuart Mill
    John Maynard Keynes
    Irving Fisher

    This is my five-card stud.

    • You named perhaps the top 5 economists of the past 200 years

      Your nostalgia is appreciated, but That was then.

      • Sovavia says:

        Charles Kindleberger (financial history)
        Hyman Minsky (private credit booms)
        Robert Shiller (asset price inflation and risk aversion)
        Gary Shilling (deleveraging)
        Paul Krugman (liquidity trap)

        Atheists and believers should especially pray for the latter.

        In any event, thanks for how to focus in the age of distraction.

  28. jbmoore61 says:

    Considering that they are such poor oracles, economists are well remunerated. I suspect that economists with their spreadsheets are like the priests who used to predict the future based on animal entrails. I suspect that the latter were more accurate in their predictions, though one never hears what the losing priests’ predictions were (historical bias). Perhaps economists are more like bards than oracles (which fits with Rules 4 and 5).

  29. McDaniel says:

    10 minutes in the real world and I knew my Bachelor of SCIENCE in Economics was not as robust as advertised.

    Where ‘laws of economics’ exist there is science (think “supply and demand”).

    Where conjecture, modelling, estimates meet complex systems there is fragility (Taleb) and nonsense.

    The bane of central planners is their inability to admit that they don’t know what they don’t know.

    • jj2me says:

      “Where ‘laws of economics’ exist there is science (think “supply and demand”)
      Where [...] modelling, there is fragility (Taleb) and nonsense..”

      Supply and Demand is a model. (Krugman said so in a blog entry sometime within the last week.)

  30. S Brennan says:

    From a comment I made about economists and their sycophantic media, 5 June 2009,

    “Much of economics today isn’t about truth or near truth, it’s about justifying the rape of less fortunate and the planet itself. Religion once filled this role, but tiring of the indefensible, they’ve turned the dirty work over to “Economics”. To be clear, my criticism is not directed at every INDIVIDUAL economist, rather it is directed at those who either support or remain silent while others provide highly complex technical reasons for barbarous behavior.

    Along these lines I have been banned from commenting on [an economist] site because I ridiculed a quoted economist. [Economics writer] David Warsh supports Alvin Roth’s supposition that economists predictions and designs were as reliable as an engineers* In the banned remark, I said, “The economics profession would need to go through the equivalent of a Copernican revolution before
    this would be true”.

    * ["...there was still something novel about the proposition that economic engineering was becoming close kin to chemical engineering or medicine" - Alvin Roth Which was followed by Warsh's editorial comment, "Not any more!"]“

  31. DeDude says:

    1. I disagree although it may be an issue of definitions. There are very few things that cannot be studied in a scientific manner, and economics is not one of those exceptions. You can approach a question scientifically even if you cannot conduct double blind placebo controlled experiments. The main requirement for science is the availability of reproducibly measurable parameters that can be used as direct or surrogate markers of the question of interest. With that in hand you can indeed end up with results that describe or predict reality better than a “random selection of answers”. The scientific way to deal with a lacking ability to conduct experiments with a rock solid design is to insert the appropriate soft language in your conclusions.

    I think it is dangerous to suggest that economics cannot be studied in a scientific manner because many would then conclude that ideologogs and crackpots have free license to just follow their narrative over whatever cliff they are heading towards. Even worse, you risk “equating” them to those who follow good solid reality-based practices to arrive at their advice. Economics have had a huge number of spectacular failures. A lot of those could have been reduced, mitigated, or even outright prevented if the economists responsible for those failures had been better at using a scientific approach. Your item 6 is a great example. A scientist who observes significant correlation in two parameters would hypothesize causation in both directions as well as hypothesize a complete lack of causation (i.e., third parameters are affecting both and causing the observed correlation). If experiments could not be conducted to resolve all of those possibilities, then each would be discussed in length. By what mechanism would the causation occur and what other observations support it, and does “time-shift” on the parameter observations support the mechanistic model, etc. The scientist looks for things that can destroy his/her narrative (hypothesis) not just for things that support it, and that is easy to do in economics – if you want to study it in a scientific way.

  32. Frwip says:

    I think you are a bit unfair to PK and to the whole of the economists’ genus. His relentless criticism of the “fresh water” school of economics was very much that of “forecast written out to 2 decimal places” and excessive “mathematization” as obfuscation for really bad ideas, obviously stupid bad ideas..

    But, I think the problem with economics goes further than your critic of immaturity and grave methodological flaws.

    By the very nature of what the discipline purports to do, it is right smack at the center of power and politics. What it has to offer to the powerful is just too tempting: a veneer of ‘scientificity’ and inevitability that is so convenient as a substitute to moral reasoning when one wants to sell policies which are obviously unacceptable and detrimental to the greater number. Almost by definition, the discipline will be captured and there’s very little economists themselves can do about that..

    • I have not said anything about Krugman, other than distinguishing this form of criticism versus his “Some right/Some wrong” version.

      I find economics of little utility to investors . . .

  33. bdw says:

    The conclusion of combining points 7 and 4 is that economist will produce the answer requested by those who paid them. In the case of the Fed, there are competing narratives which, with the limited utility of models (your point number 2) leads to strange outcomes. If economists made public their uncertainty and the good chance that their model is wrong, then elected officials would have no story to tell the voters. Throw in correlation only without cause, and explain a vote is much more of a challenge. I look forward to your deeper study because the bigger picture is usually missed in public discourse.

  34. [...] Also see The Economic Case for Admitting You Just Don’t Know and Blame the Economists… [...]

  35. jfdickens says:

    Ideology plays a role in poor economic judgment and predictions. There are liberal and conservative economists who skew their research and predictions accordingly. Ideology has no place in hard science – eg., there are no libertarian electrons. With so many schools of economic thought being filtered thru ideology it no wonder that so much of economics is nonsense.

  36. eideard says:

    Camp Kotok, eh?

    He couldn’t get a word in edgewise on STREET SMART, today.

  37. Almitra says:

    You are an amazing blogosphere network focuser. You can and do make a difference by providing a forum for us. Thank you. This well designed and neutrally presented post has attracted thoughtful responses.

    My hope is that the study of economics will benefit from this kind of forum. Keep up the great work!

  38. Low Budget Dave says:

    “There are no solutions, only trade-offs”.
    – One of the few really meaningful quotes by Thomas Sowell.

    Most good economic models can be used equally well by conservatives or liberals to support whatever economic proposal they are advancing at the moment. The only difference is which effect is considered to be the “desired outcome”, and which is the “side-effect”.

    Tax loopholes could be said to “promote wealth”, or to “promote inequality”, depending on which half of the trade-off we are most willing to ignore.

  39. T_Bill says:

    Barry provides an interesting critique on what is wrong with economics today (Blame the Economists). Unfortunately, there is not room in a comment to respond in any depth, but we will respond to his first point. Economics is a discipline, not a science. This is a true statement, if what he means is: Economics is a social discipline, not a natural science. With this specificity, he might then have asked: Why is economics a social discipline, and not a natural science? If he had utilized this greater specificity, then his follow up comments would have provided some clues to answering this question. The historical development of all of the natural sciences could be characterized as experiencing “physics envy,” just as the development of physics experienced Euclidian geometry envy. So there is nothing wrong for any discipline, vying to become a science, to use the historical development of mathematics or other more advanced sciences as role models. In fact, it is quite natural. By suggesting otherwise, Barry is pointing economic practitioners in the wrong direction. Conversely, he is correct in observing that economics has an unnecessary emphasis on mathematical complexity, but that does not mean that economics does not have a mathematical problem. So once again, he may be pointing people in the wrong direction. What economics never mastered is the simplest concept in all of mathematics, which explains why economics is a social discipline and not a natural science. Within a week, we expect to publish the initial chapter of a book-in-progress, entitled The Seventh Option for Resolving Massive Government Debts (TSO) on our blog at Blue Moon Rising. As you might have guessed, the seventh option is to approach the study and practice of economics as a natural science. TSO will address these matters directly in a full-length book. Sorry Barry, we couldn’t fit it all in here; but kudos to you for starting the discussion, because a public dialogue on the problems of economics is also missing.

  40. Greg0658 says:

    may have seen this before – maybe linked before here @TBP
    (I never read before) and think it fits in this thread

    “Reprise Why Socialism?
    by Albert Einstein … is the world-famous physicist. This article was originally published in the first issue of Monthly Review (May 1949). It was subsequently published in May 1998 to commemorate the first issue of MR‘s fiftieth year”
    http://monthlyreview.org/2009/05/01/why-socialism

    • T_Bill says:

      Interesting article – thanks! Of course, Albert Einstein, a physicist, recommending socialism in 1949, wasn’t really what I had in mind. I was quoting Einstein on the need for a scientific theory to see the facts. You are quoting him on a political theory, which has almost nothing to do with natural science. At the same time, I noted the comment above that cites five major economists, perhaps the greatest of all time; including Smith, Ricardo, Mill, Keynes, and Fisher. (As a free-market capitalist, this would be my list too; except that, I would have added Milton Friedman.) Now, here are two facts: First; Einstein’s contributions to science, as well as our place as human beings in this physical universe, easily outstrips the contributions of all of these economists together. Second: The socialist government in China now has the most successful economy in the world today, easily using our own economic theory to take us to the cleaners. In the last decade, China has exported trillions of dollars in goods to the outside world; while during the same decade, the American version of market capitalism has exported trillions of dollars of losses (due to the sub-prime mortgage crisis and its aftermath). This must change, or we will lose this competition in the end.
      What we can learn from natural scientists, like Einstein, is enormous. To imply, that anything that Einstein has to say about science is somehow tainted because he once recommended socialism, shows precisely why our science of economics is being stifled and held-back. The internal bickering and character assassination has to stop, and we have to start approaching economics as a natural science, and not as a political debate. I have believed in market capitalism all of my life, and i still do; but I also believe that it is dying, because it is not being properly developed as a natural science. if we do not resolve the problems of market capitalism ourselves, then by next century China will be spoon feeding us their version of market capitalism. Is that what you want?

  41. DocDave says:

    I read that central banks pay for 95% of economists. Central banks work for the government. The famous Jim Rogers said that if you listen to central banks or the government you will go broke. Thei economists incentive apparently is not to be right but to say what the governmant wants. You can’t convince mamy men to go against thieir paycheck.

  42. [...] Nation (2010),  In the following, we are responding to his post on August 6, 2013 entitled: Blame the Economists; wherein he lists eight reasons for blaming the economists.  (At the end of his post, he suggests [...]

  43. [...] Physics can send a satellite to Jupiter, Economics cannot tell you what happened yesterday (Big Picture) [...]