By David James. The inadequacies of economics as it is commonly practiced are obvious enough to any thoughtful observer. The question is: why do so few smell the odour? This was the question that occurred to me when reading an analysis of economic academia by Deidre McClosky, called “The Secret Sins of Economics” (which a
A guest post today from a Canberra economist with significant expertise in analysing household dynamics, and the labour market in particular – let’s call her The Householder. She can be contacted at [email protected] * Whenever unemployment statistics are released, there are invariably exclamations of disbelief from those whose personal experiences do not accord with their most recent
Humanity has long been confounded by the ever-shifting changes of the Earth. From time immemorial, earthquakes and volcanoes would blight society’s thin hold, farmers would find droughts and floods denying the seasons, while rivers and lakes would inexplicably appear then disappear. For most of civilisation’s short existence, only mystics and religion could justify these events.
By David James. Economics may not be a science, but it is an extreme example of scientism: the bane of what is laughably referred to as modern civilisation. Scientism, the religion that science should be applied far beyond what it is devised to do, has in economics been turned into a reversal of what causes
Many measures in economics require close scrutiny to assess their efficacy. Of course, no measure is a problem in itself. But they are usually attached to popular metaphors that can be very much a problem. Productivity is one such measure/metaphor. Whether it is labour productivity or multi-factor productivity, productivity is an industrial-era measure that tracks
I’m not usually one to talk about alternative monetary systems. I’m somewhat like Sell on News when it comes to our monetary system. Money is rules and the rules are as they are. Yes, it’s sometime interesting and intellectually challenging to talk about how things could be, but the system is what it is and
It should be obvious to even the most casual observer that economics is not a science. That this is not obvious to many is clear evidence that epistemology, the philosophy of knowledge, is little understood by economists. There is no possibility of repeating experiments because the “laboratory” conditions keep changing. As a consequence, there is
Making fun of assumptions economists make is an enjoyable past-time. But we shouldn’t forget that it is the immense difficulty in understanding the complex economic system that leads to these often outrageous (sometimes useful) simplifying assumptions. This same difficulty has lead serious economists to be extremely cautious about the appropriate use of statistical methods and
Economics is the study of markets under a particular set of assumptions. Consider the perfect market – complete, perfect information, free entry, prices adjust to clear the market, a single price emerges. Teaching the foundations of this model is more easily done by appealing to real life situations where perfect markets exist. One classic example
Rational markets can be efficiently designed, most economists will concur. And by using complex algorithms and models, efficient markets can become ever more rational. That was essentially the premise behind awarding this year’s Nobel Prize in Economics – the Sveriges Riksbank Prize – to two American luminaries of game theory, Alvin Roth and Lloyd Shapley.
If a team of interplanetary anthropologists (the phrase is an oxymoron, but we have none better) were to descend to earth in their spacecraft they would notice that, like some distant tribe who worships a panther’s claw, a voodoo mask or the gnarled roots of an ancient tree, the human race has a strange fetish
While Europe may be reaching a deal of sorts between Teutonic lender and Latin borrower, and while pre-election America may appear to be regaining momentum in the form of lending and employment data, economic turbulence has merely moved eastwards in its slow, global orbit. With the Asian Development Bank cutting regional growth forecasts from 6.9%
Our very own Rumplestatskin, Cameron Murray, is a speaker at a Young Economists event in Brisbane tonight. The topic is Queensland needs a ‘Tea Party’ – the future is small government. The event is open to all, and from what I hear, there is usually plenty of good people and interesting discussion. The Young Economists are
From Christine Milne this afternoon and presented without comment: An economy that serves people and nature, not the other way around 26 Sep 2012 | Christine Milne Thank you, Lyndal, distinguished guests, friends. I begin by acknowledging the Ngunnawal people, the traditional owners of the land on which we meet, and pay my respects to their elders
As you are surely aware by now, the US Federal Reserve has announced a new round of quantitative easing which like the ECB’s outright monetary transactions (OMT) is a new program of large scale asset purchases by a central bank. I thought I’d spend a bit of time today talking about these programs because once again I have
By Chris Becker Apart from the battalions of rent-seekers and copycats within the managed fund and hedge fund industry, there are a few “heroes” we follow closely here at MacroBusiness. Hugh Hendry, just for his acerbic wit alone is one, but unfortunately he is on a self-imposed media blackout (but check out his “greatest hits” here).
One of the consequences of economics pretending to be a science, when it is not, is the tendency to attempt to explain financial behaviour from its base constituent parts, rather as a physicist might build up a picture of a compound from its molecules. This repeatedly results in observations that are either banal or
Economists have hard a hard time explaining the nature of business cycles with internally consistent models. Indeed, while psychologists and sociologists have gained a broad understanding of the nature of individual and social interactions, when it comes the that mystical place called “the market”, economists prefer to throw out the key findings of these disciplines
A question that has been asked, but not nearly often enough, is why did the complex risk defrayal methods fail so completely during the global financial crisis? The GFC proved that risk measures based on INTERNAL measures, i.e. measures within the system, will fail. At the time of the GFC many participants thought they had
The locus of power has long been the point where banking and politics intersect. But the way they interplay is very different in different parts of the world. The capital markets may be global, but the banking systems on which that activity rests remain national. The tension between the global and the national is making
By Chris Becker The roll-on in key data continues today, with Japan announcing June final industrial production numbers at -1.5% year on year, with the May figures at -2% year on year: The spike earlier in the year has gone. So now two of the world’s biggest economies look set to slow. As a result, Asian equity markets
For once, a senior economist has had the humility to admit how little economists know. If only there were more. Nobel Laureate Sir James Mirrlees gave a talk at the ANU http://crawford.anu.edu.au/events/content/video/?year=2012&id=2341 which goes a long way to exposing the truth that the conventional economics Emperor has no clothes, or at least not the kind
The 41st Australian Conference of Economists was held in Melbourne last week. It provided a unique insight into the industry that should have been seriously shaken up by its failure to foresee the financial crisis, and to provide consistent macro-economic advice in general. Sadly, it was not. John Quiggin set the challenge to all attendees
There are growing signs that an intellectual edifice that has dominated economics and finance for about a quarter of a century is starting to crack. Let’s call it the Market-Finance Myth (MFM). It should be self evident, at least for those of us who bother defining our terms, that financial markets need to be considered
Donald Rumsfeld, the former US Secretary of Defence, attracted ridicule for his haiku-like comments about the limits of knowledge: There are known knowns; there are things we know that we know. There are known unknowns; that is to say there are things that, we now know we don’t know. But there are also unknown unknowns –
Professor John Quiggin has argued for years that a high private discount rate, or an individual’s preference for present over future benefits, does not imply that society as a whole should apply such discounting to evaluate long term projects. The good professor has been kind enough to formalise this principle to demonstrate its internal consistency.
John Conroy yesterday wrote of the decline in economics studies at Australian high schools and universities. For example, 35% of high school student took economics in NSW in 1991, while on 8% currently feel compelled to submit to the torture. But Conroy’s concern over the quality of economic debate due to the decline in formal
The stock market fate of Facebook has focused attention on the state of the public equity markets. Already, the company is being sued for allegedly misleading investors about the state of its business. There is much hand wringing about the problems of being publicly listed — the onerous burden of regulation, the public scrutiny, the
Imagine two ways of framing a financial trading choice. The first way is in the pseudo scientific language of finance. “An optimal trading strategy will be to go short on Greek and Spanish government bonds to exploit a high likelihood of sell off and debt restructuring which will keep portfolio returns well above inflation going