Why does anyone pay attention to people that study "economics"?

[twiifm]

And which proves more accurate long term? As in better than 50%.

Accurate for what?  That's not even the appropriate question.  The question is:  given something complex like the economy how does one seek better understanding of it.

By collecting empirical data and trying create mathematical models to back test against the data?

Or by logical deduction aka praxing aka philosophizing?

[1714640308]

1714640308

[CIYAM]

Not only you are ignorant about economics,  it appears you are ignorant about politics as well

You seem to be awfully sure of how ignorant I am - but that is okay as I know that your type just care about "winning arguments" rather than actually "doing anything useful to help the world".

So enjoy "winning your argument" and convincing everyone that they should just shut up and let the politicians and economists save us (because we all know what a great job they are doing).

[twiifm]

Not only you are ignorant about economics,  it appears you are ignorant about politics as well

You seem to be awfully sure of how ignorant I am - but that is okay as I know that your type just care about "winning arguments" rather than actually "doing anything useful to help the world".

So enjoy "winning your argument" and convincing everyone that they should just shut up and let the politicians and economists save us (because we all know what a great job they are doing).

I say that because you make assumptions that are ignorant. 

1 you assume that economists are supposed to solve problems that are better solved by politicians or scientists or businessmen.

2 you assume that economists and politicians are not aware of these problems

3 you assume I'm trying to win arguments, when I am merely responding to your inquiries. 

Basically, all your saying is, "there are problems, therefore economists suck because those problems aren't being solved".  It tells me you haven't a clue what economics is about.  It's just your ignorance about the field. You did ask someone to Call you out, so I am.

I didn't say you were stupid or anything so don't get mad.  Just do some more research and enlighten yourself.  Or don't and stay ignorant.  I don't care either way

[CIYAM]

Basically, all your saying is, "there are problems, therefore economists suck because those problems aren't being solved".

That is close to what the point of this (perhaps ultimately pointless) topic was.

What was perhaps implied rather than explicitly stated is that the "constant message" that is being broadcast by the general media (IMO) is that the world's most serious problems don't need fixing because the economic experts (which the politicians love to quote) have this all "under control" (or even worse that there simply is no problem).

So "why are we even asking the economists?" is in fact *exactly* what I was meaning (and by "we" I am really meaning those that are giving us the messages not literally "we" as I am pretty sure that most of us know that given any set of X economists you'll get X different predictions).

And @twiifm I am not mad at you (you'd have to do a lot better than say that I am ignorant).

[twiifm]

Basically, all your saying is, "there are problems, therefore economists suck because those problems aren't being solved".

That is close to what the point of this (perhaps ultimately pointless) topic was.

What was perhaps implied rather than explicitly stated is that the "constant message" that is being broadcast by the general media (IMO) is that the world's most serious problems don't need fixing because the economic experts (which the politicians love to quote) have this all "under control" (or even worse that there simply is no problem).

So "why are we even asking the economists?" is in fact *exactly* what I was meaning (and by "we" I am really meaning those that are giving us the messages not literally "we" as I am pretty sure that most of us know that given any set of X economists you'll get X different predictions).

And @twiifm I am not mad at you (you'd have to do a lot better than say that I am ignorant).

Can you be more specific?  Which politician is consulted by which economist on which issue?

I don't follow air pollution issue but that sounds more the field of climate scientists

[dinofelis]

Austrians use a logical deduction called "praxeology" which is more suited to trolling or soapboxing

And on what kind of logical deduction is that theorem based ?

Just for your information (from wiki):

Praxeology (Gr. πρᾶξις (praxis) ″action″, λόγoς (logos) ″talk, speech″) is the deductive study of human action based on the fact that humans engage in purposeful behavior, as opposed to reflexive behavior like sneezing and inanimate behavior.[1] According to adherents, with the action axiom as the starting point, it is possible to draw conclusions about human behavior that are both objective and universal. For example, the notion that humans engage in acts of choice implies that they have preferences, and this must be true for anyone who exhibits intentional behavior.

Now, give me a logical deduction, starting from the above given, that this "is more suited to trolling or soapboarding".
Use Keynesian logic if you want to :-)

[CIYAM]

Can you be more specific?  Which politician is consulted by which economist on which issue?

I don't follow air pollution issue but that sounds more the field of climate scientists

Politicians are forever talking about statistics and the economy so virtually any interview with any politician where they mention anything about the economy should suffice as an example (and they often put forward economic "excuses" as to why climate change is something we can't afford to do anything about now).

But let's get to what riles me most - here is a well known publicly made statement from the current Australian PM (it was made before he was PM but he was leader of the opposition at that point in time).

"Climate change is crap." (Tony Abbot)

It is not surprising that even America (which has dragged its feet on doing anything much to address the issue of climate change) is now finding Australia's complete lack of political will and funding to be of concern (which has been recently been brought up).

[dinofelis]

And which proves more accurate long term? As in better than 50%.

Accurate for what?  That's not even the appropriate question.  The question is:  given something complex like the economy how does one seek better understanding of it.

By collecting empirical data and trying create mathematical models to back test against the data?

Or by logical deduction aka praxing aka philosophizing?

It is an assumption that there can be a mathematical model underlying economics of course.  You have to be aware of that.
In fact, you find the same in theoretical physics.  There is an assumption that nature can be described by a mathematical model.  That assumption is not empty, and evident.  It is an axiom, that could very well be proven wrong.  However, in theoretical physics, down to a certain level at least, one finds empirically that mathematical modeling works very well.

Now, the Austrian school maintains that this axiom is not valid for economy in the long run.  Most other economists claim the opposite.  However, contrary to theoretical physicists, they have never come up with a WORKING mathematical model in the long run.  In the short run, they have.  In backfitting data, they have some success.  But in actually making predictions, economic modeling is - to say the least - much less successfull than physics in, say, predicting the next solar eclipse.

The answer is that the system is too complex.  Right.  The answer can also be that the Austrians are right of course.

There are other human endevours which are obviously not apt at being modeled mathematically.  For instance, the plot of the first movie that will come out in the theaters in 2028.  That plot is unpredictable by any means using mathematical models.

I'm not talking about determinism.  There's not even a stochastic model that could describe the ensemble of plots of the movie that will come out in the theaters in 2018.  The best one could do is to make a statistical description of past plots.  But nobody knows if that statistical description will be valid for movies in 2028.  

Nobody will find it ridiculous that there is no such mathematical model, and that it cannot be found.  In fact, rather the other way around: people proposing to model this will rather be considered crazy.

With economy, however, the axiom that economic activity in the long run is following a mathematical model is an axiom taken for granted.

[picolo]

The people know and feel what is happening in the economy but they have learned lies about the positive that come from governement intervention and the minimal wage.

[CIYAM]

So basically the Liberal party in Australia have often used the argument that "it will hurt our economy" to actually do anything to properly address climate change (and I am sure they are not the only political party in the world pushing that message).

The statistics that they quote are normally sourced from reports that are created by Treasury (when they are in power) or by economic forecasting organisations (when they are not in power - but without really anything much in the way of scientific input either way).

So - if the economists are never going to take climate change into account (as that should be up to climate change scientists) and the politicians just focus on using reports whose main input comes from the economists then I think you can begin to see why we might have a problem.

Oh - and I am not a Labor party supporter (for any Aussies wondering).

[dinofelis]

So basically the Liberal party in Australia have often used the argument that "it will hurt our economy" to actually do anything to properly address climate change

But climate change IS an economic problem.  It is not an ecological problem.  After all, climate has changed a lot in the past hundreds of millions of years.  The change brought by the (probable) meteor impact that killed the dinosaurs 65 million years ago was probably much more "devastating" than putting back in the atmosphere the CO2 that has been extracted from it and put into geological layers (also called fossil fuels).  It might be that our species, and a lot of mammals, will disappear.  But that's not an ecological problem, no more than the extinction of the dinosaurs.  Something else will come after that.  In the very very worst case.

The main problem with climate change is that it may affect production (of food, of drinking water, and of French wine) 50 - 100 years from now.  That's an economic problem - potentially.

So the main difficulty is to find out what cost that will be 50 or 100 years from now, and what costs we should make now to avoid or diminish those costs 50 or 100 years from now.

And we're back to the Austrians: it is simply impossible to model the economy 50 - 100 years from now, and hence it is totally impossible to estimate the economic costs by (difficult-to-calculate regionally) climate change 50 - 100 years from now.

We have a difficult (but possible) scientific problem (climate change) of which we have to calculate the impact on a totally impossible to do prediction of the economy.  Just as well say that it is total guesswork. 

Think of how people would have estimated the economic situation today, somewhere between the first and the second world war, and how accurate they would have been back then in estimating the cost of any climate change today, when in the thirties.

Simply ridiculous.

In the thirties, people could calculate where the moon was going to be today.  In the thirties, people could calculate the solar eclipses of this century.  But they could not, in any far cry, predict the general state of the economy, and its dependence on climate, back then.

And we can't for within 50 - 100 years either.

[CIYAM]

We have a difficult (but possible) scientific problem (climate change) of which we have to calculate the impact on a totally impossible to do prediction of the economy.  Just as well say that it is total guesswork.  

Sure - so let's say it is like we are driving a car down a winding mountain road and our brakes have failed (and that we have poor visibility so no way to know how far we have to get to the bottom of the mountain).

We have been told by the smart guy in the back seat that we can slow the car down by using the gears but then the guy next to him says - sure but if we do that we are likely to hurt the vehicle and for all we know we are already nearly at the bottom of the mountain anyway. So the driver says a prayer and just keeps going without trying to use the gears to slow the vehicle.

It seems to me that the second guy is a bit like the modern economist, the driver is the political leader and the vehicle is the economy.

Having someone to blame when we go off the side of a cliff really isn't much of a concern when you only have seconds to live and bear in mind even if we ruin the vehicle if we are still in good health then we can just get out an walk.

[dinofelis]

We have a difficult (but possible) scientific problem (climate change) of which we have to calculate the impact on a totally impossible to do prediction of the economy.  Just as well say that it is total guesswork.  

Sure - so let's say it is like we are driving a car down a winding mountain road and our brakes have failed (and that we have poor visibility so no way to know how far we have to get to the bottom of the mountain).

We have been told by the smart guy in the back seat that we can slow the car down by using the gears but then the guy next to him says - sure but if we do that we are likely to hurt the vehicle and for all we know we are already nearly at the bottom of the mountain anyway. So the driver says a prayer and just keeps going without trying to use the gears to slow the vehicle.

It seems to me that the second guy is a bit like the modern economist, the driver is the political leader and the vehicle is the economy.

Having someone to blame when we go off the side of a cliff really isn't much of a concern when you only have seconds to live and bear in mind even if we ruin the vehicle if we are still in good health then we can just get out an walk.

This is a nice start of an analogy, but there's a flaw in it: there's no cost in your story for using the gear braking.

Now let us change the story as follows: similar situation but:
they are actually trying to escape an avalanche, so that's why they are going fast.  They want to avoid being crushed by the avalanche.
The guy in the back says that given that the brakes don't work, we have to put small gear, so as to go slower, in case there is a sharp turn.  The guy next to him says that if we slow down, the avalanche will probably hit us, and that we don't know if a sharp turn is ahead.

So what do you do now ?

[CIYAM]

So what do you do now ?

Smart guy in the back seat has been carefully watching out the back window every few seconds to gauge the speed at which the avalanche is advancing and calculates that we can certainly put the car into 3rd gear without risking it hitting us (he also knows that putting the car into 3rd gear at our current speed won't destroy the vehicle and that we can always put it into neutral in the unlikely event that we we do ruin the gear box as a last resort).

Now maybe 3rd gear won't save us from going off the edge but it is certainly better than not doing anything (the other guy in the back seat doesn't have any better suggestion than just keep going as he wasn't paying attention to the speed of the avalanche and actually has no idea at what speed the gears are safe to engage as he never learned much about cars).

[dinofelis]

So what do you do now ?

Smart guy in the back seat has been carefully watching out the back window every few seconds to gauge the speed at which the avalanche is advancing and calculates that we can certainly put the car into 3rd gear without risking it hitting us (he also knows that putting the car into 3rd gear at our current speed won't destroy the vehicle and that we can always put it into neutral in the unlikely event that we we do ruin the gear box as a last resort).

This is exactly knowing the economic future :-)  Which is exactly what is contested.

The avalanche is the effect of the economy slowing down and hitting people also (like triggering wars, famine, and so on), the potential sharp turn is the effect of the climate change on the economy.

[CIYAM]

I think that just because scientists can't add unknown variables into their predictions (i.e. future technologies or some major earth changing event that simply couldn't have been predicted) doesn't mean we should sit and wait with our collective "fingers crossed".

There are very clear steps that we can take now which also can allow for changes down the track should new things give us a new direction.

The smart guy in the back seat is the "scientist" and in my opinion is he is the one you should be listening to (I'd be advising the other guy to shut up and put on his seat belt).

[picolo]

So what do you do now ?

Smart guy in the back seat has been carefully watching out the back window every few seconds to gauge the speed at which the avalanche is advancing and calculates that we can certainly put the car into 3rd gear without risking it hitting us (he also knows that putting the car into 3rd gear at our current speed won't destroy the vehicle and that we can always put it into neutral in the unlikely event that we we do ruin the gear box as a last resort).

This is exactly knowing the economic future :-)  Which is exactly what is contested.

The avalanche is the effect of the economy slowing down and hitting people also (like triggering wars, famine, and so on), the potential sharp turn is the effect of the climate change on the economy.

The economy slows down in the usa or europe but is growing in asia or africa. The US and Europe is having the burden of an overweight government.

[twiifm]

And which proves more accurate long term? As in better than 50%.

Accurate for what?  That's not even the appropriate question.  The question is:  given something complex like the economy how does one seek better understanding of it.

By collecting empirical data and trying create mathematical models to back test against the data?

Or by logical deduction aka praxing aka philosophizing?

Accurate enough to project the effects of the various QE projects for starters. Looking at the boom-bust cycles over the years the planners either haven't got a clue or are pumping and dumping the global economy and loading up on assets at every stage.

Economics have grown from something more convenient than barter to something as important in our everyday lives as the food we eat and water we drink and the only other thing that's embedded its self so deep in society is religion. This Keynesian versus Austrian argument comes up all the time, are we arguing over the merits of Islam versus Christianity when what we should really be considering is Creationism versus Evolution?

QE is a new invention first attempted by BoJ back in 2001.  There's data we can look at.

Austrians usually argue for quantity theory of money.  Saying that if you increase supply then you get inflation.  This is wrong as we can see from data.

New Keynesians (who aren't considered to be descendant of Keynes original spirit) believe that injection of money supply would alleviate liquidity trap.  This is not exactly right either because they erroneously believe in exogenous money.

Most accurate would be Post Keynesians (more in spirit to Keynes), who thought QE wouldn't have significant impact on AD or inflation but it would be thethe right tool backstop a recessionary spiral into becoming a Depression.  Keynes, himself would have adopted more stimulus spending.  But we don't know if that works because it wasn't attempted.

Recently Japan did attempt QE plus stimulus plus structural reform.  It was working a little but when they raised the VAT, the AD took a nose dive and they went back in recession.


http://research.stlouisfed.org/publications/es/article/10024

I think Keynesian vs Austrian debate is only because of popularity of young libertarians found on the internet.  Nobody in economics takes Austrian economics seriously.  It's really on the fringe and usually coupled with some heavy political dogma.  It's  the new radical right.

New Keynesian like Krugman represent the liberal left.  Most mainstream economists are probably neoclassical liberals.

[Nicolas Dorier]

Maybe I'm getting the wrong idea, my view of Austrian economics is precious metal based economies or is that like considering apples a component of physics? And you say QE was created in 2001, wasn't the boom in the 80's just the same thing with a different name?


Something interesting going on here:
https://bitcointalk.org/index.php?topic=934456
Sounds along the same lines as that creationism versus evolution point but still getting my head around it, something like value being purely related to the individual rather than global.

On the great lines, the two starting points of Austrian and Keynesian is nicely summarized by the people that are talking about it in the thread.

Money is something you traded something less valuable (in your mind) for, and you speculate that you at some point can trade it for something of value (for you) again

This is austrian perspective, in short, no exchange of free will can be considered as fraud because the evaluation is made by the individual at the time of the exchange.
If I accept you give me one pencil against my ounce of gold, the exchange is fair because I valued your pencil more than the gold, and you otherwise.
In this philosophy, every exchange produces wealth. This is called "the subjective theory of value".

It explain nicely why it is rational to pay any price to buy water in the desert when you are thrusty.

Then another one disagrees :

1. If what money buys is less valuable than the sum buying it, then the seller is defrauding the buyer.

This person thinks that an exchange only transfers wealth but do not create it. If you believe that, then your conclusion will reach Keynes's one.
The question is how do you define the value ? This kind of reasoning means it is okay for a third party, to evaluate in the behalf of the two persons.
It also make it okay for this third party to "regulate" what the value is in order to "protect the weak". In their mind they are only controlling wealth transfer with an egalitarian perspective, and think the "wealth creation" is always the work of the industry.

If you believe in the austrian perspective, you will think that any third party attempting to regulate the value of something by force (tariff, taxes, quota, subsidies) is "wealth destruction".
But in the mind of the Keynesian, they are just ensuring an exchange is "right", according to the maximization of a number of macro economic metrics.

I believe in Austrian economic, because I believe that the best people that know what the exchange is worth are the two parties themselves. Not a third one located several miles away without any stake in the game.
And even if I did not believed it, there is lots to say about tricks and manipulation of the macro economic metrics done to push some policies over others.

So yes, Keynesian acts rightly about the metrics and what they believe to be right. But when they don't reach the target, they just change the metrics.

Austrian don't have any stats or fancy charts, nor mathematical theorem. Because they don't pretend to know what metric to maximize for having a good society.
What they believe is that exchange  of free will is a creation of wealth. And anything that attempt to control that is wealth destruction. It is as simple as that.

my view of Austrian economics is precious metal based economies or is that like considering apples a component of physics

If you understand what I just said, you understand why Austrian are against fiat money. Because fiat money is a way, for a third party, to control what an exchange is worth.
This is not the metalic part that they like, just that precious metals don't not allow a third party to manipulate an exchange as easily as a fiat money. (and thus, in their perspective, there is less room for wealth destruction)

Despite the wild different conclusion between those two economics, it lies down to one question : Do you think value is created when two persons exchanges something by their free will ? or do you think an exchange is just a transfer of wealth ?

This is the only question that will push you to be keynesian or austrian. Mises and Keynes just push their response further, and both are coherent by their premises.

[twiifm]

Maybe I'm getting the wrong idea, my view of Austrian economics is precious metal based economies or is that like considering apples a component of physics? And you say QE was created in 2001, wasn't the boom in the 80's just the same thing with a different name?


Something interesting going on here:
https://bitcointalk.org/index.php?topic=934456
Sounds along the same lines as that creationism versus evolution point but still getting my head around it, something like value being purely related to the individual rather than global.

The 3 major Austrian economists are Hayek, Mises and Rothbard.  Rothbard is the basis for anarcho capitalist you encounter a lot on reddit and bitcointalk