Friday, March 06, 2009

Expert predictions: Jon Stewart edition

Jon Stewart notices that financial experts know nothing (very funny):

Thanks to a reader (Dartmouth professor) for the link ;-)

The Times notices the same thing (more politely) about academic economists. Not only can they not predict in advance, but they have trouble adjusting after their priors are harshly contradicted by reality. Must be tough to be in a field that selects for overconfidence in dealing with complex systems and messy data.

Ivory Tower Unswayed by Crashing Economy

...That was before last fall’s crash took the economics establishment by surprise. Since then the former Federal Reserve chairman Alan Greenspan has admitted that he was shocked to discover a flaw in the free market model and has even begun talking about temporarily nationalizing some banks.

...Yet prominent economics professors say their academic discipline isn’t shifting nearly as much as some people might think. Free market theory, mathematical models and hostility to government regulation still reign in most economics departments at colleges and universities around the country. True, some new approaches have been explored in recent years, particularly by behavioral economists who argue that human psychology is a crucial element in economic decision making. But the belief that people make rational economic decisions and the market automatically adjusts to respond to them still prevails.

The financial crash happened very quickly while “things in academia change very, very slowly,” said David Card, a leading labor economist at the University of California, Berkeley. During the 1960s, he recalled, nearly all economists believed in what was known as the Phillips curve, which posited that unemployment and inflation were like the two ends of a seesaw: as one went up, the other went down. Then in the 1970s stagflation — high unemployment and high inflation — hit. But it took 10 years before academia let go of the Phillips curve. ...

More (and better) from UC Davis economist Greg Clark in the Atlantic.

Here's something I wrote in 2005 about "expertise" in certain, ahem, soft subjects. See also here, or under the label expert prediction.


Ian Smith said...

Those who know do not speak. Those who speak do not know.

Economics is a pseudo-science.

Economics is ideolgy.

Those who profit most in the market are d-bag speculators like Jim Simons.

Ponzi Q. Globalization said...

anon is right. I was saying similar years ago.

Economists play around with their little toy models for a while and then make policy recommendations for the real world. Since their policy recommendations tend to make the rich and powerful happy all is well.

In the past, theologians used concepts such as the 'Divine Right of Kings' to justify the parasitic elites. Today, in our more enlightened world we need the veneer of science. Science with lots of hard maths. Economists are nothing but modern theologians spewing dogma which supports the current arrangements of wealth and power.

One upside to our present horrible economic difficulties would be the discrediting of this joke of a discipline. Sadly, the wall of mathematical bullsh*t they build will probably be enough to protect them from well-deserved mockery. The fact that a clueless numbskull (either that or one evil bastard) like Larry Summers is where he is today instead of being homeless and laughed at 24/7 by everyone who gets within 100 yards doesn't give me much hope.

Ian Smith said...

"the wall of mathematical bullsh*t they build will probably be enough to protect them from well-deserved mockery."

The same is true of theoretical natural science. Its results are for the most part trivial and useless.

"How can you critisize if you don't understand?" is the typical reply. The time it takes to understand excludes all but true believers.

Are theoretical physicist unaware that they have more in common with entertainers and con-men than with engineers?

mathematics: economics :: latin bible: medieval church

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