| >that's the problem with higher dimensional fields like economics and finance - it's hard to separate cause and effect and extract principal signals for an arbitrary phenomena, without getting bogged down in correlation hell. While I agree with you about the difficulty of understanding complex systems, your post sounds despairing. Accepting the inherent difficulty is vital to better analysis, but isn't a reason to avoid actual analysis. Note for example that you wonder why austerity was ever considered a good idea. How do you "know" that austerity is a bad idea without analysis. It's only been about 80 years that we've had a better understanding of how a single household's economic considerations are fundamentally different than an economy's solely as a result of scale. The naive analysis from classical economics would draw a parallel between a decrease in GDP and a decrease in household income, whereby it is prudent to decrease your consumption. However, while a households income is an exogenous factor, GDP is a product of the economy itself. During a contraction, there is generally the same amount of labor, capital equipment and technology as before the inflection point, it simply isn't being utilized or employed at the same rate. Today, informed policy debates may weigh the continued harm that comes from leaving underutilized people and capital idle, against the reduction in signalling for needed structural change that may result from stimulus. Just as an example, it is easy to argue that rescheduling bridge and road construction that will be needed later to a current period when labor is cheaper and equipment isn't being used elsewhere is prudent. Yet on the other hand, doing so may signal over-investment in construction careers and heavy equipment. In the past, policy debate would have focused on balancing well-meaning charity of helping out people on hard times against austerity which was believed to be beneficial for the economy as a whole. How can you even begin to determine whether assumptions about belt-tightening being constructive are flawed without economic analysis? I think the lesson to be learned from this event is first the importance of more rigorous scrutiny of results, but more importantly to be distrustful of the type of politician who searches for studies to support their preconceived conclusions. A good portion of policy makers advocating austerity, have done so from a stance of dismissing the analysis that doesn't fit their ideology, rather than a scientific approach of starting with a hypothesis and assessing the available competing analysis in good faith. |