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The world economy is more complicated than any of us can understand and getting more so by the day.

And this is stated every time an economist talks about the economy in media or to politicians.

Nah, just kidding. If economists did that then they would give up being the purveyors of conventional wisdom with all the good jobs that gives.

I am just going to quote myself here:

European Tribune - Galbraith, the Conventional Wisdom and the current mess

But who exactly needs the Conventional Wisdom?
Leaving Galbraith and just asking who needs this persistent system of ideas on just how things really work that fills in the gaps, I think it is pretty obvious. It is most critically needed by the government and more so the higher up in government. If the ruler pulls policy lever A: what will happen? If his advisors can not tell him, they are no good. If he himself admits that he does not know the consequences of this actions, then what good is having a ruler? Wheter it is God or market that rewards the faithful, wheter history is run by Great men or the forces of production, there needs to be some way to estimate what will happen.

If economists were honest according to this piece, their advice is not worth more then that of a priest or a court astrologer. So to follow that thought, economists appearing in media or presenting to politicians are lying for profit or are deluded.

If Karl Whelan is a non-deluded honest economist, perhaps he should join other non-deluded, honest economists in doing something about that. There are a lot of academic disciplines were lying for money or spouting deluded conclusions in media ends your academic career. That could be an approach to try.

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by A swedish kind of death on Wed Dec 31st, 2014 at 05:48:25 AM EST
"The world economy is more complicated than any of us can understand and getting more so by the day."
[...]
"If economists were honest according to this piece, their advice is not worth more then that of a priest or a court astrologer."

This does not quite follow. Pretty much any ecosystem is more complicated than any of us can understand, yet scientists are able to make reasonable predictions of the effect of a single factor even if they can't describe the end state.
We never know the exact positions of atoms in any system yet we are pretty good at knowing the macro behaviours of solids and solutions.
We cannot know the precise state of any chaotic system but we manage to make pretty accurate prediction of the weather, an incredibly chaotic one.

Just because something is too complicated does not mean we can't say anything. And, to be fair, quite a few economists (those who did take real-world evidence into account) did have useful things to say. A major problem came from the fact that people in positions of power were able to buy the type of advice that they wanted.

Many economists realise that -I was at a conference at LSE and asked a few questions to the speaker on this line, and the answer was that people in power will probably not change the way they view the world, but he was hoping that his work would have some influence over next generations of decision-makers.

One the one hand I fear he is deluded -there will always be enough economists ready to be bought to sprout wealth-serving nonsense. On the other hand, IMF and OECD have finally changed their line somewhat. Belatedly and imperfectly indeed, but recognisably so. So maybe they do have a bit of very long term influence.
Although it is yet to translate into political action, so whatever influence they might have is depressingly slow, but not just because economists want to retreat and hide. Krugman and Wren-Lewis have been quite vocal in expressing their frustration that policy was in total contradiction to what economics suggested.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Thu Jan 1st, 2015 at 03:19:01 AM EST
[ Parent ]
"The world economy is more complicated than any of us can understand and getting more so by the day."
[...]
"If economists were honest according to this piece, their advice is not worth more then that of a priest or a court astrologer."
If economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid.

— John Maynard Keynes



A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Thu Jan 1st, 2015 at 03:24:16 AM EST
[ Parent ]
Nothing against dentists, but this could be your best post ever.

If it all were so simple as pulling teeth.

(Here insert video of the father who tied a string to a home made rocket and his son's tooth, fired it up, set it off, and Lo!, Tooth Gone.)

"Life shrinks or expands in proportion to one's courage." - Ana´s Nin

by Crazy Horse on Thu Jan 1st, 2015 at 07:20:20 AM EST
[ Parent ]
The problem is that "inside" critics like Krugman and Wren-Lewis never seem to take the obvious logical next step and note that the economists supporting this quackery are charlatans, pseudoscientists, quacks, frauds, and partisan propagandists, and need to go away.

Krugman isn't really an active economist these days, but Wren-Lewis at least must occasionally receive a Mankiw paper for review. Does he bounce it summarily, noting that he cannot recommend publication due to the author being known as a paid liar and therefore requires forensic reconstruction beyond the scope of ordinary peer review before it can be trusted?

If not, then he is a part of the problem.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Jan 1st, 2015 at 04:24:58 AM EST
[ Parent ]
Krugman has noted it clearly and more. That he uses slightly different words (though not particularly weaker ones) and thus you won't find your quote verbatim does not detract from the meaning of his statements on his blog. I understand that he is more restricted in his column by NYT policy, although it is hardly conciliatory.

Beyond that, does Mankiw publish much these days? Why would Wren-Lewis be the reviewer necessarily on the odd occasions that he does?
And would this be the appropriate course of action -ie judging the author, not the paper? Can a paid hack not also stumble upon a genuine result on occasion, and if the model and calculations are documented, can they not be judged per se?

Of course, it would raise my skepticism up quite a few notches.

By the way, I do believe that Wren-Lewis is part of the problem, but mostly for his staunch, almost religious, defense of microfoundations (at least in the way it was pursued -why not look for the roots of macro behaviour, but demanding that they be derived from things that we know are imaginary, namely intertemporal utility maximisation, is a dead-end).


Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Thu Jan 1st, 2015 at 04:43:21 AM EST
[ Parent ]
And would this be the appropriate course of action -ie judging the author, not the paper? Can a paid hack not also stumble upon a genuine result on occasion, and if the model and calculations are documented, can they not be judged per se?

In principle it is possible, but the forensic reconstruction required to validate that the paid liar is, for once, not lying for money would be such an imposition upon the reviewer's (unpaid) time as to render it practically infeasible under the current scope of the peer review process.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Jan 1st, 2015 at 05:05:18 AM EST
[ Parent ]
In fact most of current research evaluation, peer review, and academic hiring judges the author and not the work. So this is special pleading on the part of the defenders of economic orthodoxy.

And if we're (rightly) suspicious of biomedical research sponsored by pharmaceutical firms with a pecuniary interest in the research throwing up results in a particular direction, why shouldn't we be suspicious of economic research from pseudo-academic institutions sponsored by entities with political agendas?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Thu Jan 1st, 2015 at 05:39:37 AM EST
[ Parent ]
Of course we should be suspicious.

But if the paper is a direct calculation in the framework of a standard model, and that the calculation is correct, then whoever made it should not change the view that it is, indeed, correct.

And I don't dispute that neo-classical and Austrians judge the author rather than the argument. But since we complain when they do, it seems that we indeed find it an inappropriate course of action.

That being said, Mankiw was my first example of clearly paid hack during the discussion with the previously mentioned LSE speaker at the following drinks.

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Thu Jan 1st, 2015 at 06:07:05 AM EST
[ Parent ]
But if the paper is a direct calculation in the framework of a standard model, and that the calculation is correct, then whoever made it should not change the view that it is, indeed, correct.
"Proper" peer review would require replicating such calculations. Nobody does that. Especially if the paper involves a DSGE model. Or, in the case of a paper presenting the result of statistical analysis, the raw data are not provided. Remember the case of Reinhart' and Rogoff's "evidence" supporting austerity?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Thu Jan 1st, 2015 at 06:40:54 AM EST
[ Parent ]
Then peer review is broken -whether it is Mankiw or anybody else writing the paper.

As for R&R (which was not a paper), it should be ground for dismissing any such paper until data and calculations are made available. They were hardly trade secrets (which should not be a valid excuse anyway): they were national statistics...

Earth provides enough to satisfy every man's need, but not every man's greed. Gandhi

by Cyrille (cyrillev domain yahoo.fr) on Thu Jan 1st, 2015 at 07:24:10 AM EST
[ Parent ]
"Proper" peer review would require replicating such calculations.

I disagree.

Peer review should verify that the methodology used is not insane, that the paper properly references its data, that the author has performed adequate robustness and specification tests, and that the data is available to other investigators who wish to replicate the analysis.

It is possible to imagine cases where the analysis is based on data that cannot be made available to the general public for ethical reasons, or because doing so would be an unreasonable commercial loss for the source of said data. However, in those cases I would argue that journals should demand full independent replication rather than the much more cursory process of peer review.

The above is already a higher standard than current academic peer review observes, and I don't think going beyond this is realistic - or necessarily a desirable use of the reviewers' time.

Now, there's a whole issue of replication not receiving the recognition it ought to. But that is a slightly different matter, and one I think can be solved with standard governance methods, like formalized KPIs for researchers requiring them to publish two replications for each original result.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Jan 1st, 2015 at 08:49:08 AM EST
[ Parent ]
But if the paper is a direct calculation in the framework of a standard model, and that the calculation is correct, then whoever made it should not change the view that it is, indeed, correct.

No, but your ability to evaluate whether it is, in fact, correct is impaired by the fact that you cannot assume that the calculation was made in good faith.

Peer review presumes that the paper is written in good faith. It is the hiring board's job to prevent the infiltration of pseudoscientists into academia; doing it at the paper level is simply not feasible. So if the presumption of good faith is visibly inapplicable, then "review" is not the correct tool for evaluating the paper. "Forensic reconstruction" is, and that is well beyond the scope of what can be expected of an unpaid reviewer.

Now, for general equilibrium models that doesn't really matter, because general equilibrium papers should be rejected out of hand as the pseudoscientific nonsense they are. And since the defining feature of most economic pseudoscientists is the fact that they are incapable or unwilling to operate outside a single, proven false, modeling framework, the distinction between rejecting the man and rejecting the model is in practice not very great.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu Jan 1st, 2015 at 08:39:17 AM EST
[ Parent ]
Many economists realise that -I was at a conference at LSE and asked a few questions to the speaker on this line, and the answer was that people in power will probably not change the way they view the world, but he was hoping that his work would have some influence over next generations of decision-makers.
Evidently the recent crisis and the inability to prevent the ongoing depression are the result of the absolute dominance of the neoliberal ideology and the absence of a credible alternative in the conventional wisdom which is all that can be expected of policymakers. Anyone formally trained (a one-semester course is sufficient, usually worse than a whole degree) in economics after ca. 1980 is suspect, unfortunately. So this speaker is right. The best that can be expected is that the next generation of political leaders entertains at least some doubts about the reigning economic paradigm, and that the next major crisis will find the collective consciousness equipped with analternative paradigm ready to take over when the dominant one is again shown to be inadequate.

Give it 30 years (*). 15 if we're lucky. Of 5 if there is another major crisis (though at the rate things are going a "major crisis" before 1920 might turn into a serious shooting war).

(*) We have had epochal crises after 1873, 1929, 1971, and 2007. Hence we may need to wait at least until the 2030s.

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

by Migeru (migeru at eurotrib dot com) on Thu Jan 1st, 2015 at 05:54:20 AM EST
[ Parent ]
a "major crisis" before 1920
erm, 2020

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Thu Jan 1st, 2015 at 09:42:41 AM EST
[ Parent ]
The world economy is more complicated than any of us can understand and getting more so by the day.

And this is stated every time an economist talks about the economy in media or to politicians.
This is what Marc Lavoie (a prominent Postkeynesian and hence outside the mainstream) has to say about this issue
Let us first tackle the question of the nihilistic component of fundamental uncertainty. As already pointed out, it must be admitted that those authors who have emphasized the importance of uncertainty have generally overestimated its destructive consequences for economic analysis. Two destructive paths have been pursued: one underlying the presumed irrationality of the agents; and the other the instability of the economic capitalist system. The reader should be convinced by now that ontological and epistemological uncertainty does not of necessity breed irrational behaviour. In fact, can be argued on the contrary that, both in the Treatise on Probability and The General Theory, Keynes is striving to define a realistic and practical theory of procedural rationality based on the limitations of human knowledge and capabilities. When deprived of knowledge, reason cannot be based on simple probabilities and must turn to alternative strategies based on conventions and other procedures. In this context 'Keynes may be viewedas basing the whole of economic theory on a single, broad, non-Neoclassical conception of agent rationality' (O'Donnell, 1989, p.272)

The second path towards nihilistic conclusions follows some of Keynes' arguments. It has been assumed that uncertainty leads to instability since long-term decisions depend on flimsy foundations, subject to sudden changes (1973, xiv, p.114). This has meant to some that a proper theory set in historical time, where these violent changes in opinions would have to be recorded, is beyond the reach of economics. Sticking to Keynes for the moment, it is well known that he also considered uncertainty to be a stabilizing influence on the economy, since a variety of opinions and the confidence with which they are held ensures mitigated aggregate reactions to news (Keynes, 1936, p.172). The position taken here is that the presence of fundamental uncertainty, combined with a rationality based on procedures, generates regular patterns, except in exceptional crises (bifurcations and the like).

...

The implications of all this are that models based on rules of thumb, such as mark-ups, target-return pricing, normal financial ratios, standard rates of utilization, propensities to consume, lexicographic rules and so are perfectly legitimate since they rely on a type of rationality that is appropriate to the usual economic environment. In a world of uncertainty and of limited computational abilities, the economic agent cannot but adopt, except in the simplest of problems, a rationality that is of the procedural type. The models based on rules of thumb are not ad hoc constructions as the mainstream would like them to be because they are not derived from some axiomatic optimizing formalization. Rather, they reflect the rationality of reasonable agents. As such, they have macroeconomic foundations that are more solid, from a realist point of view, than those of the standard mainstream models. Indeed, when one thinks about it, what is more ad hoc: to assume that economic agents follow some rules of thumb and are satisfied once they reach some threshold; or to assume that agents are omniscient, omnipotent and maximize some utility function that contains no conflicting goals, while at the macro level the representative agent acts as both a consumer and a producer? Heterodox economists must feel at ease in dismissing such accusations; it is orthodox theory that makes use of ad hoc methods (Amable et al., 1997). Making use of ecological rationality is perfectly legitimate because this is how people truly behave.

(Post-Keynesian Economics: New Foundations, 2014)

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Thu Jan 1st, 2015 at 10:22:56 AM EST
[ Parent ]

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