jamesz

It’s all in the name

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Overcoming Bias’s new sister site, lesswrong, has a new post up that tries to make me feel better about going to school:

We are interested in developing practical techniques of rationality. One practical technique, used widely and successfully in science and technology is formalization … We will reason better about the correctness of the form if we hide the subjects of the argument … [so] renaming primitive notions to meaningless symbols is a reasonable first step in formalization.

Read more

Matt Nolan

Micro and macro: How to view them together

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In a comment to a post on Anti-Dismal about a post on the Standard, which I have also commented on here, Clinton Smith said:

If you think that macroeconomics is the same as microeconomics because of where the word economics comes from, you’ve got a long way to come.

I thought I should lay down what I think – and so I did in the comments at Anti-Dismal:

Methodologically macroeconomics should simply be applied microeconomics. Microeconomics is the general discipline, and macroeconomics is a specific application (and set of value judgments) that can be used for (economy-wide) policy.

Trying to do macro without an understanding of micro is like trying to fix a machine without knowing how it works – hence why so many “non-economists” (I hate that term) get lost.

This is how the macro-micro distinction rolls around in my head – but of course, it is not necessarily that simple.  Do you guys have any idea about how I could improve this distinction – I think a set of posts might be in order for discussing this issue.

jamesz

Should we trust the forecasters?

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I’ve been flicking back over some posts by Robin Hanson at Overcoming Bias and came across this one about judging the reliability of macroeconomists’ advice:

It turns out that many macro economists frequently forecast future macro events. Furthermore, many places keep standardized track records of such forecasts, records that can be compared for accuracy; we can compare the accuracy of such folks!
. . .
Alas, it turns out that there is almost no overlap between the macro-economists who are considered the most prestigious and those who even publish forecasts.

I can understand wanting to rely on the economist with the best track record for ordinary forecasting, but is there a difference in the current climate? Read more

Matt Nolan

Cartoon: Scientific Objectivity

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Source(SMBC)

I think economists can relate … (to the first part – not so much the conclusion)

Matt Nolan

Are macroeconomists ignoring the research program of the last 30 years?

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There is a large set of people saying that macroeconomists have just ignored what they have researched over the last 30 when trying to deal with the recession. In fact, many of the posts I have written could be seen as tacitly agreeing with this point of view.

However, my answer to the posted question would be NO – macroeconomists are not ignoring their recent research.

Many people may then ask: Why are people giving Keynesian, or IS/LM, style explanations to the crisis? Why do economists differ so heavily in what they think is the right policy? Why do they differ on what they think is actually going on!

My answer would be that macroeconomists are using old school language to EXPLAIN the conclusions they have reached with more modern methods. People are more comfortable with the idea of IS/LM etc, and so macroeconomists can use this type of language to explain what they are doing – even though it isn’t the real justification 😛 . I don’t particularly like this – but I’m sure I do it myself 🙁

Economists also disagree so heavily about PRESCRIPTIONS and DESCRIPTIONS. This is because the recent “research program” has not removed the importance of value judgments – fundamentally, people may agree on a general framework but there is no central model for stating the values of the parameters in a given game.

Even if economists could agree with that, the importance of game theory has opened up the realm of the FOLK THEOREM and MULTIPLE EQUILIBRIUM. Fundamentally, macroeconomists can now explain anything in multiple ways – making any explaination by itself empirically empty. Microeconomists discovered this a long time ago – and it is still a vexing methodological issue.

So macroeconomists are not ignoring recent research – recent research just hasn’t put macroeconomics in a position where it is all encompassing and all powerful. Something that some macroeconomists need to realise methinks 😀

Matt Nolan

Question: Have economists been over-confident regarding their ability to predict things?

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My unequivocal answer here would be yes – but I’m not asking me, I’m asking you.

Do you guys think that economists have been over-confident about their ability to predict things?

We have repeatedly said on this blog that economic science “frames issues” – but predictions only stem from virtually untestable value judgments (although we can inform these, and narrow the band of judgments, by using data).

However, it appears that many economists have tried to sell their ability to predict – something that has caused issues.

This blog post really sums up how I think people think about economists right now (ht Market Movers).  I think the issue is that economists have sold this story to the public about their ability to predict – an ability that doesn’t exist.  The risk from this is that the value that economists can add (framing issues, even describing what has happened) may get ignored as a result of this perceived failure.