Slashdot Mirror
Author Joris Luyendijk: Economics Is Not a Science (theguardian.com)
The Real Dr John writes: A Nobel prize in economics, awarded this year to Angus Deaton, implies that the human world operates much like the physical world: that it can be described and understood in neutral terms, and that it lends itself to modeling, like chemical reactions or the movement of the stars. It creates the impression that economists are not in the business of constructing inherently imperfect theories, but of discovering timeless truths. In 1994 economists Myron Scholes and Robert Merton, with their work on derivatives, seemed to have hit on a formula that yielded a safe but lucrative trading strategy. In 1997 they were awarded the Nobel prize in economics. A year later, Long-Term Capital Management lost $4.6bn (£3bn) in less than four months; a bailout was required to avert the threat to the global financial system.
Economics is not a science. It is a study of human behavior like Psychology, and as the article points out, it has heavy political overtones. There was no Nobel Prize in Economics until 1969. Maybe it is time to retire that particular prize.
A brain is a terrible thing to waste... Mind? That's debatable.
It's a fuzzy science, similar to cooking.
Sometimes you try stuff, make predictions, and it turns out great.
Sometimes you try stuff, make predictions, and it's dreadful. Like my famous "Peanut Butter & Haggis" recipe, or pickle-flavored ice cream.
Just cruising through this digital world at 33 1/3 rpm...
Nobel didn't originally accept economics as a science either, this economist won the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, which was originally provided by the Swedish bank in 1968 through a perpetual endowment to the Nobel Foundation.
If I have been able to see further than others, it is because I bought a pair of binoculars.
When a rocket blows up, it might be the engineers' fault, but you can't blame physics itself. It's not the fault of the field of economics that some bozo lost money and other bozos bailed them out.
People who think economics is not a science usually have no understanding of economics. The author, for example, uses examples of economists (and non-economists) who failed to predict what direction the market would go. This is like saying, "Physics is not science because we still don't have FTL travel. Fail."
Economics is a science, and it has a useful body of knowledge. MV = PQ is among the most tested theories in science. Gresham's law. The business cycle. All other things equal, an increase in supply will reduce prices. The biggest problem of economics isn't the lack of "hardness," it's the difficulty of running experiments (you can't re-run the depression six hundred times), so eliminating variables is difficult.
Anyone who thinks economics is the art of predicting the stock market, will be confused, like the author of this article.
"First they came for the slanderers and i said nothing."
Economics is a social "science". Because it involves money, it feels more quantitative and objective, like an actual science. But it is a social science, arbitrary numbers have been assigned to ill defined metrics, and a delusion is formed. Perhaps those arbitrary assignments are the result of a real competitive process, left to anneal for a period of time, but that's just a further level of self-deception. We cling to these things individually because it is the best we've got socially, but at no level in the universe can you establish the value of an orange at X resources/unit, it's therefore impossible to build any kind of universal truth around a system that is fundamentally based on that sort of value assignment.
So when the talking heads start talking about economics, and making predictions and saying the sky is falling if {such and such}, it is ok to laugh and walk away. We'll make it work or we won't and it'll change.
In fact, the last time the US saw deflation was a period we now refer to as The Great Depression.
But not because of the deflation. The cause of the Depression was a widespread credit contraction, following an illusory boom—actually malinvestment, encouraged and masked by inflation—which resulted in a "house of cards": lots of investment profit on paper with nothing real to back it up. When the bills came due and people tried to pull "their" money out, they suddenly discovered that they didn't have nearly as much money as they thought; their savings accounts consisted mostly of IOUs from bankrupt banks. That was the cause, both of the deflation and the Depression. Deflation was merely a side-effect.
In other cases where deflation has been observed internationally, it has not been correlated with anything like the American Great Depression.
"The state is that great fiction by which everyone tries to live at the expense of everyone else." - Bastiat
Here's the example that disproves the claim: Everyone knows that when it comes to electronics, next year's model is going to be better/faster/more bang for the buck than this years' model, but the electronics industry isn't starving to death because of everyone sitting on the sidelines and refusing to buy devices because they'll get more for their money in the future.
It does no such thing, Yes, everyone does know, but some people need something now, and so buy it now. Pre-announcing has actually been shown to effect sales, just ask Adam Osbourne:
* https://en.wikipedia.org/wiki/Osborne_effect
Or perhaps ask Pebble and/or Motorola about their sales numbers when the Apple Watch was announced.
Inflation benefits governments and other profligate borrowers. Deflation benefits savers (and everyone else, to a lesser extent.)
Yeah, like people with mortgages. As for savers, have you looked at the savings rate over the last few decades (at least in North America)?
Precisely this. For my part, this fairly obvious fact is highly likely to account for why inflation is never allowed to stop. Cynical? You bet.
You know 99% of people are not 1%ers right? That means they owe more than they own so benefitting from inflation and even the rich don't worry about inflation because they invest and investments follow inflation. Only idiots with money in mattresses are hurt by inflation.