The Economics Thread

[Brwned]

@oneniltothearsenal

https://www.bloomberg.com/amp/view/articles/2018-04-25/critics-of-economics-are-dwelling-in-the-past

I think you'll like this article and I agree with most of what he says.

It does open up new problems. Creating and working with data is extremely difficult. That's one of my biggest criticisms of modern Econ (and other social sciences). I am absolutly not against this approach in general, I just think that it is far far far more complicated than a big share of scientists think. I am also not coming from this from some kind of obscure angle. The problem has been recognised by very distinguished accademics. The problem is that the the mainstream of the research struggles to take this into account, because - quite frankly - it would make a lot of work a lot more difficult. It is a problem, that even some of the most accomplished economists of our time struggle with this. If they are allowed to make all these mistakes, your average Joe researcher is going to make them for sure as well.

Here are some links that might help to explain where I am coming from with my criticism:
stuff from John P. A. Ioannidis:
http://journals.plos.org/plosmedicine/article?id=10.1371/journal.pmed.0020124
http://journals.plos.org/plosmedicine/article?id=10.1371/journal.pmed.1002049

stuff from Andrew Gelman (his blog is quality): http://andrewgelman.com/
easy to understand example: http://andrewgelman.com/2016/02/12/priming-effects-replicate-just-fine-thanks/
here specificlly about Kahneman: http://andrewgelman.com/2014/09/03/...eman-regarding-strength-statistical-evidence/
the "The garden of forking paths" paper: www.stat.columbia.edu/~gelman/research/unpublished/p_hacking.pdf



There are many other challenges/problems with much of the research on almost every level. Its impossible to address all of them in the context of this forum (or in any context). Most of these are getting acknowledged occasionally, but taking all of these difficulties into account in actual research is an entirely different task. Some research topics are easier and sometimes researcher are doing fantastic work. Yet there is so much flawed research, that its really difficult to simply trust people - even eminent authorities - without actually double checking every single detail. Its a massive problem, when nobel laureats are not only making significant mistakes in their research, but are unwilling to acknowledge all these problems.


Btw: I am not an Austrian even so I have a lot of sympathy for parts of Hayeks work.

To add to your broader point about the research challenges, here's an overview of some of the primary causes and some associated issues with scientific research in general.

https://www.vox.com/2016/7/14/12016710/science-challeges-research-funding-peer-review-process

 

[VorZakone]

I have a BSc and MSc in Business Economics. I can tell you right now that you should never put 100% trust in scientific research on economics, not even just because of the complications regarding data interpretation and such.
But also because it's regularly being influenced by external money interests and therefore you can't guarantee that all research is 100% objective and that IMO is a major flaw.

 

[ManUtd1999]

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This is really bad for the UK.

In the US: 2.3%, which is not impressive either. I have to wait one more quarter before judging, but the weak consumer spending this quarter is worrying given the tax cut that was signed into law in December. Without strong consumer spending (which constitutes 70% of GDP), GDP growth will be weak, and that will undermine the claim that the tax cut will pay for itself (that was never going to happen anyway).

 

[PedroMendez]

I struggle to explain my thoughts about this in detail. I have the feeling that I need to add an explanation/qualification to every single word.

Everybody has priors about the nature of reality. Considering the complexity to formalize, describe and track social phenomena/processes, these priors influence (consciously and unconsciously) all the decisions that have to be made when designing research. Even seemingly trivial and minor design choices do have impact of the findings of one's study when data is noisy and effect sizes are small. Statistics can't create robust findings out of any data. Its not a magic wand.

“believes => findings”
The practical consequence of all of this is that researchers end up simply confirming their priors by creating models that are (consciously and unconsciously) designed to do so. You can often show all sorts of other contradicting things with the same data set. This process doesn't create any knowledge. Its juts a way to repackage the existing knowledge in a new way that looks fancy. It also hides where the knowledge/priors/believes/ideas are actually coming from.
It should be: “findings => believes”.
The problem is, that the difference between good and bad research is small. Good research design follows the same process and has to deal with the same problems. The difference are more rigorously taken decisions in each aspects. While there are so practices/values/ideas that foster good research, it is very hard to actually formalize them; current academic constraints/pressure/culture is not promoting them.


Some of the worst problems (problems with publication selection/bias; p-hacking; replication crisis) are getting more attention recently, but economists are still failing to address them properly. It will take at least another decade (optimistically). The deeper issue of limitation of modeling/data analysis are not addressed at all yet.
People like Kahneman, Heckman, Engle, Sims (even Krugman) and many others are obviously brilliant minds, who came up with great insights. My often extremely disparaging/snide remarks about them are polemic in nature, because I hold them to higher standards.

The problem really starts when social science informs extremely consequential policy decisions (who cares what anyone writes in a journal as long as it doesn't actually influence powerful people?). That leads to questions of how to make decisions with incomplete information under huge uncertainty. Social scientists have to be honest about their limits of knowledge and the level of uncertainty. Thats where I really see huge problems. A certain type of modern technocratic mindset is doing the exact opposite. They massively overstate the certainty of their knowledge about complex processes.

 

[711]

Is one problem with economic research that the world is simply not big enough? For example one can look at how an economic policy might have affected a country's performance, but then there will be far more factors influencing that performance than there are countries with a similar policy. If there were 10,000 nations on the planet it would be easier to get stuck into individual factors. Forgive me if this is just stating the bleeding obvious, but I haven't studied economics at any level.

 

[Raoul]

Is one problem with economic research that the world is simply not big enough? For example one can look at how an economic policy might have affected a country's performance, but then there will be far more factors influencing that performance than there are countries with a similar policy. If there were 10,000 nations on the planet it would be easier to get stuck into individual factors. Forgive me if this is just stating the bleeding obvious, but I haven't studied economics at any level.

I feel its down to the fact that there are nearly 200 economic systems in the world who are tied together whose performances are networked together by both domestic factors as well as how other (typically larger) economic systems behave. Financial/currency markets are a good illustration of this. There are simply too many moving parts to make some sort of grand quantitative science out of all of it. That's why imo there will always be a subjective/interpretative component to analyzing economics and financial markets.

 

[PedroMendez]

There are simply too many moving parts to make some sort of grand quantitative science out of all of it. That's why imo there will always be a subjective/interpretative component to analyzing economics and financial markets.

very well put @Raoul

Is one problem with economic research that the world is simply not big enough? For example one can look at how an economic policy might have affected a country's performance, but then there will be far more factors influencing that performance than there are countries with a similar policy. If there were 10,000 nations on the planet it would be easier to get stuck into individual factors. Forgive me if this is just stating the bleeding obvious, but I haven't studied economics at any level.

It's more to do with the quality of data and the complexity of issues. While headlines like "shark attack decides election" are obviously bonkers, but the amount of difficult-to-track-variables one can control for are endless. Most of the easy-to-do stuff is done. We are talking about small effects in extremely noisy data.

Some examples:

Do early childhood interventions for (stunted) children have a lasting impact on the success of children later in life? My prior intuition is that intervention can help. My own life experience, psychology, what I learned about the biology of growing up and other different theories/”hunches” seem to all point in this direction. At least in my very subjective view.
Yet how do you track and evaluate that? Prestigious scientists did that. Some conclusions were that these children earn 25% more compared to those without intervention. They also found, that specifically the nutritional part of the intervention has been pointless, because the families shared the supplements. So they message is, that the psychological stimulus resulted in 25% higher incomes (and many other positive things) over 20 years later.
Nobody can possibly believe their number(s). I doubt that a single of their researchers is taking them seriously. Why? Because thats just way too high of a number. Nothing is going to have such a massive effect. That’s completely out of the cards. Its not how the world works.

So I spare you the technical details, but obviously people looked into it and found many many flaws of the research. The data is so vague, that even a negative effect is entirely possible (would they have published a negative result? nope. Would they and could they have published a small positive result? Well, considering the methods and research design that would have been surprisingly difficult (which might seem counter-intuitive, but thats true) and who would have cared if they would have found that their intervention had 2% positive impact on wages?).
Other findings you could have also extracted out of their data: Childhood intervention increases likelihood of leaving Jamaica or getting fewer babies.
My point is, that this research didn't created any new knowledge. It just affirmed what most liberal minded people (including the researchers) already thought anyway due to their prior experience.
The public certainly didn't care about the very few cautious voices, who questioned this research. This study was (is) extremely influential in building political support for these programs in other countries. Thats probably a good thing, but makes an honest discussion how anyone came to this conclusion impossible.

The same problems are happening everywhere in almost all policy relevant research areas from labor market regulation, to education, to healthcare, to development policy to everything. There are good studies out there that actually create new knowledge, but its hard to find them when there are so many bad studies as well. On the first, second and third look good and bad research looks the same.

I posted initially an article from Noah Smith, who I like a lot despite me disagreeing with most of his views. His argument is:

Economists study gender relations in the workplace, racial gaps, changes in labor contracts, early childhood education, minimum-wage policy, regional opportunity gaps, automation and the future of jobs, and a vast array of other highly important, immediately relevant topics. Sometimes they use theory to help them understand these phenomena, but usually the core work is empirical analysis of hard data.

Well. “empirical analysis of hard data” can make economics less scientific (and transparent), when people don't understand the current limitations of this approach. It gives the whole endevour a very shiny and objective image, but that has nothing to do with the hard reality of what actually happens in many cases.

 

[711]

Thanks Pedro, and Raoul. I get the subjectivity and bias, I don't think you actually need to study economics to suspect that, just reading how conflicting theories and 'evidence' are put forward in the press and by politicians gives an insight. Bad studies exist in 'hard' science too mind, nutritional studies with ridiculously low subject numbers and little thought for secondary factors being an example.

 

[ManUtd1999]

Most US manufacturing jobs lost to technology, not trade

https://www.ft.com/content/dec677c0-b7e6-11e6-ba85-95d1533d9a62

 

[berbatrick]

https://www.facebook.com/photo.php?....478621241474.256963.709866474&type=3&theater

 

[Raoul]

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[ManUtd1999]

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Good point, and this is concerning.

What is even more concerning is the speed at which this is happening. Too too fast!

 

[Don Alfredo]

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Half of those are horribly ineffective and could do with replacing anyway. Has there been one G7/8 meeting in recent years which had any good outcome besides some useless words?

 

[Raoul]

Good point, and this is concerning.

What is even more concerning is the speed at which this is happening. Too too fast!

It’s mainly a Trump phenomenon, which of course would be reversed if there’s a strong anti-Trump wave this November, as well as a new President in 2020. The US’s participation in Kyoto for example, doesn’t expire until a day or two after the next Presidential election, so if a new President will almost surely reverse the policy.

 

[Raoul]

Half of those are horribly ineffective and could do with replacing anyway. Has there been one G7/8 meeting in recent years which had any good outcome besides some useless words?

Not sure about replaced, but some of them should be reviewed and revised on a regular basis to keep up with the changing times. The UN for instance is long overdue some security council reform, NAFTA could definitely use a bit of tweaking, and the others should all be subject to periodic review to make sure the original charters of why they were set in place are still relevant in the present.

 

[Javi]

The UN for instance is long overdue some security council reform

What do you have in mind?

 

[pauldyson1uk]

USA in a summit with N Korea , I dont know if to be happy they are talking or scared to death .

 

[Raoul]

What do you have in mind?

Security council reform is desperately needed. A good start would be getting the G4 members onto the council then changing the voting structure to a simple majority instead of the current unanimous voting system where the likes of Russia, China, and the US simply veto one another's projects because one or two of the countries doesn't like what the other is doing. The new system should be more like the SCOTUS voting in the US. 5 votes wins .

 

[Carolina Red]

https://www.cnbc.com/2018/06/12/att-time-warner-ruling.html

$85 billion merger of AT&T and Time-Warner has been approved by a federal judge.

 

[Charles Miller]

This obscure entity called "the market", that its part of the neoliberal mythology(and apparently have a tutelage over the democracies), they are inflating a bubble right now in the United States and its going to crash again.

In the last decades this anomaly in the humanity happened, the financial system is not and intermediary anymore, in many countries its an end in itself and the speculation is more profitable than any productive activity.

It was always hard to understand how this can be possible. But sometimes talking to people from the "Austrian School"(and my english is bad) i managed to figure out what's the problem. They believe that some form of methaphysical power is emating from the invisible hand of the market and its producing the progress. You can show that year, after year, after year the government purchases in the US, for example, were responsible for the criation of new technologies that generated entire new industries, but they will keep repeating the same points. Its ideological intoxication.

 

[Carolina Red]

They believe that some form of methaphysical power is emating from the invisible hand of the market

What?

 

[Charles Miller]

What?

Voodoo. Vodum. Vudu.

 

[Fridge chutney]

This obscure entity called "the market", that its part of the neoliberal mythology(and apparently have a tutelage over the democracies), they are inflating a bubble right now in the United States and its going to crash again.

In the last decades this anomaly in the humanity happened, the financial system is not and intermediary anymore, in many countries its an end in itself and the speculation is more profitable than any productive activity.

It was always hard to understand how this can be possible. But sometimes talking to people from the "Austrian School"(and my english is bad) i managed to figure out what's the problem. They believe that some form of methaphysical power is emating from the invisible hand of the market and its producing the progress. You can show that year, after year, after year the government purchases in the US, for example, were responsible for the criation of new technologies that generated entire new industries, but they will keep repeating the same points. Its ideological intoxication.

Is your point that assets are priced incorrectly?

In general there may be a bubble because a few phenomena have been "priced" into the market in recent years: low interest rates, Trump policy deregulation and tax cuts, etc.

But economies have always been subject to business cycles. There will be a downturn, then prices will rise again. Etc.

 

[Fosu-Mens]

Security council reform is desperately needed. A good start would be getting the G4 members onto the council then changing the voting structure to a simple majority instead of the current unanimous voting system where the likes of Russia, China, and the US simply veto one another's projects because one or two of the countries doesn't like what the other is doing. The new system should be more like the SCOTUS voting in the US. 5 votes wins .

So the new security council would consist of the US, UK, Japan, France, China, Brazil, India, Germany and Russia. Introducing a voting/deciding system based on majority of votes winning would have the same problems as the existing system does; Decisions made based on subjectivity and relations to the countries benefitting from the decision, not what is the best objectively.

One can devide the 9 countries into 2 main groups, with some sitting on the fence.
Group 1: France, Germany, Japan, India and the UK. 5 Countries = 5 votes. Always majority in the voting.
Group 2: Russia and China.
Fence sitters: USA(Only during the Drumpf period. Will go into group 1 as soon as his period is over.). Brazil(Do not have sufficient knowledge on Brazil economic/politcal standings to say which group they would fall into.).

In this scenario all the decisions benefitting Group 1 would be approved, while those benefitting group 2 would not.
I do agree that the current system is not ideal(not working at all), but a majority wins voting system would not be acknowledged by the two countries in group 2. And would create a further dismantling of the Rules-Based Global Order system as you stated earlier. The outcome would be a Rules-Based semi-Global Order system, with two main factions similar to Axis/Allies from WW2(but with different coalitions).

 

[Raoul]

So the new security council would consist of the US, UK, Japan, France, China, Brazil, India, Germany and Russia. Introducing a voting/deciding system based on majority of votes winning would have the same problems as the existing system does; Decisions made based on subjectivity and relations to the countries benefitting from the decision, not what is the best objectively.

One can devide the 9 countries into 2 main groups, with some sitting on the fence.
Group 1: France, Germany, Japan, India and the UK. 5 Countries = 5 votes. Always majority in the voting.
Group 2: Russia and China.
Fence sitters: USA(Only during the Drumpf period. Will go into group 1 as soon as his period is over.). Brazil(Do not have sufficient knowledge on Brazil economic/politcal standings to say which group they would fall into.).

In this scenario all the decisions benefitting Group 1 would be approved, while those benefitting group 2 would not.
I do agree that the current system is not ideal(not working at all), but a majority wins voting system would not be acknowledged by the two countries in group 2. And would create a further dismantling of the Rules-Based Global Order system as you stated earlier. The outcome would be a Rules-Based semi-Global Order system, with two main factions similar to Axis/Allies from WW2(but with different coalitions).

Well yes, that's how decisions are made. Each country decides based on its own polices and interests. Germany, Japan, India, and Brazil are big enough players to where they deserve a spot on the security council. Rather than making votes having to be unanimous, a simple majority rule would be more efficient since no one country could veto the will of the majority. The US for example, couldn't veto all things related to Israel. The Russians and Chinese couldn't veto all things related to Ukraine or North Korea. The majority opinion would take precedence.

 

[Fosu-Mens]

Well yes, that's how decisions are made. Each country decides based on its own polices and interests. Germany, Japan, India, and Brazil are big enough players to where they deserve a spot on the security council. Rather than making votes having to be unanimous, a simple majority rule would be more efficient since no one country could veto the will of the majority. The US for example, couldn't veto all things related to Israel. The Russians and Chinese couldn't veto all things related to Ukraine or North Korea. The majority opinion would take precedence.

And the majority opinion would always be that of group 1. A scenario that would not comply to the interest of the countries in group 2. A scenario that they would never allow to happen. Or at least they would not adhere to the decisions made from such a group, undermining the influence and importance of the decisions made by the security council.
While i do agree with your sentiment, the scenario or solution that you propose is not realistic. And the big problem is really the lack of objectivity from the countries, they vote or will vote for what is best for their country or their allies, not from that can objectively be assumed far or beneficial.
Creating a decision/governing system based on what is objectively the best is not possible, yet.

 

[Raoul]

And the majority opinion would always be that of group 1. A scenario that would not comply to the interest of the countries in group 2. A scenario that they would never allow to happen. Or at least they would not adhere to the decisions made from such a group, undermining the influence and importance of the decisions made by the security council.
While i do agree with your sentiment, the scenario or solution that you propose is not realistic. And the big problem is really the lack of objectivity from the countries, they vote or will vote for what is best for their country or their allies, not from that can objectively be assumed far or beneficial.
Creating a decision/governing system based on what is objectively the best is not possible, yet.

There are no groups. There are only states with interests who happen to be the top military and economic powers in the world (you could probably throw Italy in this as well).

Its not the world's problem if the US, Russia, or China want to be able to veto polices about Israel, Ukraine, or Taiwan. At some point, the world has to move on from this sort of thing and if the UN is to have any value on the international stage, then there has to be a mechanism to adjudicate complex issues that takes vetos off the table.

 

[Fosu-Mens]

There are no groups. There are only states with interests who happen to be the top military and economic powers in the world (you could probably throw Italy in this as well).

Not officially, but some countries are more likely to vote yes for something that would benefit another country and vice versa.
For example: France and Germany. Or in parlaments with more than two political parties, were one party will vote yes for a proposal that they do not necessarily agree with, as long as the other party will vote yes for a proposal important to the other party.
And some states have interest more aligned with other countries.
China is at odds with Japan(East china sea, Japanese invasion and massacre) and India(recent territorial dispute and Sino/indian war.) and so on.
Thus India and Japan would not be inclined to vote for something benefitting China.

Its not the world's problem if the US, Russia, or China want to be able to veto polices about Israel, Ukraine, or Taiwan. At some point, the world has to move on from this sort of thing and if the UN is to have any value on the international stage, then there has to be a mechanism to adjudicate complex issues that takes vetos off the table.

Fully agree with you that this is needed. Not certain on how to implement such a system(Creating such a system on paper or in theory is not difficult though.).

 

[711]

Well yes, that's how decisions are made. Each country decides based on its own polices and interests. Germany, Japan, India, and Brazil are big enough players to where they deserve a spot on the security council. Rather than making votes having to be unanimous, a simple majority rule would be more efficient since no one country could veto the will of the majority. The US for example, couldn't veto all things related to Israel. The Russians and Chinese couldn't veto all things related to Ukraine or North Korea. The majority opinion would take precedence.

That's Israel fecked then. Should go down well in the States.

Also, shouldn't France and Germany have one vote between them? I'm sure that's what they want really.

 

[Raoul]

That's Israel fecked then. Should go down well in the States.

Also, shouldn't France and Germany have one vote between them? I'm sure that's what they want really.

Why would they share a vote as they are two different countries with separate priorities.

 

[711]

Why would they share a vote as they are two different countries with separate priorities.

Ever-closer union mate, keep up.

 

[Adisa]

The ECB will stop QE December.
I suspect that when the shit will hit the fan as regards to Italy.

 

[Raoul]

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[George Owen]

Yesterday the markets went down and the cryptocurrencies went up.

Can that be related? (big fish guys selling whatever and changing their money to cripto?)

 

[George Owen]

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100%. Pretty much what I've been thinking for a long time.

ps. i hope my country is absorbed by Google Land. feck Amazon.

 

[Raoul]

Yesterday the markets went down and the cryptocurrencies went up.

Can that be related? (big fish guys selling whatever and changing their money to cripto?)

I don't think they are particularly correlated since BTC/USD has been somewhat correlated to the SPY over time - at least for much of 2017. The market had a massive hiccup yesterday because it is unsure about US/China tarrifs and a possible trade war, and how affected assets should price in future trade related actions by Trump and China.

I'm no Bitcoin expert, but at first glance suggests it had a spike up yesterday because strictly from a technical level, it looks like it hit a bit of a floor where some buyers decided to come in.

 

[George Owen]

I don't think they are particularly correlated since BTC/USD has been somewhat correlated to the SPY over time - at least for much of 2017. The market had a massive hiccup yesterday because it is unsure about US/China tarrifs and a possible trade war, and how affected assets should price in future trade related actions by Trump and China.

I'm not Bitcoin expert, but a first glance suggests it had bit of a spike up yesterday because strictly from a technical level, it looks like it hit a bit of a floor where some buyers decided to come in.

Thanks. Yeah, the Trump China stuff was probably the reason behind the movements.

Ethereum went up too.

 

[Member 5225]

Read this today:

Investment legend Paul Tudor Jones had an ominous chat with Goldman's Blankfein Monday. Warns the next downturn will be "really frightening" - in no small part because U.S. has no more stabilizers; i.e., can't cut taxes further, rates still quite low, deficits already shooting up

 

[Raoul]

Read this today:

Investment legend Paul Tudor Jones had an ominous chat with Goldman's Blankfein Monday. Warns the next downturn will be "really frightening" - in no small part because U.S. has no more stabilizers; i.e., can't cut taxes further, rates still quite low, deficits already shooting up

Oil and the Nasdaq are what is propping up the market now. If one or both fall, then we are headed down in a significant way once again since that will put incredible pressure on the energy sector and the Nasdaq getting hit will mean big hedge and pension funds will de-risk massive positions on the Fang stocks, which could in turn create massive volatility and further knock on across the board asset selling. This is two months old but still very applicable.

 

[Member 5225]

Oil and the Nasdaq are what is propping up the market now. If one or both fall, then we are headed down in a significant way once again since that will put incredible pressure on the energy sector and the Nasdaq getting hit will mean big hedge and pension funds will de-risk massive positions on the Fang stocks, which could in turn create massive volatility and further knock on across the board asset selling. This is two months old but still very applicable.

Yep spot on.

ps is that video you?!