Uncertainty

They don't call economics the dismal science for nothing.

FWIW, a recent EconTalk podcast was devoted to discussing empirical evidence and bias in the study of economics. I recommend it (and most of the other EconTalk podcasts).
Roberts (and Hanson) on Truth and Economics

Hayek's Nobel lecture, The Pretence of Knowledge, is probably more important today then it was 30+ years ago.

On the one hand the still recent establishment of the Nobel Memorial Prize in Economic Science marks a significant step in the process by which, in the opinion of the general public, economics has been conceded some of the dignity and prestige of the physical sciences. On the other hand, the economists are at this moment called upon to say how to extricate the free world from the serious threat of accelerating inflation which, it must be admitted, has been brought about by policies which the majority of economists recommended and even urged governments to pursue. We have indeed at the moment little cause for pride: as a profession we have made a mess of things.

When they make idealizing assumptions about human motivation and behavior, my understanding is that economists have models that will make precise predictions. They hedge and should hedge on extrapolating from those idealizations. Consider the following question one might put to a physicist: If I drop this piece of paper from the top of this ladder where will it land? The response will likely begin "in a vacuum...", which is an idealizing assumption.

It is, economically, a rather windy time and I don't fault economists for having the epistemic honestly to hedge on their predictions. We must make policy under conditions of uncertainty; there's not really any other option. That doesn't mean making things up or not relying at all on empirical data or theoretical models, however, and I think that Bernanke's statement was a fair description of the epistemic situation in which we find ourselves: in doubt, but forced nevertheless to decide and to act.

Maybe we're just spoiled in the physical sciences, but I don't think you'll read anything like that in Physical Review Letters.

No, but what might you find in a popular science article in a newspaper? It would probably be much closer to the presentation of the economic plans than to PRL. For example, I see many references to the Standard Model of Particle Physics, Quantum , and String Theory variety X, but I don't think I've seen the mathematics (or much of anything else technical, for that matter) of them in anything except wikipedia.

'Quantum ,' should read 'Quantum [insert variety]' - forgot not to use angle brackets, alas.

As a biologist, I can be somewhat more sympathetic to the economists. Most of our quantitative predictions are order of magnitude, at best...

The truth is that they don't answer because they are so jealous of physicists who get to study systems that are so small or otherwise controlled that their quantitative results can be tested out to several standard deviations for fit to a theory.

Economic theories, besides being applicable to systems with thousands of variables, have the unfortunate problem that they may actually affect the system to which they are supposed to apply if people end up believing them. Find me a physics experiment with that problem, and I'm sure that the economists would be less jealous.

Everything in the social sciences is simultaneously true and not true. Economics denies positive feedback. Lyndon Johnson's "Great Society" did not end American poverty, it enabled it - and spread it to those whose incomes were compassionately redistributed. Economics is short-term extrapolations begetting long-term disasters packaged within the most expansive, beautiful word in any technical lexicon: HETEROSKEDASTICITY. Its "k" can be a "c" and it still works. Look at Google hits for each.

The Hunt brothers and silver. Nobel Laureate Milton "Whip Inflation Now! Friedman, then his Chicago Boys giving it to Chile good and hard. Nobel Laureates Merton and Scholes then Long Term Capital Investment. Scientific Socialism and the USSR.

If Washington subsumes the US economy it will be New Orleans and FEMA, all of it done exactly by the book with its managers wallowing in performance bonuses as feces fill the Superdome (costed at $45 million, costing $165 million and built over a cemetary; "refurbished" for $193 million after Katrina).

Obama's econ people have made some quantitative forecasts based on short-run macroeconomic models:

http://otrans.3cdn.net/45593e8ecbd339d074_l3m6bt1te.pdf

Short-run macro is pretty unsettled:

http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=36…

I have to agree with #6. I would also like to add that the critical study of economics has really only been around for about 70 years when Keynes actually forced people to compare models instead of just assuming that classical economics was right. Then given the fact that economic events take course of periods of months and years, economics functionally has had only like 7 actual experiments done, and with any good science, you need a balance of experimental work and theoretical work and economics has a severe surplus of theoretical work.

I don't think we can say that we even have 7 actual experiments. At least not at the macro level. There are some interesting things being down with experimental economics at the micro level, but I don't see how we can call any of the experiences of the last 70 years actual experiments. What were the experimental controls? What factors were manipulated and what were held constant? Can we even identify all the inputs and outputs of the system?

What seems to be the case is that economists have their pet theory and then go back find ways to interpret the historical data in a way that is consistent with their theory. Consider the 1930's and 40's. There are people alive today who lived through that period. We have books, newspapers, magazines, movies, etc. all from that time period. We have an immense amount of actual data and yet to this day the the period cannot be explained.

Different schools of thought and study that era and come to conclusions that are diametrically opposed to each other. Some see the actions of the government as pulling the economy back out of a bad situation. Others explain that those same government actions took a moderate problem and made it deeper and longer than it might otherwise have been. These two interpretations can not both be true. I don't see how to compare that with physical experiments and falsifiable hypotheses.

[Economists] are so jealous of physicists who get to study systems that are so small or otherwise controlled that their quantitative results can be tested out to several standard deviations for fit to a theory.

I would modify this slightly: they are jealous that physicists can do controlled experiments at all. When you are looking at the scale of the economy of a whole country--even a small one, let alone one the size of the USA--any experiment you do is guaranteed to be uncontrolled. Among the natural sciences, the environmental fields (including astronomy and space physics) also have this problem to some extent--often there is no other option but to study events as they actually happened. But even there, the underlying theories which are used to interpret these events are often testable in a laboratory setting, and in some cases there are regions of parameter space that can be simulated in a lab.

The consequence, as Erik #9 implies, is that economics has never really been forced to get rid of its bad theories. There are still respected economists spouting the theories of Karl Marx and Arthur Laffer (though usually not both at the same time), because even though the empirical evidence we have is heavily against both theories, there has never been a definitive experimental disproof of either, for lack of a controlled experimental test of either. On this point I do have some sympathy for the economists, because I have seen how slow some physics theories are to die even in the face of strong evidence from controlled experiments to disprove those theories. But at least the wrong physics theories eventually do die.

Regarding economics, try this article: Case for Due Diligence

Matt, you may not be paying much tax right now, but are you planning on not paying much tax for the next 50 years?

You will know the stimulus worked when the price of gas goes back up to $4.00/gal and the USA current account (money flowing in - money flowing out of the country) climbs back up to a negative 700 billion or so, and housing prices are again rising out of reach...
Since the good times everybody wants reinstated (2003-2006) were totally unsustainable I expect the current economics "experiment" can only have a bad result if that is what is hoped for.

What I would like from the economists would be some humility - Ask a physicist about dark energy and one gets a clear "I don't know" Ask an economist about the timing of the recovery and you get an immediate weighty opinion voiced in learned and definite tones broking no argument.

Unfortunately it is backed with zero analysis of what an eventual recovery will actually look like let alone consideration if it is even possible given the US debt loads and globalization.

Lyndon Johnson's "Great Society" did not end American poverty, it enabled it - and spread it to those whose incomes were compassionately redistributed.

Don't you glibertarians ever get tired of being wrong?

Libertarianism is the ultimate pleasure. You can kick a libertarian's ass a dozen times, and still want to do it again.

http://www.encyclopediadramatica.com

Matt, you may not be paying much tax right now, but are you planning on not paying much tax for the next 50 years?

I hope to reduce it any way I legally can, but in the final analysis I haven't got a whole lot of say in the matter. That said, I strongly suspect that the system won't last that long. Entitlement obligations, demographics, and debt service can't all be simultaneously appeased forever. The current federal fiscal regime will survive this recession. It might even survive the next. But I don't think it will keep doing so forever.

But I'm no economist. ;)

A few economists do like to make specific predictons and sometimes use them to make bets. Bryan Caplan and Arnold Kling come to mind. Here's a recent example from Kling:

http://econlog.econlib.org//archives/2009/02/i_challenge_ric.html

Inspired by the Simon-Ehrlich bet on resource prices, I suspect.

Economics is not a science. It is at best a protoscience. Mostly it's just a humanities subject.

Somebody commenting on the role of astrologists in Renaissance society said that it was a role that had been taken over by economic forecasters in modern times.

Well, Matt, it was a noted economist, Herb Stein, who said, "If a trend can't continue forever, it won't."