Is economics a busted flush?
Has this global crisis shown that economics is a load of rubbish? If you think the answer is "yes", you might be interested to hear that the Economist magazine - that bastion of free market economics - agrees with you.
Okay, so I'm exaggerating. It doesn't think economics is ready for the bin. But in a series of articles published today, the magazine says the profession has a lot of lessons to learn - and humble pie to eat - as a result of the past few years.
Some in the profession have come out better than others, either because they warned early of trouble ahead (the likes of Nouriel Roubini, Avinash Persaud, and several economists at the Bank of International Settlements), or because they were working far from the scene of the crime - people like the behavioural economist, Richard Thaler, the co-author of Nudge.
But crucial parts of the dismal science have come out of all this, well, pretty dismally - notably macroeconomics and the financial economics.
As the Economist notes, the criticisms levelled against macro and financial economists are:
"[T]hat they helped cause the crisis, that they failed to spot it, and that they have no idea how to fix it."
That's a pretty comprehensive charge sheet. And none is entirely wrong.
In their different ways, both the macroeconomists beavering away at the major central banks and the financial economists in academia and Wall Street took for granted a certain kind of market efficiency which simply didn't hold.
In the case of the macro-economists, famously, the assumption by the Federal Reserve and others was that asset price bubbles could take care of themselves - and even if they didn't, it would be less costly to let them run their course and clean up afterwards than to try to take the air out on the way up. Oops.
Macroeconomists in academia also tended to assume away the financial sector in their models of the economy.
They thought very hard about imperfections in the product and labour markets - imperfections which might cause unemployment, inflation, or both. These, after all, had been the macro concerns of the 1960s and 1970s.
But when it came to the financial market - perfection was the order of the day. Markets always cleared. All information was built into current prices. And all markets were always liquid. In other words, if things got tough you could always sell your troublesome assets to somebody else.
I'm not being entirely fair. There were exceptions. But it's striking how little the profession prepared its students for any of the big issues we face today.
I remember, while studying graduate macroeconomics at Harvard in the mid-'90s, asking a question relating a certain piece of theory to a recent decision by the Federal Reserve. It was like I'd said a bad word.
Introducing real world policy issues to the discussion was considered to be in bad taste. And I should say, this was a class about monetary policy.
And if monetary economics was too abstract, at least there was plenty of it. After the disasters of the 1970s, economists came to an agreement that fiscal policy was more or less useless for short-term management of the economy. So they basically stopped thinking about it and left it to the political scientists.
Paul Krugman reckons that of the 7,000 or so papers published by the National Bureau of Economic Research in Boston between 1985 and 2000, only five mentioned fiscal policy in their title or abstract.
The NBER is responsible for dating US recessions and is the central clearing house for macroeconomic research in the US.
As it turns out, a few more papers on fiscal policy would have come in handy in the past year, as policy-makers gradually came round to the view that fiscal policy was the only economic lever left to pull.
I won't go into the detailed case against financial economics, and the debate over whether economics can really be blamed for rise and fall of credit derivatives, the subprime disaster and the other financial market messes of the past few years.
If you want to read more on the interplay between theory and practice in this area, I would point you in the direction of Gillian Tett's recent book, Fool's Gold - or better, perhaps, Donald McKenzie's superb recent review in the London Review of Books.
(His book, An Engine, Not a Camera, published before the crunch, provides a more academic but hugely readable survey of the topic for those that want to get in deeper.)
I did explore some of these issues in a film shown on Newsnight the day of the run on Northern Rock.
At the most basic level, the defence of the high theorists is that their models were only as good as the data that went into them - too many practitioners on Wall Street decided that 20 years' worth of data was enough to tell you that house prices could never fall, and stock prices would never go down by more than 5%.
But they can't get off entirely. For one thing, they also assumed that markets were always liquid. Which of course they were, right up until they suddenly weren't, and all those banks and other institutions were stuck with impossible-to-value assets which were equally impossible to sell.
Also, and related, these models assumed that assets - and the risks attached to them - could be valued on their own, without reference to all the other people in the market holding those assets. They didn't think enough about the fact that if one model said "sell", chances are everybody else's would be saying the same thing.
So, all in all, not an edifying list of complaints. But does that mean economics is a busted flush? I'm afraid not, because even if you think economics got a lot of this stuff wrong, you'd be hard-pressed to understand - or to fix - what's happening in the global economy today without it.
Maybe it's not such a good time to be an economist. But it's one helluva time to study economics.
I'm 
© MMIX~RS~q~RS~~RS~z~RS~36~RS~)
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Economics is not a science even though it involves measurement and doing things with numbers. This is what confuses people.
Economics is a method of analysising what is happening within the economy at large and in detail. There are all sorts of jolly models that can be applied, but intellectual rigour has to be applied in every measurement.
When I studied economics some forty and more years ago it was hammered into me that I must be objective even if it meant being unpopular. So I became objective and unpopular as it suited my puritan soul.
It is the lack of objectivity that has let down economists near and far. Many enjoyed being on the bandwaggon but now the wheels have come off. Sadly, they must pay the price of being clever without necessarily being intelligent. No doubt they will remain popular with their creditors who will write to them every day.
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Perhaps now there is an opportunity to abandon the childlike concepts of free enterprise and free markets in the context of the catastrophic failure of economies. What is needed is a whole system approach drawing on several disciplines including sociology backed by forensic investigation and analysis of real world events. Traditional market behaviour is rarely found outside economic theory books which are useful only in very specific microeconomic cases. In the turn dare we hope for a model of corporate (not enterprise) behaviour that rational decision making is economic, social and environmental.
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Economics is all a matter of opinion?
GORDY brown and his pals NEED to learn that they cant spend money that doesnt exist, as does most of the UK population. . .
Oh by the way GORDY how many helicopters did you say you NEEDED?
NONE??
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"or because they were working far from the scene of the crime - people like the behavioural economist, Richard Thaler,"
Well, the crucial work was done by Herrnstein and others at Harvard with pigeons in the 60s would you believe, even Kahneman gives a nod to that. But as some of us have been saying for an awfully long time now, 'far from the scene of the crime', there are some rather unpalatable, politically incorrect, empirical truths which people really do need to face up to if they want to grasp why this mess was brought about, and what must now be done to stop it, because Herrnstein and Murray back in 1994 drew on this work, and Herrnstein only moved into this field in the 70s through to his death in '94, after his work on the grounding of behavioural economics - (see hyperbolic discounting and predatory lending in the context of Prospect Theory if you must). It all hinges on differentials which most people have been actively misled into believing are not real, meanwhile those doing so hae been mining them in a most venal manner.
Glad you've blogged on the broader issue.
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This is not the first time, and it is unlikely to not be the last, that the pretence of science has been used by a area of study to shield itself from reason and rational debate.
It was inevitable the 'economics' had to rescue itself from its disastrous performance in the run up to this terrible crash. However I ask: should we let it get away with reinventing itself without first being publicly castigated?
Stephanie, you and your cohort of similarly educated Harvard (and Balliol) graduates should examine the people who called the tune in your now admittedly incorrect education. Who financed Harvard and Balliol? And did these organisations get what they wanted? (A compliant set of people who were educated to support the position of their financiers.) It is, after all, all about the money!
It is my view that in economics you need to get back to basics. Money is a basis of exchange. Goods need to have prices. These prices should be as fixed as possible. National regulation is the only partially possible way of regulating the markets in goods and currency. Internationally, money should move to compensate for trade in goods. etc. etc.
This is why I believe that money should be soundly and stably priced for a stable economic environment. Hence it is almost impossible to achieve any from of stability with irrationally low prices for money and why as a prerequisite for a recovery (no matter how you define it) money should cost a reasonable amount (at least 5 percent.)
"But it's one helluva time to study economics." Almost persuades me to have another go at it from one side of the lectern or the other! But of course economics as an educational industry is filled with wrongly educated teachers of economists who got it wrong, so the problem will be finding any real economist to be taught by! Your industry still needs clearing out!
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Is economics a busted flush? To some extent - yes. That's the conclusion I came to, after a 'run' of economists last Autumn all expressed different opinions on the cause and the way out of last year's crisis. It's certainly shown that Hugo Chavez is no worse than any of our leaders at running an economy, and arguably better in some areas.
With kids grown up, I did an OU degree in Psychology a while back, purely for enjoyment; a complete departure from my background and career. What a revelation - I was surprised how little they knew. It was like have a thousand jig-saw pieces with no straight edges; only the colour allows you to group them, and a few of them fit together! As you rightly observe, you'd be hard-pressed to understand - or fix - what's happening in the global economy without some academic knowledge. I'd say the same applies to psychology. But it's no guarantee they have a solution that will work either.
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So it has taken a major crisis to reveal the fact that the economics that has been taught for the last 80 yrs in the most prestigious economics departments (particularly in the USA) is in fact largely nonsense. Various atempts have been made to correct this and have been stamped on by the establishment economists just as you were when you asked your question. Neoclassical economics as the current version is called lives in a universe of its own where reality doesn't impinge and rational behaviour and 'efficiency' rule. Even the words are misused as is the maths used to determine the outcome of events. As such it is extremely dangerous since governments and large companies base decisions on the results. The current blinkered approach needs to be broadened out to include empirical observations of what is happeneing in the real world and to adopt a pluralist method of observation and analysis. There is too much to discuss in a short comment but I can reccomend a book - 'Real World Economics. A Post-Autistic Economics Reader' and to paraphrase Einstein, 'We can't used the economists that gots us into this mess to get us out of it' they are thinking about the problem in the wrong way.
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Loads of problems with both economics and economists. Lots of economists work for financial institutions or governments - they just talk the book. If they don´t they are sacked. Other economists sit in universities and come to believe that their ignorance of the real world is a virtue, instead of the manifest failure that it is.
You may as well say Medicine is rubbish if you have a hospital that incentivies Drs to ignore clinical diagnosis and just remove peoples livers because some one has worked out that there is a lot of money to be made in the liver market.
You do not need any great education or intelligence to work out that something that cannot go on forever will not go on forever. Most "ordinary" people knew that the ever burgeoning levels of debt they were being invited to take on was not sustainable. Lots of young people actively sought to avoid buying houses. However there was all kinds of pressures to get on the housing ladder, and so in the end a lot succumbed to temptation - but with reservations.
"Ordinary" people realise instantly that you cannot cure a debt problem with more debt. Experts who also know this are routinely ignored by the mainstream media. Much better to concentrate on a host of telegenic pump and dump merchants.
"Economics" has expanded to encompass more and more spheres of the human condition as the process of commoditization sweeps over humanity like a tidal wave. Obviously theoratical economics has been unable to keep pace, just like a Dr. is unable to keep pace with a patient who exhibits a rapid acceleration of multiple symptoms.
Those with power lie in a multiplicity of ways. Macro economic numbers are fiddled and spun faster than a top. Relevant numbers (but numbers that don´t fit the script) are simply ignored - for example the earnings profile of sub prime mortgage holders.
Let´s all have renewable energy - but let us never mention how expensive this is. Let´s fiddle the numbers, and then lets be surprised when the actual outturn numbers are vastly different from the projections.
Socity has essentially abandoned any efforts to keep people honest. Let us all cheer or boo the latest earnings from Goldman, but let us ensure that we NEVER EVER analyse where those earnings come from.
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As a small business owner, I'm interested in what works in the short, medium and long-term in the market, and in my experience.
While the mainstream economics 'thinking' seems to be obsessed with macro-economics / micro-economics, and endless models and mathematics, instead of focusing on the individual economic 'actors', they will almost certainly remain permanently baffled by seismic events in the 'real' world.
The majority of economists show little or no understanding of sound principles, specifically, the importance of practical entrepreneurial activity, and sound money - like Chancellors of the Exchequer, most of them have never had a proper job.
The only economics that I've come across, that makes business sense, flows from the principles set out by Ludwig von Mises, see http://mises.org/
.... and "Meltdown", by Tom Woods puts recent events into context using them.
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"3. At 4:22pm on 17 Jul 2009, alexander-curzon wrote:
Economics is all a matter of opinion?
GORDY brown and his pals NEED to learn that they cant spend money that doesnt exist, as does most of the UK population. . .
Oh by the way GORDY how many helicopters did you say you NEEDED?
NONE??"
mmm slightly off topic but as Gordy says the troops dont need any more helicopters, Im assuming he travel around thw combat zone but truck and NOT helicopter next time he visits.
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This is not a failure of Economics as a whole, it is a failure of Neo-Classical Economics, which is one particular school. The fact that it is so dominant is a reflection of the all too strident US-led opinion that the market will always know best. It won't, and even the most competitive of markets are full of inefficiencies. This is not to say that other systems than market-based economies are better. That is not normally true. But we have to weigh up each market and assess it for its particular criteria, something which the very misunderstood Keynes was keen to emphasise.
Macroeconomic changes are very hard to predict, and modelling based on rational expectations - the dominant model in our Western financial markets - assumes that our predictions will be mostly accurate. Many economists (including Keynes) have predicted that the herd-like nature of market behaviour is not rational but based on instinct, and that market prices and behaviour will be driven by short-term expectations weighted too highly versus long-run prospects. In other words our bankers and commodity traders are too interested in making the next trade and how much their products will be worth in the immediate future and base their decisions accordingly - they do not take the longer term value into account.
When looking at our banks failure the media have failed to adequately point out that many of our financial failings are due to mortgage bond prices collapsing to unusually low prices that do not reflect the likely return from buying and holding these bonds. The banks' need to remove these assets from their balance sheets drove the prices far too low, and banks got into trouble because of short term lending obligations and not because all these mortgages were worthless. When the price recovers in the future the holders of these bonds are sitting on a gold-mine, and the price could well sky-rocket once again. Markets are not based solely on fundementals, and building financial institutions on the assumption that they are is unbelieveably short-sighted. This crisis is nothing new either, it is just a repetition of all the other bubbles we have seen, just this time the fact that the mortgage bonds were so widely traded and had a percieved minimum value meant that a much greater portion were bought and sold, and a bigger crisis ensued.
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Post 1 > Stanilic
'Economics is not a science ....'
Economics is classified is a Science -although it is one of the Social Sciences whereby it is taken that these 'things should happen, most of the time to a 95%+ probability'.
Repeated social sciences experiments will not always produce the same end result - as would of course happen within the true sciences.
eg the Price/Demand curve (and other models) are useful but they don't come with 100% guarentees, but they are close enough to make a judgement of likely outcome.
Unfortunately for Economics, the models depend upon Rational Man, ie given this set of circumstances then Rational Man and the Economy will respond as predicted.
Thaler and others in the Behavioural (US behavioral) School identify that Man does not always act in a Rational manner thus leading to divergence from the predicted Economic outcomes. The School further suggest that many decisions are in fact Behavioural-influenced as opposed to pure Rational decisions; and that preferences, fears, greed, group influences, etc etc are of high importance in understanding and prediction of outcome.
eg
The price/demand curve might not operate at the micro level as expected, if spenders are afraid of losing their job (behavioural)
And similarly at macro level, Governments may not co-operate fully if the outcome may not be of individual medium term benefit to their country, although it may be rational in the long term to do so. (also behavioural)
So, Economics has utility but to a limited extent as absolute Rationality is not always present in the real world.
Whereas behaviour nearly always a factor in decisions requiring judgement.
Simple Economics will continue to fail and miss the target without recognition of the behavioural aspects. The standard arsenal of the Economist is as useful as a Mathematician with a book full of formulae.
It isn't how many models or formulae are know that is the important bit, it is how the concepts can be applied to produce succesful outcomes in the real world that matters.
Thaler et al are worth a read.
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IMHO Traditional 'economics' is dead - because it's both out of date and too narrow in scope. Dr W. Edwards Deming, a renowned 'creative outsider', wrote two landmark books nearly 20 years ago (and please note the titles - 'Out of the Crisis' and a 'New Economics')*. Deming was 20 years before his time, but his books still tell us far more about the future than a book like 'Nudge' (which is interesting, but certainly not profound).
Economics does need to include more about behaviour (pyschology), but it needs to consider much more besides (e.g. power, values, leadership/management styles, communities, democracy ... ). For example the following simple definitions are built on Deming's work and quickly bring in the concept of values/styles too ...
Poweromics = People using position and power for their own personal gain, based on poor moral values, self interest and greed.
Ignoromics = People are either effectively ignorant of the situation (e.g. the overall environment) or not prepared to take responsibility to make sure it changes for the better.
Leanomics = People taking responsibility for adding value and continuously improving the situation for others (e.g. customers, communities, overall environment), based upon fundamental values such as trust, honor, responsibility and respect.
By these definitions it's very quick to see why we have a crisis (e.g. in economies, banks, enterprises, governments ...etc) .. as (in the UK/US particularly) a toxic mix of Poweromics and Ignoromics prevail (nb they are partners in crime) ... and Leanomics is also starting to point to the 'enterprises, 'nations' and 'economies' that will succeed in the long run (which Deming also indeed predicted, and which is now starting to become reality ) ...
Interesting times ahead - and ones 180 degrees different to what most people in the US/UK have become accustomed too ...
David Clift, A Future 500 Leader
* "LEAN WORLD: The DNA of Success and the Path to Prosperity" builds on Deming's work too. You can also find out more about Poweromics by taking a look at http://poweromics.blogspot.com/2009/07/economic-fools.html as well as the other posts there too.
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There's nothing new to that. As Laurence J Peter said many years ago "An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today." Recent events have just reaffirmed his perspicacity.
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the trouble with economics and economists is that with few exceptions they assume:
(a) markets are about competition - when they're about monopoly and control
(b) people act rationally - they don't, at least not predictably
(c) their information is accurate and timely - it isn't
(d) the past is a reliable guide to the future - it isn't
(e) short term profit is compatible with long term investment - it rarely is
(f) Business must grow or die. That's not true. Often the best strategy is to stay the same size
(g) efficiency is the same as effectiveness - it isn't.
and
(h) individual and corporate greed is good - it isn't. Fairness works best in the long term
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1. stanilic
Ah stan, a man not afraid to be unpopular. Congrats, you are unusual. Problem is me ol mate is you can be unpopular when things are going well if you individually believe they are heading the wrong way and say such a thing, and then lo and behold you will be even more unpopular if proven right. Absolutely the worst thing you can do. Look at the great pretence which many wish to cling to that this mess could not be foreseen despite all the documentary evidence. No, the answer is to keep your head down and leave those who are determined not to see any danger to do what they want because they will do it anyway. Economics - can't work all the time because the situations do not repeat enough to form a statistically sound basis for decision making. If you put all the great recessions together you only have a fistful of them and different frameworks everytime. So when you really need it you don't have a science. Meanwhile indecisive leaders in any sphere want decision support tools so they do not have to have to make a decision on their own. They then lean more and more comfortably on stuff like economics to avoid holding the total responsibility for any action. Economics is not alone, faux science abounds. And if the good times are rolling nobody wants a party pooper. And if you are busy making a liferaft on the deck of the Titanic when everybody is enjoying deck games and the silver service are you not considered a bit strange. Brown was a coincidental success who came to believe it was all really good decision making. Funnily enough I believe he has made a better job, appart from the world stage theatre tricks, than the Conservatives would have, they were abysmal in the last recession, just let people go hang. Wont save him though. Economics is unlikely to make any great difference on an uplift, it is all paying the bill, slash n burn, firefighting, little scope to move.
Good luck with being unpopular : )
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16 glanafon
"Brown was a coincidental success who came to believe it was all really good decision making."
Too true. This is in fact a good summary of the whole of the bubble of =/- 1999-2008
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Lets face it anyone can have a go at forecasting what is going to happen in ALL the immediate, medium and long term with the current state of both the U.K.'s and World Economy, for IF [and thats a BIG IF] anyone was able to predict the future of events, then that person at this moment in time would be dismissed in their way of thinking simply because if it was that easy then that same indivisual would keep their own advice to themselves and invest in the product.
Therefore, how offen do Horse - Racing tippers bet on their own advice, for instead of telling everyone else how to MAKE MONEY and WIN a fortune for as, if they were/are that confident in their own advice, then they should put THEIR own Money where their mouths are.
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How long can neo-classical economists ignore Nicholas Georgescu-Roegen?
http://tinyurl.com/ignoringg-r
Not only was he critical of their mathematical obsessions (which he labelled Arithmomania) but his accusation against their assumptions of perpetual motion and relentless growth were even more damning:
"To maintain further that 'the world can, in effect, get along without natural resources' is to ignore the difference between the actual world and the Garden of Eden"
Perhaps it's time for the Economists to have their prestigious association with science and good work for mankind stripped from them:
http://en.wikipedia.org/wiki/Nobel_Memorial_Prize_in_Economic_Sciences#Controversies_and_criticisms
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Message 12 Strategycall
Yes, economics is deemed a social science. I don't know when the 95% plus probability factor came in as a measure but whilst I consider social science a valid concept - I have a degree in it - I have always challenged the application of the word science. How empirical is social science? How objective can an observer be? This is what lies at the heart of this thread.
Sociology is also deemed a social science. Auguste Comte argued that sociology was the queen of sciences as it embraced all the other sciences.
I cannot remember the name of the person who put that idea down with the remark `of course sociology is the queen of sciences as it is certainly not a subject'. Perhaps someone would be kind enough to remind me.
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Message 16 glanafon
I am a contrarian by nature. If I see someone exhorting others to look in a particular direction I immediately look the other way to find out what else is happening. The Big Picture can have very interesting details in it: often the name of the painter.
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Stephanie,
very much enjoy reading your blog, and also the contributions on TV and in writing of the Newsnight and economics team, which I find highly educational regarding the economic situation and other matters.
Regarding your current blog entry, an interesting perspective on mispricing (i.e., against the principle that all information was built into current prices) is given in Surowiecki's (2004) book "The Wisdom of Crowds".
He draws on the interesting observations of the Victorian polymath Galton (1907) that people at a county fair accurately guessed the weight of an ox (yes the four legged beast) when their individual guesses were averaged. Hence the combined judgement was more accurate than any individual's estimate (including "cattle experts").
Surowiecki suggests that two of the main conditions for a crowd to display an accurate aggregated mean opinion (or "crowd wisdom" as he puts it), are diversity and independence of opinions among the crowd members. These conditions are not met in bubbles. For instance in the housing bubble, the long period of growth in prices, the proliferation of property investment programmes on TV, estate agent's patter in the local free press, and so forth, can be seen in hindsight as acting to decrease diversity and independence of opinions.
There is also an analogy here with shortcomings in predictive models in the presence of correlated measurement error between model variables.
Evidence of mispricing is also shown by the presence of some investors and gamblers who consistently outperform the market, and whose record in that regard cannot be realistically explained as chance.
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peter_t_clarke (#7) "So it has taken a major crisis to reveal the fact that the economics that has been taught for the last 80 yrs in the most prestigious economics departments (particularly in the USA) is in fact largely nonsense. Various atempts have been made to correct this and have been stamped on by the establishment economists just as you were when you asked your question. Neoclassical economics as the current version is called lives in a universe of its own where reality doesn't impinge and rational behaviour and 'efficiency' rule. Even the words are misused as is the maths used to determine the outcome of events. As such it is extremely dangerous since governments and large companies base decisions on the results."
Today, more than any time in recent history (largely through light-touch regulation and changes to legislation), the simple empirical reality is that companies and individuals comply with rules/laws only to the extent that breaches of said rules/laws do not adversely impact on their profitability/self-interest.
All that matters when it comes to government is the extent to which the state can, and does, protect the vulnerable. Today, in liberal-democracies, this is eer more less and less the case. Instead, it's cynically made out that efforts to do so are in fact 'patronizing', that people are all of equal ability, and that anyone can make the right choices if they educate themselves, i.e avail themselves of the right information.
This is so-called 'people power/choice', aka anarchism, aka caveat emptor aka predatory naked capitalism.
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strategycall (#12) "Economics is classified is a Science -although it is one of the Social Sciences whereby it is taken that these 'things should happen, most of the time to a 95%+ probability'"
Subjects are just administrative conveniences. The method is the same across most disciplines. What matters is that one applies logic (these days usually computers) and that one is realistic/honest/accurate about the values of one's variables and their error terms, i.e. how good one's measures are. The problem today is that education has suffered, and that most people who think that they're well educated generally aren't, essentially because we've devalued higher education through massive expansion (5% to 50% of the cohort) to make money out of students.
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Stephanie - I'm surprised at you for writing that - Basic economic therories and principles remain sound! They just need to be applied properly and with common sense. It is possible to study anything at University these days except ... 'common sense'!
BUT, there are a lot of self-inflated 'experts' out there (with universities and with major corporations) and who have been put to the 'test' over the last two years and have been found wanting.
A big mistake for any economic 'experts' has been mixing up and getting confused between the dynamics of their domestic economies with e.g. the dynamics of the global economy.
I think that Gordon Brown knows he has lost control of the UK economy and UK banking finance sector - he keeps saying the recession is global and inherently his remarks are an admission that the UK is not now in control of its own economc destiny without collosal radical reform and some very aggressive home investment.
What we have now is our real economy without vast sums of overseas speculation money for e.g. real estate development from non-dom investors - there may not be a UK economic 'recovery'
In the UK many keep talking about the UK economy/banking/finance sectors as distinct from those of the EEC and other continents' and the global economies.
This is the difficult bit for the so called experts - many national economies are 'virtual' and have been consumed or subsumed as part of a global roller-coaster economy controlled by about 50 giant global banks with money pouring in and out of tax havens as a few dozen billionaires control a huge proportion of the world's wealth.
This has made policy making for some countries on economic and finance matters almost impossible for some countries.
In the UK, for what it is worth, I think that the current labour govt. /administration and the Bank of England have lost control of our economy and the banking sector in the UK as the global economic forces exerted on the UK are too large for the UK 'enforcers' to have full influence/control.
This is why so many Sirs and Professors are mumbling about very 'red-faced'.
However, we have yourself and Robert Peston to thank for shining the light forward on economics and by questioning the perceived wisdowms although I have to say Robert has ducked some of the difficult questions put to him recently on e.g. Gordon Brown's government has lost the ability and power to regulate the UK banking and finance sectors as globalisation and internationalisation have gone too far in the UK?
Different countries - even the USA is trying to manage macro-economic policy on a mainly domestic economic agenda when the goal posts have moved and is facing have a global economy controlled by Who? from where?
The key to the failure of some 'experts' to understand and comment on the problems is in understanding how far reaching the global banking and finance structure is and still is in messing up national economic policy and financial regulation.
After months and months of debate and trillions of dollars in global bail outs most simply do not get it and the biggest topic for debate at the next G8 and G20 summits will be - you guessed it - MORE BAIL OUTS!
What this means is that we will need to do virtually the opposite of most things said by Gordon Brown in order to survive in the medium to long term as a 'rich nation'.
The countries that do the best economically going forward will be the ones that are agressively innovative and protectionist such as China, Japan, Norway etc.
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I don't think economic theory is itself busted. After all, how did the theory come about? It was formulated based on observed behaviour. When studying opportunity cost, it was common to use butter and guns as the 2 opposing products? Similarly, in macro-economics, the multiplier effect and balanced, deficit and surplus budgets and central bank functions are taught because these were tried and tested. The reason why we have economic problems is because a small number of people decided to bin all these theories. And I don't mean just the bankers. I just think we need to get back to basics and follow what the theory says. If we follow the theory, then at least more people understand it and can tell if it will work. It will be interesting to see how quantitative easing works or not in the next few months or years.
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Theory and application often have departures in the real world. Economic theory unto itself is like having a fantasy soccer club. The primary issue related to the collapse was the role of those given the requirement of oversight. Not only did the political systems and their appointees fail in their duties but they tended to facilitate the process by allow financial serivces to develop debt schemes that derived immedicate rewards but were obviously unsustainable. In the recent past bank loans required colateral, but all of a sudden, this was not the basis of a loan. One need not be an economist to understand that the question should be asked related to the matter of defalut. If,in fact, the loan is unsecured and if a substaninable amount of the assets of a bank are unsecured then what happens when the payments can no longer be made. It should be understood that such loans were no principal, interest only with larger payments deferred to a later date were common and because the later date substantially increased payments could be projected it is unclear why the bust was not forecast. As the money rolled in the national, state and local governments were feeding on the taxes and transfer fees. They didn't want to ask the question, they were giddy with resources. The economist were only at fault for not talking to accountants and asking how this all looked on the books. Economist, being human, questionable I know but we must accept them as part of the clan, had within their group those willing,for a substainable fee, to promote the rising tide in a positive light in exchange for the fee. Unethical behaviors are often rationalized when those behaviors offer rewards without consequences. The unfortunate results of all this is that many hard working people lost retirement funds and investments that will impact them the rest of their lives and the residual unemployment will change the lives of many families and children and that there has been no personal accountablility for those who are currently living very well with the millions they made in this scheme. The bigger question that needs to be addressed is, what does this say about our socieities? The political systems and financial systems have betrayed the public on the largest scale in history and not one has stepped up an accepted responsibility, nor has the public demanded any. The governments took dramatic action to recaptialize the financial institutions yet did nothing to recaptialize the accounts of the individuals who lost retirement funds because of the governments negligence and abdication of responsbilities. Not all that glitters is gold.
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"I don't think economic theory is itself busted. After all, how did the theory come about? It was formulated based on observed behaviour."
No it wasn't. peole do not behave in rational ways when making choices, they're not even consistent.
It was premised on two false assumptions a) that people make rational choices and b) that there is equality of ability (bar opportunity). These are two facets of the so-called 'rationality assumption' and they're both false. This is important. It's also venal that the opposite is peddled.
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Poor old economics - let's all give it a good kicking.
It's all the fault of the neo-classicicts, we should have paid more attention to the behaviourists (all the world is a rat!!) and even the Austrian's should have been given more credence. Well, if you think so.
It's just like poplar music. Swing gave way to Rock and Roll which morphed in to Pop and then Punk and then New Romantics and so on and so on. What flavour would you like today? OK, I'll find some 'school' that will provide it.
It's not the fault of economic thought. The problem lies with what we attempt to do with it i.e. create policy and control mechanisms.
Many good points have been raised above. I think that stanillic came closest with "Economics is a method of analysising what is happening within the economy at large and in detail." It is a tool for commentry and prediction. It is not a tool for management and control. But over the last 50 years that is what we have been asking it to do. So it's not the fault of Economics per se but a fault in our expectations.
Just look at the proliferation of economists - sorry Stephanie. We have whole armies of economists. We have international economists, market economists, central and local government economists, health economists, social economists and educational economists. That's not even counting the academics and journalists! What are all these economists doing? Well they certainly didn't control the economy.
My background is in Corporate and Marketing strategy, both as an academic and practitioner. I see many similarities between the histories of those disciplines and what has happened to Economics. From the mid 50s, Marketing became the new buzz-word. Every firm had to have a Marketing Departmnet if it was to survive in "todays world". We churned-out millions of marketing people to meet the need. Problem was that whilst we were creating new operational structures we forgot about the core philosophy and principles of Marketing. We created a beast that had many tools but had forgotten its basic ethos. A similar pattern has emerged with Economics. We have asked a philosophy to become a management and control function.
It doesn't matter how much computing power you throw at it or how clever the models appear to be you can not control or acurately predict behaviour in every given circumstance. Human behaviour is at the core of all economic activity. Human behaviour is extreemly complex and does not conform to blunt economic stimulus. The variables are just to diverese to cope with. Therefore, let Economics INFORM but then let others use/missuse that information and take responsibility for their actions.
It is popular nowadays to say "don't study anything that has STUDIES in the title. I would argue that such Studies can produce a more rounded individual who can see the relationships between disciplines and therefore produce more 'rounded' decisions. So more Economics and less economists.
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#29 Jadedjean,
"This is important. It's also venal that the opposite is peddled."
Would you care to expand upon that statement? No trick. Just interested in hearing your thoughts.
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Economics is not rubbish, but if economists (real and self-declared) confuse finance with economy, the results are inevitably a big big pile of smelly rubbish that takes many years to be cleared...
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Has anyone realized that everything is connected, economics and economists are in disarray because they cant predict the future and they cant see half the connections - Try looking at string theory, everything is a basic loop, it might expand in one direction for a period but it will eventually turn and expand in another way, economics is the futile pursuit to understand this ebb and flow...you never will, just forget it your not as bright as you think you are because you cant see past your love of what ever it is your trying to explain..and that's the problem, you can never explain the whole loop, you lot make me laugh a lot...but keep trying please its entertaining....
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"I remember, while studying graduate macroeconomics at Harvard in the mid-90s, asking a question relating a certain piece of theory to a recent decision by the Federal Reserve. It was like I'd said a bad word."
Nobody likes a smartass student; especially when he/she is right !! Been there, seen it, done it !! :-)
"At the most basic level, the defence of the high theorists is that their models were only as good as the data that went into them - too many practitioners on Wall Street decided that 20 years' worth of data was enough to tell you that house prices could never fall, and stock prices would never go down by more than 5%."
This is just an excuse, not a defence !! It is nothing to do with the data and everything to do with the model !! When a model is flawed, no amount of good data will make it produce better results !! This was the first thing we learnt in Systems Analysis !!
The problem with most macroeconomic models is that they presupposes an endless supply of cheap raw materials and an equally endless supply of foreign "damned natives" capable of being forced to buy whatever rubbish you deign to produce and sell to them !! Well, those empire days are over and such models no longer work but various governments and "leading economists and industrialists" still cling to them for dear life !! And such attitudes pervades into society, spreading, even as swine flu does, throughout all ranks of those societies !!
Although not a work on economics but, rather a semi-biographical works, "From Third World to First" is a tale of one man and his dream to re-model macroeconomics and produce a model that is better and *still* successful to this day !! The man is Lee Kuan Yew and his proof is that Singapore is one of the most successful economies today !! He started with a rotten and most corrupt little island and turned it into the envy of most nations !! His brutal Darwinistic approach meant that Singapore has the leanest, meanest, most efficient Civil Service I've ever seen. With absolutely *NO* natural resources except for the abilities of its people, Singapore has become one of the major economies in the world !!
As a typical pragmatic Chinaman, he has no high-faluting theories, no pack drills; he just rolled up his sleeves (when he has any) and knuckled-down and did it !! Contrast that with our Great Gordo dashing off to save the world and flogging off the last of our family silver (gold) in the process !! One talks a lot while the other does a lot. Who's better for his people ??
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I have been using econometric models on and off for twenty years. My observations are as follows:
1. Much of the data input - once interrogated in detail - is inaccurate
2. Every single model ever built starts with at least one assumption. It is usually wrong
3. Models go on being used for macro conclusions when time and again their micro conclusions have been shown to be miles out
4. Almost none of them factor in panic,the wisdom of crowds, and denial. In short,Homo sapiens
People who were www.notbornyesterday.org already know thia
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22 stanilic
Painter - Hmm, think Jackson Pollock in this case.
30 fddave
Pop music, yes I think your are onto something there. They have all been break dancing and jive talking when they should have been strictly ballroom. Better get the car industry Morris dancing.
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#5 "It was inevitable the 'economics' had to rescue itself from its disastrous performance in the run up to this terrible crash. However I ask: should we let it get away with reinventing itself without first being publicly castigated?"
And here I was thinking that hair shirts and self-flagellation went out of fashion some 200 years ago !! :-)
"But of course economics as an educational industry is filled with wrongly educated teachers of economists who got it wrong, so the problem will be finding any real economist to be taught by!"
It's also an "industry" that consumes much but produces little of value !!
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Nice to see economics admitting the charges I levelled at it when I was 14 years old, which got me roundly and rather unsubtly mocked by an economics professor I used to chat to on IRC, as well as various students. I'd be intrigued to get in touch with them now, and ask them whether they still hold to their opinions which have been so soundly thrashed by the real world.
Of course, none of it matters, because the ways to fix the problem have been so heavily derided for so many years that we now find ourselves in the wonderful position of having no politically viable solutions.
Hurrah for capitalism and democracy.
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Try putting this in your economic machine and crank the handle.
I went to a local curry house a couple of days ago, reputable, good value, longstanding.
I was told by the waiter who I have known for a couple of years he was going at the weekend. Business sold on. Mumbled on, sullen. After 20 minutes we managed to get him to take our order. We were the only people in the place. After another half an hour the meal arrived. Sorry we are late in serving, we are busy in the kitchen. I looked around, we where still the only people in the place. One meal was served with the aside of - It's a new chef I don't know what it will be like. Reassuring. My meal was prodded on the tray and a newbie manager called over. Half the meal disappeared. Its not fully cooked I was told. Another wait and it reappeared to join what was on my plate. Having had enough we paid or tried to. We were asked to walk through the monsoon to a nearby cash point as the in house card nachine was not working and only cash was acceptable. A cheque supporte3d by a card was not acceptable. I'm not rushing back, sad. Please tell me how you can model this in a mathematical model. Or some of the other bizarre high street behaviour, just take a walk about town and you will see it, strange irrational rituals that the supplicants hope will give business revenue. Or perhaps explain how you can model the equally bizarre behaviour evident when things were 'booming' and nobody but nobody wanted to hear things might be unstable. It is a fantasy to think you can model this sort of behaviour so economics is I am afraid a fantasy. It might work with 'normal' behaviour when things are 'normal' but so what, you dont need it then. No IMO, economics is about as much use as a chocolate frying pan. Thats why we are between the frying pan and the fire. But if it gives you faith then good on you. Personally I'd rather use the I Ching, at least it doesnt pretend to be a science. For something to be a science it has to have some quantifiable statistical certainty.
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34. ishkandar
Thanks, I can now recognise a typical chinaman, I just look for the rolled up sleeves. ; )
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Alas poor glanafon, curryless and wet! The Charleston may have helped to dry you off :)
It is interesting that when we talk about the economy we view it from our own experiences. However, when economists talk about the economy they appear to be looking at a very different beast. Rather like the Business News which concentrates upon the financial markets and occassionally reports on business activity! Just to end the rant those ruddy economists have now knicked OUR term "the REAL economy" and mutated it to me something different completely.
Oh well a REAL decision awaits - beer or rum?
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foredeckdave (#31) #29 Jadedjean,
"This is important. It's also venal that the opposite is peddled."
Would you care to expand upon that statement? No trick. Just interested in hearing your thoughts."
I've posted at length on this subject over recent years. Group diversity in cognitive ability, plus differences in birth-rates in conjunction with where the 'cognitive elite' is ethnically and demographically conentrated (NY, Florida and California) and and in which professions, made the peddling of equalitarianism as venal as sub-prime loans under the circumstances. It was pretty clear to several in this field that this was economically predatory behaviour (cf. the USA CRA/red-lining), and after the 1999 deregulative legislation, it was clear that predatory lending targetted Blacks and Hispanics (as well as underclass White) preferentially. Many were asking why there was so much immigration from Mexico (and here in the UK, from S. Asia and Africa). Herrnstein was certainly alarmed decades ago about the 'liberal conspiracy' to keep the psychometrics data quiet. ETS finally got brave, picked up on it, and started breaking it publicly in feb 2007.
Whilst I've spelled all this out in considerable detail in these BBC blogs (especially the Newsnight ones) and elsewhere over the past few years (I thought it would have more import this way than in academic papers) I'm not the only one to have done so.
Most people didn't want to face the facts. Most still won't, I expect.
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Nassim Nicholas Taleb's "The Black Swan" lambasts economics because, he says, it doesn't take into account "black swans" - unusual, unpredictable but high impact events - in their predictions. They end up saying retrospectively that "if this unpredictable thing hadn't happened, I would have been right."
Nevertheless Taleb wrote in this book, published in 2007 that:
"The government-sponsored institution Fannie Mae, when I look at its risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry: their large staff of scientists deem these events "unlikely"."
Looks like he got it right himself. Some other libertarian/right wing economists, like Peter Schiff, did predict the crash. Schiff views the recession not as a problem, but the solution to the earlier bubble, and argues that government intervention (stimulus packages, bailouts, etc.) is only going to prevent that correction from occuring. Important to note that the free market people are suggesting solutions too.
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Stephanie, you were extremely negative about the economy few months ago. People never lost their optimism, consumer spending never went down.
There are always economists with a negative view and economists with a positive view. If you are at the peak of the economy the economist with a negative view will became gurus (you colleague Peston) and the optimistic ones trash. The reverse is true when you are at the bottom of the cycle.
Cheers
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#39 Glanafon
That's a very good point. How do you model the "wierd" things that people often do?
My example is not as good as the curry house case study but anyway....
Is it just conceivably a little bit possible that practitioners of "wierdness" pretty well know that logical thinkers (think Belbin) will tend most of the time to put what they see into some sort of a pigeon hole with an appropriate label on it?
Eg. Young man is saving up....must be for a house (could be for a wholesale cocaine deal?) Eg. Business man wants to raise capital.....must be for a profitable investment (could be for a gambling habit?) Eg. Supermarket chain X grows its profits.....must be operating more efficiently than other super markets (could be that profits have been mixeed in with windfalls from increased valuations on high street premises?)
And best of all.....
GDP of Western nations goes up.....must be to do with leverage of intellectual capital (could be that the value of credit derivatives was wrongly calculated).
For the dodgy businessmen in this world....and there are more than a handful.....it must be pretty convenient to let financial analysts and commentators interpret your actions as "expansionary" or "consolidating" or "globalising" or "hedging" or "additive".........better that than be shown up for a snake oil salesman
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I seem to remember from the dim and distant past of my economics stream at Business School something called Recessional Analysis. i.e. the worst case analysis. What if we had a bust, what if markets aren't rational, what if liquidity does become tight. It seems we have forgotten this in the rush to create new economic paradigms of rosey glow economic forecasting - naming no names of course! Perhaps Economics is still valid if a more rounded and less deterministic approach is taken? Or perhaps Economics has been superceded by Politics and Politicians needs. No names of course.
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Being an economist who believes in "free markets" has always struck me as utterly ridiculous. It's like being a physicist who believes in gravity or in electromagnetism. Market forces are just that - a force : like gravity or electromagnetism. They mean nothing except within a particular set of boundary conditions. You can use gravity to power a water-wheel. You can use electromagnetism to light a bulb. But either way you have to design a system in which a force of nature will do something USEFUL.
You can utilise market forces to power an economy, but that economy still has to be DESIGNED. Chaos and anarchy achieve nothing. Only a designed economy will succeed and we have had generations of economists and politicians who have abdicated their responsibility to design an economic system that stands a chance of working in the interests of the population as a whole.
I think the right way of looking at economics (or more precisely economic system design) is as a form of engineering rather than a science. It's too complex for any human being to fully understand what's going on. But you can design any system to isolate problems, to have fall-backs when things go wrong, to have fire-walls in place so that if something goes wrong it doesn't destroy the whole system.
I was reading this week about the Apollo mission. How they designed a computer system that succeeded in getting astronauts to the moon and back. You might I suppose call it "rocket science", but actually it's more a matter of designing a system that breaks the problem up into manageable chunks, considers all the possible things that go wrong, has fall-backs in place, etc. It can be done and it has been done. The same approache ought to be taken with regards to designing national and international economic systems.
As for the half-wits who thought that just because something hadn't happened for 20 years it would never happen, frankly I despair that they ever got into jobs more responsible than petrol-pump attendant (and actually I sincerely apologise to any petrol-pump attendants out there for making such a comparison).
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Many years ago when I was working towards my degree in pure physics I found myself at physics lectures and tutorials with people studying economics and physics, business studies and physics, to name just two strange combinations. Although physics and mathematics do have a role to play in every day life, I did find it difficult to understand the relationship between running an economy or business on the theory behind physics or maths. Mathematical models are useful in predicting outcomes to fairly simple situations, and have become very useful in modeling things like the weather, however they are just tools for predicting an outcome given a prescribed set of variables, if those variables become out of a set range then the model becomes worthless, and the weather is raining instead of sunny. Ask any meteoroligist about how confident they are of their prediction for the weather further than three days away.
Economics and business have highjacked something they do not truly understand to ligitamise what they truly do not understand, their own greed.
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No 20 Stanilic,
'..I don't know when the 95% plus probability factor came in ...'
Yes you do, you might not remember the 'when' but you will remember the principle.
It is the confidence level around the Null Hypothesis where above a 5% inconsistency says the theory may rejected. Otherwise continue with proof.
Anyway, to complete the circle arising from your original and subsequent posts... the country needs more, not less, questions and explanations.
So your contrarian approach is far, far, preferable to passive acceptance.
More of the same is needed in any number of current situations.
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If this crisis and your blog proves anything, it's not that economics is 'rubbish', as you put it with more than your usual subliteracy, but that economics editors 'write rubbish'. I remember you were scaremongering a crash in your columns way back in 2003 and now that one has come, six years later, only Chicken Little is more excited and self-congratulatory than you. Tone it down, Stephanie, or at least save it for the tabloids where balance, maturity and style aren't at a premium.
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#14 "As Laurence J Peter said many years ago "An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today." Recent events have just reaffirmed his perspicacity."
Professor Laurence J Peter also came up with the Peter Principle about people being promoted to the level of their incompetence. A look at our current government might seem to dispute that Principle since they (the ministers) seem to be incompetent to start with and got promoted for it !!
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I suppose a further comment is that for perhaps 30 years now we have had an academic system that teaches students the knowledge that is required to make money out of the flaws in the economic system - not how to design a better economic system that doesn't have those flaws. How many students have studied economics in the hope of getting a well paid job in the City? And how many have been driven by the desire to fix the system and make the world a better place?
It's not hard to see the gaping holes in the logic of the economic belief system that has developed over this period. All you have to do is say "forget the paper money - what's the impact on real goods and services?" and it's all pretty obvious. But teaching this was just not what was wanted at the time.
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#42 JJ,
Thanks for the reply.
There is another way of viewing the sub-prime fiasco which says that it has more to do with greed and the manipulation of a 'lightly' regulated market than a deliberate predatory strategy purportrated on an under-class.
Now we have crossed swords more than a few times (and probably will again) but I will accept that there are questions posed by both migration and immigration. However, I feel that these probably have more to do with culture than ability. The fact that, in the UK, the 'host' community has been unable to agree on the tennants of their own culture has led to a very confused picture. The situation in the USA is totally different. There you have a society uneasy with itself built upon waves of immigration and ridled with racism and unequal opportunity.
Still, thanks for the response
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This article (and author) loses so much cred by omitting the name of Vince Cable from the list if those who "warned early of trouble ahead". Quite an extraordinary omission from a BBC journalist.
(Foreign readers note - chap named Vince Cable was the sole British politician who, in the face of total Government and Opposition derision, warned time and time again of what was coming - echoing Winston Churchill's pre-war experiences of many years ago. His forecasts were derided despite his immense knowledge and experience as former head economist of a major worldwide oil company. As it turned out, his forecasts were spot on.)
Really, really extraordinary omission, esteemed author. Begs the question - why, Stephanie, why? You know the facts. Why?
(Note: I have no axe to grind - and have joined up solely to post this response to your blog)
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Post 52 - Good points and well made. The existing education system has arguably been re-enforcing levels of 'incompetence' / 'greed' for some time ... and this is exactly the same in leadership / management ( and political science ? ) too ...
The education system is also probably 20-30 years out of date now too ( I know for certain most MBA's are - as they are often referred to as 'Maybe Best Avoided' now, and I believe posts 13 and 51 probably give us an idea where we are with politics at the moment too ) ...
I believe we are beginning to get to the 'roots' of the problem now ... and starting to see just a few of the challenges ahead ... e.g. changing this, as well as evaluating / re-addressing our nations 'fundamental philosophies' and 'value systems' !
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#55 lanomist,
"The education system is also probably 20-30 years out of date now too ( I know for certain most MBA's are - as they are often referred to as 'Maybe Best Avoided' now, and I believe posts 13 and 51 probably give us an idea where we are with politics at the moment too ) ..."
If you "know for certain" then you can supply the evidence for you claim. I'm sure that the staff and students of our Business Schools would be very interested to see it.
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LIBERTARIANS' MARKET-FORCES AND 'CONSUMER CHOICE'
foredeckdave (#53) Has not Austrian/Chicago School 'Libertarian' economics dogmatically asserted that cultures demand critique, and that in the absence of this, one risks ending up with monopoly/tyranny?
Has any of this been done intentionally and can anyone (or group) be held accountable, or is it truly just a case of scotoma/incompetence/lack of cognitive ability (call it what on will)?
Surely one has to ask why so many people seemed so willing to abandon so many lessons from history?
Can one define 'greed' non-intensionally? If one doesn't see the nature/scope of this problem (see Part 5), does one really know what I (and others) have been talking/warning about?
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#40 "Thanks, I can now recognise a typical chinaman, I just look for the rolled up sleeves. ; )"
Now for the next lesson !! To spot a typical Indian small businessman, watch out for the dhoti tucked up at the waist !! This means that he's willing and able to go for the "blood, sweat and tears" to make the extra buck for his family !! :-)
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#41 foredeckdave - "Oh well a REAL decision awaits - beer or rum?"
If you are truly on the foredeck, may I suggest a Singapore Sling or, perhaps, a Mai Tai !! However, rum in a young coconut with a fair bit of shaved ice will also do nicely but, be warned, try not to eat the little paper umbrella they put in it. It may stick in your craw !! ;-)
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#43 Nassim Nicholas Taleb's "The Black Swan" lambasts economics because, he says, it doesn't take into account "black swans" - unusual, unpredictable but high impact events - in their predictions. They end up saying retrospectively that "if this unpredictable thing hadn't happened, I would have been right."
In IT, this is know as "Exception handling" and, if not dealt with properly, can lead to BSOD (Blue Screen Of Death) in Windows, for example !! In the days before Microsoft Windows existed, the guy teaching me about exception handling gave me, as tongue-in-cheek illustration, "If his mum had married well, he could have been born as the next King of Saudi Arabia" !!
Or, to paraphrase a famous American, any one can handle the known knowns and only the better ones can handle the known unknowns. However, it takes genius to handle the unknown unknowns !! This is what's lacking in the economics theory scam, *genius* !!
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#47 "I was reading this week about the Apollo mission. How they designed a computer system that succeeded in getting astronauts to the moon and back. You might I suppose call it "rocket science", but actually it's more a matter of designing a system that breaks the problem up into manageable chunks, considers all the possible things that go wrong, has fall-backs in place, etc. It can be done and it has been done. The same approache ought to be taken with regards to designing national and international economic systems."
The only notable thought from the Apollo program came when one of the astronauts was asked what his most memorable thought was. After pondering a bit, he said, "There he was in a capsule, far from possible rescue, and every bit of that capsule was tendered to the cheapest bidder" !!
"As for the half-wits who thought that just because something hadn't happened for 20 years it would never happen, frankly I despair that they ever got into jobs more responsible than petrol-pump attendant (and actually I sincerely apologise to any petrol-pump attendants out there for making such a comparison)."
Hey !! Any serious failure by a petrol-pump attendant could result in a mimic of Hiroshima, 1945 !! :-)
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#48 "Although physics and mathematics do have a role to play in every day life, I did find it difficult to understand the relationship between running an economy or business on the theory behind physics or maths."
As a physicist, you should know better that to look at only one side of the equation. Perhaps they were using *economic theories* to manage a business in physics !! Were any of them at Chernobyl, perhaps ?? :-)
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As a non economist i am always surprised that the market takes so much notice of them when time after time statistics published are always "worse than expected" or "better than expected" rarely are they "as expected". Economists are a bit like weather forecasters, they have huge resources at their finger tips but weather forecasting is no more accurate today than fifty years ago.. apparently you get a better success rate if you just say "the weather tomorrow will be the same as today"...you will be right 80% of the time!
So we have to ask the question "what is the point of an economist?" are they any more use than a weather forecaster?
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You make a point about what happens when everyone's models "says sell". The sad fact is that all respected economic theories are wrong - and the more widely-accepted they become - the wronger they become. It goes like this:
1 A theorist observes the economy and develops a new model of how it (or some part of it) might work.
2 Others can see that the theory is well-formed and fits the historical data very well. So they endorse it, enhance it and (meme-style) it rapidly becomes orthodoxy throughout the ranks of the economic litterati.
3 Eventually, the theory becomes widely used by all sorts of important actors in the economy to predict what the economy (or part of it) will do in the future and they make their decisions accordingly....
And there the whole thing breaks down. Because when the theorist formed his theory, he was observing behaviour in an economy WITHOUT knowledge of his new theory and without its predictive systems and subsequent responses being affected by the same. So his original theory - by definition - no longer fits the real world.
The self-referential nature of all economic theory dooms us forever to produce correct constructs with a very short shelf-life. There is the exception, however; where a theorist produces a correct theory but, for some reason, no-one else believes him or her.
Conclusion - only genius-level Cassandras and iconoclasts have a real chance of being "right" about what the economy is about to do? But if everyone started to work on that basis - then this also would become a false precept...there's no escape I'm afraid.
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~63
Weather forecaster makes some predictions about the behaviour of some physical stuff based on theories of behaviour of physical stuff.
Economist makes some predictions about the behaviour of some nonphysical stuff ( money) based on theories of behaviour of nonphysical stuff (minds).
Can you see the problem ?
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56 foredeckdave
Anyone who has bothered to study 'lean', 'lean management', 'lean management systems' (and Dr. W. Edwards Deming's work - nb quoted earlier) know that business schools are 1-2 generations out of date - in fact most people with an MBA have to unfortunately unlearn a lot of what they have learnt at a business school before they can start to learn what they really need to know (e.g. to scrap, rather than re-enforce, arbitrary targets, league tables, bonuses, management by numbers ...etc etc etc) ...
All you have to do is ask a few questions (e.g. what are the above?), look at current business school MBA syllabuses, and understand the differences between 21st century leadership / management and traditional leadership and management [e.g. take a quick look at table 2.39, P139, in the book below for instance] ... you'll find they are completely opposite, and you'll also find most business schools struggle to answer the basic questions above in any meaningful way (and find they are just as out of date as Wikipedia!).
I'm afraid 21st century leadership/management is mostly common sense, and very different to what we're accustomed to, and it's been mostly decoded now too (e.g. just take a look at "Lean World" ... it's available to read worldwide on Google Books*) ... all the Deans of Business Schools I've met and spoke to have read it and loved it, and the business students I lecture love it too ... it's a shame that business schools (all around the world) never properly researched it (or Deming's work for that matter - as they would have found they're inextricably linked) ... and/or never thought to tell students about it/write about it, as most people point out it's both profound ... and applies a lots of common sense ... which is arguably something we need a lot more of right now ...
... but the challenge today is not just one of education, but of politics and power (and the 'misuse' of 'power') too ... and that's yet another story again ... just take a look at http://poweromics.blogspot.com (and some of my posts here too e.g. P13 above) for instance ... but this will be eventually changing too, powered by the internet ...
*http://books.google.co.uk/books?id=-8xAIgkewOUC&printsec=frontcover
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RaulMagister (#64) "The self-referential nature of all economic theory dooms us forever to produce correct constructs with a very short shelf-life. There is the exception, however; where a theorist produces a correct theory but, for some reason, no-one else believes him or her.
Conclusion - only genius-level Cassandras and iconoclasts have a real chance of being "right" about what the economy is about to do? But if everyone started to work on that basis - then this also would become a false precept...there's no escape I'm afraid."
This is not strictly true. In several areas of human behaviour the task of the specialist is to rather mundanely model what's going on at the population level, i.e to empirically describe activity in real-time. The control comes simply through being able to observe/measure what's going on. Once you has such measures in place one just has to legislate and enforce the rules, which is uually labour intensive. The problem in liberal-democracies is the extent to which the last part has been rolled back. There are reasonably well controlled environments where the problems we are concerned with now do not happen (or do so predictably), although there do seem to be an increasing number of 'Oppositionally Defiant' people about these days who appear determined to make it otherwise. The EU idea of NUTS is, as I see it, essentially a step to reduce this management problem, but we do have many other micro closed/insular environments/economies if one looks hard enough for them. The City/Wall Street and Financial/Business Services in general are major exceptions as one might expect, but they have been made this way by design, i.e. to venally make money out of more compliant others. It doesn't matter whether the politicians were complicit or naively manipulated, it's just the outcome that matters. Over a couple of decades now, there has been a systematic programme to liberalise even our most closed environments in order to make them easier to sell off as private ventures on grounds of their no longer functioning 'efficiently' in the Public Sector!
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By definition, economics which is an imperfect science cannot be a busted flush. A flush in cards is a perfect solution, and a busted flush is a perfect solution rendered useless by an imperfect constituent.
Nor is economics rubbish; it is a model, subject to interpretation.
Unfortunately, most interpreters are driven by politics, and false conclusions are reached. If they just stuck to explanations of what is happening instead of trying to change the world, then we would all benefit.
Many economists spotted the development of this crisis, by studying what had gone before but they were ignored by our leaders who were all on the make:
http://www.debtdeflation.com/blogs/2009/07/15/no-one-saw-this-coming-balderdash/
Now we are all paying the price, literally, with our savings.
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67 Any theory of "micro/closed/insular environments /economies" will prove itself as flawed as any other as soon as enough economic actors start to believe in them too fervently - however "empirical" the concepts claim to be. Once the legislation you advocate is in place, the basis of the theory is no longer wholly valid - the fundamentals have been shifted.
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Economics in the UK is just like the BBC, untrustworthy, seems they have their own private agenda, economists and the BBC should be based on objective criteria, rather than on the basis of self interest.
I dont watch the BBC news in-fact , I dont even watch any BBC channels because its rubbish, they dont publish the facts from both sides, the last time i watched the BBC news was 4 years ago. The economists in the media are all the same, they have an element of vested interests just like the BBC.
Some of us knew this was coming we could see it way back in 2004, yet all the commercial media economists kept looking at the positives and not even one of them warned are the outcomes, they are also partly to blame. Do you really think high house prices are good for the economic environment, the government and others around the world help create this mess buy aiming their polices on cpi rather than rpi, the outcome greater percentage of individuals that are pushed away from home ownership more money out of the circular flow. The governments hidden policy to create less social housing and more private housing, thus the government isnt working for its people but working against its people, the aim of any western government is to work for its people , not for big business.
They push the fact that globalisation is good, and how well all benefit from this, yet a large percentage of the pop needs tax credits to live and this is increasing, this system shows tells me one thing market failure and the worker is subsidized by the government while business leaders profit.
So we can say economists and the government have ruined the hope and chances of giving same lifestyle the boomer generation had/has. they are increasing retirement the posibility of no pension, then they expect us to save for are old age, how can anyone save for their old age when the cost of housing etc.. is way to high.
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#67 Jaded Jean . ishkandar. stanilac and fordeckdave. Thanks for the extra (sometimes) very deep analysis and conclusions. Stephanie and Robert certainly get you going and then you run. Brilliant.
I have learnt more from these contributions in the last 18 months than I ever thought it possible to know. Especially where references are given.
I have delved and dug, read and tried to comprehend.
I consider myself financially naive, and have been stung and robbed by several of the products that brought the economy tumbling.
Having been bitten I am shy and cautious.
I love the T'interweb and use it extensively now that I actually have some time.
Economic models are only models and people are only people.There are lots of different types of each.6 billion of the latter and probably about 1,000 of the former.
The sociopaths who used to get to lead the charge and self-destruct have become profligate, and their contributions and behaviours are now being questioned.
I believe that they never got this far before in terms of control and leadership and that has taken the social glue by surprise.
The "normal" social, biological, chemical, physical and emotional rules don't apply and self-interest & greed became "normal" for this group wherever they took control.
They don't get "guilt, shame, self-control, care or responsibility".
Nothing will change much until they are lead away in handcuffs, and told to spend the rest of their lives trying to show anyone who will listen, (usually lawyers, who have always managed this split), that they weren't guilty.
Review the social concept, it's quite interesting.
Just off to see Harry Potter.
Oh! this isn't Twitter is it!
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leanomist
You aren't also a memeber of The Flat Earth Society are you? What you present as evidence is as flawed as JJ's claim that Behavioural Analysis is a valid control mechanism.
If you are proposing that the future of this, or any other country, should be based on such limited, at best tangental, views then you are as deluded as GB believeing that he had saved the world. Perhaps you should 'lean' on JJ then there would be two souls crying in the wilderness - of thier own making!
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#39 glanafon. Your curry example is pretty straightforward - the business goes bust, thus freeing up resources for someone that can use them for a better purpose.
The problem comes if the curry house has abandoned the making of curry to curry favour (geddit?!!) with the government. The government then decides that the curry house must stay open and people should be forced to buy curry whether they want it or not. The media decide to start promoting how the lovely the curry is, and victims of food poisoning do not get to see Drs. but lawyers. The lawyers explain to them that they cannot prove how they got poisoned and that they can be locked up for financial terrorism if they dare criticise the curry house.
Because people are now forced to buy curry from a particular place, other competing businesses suffer a loss of trade and go bankrupt, thus providing an opportunity for the state subsidised curry house to expand and poison yet more people.
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#43 wrathofpiglet. There is a You-tube compilation of Peter Schiff interviews. A few years ago people were openly laughing at him, saying he was bananas.
Now that he has been proven correct corporate media talking heads criticise him for being un-patriotic and not loving America with sufficient fervour.
This is a big problem - anyone that deviates from devotion to pump and dump and either ignored or ridiculed.
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foredeckdave (#72) The weather and climate is a function of known physical, measureable, variables, yet even though we can not control, or even predict either very far into the future, bright people do not, you might note, abandon the laws of physical science.
To be clear, there are lawful measures of behaviour which are important determinants of economic behaviour, and yet these are being ignored by some. Our government is not one of these, as it has such measures on the younger generation down to postcode.
Behaviour can be controlled. How much it is controlled is not reflection of what is known about behaviour from Behaviour Analysis.
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erratum (#75) "How much of it is controlled, is not reflection of what is known about behaviour from Behaviour Analysis."
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A number of bloggers have commented on the lack of precision of Economics compared to Physics or even Engineering. Economists love charts. So do Engineers and Physicists. However Economists always seem to speculate as to whether, say a recovery, is V shaped or W shaped or even like a hockey stick, J shaped. I presume that is because unlike Engineering a recovery curve cannot be accurately predicted in Economics, which indicates the lack of precision of the underlying model or maths. So Economics is just guessing or being wise after the event. Heaven help us if Engineering or Physics were the same. Imagine not being able to quantify the breaking strain of steel beam under load. QED
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Post 72 - there is lots of evidence - but from your strange comments it appears you either don't bother to look or you interpret things in very strange ways ... to be honest I'm not here to educate, but you asked the question, so I tried to quickly answer it ... and pointed you towards 21st century practices too (that are all grounded in common sense, and very different to current practice) ... and already starting to overtake outdated practices (and outdating thinking) too ... those who already know, know better, and those who do not know, or choose not to know, will find out eventually I guess (and probably the hard-way I'm afraid - my concern is for all the otherwise good people that get taken down with them however). Curiosity has to outweigh apathy if a nation wants to survive.
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Ah great!
This is a great article.
Neoclassical economics has failed, and must be replaced.
I will take this opportunity to plug my two favourite mentors:
Steve Keen:
http://www.debtdeflation.com/blogs/2009/07/15/no-one-saw-this-coming-balderdash/comment-page-2/#comment-12634
and
Richard Duncan:
http://www.amazon.com/Dollar-Crisis-Causes-Consequences-Cures/dp/0470821027
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Also
http://www.economist.com/displaystory.cfm?story_id=14030296
I think it is wonderful such things are being discussed. It is great that new approaches can be explored, people with new ideas can get heard, and some creativity can blow a breath of fresh air into things.
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#69 - RaulMagister
A great, huge, resoundingly emphatic shout of agreement!!
I think this is THE crucial distinction between economics and other studies, with the exception of quantum physics. Both economics and quantum physics share this one thing in common: the act of describing/observing affects what you are trying to describe/observe.
Soros has been warning us of this crucial difference with his philosophy of reflexivity for a long time. It is the source of feedback loops that render our economic framework inherently unstable dynamic systems.
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...and as corollary to #81 ...it is possible to advance a model that includes itself, and thus neutralises the effect of reflexivity by incorporating it. Would you agree?
In other words, simply by saying that "thinking people are part of the problem we have to think about", we are already on the way....
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FrankSz (#79) Is there not something just a little bit statistically improbable about this (see % of economics Nobels elsewhere) given that the mean IQ of the Chinese/Japanese/Koreans etc is really not much different from this group's, and yet the ratio of East Asians to this group is phenomenal. Might there be something other than ability at work here as I've covered at length? What is this disposition which differentiates these two ethnic groups?
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#83 Ha! Cool, actually. I like it - how come a tiny percent of the population of the world called Jews are getting loads of Nobel prizes??
Certainly something is skewed in favour, and it is worth looking a little deeper. My guess is that it is down to World War 2, and the capitals of Europe, especially German ones, incentivising people in certain directions..and also that being an outsider makes one think in conceptual frameworks that reject the status quo. I think Relativity for example is something a kid could have come up with if it wasn't bogged down with concepts of the aether....
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I studied Economics some forty years ago, but majored in international relations. I feel that any approach to todays problems must consider the "human condition" and the way we make decisions and why?
History shows us greed/fear and power can corrupt both individuels, then Governments and Nation States too. The Equation has been added to in the past decade or so, by the Global Trader and Global Corporation which has dwarfed some Nation States in terms of influence and power.
The Age of Consumerism and Celebrity has also fundamentally affected both the National Economy and the Global interworking of a World Trading Economy. David Beckham is known to possibly 2 Billion people worldwide if not more whilst Gordon Brown may be known to perhaps 200 Million at most.
My thesis today, in an explosive internet driven Information Age, where the individual mind is frequently overloaded by such information, we must have ethically considered decisions made by moral men and women. Withut trust and respect we are lost as both Nations and Societies. We have contempt today for both Politicans and Bankers, yet stand with respect in silence in our thousands at Wooten Bassett to see the bodies of our young soldiers brought home.
We collectively need to understand our priorities and our risks and who we can or will trust, both now and in the future. The result of these individuel decsions will change the way the World and the Global Economy works in the future and whether we see growth or not. What type of growth do we really want to see? Its all "Back to Basics" for Economists everywhere, there assumptions forget the balance of "Greed and Fear" which affects all decisions of either Bankers or Politicians.
This is not over yet, by a long way.........
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Steph,
Economics suffers as do many of the 'sciences', social sciences in pasrticular from the cultural blind spot exposed by the mathematician Kurt Godel and systematically ignored ever since.
Kurt proved using pure mathematics in his widely accepted 'Incompleteness theorem' that the answer to any mathematical problem is only correct within the axioms (frame of reference) of that problem. Change the frame of reference and the correct answer changes.
It is related to relativity and he was a great friend of Einstein.
Rationality works very well within the framework of rationality. When a man drops a ball of a certain size from a tower we can use rationality to predict its speed of impact with the ground, the time it takes to get there within very fine tolerances.
What it can not do is deal with the man deciding he does not want to drop the ball from the given point he decides (for fun) to hide it under his jumper and pretend he has lost it.
All the modelling suddenly becomes ...meaningless out side of the very limited axioms we set for it.
It is no different for economics, there must be a whole army of indoctrinated highly paid economists now who realise all thier fancy modelling was just a means of gambling with atomic level indentations on computer hard drives. It had very little to do with reality and how the world works.
No doubt there will be a scramble to come up with a new frame of reference that the economists can busy themselves within.
Its pretty simple really, but 'pretty simple' does not keep tens of thousands of economists and university professors in work does it...
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#83 Jadedjean. You are barking up the wrong tree. Who cares about Nobel Prizes? They gave Kissinger one, for peace, this after he was instrumental in devising a policy that killed upward of 4 million.
Any competition in which he could be a winner, is not really a competition worth caring about.
#86 JohnnyZero66. You are basically correct, but the problem is that any entity, body or organisation worthy of respect has been systematically destroyed or undermined (see above).
Yes the people of Wootten Bassett show respect for the dead (there is something left). But remember the bodies of the fallen used to be taken to Brize Norton. But the local coroner kept recording verdicts that the politicians found embarrassing. So they switched to Lyneham - I guess they hoped for a more pliant coroner. Even the death of teenage soldiers is spun for some kind calculated advantage.
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Post 84. I agree. 'Creative outsiders' (such as Dr. W. Edwards Deming) create breakthroughs because they are not constrained by existing frameworks and accepted norms (e.g. steered by mainstream education/practice). They are also naturally curious, ask lots of basic questions, and are often able to see things in a very different light. Traditional establishments/enterprises are well known for becoming almost 'blind' to new concepts/ideas ... they regularly reject (and sometimes fear) them too (for as long as they can at least) ... because they often undermine much of what they had previously come to understand (e.g. see Einstein, Galileo, Newton, Wegener ...) and it may not fit their frame of reference too (e.g. created by traditional mainstream education). This is why businesses regularly get overtaken by more innovative ones ... and it is 'why nations will fail' if they 'fail to be curious' too ... and it turns out there is a subtle cultural element to this too [Q: and do you think this favours countries like the UK/US?] ... This is turning into a very interesting/insightful discussion/blog ... well done for starting it off Stephanie.
Post 85 - I fully agree with this too - well put.
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Jericoa (#86) That's wrong.
What Godel's proof showed was that 'pursuit of truth' (science) is nota priori, or even valid synthetic a priori, but an empirical unended quest. Hence my advice to study 'Two Dogmas of Empiricism', my criticism of Austrian School libertarianism which has blighted our economies for at least three decades, and my urging you and others to pay more careful attention to what I've been posting here.
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Dear Stephanie,
Much of mainstream economics is a bit like a 'king with no clothes'.
It is easy to to see the nakedness of economics, once the mass-hypnosis whihc was produced and maintained by the commercial mainstream media has been ended by the shock-therapy of recession and real life poverty. You, Stephanie, could help to overcome the media induces mass-hypnosis by enthusiastically continuing your economics studies. But this time round please research a bit further into the universe of worldviews, beyond the current fashionable vistas of Chicago, Washington, New York, Oxford, Cambridge and London. You don't even have to travel far or even attend, expensive universities. You could, for example, study carefully the web site of Nobel Laureate Prof Joseph Stiglitz:
http://www.josephstiglitz.com/
and the web site of the pioneering Fred Harrison:
http://renegadeeconomist.com/
Sincere thanks in advance for the service to humanity which your diligent study could provide, given your priviledged position as a BBC jounalist and your ability to share your new insights with a wide audience.
P.S: Please keep Robert Peston informed of your new learnings.
Thanks a lot in advance!
For further reading, please visit also:
http://globalinsights.wordpress.com/
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armagediontimes (#87) "#83 Jadedjean. You are barking up the wrong tree. Who cares about Nobel Prizes?"
The same people who care about celebritism, i.e all too many people in the Liberal-Democratic economies.
Try to see the much bigger demographic/epidemiological picture which I have been painting for some time in these blogs, not your current grasp of it.
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#78 leanomist,
Me thinks you doth protest too much. The refernce that you gave is not unfamiliar to me. If I were to put it politely then I would say that there's is a germ of an idea here that has been stretched far beyond is capabilities. If I was to use intentional terms it's rubbish! The 'thinking' that is supposed to underpin the claims is muddled and merely rejects reality when it finds it contrary to the stated drift. The data presented can best be said to be highly manipulated but it is amusing.
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I know the message is more important than the spelling...but I just wish people could get to grips with difference between 'there' and 'their'.
It's got nothing to do with IQ...just upbringing!
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#75 JJ
Oh come on! We both know that Behavioural Analysis like what it is writ is, in reality, nowhere near ready to control populations in the same way as the legislative framework or government decrees. Let's have some degree of credibility.
We don't know what behaviour actually is. We, at best, observe actions and then try an interprit conclusions from it. In Consumer Behaviour we can see that a large proportion of consumers tend to react in the same way to differing stimulli. However, we cannot guarantee that they will do this consistantly and that here are others who have valid reasons for not conforming to the pattern ie there is a propensity and no more! Even you JJ, as a consumer, cannot rely on you genes to act rationally or consistantly in all of your purchase decisions.
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fordeckdave (#94) Do you know which controlled environments I am tacitly referring to in #75?
Where is control of behaviour crucial?
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foredeckdave
To be honest I doth care little about what you think, as I think your comments say more about yourself than me. Perhaps one day you'll stop hiding behind a pseudonym and tell people who you really are and what you know, and stop being so dismissive / rude to other people. Then I might take more notice of what you have to say.
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#91 Jadedjean. Now, now. It was you who referenced Nobel Prizes and tou who alluded to hidden truths that may be revealed by analysing the ethnicity of their recipients.
I merely pointed out the debasement and hence complete irrelevence of the whole scheme. Not that I am ever likely to be offered a Nobel Prize, but given past recipients I would not even be bothered to flush one down the lavatory, much less collect one.
The macro picture must be a composite of the micro. Your Nobel Prize micro example is irrelevant and Henry Kissinger proves that point.
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#88
Well yes, it favours the UK but it does not,,,now.,.favour the US. The problem with the US is that on the whole it is too conservative. It favoured Europe because there were a lot of independent thinkers (aka. rich, spoiled brats) who got into science. Those thinkers ran off to the US, but since WW2 they have been heading back to Europe and India, and with their departures the USA share of global GDP has been dropping.
This is the kind of demographic megatrend that really shapes the national economy, and it transcends national policies. This is one of the points that I think JJ advances and if so I agree.
I think that we might see changes now - as Western enclaves like Shanghai in China become more attractive as places to REMAIN, as opposed to platforms to move on to MIT or UCLA, then the number of patents per locale per year (interesting metric) might shift in favour of China....
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armagediontimes (#97) "#91 Jadedjean. Now, now. It was you who referenced Nobel Prizes and tou who alluded to hidden truths that may be revealed by analysing the ethnicity of their recipients."
That's right, but perhaps it's an important issue to look into when considering the impact of neo-liberal (Friedman etc) economics vs Keynesianism over the decades, the focus being I suggest, the encouragment of anarchism/narcissism, which, as I've said many times now, is essentially an infantile/adolescent identity disorder, which I suspect (in the abisence of reliable empirical data beyond what I've pointed to), differs in prevalence across groups, and is reinforced by some conditions, e.g. Liberal-Democracy, which I think provides advantageous envionmental conditions for this group at the expense of others. This is just a hypothesis, but, I submit, an expanatorily powerful one if supported by the evidence. It's scientifically testable.
I agree with the rest of what you post in #97, just don't throw out the baby with the bath-water. What I have to say is not about animosity to any groups, it's just explication of how groups (businesses if you like) competee, sometimes disguising/veiling group interests. See Trivers.
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Post 98 - The shift in knowledge creation from West to East is an interesting one, and this youtube video* is probably worth a look if you haven't seen it before (it also eludes to more fundamental failures in education too - which this blog has also been discussing). People from the far east also turn out to be more questioning and curious on average too. The east is also starting to train lots more scientists themselves as well, and some research establishments in the UK are already moving their work over there instead of doing it in the UK. A mega-trend indeed (with both short term and long term implications), and one that links well with the point I tried to make earlier - i.e. 'why nations will fail' if they 'fail to be curious' (nb and/or 'fail to understand, or act on, what they find!'). As we say, interesting times ahead - and another good point which shows yet more weakness in traditional economics, as well as some of the fundamental weaknesses in our economy ...
David Clift, A Future 500 Leader
* http://www.youtube.com/watch?gl=GB&feature=related&v=ljbI-363A2Q **
** if you like this you may be interested in this too, as it refers to this video (and goes on to highlight some of the root causes of why we are failing our children too - which turn out to be mostly outdated leadership & management practices - a subject referred to earlier too) ... http://poweromics.blogspot.com/2009/07/poweromics-failing-our-children.html
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#64 "And there the whole thing breaks down. Because when the theorist formed his theory, he was observing behaviour in an economy WITHOUT knowledge of his new theory and without its predictive systems and subsequent responses being affected by the same. So his original theory - by definition - no longer fits the real world."
Perhaps they should have a good look at Heisenberg's Uncertainty Principle before they sprout yet more theories !! If they can account for the possible effects their theory can have on the economy, then their theory will have a better chance of being right !!
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#100
...And it also points again, in my mind, to a direction where we should not be shackled by arbitrary economic preferences for oil.
There are some that say the reason we have not switched to sustainable energy sources is because at the moment oil is 'cheaper.' However, the calculation of the cost of oil is arbitrary. The oil from the ground is costed at zero. The exploration is costed according to labour and materials, but the actual oil is costed at zero...this is a gaping, huge externality that needs to be considered in the price, but the 'free market' fails to do so!
Further, the price of oil is only a fraction driven by the input cost, the remainder is determined by speculation and demand for the USD, which the cartels demand in exchange for their oil!
I get annoyed when I hear free market fundamentalists claim that pricing is done so well without interference, but the truth is that it is the lack of involvement of a sigmal of a long term collective interest (the externality I identified above - the long term cost of depleting oil reserves) that renders the price incongruent with national (or other organisational) interests.
But anyway, it is an example of how arrangements and ideologies can set the framework that prevents research and enquiry in certain direction. When people say 'oil is cheaper so we don't try to use alternative energy sources' they are not only wrong, they are making a kind of circular argument - they are agreeing with a pricing system that favours oil and using that as justification
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ishkandar (#101) "Perhaps they should have a good look at Heisenberg's Uncertainty Principle"
Ideally more people should look more carefully/critically behind the popular science which they think they know, as for many, their misunderstanding is, I suggest, merely an excuse for them to talk metaphysical nonsense. All that matters in the above 'principle' is how rather measures are functionally related surely? As in all science, it comes down to the control which on has over one's variables. Everyon should take note that in a so-called free-market economy, anarchism is encouraged by design
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#74 "Now that he has been proven correct corporate media talking heads criticise him for being un-patriotic and not loving America with sufficient fervour."
This is called The Cassandra Syndrome !! A prophet is without honour in his own country !!
It has been discovered that the reason people will attack and castigate a prophet is that they actually secretly fear that their own sins are exposed as such !! So it is an unconscious transference of personal guilt onto the prophet regardless of all rights and wrongs !!
This can be illustrated in NuLabour's various smear campaigns to cover their own guilt; the latest being that by the MoD against the Chief of Staff for daring to tell the world that the MoD *had failed* to provide our troops with enough of the right stuff to do their jobs !!
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erratum (#103) "All that matters in the above 'principle' is how measures are functionally related surely?
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#77 "I presume that is because unlike Engineering a recovery curve cannot be accurately predicted in Economics, which indicates the lack of precision of the underlying model or maths. So Economics is just guessing or being wise after the event."
Please don't be too hard on the economists. Their jobs were made so much harder when Western governments banned the slaughter of chickens and sheep so that their entrails can be read to make proper forecasts !! Supermarkets don't help either when chickens come shrink-wrapped without their heads, feet or entrails and sheep come in chop-size lumps !!
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#93 "I know the message is more important than the spelling...but I just wish people could get to grips with difference between 'there' and 'their'.
It's got nothing to do with IQ...just upbringing!"
A teacher willing to give a good clip in the ear for bad spelling helped in my case !! :-)
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#103 "All that matters in the above 'principle' is how rather measures are functionally related surely?"
Eh ??
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Posts 64 & 101 - I agree. Dr W. Edwards Deming includes this in his "System of Profound Knowledge", and Systems Thinking practice (part of 21st century management practice) understands this and continually looks at (and responds to) potential unintended consequences such as this too ...
Post 102/104 - I agree with your comments/insights too ... and re-enforcing one of the points made - Dr W. Edwards Deming was a US citizen who was mostly ignored in the US and went to Japan (who welcomed him with open arms) - and the US/UK had to quickly send a task force over there to try to understand what companies like Toyota were doing differently to General Motors - which turned out to be virtually everything - and was effectively the start of the 'lean movement' - and guess what most in the UK/US still don't 'get' this, or understand it - and guess what happened to GM? ... a $170bn bankcruptcy (the biggest in US history).
History tells a story, and I'm afraid it will tell many more in the future too ... (which is partly why I'm charting everything and highlighting some of risks that lie ahead ... ).
David Clift, a Future 500 Leader
* As past bloggers have quoted 'Those who don't know history are destined to repeat it.' [Edmund Burke]
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ishkandar (#108) 'Two Dogmas of Empiricism' was a radical criticism of the logical positivism which the above enigmatic principle was a consequence of.
Let's keep matters as clear and simple as possible. I'm sorry about the typing/posting error - see #105.
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#103 JJ
I suppose you are an expert on and can explain the kasimir effect also for the benefit of all us lesser mortals.
Your a funny guy JJ with an agenda..narcisism does not even come close.
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#111 "I suppose you are an expert on and can explain the kasimir effect also for the benefit of all us lesser mortals."
Kasimir Effect - Isn't that where someone can see things that no one else seem able to ?? Something about ghostly emanations and photographic plates ??
Then again, many people thought that poor Kasimir fell off his tree and landed on his head !! :-)
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Jericoa (#111) "I suppose you are an expert on and can explain the kasimir effect also for the benefit of all us lesser mortals."
I suggest you follow the links and logic to see if you learn anything instead of petulantly turning to abuse whenever you're corrected/informed, after all, in some of these areas, I may well be an expert for all you know. Would that be a bad thing in your eyes? If so, why? Are we all equals in the Liberal-Democracies, and if so, why do we bother to have discriminative terms like age, height, experience, qualifications, test distributions etc and is their neglect indicative of engineered 'deferred-development'/stupidty?
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@112
Here you are, from a lesser physicist.
ttp://physicsworld.com/cws/article/print/9747
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#104 Ishkandar. Politicians in the UK spin and smear for calculated advantage. They feel no guilt. Their amorality is so complete that they would not even understand the charge if it were levelled at them.
Look at their defence for fiddling their expenses - "everything was within the rules" Not even a recognition that their predecessors hanged people at Nurnberg who ran the same defence, having (correctly) determined that it was no defence at all.
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Message 49 strategycall
You are quite correct: I do recall it now but more as a 5% deviation or standard error. I did a statistics paper which proved very useful throughout my working life.
The most puzzling thing I continue to encounter in business is what I call `The Assertion'. This is where a very senior manager asserts a Great Truth around which the business is expected to construct a strategy. Many times I have dissected these Great Truths and found that the kernel is wishful thinking.
There has been far too much wishful thinking dressed up as exact science amongst the academic, political and economic elites. Sadly, they continue to refuse to accept that they have been rumbled. I am glad my nieces did their degrees in psychology: they will be better equipped than I.
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#99 Jadedjean. There are many problems with educated people. Not least, as they seek to explain what they observe, they develop complex theories, and to assign grand sounding names to those theories.
In the West there is no liberalism and there is no democracy. Hence there can be no liberal democracy. All you are seeing is rampant gangsterism and the unbridled exercise of naked power.
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2000 years ago in ancient Rome they had the saying "Sumptus censum ne superet" translation "Let not your spending exceed your income".
It was true then, it's true now, for both individuals and countries.
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Somewhere around 60,000 people in the UK now have an MBA. Has anyone ever looked at what impact this has had on the economy in the past 20 years or so?
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#117 armagediontimes wrote:
Totally agree with you about #99 Jadedjean. The excess references to theories and nostrums hide almost all of the nugatory common sense in his/her postings, is diversionary and just fills up space.
I tend towards the view that economics is essential simple, and about price, value and the management of the means of exchange (money) as it is empirically understood by economic actors who make the micro decisions that build up to the whole, and further, that excess sophistry is, because of this, almost always wrong and if pursued, nihilistic, that is it both supports the status quo and the establishment and further denies any discussion of the benefits, or not, of the simple and possible actions (i.e. changing interest rates, managing international money flows, forcing institutions to restructure themselves into more nationally regulatory sized portions and limiting access to volumes of credit, etc.)
I have formed the considered opinion that referential sophistry is detrimental, in itself, to economic recovery as it persuades against any and all possible actions, and by doing so promulgates and perpetuates the absolute nihilism of some posters (i.e. JJ).
Doing nothing, and recommending doing so, is doing something and that something is to maintain the status quo - which may well be wrong!
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Most of what works in economics is just common sense ........ most of what doesn't work is like the medieval science that simply couldn't accomodate reality.
The fact of the matter is, to my mind anyway; that economists have far more in common with the quasi religious 'scientists' of the establishment in the Middle ages, no real structure, method or foundation--- and very often quite a large embedded, unrecognised bias in the status quo.
Remember the idea (and it was seriously made and gravely pondered) that Ben Bernanke would know what to do in this crisis BECAUSE he'd written a book on the Great depression!---- In what other scientific field would have someone invested with competence because they'd written a book about scientific events of 80 years previously.
No .... that sort of unchanging dogma is characteristic of religion and that's more properly what 'Economics' is really, or rather, at least it has more characteristics of a Religion than a science.
The recent crash has performed a similar kind of performed by Gallileo, Darwin and other figures historically in providing the searchlight that illuminates the state of decay (I am surprised Will Hutton hasn't produced THAT one yet) of the 'science of economics'..........
If you want a literary example of the economist it is the Wizard in Oz of course.... The prognostications and predictions do have the character of those of Wizards and Witchdoctors; providing concrete and compelling warning of things to come (for believers), and almost laughable mumbo jumbo for unbelievers....
Be honest.... in a choice between listening to and reading the predictions and thoughts of 'economists' (of whatever prominence, sect or official standing)- OR just looking at lots of for sale Boards in the street, empty shops in prime shopping areas and streets, and one's own wage and salary prospects, and pondering how many 'new things' you and your family and friends are going to buy in the near future; ---which seems more likely to provide you with an explanation, basis for action and truer picture of the real world in November 2010???
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103 While I would agree that "pop" Heisenberg with a dash of Godel doesn't take the argument forward. There are critical problems with economic theory that makes a little metaphysical pondering more than a pointless exercise.
Marx said that the purpose of philosphers should not be to describe the world but to change it - and there's the rub. The teleological prescriptions of the three greats of the subject (Smith, Keynes and Marx) remains a major problem for all those who seek to emulate them, right up to the debacle of Fukuyama's thesis of "The End of History". Consequently, academic arguments today between any so-called "schools" of economics can easily be reduced to competitions between political manifestoes rather than anything that should pretend to be scientific in the true sense of the word.
We need to recognise that economists current function in society is the equivalent of ancient oracles and auguries; there to give assurance to those that seek to control events that they have at hand more insight into the future than is truly the case. It helps them sleep at night.
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armagediontimes (#115) "... "everything was within the rules" Not even a recognition that their predecessors hanged people at Nurnberg who ran the same defence, having (correctly) determined that it was no defence at all."
False. The post-war IMT trials were political show trials where the normal rules of evidence were specifically waived by the Articles which defined the terms of the procedures (see teh AValon site). In war, soldiers have to do as commanded or they themselves can be shot. Civil laws are largely suspened during wars, and today, it is rather telling/ironic that neither the USA nor Israel are signed up to the ICC. See the recent report into the IDF's behaviour in Gaza, and look fo the bigger picture.
(#117) "There are many problems with educated people. Not least, as they seek to explain what they observe, they develop complex theories, and to assign grand sounding names to those theories."
You are evidently not a scientist. Learn from this. Theories are basically just summaries of observation conjunctions of order N, i.e empirical relations. They are used in order to describe what happens under specified conditions, and thus enable us to better manage our way in the world. It is not the words per se which matter (there are specialist predicates which one has to learn to use as training in any scientific language). What matters are the measures these refer to, and how much these improve our control over conditions where we had less control before. What matters in economics today is accounting rules, fincial law, and enforcement. Sadly, laws are written in Natural Language which gives lawyers ample opportunity to circumvent them.
"In the West there is no liberalism and there is no democracy. Hence there can be no liberal democracy. All you are seeing is rampant gangsterism and the unbridled exercise of naked power."
That is the very nature of liberal-Democracy - i.e it's anarchism - i.e. minimal government. It's contrived so that those who wish to exploit resources can do so with minimal interference from the masses. Why do you think socialist countries describe Liberal-Democracies as imperlialist? They do do because they see themselves as the true democrats. They see the Liberal-Democracies as Social-Fascists and duplictous wreckers.
China (and probably N Korea, Burma etc) today sees themselves as bastions if not beacons of democracy (see Democratic-Centralism). Is the PRC wrong? The Liberal-Democracies, are, in my view terrified of Democratic-Centralism, as this is the antithesis of anarchism/deregulation. People today don't realise th extent to which the UK was essentially Democratic-Centralist under Old Labour in the 50s, 60s and 70s, it was just undermined by our friends across the Atlantic.
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John_from_Hendon (#120) Sophistry is just sophistry, and that post was essentially narcissistic rage.
Try to learn from instruction.
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I think there are some misconceptions in this blog entry.
"But crucial parts of the dismal science have come out of all this, well, pretty dismally"
It's not a dismal science but a primitive one still in its early stagess of development. It misses a lot, not just real world financial events but the human element which is often unpredictable, flighty at best. It suffers from the hubris of all professions, that its practicioners think they know everything, have a complete grasp of events and how to control them. Because they know a little more than those who are not well versed in their theories, they are regarded as all knowing priests and suffer the "in the land of the blind, the one eyed man is king" syndrome. They've been handed power often without oversight on the assumption that they will always get it right and that they will honestly critique each other. However dismal their performance, it should be noted that sometimes, they actually get it right. Of course as the old saying goes, even a broken clock is right twice a day. President Truman once lamented that he wished he'd had a one handed economist. When asked why, he said because when you ask them a question and they give you an answer, they always add...on the other hand. One of the world's most respected economists Alan Greenspan testifed sheepishly before a Congressional hearing last December after the crisis broke, "there's something about markets I don't understand." What an understatement. The policies he strongly advocated didn't merely make the crisis possible, didn't just contribute to it, it made it inevitable, he inadvertently helped engineer it. He helped build a ticking time bomb and lit the fuse.
In the neighborhood where I grew up in a plesant suburb of New York City, there was an old house across the street from where I lived that became abandoned many years ago. It was an old two story house built around WWI, a small house on a small piece of land. The original owners grew old, died, their children had grown up, drifted away, and finally the last one who lived there had to be put into a mental institution. Somehow an investment company acquired it, put a lot of money into renovating it, and listed it on the market for $108,000. It sat unsold for a couple of years. Then they did a strange thing, they raised the price to $180,000 and it sold almost immediately. Exactly the opposite of what you'd expect based on economic theory. I used this fact to sell my own parents house after they died when I finally put it on the market and it stayed unsold for about a year. I raised the price much to the dismay of the real estate agent and it sold shortly after for just about what I'd originally asked for it. Why do stocks of companies that make profits and have excellent prospects go down? This human factor is not taken into account in models because economists don't know how so they simply ignore it. They ignored the factor of human laziness in that investment ratings services like Moodys would not go to the bother of investigating badly flawed mortgage backed securities but would rate them AAA anyway because of the reputations of the institutions selling them and that others would place a heavy bet on those ratings being correct. They didn't consider that individuals would invent schemes to originate mortgages to people who couldn't possibly pay them back becuase they profited from it personally and by the time they were discovered, those mortgages would no longer be their own employer's liability but someone elses and they would not be held accountable personally. In fact entire companies emulated this practice until it became the rule rather than the exception.
The market didn't become illiquid in the sense that one day you could sell any liquid instrument and the next day you couldn't. It became illiquid because much of it moved into an asset class that is inherently illiquid, real estate. Real estate has at least three flaws or drawbacks as an investment. It is not liquid, you cannot buy or sell a house the way you can buy or sell stocks. You go on line and click or phone your stock broker and in seconds your stock buy or sell order is executed. If you want to buy a house, even if buyer and seller agree on the price, it takes a good two months or more before the closing and many things can go wrong to end the deal in the interim. Someone I know just terminated a contract to buy a used house because his inspector discovered that the previous owner had his brother change the main electrical circuit breaker panel, it had been installed incorrectly, and there was never a legally required permit for the work so it would have become his liability had he bought it. Reals estate is not divisible. You can sell any number of your shares of stock but you can either own your house or not own it, you can't sell half of it. To become a partial owner of real estate, unless you form a partnership, you need to invest in related stock investments like Real Estate Investment Trusts (REITs) or other holding companies. And it is not possible to know the value of real estate without testing it on the market. You can pretty much know what your stock is worth at any given moment and therefore what it will cost to buy or sell it but real estate at best only has an approximate value that's a guess as the house that sold for $180,000 shows. Another characteristic of real estate is its uniqueness. One share of common stock in a company is exactly like any other but no two pieces of real estate are exactly alike. Even adjacent homes built as tract housing become differentiated, in fact they start that way for many reasons such as one having a sunnier kitchen than the other. There may be something about a particular house that attracts buyers or repels them that is unique to that particular house, even something as seemingly inconsequental as the way it smells.
At the end of the 19th century, physicists thought they'd had it all figured out. Newton, Maxwell, and others had given them all the laws they needed to explain everything...and then Einstein came along and upset their apple cart of knowledge. He showed them everything they thought was true was wrong. He put all of their knowledge into a different perspective that showed what they thought was always true and accurate was only an approximation under certain circumstances...and when he first said it, they not only didn't believe him, they didn't even grasp what he was telling them. Today his theories are bedrock science.
It is noteworthy that the economists of the 1980s, 1990s, and early in this decade dismissed the knowledge of their counterparts of the 1930s and showed contempt for it by removing most of the barricades they had put in place in law to prevent a repeat of the 1920s and the great depression. I think it was the recent Secretary of the Treasury Paulson who was supposedly an expert in the causes of the great depression yet he had not learned the lessons of history, had dismissed them, and was instrumental in creating the inevitable crisis we find ourselves in now.
BTW, Harvard University was the institution Albert Einstein approached first when he fled Europe and came to America. Harvard rejected him it said because he could not produce documented credentials from Nazi occupied Europe proving his worth (the real explanation was blatant anti-semitism.) This is why in the world of physics, Princeton University is one of the most important places on earth while Harvard is nothing. Perhaps Harvard's School of Business and Economics deserves to be thought of as no better.
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I used to hold more respect for Economists when their analyses consisted of a range of possible options rather than single result certainties.
Previously a 'proper' Economist might venture that
'the result of this action may be A.....but on the other hand it could be B'
Many jokes were made about the reluctance of Economists to provide certainty of viewpoint, but the options presented by those 'objective economists' implied a degree of risk as to which outcome may come about. And hence contingencies were considered before the event in preparation for prediction A not coming to fruition
But we now appear to have a batch of Economic Rhetoricians at the Treasury, at the BoE, and in the Media, who fail to see the nonsence in their prediction of certainty.
Few of them seem to consider beforehand what might happen if the grand designs fail to perform as expected; and thus they build prediction upon prediction on a foundation of what may be a faulty set of assumptions.
(or as a logician might say - this may be a faulty premise, so re-examine your argument)
Example :
QE might stimulate the economy or it might not. Banks may simply use the cash to repair their balance sheets.
But pumping 100 billion into an uncertain outcome without considering the 'what ifs' might be considered a tad reckless.
Politicians, Bankers, Economists.
Long on Assertion*. Long on Rhetoric. Short on Delivery.
(*for 'Assertion' see Stanilic post 116)
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#115 "Look at their defence for fiddling their expenses - "everything was within the rules" Not even a recognition that their predecessors hanged people at Nurnberg who ran the same defence, having (correctly) determined that it was no defence at all."
Not much good nowadays since they flattened Tyburn Hill, stuck some lumps of stone on it and called it Marble Arch !! Not quite the same panache hanging them from Marble Arch, is it ?? :-(
That said, they could always be impaled on the pointy bits at the Palace of Westminster !! Good object lessons for MPs yet to come !! :-)
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#118 "2000 years ago in ancient Rome they had the saying "Sumptus censum ne superet" translation "Let not your spending exceed your income"."
A lot more recently, a certain Mr. Dickens had some home truths along those lines, too !! Something about a Mr. Macawber !!
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#123 Jadedjean. Oh dear, oh dear. Nothing that you write is relevant to the fact that western powers rejected the defence of "only obeying rules/orders." The machinations that enabled this argument to be rejected in no way dilutes or changes the conclusion that the argument was rejected.
Some of what you write is not accurate. Soldiers have an obligation to obey lawful commands, they have an equal obligation to refuse to obey unlawful commands. The fact that there are consequences associated with the fulfillment of obligations does not change or weaken the obligation.
Liberal Democracy, Anarchism, and Gangsterism are three seperate and discrete terms. You postulate that western Liberal Democracy in its present incarnation is anarchism since it leads to minimal government. This is evidentially false.
Government and its agencies are at an all time high. Look at the number of people employed by the state, and hence carrying out the demands of the state. The number of laws, rules and regulations are multiplying at an exponential rate. Something over 3,500 new laws have been enacted since 1997. Enforcement of infractions is rigidly enforced - think the number of speed cameras and the number of prosecutions for speeding.
No sensible person could conclude that the UK lacks sufficient laws or lacks enforcement capability. The problem, as I have sought to explain, is that a small clique are allowed to operate outside of the law, either by simply ignoring it, or, as in the case of accounting standards, having the law surreptitiously changed in their favour. This is gangsterism, and this is what is happening.
Gangsterism relies on the application of power and force, and does not require any theoretical or intellectual underpinning. The Mafia, for example, does not fund University research departments.
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123 A valid "N observational conjunction" test you could devise to find out which sort of society you lived in would be to openly take bicycles from others and see if you could do this repeatedly without a great deal of social opprobrium and some organ of the state intervening to attempt restitution of the same to their designated "owners". Alternetively, you could also try building seven storey tower-blocks on the green belt without planning permission and testing to see whether a "local authority" claimed the right to pull them down.....or see how many cigarettes you can sell openly without the government health-warning printed on the packet as prescribed before some official intervenes in your activity. Needless to say, in a state of anarchy, the results of all these tests should be negative.
What Liberal-democracy is, I'm not sure, but "anarchism" and "minimal government" it certainly is not.
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#125 "Reals estate is not divisible."
There are at least a couple of million Londoners and more else where who can dispute that statement. A great many old houses in desirable locations have been converted into flats (apartments, to the Yanks) and sold individually. Usually, the house and land is owned freehold by the original owner and is then sub-divided and renovated into flats and sold separately as leaseholds !!
My cousin bought a large crummy old warehouse in an American city, which shall remain nameless to protect the guilty, and converted it into 5 apartments which she promptly sold for a massive profit while retaining one for her own use !! It's all "Location, Location, Location" !!
Therefore, *SOME* real estate can be divided !!
/end pedantic rave
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#126 "But we now appear to have a batch of Economic Rhetoricians at the Treasury, at the BoE, and in the Media, who fail to see the nonsence in their prediction of certainty."
Hey, don't be so hard on these poor guys !! Entrails of animals are hard to come by these days and crystal balls are damn expensive especially if they are from Swarovski !! TVs have gone flat screen and some are even organic !! So much for crystal-gazing !!
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#130 "What Liberal-democracy is, I'm not sure, but "anarchism" and "minimal government" it certainly is not."
Perhaps you could ask Nick Clegg. They used to be known as the "Liberal and Social Democrats" until someone point out that their acronym has a rather unfortunate connotation !!
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#124. JadedJean wrote:
Utter rubbish.
Your whole attitude to discussing economics is that nothing can or should be done and this is WRONG! You will eventually understand this or get very bored reading the same thing over and over again from everyone else!
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This comment was removed because the moderators found it broke the House Rules.
Just out of interest; Does any of this have a use in economics?
http://www.doc.ic.ac.uk/~nd/surprise_96/journal/vol1/sbaa/article1.html
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ishkandar
"some real estate can be divisible"
In a sense yes. A time share is one example. In your case you would own what we in America call a "cooperative" or "co-op" which is popular in some cities like New York City. You don't actually own the real estate directly, you own a share in the cooperative which is a type of corporation and rent your apartment from the cooperative. A condominium is a different legal mechanism. You still can't sell just part of your apartment though. That one big house has effectively been subdivided by this mechanism. In the US, the time required to turn an apartment house or other structure into a cooperative can take many months or years for the legal process. Buying and selling a cooperative apartment can be even more restrictive than other real estate. Often a prospective buyer must be investigated and interviewed by a cooperative board who represents the shareholders and must be found suitable to be a tenant/shareholder. For example, if you have a history of having been a felon or suspected drug dealer, you might be excluded. Co-op boards have to be very careful about running afoul of equal opportunity housing laws or they can be sued and also forced to pay fines. For example they cannot deny someone housing on the basis of race. Normally when an apartment building is converted to a co-op, the tenants may have to be offered the right of first refusal to "buy" their apartment at a discount price to the initial offering on the open market. This contract is referred to strangely as "a red herring." Some tenants who don't want to stay find this an opportunity for a quick windfall profit by selling the red herring back to the co-op and vacating or just buying their apartment at the below market offering price and then putting it up for sale on the open market shortly afterwards.
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Nos35
Mods poem does not refer to Stephanie nor to any specific person.
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Bootlicker, I assume the language you used in posting #137 reflects the kind of talk habitually used in the home you were raised in. It speaks for itself.
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Posh and Easily Offended Marcus
Arguing against dim-witted haters like you marcaxe is as easy as Do-Re-Mi
(For the actual origins of the solfege refer to Solfege)
Do refers to Doe, defined as the female of a deer or related animal, "a deer, a female deer."
Re refers to Ray, defined as a thin line or narrow beam of light or other radiant energy, "a drop of golden sun."
Mi refers to Me, the objective pronoun referring to the speaker, "a name I call myself."
Fa refers to Far, defined as to or at the most distant or remote point, "a long long way to run".
So refers to Sew, to work with a needle and thread or with a sewing machine, "a needle pulling thread."
La refers to Law, the basic rules of a place as outlined by its government, "a note to follow so"
Ti refers to Tea, a popular hot beverage made by steeping tea leaves in boiling water, "a drink with jam and bread."
As the song concludes, "Now you can sing these in any order and once you know the notes you can "sing most any thing""
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Nos 135
Mods I use "her" to refer to Britannia - the Roman term for Great Britain
http://upload.wikimedia.org/wikipedia/commons/d/dd/Britannia-Statue.jpg
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Conventional academic Economics should by now be a busted flush. The fact that different "experts" can draw completely opposite conclusions from the same evidence presented to them puts them in the same playing field as Astrologers, rune stick readers and readers of animal entrails.
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#109
I know of Deming. If I remember rightly his product development techniques were adopted by Agile software developers and later used as justification for the god-awful development practice known as "Scrum". Scrum is basically applied anarcho-syndicalism and only works for a few types of project.
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John_from_Hendon (#134) "Your whole attitude to discussing economics is that nothing can or should be done..."
Whatever you teach, I suggest that you take some time out, and try to recognise that you have a problem discerning the difference between a) what you understand, vs. b) what is written by others.
You have something to learn, and at present, it clearly is not happening, as you keep attributing a view to me which is the very opposite of what I've been asserting. You do not understand the limits of government in our liberal-democracy, which is basically libertarian, aka anarchistic, by design. Learn something about Greenspan's mentor Ayn Rand, The Austrian School and the Chicago School over in 'The Land of The Free'. This is madeover Jewish anarchism.
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#136 Re. Fuzzy logic - It is possible but I doubt it !! Fuzzy logic *IS* a science with repeatable results through many iterations of the same tests. Economics generally come out with different results most times it's tested !!
These days, almost everyone uses fuzzy logic without even realising it !! Almost all, if not all, search engines use in at one stage or another !! Text search programs are the most famous culprits of them all !!
On the other hand, put 3 economists in a room and they will come up with 7 different theories !! You can check the permutations and combinations thereof !! :-)
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Surely the problem for the field of economics is that it suffers the same kind of treatment as psychology. Almost everyone considers themselves to be an amateur psychologist. This is a pattern supported by the growth of "pop-psychology" in our media. There is some truth in this self-perception; after all, each of us, both consciously and subconsiously process a host of signals and stimuli in our daily encounters with other people (other minds). Some are better at it than others. However, our knowledge of the academic field of psychology and its empirical findings is often extremely limited, unless we happen to have studied the subject more formally. As a result, comments made by professional psychologists are often shot down by lay people, who hold to a different belief or set of individual experiences. Often such people are unwilling to accept the fact that their own experiences are not necessarily representative of the norm. In consequence, they often create their own private mythology about certain patterns of behaviour they see in other people; such mythologies are further reinforced if they happen to surround themselves with friends or colleagues who share their belief systems.
In a similar fashion, I should argue that economics is subject to the same problems as psychology. Economics is a pretty vast subject. Anyone studying the field as an undergraduate is faced with a wide array of elective subjects, beyond the compulsory core subjects. As a result, plenty of economists are not always that knowledgeable in all areas of the subject. Rather their learning is patchy, with some core areas well understood and other areas "outside their remit". Therefore, one should not assume that every economist has an interest in or even a deep knowledge about macroeconomic policy, which is the area up for scrutiny in the current crisis.
I believe there are also false expectation of economics as a field of learning. It is often questioned whether economics can be considered a science of any sort. Granted, the subject may not be anywhere near the status of physics as a science. Indeed, I hold that the attempts to ask social sciences such as economics, sociology, political science, etc. to ape the methods and rigour of the natural sciences is a mistake. They are essentially different. Natural sciences deal (much of the time) with items that follow or build upon certain "laws of nature". Newtonian mechanics or the laws of thermodynamics hold under a given set of conditions. Of course, it is fair to say that even in the natural sciences such laws are not "proven beyond all doubt". There always remains the possibility that one day the laws may not hold. But until that day they remain robust. If they do not hold, then the natural scientist will seek to determine: 1) why things did not follow the expected outcome; 2) either explain the answer to the first question by exception, which leaves the law intact, or alternatively, seek to modify the law to take account of this new phenomenon.
In other areas of natural science, things are far less certain. Issues about the creation of life from non-organic materials or the nature of the atom are still "works in progress". In the sub-atomic realm we are faced with a world of "probabilities" more than certainties. Thus depending on which area of a natural science you focus upon, will lead you to different conclusions about the reliability and robustness of the underlying science.
In a similar fashion, I think one has to recognise that there are areas of economics which may be considered comparable to the more solid areas of a natural science. By this I mean that the predictability of the economic models within specified parameters are reasonably robust, albeit it, even here there may be more surprises than one would expect with the majority of scientific laws. However, when one marches into the areas of economic policy, with its inherent dependency upon sociological, political and psychological factors, then it is more like the world of the cosmologist speculating on the nature of "dark matter" or "multiverses". Here the theory or rather theories compete with one another for attention. Certainly, their is some empirical data available to economic theorists (which is more than the physicist has tacking the concept of multiverses). However, such data is limited and constrained by historical and geographical circumstances.
The competing schools of macroeconomic policy thinking are based upon a specific set of assumptions for each school. Alan Greenspan's background and experience reflected somebody who did not believe it possible to predict "asset bubbles". In the case of financial systems, many economists held the belief that the system would be self correcting and that any "mess" created after a bubble would be the target of monetary policy and perhaps, longer term fiscal policy. Other economists clearly did not agree with such views. People such as William White in his role as Chief Economist at the Bank for International Settlements were warning about the risks of naively focusing upon inflation rates and at the same time ignoring the pending problems building upon in an housing asset bubble fueled by cheap credit.
However, White was not the Chairman of the Fed and hence did not have the power to make policy. Hence in fairness, I believe that one needs to be realistic about the fact that macroeconomic policies are a function of the belief system of those in power at the time. For many years, Greenspan enjoyed the status of the grand master. Few would challenge him publicly. The boom times over which he presided were testomony to his excellence. In light of recent events, Greenspan's legacy is somewhat tarnished. Yet it would be disingenous to forget that many of his latter day critics held him in awe during the glory days.
Economic historians will be left to mull over "what went wrong". There are already plenty of publications on the shelf analysing the "mistakes". Undoubtedly, mistakes were made. Indeed, many would argue that mistakes continue to be made. However, I think it would be an even greater mistake to suggest that the subject of economics ". . . is a load of rubbish" in any earnest. Rather, it would seem to me fairer to acknowledge that some areas of economics (particularly macroeconomic monetary policy) are no more robust than the theorising around string theory or multiverses. Meanwhile, other areas of economics have a solid and pretty reliable base.
Our problem as a society lies not so much in the failure of economics, but rather in our failure to recognise that the political processes and institutions fail to provide a sensible structure of checks and balances in managing our economies. Obama was right. It is time for change. However, it remains to be seen whether the direction, amount and quality of changes will come anywhere near to those needed to seriously ensure more prudent management of our economies in the future.
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#138 Re. co-op housing boards - The laws in England being somewhat different from those in America, it is quite easy to buy and sell a leasehold property without all that rigmarole !!
English law on real estate is based on the fact that the Crown owns all land and that other people can have "holdings" of that land. The holdings can be of a clear and simple holding over the whole piece of land (a freehold) or a lease on a share or the whole of that land (a leasehold). One or more leaseholdings *MUST* be based on someone's freeholding !! Each leasehold is a separate legal ownership and does not entail the consent of the other leaseholders on its acquisition or disposal !! On expiration of the lease, ownership reverts back to the freeholder (and/or his heirs) !! That last is important. For example, I own a property, for various reasons, with a leasehold of 999 years. Somehow, I seriously doubt the freeholder will come knocking on my door when the leasehold expires !! :-)
What you have described is a co-operative ownership of a property and the resultant consent(s) it/they require !! Legally, they are quite different creatures altogether !!
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Post 144 - There are no well known product development techniques attributed to his name, though he did create a well known/used 'model' for describing 'production viewed as a system' (P58, "The New Economics"), as well as his '14 points of management' ("Out of the Crisis') and the "System of Profound Knowledge" ("The New Economics") ... he was also responsible for the quality movement and much more besides ...*
I have never heard of "Scrum" (and from what you've said I'm glad I haven't ! ... it sounds like something he would have had something robust to say about if people had said it was too ... if he were still alive that is) and 'agile' is mostly 'marketing spin' rather than something actually 'progressing' his work ... if you read any of his books you'll see why ... personally I would recommend reading his work, rather than relying on any 'spin provided' by software consultants (or any other 'business consultant' for that matter) ...
David Clift, a Future 500 Leader
PS - IMHO there are some brilliant insights in the comments on this blog - let's see if/how Stephanie (and/or the BBC) responds to them ...
* NB In 1960 the Prime Minister of Japan (acting on behalf of Emperor Hirohito) awarded Dr. Deming Japans 'Order of the Sacred Treasure' ... to recognize Dr. W. Edwards Deming's contributions to Japans industrial rebirth and its worldwide success ... which should not be under-estimated given they are a small island, with little/no natural resources, and yet now have massive financial reserves and huge trade surpluses (nb and contrast this with the UK and US's rather desperate positions now) ...
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140. At 3:59pm on 19 Jul 2009, MarcusAureliusII wrote:
"""Bootlicker, I assume the language you used in posting #137 reflects the kind of talk habitually used in the home you were raised in. It speaks for itself."""
+
You can't kill my mummy
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Writing as a non - economist, I found Straightalk's #147 a joy to read, not least because it refrained from both jargon and sniping at other bloggers! It also made an awful lot of sense, but in the process raised one or two worrying points.
If we accept that the assertion that "economics" as a subject encompasses a number of distinct disciplines is correct, and that not all "economists" will be well versed in them all, how do we as a Nation, or as an industry such as banking (obviously this applies to other countries as well) ensure that "economic advisers", wherever they are located, have the right knowledge to give reasonable and balanced advice? It is tempting to say that the answer is at best, with difficulty, and at worst, we can't. It then follows that said advisers, faced with something that is outside their knowledge, have to either admit that they don't know or make something up. Human nature being what it is, the latter is all too likely.
Another point that bothers me (although I recognise that this puts me firmly in Straightalk's "pop - psychology" camp) is the potential for "Groupthink" to set in in closed groups, be they governmental or business. It can be a very powerful limiting force, and bring with it immensely damaging consequences. I recall the HBOS Compliance Manager (if memory serves) basically being shunned because what he was telling others was most definitely NOT what the others wanted to hear, and yet as events appear to have proved, his warnings were all too accurate.
I wonder just how commonplace that sort of scenario might have been. For a very readable book on the subject see "Victims of Groupthink" by I. L. Janis.
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armagediontimes (#129) "Liberal Democracy, Anarchism, and Gangsterism are three seperate and discrete terms. You postulate that western Liberal Democracy in its present incarnation is anarchism since it leads to minimal government. This is evidentially false."
I'm not talking about 'ideas', I'm referring to (describing) actual practice, i.e policies.
"Government and its agencies are at an all time high. Look at the number of people employed by the state, and hence carrying out the demands of the state."
The numbers may be high, but the efficacy is very low. This has been systematically engineered since the early 80s. That's a fact. You just don't know this. Departments have been subject to 'market testing' under various names ove rthe years. They have also been subject to peculiar promotion and retention polcies. The Civil Service, has in brief, been undermined in pursuit of privatisation. You clearly have no experience of government, as this is common knowledge amongst those who have.
"The number of laws, rules and regulations are multiplying at an exponential rate. Something over 3,500 new laws have been enacted since 1997."
It's not what's on the statute books which matters. That just keeps legislators busy. What matters is the means to enforce. Have a look at the police detection and prosecution rate. Look at the efficacy of the NGOs. See FSA, SFO etc.
"Enforcement of infractions is rigidly enforced - think the number of speed cameras and the number of prosecutions for speeding."
You haven't a clue. This is trivial. There are 12m offences a year, there are 80,000 custodial sentences and 120,000 community sentences. About 600,000 cases are heard by the courts. You do not know when to listen do you?
"No sensible person could conclude that the UK lacks sufficient laws or lacks enforcement capability."
Laws are not the issue. Most of the public does not know what goes on in our CJS. Not long ago, the Home Office was split because it was deemed 'unfit for purpose'. You really don't know the half of it....
"The problem, as I have sought to explain, is that a small clique are allowed to operate outside of the law, either by simply ignoring it, or, as in the case of accounting standards, having the law surreptitiously changed in their favour."
No, you basically don't know what has been going on to Balkanize the UK in pursuit of EU statelets (NUTS), with power centralised in Brussels and the Lisbon Treaty. This is what the anarchism has been in aid of, I suggest. Naked capititalism/anarchism beyond member states' control.
I'm telling you something about politics which you do not know.
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#152 Jadedjean. There is much that I do not know, but little of what you have to say appears likely to change that situation.
Let us look at actual practice (policies). It is illegal to smoke in British pubs, and that law is enforced. All kinds of laws and regulations apply to the sorting of domestic waste and these laws are enforced.
It is illegal to make false representations, or to assist others in making false representations, in order to obtain a loan. That law is not enforced. It is illegal to make false or misleading statements in public accounts and that law is not enforced. The consequences of ignoring these laws leads to the breaking of other laws, such as effectively stealing other peoples pensions - but none of these laws are enforced.
These are not ideas, these are actual practices that pertain at the time of writing.
So what if the efficacy of people working for the state is low? That does not mean that they are not working for the state or that they are not carrying out the demands of the state. The state requires that the Police spend the bulk of their time filling out forms and attending to administrative matters - so they do. Clearly they do not spend their time investigating crimes. This is because the state requires that they do not investigate crimes.
Speed traffic offences may be trivial to you - but they, and their ilk, are central to the government. This is because they are easy to detect, provide revenue generation opportunities and do not unduly interfere with the gangster class. In reality the SFO is not going to investigate anything - because it is known that any such serious investigation would be disproportionately disadvantageous to the gangster class.
Political expediency forced the Home Office to declare itself unfit for purpose. They were never ever going to admit the truth, namely; that they could not care less about crime or abuse where both the perpetrators and the victims were poor. The complete contempt in which the poor are held fully explains the difference between numbers of crimes and numbers of prosecutions.
Of course the EU needs to Balkanise its outlying regions. This is fairly well understood, at least instinctively, by many. In order to turn the strong into supplicants it is first necessary to weaken them. Hence the abandonment of the democratic process and the naked threats made to the Irish regarding their upcoming second Lisbon vote.
The state and its structures are rotting from the inside out. The more people that are drawn within its ambit the greater the spread of the necrosis.
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We are allowing the middle classes to be destroyed by sending their jobs overseas.
This can be prevented by implementing LEVELIST policies which neutralize the benefits of being a low wage low ecological standard country through tariffs:
http://corporatestatesmen.com/images/LEVELISM.pdf
http://corporatestatesmen.com/home/policiesandinitiatives.html
It is about time that we implemented policies that support the citizens.
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FrankSz (#144) Deming was recognised in Japan for being responsible for major improvements in products through quality control, the East Asian economies being a Cold War creation of the USA. Look at how the labour force in the USA and UK has changed and continues to deteriorate.
With property prices falling, wages will be falling next?
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#145. JadedJean wrote:
Garbage yet again, and what's more the most dangerous garbage, toxic and corrosive garbage.
"..limits of government in our liberal-democracy.."
Totally and absolutely irrelevant and you could not be more wrong! You are both wrong in what you assert and wrong in even attributing relevance to what you assert and fundamentally wrong in suggesting that it has anything to do with economics, its study and what anybody thinks about what should be done in the present circumstances. Your nihilism and pessimism will never have any influence on the optimists because it is so obviously devoid of content.
I can only conclude that you are deliberately setting out to support the state though denigrating and deriding everyone on the basis that nothing can or should be done, and also by deliberate obfuscation. I could not conceive of of more despicable position than yours.
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154 damask
Levelism - It is protectionism by any other name. It will be fought by almost every multinational corporation, which is most of them, who is interested in getting involved in China. China is where the growth is seen to be, and they wish to chase growth at the expense of their origin or longstanding workforce or customer base. Levelism cannot be enacted, as far as I am aware, within the EU, and there are low wage areas within the EU that cause some of the problems you seek to address. People do not have to buy stuff from low wage areas but they do, thereby initiating the economic consquences. As economic activity drops in this country then wealth will drop the question is will that drive the appetite for cheap imports more or will it increase demand for domestic production. The biggest reaction against cheap imports is probably amongst those with the least money who spend cautiously and consider what they purchase. At the same time the recession has clearly driven many to seek lower cost porducts. It really is all about values. The next few years will point to outcomes, it is too early yet. The banks think they are being very clever rebuilding their profits at everybodies expense but the are just brewing up a storm. Customers will not forget or forgive. Those affected by the great Depression carried it with them for the rest of their life irrespective of whether they made millions later on.
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# 151 Radiowonk
Thanks for your feedback.
I share your concern about the two points you raised.
With regard to the first, my own opinion is that I suspect it is like the proverbial curates egg. Although I have had some limited experience with government departments, most of my work experience has been in the private sector. In meetings attended by corporate economists and strategists, I should have to admit to meeting some very bright and capable people who were clearly in command of the relevant subject matter. On other occasions, I should say that some of those advisors present were clearly winging-it. For me the most interesting observation was that the policy or strategy decision made by the key decision maker(s) was not always in line with the most knowledgeable advisors. Rather it appeared to be more a function of the political clout of the respective advisors, which of itself was a reflection of their particular relationship with the decision makers. I suspect that this is quite common and can clearly result in bad advice being heeded.
Apart from the more obvious issue of who is in favour, I think part of the problem lies in the fact that those decision makers seeking the advice are often themselves lacking the basic knowledge or education to make a distinction between the two or more competing pieces of advice. Clearly, in the case of the banking community, it is now evident that certain senior executives (on both sides of the Atlantic) lacked the facility to understand the nature of the derivatives market and in consequence were hardly in a position to determine a sensible course of action. Naturally, some people would reasonably argue that this ignorance alone should have been a reason to proceed with caution, but it was not to be. This lack of knowledge (aka "competence") I find a particularly perplexing problem. In many respects, these are all simply re-enactments of the behaviour to be found at the royal court in days gone by, when the kings and queens of the realm were often not particularly appropriate to the role and their advisors were seeking their own agendas.
On your second point, I have not read Victims of Groupthink, although I have read a review of the work in the Journal of Politics (1974). Based on the review and your own comments, I should agree with you that some form of groupthink can take place and quite possibly does take place in a lot of governmental and corporate decision making processes. Again, I think this is simply part of human nature and the games people play. In some of the management literature on group behaviour there are suggestions that the healthy relationship between a boss and subordinate should be based upon open, honest and trustful relations. These are worthy aspirations. However, my observations in practice suggest that the behaviour of subordinates (including advisors) is much more a function of how they might please the boss, at the expense of providing an honest opinion which might curtail they career prospects. For example, very few major consulting firms are going to tick off the CEO or other senior executive who has hired them, if they are concerned about sustaining an ongoing relationship. This of course is a matter of integrity.
In summary, I share your concerns. In respect to how decision are made in our society by those in power and positions of influence, I think it is more useful to look at policy making processes through the lens of psychology and politics (in particular the exercise of power, which is central to the subject), rather than simply focusing upon the content of the economic arguments. I hope this makes sense and I must try and hunt out a copy of Victims of Groupthink.
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Straightalk
"Greenspan enjoyed the status of the grand master. Few would challenge him publicly. The boom times over which he presided were testomony to his excellence."
Or just lucky being in the right place at the right time when times were good. He's not the genius people gave him credit for. It was said that the first President Bush lost the re-election to Clinton in 1992 because of the recession which probably would have ended much sooner had Greenspan eased interest rates sooner. Greenspan talked about irrational exuberance of the markets for a time but then reversed himself saying that there was a new paradigm. He was wrong as the stock market slide and economic slowdown proved in 2001 before 9-11 after he said it. He had eased interest rates in 1999 to add liquidity because of fears about Y2K. But then he tightened them again after the calendar spun over to 00 and none of the feared dire consequences occurred. When Obama talks about regulations and checks and balances in the system, it is important to remember that Greenspan was persuaded and persuasive when he said the market would regulate itself. This is exactly laissez-faire capitalism of the 1920s under another name that led to the great depression.
ishkandar;
"English law on real estate is based on the fact that the Crown owns all land and that other people can have "holdings" of that land."
This is very different from the United States. It is typical of what I have said many times on other blog sites. In the US, Americans asserted in the Declaration of Independence that the people are sovereign over the government. Ultimately it is the people, not the government that has the final say. It is clear if what you said is true, the in the UK, the government asserts and the people accept (they don't seem to protest) that the government is ultimately sovereign. This may be true in other nations as well. It was certainly the policy of every Communist government. In the US there are raging issues of "emminent domain" where the government can assert its right to seize private property for the public good such as the construction of a new roadway. That was accepted for a long time but in 2005, in a very contraversial 5-4 Supreme Court decision, the court ruled that the government could seize property for a private good such as construction of privately owned shopping malls. As a consequence, the first act of the town of Weare New Hampshire where Justice Souter who voted with the majority had a home was to start proceedings to sieze his home to make way for a proposed hotel on his property. I'm sure we haven't heard the last of this.
http://cei.org/gencon/003,04630.cfm
http://www.washingtonpost.com/wp-dyn/content/article/2005/06/23/AR2005062300783_pf.html
http://www.freestarmedia.com/hotellostliberty2.html
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Who thinks Kennedy was assasinated because he tried to return the dollar to the gold standard?
Just answer yes or no, quoting this post number.
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#147. Straightalk wrote:
"Our problem as a society lies not so much in the failure of economics, but rather in our failure to recognise that the political processes and institutions fail to provide a sensible structure of checks and balances in managing our economies."
Surely and I apologise in advance for picking over the bones of the above paragraph: I find it concerning that there are individuals who think, like the writer, that we "fail to recognise" the realities of the way the World works. The statement is made that "our failure to recognise" without evidence for the statement. Where is the evidence that this failure exists? And further, does the failure actually have any influence on policy adjustments?
The writer ends with this poorly supported assertion and declares that this is what is wrong and by implication excuses those who we as a society have paid to manage economic matters for us. I do earnestly hope that the writer is not intending to excuse the regulators and bank management (and the politicians) from the economic management responsibilities we have entrusted them with? If the writer is attempting to do so I feel that his/her lengthy contribution is at best misdirected.
In summary: the writer's direction of travel is akin to the driver blaming the manufacturer of the gearbox for the driver choosing reverse rather than forward!
Economics has failed. It failed to provide any preparation for, or understanding of, the lead up to the bubble economy and the subsequent credit crunch. It's models and ideas behind economic management are wrong. It's idea that asset price inflation is good, is wrong. etc. etc. This is not a subtle remoulding of the truth this is absolute error. This is why it should return to basics!
If the writer wants to blame 'our' failure he should consider our gullibility in believing the now proven rubbish of economic management and the expensively educated con men and women who told use these economic untruths. (It is a bit like blaming Madoff's clients for being conned!) But I don't think it is correct to blame us for being conned, by either the vast majority of ignorant fools, or a very few crooks!
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Still fantasising about your declaration of independence, MarcusAurelius? I'll let you in on a big secret. In the USA, just like everywhere else in the world, if the state wants your property, then it will take it. That is the reality which English law recognises. Americans prefer Fantasy Island to any sort of reality-so dream on, and enjoy your American Dream while you can.
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John_from_Hendon (#156) "I can only conclude that you are deliberately setting out to support the state though denigrating and deriding everyone on the basis that nothing can or should be done, and also by deliberate obfuscation. I could not conceive of of more despicable position than yours."
You do not appear to appreciate that you are merely describing your (somewhat impovershed) 'mental states', and not what is true. You won'5t even update what you currently know with new material. That is how the deluded behave.
The UK state has been progressively withered away over the last few decades in favour of the Private Sector, free-market and EU. Who do you think is out there who can, or more importantly, will, do what you imagine should be done?
You don't appear to know what has been going on by design for many years. You have just sen some of the consequences and anarchism. It would take something along the lines of Strasserism to stop this now, and look at how the BNP is treated by the media/main party politicians. That's what the main parties and their backers most fear - a strong regulating state. Look to Iran, N Korea, the PRC, Burma etc for how regulating states are treated by the Liberal-Democracies as this explains what is happening domestically, and what is not done at home.
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#162. haufdeed wrote:
"if the state wants your property, then it will take it" Not from Barbarius Maximus and his two dogs (and NRA membership?)!!!!
You are, of course, right, but any state's power is limited to that less than which so angers the population that they overthrow the state! (See Declaration of Independence etc. etc.) By the way that was a lot about economic mismanagement too.(wasn't it Barbarius, Taxes on Tea!)
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#163. JadedJean wrote: Irrelevant! Start talking about economics!
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161. At 10:38pm on 19 Jul 2009, John_from_Hendon wrote:
"I do earnestly hope that the writer is not intending to excuse the regulators and bank management (and the politicians) from the economic management responsibilities we have entrusted them with?"
No I am not trying to excuse those parties,nor did I state that in my piece. Quite the contrary, I consider some of them should be put on trial for gross negigence of their duties.
Where you state:
"Economics has failed. It failed to provide any preparation for, or understanding of, the lead up to the bubble economy and the subsequent credit crunch. It's models and ideas behind economic management are wrong."
This would only be true if nobody in the economic world recognised the problems. This is simply not true. As Stephanie states, "Nouriel Roubini, Avinash Persaud, and several economists at the Bank of International Settlements" were amongst those sounding warnings well before the bubbule burst. Do you want to throw out their version of economic realities?
I spoke to economists and business people, as well as non-business people during the run up of the housing bubble in the UK and USA. Plenty of them expressed deep concerns about the excess credit being created by the central banks, commercial banks and mortgage companies. I do not believe these people were conned one bit. Rather I think they were only too well aware of the fact that there was serious economic mismanagement taking place at all levels. However, short of starting an armed revolution, most of us are stuck with the governments elected (not always of our personal choice) and have no say in the appointment of various non-elected technocrats holding high office.
If those people mismanage the economy, I do not believe one can conclude that it is proof that economics is at fault. To adopt your car analogy, that is like proposing that if somebody drives a car straight into the brick wall, then the car is at fault. Plenty of people, including some politicians, economists, business people and anyone with an awareness of economic realities, argued against such driving behaviour. However, they were not at the wheel. Nevertheless, in many cases they were using economic theory to state their case - in many instances theories based upon the basics.
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159. At 10:30pm on 19 Jul 2009, MarcusAureliusII wrote:
[re: my comments on Greenspan's grand master status.]
"Or just lucky being in the right place at the right time when times were good. He's not the genius people gave him credit for."
Sorry, I did not make myself clear in my comment: "The boom times over which he presided were testomony to his excellence." This was meant in the context of those who were fans of Greenspan, rather than my own opinion.
In broad terms I agree with your subsequent comments. Also, I think that many prominent individuals enjoy this kind of luck and their sychophants wrongly identify this luck as a sign of their genius. One has only to read some of the revisionists literature on our past political leaders and captains of industry to see that many of them were not particularly extraordinary and in many cases were as flawed as the next person, sometimes more so.
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Nice to see that the BBC, like the Economist only mention Economists who predicted troubled waters ahead who they by and large agree with. I wouldn't want to think that either of them was trying to impartially report events in their reporting rather than push a broad agenda. No mention at all from either of them about the so called "Austrian" school of economic thought, who one can with very little digging can find out did predict "troubles ahead" but more than that pointed at specific sector's like the housing market and the financial sector and call a bubble and say why. No mention at all of people like Marc Faber or the Mises Institute or even the slighest suggestion that central banks and their low interest rate/expansionary monetary policies could even possibly be the chief culprit for causing these bubbles.
Whatever comments "The Economist" or B.B.C. "Economists" make about problems in the Economics profession, I certainly never seen either of them looking in the mirror.
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Straightalk;
Warren Buffet looks like a financial genius...if you discount his last few years. If I had paid closer attention to Marty Zweig's book and taken a hard look at the deflator adjusted Dow since before the depression I would not have put such faith in his buy and hold strategy but instead realized that if you want to make money in the stock market timing is everything. Adjusted for inflation, the market ultimately merely cycles, it never breaks out of its wide but confined range. Individual stocks might though.
I think one thing about the human factor is that economists being human being also, or so I'm told, can convince themselves of anything and find the numbers to prove it. Economists are hired as subject matter experts whether by government or private industry to give adivce. Often it is for some one individual with an agenda who wants a predetermined outcome to justify what he wants to do. The economist will find a way to give it to him. So in the lead up to the crisis, liberal politicians wanted economists to tell them that poor people could buy houses and would somehow find a way to pay for them whether through re-financing schemes or ??? California is the birthplace and world capital of creative financing that built a real estate price pyramid scheme it kept going for decades. 20% equity increase per year, every year....forever. The bigger the bubble, the bigger the popping sound when it bursts. And conservative politicians wanted economists who would tell them it was all right to let the market regulate itself so government should take its hands off the system and stay away. What we got was a unique conspiracy of liberals and conservatives who wanted the same thing for different reasons. This is dangerous because invariably one acts as a brake on the other. What is meant by checks and balances is one telling the other, your idea is no good, we'll try it a little to see just how bad it is instead of jumping into the deep end right away the way you'd like us to. They call that compromise. With the financial contol system gutted until it was badly flawed and the creative throttle of capitalist America pushed to its limit, it just had to explode. And given the size of the bubble and the way it expanded into every nation directly or indirectly and was even copied it was one hell of an explosion. I'll bet there was more than one economist last fall who wondered if we hadn't reached an economic armageddon and it was all over. It came awfully close and we're not out of the woods yet by a long shot.
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#169 MarcusAureliusII,
You raise a very good point regarding the liberal/conservative conspiricy. One that has not been illustrated too clearly in the UK.
"we're not out of the woods yet by a long shot." Here I agree with you again. This whole saga is really only coming to the end of the 1st Act.
Straightalk. Thank you for a well argued balanced consideration of the topic.
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In Post 119 wee-scamp posed a question:
"Somewhere around 60,000 people in the UK now have an MBA. Has anyone ever looked at what impact this has had on the economy in the past 20 years or so?"
IMHO I personally believe history will answer this by simply saying "they were part of the team that got us where we are today" ... GM (and most other US/UK enterprises for that matter) have a lot of them, whilst companies like Toyota are well known for MBA's, but for their lack of them ... I think this, in a small way, partially supports this kind of assertion too (following on from posts 109/149).
David Clift, A Future 500 Leader
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A century and a half ago a certain Karl Marx was attacking the 'vulgar economists', i.e. those who were not scientifically analysing human existence but were (mostly unwittingly) promoters of the dominant ideology (private ownership of capital).
After Smith and Ricardo it was left for the Marxists to continue the scientific analysis of humanity's existence.
Of course, at a moment of crisis when the emperor is exposed the ideology gets questioned, reassessed and then promoted again in new clothes.
But for a growing number of ordinary people they don't need any theory to tell them whats going on - they know they are being exploited.
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We're not out of the woods yet? We're just entering them.
All our indicators are trending downwards, and will continue to do so until the debt bubble is deflated.
Basic economics or not?
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This repoert when taken in context with what caused the credit crunch must raise some serious doubts about the people being employed and the the methods being used at some of the worlds most prestigious institutes of learning (two names spring readily to mind) also how useful (or useless)is a grossly overvalued MBA in the real world of business and finance.
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John_from_Hendon (#165) "Irrelevant! Start talking about economics!"
You din't do that reading on the intensional idioms I advised did you?
Here's what you said in #161, I will add some emphasis to show why you should go back and follow my advice:
"Economics has failed. It failed to provide any preparation for, or understanding of, the lead up to the bubble economy and the subsequent credit crunch. It's models and ideas behind economic management are wrong. It's idea that asset price inflation is good, is wrong. etc. etc. This is not a subtle remoulding of the truth this is absolute error. This is why it should return to basics!
If the writer wants to blame 'our' failure he should consider our gullibility in believing the now proven rubbish of economic management and the expensively educated con men and women who told use these economic untruths. (It is a bit like blaming Madoff's clients for being conned!) But I don't think it is correct to blame us for being conned, by either the vast majority of ignorant fools, or a very few crooks!"
I've given you some helpful links so you can look into what's fundamentally wrong with the intensional idioms of propositional attitude and why the rationality assumption, basic to economics, along with common-sense assumptions about human cognitive ability are critical to understanding this liberal-democratic identity crisis.
You clearly won't be instructed, yet why expect others (e.g. M King and the MPC) to do as you instruct.
Conclusion: you are still raging (see earlier link on this) and you lack self-awareness.
Take on board that raging is part of the normal development process and that it's how one deals with it that matters.
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Post 174 - I couldn't agree more. If only this were not the case ... and they were not still completely blinkered to this too.
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Your comments on the limitations of financial models are pertinent - and is it only me who sees the correlation with the complex models used to make the case for man made global warning? These models are the bedrock of the global crusade (akin to a religious fervour, in that any challenge is seen as heresy) to spend $ Trillions in the next decade and are as misused in my opinion as those that helped created our current financial crisis. My sad conclusion on both fronts is that certain financiers and scientists will manipulate these models to meet their required outcomes. As the costs to us the taxpayers are huge, surely there needs to be an entirely independent body responsible for vetting these models?
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BUSTED FLUSH
addendum (#175) Here are few reminders, read and digest these reviews of rthe 1994 work and keep an open mind given what's be done to advantage of whom, and at the expense of whom.
Anyone who considers any of this irrelevant doesn't see what's going on, and as such is in no position to advise anyone what must be done.
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Post 177 - I don't think so. You may like to look at this recent post too http://poweromics.blogspot.com/2009/07/more-spin-than-science.html
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P177 I think I need to clarify ... post 179 above was actually answering your first question ... as I think the answer to your final question is yes ! ... the point you're raising here also arguably points to the next bubble likely to bust ...
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leanomist (#180) You (and Skeptic56) are referring to part five of the Rolling Stone article, yes?
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#149 leanomist
Perhaps you should have a look at Scrum. In the Agile circles of software dev, they are now sometimes talking about Scrum vs Lean, eg:
http://jeffsutherland.com/scrum/2007/11/is-it-scrum-or-lean.html
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#175. JadedJean wrote:
Not about economics as usual and is a waste of time and space...
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JJ, the fault lines in economics are nothing to do with the nonsense that you write about, but are due to the economics industry being full of individuals that believe that by spouting bullshit that can convince rational, normal people that there is some content in what they are writing and there isn't.
It is all about money, goods and prices. The behavioural nonsense that you write about is used to justify avoiding rational and obvious decision making and to justify the status quo ante. They have conned you to support the state and its institutions.
The banks are full of securities that are over priced. There is a gigantic overhang of these 'assets' and slowly over decades these assets will be marked-to-market and then, and only then, when a majority of these assets are back in circulation at the right lower price can much activity resume. There can be no international mechanisms of market regulation. It is impossible to control multi-national business through national regulation. The market in fundamentally unstable and flawed, but the only mechanism that exists to set prices. This, in summary, is where we are. This is why the bankruptcy mechanism of geeing assets back into the market would be a good thing as it would shorted the many decades of stagnation we are starting on. This is the proper area for economics not some guess of an un-scientific behavioural basis that you write about.
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John_from_Hendon (#184) "the fault lines in economics.."
Do you teach 'Creative Writing'?
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#185
Hey JJ. Could you elaborate on some earlier comments about Logical Positivism and the uncertainty principle. As I understood it you had some problem with the notion of observer effects as used in the above contexts? You didn't like that economics was paralleled with QM, as was suggested because economic observation has effects? At the moment am snowed under with work, so would be grateful for an explanation/explication from yourself.
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As an economics student in the early 1970's my American lecturer gave us sound advice as to what to expect in our exams - " the questions are always the same, its just the answers that change"
This seems to play out in real life as well.
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#154 "
This can be prevented by implementing LEVELIST policies which neutralize the benefits of being a low wage low ecological standard country through tariffs:"
Levelist policies beget levelist policies in retaliation !! Since the average Brit pollutes 3x as much as the average Chinese, for example, all British goods will be tariffed at 200% to "level the playing field" !! I'm sure if all other countries do the same, it will do wonders for British industries !!
Good thinking, Batman !!
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P182 Thanks for the link - had a look now, and as I thought, it's has more marketing spin than substance, and being a great fan of rugby, and a youth coach of rugby, the use of the word 'scrum' for me is unfortunately rather misleading too.
Most people using the word 'agile' like this never understood (or perhaps mistakenly, or deliberately misinterpreted) Deming's work and the fundamental definition / principles of 'lean' ... as 'lean principles / philosophies' just as readily applies to agile (flexible, small, large, manufacturing, services) and highly entrepreneurial companies too (which, partly prompted by the CBI, is what my book readily points out ... as well as including a basic chapter 1 ... 'what is lean' too!)*.
As I mentioned before, Dr. W. Edwards Deming would have rapidly condemned current software development techniques, and current IT projects ... as well as many of the comments on the link provided here (nb if you read about Deming's "System of Profound Knowledge" you'll find out why, and find them very easy to spot).
* NB Unlike consultants, I'm not interested in creating a new form/spin of consultancy, just trying to decode the DNA of Success, as well as the DNA of failure, and sharing it with everyone (hence it's available for anyone to read online via Google Books). To understand it, you don't need to pay expensive consultants, as you can read all about Deming's work (or my book online) for yourself ... or try to apply some good common sense (which lots of bloggers are clearly doing here) ... thanks once again for the posts, comments and link.
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Post 188 - I good point well made - this is one of the ways the West's 'cunning plan' is already starting to fall apart (see Posts 178,179 & 180 earlier).
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#189
Actually...in that case I would be very keen to find out more. Primarily because what you are saying then is kind of revolutionary to the agile evangelists. Let me check once more that it was in fact Deming's ideas that were being used as the justification....I am pretty sure someone was saying that Scrum came from a product development technique that was rejected by GM (or someone) and migrated to Toyota in Japan...and this was supposed to be one of the key selling points behind Scrum, or some of its key principles, (and perhaps other agile principles)
Well anyway it might be an opportunity for you to earn some consultancy bread if you wanted to - it won't be long before the next software development 'fad' comes along, and some fool is willing to pay for the consultancy and training. Probably not in line with your altruistic aims, but at least if the fridge gets bare it's an avenue to go down.
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#159 "In the US there are raging issues of "emminent domain" where the government can assert its right to seize private property for the public good such as the construction of a new roadway."
There always were and still are zillions of arguments for "the seizure of private property for public good" !! However, it is the means of making this a fair process that had perplexed mankind from the year dot !!
What makes it fair for the government/group to seize private property for public good or what makes it fair for an individual to resist seizure of his property for public good ?? It is the checks and balances to these questions that makes life interesting !! And who defines what "public good" really is ??
Historically, the Chinese in general, and the Southern Chinese in particular, have a very thorough knowledge of this subject and have evolved a means of ameliorating its effects !! Historically, the Chinese people have been preyed on by emperors and corrupt officials seizing their wealth "for the public good" (i.e. their own purse) !! In retaliation, the Southern Chinese have dispersed their wealth over the "Four Seas" and their sons with them; hence giving rise to the massive population of Overseas Chinese !!
Globalisation happened 1000 years ago when Arab, Indian and Chinese merchants spread their wealth and means of production throughout each other's countries !! Nothing new here !! They have learnt the lessons of eggs and baskets long before others did through sheer hardship and pain (the best of teachers) !!
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#189
Sorry for the topic digression all, but anyway, yes I was right. The main evangelist, Schwaber, has this kind of thing to say about Scrum, mentioning Deming as key and talking about Lean
http://www.slideshare.net/scrumology/what-is-scrum-1526293
Honestly I cannot possibly imagine what kind of systems control theory is being applied in these 'agile' techniques. As I mentioned it is much the same as anarcho-syndicalism or something of that ilk.
While the principle "Focussing on quality tends to increase quality and decrease costs" makes a lot of sense to me from personal experience, I don't see these methods as coherent with that principle. My experience suggests that in most cases high quality requires good organisational structure, not democratic ground-up decision by committee type approaches.
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P191 - Ok - I'll bear that in mind!
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P193 - You're observations are right ... and one simple question Dr. W. Edwards Deming would have immediately asked would have been 'by what method?" ... and bottom up and top down improvement methods are integrated together in 21st century management practice ...
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FrankSz (#186) "Hey JJ. Could you elaborate on some earlier comments about Logical Positivism and the uncertainty principle."
It was in the link, but basically, 'Two Dogmas of Empiricism' was a radical 'critique from within' of logical positivism. Until Quine's paper there were still some who thought that truths about the world could be cranked out from logic alone (i.e not just empirical science). This was what I was bringing home to LibertarianKurt. Philosophy is like law in that it looks at how we use language/symbols in the management of evidence and behaviour. Psychologists see language as systems of conditiend incentives or discriminatie stimuli for reinforcement. The reason I provided the 'Men of Ideas' link was because this talk gave a pretty good explanation of Quine's extensionalism and how he eroded the traditional distinction between subjects (think about how the extensional develps at the expense of the intensional) whilst explaning why it is that science and knowledge is a healthy 'unended quest'. This specific controversy within Quantum Mechanics was really just about how one should deal with non-commutivity and communtivity of measures over vaiables in a theory/model as I see it. If one variable is a function of another, one can get problems of predictiona and control (over measures of position and momentum), it's basically as simple as that. Too many people don't understand that most of this physics requires one to have a sound working grasp of the maths of N-dimensional vector spaces, i.e Hlbert Spaces, i.e. it's mathematical (matrix algebra) control over variables in our models which permit better prediction/management of our way in parts of the world, not metaphysical statments about the structure of reality which can be lifted out of context and applied elsewhere (e.g. Dr Who and Star Trek etc), which is just 'creative writing' i.e science fiction.
Another, more relevant example to economics is in multivariate statistics, which is also N-dimensional (one dimension for each variable). In Multiple or Logistic Regression Analysis, which is basic to all sorts of techniques like Discriminant Function Analysis (one of Fisher's creations) one has a dependent variable and a set of independent variables (N-dimensions). When fitting the model, one has to be mindful of correlations between input variables (i.e. multicollinearity) as this impacts on how one interprets the sign or b values of weightings of variables. For example, in the government's Contextual Value Added (CVA) model of Key Stage attainment (largely based on prior attainment), there are some very odd signs for values of b values for some ethnic groups which only nake sense when one looks at Free School Meals (a proxy for poverty) and ethnic groupings. I've covered this elsewhere, but it comes down to where one attributes weight statistically and what covaries with what and why... which comes down to important hidden assumptions and politics. Many people erroneously think that low attainment is a function of poverty, but they don't appreciate that the evidence is far more consistent with this functional relation being one of poverty being a consequence of low ability/attainment. That is, the relation between SES and IQ is the reverse of what most people take for granted. This comes as a radical shock to some....
When thinking about models and control, think of commutivity and multicollinearity. Most won't do this of coure as it's beyond their training. They won't even be told....
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hampshiredixon: My short and somewhat arbitrary list of people who warned of the crisis was meant to flag up some of the professional economists who warned, in detail, of the problems brewing in the financial system in the lead-up to the crunch. (Robert Shiller was another I should probably have included).
It didn't occur to me to put Vince Cable on the list, since he is not an academic economist, and his warnings were more general than those of Roubini et al. But I would be happy to include him among the very few politicians or policy makers - here or in America - who warned of the dangers of rising debt levels, long before the crisis occurred. He was far ahead of anyone on the Conservative or Labour front benches on this. But then, I didn't put any of them on the list either.
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#196
Ok thanks, will read your post and respond later. Now I have to deal with some corporate bureaucracy involving production of a document, describing what we are going to do, which in software is impossible as what we are going to do involves continuously working out what we are going to do....
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#197
The list is actually here
http://www.debtdeflation.com/blogs/2009/07/15/no-one-saw-this-coming-balderdash/comment-page-2/#comment-12634
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#197
Well here actually http://www.debtdeflation.com/blogs/2009/07/15/no-one-saw-this-coming-balderdash/
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#171 "GM (and most other US/UK enterprises for that matter) have a lot of them, whilst companies like Toyota are well known for MBA's, but for their lack of them ..."
In my day, there was a line of thinking that "those who can, do; those who can't, teach; those who are absolutely hopeless in either, get an MBA" !! I am not surprised that Toyota, being a pragmatic, bloody minded Oriental company, will have a dearth of MBAs !! What they want are engineers, more engineers and still more engineers !! The Prius didn't come out of any MBA dreams; it came from solid engineering R&D !!
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#182 "Perhaps you should have a look at Scrum. In the Agile circles of software dev, they are now sometimes talking about Scrum vs Lean,"
It doesn't matter which religion you follow. If the program is full of bugs (oops, sorry, I mean undocumented features, in Microsoft-speak), then it is not very good, is it ??
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#202
Ha! Bugs are but 1/10th of the problem....extensibility, performance, security, maintainability, etc....
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#193 "not democratic ground-up decision by committee type approaches."
Committee decisions are truly wonderful !! Did they not produce a camel when they tried to design a better horse ?? :-)
Riding herd on a bunch of analysts and programmers, each with totally different ideas on how a project should proceed, is what got many of us retired early. That and being modestly well paid for it !! :-)
The trick is to threaten them will chocolate-flavoured laxatives in their cappuccinos !!
IMHO, most IT projects have too many damn chiefs and not enough Indians, unless, of course, the projects are Bangalored; in which case, it's all Indians and not a single damn chief in sight !! :-)
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#203 "Ha! Bugs are but 1/10th of the problem....extensibility, performance, security, maintainability, etc...."
I've classified them all under the general heading of "bugs", i.e. not working as they should !! To your list, I would like to add scalability, of which I have several "shining" examples that shall remain nameless to protect the guilty (and my precious posterior, in case they sued me) !! :-)
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StephanieFlanders (#197) "My short and somewhat arbitrary list of people who warned of the crisis was meant to flag up some of the professional economists who warned, in detail, of the problems brewing in the financial system in the lead-up to the crunch."
ETS was hardly short on detail in Feb 2007, and even though they too were late-comers (as they said at the time), they are no back-water agency in the USA.
NY, California, Florida, London - consider the demographics/immigration. Was any of this really just omission brought about by professional 'siloism' (cf. 'joined up government', intensional opacity/transparency, and 'evidence based practice' and other associated buzz-terms since 1997), or was it collusion as a function of benefits?
The scale of this self-deception has been, and continues to be, staggering given the evidence on both sides of the Atlantic, and this is what BBC journalists should be shedding more light upon I suggest. Try interviewing Richard Lynn and Charles Murray.
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On a slightly off-topic note, here's someone who expounded on a "new religion" and died of it -
http://news.bbc.co.uk/1/hi/magazine/8158777.stm
I wonder if any economists "died" of their "religion" ??
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#197. StephanieFlanders wrote:
a short list of academics who worried about the crunch...
But the point is, that just like non-academics nobody listened... And that is the fault of economics. You, the economists, are guilty of constructing a mystique of omniscience combined and a complete disregard of the financial basics. And you are still doing it! Your subject educated the false prophets and trained the economic commentators to denigrate financial common sense. You do not have sophisticated answers, or indeed any answers at all and that is now dawning on you. The dissonance between your education and the impact of the contingent reality must hurt you, if you allow it to seep into you conciousness as a person. Your faith has been proven false! Your god died.
However, you unhappiness does not help the real World of money, goods and prices. Please do not wallow in personal despair. Get back to basics of goods and their exchange at stable prices using money and the use of money as a means to invest in productive capacity. We need money to be valuable so that a stable system of exchange (of goods) can be re-developed and the associated stable system of investment evaluation and that should be your future role. Avoid psychological (and genetic) and all other navel gazing at all costs as it simply wastes time and is not a productive use of time - get back to basics and ensure that the market mechanism is re-established ASAP.
(#207. ishkandar wrote: "I wonder if any economists "died" of their "religion" ??" - Yes the whole lot of 'em who were educated since 1960! They are dead men/women still, unfortunately for us, walking!)
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#205
"not working as they should "
Ha again! There's the rub, who defines the 'should' bit or how it gets defined. Most of the time it doesn't. Odd really because software dev ought to be about getting from behavioural specification A (eg: a requirements doc) to behavioural specification B (eg: a great load of C# or Java). It's the spec A that tends to get overlooked!!!
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FrankSz (#209) "It's the spec A that tends to get overlooked!!!" Which is why, twenty odd years ago, the best programers in HMG were......govt psychologists.
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Leaving aside the interminable John-from-hendon v JadedJean debate there is a lot of high quality posts on this topic.
My take is slightly different. Economics was once described to me as the science of understanding common sense. The argument was that economists clearly had no common sense because if they did they would know what it was. Economics is about understanding what people generally will do in any given situation - eg if more people want to buy your good than you have goods for you increase the price. The problem is that one person's common sense is another person's stupidity.
Neoclassical economics worked on the following basis
1. In a perfect market information is available to all
2. People are rational
The problem is that it has two fundamental errors in these assumptions:
1. Even if information is available to all it does not follow that the information is correct or that people will interpret the information the same way - in complex businesses information is never black/white but capable of a variety of assumptions. Also information at the macro level is never perfect - I think it is called something like the information paradox: at a macro level information can be current but incomplete or complete but out of date but never both complete and current. This lead to people having to make assessments based on imperfect knowledge.
2. People are rational is true but rationality is a broad spectrum as a result people can be entirely rational but come to different conclusions.
The biggest problem comes about because neoclassical economics assumes that there are lots of people making decisions (true we all make decisions about our own personal economics) some of which will be right others wrong but on mass it tends to go the right way (perfectly reasonable and demonstrable conclusion). That assumption fails completely when bubbles develop. Bubbles are not a failure of rationality (buying in a bubble is perfectly rational as long as you sell to someoneelse before it bursts) but result in everyone making the same decision at that point although there remain lots of people making decisions it might as well be one person becuase the decision is always the same - when the decision is wrong and the bubbles bursts we all suffer. Neoclassical economics can not cope with bubbles because of the assumptions they make.
Incidently the bubble problem is also the reason why state run economies fail. If one person makes the decisions he or she will inevitably get it wrong (due to the information paradox) which means the whole country suffers. Because there are so many decisions in an economy, a state run economy will be continually making wrong decisions in some part of the economy.
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#23
So the bell curve works as a predictive tool as long as each instance within the universe is independent. When the herd instinct/greed sets in during the bubble the predictive bit falls apart
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Stephanie,
Can I just remind all of those - including the journalists at The Economist - pontificating about the intellectual viability of economics of a few realities?
First of all this is not the first (and will not be the last) economic episode in which conventional post-classical theory has needed to be reinvented. Remember the dramatic structural reforms needed in many FSU states in the 1990s, many of which reforms owed much to 'thinking outside the box' by skilled economists? Remember the novel 'neo-Keynesianism' of the early 1980s in the UK which effected a successful marriage of labour market microeconomics and aggregate macroeconomic theory? The fact that the discipline of economics accommodated and learned from those episodes is hugely to its credit.
The second point to make is that economics is, in fact, remarkably successful as a predictive discipline. Economic abstractions, when turned into predictive models, do pretty well, given that they themselves become part of the system. Announce to the world that a proven economic forecasting model predicts an economic aggregate at x% and some will see a margin in forcing markets to behave so that y% occurs. Unlike weather forecasting - where to my knowledge clouds don't wait to see what the Met Office predicts and take that into account in an effort to confuse and frustrate mere mortals - macroeconomic forecasting has an impact on that it seeks to forecast.
The third point to make is that economics is a rich discipline, embracing all kinds of traditions and approaches - from 'neoinstitutionalism' to post-Marxian value theories, from theories of conjunctural long waves to the new behavioural economics. Pouring scorn on 'economics' because one tradition or approach failed predictively to forecast macroeconomic failure is like blaming all architects in the history of architecture because the Millenium bridge used to 'wobble'.
The fact is that economics - really good, crafted, hard-slog economics - has never been about parroting doctrines (unless you were a Friedmanite monetarist, a neo-Austrian or a raving supply-sider, in which case neurotic insistence on the 'one true path' went with the territory) but seeking to discover patterns in a confusing, artificial entity called the economy, using every analytical tool at our disposal. It is a job that needs to be done. What's alternative? Guessing? Tossing coins?
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#213
Propagating the idea that economics is somehow distinct from politics or management or control theory or etc is part of the game that is played.
The fact is, economic predictions are as much prediction as prescription - you said it yourself, the predictions of economics have effects on the actors involved ("given that they themselves become part of the system").
It just doesn't do to say that this tool of social control (the banker's world of cheap credit, consumerism and laissez faire greed) is somehow defensible because it can make good predictions. It is directly analogous to saying that malign dictatorships are useful systems because they predict well. In both cases you cannot draw a line between the prediction and the prescription!
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Sorry, FrankSz at #214, but you are confusing economics and economic systems here. You may find the casino capitalism of the risk-loving financial markets unacceptable, but the discipline that analyses the behaviour of our economy can hardly be 'a tool for social control'. That would be meaningless gobbledy-gook.
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tonyparksrun (#212) "#23 So the bell curve works as a predictive tool as long as each instance within the universe is independent. When the herd instinct/greed sets in during the bubble the predictive bit falls apart"
Crowds are groups, and for at least a century or so we've had sciences where groups of people peer review research in an effort to ensure that useful contributions are made to the web of belief which comprises a field of professional work.
Those who base management (of any part of the world) on lay FOCUS groups are either dangerously ignorant, or merely anarchists, spinning. I tend towards thinking it's got to be the latter in the liberal-democracies, don't you?
Crowds indeed...and to cite Galton the father of differential psychology too...... 'sheesshhh, like.. I hate Mises to pieces' as Mr Jinks might have said ;-)
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justin150 (#210) "My take is slightly different. Economics was once described to me as the science of understanding common sense. The argument was that economists clearly had no common sense because if they did they would know what it was. Economics is about understanding what people generally will do in any given situation"
No, that's (behavioural) psychology. The study of 'common-sense' is the study of error, or 'judgement under conditions of uncertainty' i.e. 'folk-psychology' or 'cognitive-psychology' ;-)
One can study, and explain stupidity, but one can't do much about it as it is largely inherited.
(What are people being taught today, and by whom....?)
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#209 "It's the spec A that tends to get overlooked!!!"
Actually, more often than not, they simply don't exist !! Just some vague political statement that such and such will be done; without any real thought or effort made to determine just how thus and the other *can* (ever ??) be done !! The NHS IT project is a good case in point. And let's not dwell on the Child Support Agency fiasco !!
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#215
I don't see how you can separate an 'economic system' from the economic framework or lens that is being used to perceive economic systems.
If the economics of the day suggests that free markets tend to equilibirium and that globalisation benefits the needy (for example), and if people will tend to agree then their very behaviour may tend to justify the prediction....
In short, you don't have an evidence based way of separating the self-fulfilling prophecies from the accurate descriptions that enabled you to predict.
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#213 "Pouring scorn on 'economics' because one tradition or approach failed predictively to forecast macroeconomic failure is like blaming all architects in the history of architecture because the Millenium bridge used to 'wobble'."
Unfortunately "all architects in the history of architecture" did *NOT* design the Millennium Bridge; only Foster did !! Whereas, most economists backed the credit bubble until it burst and some are still preaching the re-inflation of that bubble !!
"Announce to the world that a proven economic forecasting model predicts an economic aggregate at x% and some will see a margin in forcing markets to behave so that y% occurs."
Self-fulfilling prophecies have been around since the first caveman conned the second one out of his share of meat !!
"Remember the dramatic structural reforms needed in many FSU states in the 1990s, many of which reforms owed much to 'thinking outside the box' by skilled economists?"
And many of those "reforms" are now under the gimlet eye of the IMF. They are also the "reforms" that gave rise to the Russian oligarchs and now Prince Vlad and his cohorts are trying to re-reform (or should that be un-reform) !!
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ishkandar (#220) If one looks closely at the tendacity with which most people will hold on to their core constructs/assumptions rtaher than take on something novel, even when their assumptions are highlighted to be empircally flawed, one can get some idea of how hard it is going to be to get those who currently make a very nice living out of the status quo, to give it up...
Note to justin150 @211 - This is why, perhaps, you should look much more closely at what's really going on in the 'interminable John-from-hendon v JadedJean debate", unless, of course, you're just here for entertainment.
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One problem facing economists is the tendency to look at short term events and try to extrapolate long term trends from them. I pointed that out about China's unsustainable 8-11% growth over the last few decades but the blow by blow reporting of our media makes every news item a circus. The latest is China's 8% growth. Another is predictions of recovery especially in the US later this year. But even the most cursory look at the Dow graph of the depression shows that the markets did not go straight down, nor was recovery straight up. There are countertrends and small fits and starts that temporarily reverse the overall trends. Recovery of the stock market to pre depression levels unadjusted didn't happen until the 1950s and adjusted for inflation until the 1960s. The telling factors are the fundimentals. How have they changed by stimulus packages and bailouts? The immediate risk of global financial freezup may have subsided (it may still be lurking) but the shift from liquid assets that were reasonably valued by historic measures to illiquid assets that were overvalued and the debts incurred to buy those assets as well as government debt has not gone away. Neither have all those complex contracts called derivitives that created those liabilities in the first place. They have not been written off because the money to pay for them has not been minted and put into circulation. Until that happens, the system remains in grave jeopardy IMO. The day of reckoning has merely been postponed. The stark choice remains clear, monetize the debt by printing vast amounts of money to write down debt to a manageable level depreciating the value of that debt or ultimately depression that doesn't end. Those holding the debt may not like it but their choice is also clear, be paid back with cheap currency worth a lot less than you loaned or maybe not be paid back at all because of default.
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Economics will no doubt bury it's undertakers.
Do we carry on the interminable quest to find the meaning of money ?
or perhaps define a meaning of money and conduct trade to fit the definition ?
The latter is only possible intersubjectively within communities, the former best left to academics, and lunatics.
At least the lunatics are entertaining !
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#211. Justin150 wrote:
"Leaving aside the interminable John-from-hendon v JadedJean debate"
Quite right too..., But the core of the debate for me is that economics is (or should be) about the relationship between the possible manipulations of the economic aggregates that are possible and under the control of anyone (such as interest rates etc.) and the outcome in terms of economic aggregates, such as GDP, unemployment etc.
I do not think that in economics it is appropriate to examine, or even valuable, and even possibly dangerously diversionary to examine aggregates based on unfounded suppositions about group psychology and genetics (that JJ always gets back to!) This is why I find much that JJ writes 'WRONG'.
But I can see that you might find the debate interminable. In short JJ appears to me to support the status quo as he/she often moves towards saying there is nothing that can be done and is fatalistic and pessimistic.
I on the other hand am an optimist and I believe that we should always strive to improve things and there is always something that can be done under all circumstances. Or where there is life there is hope as against where there is doubt sit on your hands! I believe that the slump will end and that to end it you need to adopt policies that indicate that the slump has ended and thus it will end. I see JJ as intent of examining the corpse without any prospect of things improving. I want to reanimate the corpse by the means at our disposal.
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#122
Here here!!
#112 and #113
I had of course mis spelt it in my usual way (curse that low IQ of mine)I should have said Casimir effect.
JJ will be up all night researching it now.
It is relevent in a black swan / limits of analytical mathematics type way i.e. ground which JJ (among many others in the ranks of the manipulated whom believe they are the manipulators)fear to tread even in the face of recorded fact.
Jericoa
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#166. Straightalk wrote:
"Economics has failed. ..only be true if nobody in the economic world recognised the problems. This is simply not true"
Economics is the aggregate of economists - there are always a few mavericks (like those mentioned and individuals who warned of the problems - I did myself privately to both Eddie George and Mervyn King and the Treasury etc.) However the body of economists and their teaching did not recognise the problem.(and that is the kindest interpretation I can put upon their actions.) It would be unfair to slate economics as a whole if the majority had warned of the problem, but the situation was the reverse. So I stick to my assertion that "Economics has failed".
"..they were using economic theory to state their case.."
Politicians will use anything to support their case the fact that they used economics to support their actions is not particularly relevant to the value of economics as a subject in its present form!
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superiorsnapshot (#223) "At least the lunatics are entertaining !"
Some less so than others it would seem. Are you not the least bit curious about how these fragments all come togther with so many having such obvious blind-spots? These individuals are great thespians and crave attention, see Axis II, Cluster B disorders (HPD, APD, NPD, BPD) - where reality is largely their reality, uncluttered by the existence of others and their views/needs. They aren't mad, just extremely self-centred where others are ussful objects, to be used.
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#213 W0oundedpride. So what "outside the box thinking" occurred in the FSU? That was just the economics of gangsterism (its been around for a long time), and is the same thing that is happening in the UK/US today. The only outside the box thinking I can see is the attempts to delude the population as to what is going on.
#222 MarcusAurelius11 Yep, pretty much on the money. One way of looking at recessions is that are a kind of cleansing process, where the economy rids itself of inefficiencies. A bit like the human process of vomiting in response to some form of poisoning. The problem is the the patient has not been allowed to vomit and all the toxins remain in the body. Expect a continued build up of toxins and ultimately a truly huge vomiting process.
#224 John_from_Hendon. is it not the case that reanimated corpses are better known as Zombies?
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So many wrong headed comments I scarcely know where to start!
#219: no economist has ever said that any macroeconomic system has ever 'tended to equilibrium'! Equilibrium is an heuristic, nothing more.
#219 also: "I don't see how you can separate an 'economic system' from the economic framework or lens that is being used to perceive economic systems" - just in the same way that you can separate getting malaria from the study of parasitology...
#223: what do you mean? As in, 'I can't wring an ounce of meaning from any of those sentences'...
Finally, #220: "most economists backed the credit bubble until it burst...". You carried out the definitive survey? Great, let's see the results. How many is 'most economists'? Did you survey a sample of professional economists in the UK or worldwide? No wait, this is just rhetoric isn't it?
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John_from_Hendon (#224) "I do not think that in economics it is appropriate to examine, or even valuable, and even possibly dangerously diversionary to examine aggregates based on unfounded suppositions about group psychology and genetics (that JJ always gets back to!) This is why I find much that JJ writes 'WRONG'."
Group behaviour (populations) and genetics. What if your dismissal is the inevitable, self-fulfilling prophecy, of your ignoring what you don't already know/understand/believe, i.e your dogmatically declaring anything that you don't subscribe to as 'wrong'? In fact, have you ever self-critically formally examined what your decision-rule is for discerning right from wrong? Without a model which works (and is testable on new validation samples), how can you possible do what you do without being an a priori dogmaticist like LibertarianKurt of the Austrian/Chicago School ilk? What you have, it appears to me, is a sure-fire way of never finding yourself to be wrong, as you just abuse those who try to make you think or give a formal account of your reasoning.
"In short JJ appears to me to support the status quo as he/she often moves towards saying there is nothing that can be done and is fatalistic and pessimistic."
You'e demonstrably back to fabricating (i.e. describing your erroneous mental states rather than reality) onc again, which as I've pointed out before, is hardly healthy. It's how the deluded behave.
You should read some Keynes, as he was a Malthusian, as well as a eugenicist.
Can you work out why the monetarists have been such active anti-eugenicists? You'll have to give that some thought. You have to think along lines of group competition and demographic warfare supported by lots of post-war propaganda about the road to serfdom which foreign evil dooers love to tread.
Why is population growth (especially dysgenic population growth) so bad for unemployment?
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I guess anything is hard to predict/understand anything when you are fully devoted to ignoring, or denying the existence of, relevant facts.
So far this century the net wealth of the wealthiest 400 individuals in the US has increased by something in excess of $650 billion. There are masses of other statistics that support an increasing aggregation of wealth by a tiny minority. This is not news, this is not information. This is ignored.
Unemployment and inflation statistics are materially understated. GDP statistics are materially overstated. Ample evidence exists to demonstrate that this is the case. This is not news. This is ignored.
Only today in the US CIT has been "rescued" This is news, this is good, this supports recovery theories, obviously someone has $3 billion of confidence in CIT.
How did they get the $3 billion? Why it is secured against the best $10 billion of CIT assets, and the interest rate on the $3 billion? Why a mere 10 percentage points over LIBOR. When CIT fails (which it will - because it is now designed to fail) where does that leave shareholders and other creditors now denuded of recourse to the best CIT assets? This is not news. This is ignored.
How did Goldman make all their money? Don´t know and don´t care.
Can you make money by changing accounting rules? Don´t know and don´t care.
Can you solve a debt problem by creating more debt? Don´t know and don´t care.
Are the Chinese interminably stupid? Well that is the bet. What happens if you lose the bet...?
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#228: "...what "outside the box thinking" occurred in the FSU?". Where would you like to start? Creative approaches to pensions reform would be one example, where economists used novel incentive mechanisms to craft a package of stimulus measures in order to raise the level of saving so as to reduce state pension dependency - thus saving many a former communist planned economy from effective bankruptcy. Equally innovative approaches to labour market reform, exchange rate management, monetary base control and much else came from insightful economists thinking beyond the received post-classical models of micro- and macroeconomics.
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#213 Woundedpride,
'Can I just remind all of those - including the journalists at The Economist - pontificating about the intellectual viability of economics* of a few realities? '
* A 'strawman' perhaps ?
The viability of Economics as a discipline is not the main issue.
The main issue is the performance of the Economists who it might be said appear to have adopted a herd mentality in sacrificing the discipline of sound analysis in seeking safety in conformity.
Apart from a few as indicated by Steph.
If you re-read Steph's article and ignore the headline - which Steph qualifies - the question raises concerns about the profession, the practioners, and their analyses based on assertions of certainty which go unchallenged.
The individuals are the weak links rather than discipline itself.
The ouputs from current 'Economic Experts' smacks of quick answers in support of policies, rather than detailed objective analysis of positive and negative outcomes.
This decision process in Economic Policies, as promoted by Economists, appears little better than that of a soundbite Politician.
i.e If asked for an objective analysis ....just Wing It.
So I'll leave you with an economics question
'what is the likely inflationary effect arising from current QE policy, over the next 5 years ?'
(no winging it please)
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#228 "is it not the case that reanimated corpses are better known as Zombies? "
Only if they are the "normal" dead !! The cursed or hexed dead are reanimated as revenants !! It's all there in the Great Rule Book of Advanced Dungeon and Dragons V4.0 !! :-)
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#233: But the viability of economics as a discipline is precisely at the heart of Steph's piece. 'Economics' (like 'Sociology' or 'Physics') isn't a fixed and codified body of 'natural knowledge', the result of pristine inductive calculation agreed by all. The body of knowledge we call 'economics' is (a) much broader than Steph lets on and an awful lot of it is quiet successful at explaining economic behaviour (no element of the economic theory of collective behaviour, for example, has been 'disproved' by recent economic events) and (b) evolving as we find out more about how the economic system behaves. The fact is that the technocratic view of what economics can do for societies (planning and forecasting output and prices to the n'th degree) remains in the popular consciousness even though economists have abandoned it (if ever they believed in it) years ago.
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By the way, #207, "I wonder if any economists "died" of their "religion" ??" - not many, but some have been executed for the 'inconvenience' of their conclusions. Nikolai Kondtratiev - who, incidentally, would not have predicted the credit crunch - was, for example, a victim of Stalin. Economists these days tend to be laughed at rather than shot, fortunately.
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#230. JadedJean wrote:
Still noting remotely like a coherent argument...
Your arguments do not lead anywhere. There is no policy developmental, just arcane description that leads only to the rejection of all possible policy options.
I despise genetic and population arguments when they are used to support economic debate. You reject immigration, for example - on no logical ground just innate prejudice and I despise racial and national prejudice, particularly when it is used to support specious economic arguments. You should live in the World that everyone else lives in! The art of the possible is all that we have in economics as in politics, and unless we campaign for change change will not happen - I have yet to detect any campaign for change in anything that you have written (except to reject all possible change.)
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#230. JadedJean wrote:
"why the monetarists have been such active anti-eugenicists"
Do you know I don't care, and what is more I do not see that such considerations have any place in economic debate at all! And not only do I not see what they have to do with economics I consider such debate on such subjects as diversionary and fundamentally wrong in the present conditions. Haven't you noticed that the economy is broken!
You prove my point almost every time you write. You rush off down sidetracks and hurtle into dead-ends - such a waste.
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Post 197 Stephanie Flanders
Well done for starting this post and for taking the time to read the comments. There is a lot of invaluable insight available in this post ... and having started this off, there is arguably a responsibility for yourself (and the BBC) to follow-up on it - so can you tell us what you plan to do now please?
I have pulled one quick thread together for you (focused on 'changing the course of history' ... see the link provided below) ... and there are clearly more threads too ... I look forward to your response and to watching progress made with interest ...
http://poweromics.blogspot.com/2009/07/history-tells-story-and-it-will.html
This a journey of a lifetime - and one our nation cannot afford you (and the BBC) not to take - please don't disappoint us (it's arguably become a civic responsibility now). You have quite rightly opened the door and now is the time to step in ... good luck ... we're supporting you (so long as you go through the door now, and don't allow all the 'traditional establishments' to immediately deflect/dismiss everything and/or to quickly close ranks).
David Clift, A Future 500 Leader
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armaged #228
I prefer to think of recession as a winter where the weak die off and the strong survive for the spring of recovery.
A depression is like an ice age where nearly everything dies off and it lasts far longer. That's what the world is in now.
Had economists been as worried about economic climate change as ecologists were about atmospheric climate change, they might have headed this off.
They say hindsight is 20-20 but it appears that its distance in time is limited because they recreated nearly the identical conditions in recent decades that were present in the 1920s, easy credit to buy an asset class that was used as collateral for the debt which spurred a bubble market for that asset. When the bubble burst, the assets were worth far less than the unpaid debt. The good news is that unlike the 20s, much of the basic underlying assets are in real property, houses that will one day be useful and still worth money unlike those worthless stock certificates of bankrupt companies in the 30s. The bad news is that the financial industry invented a system of massive leveraging that multiplied the consequences of those unpaid debts many times. It was sheer folly to not carefully investigate whether or not the underlying ability to pay those debts off was as sound as the indifferent rating agencies said they were before investors bought them. Had they discovered they weren't, the whole scam might have died early on. It was the human condition of laziness that made the continued expansion of this process possible. So with banks in the US leveraged 10 to 1 and banks in Europe leveraged 20 to one, even 30 or 40 to one, the magnitude of the risk and ultimate liability is staggering, more than the annual GDP of the entire world. This cannot be paid off by growing economies out of debt the way supply side theory proposes, it can only be paid off by printing money to devalue the debt reducing its relative size to the total money in circulation or it will never be paid back and except for a few warm or temporary islands, the ice age won't end.
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#236
Are you sure that Kondratieff would not have predicted the credit crunch? The chart in the 5th link down was created in 2002:
http://en.wikipedia.org/wiki/Kondratieff_wave#External_links
(Sorry but mods don't like pdf links)
And if anyone is in the mood for some REAL economic discussions, this piece from 1998 that nicely weaves Marx, Smith and Kondratief is well worth 30 minutes out of anyone's day:
http://www.southerndomains.com/SouthernBanks/p2.htm
Perhaps the most worrying statement is from section 11:
"The collective federal debts from the 1940s until now have left the American economy water-logged and probably unable to run a third debt surge.......There is no new labor-intensive innovation on the horizon, capable of putting large numbers of unemployed back to work when the next crisis hits."
Globalisation is not innovation. What most economists fail to see is that the real Capitalism of the last 250 years was not Man or Money but the abundant energy resources of decayed organic matter (coal, gas and oil). The entrepreneur or the investment of capital may well be the "trigger-action" of efficient production, but the real "prime mover" is the low entropy energy source.
Regrettably, economists are completely ignorant of physics, chemistry and biology. What if they had actually listened to a REAL nobel prize winner more than 80 years ago:
http://www.eoearth.org/article/Soddy%2C_Frederick
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"'economics' is (a) quiet successful at explaining economic behaviour (no element of the economic theory of collective behaviour, for example, has been 'disproved' by recent economic events) and (b) evolving as we find out more about how the economic system behaves................
LOL !
notwithstanding the recent economic pantomime , economics is either successful or it isn't, whats more if you keep making ad hoc amendments it never could be 'disproved' could it ?
I'll put you down for the chorus line !
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WoundedPride
I suppose I would concede that the OP title should read "Is neo-classical economics a busted flush".
In the same way, Einstein's thoughts might have led someone to write "Is physics a busted flush", perhaps, but only in retrospect could they write "Newtonian physics is a busted flush."
On the other hand, whatever level or state economics is at or has been at, we have always had the problem of the description being inseparable from the prescription. This is entirely independent of whether one's economic philosophy is based on a labour theory of value or an energy theory value or something else.
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John_from_Hendon (#237) "Your arguments do not lead anywhere. There is no policy developmental, just arcane description that leads only to the rejection of all possible policy options."
You don't have any training in science do you? The sciences do not proceed by argument/debate, tey proceed by experiment and evidence/data. You don't know how to express yourself in science, nor do you know how to read the language of science. This is why you are not grasping what I have been posting. If this is the way that the people allegedly managing the banks etc behave, heaven help us all.
"I despise genetic and population arguments when they are used to support economic debate."
Tough. what you despise or like is irrelevant as governments have to deal with these matters if they are to manage populations.
"You reject immigration, for example - on no logical ground just innate prejudice and I despise racial and national prejudice particularly when it is used to support specious economic arguments."
No, on empirical grounds. Most advanced liberal-democracies have long limited immigration because low skills/IQ end up being a drain on others. The UK has not been doing this until the very recent implementation of The Points System, which is a bit late given the projected population growth to 70m and differences in birth rates.
"You should live in the World that everyone else lives in!"
Do you live in the UK? You don't appear to be aware of government policy or what is going on in this country.
"The art of the possible is all that we have in economics as in politics, and unless we campaign for change change will not happen - I have yet to detect any campaign for change in anything that you have written (except to reject all possible change.)"
This, I suggest, is just a function of your limited grasp of what has been written and your inability to take instruction when I have trie dto address that limited grasp.
John_from_Hendon (#238)
JadedJean: "why the monetarists have been such active anti-eugenicists"
"Do you know I don't care, and what is more I do not see that such considerations have any place in economic debate at all!"
As I've said before, look up the PRC's 1995 eugenics legislation and what Steve Jones wrote about Article II of the Lisbon Treaty's FCHR. Then perhaps you will see. Please stop telling us what you don't see when you clearly are not looking.
"And not only do I not see what they have to do with economics"
Largely because you don't do as instructed I suggest. See the ETS report (feb 2007), and see Leitch's HM Treasury report (2006). Links have been provided repeatedly.
"I consider such debate on such subjects as diversionary and fundamentally wrong in the present conditions."
Of course you do, but that's just another way of your saying that you don't listen to others or do as they instruct.
"Haven't you noticed that the economy is broken!"
Did you follow up the ETS link?
"You prove my point almost every time you write. You rush off down sidetracks and hurtle into dead-ends - such a waste."
Others who have followed the links that have been provided, and who do now understand what is being said, may wryly smile at that remark.
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#244 and beyond......
You are going to love this one JJ.
Follow the link below, its a paper arguing that modern economics is in fact the manifestation of that seemingly eternal quest of the ancients...alchemy.
Before you poo poo the idea as being outside rationality, when you think of it when central banks print money they are literally turning base materials into gold, or it could be manifested that way if they so chose.
I also suggest you research Hardy's paradox, which was recently proven by scientific method by seperate teams and published. The scientists themselves described their own results as 'proposterous'. In other words they proved that hardy's paradox is actually manifested in reality.
[Unsuitable/Broken URL removed by Moderator]
There is more to this world than is dreamed of in your philosophy JJ.
Have fun with it.
That is kind of the point of it actually which you often seem to miss.
Jericoa
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#232 Woundedpride. Surely you are having a laugh. Have you taken a look at the economies of FSU recently. There is a big difference in preventing bankruptcy and in delaying bankruptcy.
But it goes way beyond any definition of economics. Sure Turkmenistan and Uzbekistan developed a new earner from the CIA, but that is not a textbook recommended way to economic growth. Maybe thinking outside the box, just a shame about all the people inside the boxes.
Georgia - another raging success story, right up until the Georgians actually took the West at its word. What about Latvia, don´t you know there are riots in the streets.
Whehn you reference pensions you have surely decided to expand your laughing materially westward. You seriously expect anyone to believe that Russian and FSU pensions are oh so fine whilst everyone in the West is watching their pensions go up in smoke.
Massive outside the box thinking to get western multinationals to assume ownership of Russian resources - brilliant idea right up until the time the Russians said nyet.
Let me think, is it not the Ukranians who are watching their economy shrink by some 25%. So much for USAID and its interference in sovereign elections - another great success. Did you know that opinion polls in the Ukraine show a majority in favour of reunification with Russia.
But still no worries because they are all living in a pensioners paradise, because of their enormously high savings. I guess the Russians are just so brutalised by the communist experience that they don´t realise how well off they are, and that is why they are rioting also. Presumably the repeated currency devaluations, and the near exhaustion of foreign currency reserves never happened in paradise.
What about all the Russian oligarchs - some in prison in Russia, some living it up in the West. How did they manage to get so rich, or is everyone in Russia that wealthy?
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#240 MarcusAurelius11 The problem is that the weak are specifically not being allowed to die off.
I would not take too much comfort from the linkage to real estate. You think places like Flint and Detroit are going to bounce back any time soon? I hear that they have actually started demolishing swathes of real estate in parts of the US.
Americans are very adaptable, and they will find that like so much of the rest of the worlds population, they can adapt to living with their parents and/grandparents. Some may even find they can adapt to living in tents or in shipping containers.
So much US real estate is completely valueless absent unbridled access to the motor car. Is the age of cheap motoring over? Don´t know but it could be.
Maybe it will work out - but I guess the jury is still out. It will certainly not be helped by diverting the wealth of the American people to shore up a bunch of gangsters on Wall Street.
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FS
"In the same way, Einstein's thoughts might have led someone to write "Is physics a busted flush", perhaps, but only in retrospect could they write "Newtonian physics is a busted flush.""
The difference is that in Einstein's case there was an existing theory with some unexplainable inconsistencies and an entirely new theory that could explain it came along that needed an event to prove it valid. In this instance, events proved the existing theories invalid with no substitute to fall back on. The economists' worst nightmare is that the previous theories about the necessity for strict regulations of the markets and further extending regulations to prevent an end run around them with new investment instruments, the theories they dismissed and whose resulting laws and codes they persuaded legislators to remove were correct all along and had they remained in place, the entire crisis wouldn't have happened.
This would prove that the current crop of economists were not only incompetent but stupid because a clear example in the past had been available for them to study but they refused to learn from it. Their hubris in dismissing it and asserting their own ideas which had been tried and failed when it was called laissez-faire capitalism should disqualify them from any further credibility. It will take a new untainted generation of economists before anyone can take the "profession" seriously again. The recent lesson should be fresh in their minds.
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SAVE OUR STEEL
Panorama tonight painted a bleak but accurate picture as it made it quite clear that those looking for government help still thought that we have a government which has some say in the Means of Production etc, where in fact, as most of here know, it's now merely the handmaidens/spokespersons for 'market forces' which move production to where demand is highest and labour/transportation costs lowest. This is the 'economics' which most people have been systematically indoctrinated to accept as freedom for thirty years whilst the alternative has been depicted as the practices of an 'Axis of Evil'. It's just a way of life which has been well marketed (see the PRC and other socialist nations for the alternative model).
To see 'citizen journalists' effectively go begging to India for their jobs in Wales was truly depressing, as they clearly don't understand how things have truly changed.
Everyone here does know this...don't they?
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Stephanie
I note that Gordon Brown and Mandelson are at last competing for new industry with the announcements today about Nissans proposals for a car battery production facility in the North East.
I don't suppose that Gordon Brown and Mandelson will care to recall their statements regarding the Lyndsey oil refinery about 'avoiding protectionism' since they are now proposing protectectionist investment and financing of the Nissan proposal using UK taxpayers money.
I, of course, personally support their 'protectionism' and I despise their falseness and back stabbing of British workers generally but... more to the point - your earlier analyses this year (January 09) on 'protectionism' have I think also now been proven to be succint.
(26) 'Aggressive innovation and protectionism' - we need more of it but 350 jobs over several years is 'a drop in the ocean' with Nissan.
After Gordon Brown lectured the world at the G20 summit on avoiding protectionism is he now going to eat his own words and plenty of humble pie and apply aggressive protectionism - to lift us out of recession?
It's easy Gordon, even you can do it - Think 'Britain' and not 'global'!
Some of the comments on this blog are unbelievably optimistic - Does anyone really think things are much better now than e.g. December 2008? Show us the 'green shoots' and the improvement/recovery?
Is it a good time to re-vist 'protectionism' - an economic concept that is still, it seems, very much misunderstood (particularly in No 10 Downing Street)?
The British workers who went on strike at Lyndsey Oil Refineries to defend your jobs - You're all heroes every last one of you - Real British heroes - You showed Total that what they do not dare do in France - Do not do it in the UK because you (Total) think that British workers are now a 'total' soft touch!
Understanding 'protectionism' is real economics!
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#248 MA2
Well put and fully agreed.
JJ
Sorry didn't respond as promised. Snowed under - I want to dig into that more, will require time.
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JJ
Actually, I will say one thing
"
When thinking about models and control, think of commutivity and multicollinearity. Most won't do this of coure as it's beyond their training. They won't even be told...."
PLEASE go to the DebtDeflation site, read his research papers, and make some comments there on the blogs. They guys are into dynamic systems, control theory, and in general, models.
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FrankSz (#252) Take on board that the CVA model is used in all the Maintained Secondary schools in England. Research papers get limited circulation....
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Geologists may not be able to accurately predict an earthquake, but that doesn't make their science invalid. The same is true for economists: the financial crisis does not invalidate their theories. In fact we can see many of the basic economic theories at work right now, not least of all the theory of economic cycles.
But any science has its practical applications, and economics appears to be a very applicable discipline. Whilst earthquakes are pretty much outside of human control, the economy is almost 100% influenced by our behaviour. If we change our behaviour on a big enough scale we can (and do) turn the economy around, although not always in the right direction. Economists are hired continuously to advise us on how to control the economy or the part of it closest to our hearts. Investors ask them what stocks to buy and sell, governments ask them for help to make budget proposals and tax policies, and companies base their strategies on economic advice. And economists are happy to oblige. After all it is their job.
So economists, rather than independent observers, have a huge influence on the events they describe and analyse. This does not make their 'science' invalid, but it does make them partially responsible for these events.
But they are not alone. All of us change the economy all the time, and in doing so we are often driven by excessive greed. That is not the economist's fault. It is ours.
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#254
Sciences aim to predict. Why did they fail to predict?
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FrankSz (#255) "Sciences aim to predict. Why did they fail to predict?"
The sad thing is that science did predict this. Economics is a pseudo-science because it has false assumptions as pointed out here. Some people can not be told anything alas. They persist in describing their ignorant mental states rather than grappling with the evidence. That's what happens when you ask people to opine. They confuse their ignorance with valid knowledge. They say 'I believe x' when they should add 'is that correct?'
As I keep pointing out, ETS the largest educatinal testing organziztion in the world, along with the OECD and our own Treasury, picked up on these trends and ETS published in February 2007 after others had been discussing it with great concern based on clear data trends and relations. It's just the popular, celebrity obsessed, media which didn't predict it and report what experts were concerned about. Look at what happens even now, here - still no discussion, the opposite in fact. Most people have been conditioned to expect information served up with razmataz and quick solutions or they don't listen. Researchers don't do razmatz.
This is the bizarre world which we now live in. It's a world where the likes of Michael Jackson and Polly Toynbee etc get coverage because that's what most people want to know about, easily digested, vapid nonsense which sounds good. The problems is that most people (84% of the population) are of average cognitive ability or below, and for years we've had Canutists government irresponsibly marketing 'lack of deference', 'anti-elitism', and social-mobility etc in pursuit of nothing more than popularity....
There is not more social mobility because intelligence is largely hereditary. Watching the news one might be forgiven for believing this has not sunk in as reports complain that too many are becoming doctors and lawyers from wealthy backgrounds, but if people are wealthy largely because they are intelligent, how could it be otherwise?
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#256
It's nice to hear. For years I've been railing against Political Correctness because of its hypocrisy and ineffectiveness as a paradigm.
(By the way, someone told me PC was dreamt up by US academics. Is this correct?)
I still haven't got into your earlier references that suggest that the correlations indicate that wealth is a function of IQ more than the other way round. Until I do, I'll have to take the "...if people are wealthy largely because they are intelligent.." part as an assertion for now.
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FrankSz (#257) It's essentially Trotskyism/anarchism. Look into The Frankfurt School (similar in some ways to Austrian/Chicago schools in modus oprandi and origin, see kevin MacDonald's Culture of Critique) and this. Do not confuse Trotskyism with Stalinism (the latter is just Old Labour in reality, see the Fabians/Webbs). In my view PC actually serves the interests of Libertarianism, which is of course free-market anarchism. That is not left wing socialism. Communism (left wing national socialism) changed dramatically in the 1920/30s when the original anarchists sent into Russia by the Germans in 1917 (to get Russia off their Eastern front) were purged. For the anti-statist chaos they caused in the 20s, see Reich, Lukacs etc. Trotskyites took root in the USA as Schactmanites and ultimately morphed into Neocons.
It's all about Straussian makeovers.
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FrankSz (#257) "I still haven't got into your earlier references that suggest that the correlations indicate that wealth is a function of IQ more than the other way round. Until I do, I'll have to take the "...if people are wealthy largely because they are intelligent.." part as an assertion for now."
Don't take it too personally (as it is very common to not see this), but that remark basically reveals that you have not fully grasped what all my posts to date have been based upon, as this is the basic message of the research from Jensen in the late 60s through to Herrnstein and Murray in 1994 to this today. This is why I suggested Flanders respectfully interviewed Lynn and Murray, ideally with Paul Mason, Robert Peston and Jeremy Paxman on Newsnight.
It is a simple point, but one which is so at odds with common-belief that people in the Liberal-Democracies find it almost impossible to grasp and hold on to. One has to ask why....
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FreakyGuitar
"Whilst earthquakes are pretty much outside of human control, the economy is almost 100% influenced by our behaviour. If we change our behaviour on a big enough scale we can (and do) turn the economy around, although not always in the right direction. Economists are hired continuously to advise us on how to control the economy or the part of it closest to our hearts"
Governments hire economists to tell them the state of the economy, where it is headed, where it should be headed, and how to change the behavior of people by advising them how to regulate, punish violators of the regulations, and tax to get people to behave differently. The government followed the economists' advice and the whole thing blew up. The economists engineered a system that turned out to be a time bomb. A nuclear time bomb.
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No.256. JadedJean wrote:
"There is not more social mobility because intelligence is largely hereditary. Watching the news one might be forgiven for believing this has not sunk in as reports complain that too many are becoming doctors and lawyers from wealthy backgrounds, but if people are wealthy largely because they are intelligent, how could it be otherwise?"
That news report brought a wry smile to my face.
I could train for 16 hours a day but I wouldn't be able to kick a football as well as David Beckham, or play tennis as well as Roger Federer. People are born with different abilities, and nurture cannot overcome the shortfall. The same applies to intellect. Now we have moved away from manual craftsmanship, the developed world is more reliant on mental dexterity than ever before.
Social mobility will help the better people rise upward, but those who have already risen are likely to want to protect their position and help their offspring achieve a similar quality of life. The world is competitive, and social mobility has only been achieved on a large scale through (i) New technology (industrial revolution) helping shift power from land ownership to ownership of the means of production and (ii) The Black Death and various world wars helped to move people upward, as they were needed to fill the gaps left by those higher up the social scale who had perished.
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its utter complete nonsense that economists got it wrong. Each and every independent economist explained in very simple terms for each of the past 6 years that the so called economic miracle was a con.
Please remember that the only economists who stated everything was fine were the ones ties to the vested interests i.e. financial institutions, estate agents, builders and governments.
I'm from Ireland and the economist magazine back in 2002 (I think that's the year) had a whole supplement on why the celtic tiger was nonsense. Our former prime minister Bertie Aherne told economists who disagreed with his 'understanding' of the economy to go 'shoot themselves in the head.'
So to finish, the economist does not owe the world an apology as they have consistently published material over the past 6-7 years complaining about the property bubble. If the governments and people didn't listen (for their own vested interests) then they reaped what they sowed as they say and have noone to blame but themselves.
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#259
No you misunderstand, I know you say that ability is hereditary, just in the earlier post regarding logical positivism you mention some technique for identifying correlations directionality , and I was trying to say that I hadn't got into that yet ....
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WRECKERS
MrTweedy (#261) "That news report brought a wry smile to my face."
As you can imagine, it truly incenses me, as I see it as fraudulent chutzpah. I don't know of any experienced, competent, senior teachers in Maintained Schools who don't believe that intake is what matters. What's worse is when Milburn etc start talking of their belief in 'meritocracy' when Michael Young (who drafted the 1945 Labour/National Socialist Manifesto and who coined the term 'meritocracy' in his satirical 1950s book) warned of the dangers of promoting meritocracy given that it leads to class division. This is what The Bell Curve in 1994 tried to elaborate upon. Milburn and friends truly are wreckers.
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FrankSz (#263) "No you misunderstand, I know you say that ability is hereditary, just in the earlier post regarding logical positivism you mention some technique for identifying correlations directionality , and I was trying to say that I hadn't got into that yet ...."
There's a syllogism at work here. Herrnstein set it out decades ago. Look it up. Science doesn't deal with causality, but the directionality above follows both logically and empirically on the basis of the weight of evidence.
The last third of Two Dogmas is about meaning holism, or the 'critical mass' of empirical evidence. The fact is that we have no empirical evidence to the contrary, despite over 40 years of looking for it. This is what those who argue about this do not understand. It is the result of lots of work to try to do what they think is the case but finding it is not so. One of the best places to see this is in the somewhat Socratic exchange between Murray and Flynn at the AEI on the B-W 'achievement gap' a couple of years ago (I've linked to it in the past). Even if this gap could be breached, nobody has done it...... The B-W gap is just used as a touch-stone, nobody is interested in race per se. Science is like that.
The cost of people not grasping this is going to be VERY high.....
MrTweedy understands that, I suspect.
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No.265. JadedJean
Those who want the rewards without the responsibilities will not prosper in the long run. The risk is, they will pull down the hardworking skilled practioners along with them......
But who will provide all that tax revenue to pay off the large amount of UK government debt caused by the unwitting segment who borrowed too much and bust the banks? But remember, it wasn't the fault of the unwitting borrowers, because economics teaches us nothing; it's a "busted flush" afterall.........
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#267
All it boils down to is that active management of people has become unfashionable in the West.
It goes hand in hand with PC and etc. It's a pendulum swinging, and now it's heading back to authoritarianism, command structures, hierarchies and all the things that have traditionally worked.
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#256 "The problems is that most people (84% of the population) are of average cognitive ability or below, and for years we've had Canutists government irresponsibly marketing 'lack of deference', 'anti-elitism', and social-mobility etc in pursuit of nothing more than popularity...."
As one of the 84%, I wonder what sort of distribution this implies? We know that if "cognitive ability" were normally distributed, like IQ, then only about 50% would find themselves at or below average. (Most IQ tests approach a normal distribution in large samples).
The "Cognitive ability" to which you refer is clearly distributed very differently with a few of the population effectively on another planet compared to the rest of us. This would be a very odd result since cognition is the result of an everyday biological function (brain operation) and as a broad rule of thumb for anything biological (e.g. leg-length, rato of arm length to torso, or how fast an organism can move) a normal distribution tends to emerge when it is measured in a large population. (If not perfectly "normal" generally much less "skewed" than is implied here).
So I question the basis of the test as a true reflection of "cognitive ability", the validity of the measurements and therefore the conclusions you draw.
Cultural bias and value judgements are a constant problem with this sort of measurement. I remember the '80's when the golden age of AI was about to dawn as a practical reality and we found it was not too difficult to encapsulate the advanced knowledge of an experienced doctor into a computerised "expert system" for remote diagnosis, but difficult to get one to recognise a tea-cup and virtually impossible to get one to play a snooker shot accurately.
Does this imply that Steve Davis' "cognitive ability" is more advanced than a brain-surgeon's? You decide.
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FankSz (#267) "It's a pendulum swinging, and now it's heading back to authoritarianism, command structures, hierarchies and all the things that have traditionally worked."
One can hope, but it's hard to see how any of the three main parties in the UK can do that, especially having signed up to Lisbon...unless Ireland and a few others refuse to ratify. The irony is that Old Labour was very much the same as the USSR in principle. It was just anathema to the USA's economic/hegemonic interests. Those who knew the 50s and 60s know this is true. I bet many in Eastern and Central Europe miss socilism - how it was ever effectively depicted as evil is bizarre.
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Raulmagister (#168) 'Cogntive Abiliy' is generally used as a synonym for IQ. Normal (dull to bright) is from 1SD below the mean to 1SD above the mean (85-115). I was being generous when talking of average. Try to learn a little instead of trying to be clever. You've missed the point which is that intelligence ('g') is largely hereditary and is not improved by education. Please don't tell me what you think, just go and follow the links.
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270
"I was being generous when talking of average. Try to learn a little instead of trying to be clever."
Do I conjugate correctly?
- I am "being generous"
- You are a somewhere off the mark
- He is wrong
(Only joking :-) )
"You've missed the point which is that intelligence ('g') is largely hereditary and is not improved by education."
Think you'll find that the validity of "g" itself is a matter of impassioned politico-academic debate. At best a "may be largely.." and "probably not improved..." would have been be a better representation than a definitive assertion.
Just a tip, if you seek to instruct (as you seem to), you must leave the door open for the student to doubt and seek the truth for himself.
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RaulMagister (#271)
"Think you'll find that the validity of "g" itself is a matter of impassioned politico-academic debate."
Only amongst the ignorant, and they are now legion today because of the corruption of higher education. In the 'real' sciences, students do as they are told. They are not asked to think for themsleves. This persists into PhDs and post-doc research. Fact. If they get anything wrong or make stuff up, they get bad marks/degrees.
Do you understand?
"seek the truth for himself."
But you have not, so I have told you. Be grateful. I repeat, higher education has been corrupted. It is now full of silly people who can't be taught. In the 60s 5% went to university, now it's nearly 50%. Standards have fallen.
Why?
Watch the ETS video, as more of this misery is coming to somewhere near you, for reasons I have covered and you seem unble to follow.
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"Only amongst the ignorant"
Hmmm.... one of the critics was Heckman, a Nobel Prizewinner! - wrong on this issue? He may be, but "ignorant" he is not.
"In the 'real' sciences, students do as they are told. They are not asked to think for themsleves."
Hmmm...(again) Thought occurs that it was a good job that Einstein didn't work to that rule.
I am grateful for your generous offers of guidance - somehwat Stalinist in tone though they may be - but it's little details like this that keep giving a nit-picker like me a problem - so I think I'll skip the course. Cheers!
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261 MrTweedy wrote:
I could train for 16 hours a day but I wouldn't be able to kick a football as well as David Beckham, or play tennis as well as Roger Federer. People are born with different abilities, and nurture cannot overcome the shortfall. The same applies to intellect. Now we have moved away from manual craftsmanship, the developed world is more reliant on mental dexterity than ever before.
Hold on....
Was Beckham's Dad a top footballer? Was Federer's Mum a smash at tennis? Mozart's an accomplished composer? I don't think so...
People are born different. One of the differences is surely in their ability to learn and develop skills/abilities of all kinds: intellectual, manual, sporting, artistic or whatever.
A good recent paper found strong evidence that genius-level ability demonstrated in adult life in whatever field was almost always the result of at least 10,000 hours of practice.
Nature v Nurture: so 19th Century....!
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A couple of people have alluded to the Austrian School already. It is absolutely ridiculous to go on as if nobody saw this coming. A few names:
Peter Schiff, Jim Puplava, James Turk, Bob Moriarty, anyone at the Mises Institute etc.
They saw it coming because they understood some basic economics instead of the obviously defective mumbo jumbo that people get taught in university. It is obviously defective because they did not see it coming and never spoke about sound (honest) money and seemed to believe that irredeemable bits of paper and electronic credit really can serve as a sound medium of exchange and store of value! History teaches otherwise.
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Do all economists agree all the time?
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"They saw it coming because they understood some basic economics instead of the obviously defective mumbo jumbo that people get taught in university."
No, they understood it because they essentially engineered it. They are libertarians aka anarchsits. They make out that anything which is not total anarchism is statism, and that's how they foment further sedition. It's cleverly done. They are of the same ilk as the Frankfurt School, except the Frankfurt school called themselves Marxists (by which they meant Trotskyite anarchists). The Austrian School, like the Chicago School are essentially the same, except they call themselves anarchists. Their mutual enemies are the people who forced them to flee first Russia in the late 1800s and early 1900s, and then Germany in the 1930s, in the West, these are groups like Old Labour - socialists, i.e National Socialists (in the USSR, Stalinists - 'Socialism in One Country - today se the PRC, teh SCO and even Iran).
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Much macroeconomics is full of very elaborate and sophisticated mathematical models that simply are not justified by the quality of their underlying data. A significant number of modern day economists approach the discipline in a manner akin to physicists trying to do precision quantum physics with 19th century laboratory equipment. There's nothing wrong with the mathematics, but it is irrelevant. More generally, economists should be acting more like sociologists, or political scientists, or geographers, or biologists developing and expanding descriptive data sets that help show what is actually going on. There are exceptions, but the basic approach of the discipline is wrong.
Advances in Microeconomics in the discipline, on the other hand, have been very successful in a wide variety of areas and had had great impact on my professional competence. Publications like the Economist publish much better, evidence-based, work on macroeconomic questions than most academic economists.
Widespread acceptance of mainstream academic macroeconomic theories - in areas like efficient market hypothesis and option pricing theory - is a big part of what led the markets to get things so wrong on such a widespread basis prior to the financial crisis. It is notable, that Ludwig von Mises, Adam Smith and Karl Marx built their powerfull and influential theories on the synthesis of vast amounts of raw descriptive data and historical examples of the phenomena they sought to describe, and not on mathematical detail.
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#241
Reading the first few pages of this link you posted http://www.southerndomains.com/SouthernBanks/p2.htm
Whoever wrote doesn't understand Marx very well and is misrepresenting his position to make the point he wants to make.
However, I do agree with the important emphasis you place on energy.
It is the fossil fuels that have given us the great advances in productivity (by which I essentially mean the amount of hours we need to work to produce the means of subsistence).
The era when we could have worked the least has ironically been the era when we have worked the most - all because of the rate of profit controlling humanity.
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(Nassim Taleb recounts a quote from his Collegue Bob Yaeger)
"There are those who think that there are clear-cut answers and those who dont think that simiplification is possible without severe distortion"
(Taleb goes on to say:)
"As much as you beieve in the Keep It Simple Stupid, it is [this very] simplification that is dangerous"
Bearing the above in mind, Steph asks: "But does that mean economics is a busted flush? "
Steph answers: "I'm afraid not, because even if you think economics got a lot of this stuff wrong, you'd be hard-pressed to understand - or to fix - what's happening in the global economy today without it. "
But Does not Steph have a vested interest so maybe she is the wrong person to answer this question?
Maybe all we need to realise is that (Huge generalisation alert!!)
1.People are self interested and "in general" consciously or unconsciously selfish.
2.One could argue that the type of people who go into trading and (slightly less so) banking are more prone to be "motivated" by greed and self interest than others.
These are huge generalisations and simplifications but I doubt that anyone (outside of Star Trek) will disagree with point 1
Maybe this is the basis upon which any possible model should start ?
Also, If as many of us suspect Economics is at best nothing more than a poor mans weather forecasting (see blog quotes 1,2 and 3 below) or at worst a simple tool of control used by the ruling elite (see blog quotes 4 and 5) then Stephs answer sounds profoundly "self serving".
Finally Steph states that:
"Maybe it's not such a good time to be an economist. But it's one helluva time to study economics."
But the tools and models which failed so spectacularly are the the standard are they not? So who teaches the teachers ? (See blog quotes 6 and 7).
If it wasn't for Steven Levit about whom J.Dubner said:
"As Leveitt see it, economics is a science with excellent tools for gaining questions but a serious shortage of interesting questions"
I would think that as glanafon wrote: "economics is about as much use as a chocolate frying pan".
Quotes from above blog comments:
1. foredeckdave wrote: "Human behaviour is at the core of all economic activity. Human behaviour is extreemly complex and does not conform to blunt economic stimulus. The variables are just to diverese to cope with. Therefore, let Economics INFORM but then let others use/missuse that information and take responsibility for their actions."
2. badgercourage wrote: "the trouble with economics and economists is that with few exceptions they assume:
(a) markets are about competition - when they're about monopoly and control
(b) people act rationally - they don't, at least not predictably
(c) their information is accurate and timely - it isn't"
3. TonyR2009 wrote: "There's nothing new to that. As Laurence J Peter said many years ago "An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today." Recent events have just reaffirmed his perspicacity."
4. RaulMagister wrote: "We need to recognise that economists current function in society is the equivalent of ancient oracles and auguries; there to give assurance to those that seek to control events that they have at hand more insight into the future than is truly the case. It helps them sleep at night."
5. armagediontimes wrote: "Loads of problems with both economics and economists. Lots of economists work for financial institutions or governments - they just talk the book. If they dont they are sacked. Other economists sit in universities and come to believe that their ignorance of the real world is a virtue, instead of the manifest failure that it is."
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I do not think,that economy is a flush.
Like other human diciplins,has its limits and scopes,but certainly it has a lot of subjectivity, more than the so called exact sciences, like
physics and mathematics.Even though, you can not make any experiments in such diciplins as astronomy, you can make only observations and indirectly deduce physical behaviors.
Also,like any other human activity,depends HOW YOU APPLY YOUR CONCEPTS.
An example: If you apply your statistics, which are thought for a steady
state situation, for a very fast changing object, with strong fluctations
certainly you will arrive to wrong conclusions.This mistake is frequently
done now today by sometimes very prestige economists and officials, and that is why now we have no idea, what is really gong on.
May the Keynesian model for today happening is not applyable,but I do not like to go into so technical discussions:For me is simple: That we are suffering now, is a consequence of generalized speculation and greed,
that was made in financial markets,like for example, Wall Street.
Sorry, as physicit I follow the Einstein paradigm Nature is simple, but subtle.But I am no pessimist: I think all will be clear next time,things
will change.For me,like the Theater play of Tennesee Williams "It is just a period of adjustment"
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Macroeconomics is a badly understood subject because it in the interests of the major universities (and their supporting concerns, the big industrialists and finance institutions), to encourage it to be vauge. This is not only dissapointing but disgraceful because it causes the limited knowledge about it that we do have to have made to be of little value, and this somewht doubtful science to be downgraded in the minds of governmental departnments and politicians.
What we need is to rewrite the theoretical knowledge about what it is and how it works, and for this to be done by a force that has no bias or pre-conceived notions. (This may well be impossible for an individual who is already been trained through a university, but would be posible if an academic person of exact science disciplines, who is untrained in economics, had to start to examine the situation from scratch.)
Such a person as myself satisfies these requirements, and I have developed a theory of macroeconomics which explains a lot of things in an exact way using a model for the complete system. This model is based on the average properties of groups of people who function in a number of specific roles, so it is the roles not the people who can be analyised. Only 6 entities are needed and 19 money-flows result, so the model is simplified yet still covers the whole shebang!
It is about time (in these troubled economic times) that somebody began to take this subject more seriously and could allow me (or somebody with a similar approach) to provide a more vigerous yet simple explanation about what our social actually is and HOW IT REALLY FUNCTIONS.
If you are interested in more details please send me a message to:
[Personal details removed by Moderator]
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#282 Macrocompassion
So what are the objective measures in you model?
Do you have a concept of value?
How does your model explain crises?
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