It seems that people are too hurried to read the article and are commenting the title and economics on general level.
Basic macroeconomics did fine. Austerity side Alesina/Ardagna/Reinhart/Rogoff camp was utterly wrong. Spreadsheet errors in their studies that became basis for political action etc. Even after the austerity approach has been shown to be baseless in academia it continues to live in politics. Politicians have little or no ability to evaluate what they hear or read.
The problem is that politicians don't give a solitary shit about economics except when it gives them cover for doing what they wanted to do anyway. I hope no one genuinely believe that politicians wanted to enact austerity measures or shrink government because of economics. They do it because huge corporations and billionaires want less taxes and lower regulation so they can accumulate more wealth personally. Whether the economy as a whole or even a a majority of the people benefits is irrelevant to them. See also climate change.
If you look now, you will see that this is simple not true. Countries with independent aggressive monetary policy did the best. Countries one the Euro that did Austerity did better then those that increased taxes. Maybe in Krugmans fantasy land you can do neither, but most people live in the real world.
The IMF actually apologized to Britain after attacking it about cuts.
It was Krugman that was horrible wrong on the US for example, anybody remember the "fiscal cliff" in 2013? Krugman and friends went large and issued dire warning, he even called it a "test for market monetarism". Not a single blip in GDP was observed and then Krugman promptly denied everything.
> Even after the austerity approach has been shown to be baseless in academia it continues to live in politics. Politicians nearly no ability to evaluate what they hear or read.
Unfortunately, politicians and the general public often inject philosophy and morality into their view of finances and Economics. Beyond austerity, another example is drug testing and work requirements for entitlements. This is particularly problematic if automation permanently reduces the demand for actual human labour.
"Economics is a highly sophisticated field of thought that is superb at explaining to policymakers precisely why the choices they made in the past were wrong. About the future, not so much." -- Ben Bernanke, 2013
(the quote is from an unexpectedly funny and thoughtful commencement speech)
Great Depression: industrial production in the United States declined 47 percent and real gross domestic product (GDP) fell 30 percent.
In comparison 2010-2014 was a minor blip, with less than 3% GDP drop, that barely qualifies as a correction. I fear central banks have actually gotten to good at minimizing these issues as we could easily do the same thing in another 10 years, where the great depression created far more systemic change in both organizations and peoples attitude to investing and credit.
PS: People want the post correction economy to match up with the pre-recession economy. However, in the case of irrational behavior the rational economy should have a lower GDP and that's not actually a problem.
A minor blip where millions lost their jobs, houses, and businesses...
The hard part about economic analysis is you can never know all the variables in a dynamic system. It's a common error to summarize based on variables convenient to the theme you choose to present only to later realize your analysis should have included some fairly obvious factors.
That's true for correction against irrational exuberance in a static environment. This may explain Japan. But the world is usually dynamic. Technological progress, non-monetary fiscal/regulatory reform, new business innovations (of the non-subprime-mortgage flavor), world events, and population growth are rational factors that can simultaneously push up GDP during or following a correction of previous irrationality.
If economists did come to a broad consensus, many politicians would still ignore that consensus if it didn't happen to fit their worldview or the interests of their major donors.
> Republicans and Democrats show identical distributions of responses for 18 propositions (41 percent) while economists and Democrats show identical distributions for 7 propositions (16 percent) and economists and Republicans share identical response distributions for 9 propositions (20 percent). These results suggest a gap between the economic views of the political parties and
economists’ views.
From what it looks in these comments, almost no one read this article nor know who Bradford Delong is. He's a New Keynesian, arguing no one listened to Keynesians...
Because economics has always been utterly useless in any practical sense. It makes no testable predictions and is no more scientific than any theology. Only because it clothes its dogmas in symbolic notation is it accorded even the slightest bit of respect. The sooner we jettison it from our epistenic frames, the more quickly we will return to something that at least partially resembles sanity.
That's not true. There are, for example, GDP growth forecasts published by almost all central banks and many other institutions. They are pretty wrong, most of the time. But they are made, and falsifying them has been pretty easy in the past.
There are many more theories in economics that are, in principle, testable and falsifiable. The problem is that it's difficult to run controlled "experiments" on interventions. You never have a control group in the strict sense, and everything is connected to everything else.
I believe that Economics should be a subset of Psychology. It mystifies me how Psych or Sociology classes arent required for a major. One would think that practitioners of a field essentially about human behavior would have insight into actual human behavior. And you would be wrong. Humans are replace by the mythical rational agent
You are correct though. Economists are so proud of their elegant equations that they won't let questions like "Does this model accurately measure reality" stop them.
There was another article on academic incentives today that referenced a wonderful quote:
"When a measure is used as a target, it ceases to be a good measure."
My impression is that economics as a whole does not understand this. When you target GDP for example, GDP ceases to be a good measure of anything. The trouble with economics as a science is that its results are used to guide the economy. This creates a feedback loop, making it essentially a self-invalidating discipline.
That's true if what you measure is only a proxy for some other reality that you actually want to affect, but that is harder to measure. Cholesterol, for example, has long been targeted because it had shown a high correlation to cardiovascular health and life expectancy. The result was a long series of medications that successfully lowered cholesterol, with occasional death as a side effect.
GDP is pretty close to what you actually want to change. There are some other measures, such as social mobility, Gini, or poverty–but rising GDP has almost always been good for people.
Economists are mostly to be considered historians and even as historians they have very little actual data about the things that make an economy.
This is most visible in the fact that they treat technology as an externality even though its probably the most important factor in understanding our current economy. These economists with their models still assume production as primarily an output of labour are advicing our politicians. Its going to be seen as an era of great ignorance to the factors that really matter to an economy today.
It is hard to characterize as diverse a field as economics. However, there are some influential sectors of the field of economics that 1) avoids rigorous empirical research, and/or 2) identifies economic policies that benefit their benefactors, and then produce economic theory that support those policies. Which is backwards, or at least distorted.
There is also a troubling cult of personality that plagues the field, where Nobel Prize winners and other luminaries' research is accepted as truth without peer review. Example: Greenspan
Its interesting how DeLong who got so many things wrong is so convinced he is totally correct. He talks about Skidelsky, who is a convicted old Keynesian who somehow survived the 70s to hunt economics.
Many monetarist (and others) have correctly point to these the drop-off in demand in 2008/2009 and said if it continued it would be bad.
The large error that happened, was actually the professions believe in the liquidity trap. Those like Krugman and DeLong who wrongly believed that 'the central bank was out of ammo' and the central bankers who ran around like headless chickens when their New Keynesian models failed at the ZLB. It took smart central bankers like those in Switzerland and others (and eventually the US) to overcome that and simply go back to what is now called 'unconventional monetary policy'. It is of course only called that because New Keynesian labeled it that (its not in their models so it can't possibly be a normal thing to do).
The Fed for example was so convinced that they needed to control the interest rate (because of New Keynesian thinking), they sterilized (selling bonds to prevent the balance sheet from growing) all their bad asset purchases and once they were unable to sustain that and started growing the balance sheet (labeled QE1 after the fact), they switched to paying interest on reserves with the express purpose to not allow the new money to 'get out'. At the same time they are doing this, NGDP is falling of a cliff. Its economic madness and the reason is a false believe in New Keynesian models and specifically the liquidity trap. It is insane to use a model that practically fails when the crisis hits.
A lot of economics aside from the first year undergrad basics are being contested, I've discussed this issue with several economics professors and their consensus is to use the basics but ignore the more senior stuff.
It's great there isn't a "consensus" between economists, otherwise if that consensus was wrong we would never be able to leave it, like what happens in other sciences.
Yes, it really would be terrible if economics ended up like physics or chemistry, where consensus results in vast numbers of useful and correct predictions.
Nobody thinks national debt doesn't matter. They think the long term costs of endemic poverty or economic stagnation outweigh the long term costs of carrying a deficit.
[+] [-] nabla9|9 years ago|reply
Basic macroeconomics did fine. Austerity side Alesina/Ardagna/Reinhart/Rogoff camp was utterly wrong. Spreadsheet errors in their studies that became basis for political action etc. Even after the austerity approach has been shown to be baseless in academia it continues to live in politics. Politicians have little or no ability to evaluate what they hear or read.
Backgrounder:
How the Case for Austerity Has Crumbled http://www.nybooks.com/articles/2013/06/06/how-case-austerit...
[+] [-] empath75|9 years ago|reply
[+] [-] nickik|9 years ago|reply
The IMF actually apologized to Britain after attacking it about cuts.
It was Krugman that was horrible wrong on the US for example, anybody remember the "fiscal cliff" in 2013? Krugman and friends went large and issued dire warning, he even called it a "test for market monetarism". Not a single blip in GDP was observed and then Krugman promptly denied everything.
[+] [-] FullMtlAlcoholc|9 years ago|reply
Unfortunately, politicians and the general public often inject philosophy and morality into their view of finances and Economics. Beyond austerity, another example is drug testing and work requirements for entitlements. This is particularly problematic if automation permanently reduces the demand for actual human labour.
[+] [-] unknown|9 years ago|reply
[deleted]
[+] [-] hkmurakami|9 years ago|reply
(the quote is from an unexpectedly funny and thoughtful commencement speech)
https://www.youtube.com/watch?v=Ww6guPQsKQo
http://money.cnn.com/2013/06/02/news/economy/bernanke-prince...
[+] [-] socmag|9 years ago|reply
https://rwer.wordpress.com/2013/11/09/the-scientific-illusio...
[+] [-] Retric|9 years ago|reply
In comparison 2010-2014 was a minor blip, with less than 3% GDP drop, that barely qualifies as a correction. I fear central banks have actually gotten to good at minimizing these issues as we could easily do the same thing in another 10 years, where the great depression created far more systemic change in both organizations and peoples attitude to investing and credit.
PS: People want the post correction economy to match up with the pre-recession economy. However, in the case of irrational behavior the rational economy should have a lower GDP and that's not actually a problem.
[+] [-] hl5|9 years ago|reply
The hard part about economic analysis is you can never know all the variables in a dynamic system. It's a common error to summarize based on variables convenient to the theme you choose to present only to later realize your analysis should have included some fairly obvious factors.
[+] [-] drak0n1c|9 years ago|reply
[+] [-] AnimalMuppet|9 years ago|reply
[+] [-] astrodust|9 years ago|reply
[+] [-] thinkling|9 years ago|reply
See: climate science.
[+] [-] cheald|9 years ago|reply
https://cclark.gcsu.edu/Survey%20of%20Republicans,%20Democra...
> Republicans and Democrats show identical distributions of responses for 18 propositions (41 percent) while economists and Democrats show identical distributions for 7 propositions (16 percent) and economists and Republicans share identical response distributions for 9 propositions (20 percent). These results suggest a gap between the economic views of the political parties and economists’ views.
[+] [-] FullMtlAlcoholc|9 years ago|reply
[+] [-] Fordrus|9 years ago|reply
I've been drawn to question what to do about that quite often, but I havent happened across an acceptable answer as yet.
[+] [-] TSiege|9 years ago|reply
[+] [-] lollerbot817|9 years ago|reply
[+] [-] matt4077|9 years ago|reply
That's not true. There are, for example, GDP growth forecasts published by almost all central banks and many other institutions. They are pretty wrong, most of the time. But they are made, and falsifying them has been pretty easy in the past.
There are many more theories in economics that are, in principle, testable and falsifiable. The problem is that it's difficult to run controlled "experiments" on interventions. You never have a control group in the strict sense, and everything is connected to everything else.
[+] [-] FullMtlAlcoholc|9 years ago|reply
You are correct though. Economists are so proud of their elegant equations that they won't let questions like "Does this model accurately measure reality" stop them.
[+] [-] RoyTyrell|9 years ago|reply
Are you talking about the Austrians whom try to prove their ideas with praxeology?
[+] [-] api|9 years ago|reply
"When a measure is used as a target, it ceases to be a good measure."
My impression is that economics as a whole does not understand this. When you target GDP for example, GDP ceases to be a good measure of anything. The trouble with economics as a science is that its results are used to guide the economy. This creates a feedback loop, making it essentially a self-invalidating discipline.
[+] [-] matt4077|9 years ago|reply
GDP is pretty close to what you actually want to change. There are some other measures, such as social mobility, Gini, or poverty–but rising GDP has almost always been good for people.
[+] [-] ThomPete|9 years ago|reply
This is most visible in the fact that they treat technology as an externality even though its probably the most important factor in understanding our current economy. These economists with their models still assume production as primarily an output of labour are advicing our politicians. Its going to be seen as an era of great ignorance to the factors that really matter to an economy today.
[+] [-] SubiculumCode|9 years ago|reply
[+] [-] FullMtlAlcoholc|9 years ago|reply
[+] [-] nickik|9 years ago|reply
Many monetarist (and others) have correctly point to these the drop-off in demand in 2008/2009 and said if it continued it would be bad.
The large error that happened, was actually the professions believe in the liquidity trap. Those like Krugman and DeLong who wrongly believed that 'the central bank was out of ammo' and the central bankers who ran around like headless chickens when their New Keynesian models failed at the ZLB. It took smart central bankers like those in Switzerland and others (and eventually the US) to overcome that and simply go back to what is now called 'unconventional monetary policy'. It is of course only called that because New Keynesian labeled it that (its not in their models so it can't possibly be a normal thing to do).
The Fed for example was so convinced that they needed to control the interest rate (because of New Keynesian thinking), they sterilized (selling bonds to prevent the balance sheet from growing) all their bad asset purchases and once they were unable to sustain that and started growing the balance sheet (labeled QE1 after the fact), they switched to paying interest on reserves with the express purpose to not allow the new money to 'get out'. At the same time they are doing this, NGDP is falling of a cliff. Its economic madness and the reason is a false believe in New Keynesian models and specifically the liquidity trap. It is insane to use a model that practically fails when the crisis hits.
[+] [-] forkLding|9 years ago|reply
[+] [-] fiatjaf|9 years ago|reply
[+] [-] mikeash|9 years ago|reply
[+] [-] moxious|9 years ago|reply
[+] [-] carsongross|9 years ago|reply
Steve Keen explains how wrong this is.
[+] [-] naravara|9 years ago|reply
[+] [-] HeavenBanned|9 years ago|reply
[deleted]
[+] [-] VHRanger|9 years ago|reply
[+] [-] AndrewOMartin|9 years ago|reply
[+] [-] Gibbon1|9 years ago|reply
[+] [-] crimsonalucard|9 years ago|reply
Economists model chaos and use that model to predict the future.
[+] [-] matt4077|9 years ago|reply
And forecasts in that realm have improved tremendously over the last years.
[+] [-] PravlageTiem|9 years ago|reply
[deleted]
[+] [-] thinkling|9 years ago|reply
[deleted]