Decent article on the economics profession.

[Beet]

Most all of it has been said before, but it can never be said too many times, it seems.
http://www.johnkay.com/2011/10/04/the-map-is-not-the-territory-an-essay-on-the-state-of-economics

[Gustaf]

He makes decent points and I have a feeling that the next generation of economists will be a lot less modell-y in their approach.

Still, I lack the empirical approach of actually proving that the various assumptions of, say, RBC are so simplified so as to lead to large errors in predictive power.

[ag]

Nonsensical, actually. There are a lot of things you can ctriticize modern macro for in general (and Lucas in particular), but he chose something entirely orthogonal to what matters. "Models" are doing fine - it is what you do w/ them. Krugman is as much of a "modeller" as Lucas )))

And no, models aren't going anywhere - they are quite useful, not to say indispensible. They make you list the assumptions, make you actually describe what you think matters in the world. They also make it possible to interpret what you see empirically. Arguing against "models" is like arguing against calculus - you can live w/out it, but it's a hard life ))

[Beet]

I thought you might respond to this one.

[ag]

Oh, and, of course, the claim that academic economists, as a profession, don't look at actual data about "real" economy is simply patently absurd. A lot of them (us) do - like in any field, there is some division of labor, of course, so you shouldn't expect the likes of Lucas to do this, but that's not because this is not considered important.

Now, I have a lot of beef w/ some of the modern macro (there is a reason I am a micro guy), but, gosh, this guy deliberately chooses to talk nonsense: that is, at least, my model of him ))  

[Politico]

Much of that article is over-the-top and not particularly helpful as previously noted by other posters.

The primary lesson from the Financial Crisis is that it is always best to neither rely exclusively upon quantitative analysis nor qualitative analysis. There has been a tendency to over-rely upon the former, especially at the expense of the latter. Furthermore, far too many macroeconomists are hasty to dismiss microfoundations.

Anybody who did even the most rudimentary qualitative analysis saw the housing bubble bursting, especially after they started to scratch the surface behind what was driving the activity. I personally know people who know little about economics who saw it coming, although they obviously could not be expected to know the full ramifications upon the aggregate economy. That is the job of macroeconomists, and by large and large they failed spectacularly. It is rather embarrassing that so many macroeconomists either did not see the bursting of the bubble coming, or did not understand the full ramifications it would have upon aggregate activities. However, economics is like any other discipline: There are numerous areas of expertise. Just because macroeconomists have a mark on their record does not mean that all economists share in that shame, or should even take part of the blame.

[Politico]

Nonsensical, actually. There are a lot of things you can ctriticize modern macro for in general (and Lucas in particular), but he chose something entirely orthogonal to what matters. "Models" are doing fine - it is what you do w/ them. Krugman is as much of a "modeller" as Lucas )))

And no, models aren't going anywhere - they are quite useful, not to say indispensible. They make you list the assumptions, make you actually describe what you think matters in the world. They also make it possible to interpret what you see empirically. Arguing against "models" is like arguing against calculus - you can live w/out it, but it's a hard life ))

Absolutely. It is also important to note that just because a model does not have an impressive record of predicting the future that does not mean it is completely useless. The model can be improved, or replaced. That is how progress is made, and there really is no other alternative. Hypothetically, the only potential problem is if too many people cling to models that have a track record of 50% or less, which I suspect is NOT happening anywhere (As Stigler once put it, if a model is only right 50% of the time it is more economical to just flip a coin). I am supremely confident that a sufficient number of people are dedicated to improving/replacing models.

[Wonkish1]

Much of that article is over-the-top and not particularly helpful as previously noted by other posters.

The primary lesson from the Financial Crisis is that it is always best to neither rely exclusively upon quantitative analysis nor qualitative analysis. There has been a tendency to over-rely upon the former, especially at the expense of the latter. Furthermore, far too many macroeconomists are hasty to dismiss microfoundations.

Anybody who did even the most rudimentary qualitative analysis saw the housing bubble bursting, especially after they started to scratch the surface behind what was driving the activity. I personally know people who know little about economics who saw it coming, although they obviously could not be expected to know the full ramifications upon the aggregate economy. That is the job of macroeconomists, and by large and large they failed spectacularly. It is rather embarrassing that so many macroeconomists either did not see the bursting of the bubble coming, or did not understand the full ramifications it would have upon aggregate activities. However, economics is like any other discipline: There are numerous areas of expertise. Just because macroeconomists have a mark on their record does not mean that all economists share in that shame, or should even take part of the blame.

"But real estate is going to go up 8% a year because the population keeps growing and God isn't making any more land."

almost as bad as,

"But new developments in technology, software, and real time inventory control is making significant stock market crashes obsolete"


You do have to give the guys a break though even Buffett admitted that he kind of believed that first ^^^^ statement up until the crash. Hell the justification even made its way on to a Sopranos episode.

[Wonkish1]

The only part that is really annoying to me about some models is the act of adding time into "the all else equal" part of the equation. I get the others, but I don't get that one. Case in point, the Phillips Curve(probably the most embarrassing model for economists over the last century, I'll say some finance models have been very embarrassing too but that's a different group). Here is a model that doesn't take into account that any time you utilize inflation to lower unemployment in the model it shifts the model upward by practically an equal degree afterwards. I mean that knowledge renders the model almost completely useless.


ag what kind of Micro econ professor are you?

[Politico]

Much of that article is over-the-top and not particularly helpful as previously noted by other posters.

The primary lesson from the Financial Crisis is that it is always best to neither rely exclusively upon quantitative analysis nor qualitative analysis. There has been a tendency to over-rely upon the former, especially at the expense of the latter. Furthermore, far too many macroeconomists are hasty to dismiss microfoundations.

Anybody who did even the most rudimentary qualitative analysis saw the housing bubble bursting, especially after they started to scratch the surface behind what was driving the activity. I personally know people who know little about economics who saw it coming, although they obviously could not be expected to know the full ramifications upon the aggregate economy. That is the job of macroeconomists, and by large and large they failed spectacularly. It is rather embarrassing that so many macroeconomists either did not see the bursting of the bubble coming, or did not understand the full ramifications it would have upon aggregate activities. However, economics is like any other discipline: There are numerous areas of expertise. Just because macroeconomists have a mark on their record does not mean that all economists share in that shame, or should even take part of the blame.

"But real estate is going to go up 8% a year because the population keeps growing and God isn't making any more land."

almost as bad as,

"But new developments in technology, software, and real time inventory control is making significant stock market crashes obsolete"


You do have to give the guys a break though even Buffett admitted that he kind of believed that first ^^^^ statement up until the crash. Hell the justification even made its way on to a Sopranos episode.

I saw that episode of The Sopranos about a year ago. Rather amusing in hindsight, but I am sure at least a few people got their asses burnt for buying into all of reinforcements out there at the time. Looking back, it was even more surreal than it seemed at the time.

[tpfkaw]

Yeah, I mean, I, as a kid, remember talking to my parents about when the housing bubble would burst in '05 (yes, ass-burgers up the wazoo).  And it was pretty clear by mid-'07 that the proverbial sh**t was about to hit the fan in the banking industry.