Economics

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"It really caters to my kind of thinking, and I find it pretty cool how "economics-style" thinking can be applied to so many other things."

There's a word for that, it's called economism. And it basicly means how most decisions are based on economics. <.< (very common in Liberal governments, such as the one in my province currently)

They're certainly still behind math majors, from what I've read, even on LSAT scores. Math majors also get higher average starting salaries and rank higher in job satisfaction.

Yes, they are not on average as smart as a minority of the planet, that is correct. That does not mean that they are abnormally stupid though, which is the only thing I really think is necessary to prove.

After all, some of the issues involved will be self-selection as certain majors are more difficult by nature, and some will only appeal to people who are given certain intellectual propensities.

In any case, here is a link with GRE scores per major:

http://mjperry.blogspot.com/2008/11/cha ... demic.html

It shows economists as being ahead of engineers, chemists and biologists. Still behind physicists, mathematicians and computer scientists, but being the 4th field is not a bad thing, and we still beat all of the humanities and social sciences.


Yeah... I really am a much bigger fan of being an auto-didact rather than being taught. Not only that, but colleges usually make things seem more like chores than anything else. I mean, they manage to make everything tedious through their regulations, it is ridiculous. AND they make you PAY for them to do that, which is even more ridiculous. I really am a big fan of the signaling model of educational attainment though, as one can realistically gain the skills without a degree.

okay, so explain to me how these group of smart people, whose job it is to study the economy, missed the biggest nose dive in 50 years?

People/markets are difficult to predict, macroeconomics was basically invented 50 years ago(and still has a lot of issues that need to be worked out), and there are a lot of people to predict in an actual economy and a lot of things that can go wrong that people might not necessarily see, not only that, but the very nature of a recession could even be such that recessions can only exist if they are not predicted. This kind of idea can be found in the idea of rational expectations, where people rationally react to the environment on the best of information and therefore a complete upset of all rational expectations would be necessary for a recessionary period(as otherwise arbitrage would even things out), and for Minsky's Financial Instability Hypothesis, which often can include the idea that psychological expectations of human beings escalate over time until the recession hits(even causing the recession due to increasingly risky efforts to make money), and the escalation is difficult to predict due to human psychology favoring irrationality, even amongst experts and government officials.

As such, I really wouldn't blame economists for not predicting things, it is just too difficult given the number of variables, the relative newness of the field you refer to(economics originally focused on individual markets and the division of labor), things can be overlooked given the number of variables, and the very nature of a recession could even be that it is that which isn't predicted and as such asking economists to predict it would be nonsensical.

ya but even to me, a layman, the idea of giving people with bad credit scores high end loans for housing seems like a very bad idea, and the failure to retain sufficent assets for said loans is clearly bad, since high risk loans to bad credit scores has a high chance of default

To my knowledge it was well known that that practice would quickly lead to trouble but it got political and short sighted.

Not all of them missed. Most of the economists who did miss it are in the "Keynesian" school of thought (which I describe as the "hur hur hur increase government spending and everything will be oooookaaaay!" school of thought). Personally, I think that Keynesian "theory" is really, really inaccurate (and part of what caused this mess in the first place).

There's one guy I can think of, Peter Schiff, who predicted this would happen back in 2006. You can find old interviews of him on YouTube arguing against a bunch of media pundits about how the economy is going to take a nosedive. There's also another interview of him going against economist Arthur Laffer on the issue.

ya, heard something about that, might be same guy, said it back in 1998

There are a few possible issues with this:
1) How do economists necessarily know that the mechanisms to handle this kind of maneuver do not exist at a given point in time? After all, the nature of an economy is to innovate, and a lot of things can be done with improved risk management or better research that can allow groups traditionally not handled to be handled. Some economists actually thought that mechanisms to handle this change DID exist, and because of that hoped that an improvement for the poor would occur because of these changes.
2) What economist is going to monitor all of the details of the implementation of these plans? After all, hindsight is 20/20, but there are a lot of things that economists have to look at and as such looking at all of them in great detail can be rather difficult, especially given that facts about a matter can be relatively uncertain given information asymmetry and biased reports. Heck, the business owners who were involved, had the GREATEST incentive to predict, and who would have the MOST information about this did not predict what would happen and honestly those individuals should have been the first.
3) Some things just cannot be predicted, for example, exogenous shocks in an economy can occur, and when they occur they can cause instability that would otherwise not exist. The issue is that we cannot predict the exogenous shocks or the outcomes of the exogenous shocks, so risks that aren't necessarily bad to take can rapidly become bad without this necessarily being predictable, and to claim that any of this should have been predicted is really just a cognitive bias.
4) There are multiple theories in economics for predicting things and variations upon theories, so some people actually did think that a recession was coming, but some is not all, and even predicting a recession or not predicting a recession isn't necessarily disproof of an entire theory given the complexity of the economy and the simplicity that theories have to work with.

In *any* case, a major issue that is involved here is the "hindsight bias", as human beings NATURALLY have a tendency to think that things in the past were easier to predict than they actually were, when things generally AREN'T that easy to predict at all. http://en.wikipedia.org/wiki/Hindsight_bias Frankly, the history of mankind is filled with the nearly universal human inability to predict the future, so to blame economics because it still suffers from the inability to predict the future seems rather unfair for any discipline, particularly given that predicting the future state of the economy is really only the affair of a sub-discipline of the field of macroeconomics, which was a field that was only invented 50 years ago to study a matter that is incredibly complex, that involves literally millions of actors, that could potentially show behavior that is chaotic (reference being to chaos mathematics a field of mathematics where small changes can exert massive effects upon outcome), and where the task of the economist may possibly even be to outpredict all experts in all other fields as your own question has to ask whether the economist is smarter than the financier who actually has more experience, more training, more knowledge, and more invested into the outcome of his field than the economist, and where there are a lot of things going on in the economy and in the political sphere affecting the economy that have outcomes that economists differed about when they were invoked, and that can cause very negative impacts later that few people really saw or thought were possible.

In any case, I would really bet that even with how bad the economists are, the layman is much much worse as the layman is not attempting to work from a discipline of knowledge, but rather just from a bunch of outdated evolutionarily planted biases or ideologically planted biases and basically stakes absolutely nothing with all of the bad predictions and bad facts that they have on the workings of the economy(and there are a lot of those in laymen). So, really, I don't hate economists too much for failing to predict the economy, some economists even think that such a matter is practically impossible.

Peter Schiff is considered a person to have predicted this, and it is important not to say "economists" as if they are just one homogeneous entity.


Well, to some extent there was politics involved, as I believe that Stan Liebowitz's analysis on this issue points to a political failing causing this thing to blow up. The issue is that politicians make a lot of messed up moves that do not blow up on us, so knowing which ones will and will not blow up is a rather difficult issue and to be honest, most economists don't investigate everything going on in an economy at a given point in time, but rather usually specialize and then that causes them to put more weight into what is going on in their specialization than perhaps other experts. Perhaps if economists were ideal rationalists and could all ideally process and convey correct information, then better predictions could be made, but this is a difficult matter. Major recessions are likely the hardest thing to predict with confidence as the nature of an economy is to allow for a lot of change both good and bad.

All our economic theories are based on concepts of stable equilibria In fact our economies are governed by chaotic dynamic non-linear processes. This is true of any system which is driven by human decisions.

Back in the 19th century the economists with math and physics envy chose to emulate Newtonian type classical systems. Unfortunately that is not the way the world or our economy works. Wrong model leads to wrong or highly inaccurate results.

ruveyn

Well, look. The USDA, for example, employs legions of economists. All of them work on generating numbers (expressed in dollars) to support spending money on farmers, or agricultural research, or some such nonsense. They go to a lot of effort to make it appear that they are performing intensely complex and exact calculations. But, really, their analyses are complete hogwash. They know it. All economists know it. But, they want to pretend to the world that they have "special knowledge, insights and abilities" that no-one else possesses. But, really, all they do is generate garbage that politicians can quote when they want to support spending money on something.

Or, more recently in the case of the banking industry, economists came up with clever-looking ways to bankrupt the country.

Warren Buffet observed something along the lines that business schools teach how to do complex and confusing calculations, because if all that they taught was "a bird in the hand is worth two in the bush", then they wouldn't stay in business. Basically, economists have learned not only how to do complex-looking calculations, but, more importantly for their careers and prestige, how to posture themselves and fake things to cause people to have confidence in their calculations and theories.



There is actually research to show that economists are "smarter" than social scientists? I'd love to read that paper.

Because when you attach a political agenda to something, science goes out the window.

Honest economists knew this was coming and were warning people about it. Those who wanted to get grands, government jobs, media spotlights, etc. had to tote the "do not alarm the masses" banner. They compromised honesty for temporary economic security.

I am sure they knew it was coming. But they did not know when it was coming.

ruveyn

Hrmph, i'd also like to read that paper saying that economists are smarter tahn social sciences please -.- (especially since they usually tend to be grouped in the same overall domain of social sciences here <.< )