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(BusinessWeek)   Economist - "The problem was not the [economic] models themselves, but the way they were taken as articles of faith." BURN THE HERETIC   (businessweek.com) divider line 50
    More: Obvious, berg Businessweek, economic model, money supply, PhDs  
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1744 clicks; posted to Business » on 01 Jun 2012 at 2:27 PM (2 years ago)   |  Favorite    |   share:  Share on Twitter share via Email Share on Facebook   more»



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2012-06-01 12:44:34 PM
www.chasingthefrog.com

We were right. Tell your politicians...we were right.
 
2012-06-01 01:20:37 PM
But the money ALWAYS will trickle down, subby.

/I'll get back to farking this chicken while I wait
 
2012-06-01 01:39:05 PM
Princeton
Harvard
MIT
University of Chicago

One of these things is not like the others, One of these things just doesn't belong, Can you tell which thing is not like the others. By the time I finish my song?
 
2012-06-01 02:35:39 PM

The Stealth Hippopotamus: Princeton
Harvard
MIT
University of Chicago

One of these things is not like the others, One of these things just doesn't belong, Can you tell which thing is not like the others. By the time I finish my song?


Harvard, because it is undeniably superior to everything else in the list.
 
2012-06-01 02:35:51 PM

The Stealth Hippopotamus: Princeton
Harvard
MIT
University of Chicago

One of these things is not like the others, One of these things just doesn't belong, Can you tell which thing is not like the others. By the time I finish my song?


t1.gstatic.com
 
2012-06-01 02:36:09 PM

The Stealth Hippopotamus: Can you tell which thing is not like the others.


MIT. The other three have football teams.
 
2012-06-01 02:40:55 PM

The Stealth Hippopotamus: Princeton
Harvard
MIT
University of Chicago

One of these things is not like the others, One of these things just doesn't belong, Can you tell which thing is not like the others. By the time I finish my song?


MIT. It's the safety school for kids wanting to go to CalTech, and the other three are safety schools for kids wanting to go to Stanford.
 
2012-06-01 02:41:25 PM
The problem was not with the idea of a free market, but with the confusion of free markets with "perfect" markets.
 
2012-06-01 02:41:35 PM

The Stealth Hippopotamus: Princeton
Harvard
MIT
University of Chicago

One of these things is not like the others, One of these things just doesn't belong, Can you tell which thing is not like the others. By the time I finish my song?


I was wondering about that too. Maybe one of their criteria was derpage?
 
2012-06-01 02:42:55 PM
No, seriously. Which one doesn't belong?
 
2012-06-01 02:43:25 PM

The Stealth Hippopotamus: Princeton
Harvard
MIT
University of Chicago

One of these things is not like the others, One of these things just doesn't belong, Can you tell which thing is not like the others. By the time I finish my song?


One of them has been and continues to teach a failed economic theory to all of it's finance and economic majors, but is still taken seriously as an institute of higher learning?

I'm sure they're just teaching the controversy, though.
 
2012-06-01 02:47:34 PM

Snarcoleptic_Hoosier: But the money ALWAYS will trickle down, subby.

/I'll get back to farking this chicken while I wait


Financial markets are self-policing
 
2012-06-01 02:48:39 PM

Wellon Dowd: The problem was not with the idea of a free market, but with the confusion of free markets with "perfect" markets.


Winner
 
2012-06-01 02:48:44 PM

Rent Party: The Stealth Hippopotamus: Princeton
Harvard
MIT
University of Chicago

One of these things is not like the others, One of these things just doesn't belong, Can you tell which thing is not like the others. By the time I finish my song?

One of them has been and continues to teach a failed economic theory to all of it's finance and economic majors, but is still taken seriously as an institute of higher learning?

I'm sure they're just teaching the controversy, though.


There is a time for supply side economics. It's infrequent and not applicable to our current situation, but it's not totally worthless.
 
2012-06-01 03:01:03 PM
I remember an article that came out a few months after the crash that went over some of the mathematical models that were used. One part that stood out was how the mathematicians that came up with the formulas, and actually understood their structure and flaws, never interacted with the traders or management that used the formulas.

I'm fuzzy on the details, so I'll have to dig that one up again. "The Equation that killed Wall Street" or something
 
2012-06-01 03:13:05 PM

Ham Sandvich: I remember an article that came out a few months after the crash that went over some of the mathematical models that were used. One part that stood out was how the mathematicians that came up with the formulas, and actually understood their structure and flaws, never interacted with the traders or management that used the formulas.

I'm fuzzy on the details, so I'll have to dig that one up again. "The Equation that killed Wall Street" or something


There's also "The Quants" which gets into that sort of thing. Mathematical models taken as a risk-free way to make money by people who didn't really understand them.

Many of the models also had flaws too, namely that they didn't model risk correctly.
 
2012-06-01 03:18:56 PM

CPennypacker: No, seriously. Which one doesn't belong?


Chicago is a "freshwater" school.

http://en.wikipedia.org/wiki/Saltwater_and_freshwater_economics

In economics, the freshwater school (or sometimes sweetwater school) comprises macroeconomists who, in the early 1970s, challenged the prevailing consensus in macroeconomics research. Key elements of their approach was that macroeconomics had to be dynamic, quantitative, and based on how individuals and institutions make decisions under uncertainty. Many of the proponents of this radically new approach to macroeconomics were associated with Carnegie Mellon University, the University of Chicago, the University of Rochester and the University of Minnesota. They were referred to as the "freshwater school" since Pittsburgh, Chicago, Rochester, and Minneapolis are located nearer to the Great Lakes.[1] The established consensus was primarily defended by economists at the universities and other institutions located near the east and west coast of the United States, such as Berkeley, Harvard, MIT, University of Pennsylvania, Princeton, Columbia, Stanford, and Yale. They were therefore often referred to as the saltwater schools.[1][2][3]

The terms 'freshwater' and 'saltwater' were first used in reference to economists by Robert E. Hall in 1976, to contrast the views of these two groups on macroeconomic research.[1] More than anything else it was a methodological disagreement about to what extent researchers should employ the theory of economic decision making and optimization when striving to account for aggregate ("macroeconomic") phenomena.

According to saltwater economic theory, the government has an important 'discretionary' role to play in order to actively stabilize the economy over the business cycle.[5]

Researchers associated with "the freshwater school" found that government economic policies are of utmost importance for both the economy's abilities to respond to shocks and for its long-term potential to provide welfare to its citizens. These economic policies are the rules and structure of the economy. They might be how markets are regulated, what government insurance programs are provided, the tax system, and the degree of redistribution, etc. Most researchers that have been associated with "the freshwater school" have, however, found it hard to identify mechanisms through which it is possible for governments to actively stabilize the economy through discretionary changes in aggregate public spending.[2]
[edit]
Internal model consistency ("rational expectations")

Economists usually disagree on how whether to model the preferences of decision makers in a model-consistent fashion (so-called "rational expectations"):

In general, "saltwater economists" insist less on internal model consistency then freshwater economists. Typically, they often find "examples of irrational behavior interesting and important."[6] Like behavioral psychologists, they tend to be interested in situations where individuals and groups behave in a seemingly boundedly rational way.

Freshwater economists have in general been interested in accounting for the behavior of large groups of people interacting in markets, and believe that understanding market failures requires framing problems that way.[7]
 
2012-06-01 03:23:49 PM
Meh. Economists just provide ex post facto justifications for decisions politicians were already going to make. No one actually determines economic policy based on belief in rational expectations, efficient markets, etc., but they are real hand theories for claiming that you're not just making it up as you go.

/ok, so maybe businesses pay some attention to such theories . . . but not a policy issue
 
2012-06-01 03:24:45 PM

Wellon Dowd: The problem was not with the idea of a free market, but with the confusion of free markets with "perfect" markets.


That's like saying, "Aside from that, Mrs. Lincoln, how was the play?"

We were never a free market, aren't a free market, will never be a free market. Something as uncontroversial as making fraud illegal prevents us from being a "free" market. And frankly, it's stupid to think even for a moment that ideology can do any good within the world of policy. Policy is best when it's results-driven. Ideology is cause-driven. Policy wonks might agree with ideologists for a given policy position, but that's only because it happens to be the best solution for a certain problem under a specific set of conditions. There is no preference. Ideologues think their way is a solution for everything.

The ONLY meaningful principles to be extracted from "free market" are a firewall between government and business (which has completely rotted away into an incestuous relationship while they stood by) and a regulatory system that is reactive, not proactive (which is a basic principle of the Founding Fathers anyway). So the ideologues claim way, way, WAY more credit than they deserve. What makes it particularly galling is that even as the government has gotten so corporatist that they're not even reacting, their tune still hasn't changed. (Again, they think their solution works for any problem, any condition.) If free market zealots watched sports the same way and a player snaps another player's neck with a dirty play, it's the ref's fault because there are too many rules.
 
2012-06-01 03:30:29 PM

The Stealth Hippopotamus: Princeton
Harvard
MIT
University of Chicago

One of these things is not like the others, One of these things just doesn't belong, Can you tell which thing is not like the others. By the time I finish my song?


i193.photobucket.com
 
2012-06-01 03:41:56 PM

dragonchild: Wellon Dowd: The problem was not with the idea of a free market, but with the confusion of free markets with "perfect" markets.

That's like saying, "Aside from that, Mrs. Lincoln, how was the play?"

We were never a free market, aren't a free market, will never be a free market. Something as uncontroversial as making fraud illegal prevents us from being a "free" market.


What he meant by perfect market was ideal conditions of information, access and rationality among buyers and sellers. Its a magical, fantasy world where everything is properly run, automatically. Generally, it only gets brought up in textbooks as a learning tool.

Ideologues take "perfect markets" to mean the more free the market, the more perfect its function. This is false.

And frankly, it's stupid to think even for a moment that ideology can do any good within the world of policy. Policy is best when it's results-driven. Ideology is cause-driven.

People get theory mixed up with truth too often, especially with finance and economics. There is a lot of math and there are elegant formulas to explain different phenomena. But, its still driven by human interaction, which is not that predictable.
 
2012-06-01 03:42:53 PM

Ham Sandvich: I remember an article that came out a few months after the crash that went over some of the mathematical models that were used. One part that stood out was how the mathematicians that came up with the formulas, and actually understood their structure and flaws, never interacted with the traders or management that used the formulas.

I'm fuzzy on the details, so I'll have to dig that one up again. "The Equation that killed Wall Street" or something


This is the article that you were thinking of:

Recipe for Disaster: The Formula That Killed Wall Street

The equation was all about correlating risk. The people using the equation just assumed that houses in different markets could never be correlated because "housing never goes down."
 
2012-06-01 03:44:58 PM

The Stealth Hippopotamus: Princeton
Harvard
MIT
University of Chicago

One of these things is not like the others, One of these things just doesn't belong, Can you tell which thing is not like the others. By the time I finish my song?


As of 2011, 43 Nobel Memorial Prizes in Economic Sciences have been given to 69 individuals.[7] Seven awards have been given for contributions to the field of macroeconomics, more than any other category.[8] The institution with the most affiliated Nobel laureates in Economics is the University of Chicago, which has 26 affiliated laureates.[9]
-wiki
 
2012-06-01 03:45:45 PM
People who have perfect knowledge and are rational decision makers are to economics what frictionless pulleys and massless cables are to physics. They are great for conceptual examples, but try to actually engineer something based on those tidy assumptions and you're in for a bad time.
 
2012-06-01 04:14:13 PM
No, the problem is the models. You can have faith in model that works.
 
2012-06-01 04:22:18 PM
FTA: "Harald Uhlig, chair of the economics department at the University of Chicago, another of the No. 1-rated economics graduate schools in the U.S., offers a kind of a model of his own. In an e-mail, he writes: Above all, I do not believe in central planning. What is true in private markets is true in PhD education as well: It is good to see different places try different approaches, to let the PhD students decide where they want to be educated, and to let the marketplace for future scientists decide what works and what does not."

So, what, essentially this guy is saying that "theories are things determined by popularity rather than evidence"?

How is this person employed at a higher learning institution? Shouldn't he be teaching at a creationist museum somewhere?
 
2012-06-01 04:24:33 PM

Ham Sandvich: dragonchild: Wellon Dowd: The problem was not with the idea of a free market, but with the confusion of free markets with "perfect" markets.

That's like saying, "Aside from that, Mrs. Lincoln, how was the play?"

We were never a free market, aren't a free market, will never be a free market. Something as uncontroversial as making fraud illegal prevents us from being a "free" market.

What he meant by perfect market was ideal conditions of information, access and rationality among buyers and sellers. Its a magical, fantasy world where everything is properly run, automatically. Generally, it only gets brought up in textbooks as a learning tool.

Ideologues take "perfect markets" to mean the more free the market, the more perfect its function. This is false.

And frankly, it's stupid to think even for a moment that ideology can do any good within the world of policy. Policy is best when it's results-driven. Ideology is cause-driven.

People get theory mixed up with truth too often, especially with finance and economics. There is a lot of math and there are elegant formulas to explain different phenomena. But, its still driven by human interaction, which is not that predictable.


wall street = gentrified gambling, what more do you need to know?
 
2012-06-01 04:32:26 PM

Ham Sandvich: What he meant by perfect market was ideal conditions of information, access and rationality among buyers and sellers.


OK, but if that's the case I'd prefer "hypothetical" market. Too many people think "perfect" is attainable IRL.

Ham Sandvich: People get theory mixed up with truth too often, especially with finance and economics. There is a lot of math and there are elegant formulas to explain different phenomena. But, its still driven by human interaction, which is not that predictable.


It's actually quite predictable; depressingly so. Marketing, propaganda, sociology, philosophy, game theory. It's just also very profitable to do something dangerous and then later claim the results were unexpected. This is pretty much political economics in a nutshell. Start with an ideology, make predictions, set policy according to said predictions, and when human behavior fails to conform, feign surprise. In fact, game theory is a much better predictor of human behavior than economics, making it a much better foundation for policy. It's just that selfishness in game theory is a thing (not good or bad -- just predictable), whereas not kosher in America to think of selfishness as anything other than an inherently good thing. That's what politicians really mean by "the invisible hand" -- if we're all self-centered greedy farks, then everything will all work out. They omit the words, "for us".
 
2012-06-01 04:32:47 PM
Mathematicizing something always leads to certain assumptions. Some are big assumptions and some are small assumptions. Not knowing what those assumptions are can lead to some serious misinterpretation of those models. This is true in any situation, not just for economics.
 
2012-06-01 04:33:51 PM

dragonchild: This is pretty much political economics in a nutshell. Start with an ideology, make predictions, set policy according to said predictions, and when human behavior fails to conform, feign surprise claim the bad results were because we weren't ideological ENOUGH.


FTFM
 
2012-06-01 04:54:55 PM

dragonchild: In fact, game theory is a much better predictor of human behavior than economics, making it a much better foundation for policy.


Eh, a lot of economics already uses game theory. The problem with game theory is the same problem as everywhere else in economics. You have to make assumptions about the pay-off matrix. The rest is just optimisation. It is really no different from maximising utility over a set of preferences.
 
2012-06-01 05:26:59 PM

dsmith42: Ham Sandvich: I remember an article that came out a few months after the crash that went over some of the mathematical models that were used. One part that stood out was how the mathematicians that came up with the formulas, and actually understood their structure and flaws, never interacted with the traders or management that used the formulas.

I'm fuzzy on the details, so I'll have to dig that one up again. "The Equation that killed Wall Street" or something

This is the article that you were thinking of:

Recipe for Disaster: The Formula That Killed Wall Street

The equation was all about correlating risk. The people using the equation just assumed that houses in different markets could never be correlated because "housing never goes down."


It's like driving a car by only looking in the review mirror.
 
2012-06-01 05:51:18 PM

Thrag: People who have perfect knowledge and are rational decision makers are to economics what frictionless pulleys and massless cables are to physics. They are great for conceptual examples, but try to actually engineer something based on those tidy assumptions and you're in for a bad time.


I call economic ideologues "worm farmers". If you have ever read the literature on worm farming, you'll find it to be a sure-fire, can't-fail business model. On paper.
In the real world, almost nobody ever succeeds at worm farming.
 
2012-06-01 05:56:42 PM

Bad_Seed: No, the problem is the models. You can have faith in model that works.


A model that works 100% of the time is not model.
 
2012-06-01 06:14:35 PM
It doesn't matter what discipline you are studying, if it uses mathematical models to predict future results, it is going to have varying degrees of success.

Perfect Modeling requires Perfect Understanding of all the Variables.

There are very few instances where we know all the variables perfectly, so the model is always flawed. In some disciplines, the models only have small flaws, because there are less variables or overtime we have become better at adjusting the models to better mimic real life results. But in some disciplines the models can have huge flaws because they are trying to model chaotic systems where all the inputs and the resulting variations are only minimally understood.

Economic models are probably perfect examples of the latter. They are trying to model human behavior. I only had 3 semesters of economics in college, but I can away with a firm belief that things like stock prices are driven a lot more by human emotion than the people teaching the classes wanted to account for. It doesn't matter what the numbers say about the economy if people are afraid. If they are afraid, they no longer think rationally. Which the models, trying to predict their behavior, assume they always do.
 
2012-06-01 06:49:04 PM

jso2897: Thrag: People who have perfect knowledge and are rational decision makers are to economics what frictionless pulleys and massless cables are to physics. They are great for conceptual examples, but try to actually engineer something based on those tidy assumptions and you're in for a bad time.

I call economic ideologues "worm farmers". If you have ever read the literature on worm farming, you'll find it to be a sure-fire, can't-fail business model. On paper.
In the real world, almost nobody ever succeeds at worm farming.


do you have any data on this? i have a pal who's dying to have a worm farm
 
2012-06-01 07:26:34 PM

HempHead: dsmith42: Ham Sandvich: I remember an article that came out a few months after the crash that went over some of the mathematical models that were used. One part that stood out was how the mathematicians that came up with the formulas, and actually understood their structure and flaws, never interacted with the traders or management that used the formulas.

I'm fuzzy on the details, so I'll have to dig that one up again. "The Equation that killed Wall Street" or something

This is the article that you were thinking of:

Recipe for Disaster: The Formula That Killed Wall Street

The equation was all about correlating risk. The people using the equation just assumed that houses in different markets could never be correlated because "housing never goes down."

It's like driving a car by only looking in the review mirror.


Or by hypothesizing that a perfect road should be perfectly straight, and thus any curves in the road is the result of government interference.
 
2012-06-01 08:09:13 PM

mr lawson: As of 2011, 43 Nobel Memorial Prizes in Economic Sciences have been given to 69 individuals.[7] Seven awards have been given for contributions to the field of macroeconomics, more than any other category.[8] The institution with the most affiliated Nobel laureates in Economics is the University of Chicago, which has 26 affiliated laureates.[9]
-wiki



Exactly. The school created an economic model that was brilliant in its creation of a system that handed untold wealth to the ruling class. Of course it would be awarded many times.
 
2012-06-01 08:29:46 PM

ghare: jso2897: Thrag: People who have perfect knowledge and are rational decision makers are to economics what frictionless pulleys and massless cables are to physics. They are great for conceptual examples, but try to actually engineer something based on those tidy assumptions and you're in for a bad time.

I call economic ideologues "worm farmers". If you have ever read the literature on worm farming, you'll find it to be a sure-fire, can't-fail business model. On paper.
In the real world, almost nobody ever succeeds at worm farming.

do you have any data on this? i have a pal who's dying to have a worm farm


Well, when he finishes dying, bury him in soft potting soil with a bunch f**king night crawlers, and he'll have one.
 
2012-06-01 09:19:09 PM

weiserfireman: It doesn't matter what discipline you are studying, if it uses mathematical models to predict future results, it is going to have varying degrees of success.


Can we stop at giving these idiots more credit than they deserve already? Prevailing economic theories aren't even mathematically modeled these days; it's just marketing.

"Supply side economics", for example. That's just a sound bite for tax cuts for the rich. That's it. There is no model. There are no calculations whatsoever. At best it's a dreamland thought experiment debunked by every single wealth consolidation in history, which is just about most of history.

Same with the Laffer curve. Do you SEE any units? Any function or formula? Do you know how it was derived? It's just a goddamn bell curve suspended above two labeled axes.

As for deregulation a.k.a. libertarianism, that's just an unshakable assumption that there are too many laws. There is no bearing on how many, which are good, which are bad, nothing. We just have too many laws so we need to get rid of as many as possible. THERE IS NO MATH. THERE IS NO MODEL.

Honestly, I'd feel better if the guys running this country were even capable of basic math.
 
2012-06-02 12:15:57 AM

dragonchild: weiserfireman: It doesn't matter what discipline you are studying, if it uses mathematical models to predict future results, it is going to have varying degrees of success.

Can we stop at giving these idiots more credit than they deserve already? Prevailing economic theories aren't even mathematically modeled these days; it's just marketing.

"Supply side economics", for example. That's just a sound bite for tax cuts for the rich. That's it. There is no model. There are no calculations whatsoever. At best it's a dreamland thought experiment debunked by every single wealth consolidation in history, which is just about most of history.

Same with the Laffer curve. Do you SEE any units? Any function or formula? Do you know how it was derived? It's just a goddamn bell curve suspended above two labeled axes.

As for deregulation a.k.a. libertarianism, that's just an unshakable assumption that there are too many laws. There is no bearing on how many, which are good, which are bad, nothing. We just have too many laws so we need to get rid of as many as possible. THERE IS NO MATH. THERE IS NO MODEL.

Honestly, I'd feel better if the guys running this country were even capable of basic math.


They are capable of basic math. I'm sure they are GREAT at balancing their checkbooks. The electorate, not so much.

We really need zombie Stephen Gould to pen "The Mismeasure of Money."
 
2012-06-02 06:38:30 AM

dragonchild: "Supply side economics", for example. That's just a sound bite for tax cuts for the rich. That's it. There is no model. There are no calculations whatsoever. At best it's a dreamland thought experiment debunked by every single wealth consolidation in history, which is just about most of history.


b-b-b-b-but Say's Law, and supply will create demand, and Reagan! Reagan! Reagan!
 
2012-06-02 07:36:56 AM

Ishkur: dragonchild: "Supply side economics", for example. That's just a sound bite for tax cuts for the rich. That's it. There is no model. There are no calculations whatsoever. At best it's a dreamland thought experiment debunked by every single wealth consolidation in history, which is just about most of history.

b-b-b-b-but Say's Law, and supply will create demand, and Reagan! Reagan! Reagan!


You can create great looking calculations about anything. Start with some basic assumptions, then build a math model around those assumptions. By the time your done you have calculations based on calculations based on those underlying assumptions. Add enough levels of complexity, and you don't even see those original assumptions. Of course none of your fantastic statistical analysis means jack shiat if those original base assumptions are wrong.

Oh and here's the kicker about all economic theory: you can't model human behavior. We're irrational, greedy, and chaotic. Sometimes we act rationally, sometimes we act like frightened herd animals, and sometimes our behavior is more like that of a virus. There's simply no way of knowing what our behavior will be at any given time. Oh, and we lie too. How do you calculate the behavior of a rational market when it can spin off into the irrational at any random time, and with numbers that may or may not be accurate?
 
2012-06-02 07:42:23 AM

BigBooper: Oh and here's the kicker about all economic theory: you can't model human behavior


I always trot out this gem whenever a discussion about the usefulness of economics (or economists) comes up:

First of all, yes it's true that nobody knows how the economy fully works. At least, not with crystal clarity.

The laws of economics are constructs invented by man to explain, predict and record collective human behavior. What that means is that economics is a number-crunching science much like physics, filling in values and numbers and formulas in an impossibly massive equation. Unlike physics, however, the mathematics of economics don't always work the way we think they will because, after all, they are subject to human farking behavior.

So we don't actually know what that equation looks like. We have general ideas of what parts of it look like and how it operates, but no one understands the complete, big picture to mathematical clarity, such that when we make small adjustments to the equation like changing interest rates or deregulating investment brackets, the results surprise us. Because they're almost nothing like what we predicted would happen. Not even supply and demand works the way it should.

Economics is simultaneously a hard and soft science. The changes people make to the great economics algorithm are always blind, usually self-serving, and won't work the same way forever.

There are men who come forth every now and then -- Keynes, Friedman, Taylor, Hayak, Galbraith, etc -- who propose theories and write treatises on how to manipulate the equation to make good things happen, and people put these theories to the test...and the theories always get things temporarily right and partly wrong, but no theory ever gets it completely right.
 
2012-06-02 07:45:23 AM
Oh. I tout it was the fact tht all the models and rules where completely ignored. Now I see the models were followed...then led to collapse...but they are good models. With logic like that, these people must be atheists.
 
2012-06-02 08:31:25 AM

Proteios1: Oh. I tout it was the fact tht all the models and rules where completely ignored. Now I see the models were followed...then led to collapse...but they are good models. With logic like that, these people must be atheists.


Next time you have a tout, let it go.
 
2012-06-02 09:31:57 AM

weiserfireman: It doesn't matter what discipline you are studying, if it uses mathematical models to predict future results, it is going to have varying degrees of success.

Perfect Modeling requires Perfect Understanding of all the Variables.

There are very few instances where we know all the variables perfectly, so the model is always flawed. In some disciplines, the models only have small flaws, because there are less variables or overtime we have become better at adjusting the models to better mimic real life results. But in some disciplines the models can have huge flaws because they are trying to model chaotic systems where all the inputs and the resulting variations are only minimally understood.

Economic models are probably perfect examples of the latter. They are trying to model human behavior. I only had 3 semesters of economics in college, but I can away with a firm belief that things like stock prices are driven a lot more by human emotion than the people teaching the classes wanted to account for. It doesn't matter what the numbers say about the economy if people are afraid. If they are afraid, they no longer think rationally. Which the models, trying to predict their behavior, assume they always do.


I took more than 3 semesters of Economics in college and got the exact same impression. The theories, both socialist and capitalist (vote Republican), are neat, tidy and mostly logical on paper. But there are some bits and pieces of reality that aren't accounted for. Too folks have enough self awareness to see the holes in their own world view and economics is not different. Just that they have academic and statistical heft to justify it.

Which is to say, they love smelling their own farts and have no idea why everyone else is gagging.
 
2012-06-02 09:36:19 AM
Ham Sandvich:
I took more than 3 semesters of Economics in college and got the exact same impression. The theories, both socialist and capitalist (vote Republican), are neat, tidy and mostly logical on paper. But there are some bits and pieces of reality that aren't accounted for. Too few folks have enough self awareness to see the holes in their own world view and economics is not different. Just that they have academic and statistical heft to justify it.

Which is to say, they love smelling their own farts and have no idea why everyone else is gagging.


FTFM
 
2012-06-02 03:49:00 PM

dragonchild: Can we stop at giving these idiots more credit than they deserve already? Prevailing economic theories aren't even mathematically modeled these days; it's just marketing.

"Supply side economics", for example. That's just a sound bite for tax cuts for the rich. That's it. There is no model. There are no calculations whatsoever. At best it's a dreamland thought experiment debunked by every single wealth consolidation in history, which is just about most of history.

Same with the Laffer curve. Do you SEE any units? Any function or formula? Do you know how it was derived? It's just a goddamn bell curve suspended above two labeled axes.

As for deregulation a.k.a. libertarianism, that's just an unshakable assumption that there are too many laws. There is no bearing on how many, which are good, which are bad, nothing. We just have too many laws so we need to get rid of as many as possible. THERE IS NO MATH. THERE IS NO MODEL.

Honestly, I'd feel better if the guys running this country were even capable of basic math.



This is why I have you favourited as "Business Guru". I wish more people would get it.
 
2012-06-02 10:22:23 PM
If i may paraphrase Ishkur: economics is the study of human interaction convuluted by natural forces. The study of people interacting is sociology. Sociology is applied psychology and all of psychology will show you that everyone is farking nuts.
 
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