[batista]

>Economics is clear when explaining its foundation: Markets are only as efficient as its participants are rational and fully informed.

Plus even more assumptions: that participants cannot game the system (by influencing laws, abusing power or monopoly, bribing others participants, controlling public opinion by friendly or owned mass media, forming cartels, etc).

Oh, and "rational" doesn't just mean "clearly thinking and clever", but also perfect calculating actors in a game-theoretic way.

Oh, and there are no factors outside of direct market control, from natural disasters and resources, to foreign country policies and such.

So all those hold even remotely true only in some magic unicorn land.

[yummyfajitas]

You really need to go learn some economics.

All of the topics you mention are popular topics of study. For example, gaming the system by influencing laws was studied by (picking a famous name here) Hayek. Monopolies/monopsonies are well studied and generally believed to be inefficient.

Information asymmetries and actors with bounded rationality are extremely popular topics to study today.

The paper we are discussing here is a perfect example describing the microfoundations of bounded rationality, for example.

[batista]

>You really need to go learn some economics.

I'm talking about the assumptions about market efficiency and the supposed superiority of the mythical "free market" here.

Hayek, since you mentioned it, was a western "free market" lackey, imposing his dogmas on the Chilean people --and lots of others-- (and through a dictator at that), with dire consequences. This kind of "policy advice" is 80% percent catering to interests and 20% ideology. No more scientific than Stalinist economics.

A science doesn't need a dictator (or an elected official) to enforce that "earth is round" or "water will boil at 100 degrees under the right conditions".

Heck, even hard science fails when there are economic interests (e.g big pharma, releasing BS half-baked drugs, or physicists making big BS claims to get funding).

Economy is all, and solely, about economic interests, so all public (non academic) use and discourse of it is inextricably tied to those.

As for the "popular topics to study today", those, while interesting from a math/game theory standpoint, are turned to shit as soon as they enter the political / economic policy field.

On my 25 years of following the stuff, I've haven't seen anything but BS, special interests, spin, greed, failed predictions and bad advice on all fronts. Which is always touted as "scientific" and "based on state of the art models" by the policy advisors.

If you take out the "cater to special interests" bias factor, the rest of economists performance can be had with any random walk methodology.

[yummyfajitas]

I'm talking about the assumptions about market efficiency and the supposed superiority of the mythical "free market" here.

Market efficiency and "superiority" (I have several incompatible ideas of what you mean here, but if you could clarify...) of an idealized free market are not assumptions. They are conclusions derived from much simpler assumptions.

Different conclusions can also be derived under different assumptions. For example, markets are "inferior" when distributing signalling goods (e.g. suits or educational certification), since this leads to wasteful arms races and overconsumption.

As I said, you should learn some economics before attempting to critique it.

A science doesn't need a dictator (or an elected official) to enforce that "earth is round" or "water will boil at 100 degrees under the right conditions".

I'm confused - apart from the fact that you (and Hayek, incidentally) don't like dictators, what are you trying to say here?

As for the "popular topics to study today", those, while interesting from a math/game theory standpoint, are turned to shit as soon as they enter the political / economic policy field.

This is the nature of politics.

[batista]

>Market efficiency and "superiority" (I have several incompatible ideas of what you mean here, but if you could clarify...) of an idealized free market are not assumptions. They are conclusions derived from much simpler assumptions.

Well, highly debatable conclusions.

(As for what I meant, it's that I'm attacking both the idea of the EMH for financial markets, and the general belief in the superiority of the "free market capitalism", going back to the idea of the "invisible hand").

>I'm confused - apart from the fact that you (and Hayek, incidentally) don't like dictators, what are you trying to say here?

That a "science" that studies something _it itself creates_ through "policy advisory" and "legislation" is hardly a science.

Not to mention that it interprets it however fits those it is in ties with, or that its outcomes are more often than not directly inverse of the predicted ones, at which point they blame it on "not enough enforcement" etc, in a classic anti-falsifiability move.

As for Hayek not liking dictators, LOL.

>In 1978 he wrote to the London Times that he had “not been able to find a single person even in much maligned Chile who did not agree that personal freedom was much greater under Pinochet than it had been under Allende

(...)

For instance, Hayek—writing to The Times in 1978 and explicitly invoking Pinochet by name—noted that under certain “historical circumstances,” an authoritarian government may prove especially conducive to the long-run preservation of liberty: There are “many instances of authoritarian governments under which personal liberty was safer than under many democracies.”

http://coreyrobin.com/2012/07/08/hayek-von-pinochet/

Of course, his support to the regime is even worse and far more involved, utilizing it as way to fulfil his economic policy wet dreams. Yes, a great freedom loving guy, this Hayek.

>This is the nature of politics.*

And this is the role of economics and economists.

As for the academic part of economic research, when not done with specific political interests in mind and to support some specific monetary and financial policies, is as relevant as post-modernist gender-studies critical theory. That is, totally irrelevant.

[tatsuke95]

Meanwhile, an enterprise with hundreds of trained economists (read: The Fed) used this magical unicorn training and prevented the Great Recesession from becoming the Great Depression II. All using economic theory. And if it wasn't for political interference/inaction, we'd be even further ahead, thanks to them.

I know people hate to hear that, and it's en vogue to rip on the field of economics, but it's true.

[yummyfajitas]

How do you know that absent fed intervention, the result would have been GDII?

[tatsuke95]

We don't.

How do you know before a tough, life-threatening operation whether the tumour you are getting removed will kill you? You don't.

[yummyfajitas]

In the case of tumors we do have a pretty good idea what would happen. We have statistical evidence from large numbers of people with similar tumors.

[dingfeng_quek]

You're not exactly describing the difference. I would say that:

1. We have statistical evidence from large numbers of SIMILAR people with similar tumors. Economic events tend to be highly dissimilar in terms of context (Great Depression? 1988 Savings and Loans Crisis? 1997 Asian Financial Crisis? 2008 Global Financial Crisis?), and only to be similar in terms of before-and-after on some narrow set of parameters. This makes prediction and counter-factual history for economic stuff really hard.

2. We also understand some of the mechanisms of how tumors work and affect physiology. These are founded upon a large body of knowledge of causation and empirics in medicine, chemistry, and biology. Economics lack a comparably reliable and large body of knowledge because of 1.

[yummyfajitas]

This makes prediction and counter-factual history for economic stuff really hard.

Exactly my point. We really have no idea what would have happened had the fed not intervened and allowed a normal bankruptcy to occur.

I'm not saying economists are lazy and stupid, I'm just saying they lack data, and that tatsuke's counterfactual (GDII) is not a very good one.

[tatsuke95]

>" Economic events tend to be highly dissimilar in terms of context (Great Depression? 1988 Savings and Loans Crisis? 1997 Asian Financial Crisis? 2008 Global Financial Crisis?)"

I'm not sure this is true, either. Financial crises are surprisingly similar [0].

[0]http://www.amazon.com/This-Time-Different-Centuries-Financia...

>"These are founded upon a large body of knowledge of causation and empirics in medicine, chemistry, and biology"

And what about new discoveries? What do they do then?

Some things are easy. Some things are new, you have little data, and have to make a best guess. Same as economics.

[tatsuke95]

And we have statistical evidence from large numbers of economies. It's not perfect. We make a best guess and go for it. That's my point.

Contrary to popular belief, these guys aren't winging it. As I've said, go check out the research they're doing at the Fed. That's the cutting edge of economics.

[ucee054]

You are using a straw man to defend the indefensible.

"These guys" are clearly winging it, when we remember the definition of "These guys":

Ideologues touting Efficient Markets and the Washington Consensus, often in the pay of corporations, and using clearly falsified theories to do so.

(You can get an idea of how bought they are by watching "Inside Job".)

No one is saying that no economists anywhere ever got anything right. The problem is that the economists who do get things right are the dissenters from the orthodoxy of "These guys".

So why don't you go check out the research referenced at

http://www.paulcraigroberts.org/2012/07/29/escape-from-econo...

As for the Fed, Volcker's Fed yes, Greenspan and Bernanke's Fed no.

[ucee054]

Of course, the problem was also created by "hundreds of trained economists" in the first place.

If geeks weren't trading MBS and selling NInJA loans as AAA rated assets to the insurance companies, would the blowup have happened?

If the Fed hadn't pumped easy credit, first during the dotcom bubble, then into the housing bubble, would the blowup have happened?

This is kind of like saying "Look how smart I am, I saved my leg from needing amputation after I shot myself in the foot!"

[tatsuke95]

>"If geeks weren't trading MBS and selling NInJA loans as AAA rated assets to the insurance companies"

I think you're conflating "people who work on Wall Street" with economists. Most of the "dirtiest" of the loan originators were people with no financial education whatsoever; salesmen, and nothing more.

>"If the Fed hadn't pumped easy credit, first during the dotcom bubble, then into the housing bubble, would the blowup have happened?"

Yes. Blowups happen. It's the business cycle. A credit driven economy inflates until marginal borrows default, which cascades to a deleveraging. The Fed "pumped" money in the economy after the dotcom bubble because we saw some of the greatest destruction of wealth, ever, during that period. And much of the housing portion was political mandate.

Admittedly, economics and the economy is a finicky patient. But contrary to popular belief, these guys are smart and know what they're doing.

[batista]

>I think you're conflating "people who work on Wall Street" with economists. Most of the "dirtiest" of the loan originators were people with no financial education whatsoever; salesmen, and nothing more.

And I think you're conflating economists with people that didn't influence policy at the top level to enable those "salesmen" to do what they did, people that didn't hum along while the salesmen were doing it, people that didn't praise this thing happening, and people that didn't ensure the public that everything was perfectly OK before the crash.

Because economists, and top level ones at that, with Ivy League PhDs and all, did all of the above.

Case in point:

"""The former Federal Reserve chairman, Alan Greenspan, has conceded that the global financial crisis has exposed a "mistake" in the free market ideology which guided his 18-year stewardship of US monetary policy. A long-time cheerleader for deregulation, Greenspan admitted to a congressional committee yesterday that he had been "partially wrong" in his hands-off approach towards the banking industry and that the credit crunch had left him in a state of shocked disbelief. "I have found a flaw," said Greenspan, referring to his economic philosophy."""

But all other top dog economists policy influences were doing the same things, and praising the same "throw caution to the wind" attitude towards the "free market" and unsupervised banking...

[tatsuke95]

>"And I think you're conflating economists with people that didn't influence policy at the top level to enable those "salesmen" to do what they did"

Pray tell, what did they do? What options does the Fed have that can run opposite popular politics that wouldn't instantly cause them to lose independence?

>"people that didn't ensure the public that everything was perfectly OK before the crash"

This is simply not true. People, including academics, were writing about the housing market pressures as early as 2004. The "economists" can't force themselves onto MSNBC or CNN to tell people to stop buying houses, especially when that runs counter to what politicians want: a hot economy.

>"The former Federal Reserve chairman, Alan Greenspan, has conceded that the global financial crisis has exposed a "mistake" in the free market ideology which guided his 18-year stewardship of US monetary policy."

An old Randian, trying to ensure his legacy isn't completely tarnished. Hindsight is pretty easy.

[batista]

>Meanwhile, an enterprise with hundreds of trained economists (read: The Fed) used this magical unicorn training and prevented the Great Recesession from becoming the Great Depression II.

Really? So where were these "hundreds of trained economists" when the Great Recession came about? Out there, causing it.

As for "being saved from becoming Great Depression II", well, let's wait and see.

[tatsuke95]

>"Really? So where were these "hundreds of trained economists" when the Great Recession came about? Out there, causing it."

Causing it? That's preposterous, being as how the borrowers (ie, Joe Public) are 50% to blame for over extending themselves. Again, tell me what tools the FRB has at its disposal that could have prevented the housing meltdown.

>"As for "being saved from becoming Great Depression II", well, let's wait and see."

Indeed we shall. Care to put your money where your mouth is? I have, and continue to do so, participating in one of the biggest bull-market run-ups in history the past two years. Meanwhile, most people continue to spout doom and gloom. And I'm just some guy watching this happen from the sidelines, trying to piece it all together.