Pharyngula

Dismal disaster

This is a depressing collection of short clips on the economy from Fox News. I know — why would anyone want to watch that?

Schadenfreude, baby.

These are from a year to two years ago. They’ve all got this fellow, Peter Schiff, who is explaining that our debt, our artificially inflated real estate market, and various other problems are going to throw us into a recession, the stock market is going to tank, and we’re going to face a financial crisis (he’s a real Cassandra, and like Cassandra, he was right). Fox News throws in a series of their pet analysts, including the odious Ben Stein and that awful Art Laffer who has been afflicting our country since Reagan, and they’re all laughing at him and promising a coming economic bonanza — like that the Dow will hit 16,000. It’s horrible and fascinating at the same time to see how bad the Fox talking heads are at their job.

These clowns, except for Schiff, have flopped spectacularly and clearly represent an invalid mode of thinking about the economy…but if you turn on Fox News now (not that I recommend it), you can still find these same incompetents populating their financial advice programming.

Comments

  1. #1 Ashley Moore
    December 2, 2008

    The thing I’ve noticed about US news and Fox in particular is that it is Certainty, not Reasonableness that gets you a spot on a televised opinion show.

  2. #2 Nick Gotts
    December 2, 2008

    “if you turn on Fox News now (not that I recommend it), you can still find these same incompetents populating their financial advice programming.”

    Of course. Financial pundits don’t have to be right any more than astrologers. I believe (can’t be bothered to look right now) there are studies showing that ordinary members of the public give better stock tips than the professionals – they just pick company names they know and mostly, well-known companies are less likely to tank than obscure ones which only “experts” know of.

  3. #3 Geoff Rogers
    December 2, 2008

    Heh. Shades of yesteryear.

    As soon as these idiots started saying things like “We’ve beaten the boom-bust cycle”, I went and repacked my escape pack. And increased the size of my vegetable garden.

  4. #4 Christopher
    December 2, 2008

    Wow – PZ managed to put this up 20 minutes before I emailed him with it. These intertube memes travel FAST!

    Mind oyu, Schiff also thinks that Obama’s reign will be a dreadful one, and that he won’t manage nearly as well as Carter did…

  5. #5 Eric
    December 2, 2008

    Newscasters don’t get paid to be accurate, they get paid to entertain. That’s true for all stations, though obviously Fox has plenty of other issues above and beyond that. But none of the news stations get paid more if they’re right – they get paid more if more people watch. This is an obvious consequence of that.

  6. #6 ennui
    December 2, 2008

    Fox News in particular (though CNN and MSNBC are not blameless), appear to cull their financial commentators from the ranks of those who believe that consumer confidence is the most important measure of the economy.

    So, as long as we all go around saying that the “fundamentals of our economy are strong,” they magically will be, and we can continue eating the seed corn.

  7. #7 Tim
    December 2, 2008

    I’ve long considered fox news one of the better reasons for avoiding pay TV, and I remember Rolling Stone magazine’s comment on wing-nut economics back in the early 80s being along the lines of “An economy must be based on building tangible things”.

  8. #8 Karen
    December 2, 2008

    I haven’t watched a lot of TV in several years, and I certainly wasn’t watching FOX, but I’m still unsurprised. We even stopped watching the morning news because it was FOX based and they kept reporting on American Idol auditions and local church activities.

  9. #9 amphiox
    December 2, 2008

    This may be an urban legend. Supposedly someone did survey of three groups of people – professional financial pundits (in some versions it was University tenured economists), undergraduate economics students, and garbage collectors, asking them to predict future economic trends.

    The garbage collectors did the best, the financial pundits worst.

    Supposedly, through their intimate knowledge of what people were throwing out and not throwing out, and how much, the humble garbageman was able to accuately guage the state of the nation’s economy.

  10. #10 Emmet Caulfield
    December 2, 2008

    The US is not alone in this.

    In Ireland, economists who predicted the current state of affairs — an inflated real-estate economy financed by personal borrowing collapsing — were ridiculed and condemned by politicians, realtors, builders, and bankers for “talking down the economy” while they insisted that “the fundamentals of the economy are sound” right up to the moment the whole house of cards came crashing down.

    Now the responsible members of the public, who declined to involve themselves financially in the insanity, are going to have to pick up the tab for the greed and irresponsibility of others.

  11. #11 Chris Davis
    December 2, 2008

    If I were that way inclined, I can’t help thinking I’d have to conclude that Rupert Murdoch is the Antichrist.

    Is there anyone else on the planet simultaneously so horrible and globally powerful?

  12. #12 SC
    December 2, 2008

    I believe (can’t be bothered to look right now) there are studies showing that ordinary members of the public give better stock tips than the professionals – they just pick company names they know and mostly, well-known companies are less likely to tank than obscure ones which only “experts” know of.

    Decades ago, as an exercise on fractions in my fourth-grade math class, we each chose a few stocks to “buy” and followed them for several weeks. IIRC, my picks were Coca-Cola, Disney, and IBM.

  13. #13 cervantes
    December 2, 2008

    Economics is not a science but a branch of theology. The process is not to study the world, gather facts, and then develop a theory to explain them. Rather, economists begin by making a number of assumptions — every one of which is demonstrably false and does not describe reality — and then building an elaborate theory on those assumptions. Since the theory, obviously, does not describe reality or make accurate predictions, when compelled, they add epicycles, but most economists don’t even bother with the epicycles most of the time, they just make false statements.

    The reason this Ptolemaic theory is attractive is because it provides a justification for wealth and privilege. That’s why economists are paid higher salaries than other professors to indoctrinate freshmen with their horseshit.

    Here’s the dirty secret: “Market failure” is not a problem. Markets always fail. The so-called “free market” is a myth, which has never existed, and never could exist. There is no such thing as a transaction without externalities, no such thing as perfect information, no such thing as perfect competition, no such thing as an equilibrium price, no such thing as “utility,” providers induce demand almost as much as consumers, and on and on. It’s all a load of crap.

  14. #14 Lana
    December 2, 2008

    That guy Peter must be some kind of space alien who can travel through time. How else to explain that all those other Fox people were wrong and he was totally right?

    I loved how they treated him like a silly worry wart.

  15. #15 Naughtuis Maximus
    December 2, 2008

    10
    Come on, how could people not believe that we could build houses forever? Truely a pathetic state of affairs, from supposedly the richest country in the world to back to almost being a basket case again. At least the coomon sese of the Irish voters will prevail in the long run!!!

  16. #16 DLC
    December 2, 2008

    Fox News: We report you Decide. Well, the economy “decided”.
    The economy decided to take a downward movement.
    Schiff was right, of course, but nobody likes a doomsayer when the doom is still over the horizon.
    However, I always wonder about prophets — did they elsewhere predict the opposite ?

  17. #17 SC
    December 2, 2008

    Just enjoying the few remaining moments of relative rationality before the glibertarians appear…

  18. #18 jenny
    December 2, 2008

    @cervantes.

    Since the theory, obviously, does not describe reality or make accurate predictions, when compelled, they add epicycles, but most economists don’t even bother with the epicycles most of the time, they just make false statements.

    So, I’m wondering how you classify Peter Schiff’s efforts? I mean, he’s an economist isn’t he? It certainly seems like he understood what was going on long before many others.

  19. #19 Orac
    December 2, 2008

    This is really no different from the same sort of nonsense we heard during the Internet bubble of the 1990s: That everything’s great; that the stock market will hit 30,000 (there was actually a book predicting that); that the Internet has “changed everything”: that you could make your living as a day trader indefinitely, etc. In fact, if TV and cable news had existed in the late 1920s, the same sort of stuff would have been appeared. I recently watched a documentary about the stock market crash of 1929 and was amazed. The sort of commentary in newspapers and on the radio was eerily similar to what we heard in the 1990s before the Internet bubble crashed and right up until last year before the housing bubble burst and the subprime mortgage crisis kicked in. Meanwhile, in the late 1920s, the average person started to get heavily into the stock market, just like the 1990s, and started to view it as an unending source of low risk wealth for which no work needed to be done.

    This is all the same sort of stuff as in 1929, right down to the existence of a few “Cassandras” warning that the good times couldn’t possibly last forever and that there would be a day of reckoning eventually.

    I guess what I’m saying is that stupidity of this sort is not confined to FOX News; it’s the same sort of groupthink and hysteria that accompanies every major stock market or investment bubble before it bursts.

  20. #20 cervantes
    December 2, 2008

    Sure, there are some people who accept the label of economist who actually study reality, but they are in the minority. The “discipline” as a whole is like religion – they work backwards from conclusions to theories. There is a movement now to change that, and there are economists who are going about it rationally, notably by studying individual economic behavior — which as it turns out does not resemble the “assumptions” that have been drilled into college freshmen for decades — and then trying to build an understanding of larger scale processes from there. But that hasn’t penetrated very far as yet. Most economists still have their heads up Milton Friedman’s ass, to put it more politely than I probably should.

  21. #21 Cuttlefish, OM
    December 2, 2008

    I watched the nightly business news
    (it helped to chase away my blues)
    Ben Stein and others helped me choose
    When I was buying stocks

    The terms I did not know what meant
    Did not disturb me, as I spent
    On stocks with values in ascent
    Or so they said on Fox

    The fundamentals still are sound,
    Economy’s on solid ground
    (And look, our jobs are still around!)
    We’re solid as Fort Knox

    There was one voice that cast a doubt,
    Who said it’s time for getting out
    But he was just one single lout
    Whom everybody mocks

    With grandiose and pompous boasts,
    With caviar and champagne toasts
    I took the word of game-show hosts
    And washed-up former jocks.

    The weeks and months, they crept along
    I wondered if I’d chosen wrong–
    But no, they said–the market’s strong
    Enough to brave some shocks

    And now my stocks are so damned cheap
    I use them now to help me keep
    The holes plugged, as I try to sleep
    Here in my cardboard box

    http://digitalcuttlefish.blogspot.com/2008/12/nobody-likes-doom-and-gloomer.html

  22. #22 Draconiz
    December 2, 2008

    But while this Schiff guy predicted in the meltdown, his profile on Wikipedia said he was Ron Paul’s Econ advisor and favors more deregulation, how does that work anyway?

  23. #23 inkadu
    December 2, 2008

    If the Iraq war is any example, Peter Schiff has lost all credibility in the press.

  24. #24 Rob J
    December 2, 2008

    I wonder how much dough Ben Stein lost in Merril Lynch and Goldman Sachs. What a moron, who wants this guys opinion on anything much less stocks?

  25. #25 John C. Randolph
    December 2, 2008

    Peter Schiff isn’t the only economist who predicted the situation that we’re in today. You can find most of the rest of them at mises.org. Start with “The Bailout Reader” here:

    http://mises.org/story/3128

    Lew Rockwell has had Schiff on his podcast several times. This is the most recent one:

    http://www.lewrockwell.com/podcast/?p=episode&name=2008-11-20_072_how_the_government_wrecked_the_economy.mp3

    Oh, and SC: you can toss out epithets all you like, but the fact is that Schiff was and is right, and the clowns like Krugman are wrong.

    -jcr

  26. #26 Brian
    December 2, 2008

    Naughtuis Maximus, Orac. Couldn’t agree more. It’s not just the experts and Fox New’s fault, it is also the fault of the general masses who believe in things that are too good to be true.

    Brian

  27. #27 The skepTick
    December 2, 2008

    I particularly enjoyed watching Ben Stein spout nonsense and wonder why he has any credibility at all. That said, Peter Schiff is no economic seer. Much like Nikki, Psychic to the Stars, predicting that Paul Newman should “watch his health” over several years, eventually she will be right. Check out Being Wrong for Five Years Makes Peter Schiff Right Now? for the counterpoint.

  28. #28 John C. Randolph
    December 2, 2008

    I’m wondering how you classify Peter Schiff’s efforts? I mean, he’s an economist isn’t he?

    Schiff is an Austrian School economist. He makes his living as a financial advisor and author.

    It certainly seems like he understood what was going on long before many others.

    Yes, he did. If you look up what he had to say years ago, you’ll find that he was pointing out that our boom was built on an unsound foundation all along.

    -jcr

  29. #29 Christopher
    December 2, 2008

    It’s just with ID/Creationists. How often do these people need to be wrong or out of their league before people stop paying for their advice?

  30. #30 Christopher
    December 2, 2008

    “It’s just [like] with…”

    Wow… Wake up time.

  31. #31 Nick Gotts
    December 2, 2008

    I’ve found a reference for my #2:

    Borges, B., Goldstein, D.G., Ortmann, A. and Gigerenzer, G. (1999) “Can Ignorance Beat the Stock Market”, Ch.3 in Gigerenzer, G., todd, P.M. and the ABC Research Group: Simple Heuristics that Make Us Smart, OUP.

  32. #32 Mark
    December 2, 2008

    Another economic pundit whose advance warnings about a major financial crisis proved correct was Max Keiser. Easy enough to find him on YouTube.

    Among his more prescient efforts were The Money Geyser (August 2007) about the weakness of the pre-crash Icelandic economy) and Death of the Dollar (December ’06, revised version December ’07).

    These mini-documentaries both appeared on the Al-Jazeera English service, or as I prefer to think of it, the Anti-Fox.

  33. #33 Emmet Caulfield
    December 2, 2008

    Thus spake Naughtuis Maximus @15:

    At least the [common sense] of the Irish voters will prevail in the long run!

    I very much doubt it.

    There’s been no indication of common sense in the Irish electorate for many years, they re-elected a manifestly corrupt and incompetent party time after time.

    Many years ago, I noticed that every government representative, when challenged on hospital waiting lists, school building programmes, or any other shortcoming in government always answered in terms of expenditure — “But we’ve spent X billion on Y, five times as much as any previous government!” — and both the electorate and the opposition failed to apply “common sense”, asking the obvious question “If you’re spending 5 times as much and getting only very marginally better results, how can you claim to be competent?”. Such profligate expenditure without any notable results should be punished harshly by the electorate, but it was instead rewarded, mostly because the opposition failed to point it out.

    If there were any justice in Ireland, an angry mob would haul the Cabinet out of Leinster House, and scourge them to the Spire, to be hanged from the portico of the GPO with the entrails of the opposition.

  34. #34 mus
    December 2, 2008

    Draconiz- It’s worse than that. Take a look at this video: http://www.youtube.com/watch?v=sMdF1CiQAkA&feature=related

    Apparently he thinks that Obama will be terrible for the economy and is just hoping that the republicans will come back in 4 years.

  35. #35 John C. Randolph
    December 2, 2008

    One silver lining that I find in the midst of this collapse, is that the Federal Reserve is no longer able to hide and pretend that they’re “working to control inflation”.

    When you have people ranging from Jim Rogers to Dennis Kucinich calling for the end of the Fed, we’ve got a shot at making it happen.

    -jcr

  36. #36 SC
    December 2, 2008

    Arthur Laffer, ideologue extraordinaire:

    http://sourcewatch.org/index.php?title=Arthur_B._Laffer

  37. #37 Nick Gotts
    December 2, 2008

    Oh, and SC: you can toss out epithets all you like, but the fact is that Schiff was and is right, and the clowns like Krugman are wrong. – jcr

    Love that deep economic analysis, jcr – keep it coming! From wikipedia on the Nobel laureate and clown, Paul Krugman:

    “In September, 2003, Krugman published a collection of his columns under the title, The Great Unraveling. Taken as a whole, it was a scathing attack on the Bush’s administration’s economic and foreign policies. His main argument was that the large deficits generated by the Bush administration–generated by decreasing taxes, increasing public spending, and fighting a war in Iraq — were in the long run unsustainable, and would eventually generate a major economic crisis.”

  38. #38 John C. Randolph
    December 2, 2008

    the obvious question “If you’re spending 5 times as much and getting only very marginally better results, how can you claim to be competent?”.

    That’s the same question we should be directing towards the public schooling bureaucracy in the USA.

    -jcr

  39. #39 inkadu
    December 2, 2008

    Draconiz at #22 -

    If you follow the link on Wiki to his thoughts on deregulation, you get the standard conservative economic boilerplate from Schiff:

    In 1980, when the U.S. economy was last in serious trouble, Ronald Reagan offered the correct diagnoses that government was the problem and not the solution. His message resonated with voters, propelling him into the White House to implement an agenda of lowering marginal tax rates, reducing government spending and business regulations, restoring sound money, abolishing entire government departments, and basically allowing free market vibrancy to unshackle an economy burdened by big government. Though in practice much of the Reagan revolution never materialized, at least in theory his basic premise was sound.

    In contrast, the country has now hitched its wagon to the views of Barack Obama. We don’t know much about what he truly believes about economics, but the little that we do know is not encouraging. Obama has repeatedly heaped the blame for the current crisis on the excesses of unregulated capitalism and the greed of the wealthy. For him, the free market is the problem and government is the solution.

    What nearly all politicians on both sides of the aisle fail to understand is that the current contraction and credit crunch is necessary to restore order to an economy that is horribly out of balance. Years of misguided fiscal and monetary policy and market-distorting regulations have resulted in reckless borrowing and spending on Main Street, pervasive gambling on Wall Street, and rampant fraud and corruption at every intersection. America’s borrow and spend economy, and the bloated service sector that evolved around it, must be allowed to topple, so that a more sustainable economy grounded in savings and production can rise in its place. Any government efforts to delay the adjustment and spare us the pain will backfire, turning this recession into an inflationary depression.

    He still has ideological blinders about the “free market,” making him a stone’s throw from a crank in my book.

  40. #40 Jon
    December 2, 2008

    P.Z. I seem to recall you mocking Ron Paul as a loony. Schiff was Paul’s top economic adviser and does nothing but say the same things Paul does. You would have fit right in with Ben Stein and Art Laffer a year ago.

  41. #41 Naughtius Maximus
    December 2, 2008

    Emmet,
    Sorry, sarcasm doesn’t come across very well. I think the Irish voters are up there with the dumbest. It’s pure nepotism and parochialism. Vote for the man down the street, I knew his father he was a lovely man, our house always voted this way etc
    It’s changing slowly, but will still take a while.

  42. #42 Emmet Caulfield
    December 2, 2008

    Jon @40,

    Your implied dichotomy is false. One can have held the view that the economy was headed for disaster without subscribing to Ron Paul’s nutty brand of economics.

  43. #43 SC
    December 2, 2008

    Ah, well, it was nice while it lasted.

    (By the way, thanks for the Molly nom, Randolph. :P)

  44. #44 Mr Doubt(hell)fire
    December 2, 2008

    “If I were that way inclined, I can’t help thinking I’d have to conclude that Rupert Murdoch is the Antichrist.

    Is there anyone else on the planet simultaneously so horrible and globally powerful?”

    Howard Ahmanson comes frighteningly close.

  45. #45 LisaJ
    December 2, 2008

    Man, those guys are a bunch of dummies. The part I love the most is how they all act like bully kids on the play ground. Grow the hell up. How Fox News’ viewers don’t see how childish these ‘experts’ are, not to mention how wrong they all were (and likely are on a regular basis), just fathoms me.

  46. #46 gazza
    December 2, 2008

    In the UK a politician from the third ranking party in Parliament (Vince Cable – Liberal Democrats) had been banging on for a while about the dodgy state of the markets and banks, etc. His analysis, let alone predictions, have turned out with hindsight to have been pretty accurate.

    He doesn’t belong to the party I normally support but you’d think he would at least be given a higher profile in the media – higher up the meritocracy of talking heads called in for their opinions.

    But no, he’s still a fairly low profile guy in the media. Mind you, he has got a pretty nerdy voice and I guess that counts a lot.

    And in the meantime most of the people in charge (in the banks, and in the government) have at best just shuffled jobs around a bit but stay in charge.

    If there is a meritocracy in the financial world then I’m damned if I can see it.

  47. #47 Jon
    December 2, 2008

    inkadu, recognize that there is a difference between Reagan’s rhetoric and what Reagan actually did. Schiff is complimenting Reagan for what he said, but critical of the way he actually governed. Ron Paul was the same way. Paul was one of only 3 Republican Congressman to endorse Reagan against Ford in ’76. He supported him in ’80, but by ’88 was completely disgusted with him and said he had betrayed the conservative movement, which prompted him to run as a Liberterian. So don’t assume that Schiff/Paul are entirely happy with Reagan.

    Government has caused the crisis we are in. They demanded that banks like Freddie and Fannie make risky loans, and promised to back them if they failed. They allowed the Fed to manipulate interest rates like central planners, which made for easy money that bid housing prices up to artificial levels. The government tries to go all over the world fixing problems, like Iraq and Afghanistan, all the while it is government meddling over there that has created the very problems that we are now trying to solve. Government is the problem. Schiff and Paul have been right for decades, not years. Obama is too hawkish and too opposed to civil liberties for these guys.

  48. #48 John C. Randolph
    December 2, 2008

    Nick,

    You seem to have missed the fact that right now, Krugman is calling for more spending, bigger deficits, and more inflation as a remedy for the economic crisis. He’s a clown. I will also point out that the work he got the prize for was on international trade, not on monetary policy or the business cycle.

    -jcr

  49. #49 Feynmaniac
    December 2, 2008

    The only surprising thing about that clip was that Ben Stein didn’t link Schiff to Nazism.

  50. #50 Jon
    December 2, 2008

    Emmet, what’s impressive about Schiff is not just that he says we’re headed for disaster. He tells us why. And the reasons he offers are exactly what Paul describes with his “nutty” economics. If you’re impressed with Schiff and his economic analysis, then you have to be impressed with Paul. But then you’d be a loon I guess.

  51. #51 Emmet Caulfield
    December 2, 2008

    Sorry, sarcasm doesn’t come across very well. I think the Irish voters are up there with the dumbest. It’s pure nepotism and parochialism.

    Indeed. Wasn’t it Des McHale (UCC mathematician famous for his joke books) who wrote a satirical book about getting elected in Ireland that made exactly that point: the “easy way” to get a seat in Dáil Éireann being to inherit it and the “other way” being to work the party machine, become a councillor, be seen at funerals, etc.

    A lot of the problem is the continuing dominance of Civil War politics, leaving two parties without a cigarette paper between them on policy and no kind of competition to propose alternatives to the electorate. If an election were held in the morning, an opposition coalition might win, but the resultant government would be largely identical minus the corruption, which the electorate has already clearly indicated they don’t regard as important. Another major problem is the clientelist model of politics, where the local TD is the “go to guy/gal” for a variety of needs, typically getting a medical card for an elderly relative, getting planning permission, or somesuch.

    Sadly, I don’t think there’s much hope for change until both the Civil War and clientelism are taken out of Irish politics, and I see no sign of that happening.

  52. #52 GK4
    December 2, 2008

    Is Peter Schiff any relation to Irwin Schiff?

  53. #53 Emmet Caulfield
    December 2, 2008

    Jon @50,

    Even if that were true, it would be entirely irrelevant to my point, which was to refute the implied “either or” choice in your #40 between subscribing to Ron Paul’s economic notions or being a dolt who thought the economy was just fine until a couple of months ago. There is no such dichotomy.

  54. #54 Nick Gotts
    December 2, 2008

    You seem to have missed the fact that right now, Krugman is calling for more spending, bigger deficits, and more inflation as a remedy for the economic crisis. – jcr

    In which calls he is quite correct – the only way we might just avoid a 30s-style depression; although it needs to be useful spending. However my point was simply that economists, and clowns, of a wide variety of positions have been warning for years about the credit/asset bubble; so noting that those of your favoured flavour have done so is not a convincing argument for their general approach.

  55. #55 gazza
    December 2, 2008

    jeeez,

    Looking through the videos that guy Schiff was just bang on! Regardless of his political orientation, even in economics some things are right and some aren’t. At least he offered sound reasons for his analysis – the others just scoff. Clearly they were the ‘creationist’ equivalents in economics!

    It’s a similar situation in the UK to the US (not quite the sub-prime issue though). But the basics are similar; that we don’t save, but spend on foreign goods consumption, have let manufacturing decay, crazy house price inflation, etc.

    I guess we all knew something was wrong when we could see first time house buyers in the UK unable to buy property unless they borrowed crazy multiples of their salary. As an engineer I’ve often wondered how we could pay our way in the world unless we had a half decent manufacturing base – so much of it had shut down in the UK over the last two decades. Employment growth was in financial ‘services’ and supermarkets! But we tend to ignore it if the ‘experts’ OK things on the economic front.

    So, back to basics – regenerate high value engineering; sound finance (borrowing with low risk); save more; don’t expect to get high interest returns on savings. And, not being a hard nosed conservative, plenty of funding for infrastructure.

  56. #56 negentropyeater
    December 2, 2008

    It’s true that libertarian economists like Schiff saw this coming. But because they only focus on monetary policy, they were neither precise in their predictions, nor can they offer any solutions of value.

    Nouriel Roubini (and I strongly recommend his blog, registration required but free;
    http://www.rgemonitor.com/blog/roubini
    for all those who wish to dig in the subject, it’s by far the most complete and best economics blog on the net IMHO),
    who is not a libertarian, was far more precise in his analysis (the paper he wrote before this happened “12 steps to financial disaster” is phenomenal and well worth reading) and offers concrete solutions to this crisis which are not the usual nonsensical “get rid of the fed, let the bubble burst entirely and wait until the shit has cleared itself by magic” of most libertarian economists like Shiff.

    Another analyst whose judgement was always very precise is Meredith Whitney; btw Meredith s now sounding more and more like Nouriel.

    She had an article out two days ago in the financial times which is well worth reading :
    http://www.ft.com/cms/s/0/11344d06-befb-11dd-ae63-0000779fd18c.html

  57. #57 jenny
    December 2, 2008

    @cervantes #20

    Sure, there are some people who accept the label of economist who actually study reality, but they are in the minority. The “discipline” as a whole is like religion

    So, what, no True Scotsman then?

    Actually, as others have noted, it wasn’t that Schiff predicted a crash, but that he absolutely nailed the details – subprimes, overborrowing, leading to “financials” being toxic and worthless, and with a result that all credit would seize up. That’s not just a stopped clock being right twice a day, at least not to my (admittedly uninformed) eye.

  58. #58 raven
    December 2, 2008

    Ben Stein totally blew it. Anyone who followed his advice, (don’t worry, be happy, trust the GOP) lost a lot of money. He lost a lot of money. By any objective criteria, Ben Stein is an idiot.

    Millions saw this coming a year ago beside Schiff. Tens of millions saw it coming a few months ago. Paulson, Bernanke, and the Bushites are still trying to figure it out. This is incompetence on a truly awesome scale.

  59. #59 frog
    December 2, 2008

    Cervantes: Since the theory, obviously, does not describe reality or make accurate predictions, when compelled, they add epicycles, but most economists don’t even bother with the epicycles most of the time, they just make false statements.

    You are being much to kind to economics in bulk. It’s not just that they go from demonstrably false assumptions and build a house of cards on top of it — no, no, no. That would give them, still, a theory from which to work.

    No, they don’t build a theory at all! A theory must be a mathematically consistent and powerful structure. Most never bother to build that. They throw to gather an ad-hoc, a set of heuristics that are not consistent or powerful, and use them where they’d like.

    Of course, this is true for some but not all — but the some are the actually influential ones. I read through the Econ 101 textbook by Bernanke — what a collection of random garbage! I rag on biologists for dismissing the theoretical grounds for their works, but biologists to economists like a physicist to a psychoanalyst.

    They’re dishonest to boot, by putting on a veneer of “mathematicalness”, an academic “scientology”.

    Once again, some but not all — there obviously do exist folks who do a good job, but they don’t write the textbooks and don’t get put in charge of the treasury.

  60. #60 Marc Abian
    December 2, 2008

    At least the common sese of the Irish voters will prevail in the long run!!!

    Or they’ll keep voting FF over and over again based on tradition.

  61. #61 toby
    December 2, 2008

    A word for the Irish: Ireland did not do to bad in the 20th century. It maintained independence and democracy, though at a cost (turning itself into a Celtic twilight backwater, exporting its surplus population and going along with a lowest common denominator auction type of politics).

    Like some of the commenters, I cringe at the glorified Ward Bosses who run Irish politics. Our former Prime Minister was a straightforward central casting version of a Tammany Hall apparatchik. But he did make a major contribution to peace in Northern Ireland, which I suppose will be the great achievement of late 20th century Ireland.

    However, I am not without hope. The current crisis and the sudden revelation that the vaunted “Celtic Tiger” and our financial institutions could have been run better by a bunch of semi-competent racing tipsters, has cleared many heads. Some illusions have been shattered, and politicians always suffer when rising expectations have to be damped.

  62. #62 william e emba
    December 2, 2008

    cervantes:

    Economics is not a science but a branch of theology. The process is not to study the world, gather facts, and then develop a theory to explain them. [...]

    You obviously know as little about economics as Ben Stein.

    Economists offer models to describe numerous aspects of reality. Collectively, these models get tested, refined, and improved. Large swaths of economics behavior are explainable, larger swaths are not. This is as trite as it gets with any science.

    Here’s the dirty secret: “Market failure” is not a problem. Markets always fail. The so-called “free market” is a myth, which has never existed, and never could exist.

    It’s not a secret. Economists are more aware of the limitations and failures of laissez-faire then anyone else, which is why most economists favor mixed economies. You are treating the obnoxious political successes of the minority like Laffer and Gramm as if they were normative. They aren’t. They do have PhDs, yes, but so do Gish and Wells. The difference is that pseudoeconomists are frequently politically useful. Pseudobiologists are rarely so.

    There is no such thing as a transaction without externalities, no such thing as perfect information, no such thing as perfect competition, no such thing as an equilibrium price, no such thing as “utility,” providers induce demand almost as much as consumers, and on and on. It’s all a load of crap.

    Non sequitur. Physicists do just fine ignoring friction over and over again. The question isn’t whether omitted details exist or not, but whether they can be modelled or not, and whether they have nontrivial effects.

  63. #63 Nathaniel
    December 2, 2008

    I just listened to the first part of this, with Laffer responding. Did you notice his argument as to why the economy was great?

    - There aren’t any new taxes coming soon
    - Our monetary policy is a good one
    - We’ve got lots of free trade
    - etc

    See this list? It’s not a list of _indicators_, it’s a list of _policies_.

    He’s saying:
    “If we follow conservative ideology, the economy MUST improve!”

    This is why they are idiots. I have beliefs that the policies are support are the best ones, but
    (I hope) I pay attention to how well they work, not take it on faith.

    The stupid. It burns.

  64. #64 william e emba
    December 2, 2008

    There were two crackpot books on the stock market that predicted ridiculous highs in their title, Dow 36000 and Dow 100000.

    What’s unbelievable is that one of the authors involved in these epic fails was a top economic advisor to McCain during his campaign. From McCain on down, no one on their side seemed to notice their total disconnect from reality.

  65. #65 nanahuatzin
    December 2, 2008

    After i saw the videos, i was dismayed at the lack of real data to support both sides.

    Is really the economy really based in such arguments?

    Peter Schiff has his own set of dogmas, yet he has the value of really understand what is going on, but i wonder if he really could probe that his mecanism are the correct.

    Does economist have testable hipotesis?
    Do they care to try to probe them? or they are always be economc dogmas…

    Given the importance of economy, i thing there should be a some ways to test it…

  66. #66 william e emba
    December 2, 2008

    John C Randolph:

    You seem to have missed the fact that right now, Krugman is calling for more spending, bigger deficits, and more inflation as a remedy for the economic crisis.

    Which is exactly what we need.

    He’s a clown.

    No, you are. Also, an idiot.

    I will also point out that the work he got the prize for was on international trade, not on monetary policy or the business cycle.

    The National Review made the same point, although they did it in a spectacularly stupid manner, comparing Krugman’s predictions regarding Bush economics with Pauling on vitamin C. They failed to mention that Krugman’s predictions are both standard textbook material and have proven to be highly accurate.

    Really, you are a clown and an idiot, talking about things you obviously know next to nothing about.

  67. #67 Coriolis
    December 2, 2008

    The problem william e emba is that physicists usually spend a great deal of time and effort into understanding the limits of their theories (and then trying to overcome them of course). I.e. when can do you need relativistic corrections or when newton’s equations are fine, which order of perturbation theory is neccesary for describing what interaction and so on. Knowing the limitations of our theories then allows us to move beyond them.

    Economists seem to have a complete lack of this type of thinking. There are a bunch of “schools” (Keynesian, friedman’s free market, austrian, marx, mercantilism way back in the day, etc.) each of which claims to have the best theory that explains everything that happens within economics and these schools seem to be constantly warring with each other over what the hell should be done. I haven’t heard a single economist trying to instead figure out where (if anywhere) each of these are applicable and where they are not.

    In a way it’s not surprising that there’s so little “science” in economics – it’s hard to be impartial when so much money and political interests are inserted into what should be an empirical scientific study. I imagine if all of a sudden you had trillions of dollars riding on whether string theory or quantum loop gravity were correct it would become even harder to get to the bottom of it. But it makes economics quite pointless, for now.

  68. #68 william e emba
    December 2, 2008

    frog:

    No, they don’t build a theory at all! A theory must be a mathematically consistent and powerful structure. Most never bother to build that.

    This is completely backwards. Economics for the past half-century or so has been extremely mathematical, almost overweighted with “mathematically consistent and powerful structure”. As Krugman once pointed out long ago, certain parts of classical economics, involving geography for example, almost died when they couldn’t keep up.

    The problem economists typically have is confusing their overly precise models with reality, as opposed to guessing what all the unknowns must be and hoping for the best.

    I read through the Econ 101 textbook by Bernanke — what a collection of random garbage!

    I haven’t seen his particular Econ 101 textbook, but they are mostly interchangeable. They are not random, and they are not garbage. They are a taste of what economic thinking involves, severely watered down. Your conclusions about the profession are completely groundless.

    Once again, some but not all — there obviously do exist folks who do a good job, but they don’t write the textbooks and don’t get put in charge of the treasury.

    You are talking about Republicans. Clinton had two excellent treasury secretaries. Bush actually had one good one, but he had to resign for objecting to Bush’s tax cuts and Iraqi war spending.

  69. #69 Cheezits
    December 2, 2008

    What’s schadenfreude, a fancy name for 20-20 hindsight?

  70. #70 Bostonian
    December 2, 2008

    As pointed out by SC above, Art Laffer is truly a dimwit, and he’s responsible for the Republican illusion that the GOP understands economics.

    Taking a snippet from his Wikpedia article, he’s “best known for the Laffer curve, a curve illustrating tax elasticity … popularized with policy-makers following an afternoon meeting with Dick Cheney and Donald Rumsfeld in which he reportedly sketched the curve on a napkin to illustrate his argument. … A simplified view of the theory is that tax revenues would be zero if tax rates were either 0% or 100%, and somewhere in between 0% and 100% is a tax rate which maximizes total revenue. Laffer’s innovation was to conjecture that the tax rate that maximizes revenue was at a much lower level than previously believed: so low that current tax rates were above the level where revenue is maximized.”

    Many of the economic foundations of modern conservatism are built on the sandy, crumbly base of this napkin curve. It’s one of the main ideas behind the Reagan/Bush cheerleading for supply-side economics (i.e., tax cuts for people too wealthy to need tax cuts).

    The curve is not an ingenious theory (and in Laffer’s defense he doesn’t claim to have invented the underlying concepts) but it has deluded many Republicans into thinking that, despite being clueless politicians, they know enough about economics to strategically stimulate the US economy with tax cuts. This is sad because the curve is not about the economy, but rather about federal tax revenue. And it doesn’t specify where the ideal tax rate should be. And it doens’t specify where our present tax rate falls, so it could be equally used to argue that taxes can safely be raised without endangering revenue. But despite all these flaws it’s been interpreted as a “scientific” indicator that taxes should be cut and that Democrats are economically unsavvy if they disagree.

    (The other foundation of economic conservatism, tricke-down theory, was actually proven last year. :)

  71. #71 CodeSculptor
    December 2, 2008

    Schiff was correct even back in 2002. He said that stocks then were still overpriced. They were, and some still are. He wasn’t wrong in 2002, it’s just that people kept drinking the kool-aid. The paper values simply held out longer because nobody did the maths.

    The correction started in around 2000-2001 and those HUGE dips in the DOW are to the same values our “dips” are now. The difference is that after 5-6 years of inflation, we are at a DOW of 4000.

    Despite the “debunking” article, I don’t think Schiff ever said to short anything. He spoke only of trends and actual values.

    What did he say regarding Iraq? I can’t find any mention.

  72. #72 Brian D
    December 2, 2008

    Cheezits: It means “taking pleasure in another’s misfortune”.

    Coriolis: There are a bunch of “schools” … each of which claims to have the best theory that explains everything that happens … these schools seem to be constantly warring with each other over what the hell should be done… In a way it’s not surprising that there’s so little “science” … it’s hard to be impartial when so much money and political interests are inserted into what should be an empirical scientific study.

    Protestantism?

  73. #73 ignatov
    December 2, 2008

    Did you notice Cavuto smirking, “Peter, I wish we had more time. I know you want to continue that expose of Santa Claus.” Smart-ass corporate tool.

  74. #74 Cheezits
    December 2, 2008

    I’d sure like to know who’s getting any pleasure out of the current misfortune.

  75. #75 negentropyeater
    December 2, 2008

    Macroeconomics necessarily proceeds by making simplifying assumptions. The field evolves by weeding out assumptions : as time passes, history unfolds itself (it’s not as easy to make “experiments” in economics to verify assumptions as it is in Physics or Biology), some of these assumptions prove to be unfounded, while other gain acceptance. This process is far from complete, macroeconomics is still a young discipline, and some major controversies remain.

    Probably the most significant area of controversy is between the two main schools of thought in Macroeconomics :
    -(neo) Keynesians who believe that markets are imperfect and that Govt has a knowledge advantage, and therefore believe in the need for fairly active policy interventions and regulations.
    -(neo) Monetarists who believe that politics and bureaucracy prevent Govt from succesfully dealing with market failures.

    Desipte this, there are many areas of macroeconomics on which Keynesians and Moneterists have reached some consensus.

    The Continental European economic view has always been more middle ground between those two schools of thought than the Anglo-saxon, which had more or less abandoned Neo-Keynesianism for the last 30 years. It’s clear that this crisis is bringing back in force Keynes’s ideas in the Anglo-saxon world.
    Having said this, my personal view is that Americans should be careful to move from one extreme to the other, and it is absolutely clear that one essential component of this crisis is very different from the Great Depression : the USA is not the main creditor nation anymore, quite the contrary, therefore, noone knows where massive Keynesian stimulus will bring it to.
    This is unfortunately, a “new expreriment” in macroeconomics. Only problem is that there are tens of millons of real lives at stake.

    Maybe, in the end, we the people will be lucky and our politicians will finally come to the wisdom that the best cure for bubbles is to prevent them from happening and refrain from trying to build fake prosperity riding on their back.

  76. #76 Naughtius maximus
    December 2, 2008

    So does anyone who has watched Fox know what “The cost of Freedom” is?

  77. #77 --PatF in Madison
    December 2, 2008

    GK4:

    Peter Schiff is Irwin Schiff’s son. Irwin Schiff is a well-known tax protestor who has been convicted in federal courts of all sorts of tax evasion stuff and, I think, he is now in jail. (You can find out about him in Wikipedia.)

    One of the interesting things about Peter Schiff is that he is listed as a co-author on one of his father’s goofy books. Maybe Peter was correct in predicting the current mess we are in, but that doesn’t make him a great economist.

  78. #78 william e emba
    December 2, 2008

    Coriolis:

    The problem william e emba is that physicists usually spend a great deal of time and effort into understanding the limits of their theories (and then trying to overcome them of course). [...] Economists seem to have a complete lack of this type of thinking.

    This is flat out not true. Your statement is just an ignorant stereotype. You are thinking of the one line versions that makes it into newspaper op-eds, talking head talking points, and political cheerleading. You have obviously never cracked a professional economics journal, let alone noticed the huge bulk of professional economists’ research is actually doing exactly what you say they do not.

    There are a bunch of “schools” (Keynesian, friedman’s free market, austrian, marx, mercantilism way back in the day, etc.) each of which claims to have the best theory that explains everything that happens within economics and these schools seem to be constantly warring with each other over what the hell should be done.

    You could pretty much say the same about physicists or chemists or biologists. Do we reject evolution because there are neutralists, group selectionists, closet Lamarckians, and so on? Of course not.

    For what it’s worth, there are very few “schools” today. It’s almost entirely mathematical modelling. For the record, there never was an Austrian school, just the appearance of one. Everyone knew that Marxists were political noise. There is mostly more versus less Keynes, there are real business cycle theorists who face scorn by accumulating more data. And yes, there is just as much ornery stubbornness as any other scientific field.

    I haven’t heard a single economist trying to instead figure out where (if anywhere) each of these are applicable and where they are not.

    I bet you haven’t. And probably for the same reasons creationists haven’t heard of a single transitional form. You haven’t actually studied the subject, read the advanced graduate level texts and professional monographs, and studied the journals. You’ve identified what’s wrong with the soundbite, nothing more.

  79. #79 Scott from Oregon
    December 2, 2008

    I think it is great ol’ PZ is waking up to the reality of the situation in America. Unless we Americans acknowledge we are beyond broke and in debt up to our eyeballs, the situation will continue to bursts.

    Peter was “mostly right” from what I have gathered. He failed to see just how “involved” other economies were in the derivatives scandal. Lots of countries bought badly packaged, fraudulent American debt and are now holding toxic paper bags full of crap on their books, which is why their economies are jolting too.

    The two schools of thought making the rounds is to “borrow and spend” our way out of this mess, or to knuckle down and earn and save our way out.

    Roubini and that crowd say spend. Schiff and the Mises crowd say knuckle down and earn.

    You can see the morality in each of these avenues if you simply look.

    The trouble with the bail outs and the borrowing and printing to cure the ills is that it is grossly immoral. If you borrow, you have to pay interests, meaning you are putting the burden on future generations and tax payers who “did the right thing”. If you print, you are debasing the currency (when the world stops using US dollars as its fallback currency because of our recklessness, there will be no absorption of inflation). If you print and cause mass inflation, you are robbing money from those who saved and “did the right thing”.

    The other option, to let the system cleanse itself, may seem painful, but it does two things. It puts the onus on those who took risks and gained rewards (Paulson himself is worth 500 million–do you think he WORKED for that money?) and makes them absorb the losses, and it promotes honesty, prudence, and reality based behavior.

    Right now, with the aid of Obama and the Democrats, the wealthy are being bailed out (so they may remain wealthy) and the middle class is being robbed while the poor are being trampled.

    The reason? Savers and workers (paraphrasing Max) are not represented in Washington to the same degree as banksters and speculators are.

    No democracy here, time to move along…

  80. #80 Scott from Oregon
    December 2, 2008

    These are amusing. Peter and his analogies for the everydayman…

    http://www.youtube.com/watch?v=vweLBpE4mso

  81. #81 Kristine
    December 2, 2008

    Remember this infamous line to Ron Suskind from an unnamed senior adviser to the president:

    The aide said that guys like me were “in what we call the reality-based community,” which he defined as people who “believe that solutions emerge from your judicious study of discernable reality.” I nodded and murmured something about Enlightenment principles and empiricism. He cut me off. “That’s not the way the world really works anymore,” he continued. “We’re an empire now, and when we act, we create reality. And while you are studying that reality – judiciously, as you will – we’ll act again creating other new realities, which you can study too, and that’s how things will sort out. We’re history’s actors … and you, all of you, will be left to just study what we do.”

    Heh. Now they’re trying to sort out how they did it. What a bunch of friggin’ geniuses. Some reality they created.

    Hell, they may as well try to figure out how I knew to pay off my debts last year (while I still didn’t suspect that my position would be reduced to part-time), ensuring that I was in a good place financially when I began to suspect. (The axe fell yesterday. My boss was in tears; I was not.)

    Raven, you’re right: Ben Stein is an idiot. The only way I can figure him out is, he’s being propped up by oil execs to write that inane NY Times column. He got blindsided – little shimmying secretary didn’t. Ha!

    Ha, ha! 4-day work week! I still have health insurance! I have savings! I even have investments. Ha, ha, ha! In your face, Ben Stein!

    I create my reality too! :-D

  82. #82 PZ Myers
    December 2, 2008

    I am fully aware of the difficult economic situation we’re in right now. I am not, however, promoting Peter Schiff, except as a guy who had his eyes open enough to see the disaster looming.

  83. #83 Geral
    December 2, 2008

    “Fox News in particular (though CNN and MSNBC are not blameless), appear to cull their financial commentators from the ranks of those who believe that consumer confidence is the most important measure of the economy.”

    I agree with Ennui and I think these commentators need to learn the difference between confidence and ignorance. because they’re clearly two different words.

  84. #84 negentropyeater
    December 2, 2008

    Coriolis,

    please before discrediting an entire field, start by studying at least its basics. Your comment shows that you are about as ignorant on the subject as most creationist who come here to pronounce the dismise of evolutionary biology.

  85. #85 negentropyeater
    December 2, 2008

    SfO,

    The other option, to let the system cleanse itself, may seem painful, but it does two things.

    The only slight problem is that there’s absolutely no evdence that the system will actually cleanse itself.

  86. #86 raven
    December 2, 2008

    Kristine:

    Ha, ha! 4-day work week! I still have health insurance! I have savings! I even have investments. Ha, ha, ha! In your face, Ben Stein!

    I create my reality too! :-D

    Kristine, good for you. Lots of people saw this coming long ago. I myself reordered my accounts to cash because the bubble break, market crash looked inevitable. What goes up must come down. It’s just the business cycle in operation.

    Unfortunately, lots of people didn’t. I see a lot of people laid off, losing their medical insurance while being ill, running up credit card bills to pay for necessities, losing their houses, and so on. They aren’t dumb people or smart people either. Just ordinary citizens caught up in events and bad luck and bad decisions, theirs and others.

    I blame a lot of it on the Theothuglicans and the christofascists. They had the reins of power for 8 years and could have done a competent job. But they didn’t. “As you sow, so shall you reap.”

    PS I’ve seen that quote about the neocons creating reality. They created reality all right, a pointless war in Iraq and wrecking the country. We should be judiciously studying how the screwed up for the next decade so it doesn’t happen again like George Santayana says.

  87. #87 John C. Randolph
    December 2, 2008

    In which calls he is quite correct – the only way we might just avoid a 30s-style depression

    Spending like crazy didn’t work in the 1930s. Why would you imagine that it would work now?

    If it were possible to stimulate an economy by inflating the money, then Zimbabwe would be the richest country on earth.

    -jcr

  88. #88 Troublesome Frog
    December 2, 2008

    amphiox:

    This may be an urban legend. Supposedly someone did survey of three groups of people – professional financial pundits (in some versions it was University tenured economists), undergraduate economics students, and garbage collectors, asking them to predict future economic trends.

    It may be an urban legend, but it’s probably not too far off. Even as an undergraduate economics student, I remember rolling my eyes while listening to the garbage the financial pundits put out.

    JCR:

    Oh, and SC: you can toss out epithets all you like, but the fact is that Schiff was and is right, and the clowns like Krugman are wrong.

    I can’t help but notice that you managed to miss that “clowns like Krugman” (and by “like Krugman” I mean “Krugman”) were also pointing out that we were in a credit-driven housing bubble that could potentially result in a banking crisis. Seriously. You don’t have to subscribe to the journals. Just read some blogs of economists from places other than mises.org.

    The Austrians love to claim to have “predicted” everything that goes wrong with the economy, but the fact that they can never come up with a coherent, mechanistic explanation as to why (other than “government bad! market would be OK if no government!”), keeps them from making any serious academic headway. In fact, I’d argue that the fact that even the Austrians saw it coming should be an indicator that it was obvious. To their credit, the “Federal Reserve is the root of all evil” stopped clock was largely correct this time around.

    The reality is that there was no shortage of economists from various schools ringing the warning bells. We were dealing with a problem that doesn’t require appeals to esoteric theory to explain. How the pundits missed it is beyond me. What people miss is that there’s a difference between “economist” and “TV money pundit.” One does modelling and research and the other is an entertainer.

  89. #89 John C. Randolph
    December 2, 2008

    The trouble with the bail outs and the borrowing and printing to cure the ills is that it is grossly immoral.

    That’s one trouble with it. The other trouble with it is that it can only increase the problem in the long run.

    Volcker prevented a collapse of the dollar by raising interest rates high enough that people delayed consumption and saved their money for a while. I sure hope that Obama will listen to him.

    -jcr

  90. #90 Scott from Oregon
    December 2, 2008

    “”The other option, to let the system cleanse itself, may seem painful, but it does two things.
    The only slight problem is that there’s absolutely no evdence that the system will actually cleanse itself.””

    But there is AMPLE EVIDENCE borrowing into oblivion and printing into uranus will cause mass-inflation and turgid stagnation. There is also the immoral side of doing this, as we are seeing with the AIG bailout and their “jaunts”…

    Put it this way. You are advising giving away m(b)illion dollar food stamp packages to the extremely wealthy while taking away the purchasing power of those who use food stamps to buy food.

    That’s not a very progressive or moral position to take.

  91. #91 negentropyeater
    December 2, 2008

    jcr,

    Spending like crazy didn’t work in the 1930s. Why would you imagine that it would work now?

    Any evidence that it didn’t work ?
    Any evidence that by not spending like mad the depression would have been milder, or the USA would have come out of it quicker ?
    Nope.
    Zero evidence.
    Just supositions.

    Upton Sinclair “Theorem” :
    It is difficult to get a man to understand something, when his salary depends upon his not understanding it.

  92. #92 moother
    December 2, 2008

    what are the chances that Schiff is an atheist and all the rest are religious twats?

  93. #93 Jody
    December 2, 2008

    ‘A Brief History of Financial Euphoria’, J K Galbraith is one of my favourites.

    Even here it seems people almost will Schiff to have superhuman predictive powers. Surely it is this very tendency that leads us on such a merry dance over and over again?

  94. #94 negentropyeater
    December 2, 2008

    SfO,

    But there is AMPLE EVIDENCE borrowing into oblivion and printing into uranus will cause mass-inflation and turgid stagnation. There is also the immoral side of doing this, as we are seeing with the AIG bailout and their “jaunts”…

    Not when you have so many deflationary pressures. No evidence whatsoever.
    Clear, the US should not go overboard, because if the stimulus do end working and economy picks up again within a couple of years, they’ll have to take measures to combat inflaton then. So be ready for high interest rates and higher taxes from 2010 onwards. Which will for sure limit growth to a much smaller % than those fake prosperity years, but that’s what it is, and that’s what it shall be.
    The years with 3.5 or 4% GDP growth have finished. America and Europe should feel happy if they can maintain 1% growth per year in the future.
    Meanwhle, the name of the game is how to avoid -25% in the nest two years. Only a Keynesian stimulus of massive proportions (at least 10% of GDP wth the multiplier) will help to bring the recession to a milder -5%.

    So the choice is between
    -5% and then +1% for a long time (Keynesian)
    or
    -25% and then ????? (Libertarian-Monetarist)

    I know which one to chose.

    Wrt the AIG bailout, I agree with you, but the worst scandal so far is the Citibank bailout. There was no reason whatsoever that the operations of these institutions couldn’t have been saved without making such a huge present to the shareholders and bond holders of Citibank.
    That’s clearly crony-capitalism and I don’t understand how the American press didn’t denounce it.
    They’re lucky that most Americans don’t understand what’s going on well enough.
    Unbelievable !

  95. #95 Coriolis
    December 2, 2008

    No offense to all the claims that I need to have a Ph.D. in economics to criticize and that “every science has the same problems”, but I call bullshit.

    The fact is that every science has a public face, that is visible to the public and has some effect on the public. And it’s up to the practitioners of the science to be able to come a scientific consensus and present their results with some clarity to the general public.

    I don’t see creationist biology professors in major universities spewing nonsense about creationism. Nor are you going to find physics professors talking crap about physics on TV. When there was the recent ruckus in the newspapers over the LRC maybe making a micro black hole there wasn’t some crazy physics professor at a reputable institution saying that it just might. By and large in the physics at least we have come to a scientific consensus on almost everything that anyone who is not a scientist cares about.

    On the other hand you have economists apparently incapable of coming to a unanimous scientific consensus about almost anything practical that relates to their field. Even for what should be basic issues where there is a pretty wide consensus – like that we should have a stimulus right now – there are still plenty of people from apparently credible sources who go around claiming that we shouldn’t.

    And of course there is barely any consensus about the size of it, and especially the form of it. Government spending or tax cuts? For who? I could draw up 20 random economists from major universities and give you at least 5 substantially different answers – there’s certainly no shortage of prominent economist blogs. If economists cannot come to a better consensus about what the hell is going to then something is wrong.

    And lastly – what exactly do you mean when you say that economists are using “mathematical modeling”? Finding a mathematical relation that fits certain sets of data is the first step in science. However, without the second step of taking those relations and data and fitting it within (or inventing) a larger theoretical framework you do not have an actual theory.

  96. #96 Jadehawk
    December 2, 2008

    personally I find it utterly fascinating that both the far right libertarians and the left progressives have predicted this with details, and only the middle* got it massively wrong. I’m sure there is a lesson in there somewhere, but I’m not sure what it is. Might be it’s just that both sides have a vested interest in proving the middle wrong… might be they’re actually proving that the center has combined those aspects of the “fringe” which should have been discarded, and discarded those that should have been combined…

    *middle as defined by American politics; translates to: “slightly less far right” in the rest of the world :-p

  97. #97 Jadehawk
    December 2, 2008

    and to add to what Negentrophyeater said: if you look at the economies of the developed world, the major difference between the more social and the more libertarian economies seems to be that the social ones slowly and steadily chug along at constant but small growth rates, while the more libertarian ones have those massive, painful boom and bust cycles in which first a handful of people get very rich very quickly while the rest sees a small, steady increase in wealth, and then the wealth evaporates, but the rich (mostly) remain as rich as they were to begin with. The boom-and-bust hurts the middle-class more, while the slow-and-steady growth hurts the rich more.

    Also, Germany and France are the top savers (10%-13% of income saved), so being taxed those “exorbitant” rates doesn’t seem to keep them from accumulating their own nest-eggs. But then, their economies aren’t based and dependent on consumerism

  98. #98 BMcP
    December 2, 2008

    Who can predict the future? They were all warning on $200 or more a barrel oil back in July for the end of this year, and it now struggles to stay above $50. If people were just sound fiscally, they can much better weather the economic storms that are always inevitable from time to time.

  99. #99 Jadehawk
    December 2, 2008

    Who can predict the future? They were all warning on $200 or more a barrel oil back in July for the end of this year, and it now struggles to stay above $50. If people were just sound fiscally, they can much better weather the economic storms that are always inevitable from time to time.

    my boyfriend’s dad has a ginormous gas-tank next to his shop… he managed to go through all summer without having to buy gas, and is now waiting for an opportune moment to refill the tank. he was exhibiting some gleeful schadenfreude this summer when everyone was begging him to “borrow” some gas :-p

  100. #100 Katkinkate
    December 2, 2008

    Contrarians are always worth listening to. They give balance to the propaganda messages from MSM. I like reading the Mogambo Guru’s analysis occassionally and the guys from the Daily Reckoning (Australia) provide a wide range of contrarian and reality-based analysis. But most analysists come from a particular viewpoint and are often blind to other perspectives so you need to look for a variety to follow to get a good idea of ALL that’s really going on. Anything said by the MSM is usually a ‘keep the status quo’ smoke-screen (’cause that’s what’s best for business) or govt propaganda.

  101. #101 negentropyeater
    December 2, 2008

    Corolis,

    read my post #75.

    And of course there is barely any consensus about the size of it, and especially the form of it. Government spending or tax cuts? For who? I could draw up 20 random economists from major universities and give you at least 5 substantially different answers – there’s certainly no shortage of prominent economist blogs.

    If you’d study the subject, you’d see there is consensus amongst neo-keynenian economists (Krugman, Stiglitz, Roubini, etc…) about the size and the form of such a stimulus. Search Keynesian multplier. There are no serious economists for example who advocate tax cuts or rebates for the simple reason that the rich will save it and the rest will use it to pay of debt, which won’t stimulate a iota the economy. So it needs to take the form of Govt spending on projects which can generate real productve growth in the future, infrastructure, research and technology, green energy, etc… The size 5% of GDP for the nest two years is also a matter of consensus.
    The other school of thought, neo-monetarists, reject the idea of such a stimulus entirely.

    So it’s not 5 but 2 substantially different answers that you would get if you interrogated a random sample of academics. And if you took the list of top 100 economists by publication, you’d get a very clear majority in favour of such stimulus, and you’ll find that the unfolding of this crisis is finally discrediting the most radical monetarists in academia. Which won’t stop them from writing their blogs, of course.

  102. #102 negentropyeater
    December 2, 2008

    Jadehawk,

    personally I find it utterly fascinating that both the far right libertarians and the left progressives have predicted this with details, and only the middle* got it massively wrong. I’m sure there is a lesson in there somewhere, but I’m not sure what it is.

    Simple, the “middle” was in power, the Upton Sinclair “Theorem” applies :
    It is difficult to get a man to understand something, when his salary depends upon his not understanding it.

  103. #103 ice9
    December 2, 2008

    Consider the tape from a journalistic perspective, too. Why is Fox so wrong?

    Hindsight is 20/20, of course, and everybody who takes a risk on the record and speaks out is wrong on occasion, but the talking head style in this video exemplifies the worst trends in our media. These “sources” all have financial and political conflicts of interest–not just interests, that is, but journalistically questionable conflicts. It’s not a problem if a source is tied into the financial markets and gives advice or sells products, so long as that affiliation is revealed in what is called “full disclosure.” If the source has a conflict, it’s the journalist’s, and the editor’s, fault. These conflicts aren’t secret; they’re business as usual.

    Any more, in MSM outlets and Fox especially, there is no such thing as full disclosure. It would take hours of air time to disclose the tangled and unethical relationships between “sources” and “journalists” at Fox and the other networks (See NYT’s coverage of revelations about Gen. Barry McCaffrey and NBC for another sordid and costly example.) The “talking heads” at Fox are not true journalistic sources, they are in-house people chosen not for expertise or ideas but for name recognition and viewer interest. So putting Stein or Laffer on–regardless of their ability to predict or analyze anything–is a profit-based calculation. Your choice is some unknown academic with poor tv skills but good credentials versus a hack with clear name or face recognition. Choosing the name/face over the source value is a common failure of news organizations, but Fox takes that process to a whole new level. These hacks are paid, not in cash up front but in face-time for their pathetic cross-media careers or celebrity has-been advising or speaking gigs. In return, of course, they agree with the prevailing drift of the program, which is conservative boosterism (at least right now; soon it will be whatever it will be, so long as profit is involved.)

    Stein and Laffer have deep political roots as polemical economists, but they are known quantities, good on TV, interesting and outspoken and not afraid to gang up on a stiff and twitchy intellectual. That’s what the Fox audience likes, and they are probably happy to lose 60% of their retirement savings to pay for it.

    As you watch the compilation, notice how the other heads and the “journalist” attack Schiff, often interrupting and obscuring what he intends to say. Notice how Schiff attempts to explain and evidence his statements, but nearly every time he’s badgered into simple polemical yelping by the others as his time expires; the atmosphere of the interview doesn’t allow analysis beyond “you’re wrong.” It’s especially obvious if Schiff doesn’t go first. But Schiff is blinky and scared-looking and unpoised on TV, while the others are telegenic and confident. On the interactives, he doesn’t know how to keep his eyes on the out-camera, and so glances back and forth to the monitors where the other heads are looking at him and talking to him, making him look sketchy and nervous.

    Schiff was invited as a contrarian, and to create the illusion of balance. Typical of Fox, he’s a patsy, there to be kicked around by the tough smart guys who also happen to be conservatives. That’s reason enough to despise the Fox model. It’s worse, though, because the other analysts are all selling something, and you can bet they have an interest. (only once, with Stein, is a full disclosure slide used to indicate that he owns shares of the stock in question.Yet it has been clearly documented that all of those analysts were self-interested to a violently unethical degree.)

    The media market should take care of this problem, but the market isn’t (so far!) interested in complexity, ambiguity, or people who bring bad news. The market wants simplicity, clarity, and upbeat assessments and rosy scenarios. Stein and Laffer and the others should never get a talking head gig again, but they will. Cavuto should be fired and put his infantile powers of perception to work on a blog nobody but his mother reads.

    bahh.

    ice

  104. #104 Cheezits
    December 2, 2008

    I’m still trying to comprehend the sort of mindset that uses words like “gleeful” and “schadenfreude” to speak of the current crisis.

  105. #105 Scott from Oregon
    December 2, 2008

    “””Anything said by the MSM is usually a ‘keep the status quo’ smoke-screen (’cause that’s what’s best for business) or govt propaganda.”””

    One of the productive things that people like Peter Schiff and Ron Paul have achieved, regardless of whether you agree with their points of view, is that they have shone a bright hot spotlight on the major media networks and their attempts to manipulate public opinion, serving their corporate interests and not the public good.

    In the public, the free flow of ideas is important.

    In the media, it means discovery of some very nefarious staus quo scenarios…

    “””the major difference between the more social and the more libertarian economies seems to be that the social ones slowly and steadily chug along at constant but small growth rates, while the more libertarian ones have those massive, painful boom and bust cycles in which first a handful of people get very rich very quickly while the rest sees a small, steady increase in wealth, and then the wealth evaporates, but the rich (mostly) remain as rich as they were to begin with.”””

    You can’t claim a “libertarian” economy if you don’t have one. America’s crony-capitalism IS NOT a libertarian economy. Most of the world’s “social” economies are dependent on the US’s to generate growth and motion. Without the US, the weight of the social expenditures is too much to tolerate.

    There are lots of interesting realignments about to occur in the world.

    Stay tuned…

  106. #106 Scott from Oregon
    December 2, 2008

    “””And if you took the list of top 100 economists by publication, you’d get a very clear majority in favour of such stimulus, and you’ll find that the unfolding of this crisis is finally discrediting the most radical monetarists in academia. Which won’t stop them from writing their blogs, of course. “”””

    One could also claim the Keynesians have been shown to have been wrong by the collapse of their coveted Federal Reseerve driven system.

    I look at the problem from an ethical point of view. Starting with the privately owned and controlled Federal Reserve, which gives undue favor to those who know monetary policy in advance and allows for surreptitious gaming of the system. Not to mention how savings are stolen and forced borrowing is a desired and manipulated FR goal, ensuring money flows upwards into banks and “financials” instead of into retirement savings and family structures…

    Then of course you have the immorality of the bail outs…

    Then there is the immorality of favoritism for government contracts for “infrastructure” (remember Iraq?).

    I choose to side with those who value morality and honest money.

  107. #107 Nick Gotts
    December 2, 2008

    Spending like crazy didn’t work in the 1930s. – jcr

    Yes, it did. I’ve posted the GDP figures, and the unemployment figures on this blog before; they show fairly steady recovery from 1932-3 (Hoover began stimulating the economy in his last year in office) through 1939, with a blip in 1937-8 when FDR, unnecessarily worried about deficit spending, took his foot off the pedal. You have not, to my knowledge, queried these figures – just repeated again and again that the New Deal didn’t work. It did – and similar measures worked in much of Europe (Sweden was first to emerge from the Depression, in 1934 – because the Swedish government lost no time in taking Keynesian measures). What are your grounds for claiming otherwise?

  108. #108 Damian
    December 2, 2008

    Did anyone catch Schiff’s recommendation to buy gold toward the end? I think the take-home message here is to generally ignore economists and only ever buy within your means.

  109. #109 AgnosticTheocrat
    December 2, 2008

    This guy was obviously right about an upcoming recession, but he got there more out of luck than accurate understanding of economics. The recession isn’t “excess consumption” and excessive borrowing, it was due to that borrowing being leveraged upon essentially worthless assets. Had people been investing the money they were borrowing into something better than real estate, we may never have entered a recession at all.

    A recession is never “medicine to be swallowed”, it’s a contraction of demand. Once people’s capital dried up due to the mortgage crisis, they stopped buying things, leading to a steep drop in demand. This guy claims we just have to ride it out, but doing so could take a decade and wouldn’t fix the underlying economic instabilities we have in our country.

  110. #110 negentropyeater
    December 2, 2008

    SfO,

    One could also claim the Keynesians have been shown to have been wrong by the collapse of their coveted Federal Reseerve driven system.

    Gee, try to make statements that make sense.

  111. #111 Katkinkate
    December 2, 2008

    Hee, just noticed. In #100 analysists = analysts. Sorry.

  112. #112 5keptical
    December 2, 2008

    Schiff may have been right, but since economic predictions are all over the place, there’s a high probability that someone would guess correctly.

    Does any economic theory have provable predictive ability?

    Or do people just want to believe and are fooling themselves in a fashion similar to the religidiots?

  113. #113 Coriolis
    December 2, 2008

    Oh I read and agree with Krugman almost all of the time negentropyeater. However, even Krugman hasn’t claimed that he has a firm grasp on what the size of the stimulus should be (although he does say that it will be much easier to correct for an overshoot and shows some good reasons for that and most of his other claims). Although at least unlike most he’s willing to put down some numbers with some justification.

    I also haven’t seen him claim that a tax cut targeted at poor people wouldn’t be a good idea – just not a fix by itself without direct government stimulus.

    But this isn’t the crux of the issue – you can find smart people who know what they are talking about in politics or diplomacy or arts too – but that doesn’t make any of those disciplines science. I’ve already explained what at least a few of the difference between these soft sciences and the hard sciences are.

  114. #114 negentropyeater
    December 2, 2008

    Nick,

    when you hear claims such as jcr’s that the New Deal didn’t work, they come directly or indirectly from Amily Shlaes, an ultra conservative libertarian who has been appearing often lately on Fox News and other networks to promote her latest book pack-of-lies on the Great Depression “The forgotten Man”.

    This excellent post takes care of her lies :
    http://edgeofthewest.wordpress.com/2008/11/06/stop-lying-about-roosevelts-record/

  115. #115 Svetogorsk
    December 2, 2008

    In the UK a politician from the third ranking party in Parliament (Vince Cable – Liberal Democrats) had been banging on for a while about the dodgy state of the markets and banks, etc. His analysis, let alone predictions, have turned out with hindsight to have been pretty accurate.

    He doesn’t belong to the party I normally support but you’d think he would at least be given a higher profile in the media – higher up the meritocracy of talking heads called in for their opinions.

    But no, he’s still a fairly low profile guy in the media.

    I don’t think that’s true at all. From the moment he delivered that killer one-liner about Gordon Brown metamorphosing from Stalin to Mr. Bean last year, Cable’s been unarguably the highest-profile member of his party (certainly far higher than Nick Clegg, the nominal leader), and I’ve seen him popping up all the time in newspaper interviews (and columns) and on television.

    He was even a guest on Have I Got News For You a few weeks ago, which is about as high-profile as ratings get – fellow MP Bob Marshall-Andrews said that he never considered himself particularly famous until he appeared on that show, whereupon complete strangers stopped him in the street.

    Of course, I suppose it depends on which media you’re talking about, but certainly the so-called broadsheets and upmarket news programmes like Channel Four News and Newsnight feature him all the time – not least because he has the increasing reputation of someone who knows what he’s talking about (he was a professional economist for years before turning to politics).

  116. #116 Troublesome Frog
    December 2, 2008

    when you hear claims such as jcr’s that the New Deal didn’t work, they come directly or indirectly from Amily Shlaes, an ultra conservative libertarian who has been appearing often lately on Fox News and other networks to promote her latest book pack-of-lies on the Great Depression “The forgotten Man”.

    I like what Brad DeLong said when commenting on her exchange with Krugman: Amity Shlaes responds by arguing something… completely incoherent–flunking the Turing Test territory.

  117. #117 Troublesome Frog
    December 2, 2008

    One could also claim the Keynesians have been shown to have been wrong by the collapse of their coveted Federal Reseerve driven system.

    This is one of those comments that strays into “not even wrong” territory…

    1) The Federal Reserve system and Keynesian theory are not nearly so entwined as you seem to think. Typically, when I read a sentence like this, I think of sentences like, “The Marxists Darwinists want to bring about a new era of politically correct fascism.” The words are not connected in a meaningful way except in that they are things that the writer knows that he doesn’t like.

    2) The Federal Reserve system has not, in any meaningful sense of the word, “collapsed.”

    Starting with the privately owned and controlled Federal Reserve,…

    Privately owned and controlled? Well, technically privately owned, at least. Privately owned with a governing structure largely controlled by government appointees.

    …which gives undue favor to those who know monetary policy in advance and allows for surreptitious gaming of the system.

    Really? So who gets those monetary policy notes in advance? I’d love to see some evidence of the gaming of the system. These conspiracy theories all end up drawing pictures of things like Ben Bernanke stuffing buckets of freshly printed $100 bills into the trunk of his Volvo after work.

  118. #118 negentropyeater
    December 2, 2008

    Coriolis,

    I never claimed that macroeconomics was a science, that doesn’t mean it’s not worth studying it and understanding why it isn’t precise in its predictions.

    I find it fascinating. That’s the main common point I found with the real sciences, Physics which I also studied at a graduate level when I was younger, and evolutionary biology, which I wish I had studied at a higher level than the meager varnish I have afforded myself until now.

    The advantage of having a correct understanding of macroeconomics and corporate finance has meant that over the past few years I have never followed the “advices” of the ignorant talkingheads and done very well with my investments so that I can afford not to work and spend my time bloging and learning more stuff.

  119. #119 AAB
    December 2, 2008

    It worries me that this Peter guy is not regulations and bailout supporter. What if he is right again and the regulations and bailout from the government will actually hurt us in the future. Read his wikipedia page for details..

  120. #120 Eric Paulsen
    December 2, 2008

    I remember back in the late 70s/early 80′s when people were predicting a climate shift trending warmer that would radically alter the environment. Crazy fookin hippies.

  121. #121 Longtime Lurker
    December 2, 2008

    My favorite Fox moment of the last year was when Sean “Dumbest Man on TV” Hannity blew up at Robert Kuttner, insisting that the economy was fine scant days before the big meltdown.

    http://www.youtube.com/watch?v=h8bsIjGcZyI

    This is one of those comments that strays into “not even wrong” territory…

    That’s our Scott!

  122. #122 negentropyeater
    December 2, 2008

    Amity Shlaes responds by arguing something… completely incoherent–flunking the Turing Test territory.

    Well yesterday, on Fox News, I think it was on Cavuto (Yes, I do watch this, it’s the best way to keep up to date with the main sources of lies and disnformation), she made her arguments, and at the end, she seemed so extatic, so definitely proud of herself or something, I’d sware she was on some sort of amphetamines.

    We always discuss whether religious belief, especially the existence of a personal interventionist god that controls our souls, may impact crtical reasoning abilies and affect scientific performance.
    Well I’m convinced it has impacted deeply economic thinking since Adam Smith.

    I think the notion of invisible hand, … that free-markets always work because in a free market individuals and by extension firms following their self-interest, are led to do what’s best for their community and by extension the world, is a deeply religious notion.

    If you can believe in such perfection, such simplicity, there is only one way, you must believe in the existence of a perfect god that is intervening and guiding mankiind towards him , some sort of eternal betterment.

    Otherthise I don’t see how it works.

    Joseph Stiglitz expalins that “whenever there are “externalities”–where the actions of an individual have impacts on others for which they do not pay or for which they are not compensated–markets will not work well.”

    So typical examples of such externalities are environemental ones : eg pollution and resource depletion.

    Now how could Mankind ever pollute or deplete the resources of this planet or its surounding system to such an extent as to cause its own end ? It’s not possible, right ? If you believe in an interventionist God, there’s always gonna be a happy ending, he’ll save us just on time, he’ll just send his son or something like that, and he’ll show us how to turn one fish into millions and that’ll take care of all our problems. We’ll be saved !

    So, you can’t have externalities if you believe in a personal God. Therefore, you must believe in the invisible hand.

  123. #123 Scott from Oregon
    December 2, 2008

    “”1) The Federal Reserve system and Keynesian theory are not nearly so entwined as you seem to think.”””

    And your misreading of what I said is far from exemplary…

    We have a federal reserve system, and we predominately follow Keynesian economics. The two HAVE COMBINED by usage in the US and the system has melted down.

    Now if we followed a gold-backed system and libertarian economics and the system broke down, we could blame one or both of them…

    But, uh… we don’t…

    “””Privately owned and controlled? Well, technically privately owned, at least. Privately owned with a governing structure largely controlled by government appointees.

    …which gives undue favor to those who know monetary policy in advance and allows for surreptitious gaming of the system.
    Really? So who gets those monetary policy notes in advance? I’d love to see some evidence of the gaming of the system.”””

    The collusion between the major financials and the Fed is happening right out in public in the dark. In other words, it is blatantly occuring and barely reported on. Look to the amount of money the Fed has “injected” recently. Whose money was that they were injecting?

    Technically privately owned? Can you name the owners of the Federal Reserve? All of them? Can you state what compensation they earn for running the Federal Reserve? Do you have minutes to any of their meetings? Are there meetings you have no idea even took place? Is this all public knowledge? Does the Federal Reserve tell congress what it is doing? Did congress approve of the massive Federal Reserve buy-ins of private companies? Where does the money the Federal Reserve uses to bail out these finanacials come from? Did any elected official of the people of the US sign off on these manuevers?

    Do tell– Please.

  124. #124 negentropyeater
    December 2, 2008

    I mean, in the end, the truth is, libertarians are just a completely religious economic movement that can’t give a shit about the environment we live in.
    It’s like the resources of this planet and everything are infinite : we should grow as fast as we can, because, why put a limit ? Whooooo gets to put the limit ? Governments can’t do that, they’re damn incapable, only God is allowed to set a limit, he does it via the invisible hand.

    So, we should exploit, consume, pollute this planet as much as we can. He’ll do something to save us.

  125. #125 Nerd of Redhead
    December 2, 2008

    Negentropyeater, I think both ends of the political spectrum, the libertarians and the communists, see their philosophy essentially as a religion. Bow and worship the ideology even if it doesn’t appear to work as indicated. Worship the ideology, even when things get drastic. Worship the ideology, even after things fail.

  126. #126 Meng Bomin
    December 2, 2008

    JCR (#35):

    When you have people ranging from Jim Rogers to Dennis Kucinich calling for the end of the Fed, we’ve got a shot at making it happen.

    Sorry, but whenever I see Kucinich cited as a lead proponent for a bill, I know its dead in the water.

  127. #127 Coriolis
    December 2, 2008

    Indeed Nerd, extreme free market libertarianism and communism are both quite similiar to religions, except without a mythical element.

    Negen, I never said economics is not worth studying. It’s very much worth studying seriously – the problem is I don’t see much evidence that it has been. But there is plenty of idealogy.

    Hell a few minutes ago Greg Mankiw, apparently an economist at harvard showed up on kudlow’s comedy show and proclaimed that tax cuts is the way to solve our issues. And that government spending would be harmful, since it would crowd out private investment. A theory that Krugman shot down about a week ago (if it wasn’t laughable on it’s face in the face of dissipating private investment during this crisis).

    Now maybe this guy is just a moron without a serious publication record – but than what the hell is he doing at harvard?

  128. #128 Scott from Oregon
    December 2, 2008

    “”I mean, in the end, the truth is, libertarians are just a completely religious economic movement that can’t give a shit about the environment we live in.”””

    The irony of this statement is that it is fiat monetary policy that promotes consumption and causes resources to be eaten alive.

    I use to go to a Salvation Army Depot and pick through the crap they poured out over half an acre. At the end of the day it was scooped up with a back-hoe and sent to a landfill.

    All caused by credit and cheap money and a government that promotes spending and debt– and is promoting spending and debt to this day, even in the throes of our own insolvency as a country…

    Spend, borrow, owe ad infinitum… Yeah. Smart economics… and good for the economy…

    Better to limit the money supply and get humans to live frugally and within their means. Remember, it is the open ended money supply that created the huge military, which is an enormous polluter and resource user. It is this money supply that fueled mass consumption and filled our land-fills with crap. It is this money supply that caused buyers to demand giant, inefficient homes that tore up forests and uprooted topsoil and are now sucking up energy trying to keep them warm (ala Al Gore’s house). It is this money supply that fills the skies with corporate jets and makes humans hop around on Boeings in huge numbers…

    Gone are communal economies and local products and cottage industries, sucked out of the world by cheap money fueled by a funked up system that rewards greed and avarice and punishes the frugal and environmentally concious.

    So fuck your Federal Reseerve and the notion that “libertarians” don’t care about the planet.

    If that’s a religious belief, you’re an odd duck…

  129. #129 Nerd of Redhead
    December 2, 2008

    SfO, spoken like a True BelieverTM.

  130. #130 rs
    December 2, 2008

    And yet people still dismiss libertarians as greedy racist crackpots…

    Where does their ‘empirical reasoning’ go?

    BTW, any chance Peter Schiff might get invited to Obama’s economic team?

    Didn’t think so…

  131. #131 negentropyeater
    December 2, 2008

    SfO,

    first describe the monetary policy and worldwide financial architecture that you propose, then we’ll see if you are really a libertarian.

  132. #132 Steve
    December 2, 2008

    I wouldn’t follow the advice on his website, which is to get into gold. That’s a bubble if ever there was one.

  133. #133 negentropyeater
    December 2, 2008

    SfO,

    how can you be an environmentalist and libertarian ?

    Over the last 50 years, the world GDP has grown at an approximately constant rate of 3.5% per annum
    (fig1 shows here the gowth rates for both advanced and emerging economies:
    http://www.imf.org/external/pubs/ft/weo/2008/update/03/

    Now, at this rate, it means quadrupling GDP (net of inflation) in 40 years, and multiplying by 32 in 100 years.
    Now, so far, GDP growth has been almost perfectly correlated with CO2 emmissions as well as energy consumption.
    How do we adapt to a new GDP/pollution or energy consumption correlation ? Easier said then done. It means essentially changing the value we attach to things, it’s a complete generational shift we need to operate in the mentalities of our youth, from the wasteful consumerist society built by the baby boomers to one which values less material things. How long will it take ? In the mean time we need to target a much lower growth rate, maximum half of what it’s been in the last 50 years. So who fixes the quotas per country ? Who regulates this and how do you implement it ? And if you acknowldege that some countries which are poorer should be allowed to grow faster than those which are rich why wouldn’t it be the same within a given country ? So how do you organize this with libertarian monetarist policies only ?
    Or you just leave it and not worry about the future ?

  134. #134 JCE
    December 2, 2008

    Tulip bulbs, anyone?

    One of the most important books on finance (and other collective delusions) was published in 1841, should be required reading for anyone thinking of investing and certainly for anyone who would rather not be among the majority who “cannot remember the past and are thus doomed to repeat it.”

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

  135. #135 Troublesome Frog
    December 2, 2008

    We have a federal reserve system, and we predominately follow Keynesian economics. The two HAVE COMBINED by usage in the US and the system has melted down.

    And I’ll suggest again that Keynesian economics does not really figure into the state we’re in right now. It does figure into how we are most likely to get out of it, and it does explain why we are where we are, but it’s not something that can reasonably be called a cause. I will agree with you that in this case, loose credit policy by the Fed encouraged a housing bubble. Combined with bad regulation of insurance-but-not-insurance and banks-but-not-banks and you have bad news.

    Now if we followed a gold-backed system and libertarian economics and the system broke down, we could blame one or both of them…

    Only if they actually caused the problem, yes?

    The collusion between the major financials and the Fed is happening right out in public in the dark. In other words, it is blatantly occuring and barely reported on.

    Where, specifically? Some reporting has to be going on or you wouldn’t know about it, right? Something that can be linked to or referenced?

    Look to the amount of money the Fed has “injected” recently. Whose money was that they were injecting?

    1) I’m concerned that you’re confusing the functions of the Treasury and the Fed. Both are doing something that is called “injecting” and both are doing different things with different pools of money.
    2) This doesn’t explain who is getting advance notice and doing insider trading on the money market.

    Technically privately owned? Can you name the owners of the Federal Reserve?

    The stock is held by member banks. Since the Fed is not for profit, the shares can’t be traded, the dividends are fixed by law, and the shareholders don’t get to appoint the people who run the bank, it’s not exactly like “owning” a private corporation.

    All of them?

    And the Jews.

    Can you state what compensation they earn for running the Federal Reserve?

    Dividends fixed at 6% per year. By law. And that’s for holding shares, not for “running” the system. Because they don’t.

    Do you have minutes to any of their meetings?

    You can start here.

    Are there meetings you have no idea even took place?

    Hmmm….

    Does the Federal Reserve tell congress what it is doing?

    Yes.

    Did congress approve of the massive Federal Reserve buy-ins of private companies?

    The massive buy-ins of private companies were performed by the Treasury. The Federal Reserve is buying assets, swapping credit, guaranteeing debt, and providing liquidity. Both statements are oversimplifications, but I think that yours is even more so. And yes, Congress approved the Federal Reserve Act. They can repeal it whenever they want.

    Where does the money the Federal Reserve uses to bail out these finanacials come from?

    The money the Treasury uses is taxpayer money. The money the Fed is using is money created, most likely temporarily, in its rush to bring equilibrium back after everybody decided that they wanted to hold money. This happens in every sharp downturn in both fiat and commodity money regimes. The difference is that with commodity money, we’d see a jarring drop in the price level and lots of companies with profitable credit-financed endeavors would tank.

    Did any elected official of the people of the US sign off on these manuevers?

    Which manuevers, specifically?

    Do tell– Please.

    Come clean now… Is your only source of reading on the Fed and banking system in general a particular web site? My experience is that arguing with people who have only read mises.org or similar sites is just like trying to have a discussion with people who have only read Marx. There’s just no basis for understanding the broader system, but every observation just happens to validate Marx’s writings.

    Sorry about the long post.

  136. #136 Scott from Oregon
    December 2, 2008

    “”but it’s not something that can reasonably be called a cause.””

    It can be reasonably called a mitigating factor.

    “The stock is held by member banks. Since the Fed is not for profit, the shares can’t be traded, the dividends are fixed by law, and the shareholders don’t get to appoint the people who run the bank, it’s not exactly like “owning” a private corporation.”

    And these member banks were elected by whom? And these member banks get no advanced notice on the machinations of the Fed? Does having an inside line on what and who gets financial capital hinder or hurt these member banks?

    “Does the Federal Reserve tell congress what it is doing?
    Yes.”

    Actually, look at how many Congressmen complain that the Federal Reserve does not consult with or report to Congress. Ask your congressman if he/she knows what the Federal Reserve is doing at any given time.

    “”Come clean now… Is your only source of reading on the Fed and banking system in general a particular web site? My experience is that arguing with people who have only read mises.org or similar sites is just like trying to have a discussion with people who have only read Marx.””

    I get my information the normal way, I look for it.

    My purpose isn’t to show you what I know about the Federal Reserve, or produce some kind of “conspiracy”. My only purpose is to promote a dialogue about the purpose and effectiveness of the Federal Reserve, its honesty, its morality, etc…

    The assumption with many people is that the Federal Reserve is indeed “federal”, that they are a necessary part of government, and that they are run by smart, effective people. We are seeing these assumptions for what they are.

    I think there needs to be a national dialogue about the Federal Reserve and its usefulness, by everybody, not just elitists and college professors. I’d like to see the issue debated once again on the floors of congress, with Cspan mikes and cameras all around.

    “”SfO,

    how can you be an environmentalist and libertarian ?””
    Again, I am not a libertarian. Too strident an ideology, and it can’t deal with badly behaved individuals who would claim their individual “property rights” to ruin shit for all.

    I believe in regionalism, localism, community, and ground up government.

    Central planning and one size fits all national government is stupid, in my opinion.

    You can never be prepared for a George Bush until it is too late…

  137. #137 Jack
    December 2, 2008

    Anyone who claims to know what will happen to the economy is lying. All predictions have an element of probability, and just as the man who bets for 2:1 odds on a coin toss is doing the right thing to make a profit but can still lose, so can an economist make a correct forecast about the most likely possibility which turns out not to happen.
    All of which is to say a) the ‘I told you so’ reflex is rarely just and b) trust people, and more importantly trust concepts, based on their predictive power over repeated experiments.
    I take no sides here; I don’t know enough to judge who is and is not trustworthy. It makes sense for me to mitigate my reasonable worst-case losses.

  138. #138 Troublesome Frog
    December 2, 2008

    And these member banks were elected by whom?

    I don’t know really… who elected Wells Fargo? The answer is, Wells Fargo, like all nationally chartered banks, has to hold a certain amount of FRB stock. That’s part of the deal. They get the fixed dividends and they get to vote to elect some of the board members. The more important question is, who actually appoints the majority of the people who make the decisions? The federal government does.

    I think you’re confusing stock ownership with control. That usually works OK, but not in this case. The Fed has a strange corporate structure.

    And these member banks get no advanced notice on the machinations of the Fed?

    No, they don’t. There’s no motive for the FOMC to give member banks inside information.

    Does having an inside line on what and who gets financial capital hinder or hurt these member banks?

    Having such an inside line would help them significantly. But since they don’t have one, it’s a moot point.

    Actually, look at how many Congressmen complain that the Federal Reserve does not consult with or report to Congress. Ask your congressman if he/she knows what the Federal Reserve is doing at any given time.

    You don’t get to know what the Fed is doing while they’re planning it. That’s radioactive insider information. If information comes out, it comes out in the form of an announcement for everybody. The Fed reports to Congress consistently and is audited regularly. Congress doesn’t get to influence decisions while they’re being made.

    I get my information the normal way, I look for it.

    But you didn’t just google “Federal Reserve” and “minutes” before assuming that the minutes were secret? You don’t seem to have looked very hard. That’s how I found the link, anyway.

    My purpose isn’t to show you what I know about the Federal Reserve, or produce some kind of “conspiracy”. My only purpose is to promote a dialogue about the purpose and effectiveness of the Federal Reserve, its honesty, its morality, etc…I think there needs to be a national dialogue about the Federal Reserve and its usefulness, by everybody, not just elitists and college professors.

    Sure, that’s a fine conversation to have. The problem is that one needs to be familiar with the subject first. I don’t consider understanding the history and workings of a major institution to be “elitist” when discussing its abolition. As we’ve seen, banking systems are not simple, and they are the way they are for reasons. You need to know those reasons before you can have a serious conversation.

  139. #139 sara
    December 2, 2008

    Sigh . . . I wish that Congressman Ron Paul had made it further in the primaries, at least, but I would not have wanted to see him lose to the eloquent populist who is going to bring back the old New Deal (at least as some consolation, Sen. McCain lost).

  140. #140 andy
    December 3, 2008

    If makes any difference, the Fox Business Network has the Dave Ramsey show… if you can get past his brief bits of religiosity, his ideas of working hard on getting out of debt, living below your means, and ending up wealthy because of it, seem pretty bright in light of the current economic situation.

    Those listeners of his (he’s been on the radio for years now) who are out of debt, have a paid off house, and a good emergency fund probably don’t worry much about how things look right now.

  141. #141 Calton Bolick
    December 3, 2008

    Amity Shlaes has been on record as being a bit of whack-job for a long time

    http://delong.typepad.com/sdj/2007/02/why_oh_why_cant_6.html

    And no disrespect, PZ, but what you have here is the equivalent of a Biblical apocalyptic prophet being laughed at by global-warming deniers: being laughed at by complete fools like Ben Stein and Arthur Laffer says nothing about whether who they’re laughing at is right or just lucky. This whack-job’s prescription for the current economic mess is “let the free market handle it, and any government interference will doom us all”, something which nearly every ACTUAL economist thinks is foolish, and you’re just helping his PR campaign.

  142. #142 Pikemann Urge
    December 3, 2008

    Eric Paulsen, #120 – they predicted the climate would cool down, not warm up. I think?

  143. #143 Nick Gotts
    December 3, 2008

    neg@114,
    Thanks very much – I’ll take a look.

  144. #144 Nick Gotts
    December 3, 2008

    Pikeman Urge@142,

    No, they didn’t. The global cooling mole.

  145. #145 Paul Hands
    December 3, 2008

    http://www.youtube.com/watch?v=mzJmTCYmo9g

    The above is *really* funny. By two English comics…..they predicted, also with uncanny accuracy the foolishness of subprime more than 18months ago….enjoy!

  146. #146 Brian Macker
    December 3, 2008

    Troublesome Frog,

    The Austrians love to claim to have “predicted” everything that goes wrong with the economy, but the fact that they can never come up with a coherent, mechanistic explanation as to why (other than “government bad! market would be OK if no government!”), keeps them from making any serious academic headway.

    You are an absolute ignoramus when it comes to Austrian economics. As a matter of fact the Austrians do have a coherent mechanistic explanation. If like me you have read “Human Action” or “Man, Economy, State” then you would know that.

    These coherent mechanistic explanations are popular with many academic types precisely because they show that there is little role for government in economics. It’s hard to get government funding by telling the government it should maintain and not interfere with free markets.

    The current mess was caused by a price ceiling on interest rates and several other anti-free market actions. The outcome is quite predictable in a mechanistic way via theory. Price ceilings always cause producers to produce less and consumers to consume more. Thus the low US savings rate and high borrowing rate. This eventually causes shortages. The mechanics of Austrian theory also predicts other outcomes like asset bubbles, trade deficits, etc. Many Austrians had predicted these problems. The current bailout will only exacerbate the problems because it is merely more of the same poison.

    Again Nick Gotts, and Negentropyeater you are both have also shown incredible ignorance on the topic. You both live in a land of fiction. The actions of Hoover and FDR prolonged what would have been a short depression, like all prior depressions, into a decade long ordeal.

    I believe I mentioned on this blog several times that the economy was going to get real bad based on my knowledge of economics. I’ve taken you to task before. We are now well on the road to inflation and a destroyed dollar.

    Meanwhile Krugman advises us to borrow and spend even more. That was what got us into this mess. It’s stupid advice.

  147. #147 Brian Macker
    December 3, 2008

    For those interested in the Austrian mechanics but not into reading you can get a fuzzy idea by looking at the powerpoints at this site. Hayek is a Nobel prize winning Austrian economist.

  148. #148 negentropyeater
    December 3, 2008

    Brian Macker,

    Again Nick Gotts, and Negentropyeater you are both have also shown incredible ignorance on the topic. You both live in a land of fiction.

    I’ll reverse the compliments.

    The current mess was caused by a price ceiling on interest rates and several other anti-free market actions. The outcome is quite predictable in a mechanistic way via theory. Price ceilings always cause producers to produce less and consumers to consume more. Thus the low US savings rate and high borrowing rate.

    If it’s that “mechanistic”, explain why the French and Germans kept their savings rate above 10% all this time.
    Don’t tell me that there was no price ceiling on interest rates or less anti-free market actions than in the USA !

  149. #149 jcw
    December 3, 2008

    Another good Austrian economics read is about the American Great Depression by Murray Rothbard. Keep after them, Brian.

  150. #150 william e emba
    December 3, 2008

    John C. Randolph:

    In which calls he is quite correct – the only way we might just avoid a 30s-style depression

    Spending like crazy didn’t work in the 1930s. Why would you imagine that it would work now?

    Spending like crazy (along with spectacular tax increases) really didn’t happen until the 40s. Sheesh, you’re just gibbering.

    If it were possible to stimulate an economy by inflating the money, then Zimbabwe would be the richest country on earth.

    Golly. That’s like saying “if it were possible to immunize against a disease by using a bit of pathogen, the bubonic plague was the epitome of health protection!” You’re not one of those anti-vaccine cranks are you? You sure sound like one, with your nonstop glib idiocies.

    Really, a little bit of inflation is a standard part of the prescription for frozen demand, deflationary credit lockdowns, and those depression blues. It is not, however, part of some people’s ideology.

  151. #151 william e emba
    December 3, 2008

    John C. Randolph:

    The trouble with the bail outs and the borrowing and printing to cure the ills is that it is grossly immoral.

    That’s one trouble with it.

    Ugh. You’re as bad as the Christian nutcases who denounce evolution as immoral. The only morality I’m really concerned with is a working economy. If that means certain people who deserve to get smacked instead get a spectacular bonus, well too bad. Treating an economic crisis like it’s a morality lesson is just plain despicable.

    The other trouble with it is that it can only increase the problem in the long run.

    That’s like, what? Profound? Insightful? Gibberific?

  152. #152 william e emba
    December 3, 2008

    Coriolis:

    No offense to all the claims that I need to have a Ph.D. in economics to criticize [...]

    In other words, you’re just a crackpot.

    The fact is that every science has a public face, that is visible to the public and has some effect on the public. And it’s up to the practitioners of the science to be able to come a scientific consensus and present their results with some clarity to the general public.

    And it’s up to the general public to make an effort to get educated. There is widespread scientific consensus within economics. That you don’t see it, because you listen to the idiots, is because you refuse to make the effort. There’s really no discernible difference between you and a creationist talking about biology.

    I don’t see creationist biology professors in major universities spewing nonsense about creationism. Nor are you going to find physics professors talking crap about physics on TV.

    Because no one pays them to do so. For better or worse, people pay a fortune to hear morons say ridiculous pseudoeconomic babble.

    On the other hand you have economists apparently incapable of coming to a unanimous scientific consensus about almost anything practical that relates to their field.

    This is a flat out lie. There’s a reason the Econ 101 texts are pretty much interchangeable. You as might as well criticize physicists as being apparently unable to form a “unanimous scientific consensus” regarding energy policy. Should we go with coal? Nuclear? Wind? So long as it’s a matter of basic principles, like conservation of energy, there’s agreement. As soon as it turns into policy decisions and megabuck payouts and bribeable PhDs, all bets are off.

    Even for what should be basic issues where there is a pretty wide consensus – like that we should have a stimulus right now – there are still plenty of people from apparently credible sources who go around claiming that we shouldn’t.

    Correct. But look at the fine print. They do not make a sound economic argument that stimulus won’t work (although some handwave a few bits of gibber). They mostly make a moral judgment about government intervention. Because their ideology demands they do so.

    And of course there is barely any consensus about the size of it, and especially the form of it. Government spending or tax cuts? For who?

    This is random nonsense. For one thing, we need tax increases now, especially at the high end. You know, to stimulate spending.

    And where the government spending goes doesn’t matter all that much, so long as the recipients are likely to spend more. If you’re seeing lack of consensus on this, it’s pretty much irrelevant to the stimulus issue itself, but a debate on side issues, much of which has nothing to do with economics. As Keynes pointed out long ago, a giant program that alternated between ditch digging one day and then filling up the ditches the next day would be a fiscal stimulus, but how much nicer to build houses.

    I could draw up 20 random economists from major universities and give you at least 5 substantially different answers – there’s certainly no shortage of prominent economist blogs.

    Sigh. Sorry, blogs are not representative of economists. Sheesh. You get extreme minority opinion overrepresentation in the blogosphere.

    If economists cannot come to a better consensus about what the hell is going to then something is wrong.

    They mostly have. So quit with the crackpot criticism already.

    And lastly – what exactly do you mean when you say that economists are using “mathematical modeling”?

    Well, you could start by actually studying graduate level economics and reading the journals. Mathematics has almost taken over economics since the 1940s. The old school “talk your way through” economics is essentially dead among the professionals, but lives on amongst the ignorati. You know, the talking heads you keep lambasting.

    Finding a mathematical relation that fits certain sets of data is the first step in science. However, without the second step of taking those relations and data and fitting it within (or inventing) a larger theoretical framework you do not have an actual theory.

    Again, you’re just gibbering. The main problem with today’s economics is that everybody does that second step. It’s the first step that’s underrepresented and gets the most criticism in the “is economics really a science?” debate. (By the way, by “everybody” I mean the overwhelming majority that you keep denying exists.)

  153. #153 william e emba
    December 3, 2008

    Scott from Oregon:

    One could also claim the Keynesians have been shown to have been wrong by the collapse of their coveted Federal Reseerve driven system.

    Considering that the Fed predates Keynes General Theory by 25 years or so, there’s something completely meaningless going on in your head. Why you wish to share this with the world, I can’t imagine. As another poster pointed out, it’s not even wrong.

    To clarify, the Fed is responsible for monetary policy. Their biggest stick, the prime rate, is essentially dead right now. A Keynesian stimulus package (involving taxes and spending) is fiscal policy.

    I look at the problem from an ethical point of view.

    The only ethical issue most economists are concerned with is how much massive misery are we in for. Minimizing that takes precedence over the self-proclaimed moral high ground.

    As Keynes pointed out, yes, he agreed with the classical prediction that the economy would indeed “in the long run” spontaneously recover from depression, but then again, “in the long run, we are all dead”. It takes a special kind of despicable mentality to claim that ten or twenty years of depression is a fair price for maintaining clean hands.

  154. #154 william e emba
    December 3, 2008

    Coriolis:

    Negen, I never said economics is not worth studying. It’s very much worth studying seriously – the problem is I don’t see much evidence that it has been.

    Well, obviously you don’t. Because you haven’t tried. Hint: looking at 20 random economics blogs doesn’t count.

    But there is plenty of idealogy.

    Yes, the proven losers get paid plenty to keep up their chatter.

  155. #155 Nick Gotts
    December 3, 2008

    Well, you could start by actually studying graduate level economics and reading the journals. – william e emba

    Do you have any specific recommendations – in particular, some graduate-level text(s) and/or journals that express the consensus you refer to? (I have to say, as an outsider, my impression is that there is far less consensus even in basic matters in economics than in the natural sciences, but I’m ready to be shown otherwise.)

  156. #156 Coriolis
    December 3, 2008

    Please, enough with the self-righteous nonsense. I understand that we physicists are all too often intimidating but it’s a bit tiring.

    If you didn’t notice, I later mentioned a harvard professor who said exactly the opposite of what you claim that consensus is. Claiming that government stimulus would be bad and tax cuts would be good. Using arguments that krugman discredited a few days ago. I’m sure you’ll now claim that he’s just some clown that doesn’t know what the hell he’s talking about – but then what’s he doing at harvard? Although the guy is obviously a conservative, this isn’t some random talking head but a professor.

    Not that I have an expectation that professors in most decent schools are infallible. But I don’t expect them to be making what appears to be completely trivial mistakes.

    I find your defense of the mathematical modeling done particularly telling. You’re speaking as if my two steps are somehow distinct issues and one needs alot more of one and less of the other to be a “science”. The fact is that in most hard science there is also alot of hand-waving explanations and theorizing, and there is nothing wrong with that. The problem is connecting a more concrete mathematical framework with the hand-waving explanations of experimental results. But if you asked me a physics problem, I wouldn’t have to tell you to go grab a graduate level physics text, I could just give you a decent hand-waving answer of what should probably happen. And then calculations would be necesary to get specific results. At least if it’s QED or simpler, QCD and on there tends to be very little intuitive understanding of what the hell is happening for most people (and none for me).

  157. #157 william e emba
    December 3, 2008

    Do you have any specific recommendations – in particular, some graduate-level text(s) and/or journals that express the consensus you refer to?

    The standard introductory microeconomics graduate texts are probably those of Varian and Mas-Collel.

    I’m a mathematician, yet I personally believe learning the older Walras-Wald approach with calculus and utility as a warm up before moving on to the modern topology and preferences approach. The basic set up is there are goods, but no prices. Using ordinary multivariable calculus, one shows that under rather broad conditions, optimization of the “social welfare function” subject to global resource constraints is equivalent to simultaneous optimization of individual “personal utility function” subject to private resource constraints. Prices pop out as Lagrange multipliers. The interpretation is obvious: perfect free market unrestrained greed works. This is presumably why, for example, Paris doesn’t starve to death, despite the lack of any food czar dictating who eats what where and when. Ideologues are born when they take these first round models as the end-all-be-all, and conveniently ignore all the obvious limitations. Most economists are simply not that stupid.

    (I have to say, as an outsider, my impression is that there is far less consensus even in basic matters in economics than in the natural sciences, but I’m ready to be shown otherwise.)

    There are two kinds of “lack of consensus”. There are the hot button issues that attract the fringe. Supply side economics in its day, and libertarian freaking against bailouts in our own. These have been what I have been claiming there is strong consensus on.

    But you’re correct once we all move past the crackpots. There are numerous fundamental issues that the consensus is we really need a lot more research. Economic growth, irrational behavior, microfoundations of macroeconomics, volatility, oligopoly, external shocks, the list goes on, and encompasses more unresolved spadework than in most other sciences.

    On the other hand, this is partly subjective. Some pretty smart people will tell you the mathematical difficulties in quantum field theory and string theory are clear cut proof that physics is in sorry shape at the bottom. Others will tell you that the mathematical difficulties in deriving the periodic table from Schroedinger’s equation is clear cut proof that chemistry is in sorry shape at the bottom.

    Meanwhile, economics qua science gets bad press because just about everybody expects unanimity regarding economic policy decisions, yet somehow physics and chemistry are not disparaged despite wildly disparate views on energy policy. This is simply lack of education.

  158. #158 william e emba
    December 3, 2008

    Coriolis:

    Please, enough with the self-righteous nonsense. I understand that we physicists are all too often intimidating but it’s a bit tiring.

    Tiring? Tiring is you talking about something you obviously don’t know anything about. You google around and that’s about it.

    If you didn’t notice, I later mentioned a harvard professor who said exactly the opposite of what you claim that consensus is.

    Yes, Mankiw. Bush’s chief economic advisor for many years.

    Claiming that government stimulus would be bad and tax cuts would be good. Using arguments that krugman discredited a few days ago. I’m sure you’ll now claim that he’s just some clown that doesn’t know what the hell he’s talking about – but then what’s he doing at harvard?

    Because he is not that good! Really, Harvard has a second rate reputation in economics. (For what it’s worth, the late Dr John Mack, was a professor of psychiatry at Harvard. He believed in UFOs and alien abduction and treated patients accordingly.)

    I find your defense of the mathematical modeling done particularly telling. You’re speaking as if my two steps are somehow distinct issues and one needs alot more of one and less of the other to be a “science”.

    No, I was correcting your wildly inaccurate two-step summary of what goes on in economics.

    The fact is that in most hard science there is also alot of hand-waving explanations and theorizing, and there is nothing wrong with that. The problem is connecting a more concrete mathematical framework with the hand-waving explanations of experimental results. But if you asked me a physics problem, I wouldn’t have to tell you to go grab a graduate level physics text, I could just give you a decent hand-waving answer of what should probably happen. And then calculations would be necesary to get specific results.

    You’ve just described Krugman’s Op-Eds. Sheesh. Mankiw is meanwhile deluded. The free market did not cure the great depression, the free market did not cure Japan’s 90s depression, as Krugman pointed out on Monday. Saying let the free market cure our current depression is simply head-in-the-sand anti-reality-based anti-experimental-evidence denialism.

    At least if it’s QED or simpler, QCD and on there tends to be very little intuitive understanding of what the hell is happening for most people (and none for me).

    Maybe I’m deluded, but I tend to think of QCD as rather successful on the intuitive level. There’s a clear explanatory picture of what should be going on, if only we could solve the mathematics and get on with the physics.

  159. #159 Scott from Oregon
    December 3, 2008

    “”One could also claim the Keynesians have been shown to have been wrong by the collapse of their coveted Federal Reseerve driven system.
    Considering that the Fed predates Keynes General Theory by 25 years or so, there’s something completely meaningless going on in your head. Why you wish to share this with the world, I can’t imagine. As another poster pointed out, it’s not even wrong.””

    Aside from the extra “e” and lack of a pair of hyphens on “Federal-Reserve-driven”, there is nothing wrong with that statement. Keynesians can’t “stimulate” anything without the ability to create money they don’t possess or haven’t earned. You can’t be a Keynesian without this ability, so a Keynesian would indeed covet the fed as a source for their approach. The Federal government’s ability to monetize its doings is a boon for politicians who, in their current make-up, rely on the Keynesian approach.

    It promotes a climate of excess and reliance and a tendency to over-reach government function (as in troops overseas) and is a contributing factor to the meltdown we are witnessing.

    “””The only ethical issue most economists are concerned with is how much massive misery are we in for. Minimizing that takes precedence over the self-proclaimed moral high ground.
    As Keynes pointed out, yes, he agreed with the classical prediction that the economy would indeed “in the long run” spontaneously recover from depression, but then again, “in the long run, we are all dead”. It takes a special kind of despicable mentality to claim that ten or twenty years of depression is a fair price for maintaining clean hands.”””

    Ummm, no. There are far more ethical issues than patching an unethical system. Easy money and the promotion of credit, to start with. Using Asia to shod our children so we can play golf, is another. Debasing the dollar to prop up the fortunes of the very wealthy so that the poor suffer the effects of inflation is another. Promoting consumption as a meaningful economic model so that the environment takes a larger hit than would natural occur is also on the list.

    Setting tax structures that drive savings into 401K’s and the financial markets so that regular savers are forced into gambling with their money makes the list, too.

    When you toss out morality for expediency you become, well… immoral…

    Another Peter vid showing the subjective nature of the Great Depression…

    http://www.youtube.com/watch?v=p-qWILwGC8U

  160. #160 Troublesome Frog
    December 3, 2008

    You are an absolute ignoramus when it comes to Austrian economics. As a matter of fact the Austrians do have a coherent mechanistic explanation. If like me you have read “Human Action” or “Man, Economy, State” then you would know that.

    I mean one that isn’t a simple subset of basically every other economic theory. The idea that the Austrians are the only ones who have noticed that artificially low interest rates can exacerbate bubbles is simply divorced from reality. You may have read “Human Action” and “Man, Economy, State” but your post shows that you’ve read little else. I’d put good money down on your not having read Keynes’ “General Theory” or any other major economic work that isn’t on the modern libertarian book club list.

    Here’s the problem: You’re not describing some great insight of Austrian economics. You’re describing things that every economics major covers before reaching upper division classes, much less hitting the edge of modern economic thought.

    I won’t go so far as many as to call the Austrians nuts. They’re built on reasonable foundations and have thought long and hard about the time value of money. I will say that their devotees on the Internet usually are nuts, though.

    The actions of Hoover and FDR prolonged what would have been a short depression, like all prior depressions, into a decade long ordeal.

    This has been a subject of some discussion of late. Coincidentally, Krugman just posted a discussion of the “nominal wages too high” theory.

    I also have to scratch my head at the anti-Keynes argument that goes: “Government can’t stimulate aggregate demand to get us out of a depression. The New Deal didn’t work. It was massive government spending in World War II taht stimulated aggregate demand and got us out of the depression.”

    Likewise, comparing depressions in older, labor-intensive economies without interconnected banking systems with those in newer, capital-intensive economies is a recipe for failure. Bad capital investments become larger and harder to liquidate as economies become more modern. That doesn’t mean that, as the Austrians suggest, perfectly good productive capacity should lay fallow as if doing penance for some cosmic sin.

    Meanwhile Krugman advises us to borrow and spend even more. That was what got us into this mess. It’s stupid advice.

    Oy! More wrong-headed conflation of fiscal and monetary policy. Even Von Mises would be rolling in his grave.

  161. #161 Troublesome Frog
    December 3, 2008

    Keynesians can’t “stimulate” anything without the ability to create money they don’t possess or haven’t earned. You can’t be a Keynesian without this ability, so a Keynesian would indeed covet the fed as a source for their approach.

    I’m fairly sure that this is a hopeless discussion, but please explain World War II and its relationship to the great depression. I’d be interested in hearing your take on how government spending failed to bring aggregate demand back in line to restore full employment.

    The Federal government’s ability to monetize its doings is a boon for politicians who, in their current make-up, rely on the Keynesian approach.

    I think that you’re laboring under a misconception about how much government debt actually gets monetized. Before its recent credit expansions, the Fed held about 5% of government debt, IIRC. In fact, its recent expansion does not represent a monetization of public debt either (please see this discussion of its balance sheet in October). If you’re looking for a scapegoat for government borrowing, the Fed is not it. In fact, the Fed is entirely unnecessary for a Keynes-style fiscal stimulus. All that’s required is the ability to float bonds on the open market.

  162. #162 Nick Gotts
    December 3, 2008

    william e emba@157,
    Thanks very much. It was actually consensus more at the macro- than the micro-level I was thinking about. I’m familiar with some of the experimental economics work that indicates the neoclassical Homo economicus bears little resemblance to Homo sapiens; and am accordingly sceptical of neoclassical microeconomics. (I note what you say about most economists not taking the simplest models as the last word, but my impression is that many focus on drawing out the implications of the H. economicus model in more and more arcane contexts, rather than on assessing where it is and is not useful, and what might replace it.)

    I wonder how far the macro-consensus depends on the H. economicus caricature being at least a good approximation to H. sapiens (because for most purposes, I doubt that it is)? My impression is that macroeconomics is a more empirical discipline than microeconomics – because it is directly policy-relevant.

  163. #163 Scott from Oregon
    December 3, 2008

    “”I’m fairly sure that this is a hopeless discussion, but please explain World War II and its relationship to the great depression. I’d be interested in hearing your take on how government spending failed to bring aggregate demand back in line to restore full employment.””

    WW2 was an abberant economy. If war is required to correct economic woes, we are all in trouble. WW2 obviously inceased both production and consumption (it’s hard to reuse a crashed airplane or an exploded bomb) reduced the percentage of unemployed or under-employed by letting them go to the Pacific or Europe to die, and set the stage for US interests to become large creditors after the fact. War, obviously, is a much larger economic motivator than television advertising or financial reasonableness.

    It’s a bit of a trump card that one hates to see used to justify anything.

  164. #164 Colugo
    December 3, 2008

    It appears that a number of the economists/analysts who saw it coming are paleolibertarians or progressives.

    To name just a few: Peter Schiff, Nouriel Roubini, Dean Baker.

    Others who predicted it (not sure of their politics):

    Marc Faber, Satyajit Das, Meredith Whitney, Nassim Taleb, Jeremy Grantham, Robert Shiller, Jim Rogers.

    In contrast to the libertarian and progressive Cassandras, it was Democrats and Republicans in the center who stoked and applauded the bubbles.

    Alan Greenspan, Robert Rubin, Arthur Laffer, Larry Summers, Phil Gramm to name a few.

  165. #165 Troublesome Frog
    December 3, 2008

    WW2 was an abberant economy. If war is required to correct economic woes, we are all in trouble.

    I think that you miss my point. It’s not that war is required to correct economic woes. It’s that when aggregate demand collapses and brings output down with it, the government can restart the system by contributing to aggregate demand. There’s no need to spend the money on war. It is more reasonably spent on infrastructure investment. I’m simply pointing out that the argument that government can’t stimulate the economy by acting as the “demander of last resort” in a depression is historically inaccurate.

    A reasonable proposal in a situation like this one is: Because nobody is investing in big capital production projects, the government should do it. That would:

    1) Bring aggregate demand back up and keep our output from collapsing
    2) Avoid having our useful construction and manufacturing infrastructure go unused during the correction
    3) Cushion the contraction of our overbuilt construction industry by slowly ramping it down rather than trying to liquidate a chunk of it instantaneously
    4) Take advantage of the fact that the government can now fund capital investments at a *far* lower interest rate than private industry can

    WWII jump-started us, but all we got out of it was a defeat of the axis powers and a bunch of blown up warplanes. This time, we can get the same boost and end up with better roads, power plants, ports, power grid upgrades, etc. Those things have to be done anyway, and they are good investments.

  166. #166 Colugo
    December 3, 2008

    One reason things are so ugly now: The post-95 Clinton-Bush economy was fairly aberrant. May as well make Greenspan the scapegoat, but in fact there were many culprits.

    - S&P and Dow tripled from ’95 to ’00. (The Nasdaq/dotcom bubble, of course, was much more bloated.) The market did not return to previous norms but was reflated after 9/11 by monetary levers.

    - Increasing numbers of people used the stock market as retirement “savings” 401ks).

    - Private debt skyrocketed (really got started in the 80s under Reagan-Volcker).

    - Income has been stagnant for at least the last decade (in fact the last quarter century).

    - Housing took off in ’97 and unlike the stock market did not deflate in ’00.

  167. #167 Scott from Oregon
    December 3, 2008

    “”I think that you miss my point. It’s not that war is required to correct economic woes. It’s that when aggregate demand collapses and brings output down with it, the government can restart the system by contributing to aggregate demand. “”

    Fair enough. Just to be clear, I am having this discussion to find out what I don’t know as much as to display what I think I do know. You won’t get any ego from me here.

    The trouble with government and mass scale projects is that government gets the “needs” wrong, and misallocates funds into wasteful enterprises.

    I would be more amenable to this solution if, for example, income tax was diverted from the federal government to the state of origination. Then, state governments can use that income on projects its citizens have been clamoring for, and needs are better met with these “funded projects”.

    That way, people get more involved with the process, and are more apt to support the project.

    The whole idea of Washington dictating how America is to develope seems wrong-headed and wasteful. Regional approaches please…

  168. #168 jcw
    December 3, 2008

    “The free market did not cure the great depression, the free market did not cure Japan’s 90s depression, as Krugman pointed out on Monday. Saying let the free market cure our current depression is simply head-in-the-sand anti-reality-based anti-experimental-evidence denialism.”

    This really isn’t a very good argument. The free market was not in place in either of the mentioned depressions so implying it wouldn’t work is misleading.

  169. #169 Troublesome Frog
    December 3, 2008

    The trouble with government and mass scale projects is that government gets the “needs” wrong, and misallocates funds into wasteful enterprises.

    True, but war is an extremely wasteful enterprise and it was still able to stimulate us back to full production. Anything that we get in addition to that is icing on the cake. Which brings me to:

    I would be more amenable to this solution if, for example, income tax was diverted from the federal government to the state of origination. Then, state governments can use that income on projects its citizens have been clamoring for, and needs are better met with these “funded projects”.

    This is more or less what economists like Krugman are calling for. State spending tends to collapse in these recessions, so the federal government can borrow on their behalf and fund their budget shortfalls and make them invest in infrastructure on top of it. Basically, “Here’s a big chunk of money. You get it if you spend X% of it on infrastructure investments.” It keeps really bad things (like cuts to police forces or education) from happening, and it targets useful infrastructure build-out.

    Ideally, you want the states to make a wish list of things that are arguably of national value (e.g. “Let’s build a big new port for international trade!”).

  170. #170 Nick Gotts
    December 3, 2008

    jcw@168,
    So when and where was the free market utopia?

  171. #171 Coriolis
    December 3, 2008

    My “wildly innacurate” two step summary wasn’t a summary of what goes on in economics – it’s what goes on into every science, whether economics qualifies or not is debatable. Except it’s really three step and I ignored the first one – doing experiments and collecting data. Unfortunately in economics doing many experiments is largely impossible, by and all you have is the historical record when it comes to large-scale issues. This is probably the most innocent explanation for the lack of useful empirical laws. Which you oddly didn’t invoke but let’s grant that perhaps it was too obvious to note.

    However, the lack of much experimental evidence doesn’t excuse the blatant way in which what little data there is ignored.

    “Saying let the free market cure our current depression is simply head-in-the-sand anti-reality-based anti-experimental-evidence denialism.”

    I agree completely. And yet there are tenured professors spewing this shit that is obviously, clearly, wrong. Harvard you say isn’t a top spot for economics – sure. Harvard isn’t really a top spot for physics either – but I’d be amazed to see a professor from any natural science from any research university mouthing off this level of crap.

    This is exactly what I’ve been bitching about. You seem to think that science is defined by how fancy the math they are using is. That’s not the case at all – it’s about the degree to which their mathematical modeling and theorizing is based on an honest assessment of the data.

    Infact physics is in some way guilty of this as well, although in a much lesser (and less known) way in the writings of a few string theorists who have claimed that “mathematical beauty” (or something like that) could be a substitute for experimental verification. Which is just as absurd, and that type of attitude is ruining string theory’s reputation among physics.

  172. #172 Naked Bunny with a Whip
    December 4, 2008

    I’m still trying to comprehend the sort of mindset that uses words like “gleeful” and “schadenfreude” to speak of the current crisis.

    It’s good of you to admit you have comprehension difficulties. That explains why you think that anyone is talking about the economy in those terms, rather than the idiot economists. Perhaps you should work on figuring out how those things are different first.

  173. #173 jcw
    December 4, 2008

    Nick Gotts @ 170, sorry I didn’t respond earlier, I was helping the kids with homework.

    Anyway, there has never been a free market utopia. I wasn’t even suggesting such. I was merely pointing out that it was inaccurate to suggest that the free market did not work in the 2 mentioned depressions, the American of the 30′s and the Japanese of the 90′s. In neither case was the free market at work.

  174. #174 Nick Gotts
    December 4, 2008

    there has never been a free market utopia. – jcw,

    Agreed. So what we do, if we’re interested in empirical evidence on the plausibility of “libertarian” claims, is to compare times and places at which economic systems were closer to, or further from, that utopia. Both the Great Depression and the current brouhaha follow periods of deregulation, low or declining top tax rates. and increasing inequality – all things the “libertarians” want. In the current case at least, the preceding period also saw reduction of trade barriers and massive privatisations – again, just what the “libertarian” doctor ordered. So if movement toward libertopia results in a bubble followed by a crash, is it rational to conclude that if we went all the way, the result would be stability and harmony?

  175. #175 jcw
    December 4, 2008

    Nick, first let me start by saying I am not advocating any position in my comments, I just want to point out that free markets are not what we have so extrapolating that free markets won’t work is not necessarily a correct deduction.

    I could also make the argument that heavy regulation, see the Soviet Union, doesn’t work either. In both that case and the case of China, both of their economies are working better since their governments have taken off some of the shackles.

    As far as the current mess we’re in deregulation certainly played a part but don’t forget that at the same time government was easing regulations they were also meddling in the markets by setting targets for Fannie Mae and Freddie Mac and by allowing cheap money with unwarranted low interest rates per the Fed. I believe it was the combination of these two things that caused the mess we are in.

    As far as bubbles and crashes go I’m currently reading a book by Murray Rothbard about the Great Depression. He is looking at the event through the eyes of an Austrian economist and basing his case on their economic principles. I haven’t finished it yet but it is actually an interesting read. Austrians certainly have an explanation for what they believe causes the bubble/crash business cycle but I’m not through the complete argument yet. From what I’ve read so far I would certainly recommend it if not just to look at what happened and why from a different viewpoint.

  176. #176 william e emba
    December 4, 2008

    Coriolis:

    My “wildly innacurate” two step summary wasn’t a summary of what goes on in economics – it’s what goes on into every science, whether economics qualifies or not is debatable.

    I’m getting bored with your ingenuosity here. Really, you’ve come in, you’ve lambasted economists for not doing the math, I point out that actually, doing the math and nothing but the math has been the greater sin among economists for more than fifty years, and now you try and rephrase just what your criticism is yet again.

    Except it’s really three step and I ignored the first one – doing experiments and collecting data. Unfortunately in economics doing many experiments is largely impossible, by and all you have is the historical record when it comes to large-scale issues.

    You would probably be surprised, but over the decades, governments have been remarkably adept at performing sometimes insane experiments on millions of people, and economists have taken note. On rare occasions, the experiments have been done at the request of economists, for example, Milton Friedman and the Chicago school’s rescue of Chile’s economy in the 70s.

    This is probably the most innocent explanation for the lack of useful empirical laws. Which you oddly didn’t invoke but let’s grant that perhaps it was too obvious to note.

    I have pointed out that you obviously do not know what you are talking about. For example, you refer to some kind of imagined lack over and over again. You don’t know the mathematical models economists work with, ergo, they don’t exist. And how do you know they don’t exist? Why, you said yourself the popular face of economics doesn’t refer to them. Sheesh, you’re an ignorant git.

    However, the lack of much experimental evidence doesn’t excuse the blatant way in which what little data there is ignored.

    Again, you’re just drooling. There is tons of data, and it is analyzed to death. The basics are well-supported. You’re just babbling like a creationist lambasting biologists for ignoring the great dearth of transitional fossils.

    “Saying let the free market cure our current depression is simply head-in-the-sand anti-reality-based anti-experimental-evidence denialism.”

    I agree completely. And yet there are tenured professors spewing [nonsense]… but I’d be amazed to see a professor from any natural science from any research university mouthing off this level of crap.

    Well, it happens. That is why I mentioned Dr John Mack, late of Harvard, and UFO crackpot. I know of another Ivy League scientist UFO crackpot, but I’m not sure if it’s public knowledge.

    In the case of Harvard’s Mackiw, whom you mentioned, you seemed to have no idea that he was Bush’s chief economic adviser, and Mackiw’s advice is part of the reason we have another Great Depression looming. You don’t need a PhD to figure out his insistence that we need more of the same should just be ignored, Harvard or no Harvard.

    This is exactly what I’ve been bitching about. You seem to think that science is defined by how fancy the math they are using is. That’s not the case at all – it’s about the degree to which their mathematical modeling and theorizing is based on an honest assessment of the data.

    And you have absolutely no idea how much interaction there is between theory and data in modern economics. None whatsoever. You’ve made some blatantly false statements, and you keep twisting new ways into declaring you must be right. Meanwhile, you still have absolutely no idea of what you are talking about.

    Really, it would be nice if macroeconomists could do more experiments, but astronomers really make do without any experiments, so that can’t be the objection to economics qua science. It would be nice if macroeconomics was as simple as the high school algebra they thought it was back until the 70s, but the data and various natural experiments done at the time, culminating in the verification of Friedman’s back-of-the-envelope prediction of stagflation led to the rational expectations revolution, and suddenly the mathematical macroeconomic modeling became virtually impenetrable to outsiders. And while the initial claims were overstated and overbearing and not justified and ultimately, just plain wrong, there’s a strong consensus about what a proper macroeconomic model looks like, and how it can be compared with data.

    Infact physics is in some way guilty of this as well, [string theory and mathematical beauty].

    Well, heck, I’m a mathematician, so I support string theory. I’ll agree that it’s sucking all the oxygen out of the room, and maybe that’s not right, but the bottom line is that string theory does make possibly testable predictions. And not just GR and QM and maybe even the standard model (no other theory does all that), but supersymmetry and the like.

  177. #177 Coriolis
    December 4, 2008

    Let me repeat myself since it’s obviously hard to get through your thick skull: I have shown you one example, and I doubt you’d even argue that there are plenty of other examples of tenured professors, at research universities, who simply ignore models based on empirical data and sprout gibberish. And yes of course 10 seconds with google shows that he’s a bush clown – how the hell does that matter? Are we to expect that any conservative gets a free pass on reality in universities? The fact is that he’s saying things, directly related to his profession, which are bullshit.

    The other guy you keep mentioning is a psychiatrist and I don’t have any higher opinion of their scientific standards as a group then I do of economists.

    But just to illustrate the point, let’s say he was a physicist, who believed he had been abducted by aliens.
    If this guy then went around claiming that aliens gave him special knowledge and so he could overturn the laws of physics and just claim they were something else based on this, he should have been kicked out. But believing in fairy tales by itself is not a big problem, otherwise we’d have to kick out every religious guy from science. It’s only when they use their idealogy instead of their profession, in matters where their profession is directly applicable that you have a problem.

    And the fact is, that you’d have a pretty hard time pointing out any such professor in natural science in any decent university. On the other hand I saw this Mackiw guy randomly 10 minutes before my post. This is the difference.

    Is that really that hard to understand?

    And enough with the claims that I’ve “changed” my position on what the problem in economics is. The fact that many ignorant people believe that math automatically implies science and the lack of math implies non-science may be why you presume that that is my objections but you’re wrong. This is why your arguments that they are using complicated math is beside the point – they could be using some convoluted model using differential geometry or they could be using simple algebra – that doesn’t matter. The problem is the substitution of idealogy for honest empirical modeling.

    Well, you’ve clearly demonstrated you’re just a clown interested in self-aggrandizing and insulting so we’ll leave it at that.

  178. #178 william e emba
    December 4, 2008

    Nick Gotts:

    Thanks very much. It was actually consensus more at the macro- than the micro-level I was thinking about.

    As a mathematician, I’ve gravitated more to micro than macro. I’m not sure what the standard graduate texts are in macro today.

    I’m familiar with some of the experimental economics work that indicates the neoclassical Homo economicus bears little resemblance to Homo sapiens; and am accordingly sceptical of neoclassical microeconomics.

    Long before behavioral economics existed, Milton Friedman made the point that the correctness of the stereotype did not matter. (Yes, economists themselves have been in the front line for decades debating their foundations. Contrary to what some keep implying here, they aren’t the blind leading the blind.) It was the average behavior that counted. It’s sort of like criticizing classical statistical mechanics for not being quantum statistical mechanics. In Friedman’s day, the data was just too crude to tell if Homo economicus needed to be replaced. It’s still probably not clear. For example, does Herbert Simon’s bounded rationality merely mean we all just optimize the “wrong” utility function? Neoclassical microeconomics has never committed itself to what the utility function is in any concrete manner–not even if it exists. So these kind of arguments remain mostly philosophical.

    (I note what you say about most economists not taking the simplest models as the last word, but my impression is that many focus on drawing out the implications of the H. economicus model in more and more arcane contexts, rather than on assessing where it is and is not useful, and what might replace it.)

    That is because the standard model is incredibly flexible at taking on second-order details, and then providing a reasonably clear picture of their effects. Some applications are natural, others seem forced, but the wide range of experimental success means it won’t simply be thrown away come the revolution.

    I wonder how far the macro-consensus depends on the H. economicus caricature being at least a good approximation to H. sapiens (because for most purposes, I doubt that it is)?

    My guess is almost none whatsoever, but it’s an open question. Merely deriving macro from micro (let alone micro from nano) is a difficult theoretical challenge. As it is, macro modeling is also usually more cognizant that labor is different. For example, the price and supply of oranges are rather malleable, but in the short term, the supply of laborers is mostly constant, while wages are mostly sticky, because they would rather play the downsizing lottery instead of taking a pay cut. That’s probably not rational. (I’m sure there are models that “prove” it is rational. Most likely, it’s the suboptimal outcome of rational actors exploiting externalities, a prisoners’ dilemma groupthink.)

    My impression is that macroeconomics is a more empirical discipline than microeconomics – because it is directly policy-relevant.

    Actually, both macro and micro are theory-heavy disciplines, but the associated experimental issues, proofs, disproofs, and disasters are much better publicized in macro. Micro shows up in policy too, just not as famously. For example, most economists are opposed to most forms of price controls, including minimum wages, rent control, usury laws, farm price supports, and the like. But then again, Krugman favors increasing the minimum wage, and yes, there are papers claiming the evidence indicates that minimum wages above the equilibrium price of labor need not lead to increased unemployment, contra Econ 101 textbook claims.

  179. #179 negentropyeater
    December 4, 2008

    Nick,

    you can try “Macroeconomics, A European Text” by Michael Burda and Charles Wyplosz. It has the advantage of being more middle of the road and focussing much more than some American texts on the areas of consensus between neo-monetarists and neo-keynesians, avoiding the more ideological and radical views.

  180. #180 william e emba
    December 4, 2008

    Coriolis:

    [Pointless whining omitted]

    And the fact is, that you’d have a pretty hard time pointing out any such professor in natural science in any decent university.

    I just googled “string theory sucks”. At the top was “Feynman says string theory sucks”. Really, it’s not hard, you just have to try.

    In your own field, there have been some silly embarrassments that some people have overinterpreted over the years. Of course you remember Harvard(!) professor Carlo Rubbia flipflopping on whether his experiment saw neutral weak currents back in the early 70s. At least one particle physicist, switching to philosophy, made that episode the centerpiece of his incompetent Constructing Quarks. (Physics isn’t real! It’s a social construct! Blah blah blah! Sheesh, Dr Pickering, Rubbia didn’t properly control for background, unlike the French who did.) A good thing for Rubbia, he got his reputation back and won the Nobel, but we can all still laugh at it.

    Actually, an experiment on how reliable a survey of random top name top university experts was done some twenty-five years ago, rather accidently: the notorious Monty Hall problem. The number of PhD mathematicians and statisticians and physicists fooled by it, including top names at top universities and some Nobel prize winners, was remarkably large. And when I say “fooled”, I don’t just mean they got it wrong, they absolutely could not understand the correct explanation until it was really really carefully explained to them, and only then because they knew their colleagues were so confidently siding with something so “obviously” wrong. After all that, some of them needed hands-on experimental proof before they got it.

    On the other hand I saw this Mackiw guy randomly 10 minutes before my post. This is the difference.

    I’d call it the difference between you and me. I’ve studied economics for years, looked at it as an uncommitted outsider, both skeptically and seriously, and you just babble triumphantly based on something you learned randomly about 10 minutes ago. Contrary my earlier snark, you’re not yet qualified for the Harvard economics department. Maybe Boston U? If not, I’m sure there’s a community college somewhere that could use your awesome skills with Google!

    Is that really that hard to understand?

    What’s really hard to understand is that you can’t see yourself whatsoever. You obviously don’t notice how obviously you don’t know what you are talking about, but keep inventing side issues and excuses that there must be some merit in your positions anyway.

    And enough with the claims that I’ve “changed” my position on what the problem in economics is.

    Then quit changing them.

    The fact that many ignorant people believe that math automatically implies science and the lack of math implies non-science may be why you presume that that is my objections but you’re wrong.

    It was your changing your tune about what kind of ignorant person you were that was at the core to my clarifications.

    [...] The problem is the substitution of idealogy for honest empirical modeling.

    And your support for this claim was nonexistent. You simply found ideologues, including one at Harvard whom you had no idea had a highly famous personal stake in not understanding. Meanwhile, I recognized the name, the ideologue, and the shoot-yourself-in-the-foot irony instantly.

    Well, you’ve clearly demonstrated you’re just a clown interested in self-aggrandizing and insulting so we’ll leave it at that.

    And you’ve clearly demonstrated that you don’t know any economics, and you have absolutely no intention of ever learning any economics, but boy, it’s not physics, so you can give yourself special license to say anything you want and we’re all supposed to be impressed. Well, yes, we’re impressed, but not the way you intend.

  181. #181 Scott from Oregon
    December 4, 2008
  182. #182 Coriolis
    December 4, 2008

    Ah fine against my better judgement I’ll correct some of your most ridiculous claims:

    “I just googled “string theory sucks”. At the top was “Feynman says string theory sucks”. Really, it’s not hard, you just have to try.”

    What exactly is that supposed to show? Many people think that string theory sucks. So what? Until there is experimental verification one way or another nobody knows, and the burden of proof is obviously on those who propose the theory.

    Einstein thought that QM was nonsense too and even came up with a EPR paradox for why it’s nonsense – and it turned out that people did the experiments that he was almost certainly wrong. Einstein, Feynman, or anyone else that I’m aware of with the exception of a few string theorists never claimed that they could actually ignore the experimental evidence. And they never did flat out ignore it. Just being wrong is not a big deal.

    The same applies to the Monty hall experiment. Sure it’s embarrassing ignorance when it comes to knowing about probabilities for people to not get it. And perhaps it means we need to spend more time on the subject in classes. But again it’s a matter of mathematical (or should I say logical) aptitude – it doesn’t have shit to do with making an honest connection between experiment and theory.

    “You simply found ideologues, including one at Harvard whom you had no idea had a highly famous personal stake in not understanding.”

    On the contrary, I did find out that he was a bushy before quoting him, it’s not exactly hard to find out. You seem to think that’s some sort of excuse or explanation. I already asked you – how the fuck does that matter? Are the standards for scientific honesty somehow not applicable to bushies? He’s a professor in a university – it’s irrelevant what his other connections are when it comes to my expectations for a professional assessment.

    You seem to be fine with some decent faction of economists simply lying or twisting economics because of political reasons. And them still get tenure at more then a community college despite that. If that’s really your position than there isn’t much to argue about. I don’t find that acceptable.

  183. #183 Nick Gotts
    December 5, 2008

    Long before behavioral economics existed, Milton Friedman made the point that the correctness of the stereotype did not matter. (Yes, economists themselves have been in the front line for decades debating their foundations. Contrary to what some keep implying here, they aren’t the blind leading the blind.) It was the average behavior that counted. It’s sort of like criticizing classical statistical mechanics for not being quantum statistical mechanics. – william e emba

    Not really, because particles don’t (for example) imitate each other. In human contexts, the activities of “outliers” may have a crucial effect on the system as a whole. Nor is there any reason for exapecting the deviations from the H. economicus model to even out. For example, we know that people mostly discount hyperbolically, not exponentially as the model specifies. Simon’s point, as I understand it, is that there’s no reasons to suppose we do anything that can reasonably be approximated as maximising a utility function: rather, we select a limited number of specific goals to pursue, and then usually satisfice, rather than optimising, in pursuing them.

    Neoclassical microeconomics has never committed itself to what the utility function is in any concrete manner–not even if it exists.

    I’m interested that you say that. My impression, from works such as Ken Binmore’s “Game Theory and the Social Contract” is that there’s a tendency to indulge in what I call the “neoclassical shuffle”: Binmore says explicitly that he believes genuine altruism on a significant scale is rare (so the assumption of a utility function based on self-interest as in the “rational choice” approach to politics is justified), but a retreat to a position where the utility function is simply a notational convenience, and can include concern for others, is kept open.

    the wide range of experimental success means it [the H. economicus model] won’t simply be thrown away come the revolution.

    Experimental successes? Can you be more specific?

    neg@179 – thanks very much.

  184. #184 negentropyeater
    December 5, 2008

    SfO #181,

    I don’t disagree with Jim Rogers, the US as the giant debtor nation s a HUUUUGE risk to the stability of the world (both for Americans and for the rest).

    The problem, is that I completely disagree with him on how to solve this : it’s not with more “economic freedom” and less government intervention, but the exact opposite.

    The only way these imbalances will be corrected is if America accepts to socialize huge chunks of its economy, raise taxes on the rich and on capital, wipe out the fat-cats shareholders and bond holders of hundreds of failed institutions and nationalize them, raise taxes on oil consumption, to pay for the HUGE stimulus in infrastructure, research, technology and social welfare programmes that will be needed.

    I agree that it would be a tremendous mistake to engage in huge Keynesian stimulus and increasing the debt. Those who made fortunes with the past bubble and those who consume too much will have to pay for it. That’s the only way.

    Anythng else will either lead to revolution, civil war and/or worldwide war. And I don’t think I’m joking.

  185. #185 william e emba
    December 5, 2008

    To Coriolis: You seem to be particularly willfully dense. You cite Harvard’s Mackiw as if that is supposed to prove economics is all talking heads, I point out rather solidly to you that’s not really an argument, and you simply spend your otherwise valuable time refining the exact nuance of how that is too an argument, and meanwhile, you still don’t know anything about economics. Really, it doesn’t matter if the Monty Hall embarrassment, or Carlo Rubbia’s alternating weak current, or some other blotches (that pentaquark did get a three star rating in the PDG book–was that you?) are not actually a perfect analogy, as if this wasn’t obvious to everybody. My point is you simply aren’t engaging in an intelligent argument of any sort whatsoever.

    There is absolutely no intellectual difference between you and creationist mathematicians and lawyers and engineers and doctors bragging how they don’t know to know anything about biology in order to google their way into disproving evolution. You’re just a troll.

    You seem to be fine with some decent faction of economists simply lying or twisting economics because of political reasons.

    Can you give an example? You’re just making gibberish up.

    And them still get tenure at more then a community college despite that. If that’s really your position than there isn’t much to argue about. I don’t find that acceptable.

    My position is you ought to know a little about a subject before discussing it. It’s been obvious from the get go that you do not. You have repeatedly made statements about how economists go about their practice that are contradicted by even a cursory study of the professional literature. One by one, I point out the falsity of your statements, and you then change them to some other allegation, which also turns out to be just as nonsensical.

  186. #186 william e emba
    December 5, 2008

    Nick Gotts:

    Long before behavioral economics existed, Milton Friedman made the point that the correctness of the stereotype did not matter. [...] It’s sort of like criticizing classical statistical mechanics for not being quantum statistical mechanics. – william e emba

    Not really, because particles don’t (for example) imitate each other. [...]

    That’s why I said “sort of like”.

    Nor is there any reason for expecting the deviations from the H. economicus model to even out. For example, we know that people mostly discount hyperbolically, not exponentially as the model specifies.

    And we also “know” that most management consists of pointy-haired idiots who couldn’t optimize their way outside of a wet paper bag! It’s not about how we get to equilibrium pricing and market clearance, but the fact that disequilibrium seemingly pushes markets into equilibrium.

    Consider Black-Scholes pricing. Before 1973, everyone thought option pricing was about rational consumers of the Homo economicus sort trying to predict the future correctly. It was a shock when that turned out to be totally irrelevant. What mattered was failures to clear the market led to arbitrage opportunities, and these forced the price to a particular value. In other words, markets “want” to clear.

    Simon’s point, as I understand it, is that there’s no reasons to suppose we do anything that can reasonably be approximated as maximising a utility function: rather, we select a limited number of specific goals to pursue, and then usually satisfice, rather than optimising, in pursuing them.

    My point is that the classical notion of a utility function was always vaguely plausible when conceived as some kind of idealized description of what ought to go on in economic agents’ minds. But general equilibrium theory does not depend on this low level representation as actually having any connection to reality. In other words, take the naive but ridiculous perfect information neoclassical utility and replace it with bounded and semiplausible satisficing choice making. Presumably that’s still a function of the right sort, and out comes equilibrium pricing.

    For example, I do not bother with coupons except in the most trivial of circumstances. Prices out there reflect the fact that I am like this, and no one sees any reason to revise general equilibrium theory to account for my less than ideal behavior. Indeed, most economists simply explain this as me being rational about my use of time: the expected gain from doing the coupon homework is less than the certain loss I’d feel at not keeping up with the PZ Myers.

    Neoclassical microeconomics has never committed itself to what the utility function is in any concrete manner–not even if it exists.

    I’m interested that you say that. My impression, from works such as Ken Binmore’s “Game Theory and the Social Contract” is that there’s a tendency to indulge in what I call the “neoclassical shuffle”: Binmore says explicitly that he believes genuine altruism on a significant scale is rare (so the assumption of a utility function based on self-interest as in the “rational choice” approach to politics is justified), but a retreat to a position where the utility function is simply a notational convenience, and can include concern for others, is kept open.

    I’m not saying anything radical, although it’s not the stuff that gets spelled out very much in Econ 101 courses. Professional economists are aware better than anyone just how artificial much of their modelling is. They are also aware of how a great amount of observed economic behavior and data is in fact explained by these models. A great number of plausible looking tweaks get added to the basic models, and voila!, yet more aspects of reality seem to be explained. (See above for the trivial example in re my lack of coupon clipping behavior.)

    the wide range of experimental success means it [the H. economicus model] won’t simply be thrown away come the revolution.

    Experimental successes? Can you be more specific?

    For example, see Truman Bewley, chapter 1 (online excerpt). He addresses some of the same issues we’ve been batting around, with lots of references. One footnote gives about six references to books and collections of papers on experimental support for various aspects of general equilibrium model making (the bibliography itself is not, unfortunately, online, but I bet Bookfinder will find them for you). He also makes the point that GE itself is untestable, it is, instead, the standard framework to carry out research, both theory and experiment.

  187. #187 william e emba
    December 5, 2008

    The paranoid nutcase who was blithely unaware that the Fed’s meetings minutes are actually public information is actually illustrating a rather telling point. Once upon a time, the Fed really did operate in great secrecy. In fact, they usually did not even let anyone know what the current prime rate was, let alone share their detailed concerns about the economy. So over time, conspiracy theories multiplied, and in some circles, they became standard boilerplate rant.

    As an aside, let me explain how the prime rate could even be a secret. The usual descriptions simply say the Fed is the banker to the big banks, and lends money to members at the prime rate. This is accurate enough in normal times. More precisely, though, the prime rate is a target. The economy’s participants want to borrow, and a demand for money gets percolated up to the Fed. The Fed then supplies money, ideally in the right amount so that supply and demand cross at the prime rate. And in normal times, that works just fine.

    So while the prime rate is currently at 1%, the effective rate right now can be less, about .3%, as mentioned in a recent Krugman op-ed. The demand is that weak. Similarly in the past, member banks borrowed at whatever rate they got, and were unaware what the actual target was.

    There was a simple pragmatic reason for all this secrecy. The general feeling, both before and after the Great Depression, was that the role of the Fed was simply to smooth out the business cycle. Up rates when the economy cooks, drop rates when the economy tanks. But let it all play out as naturally as possible. There were no Fed watchers, there was no second guessing, Big Government was simply meant to be Big Cushion, trying very hard to get out of the way of the real economy. Be invisible, in other words. Let businesses make decisions based on customer demand, competition, innovation, and all that good stuff. But not, no, No, NO, a thousand times NOOO!, but not ever based on outguessing the Fed itself.

    The paranoids, of course, turned this into bizarre conspiracy nonsense. Meanwhile, the economy has experienced some sharp challenges, from the 70s stagflation to the 87 crash to the late 90s turmoil and so on, and the Fed has necessarily responded with larger and more visible presence each time. But the old time rants live on forever. Forty and fifty years out of date, maybe? Who cares, when gibberish is so much more fun!

  188. #188 negentropyeater
    December 5, 2008

    US News of the day :

    -More jobs destruction : Dismal November Jobs report, nonfarm payrolls plunged by 533,000 last month. That’s the steepest monthly decline since 1974.

    -Foreclosure rate reaches record high @ 2.97%

    -Mortgage delinquency rate registers highest jump in a quarter from 6.31% to 6.99%

  189. #189 Nick Gotts
    December 5, 2008

    william e emba,
    Thanks, I’ll check out the Truman Bewley ref.

    Presumably that’s still a function of the right sort, and out comes equilibrium pricing.

    I’d need to know more about what the requirements on the function are before either agreeing or disagreeing with this – but if it requires that the agents involved in the market make decisions independently, or are consistent over time, or over different ways of framing the decision (e.g. over presenting something as possibility of gain vs risk of loss), I’d be very dubious. Anyhow, thanks for your comments.

  190. #190 william e emba
    December 5, 2008

    Nick Gotts:

    Presumably that’s still a function of the right sort, and out comes equilibrium pricing.

    I’d need to know more about what the requirements on the function are before either agreeing or disagreeing with this

    The point is that general equilibrium analysis makes mathematical requirements. The original theorems were pretty heavy handed on assumptions, taken straight from naive reasoning about Homo economicus. The theorems have evolved into fairly weak requirements.

    - but if it requires that the agents involved in the market make decisions independently,

    It does. In fact, this is closely related to the problem of oligopoly, one of the greatest challenges in economics, something the equilibrium models cannot handle. The one mathematical requirement they can’t get rid of seems to be economy of scale. Real-world companies are motivated to grow and merge until a few are left. (I believe Karl Marx himself was the first to point this problem out. Rather brilliant of him, since the relevant theorems were still a century in the future.)

    The same applies on the flip side to consumers. Subordinating your utility calculation to culture or subculture is really just an economy of scale. Crude models of this were invented by Thomas Schelling–his work on the evolution of groupthink remains absolutely spectacular–but I don’t think they have been incorporated into general equilibrium.

    A different example of consumer mutual influence shows up in a modified Black-Scholes equation, meant to take into account the feedback between stock volatility and the dampening effect of options themselves. Originally, of course, options were too small a market to influence stock prices, but now the options market itself is part of modern stock pricing. Are there great deviations between this new equation and Black-Scholes? No.

    or are consistent over time,

    Equilibrium analysis is inherently timeless. There are difficulties just trying to decide what the paradigm is supposed to be when time is introduced. In fact, growth theory in a trivial economy with two assets is already profoundly difficult, before you even bring in changing tastes.

    This is, by the way, one more reason that PhD economists who confuse trivial models of laissez faire with reality can only be ideological nutcases. A suboptimal, inefficient economy is frequently the downside to optimal growth. Taxes might sometimes be good in themselves. (For example, it has been known since Edgeworth that taxation sometimes lowers consumer prices. Yet the Laffer curve became policy? Sheesh.)

    or over different ways of framing the decision (e.g. over presenting something as possibility of gain vs risk of loss),

    I’m interested in that myself! So far as I know, it hasn’t been modeled. It’s perhaps unfair, but this remains the main reason the mainstream doesn’t like the behavioralists. Not because they contradict their assumptions, but because no one knows what to do with them.

    I’d be very dubious.

    I’d hold off on being dubious. I recommend seeing how useful today’s models really are. Several Nobelists did work that consisted of introducing minor tweaks into standard models and deriving interesting real-world consequences. I’d also recommend dipping into the loyal opposition, for example, Nelson and Winter An Evolutionary Theory of Economic Change, if not for their models, at least their criticisms.

    As I said before, come the revolution, the next generation models will have to explain what Homo economicus and a dozen other simplifications are currently explaining so much reasonably well, and so much more that the models don’t touch upon whatsoever. To do this, I expect Homo economicus will not die but evolve.

  191. #191 Nick Gotts
    December 5, 2008

    william e emba@190,

    Thanks very much. Because of the direction I’ve come from (psychology, artificial intelligence, agent-based social simulation) I’m much more familiar with the criticisms of Homo economicus than the applications you refer to – I’ll follow up on your recommendations (and negentropyeater’s).

  192. #192 Martin OB
    December 5, 2008

    Troublesome Frog:

    The Austrians love to claim to have “predicted” everything that goes wrong with the economy, but the fact that they can never come up with a coherent, mechanistic explanation as to why (other than “government bad! market would be OK if no government!”), keeps them from making any serious academic headway.

    These ppt files are a good 15-minutes start, clear, concise, detailed, pretty “mechanistic” (if that’s taken to mean using nice graphs and formulas instead of plain talk, otherwise I don’t know what you may mean), for those genuinely interested in learning about the Austrian business cycle theory:

    http://www.auburn.edu/~garriro/ppsus.htm

    What keeps Austrians from being accepted in the mainstream is that both mainstream economists and governments have a vested interest against it. Politicians ask “How should the government interfere with the market in order to make the economy run better?”, then Keynesians and other “mainstream” economists earn their livings by writing long treatises to answer this question. They give prizes to each other.

    Austrians say (and arguably prove, by detailed reasoning from uncontested first principles) that the government simply can’t “fix” the market by partial intervention. They can either let the market work, or they can go the socialist-fascist-nazi route (totalitarian goverment), one failed “fix” followed by a bigger failed “fix” of the nasty effects of the first “fix” and so on. Most Western governments go halfway towards socialism and back, causing economic cycles in the process.

    The recommended policy (no intervention) doesn’t grant a job for economics experts as government advisors. It’s no surprise Austrian-school economists are so unpopular among both their peers and politicians.

    Regards.

  193. #193 Nick Gotts
    December 7, 2008

    by detailed reasoning from uncontested first principles – MartinOB

    What do you take these “uncontested first principles” to be? I’ll bet they (or at least, the Austrian economists’ interpretation of them) are contested!

    I note also that reasoning can be both detailed and wrong.

  194. #194 negentropyeater
    December 7, 2008

    Martin OB,

    thx for the link. I’m busy trying to digest this.

    Havng sad this, have you heard of Hyman Minsky’s Credit Cycle theory. He’s a mainstream (Keynesian) economist who also studied the effects of credit bubbles in a very systematic manner, but arrives at a very different conclusion than the Austrians, ie that “apt intervention and institutional structures are necessary for market economies to be successful.”

    Meanwhile, Krugman on the Austrian Business Cycle Theory (that he calls the “Hangover” theory) :
    http://www.slate.com/id/9593

  195. #195 Troublesome Frog
    December 8, 2008

    Wow. What an old thread…

    Martin OB,

    I think that you’ll find that some of the “uncontested” principles are far more contested than you think. For example, among the core tenants of Austrian business cycle theory is that the artificial manipulation of interest rates causes malinvestment. While this is probably trivially true (every piece of new information or change in circumstances can be expected to cause at least some malinvestment), there’s no compelling reason to believe that such investments necessarily have to become malinvestments on a larg scale.

    For some reason, Austrians simply assume that they are, probably because they tend to define “malinvestment” as “any investment that would not have been made if not for government intervention.” Austrians are willing to attribute sage wisdom to business managers when they’re handling things like swings in the gold supply, but as soon as the supply of fiat money changes, they’re assumed to become hopeless simpletons who make systemic errors across the board.

    Obviously, in this case, there was a cluster of malinvestments. So to me, the interesting question is why. In the absence of a bubble of malinvestments, we would have seen inflation instead. The normal feedback loop is, the Fed puts its foot on the gas and eventually, an increase in price levels induces them to back off. All these years, the observation was, “Inflation seems to be OK, but housing prices are shooting up!” Well, there’s your malinvestment. So why was there such a bad malinvesment boom this time and not other times? That’s where the money is, and that’s the type of question one should be asking when setting policy, because with or without Federal Reserve intervention, that incentive for malinvestment would have existed to some degree.

    While I don’t see the Austrians as cranks, I do have a few problems with the school in general:

    1) Assumption of “first principles” that are open to question.
    2) Inconsistencies in their stories about how investors deal with changes in interest rates.
    3) The parts of their theory that are almost certainly true are almost always included in every other mainstream model as well.
    3a) The Austrians posting in Internet forums seem not to notice this and make claims like, “Only the Austrian model can explain stagflation!”
    4) The school itself tends to attract cranks like no other, probably because extreme anti-government types see it as a way of formally validating what are essentially personal beliefs.

    Basically, they’re not attacking the interesting questions because they think they found the answers back in the first half of the 20th century. The rest of us disagree.

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