[paganel]

> Sure, lots about classical economic theory is really ridiculous, and the source of a lot of problems, but then you change those things and then move on.

That's the thing, it has proven really, really hard to "change those things". I'm looking at the latest (still current?) economic/financial crisis. Lots of "economic theory tells us this should never happen"-things did in fact happen, and consistently so (there was not just a random event that you could blame in the theory not being 100% there). It matters because policy decisions are still taken based on theories that have proved themselves wrong, or at least those theories were not able to "explain" (for a lack of a better word) how our present-day economy works. Those policy decisions affect (some of them negatively) the lives of millions, even hundreds of millions.

At least when a theoretical physicist is wrong in his/her assessment nothing that bad can happen to the outside world, in the great scheme of things. But when an economist is wrong, but his theory is nevertheless taken into consideration and acted upon, then the damage can be quite substantial, its effect measurable in decades.

I don't know what needs to be done. I'm not ditching economic theory entirely. For example the Chinese authorities' current push to stop Chinese billionaires' money moving outside the country reminded me of Jean-Baptiste Say's explanation of how no Government can put a stop to the flow of currency that wants to escape a certain jurisdiction, a phenomenon that he wrote about ~200 years ago and which still seems to be in effect, almost like a "law" of economics. And there are still other "basic" economic truths/laws that have seemed to keep their relevance over the centuries. But, AFAIK, almost all of those "laws" were common sense, so to speak, they didn't involve mathematiac equations with second derivatives and the like (for example there's no "second derivative" equation with which to model the "lack of trust" in financial transactions, which once it sets in you can bet will bring any financial market down pretty fast).

So what I'm trying to say in a convoluted way is that economics should return to basics, ditch most of the mathematics with which it has become enamored and try to be a little more on the "social science"-side of things: more observation of humans and their acts, less abstract computations.

[privong]

> So what I'm trying to say in a convoluted way is that economics should return to basics, ditch most of the mathematics with which it has become enamored and try to be a little more on the "social science"-side of things: more observation of humans and their acts, less abstract computations.

An interesting article (that was posted to HN a while back) that discusses this is "How economists rode maths to become our era’s astrologers": https://aeon.co/essays/how-economists-rode-maths-to-become-o...

Though it's been posted a few times, there hasn't been that much discussion on HN: https://hn.algolia.com/?query=https:%2F%2Faeon.co%2Fessays%2...

[nerfhammer]

> Lots of "economic theory tells us this should never happen"-things did in fact happen.

What economic theory said which things should never happen exactly?

[paganel]

Argentina has just issued a 100-year bond that was over-subscribed by a factor to 4-to-1 or so. That's a country that defaulted 5 times in the last century, if I'm not mistaken. Trillions of euro-denominated deposits stood at bellow 0% for more than a year. Real wages are continuously going down even though the unemployment figures are pretty damn good. These just off the top of my head writing on my phone.

[nerfhammer]

> Argentina has just issued a 100-year bond that was over-subscribed by a factor to 4-to-1 or so.

I'm not aware of an economic theory that says mispricing should be impossible, especially for a price set in advance.

> Trillions of euro-denominated deposits stood at bellow 0% for more than a year.

As far as I can tell this is referring to the an ECB policy for deposits of other banks to the ECB. This is not a market price; the ECB is actually trying to discourage its bank deposits. No contradiction of economic theory here.

> Real wages are continuously going down even though the unemployment figures are pretty damn good.

I'm not aware of real wages going down "continuously". As far as I can tell it's remarkably flat. This, however, is closer to something that actually doesn't seem to make much sense at first glance according to economic theory.

FYI I tried googling all of these things using terms you used and mostly got dubious zerohedge articles near the top.

[paganel]

To paraphrase Marx, in Argentina's case a large enough quantitative change becomes a qualitative one. If you really think that a 100-year "price mismatch" is just that, a glitch, then we are talking about very different things.

That ECB policy was indeed a price, don't know what they want to "discourage" or not, fact is that if you wanted to deposit money to the ECB you had to pay them for the privilege. AFAIK since capitalism set in properly (about 200 years ago) it has almost been the case that you were supposed to receive money as interest when depositing it somewhere (to a king's vault, to ECB, it didn't matter).

Am on mobile, too lazy to look for the real-wage charts. I had just seen one in the FT detailing its evolution for the UK since 2005 or so, with only 3 years out of those 11-12 seeing real wage increases. I used the same source for commenting on Argentina's debt, i.e. last Friday's Financial Times. I used to read zerohedge from time to time, but I don't like their layout, I've mostly stuck with the FT and the Economist for my economy and financial-related info (there was also an interesting economics-related blog under the economist.com domain).

[paulpauper]

I think you're overestimating the power of economists and putting too much blame on them. The 2008 crisis was not cased by economists; rather, it was caused by MBAs who approved mortgages that should have never been approved in the first place. This generated short-term gains for these financial institutions that paid the price years later.

[tedsanders]

It's not even known whether the subprime crisis even caused the great recession. Causality is very hard to prove when we only have one reality. Some think the crisis was caused most by cautiousness by the Fed; in this case, the 2008 crisis may indeed have been caused by economists.

http://econlog.econlib.org/archives/2015/09/how_the_subprim....

[woodandsteel]

>it was caused by MBAs who approved mortgages that should have never been approved in the first place.

But the point is the economists should have seen that was happening, so we could think about the government stopping it, or at least to put the public on guard. Instead the economics profession, with a few exceptions like Dean Baker, told the world that things were going just fine.

I mean, what is the point of even having an economics profession if it can't help us make intelligent decisions on economic matters?

[dragonwriter]

> But the point is the economists should have seen that was happening

A large number of economists (in academia, public institutions, and private finance firms), all across the ideological spectrum (Austrians, Keynesians, and every other flavor) did see it happening.

People didn't respond to then, probably because the existence of a bubble isn't a problem, as long as you can delude yourself to thinking you'll be able to time the market so you won't be holding the ball when it pops.

> Instead the economics profession, with a few exceptions like Dean Baker, told the world that things were going just fine.

Baker was far from the only prominent economist pointing to a bubble. In fact, economists were warning about the housing bubble and the fact that it would have to burst before the first dot-com bubble burst (or even expanded) back as far as the mid-1990s. That may actually be the real problem: the warnings had been around for so long no one took them seriously any more; as controversial as identifying a bubble can be, it's a lot easier to identify it than time when it will pop ,and the longer it is pointed to without popping, the more likely people are to convince themselves it's just a permanent feature of the market and not a bubble that will pop.

[Terr_]

> A large number of economists [...] all across the ideological spectrum [...] did see it happening.

In a strange way, that's almost step down: A strong correlation between what economists say and what happens -- even a negative correlation -- suggests that theory is somehow catching up to reality.

In contrast, a weaker correlation -- even if positive -- implies that there's still a lot more problems to shake out.