Robert Shiller points to an interesting conflict in economics today: “We are in the midst of a boom in popular economics: books, articles, blogs, public lectures, all followed closely by the general public. Yet this boom in popular economics comes at a time when the general public seems to have lost faith in professional economists – because almost all of us failed to predict, or even warn of, the current economic crisis, the biggest since the Great Depression.” Shiller thinks the best explanation is “that economics has become more interesting because it no longer seems to be a finished and closed discipline. It is no fun to read a book or article that says that economic forecasting is best left to computer models that you, the general reader, would need a doctorate to understand. And, in truth, the public is right: While there is a somewhat scientific basis for these models, they can go spectacularly wrong. Sometimes we need to turn off autopilot and think for ourselves-and, when a crisis occurs, use our best human intellect.” [%comments]
Hating Economists but Loving Economics
TAGS: economists, Robert Shiller
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One need not hate economists to recognize their’s is mostly an industry of wishful thinking and great pretenders. What one might dislike is the pretense of the media and others in trying to offer the wishful thinking of economic forecasts as something reliable. What is the point in repeatedly promoting predictions of others that are mostly wrong? Why not just flip a coin and admit that you too enjoy the pretense? But, please, don’t call it journalism.
There is no sense in asking if a model is right or wrong. In fact a model is not even useful for predicting the future (as recent events have demonstrated).
A computer model is just a sort of mechanical village, where creaking wheels and worn-out chains drag little creatures and cars around ersatz landscapes. Watching it gives one the illusion of mastery.
Just imagine what VisiCalc and later Excel did for economists! I am King of the World. Grrrrrr.
It may also be that Americans just don’t like what economists are saying. As Nobel laureate Paul Krugman has noted, there is no economic model supporting austerity or any of the “solutions” libertarians or tea partiers are insisting upon. Therefor, people are rejecting economics so they an substitute their own reality.
Wrong on all counts. For one, people have a lot of “faith” in Paul Krugman the economist, and these people include his academic peers, the Noble committee, and with the hoi polloi.
Second, while “almost all of us failed to predict, or even warn of, the current economic crisis, the biggest since the Great Depression”, a few economists both predicted the crisis and warned us about it. Again, Krugman was one, along with Dean Baker and a few others.
Third, using Keynes and Krugman, and Krugman’s models, one can easily understand why our current problems arose and why we have not risen to the challenge of fixing those problems. And nobody needs a PhD to understand Krugman’s models. The problem with the Austrian-Chicago school is that they often don’t use models, and the models they do use are woefully inadequate.
At least Mr. Schiller was frank enough to use the “almost all” qualifier. Krugman, Baker, et al. both foresaw the impending crisis and forewarned us about it.
Economics is the astrology of the twenty-first century.
A. I have personally witnessed economists at the FED utilize dowsing methods to locate the water-cooler.
B. I would not trust the economy with my money let alone my expectations.
C. Today I received free lunch as part of a promotional offer.
I think the problem is that economists can be good at explaining utility-maximizing behavior at the individual level which adds up to micro-economics, but we aren’t very good at explaining large systems as in macro-economics. Witness the popularity of Freakonomics, TINTSTAFL, and other books. Are there equally popular macro books?
As far as people “loving economics”, people are interested in economics only to the extent that it greatly affects their daily lives and their future. And just like armchair doctors that swear by hand-me-down cures, EVERYBODY is an expert at economics. So while economists didn’t foresee the crisis, I doubt people would have listened anyway because everybody is highly vested in their personal views.
I believe the differences are more fundamental. Behavioral economics actually deals with the way people respond economically to incentives, how they act in their own self-interest given the limited knowledge they actually have, how their reactions are rational taken in the framework of limited human knowledge and experience. Classical economics deals with constructs that do not exist such as efficient markets and homo economicus. The fundamental principles of the science are flawed, despite beautiful mathematics and brilliant communications. Additionally, there are those zombie ideas like trickle-down economics still floating around in the collective consciousness, still being used in policy making despite failure to survive contact with reality, still contributing to the collective distrust in the dismal science. Economics’ failure to predict the economic catastrophes of the last decade, indeed their contributions to them, can be compared to physical theory failing to predict an object released at a height will fall. It’s a laughable failure and relegates classical economics to the physical equivalent of phlogiston theory.