Here’s a simple fact about credentials, economics, and economists. The majority of economists, the vast majority, did not see the crash of 07 and 08 until it was occurring.
Economics is not a science. It is not even close to a science. Economists often act as if it is, because it uses math, but the fact is that it is more like sociology than physics, except that most sociologists know that they aren’t practicing anything like physics, and most economists, while they might say they aren’t, act as if they know what they’re talking about when they clearly don’t.
Now some are better than others. Krugman, who I criticized in a past post, is a genius and a good economist. But he isn’t a good economist because he’s got a Ph.D or a Nobel prize, and the idea that those things make him good are incredibly naive. It’s also possible to be a good economist, and worthless at giving practical policy advice. Here’s another Nobel prize winner for you: Milton Friedman. Also a genius, by the way. Lousy policy prescriptions, but a genius.
Economics is not a craft. Put in ingredients X and Y, get Z. If you think it is, you will go wrong every time.
Krugman is very bad when it comes to dealing with people who are part of his club. He was great when Bush was in power until Bernanke took over the Fed, then because of his ties to Bernanke (Bernanke hired him for his current position) he started getting things wrong and cutting Bernanke way too much slack.
He is also very doctrinaire. James Galbraith, in 2002, characterized Krugman as follows:
Krugman is concerned, first and foremost, with his own standing among the club’s leaders. And he has come to function as a kind of guard dog for their dogma, savagely attacking dim-witted outsiders while remaining generally quiet, if not always completely silent, about acts of illogic committed inside the profession.
Krugman has started a new career as a regular on the op-ed page of The New York Times, and his priorities were on display in his opening column. Consider how it opens:
Beginnings are always difficult: even the most tough-minded writer finds it hard to avoid portentousness. And since this is a quadruple beginning (new year, new century, new millennium, and, for me, new column), I won’t even try. What follows are some broad opening-night thoughts about the world economy.
I deliberately say world economy, not American economy. Whatever else they may have been, the 90’s [sic] were the decade of globalization… .
And so it goes, one banality after another, grimly through to the end, where Krugman writes that “the facts may be on the side of the free traders … [but] the opponents are winning the propaganda war.” It is a typical Krugman flourish, broad and misleading, in which the economists are pitted against a ruffian fringe. There is not a word to suggest Krugman himself is aware (though he certainly is, having himself come down on the right side) that the key issue among economists is not trade but capital flows.
In a column just a few days later, he is even more explicit: “New challenges to orthodoxy, like the growing backlash against globalization, are already brewing. Such challenges may be ill-informed, but no matter.” Always the defense of orthodoxy comes first. Nowhere does Krugman acknowledge the plain fact that the system of free global finance has been in deep crisis for over two years.
Granted, Krugman has become rather better since then, but the point remains.
When you’re dealing with experts you need to understand what they’re good for, and good at, and what they aren’t. Krugman is a good economist and morally brave when dealing with people he doesn’t like or who egregiously violate the norms of the economics profession as Krugman understands them. Step outside orthodox economics too far and Krugman will swat you.
But, unfortunately, orthodox economics is, well, wrong about a lot of things. And when economics is wrong, or when Krugman’s friends are involved in affairs, Krugman tends to be wrong, or to cut his friends too much slack. He also lacks technical knowledge in some fields, and sometimes doesn’t bother to get it (as, for example, in 2008, when he simply did not understand the mechanics of how oil prices are influenced by futures.)
I’ll always admire Krugman for his performance during the Bush regime. I’ve read his books and learned a great deal from them, and he deserved his Nobel prize. But he’s not been right about everything, and understanding when he gets things right and when he gets things wrong is important for anyone who respects him, and reads him, to understand.
More to the point, understanding when experts are right and wrong, and why, is a general skill everyone needs to have. You can’t understand everything, you can’t personally be an expert on everything, so you need to learn who to trust, and when not to trust them.
This applies as much to me (don’t take my American electoral predictions seriously, I suck at them) as it does to anyone else.
No one’s right all the time. Learn when the odds are that your favorite experts are right, and when odds are they’re wrong.
(Oh, go read Galbraith’s entire article. It will reward your time. For example:
But self-absorption and consistent policy error are just two of the endemic problems of the leading American economists, and not even the most serious among them. The deeper problem is the nearly complete collapse of the prevailing economic theory–of the structure of thought that supports their policy ideas. It is a collapse so complete, so pervasive, that the profession can only deny it by refusing to discuss theoretical questions in the first place.
The prevailing theory is the idea that price and quantity are set in free competitive markets through the interaction of supply and demand. It is this idea, and no other, that lies at the core of the economist’s way of thinking. And it is also the source of the profession’s problem in getting almost anything important right.
The notion of supply and demand as the organizing principle for everything is a few decades more than a century old. (It was not so for Smith, Ricardo, Malthus, Marx, or Mill.) The key player in the Anglo-Saxon tradition is Alfred Marshall; in the continental tradition, no doubt, Leon Walras. In the twentieth century, great economists including Keynes, Joseph Schumpeter, and John Kenneth Galbraith have tried to break the grip of this notion on the professional imagination. But they have not succeeded.
Supply and demand in the labor market underlies the notion that full employment cannot be reconciled with stable prices, that technological change drives pay inequality, and that raising minimum wages must drive up unemployment. In all these cases, the fundamental theoretical error is essentially the same: It consists in reifying a supply curve, for which no firm empirical foundation exists. Put another way, it consists in allowing a metaphor, one that originates in markets for fish, to govern a profoundly different human institution.
Of course, the collapse of supply and demand perhaps is best illustrated by the global capital markets, which were supposed to bring stable prosperity to the developing countries but instead brought them financial ruin. And nowhere is this more evident, or more catastrophic, than in the case of Russia, where the failure to build new institutions to replace the failing structures of the Soviet system, and the reliance instead on the “market” to provide, has given us a production, employment, and public health disaster, leading toward the reestablishment of a state directed by the secret police and the army. None of this was openly admitted, one can be sure, by the AEA’s leaders.)
Mandos
A lot of economists seem to feel that if you question the predictive/extrapolative power of their econometric peregrinations, you question the very possibility of economics as a study. As though evolutionary biology is not a valuable study even though it’s predictions are purely interpolations…
CMike
Granted, Krugman has been on the wrong side of the too big to fail argument recently. He was wrong when insisting throughout most of the last two decades that globalization would end up benefiting even the average American who was all ready in the work force in 1990.
However it’s not clear to me that he was wrong about what caused the record oil prices in ’08. Oil is at $84. 97/bbl today according to Bloomberg and this while the world-wide economy is struggling to return to its peak level of industrial activity. When the world oil consumption is next at the June ’08 rate and rising, we’ll find out if the July ’08 price of $147/bbl was the result of fundamentals or distortions caused by speculators. We will all know, that is, unless Matt Taibbi, Yves Smith, Ian Welsh, et al. are making the argument that if that price level is seen again in the next couple of years, and that price level is not due to some conspicuous interruption in the supply of oil, then, again, that spike will be the result of the of speculation.
At the beginning of ’08, when it was at $100/bbl, a Shell Oil executive was insisting oil should be at $60/bbl. Does that sound like the right price…to anyone? I’d be curious to know how much of that $147/bbl price, let alone the $100/bbl. price, Ian thinks was owed to distortions caused by activities in the futures market. Oh, and does Ian allow that the futures market might have served some useful purpose in helping to bring online additional oil supplies during the mid-’07 to the mid-’08 period that might have, otherwise, not been brought online as quickly as they were without the role being played by the futures market back then?
Ian Welsh
There was enough supply in 08 at prices under $147/barrel. Actually, I think there was probably enough supply at $60/barrel. Obviously higher prices bring out more marginal oil production, that’s not in question, the question is whether it was necessary and whether the damage caused by such oil prices was worth it. (Quick answer: probably not.)
We’ve recently seen some jumps in oil prices at the same time as declines in oil buying. If that’s not speculation, I’m damned if I know what it is.
The current over/under number for year end from traders is $100/barrel.
None of this is to deny peak oil, tightening cheap oil supplies, etc… I was writing about that years ago. But all of the price jump was not due to tight supplies, and since the futures weren’t pricing years out, the futures weren’t pricing correctly. Give me a 10 year contract and very high prices make sense. Give me a 6 or 12 month one, and they don’t–not from a straight supply and demand viewpoint.
In any case, the larger point is simply that being a credentialed award winning economist doesn’t mean you’re always right. If you think that Krugman was wrong about the benefits of globalization (a much much bigger thing to be wrong about than how much oil prices are driven by speculation) then you’ve already conceded the main point of the blog post. Being on the wrong side of neoliberalism, which Krugman was, is kind of a big deal, given how many people it has hurt.
BDBlue
An excellend piece summing up Krugman’s strengths and weaknesses. I think one of the things Krugman is useful for is that he pretty much defines, in my mind, how “left” one can be and still be taken seriously in terms of policy prescriptions.
And, I’ve seen nothing that indicates that, when push comes to shove, he will be anything less than a loyal Democrat. He might raise concerns or questions about the Dems’ corporatist policies, but in the end he will support them because they are being put forth by the “right” people. As we head into “financial reform” discussions, I think this piece does an excellent job of predicting Krugman’s take:
Lex
This discussion of Krugman is important, because it’s symbolic of so much else that’s happening. It wouldn’t be hard to draw up a list of at least 10 major things Obama’s done that would have produced uproars if Bush had done them.
While Democratic policy may be incrementally better than Republican policy, Democrats are no better than Republicans if they follow the maxim of “My party right or wrong.” Which is itself a horrible bastardization of “My country right or wrong.”
I don’t question Krugman’s genius, but i always question the motives of someone with as much access as he has. It’s rare for people to bite the hand that feeds them.
peon
Laurie Anderson has a new song release apropos to this topic, it is titled “Only an Expert”. I am going to try an embed but if doesn’t work just use Google.
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Cujo359
I’d say we differ on the definition of science. Science is trying to find out how things work. Economics is a science; its proponents, particularly its most visible ones, just aren’t very good at getting it right. There are lots of reasons for that.
Economics is a science that is badly distorted by what people want to hear. Politicians love to hear that the people who are giving them lots of money are the ones who know how things ought to work. Economists who call that tune will be favored by both the politicians and the people who give them money.
The Raven
K-k-k. There is in science and engineering a distinction between pure science, which is descriptive in character, and applied science and engineering, which use the descriptions of pure science to some goal. In economics, this distinction is often lost. There is a descriptive social science which might be called pure economics and an applied practice of economic policy making which doesn’t have a separate name. I think, as a matter of scientific practice and ethics, it is important to clarify the distinction.
Equally important, and widely overlooked, are the scientific basics of explicitly stating the assumptions of theory and checking theory against experimental data. In the area of stating assumptions, economics fares poorly: economic behavior occurs in a social context, and it is part of the assumption of any economic theory (= model.) Without stating the social context of an economic result, one can get remarkably boneheaded results: as Galbraith points out, one ends up assuming that people negotiate for jobs in the same way they haggle over fish in a marketplace.
Which brings us back to Krugman. Points in Krugman’s favor, which I don’t think you’ve covered: he is aware of the distinction distinction between pure and applied economics, he is willing, after a struggle to be sure, but willing, to check his theories against experimental data, and he accepts that people behave differently in different markets.
On the other hand, he himself has acknowledged a theoretician’s weakness for elegant general theories (which may ground your observation about oil futures) and he is not a strong applied economist. Since his time with the Reagan administration, he has refused policy-making positions, and I think this may be why.
S Brennan
A scientific method consists of the collection of data through observation and experimentation, and the formulation and testing of hypotheses. Scientific researchers propose hypotheses as explanations of phenomena, and design experimental studies to test these hypotheses. These steps must be repeatable in order to dependably predict any future results. http://en.wikipedia.org/wiki/Scientific_method
So…in order for it to be considered a theorem in Science, you have to be not only “objective”, you have to “dependably predict any future results”.
—– Original Message —–
From:
To:
Cc:
Sent: Friday, June 05, 2009 1:10 PM
Subject: Much of economics today isn’t about truth or near truth, it’s about justifying the rape of less fortunate
Thank you for posting this, until Milton Friedman’s highly political economic views are irrevocably deconstructed by the economic profession [as a whole] we will continue down this idiotic path that has lead to worldwide disaster once before.
I can not think of any unregulated [or unfairly regulated] competitive human activity that has managed long term survivability. In the US we have taken from our antecedents and our decedents for the last thirty years, this has been possible largely through the fig leafs of justifications proffered by elements the economics profession and the silent acquiescence of peers looking to advance their careers.
To be clear, my criticism is not directed at every INDIVIDUAL economist, rather it is directed at those who either support or remain silent while others provide highly complex technical reasons for barbarous behavior. Much of economics today isn’t about truth or near truth, it’s about justifying the rape of less fortunate and the planet itself. Religion once filled this role, but tiring of the indefensible, they’ve turned the dirty work over to “Economics”.
Along these lines I have been banned from commenting on Mark Thoma’s site because I ridiculed a quoted economist, one David Warsh who supported Alvin Roth’s supposition that economists predictions and designs were as reliable as an engineers* In the banned remark, I said, “The economics profession would need to go through the equivalent of a Copernican revolution before this would be true”. Apparently, not only are the high priests of this profession often wrong, they are also pretty thin skinned.
In the US, we need a 12 part, 1 hour long series on PBS [Perhaps Paul K is available?] outlining the idiocy of Milton Friedman politically motivated economic ascertains & Reaganism’s false premises.
* [“…there was still something novel about the proposition that economic engineering was becoming close kin to chemical engineering or medicine” – Alvin Roth Which was followed by David Warsh’s comment, “Not any more!”]
http://economistsview.typepad.com/economistsview/2009/05/auctions-and-politicians.html#comments
The Raven
S. Brennan, that’s repeatable experiments, not accurate predictions of future events; otherwise meteorology and geology wouldn’t be sciences.
None other than Paul Krugman wrote an assessment of Milton Friedman’s place in economics and how his politics interacted with his theoretical work. You can read it on The New York Review of Books web site at: http://www.nybooks.com/articles/archives/2007/feb/15/who-was-milton-friedman/
S Brennan
Yes, Raven, as Ian said, Paul has limited vision and so do I…that is why I did not re-write my missive to obliterate my mistake concerning Paul. Thank you for pointing out the glaringly obvious mistake on Paul. If you read Ian’s post, he covers the subject of trusting experts.
As for predictions vs exactly repeatable experiments…you are full of it, physics works because the apple falling from the tree applies to more than just apples. Engineers apply science in NOVEL ways, NOT REPLICATING EXPERIMENTS EXACTLY AS PREVIOUSLY PERFORMED.
Thank you for pointing out the glaringly obvious…the US leads the industrial world in ignorance of scientific knowledge. Your contribution as a factual data point is noted.
The Raven
S. Brennan, I did not intend an attack on you. I’m sorry my remarks came across that way. But I am going to disagree with you on this: “Engineers apply science in NOVEL ways, NOT REPLICATING EXPERIMENTS EXACTLY AS PREVIOUSLY PERFORMED.”
Hey! I’m an engineer in two disciplines, so I think I get to say something about this. Most engineering is based, not on novel applications of science, but on re-application of existing practice. Engineering applies pure science in ways that avoid unpredictability; science itself engages unpredictability, as in meteorology and geology. Part of what engineers do that scientists don’t is know where the areas of unpredictability are, and avoid them. Novel engineering is applied science research in itself, always a bit unpredictable, and the best of us can get caught by it. For instance, this from Arup, a well-respected architectural engineering firm:
Note also the plea for publication of novel research at the end of the short essay–apparently the phenomenon had been noted before and not written up.
This leads to the following thought: perhaps one of the problems of having a weak distinction between pure and applied economics is that there is no disciplinary body of practice on the applied side: untested theories are put into practice on a grand scale, and when they fail, huge areas of the economy fail with them. This is rare in more mature disciplines; professional discipline makes large-scale failures unlikely. I find it interesting that I do not even have a name for the type of disciplines that are based on pure economics; neither “engineering” nor “design” seems to capture them.
The Raven
Which, on reflection, leads to the following thought: would there perhaps be some value in modeling an econometrics professional license on engineering or architectural licenses? Milton Friedman would be spinning in his grave if he could see this–he regarded professional licensing as a protection racket, pure and simple. But in fact licensing engineers and architects has worked out fairly well from the viewpoint of public safety, even when very large amounts of money are involved. Could that success perhaps be duplicated in econometrics?
Mandos
Unfortunately in licensed professions there is an objective standard for termination of license. For instance, if the engineer is negligent in something which was forseeably a problem, and people died. How would you make an econometrician liable? Even what is to be measured is a contentious subject.
Celsius 233
Even the most primitive cultures (Amazon peoples come to mind) understand sustainable economics. It takes a highly educated, sophist mindsets, not to understand the simple motive for the theft of the spoils of a most perverted value system perpetrated upon the greediest, laziest, and stupidest humans who’ve ever lived on this planet.
It’s a shame some good people got hurt in this craven lust for immortality. But everyone bears some responsibility for this lemming’s run for the cliffs.