Monday, October 12, 2015

Lazy econ critiques


Hey, you know, I like a good econ critique as well as the next person. Goodness knows, econ needs some critiquing. The profession is still too soft on wanky (i.e. useless or untestable) theory, still sloppy with the evidence, still focused too much on macro, still too enamored with libertarian ideas, and still too accepting of sexism. But compared to a lot of fields out there, econ is really on an upward trajectory. Theoretical particle physics is in the process of abandoning empiricism for wanky string theory, psych has a huge reproducibility crisis, anthropology has degenerated into leftist activism, and sociology appears to be in danger of following. Compared to those guys, econ looks like it's in pretty good shape, with much better data, more of an applied micro focus, and rapid innovation in empirical methodology.

BUT, it's Econ Nobel season, and so someone needs to do the job of standing up and repeating all the old disses. This year, it's Joris Luyendijk in The Guardian. Here are a few of the tired old chestnuts that we see trotted out from time to time (chestnuts can trot because they're horse chestnuts, so shush).


1. "Econ isn't a real science."

Luyendijk:
And yet on Monday the glorification of economics as a scientific field on a par with physics, chemistry and medicine will continue. 
The problem is not so much that there is a Nobel prize in economics, but that there are no equivalent prizes in psychology, sociology, anthropology. Economics, this seems to say, is not a social science but an exact one, like physics or chemistry – a distinction that not only encourages hubris among economists but also changes the way we think about the economy.
Are the Nobels glorifying peace and literature, and setting these fields up as "on a par" with the natural sciences? If so, it's just one more reason why Nobel prizes are silly. If not, then shush.

Sure, econ is (mostly) empirical instead of experimental. It relies mostly on real-world data and natural experiments instead of laboratories. So what? The same is true of ecology and astronomy. I don't see people writing articles every year saying that these aren't real sciences and shouldn't get big gold medals.


2. "Social science isn't science."

Luyendijk:
A Nobel prize in economics implies that the human world operates much like the physical world: that it can be described and understood in neutral terms, and that it lends itself to modelling, like chemical reactions or the movement of the stars. It creates the impression that economists are not in the business of constructing inherently imperfect theories, but of discovering timeless truths.
Um...almost all theories in all disciplines are imperfect. Newton's Laws don't describe all motion. The Germ Theory of Disease doesn't describe all disease. Our understanding of almost any subject is incomplete, and our leading ideas flawed.

And where is this law of the Universe that says that the human world can't be modeled like the world of particles or the world of cells and DNA? Does anyone have evidence to back up that contention? How the heck do you know that human behavior doesn't lend itself to modeling? If humans are so unpredictable, tell me why Google auctions get so much money from advertisers, or how economists can predict how many people will ride a train before the train is built. If you think social science can never be science, explain to me why these successes were possible.


3. "Economics caused the financial crisis."

Luyendijk:
To illustrate just how dangerous that kind of belief can be, one only need to consider the fate of Long-Term Capital Management, a hedge fund set up by, among others, the economists Myron Scholes and Robert Merton in 1994...Markets, it seemed, didn’t always behave like scientific models. 
In the decade that followed, the same over-confidence in the power and wisdom of financial models bred a disastrous culture of complacency, ending in the 2008 crash. Why should bankers ask themselves if a lucrative new complex financial product is safe when the models tell them it is? Why give regulators real power when models can do their work for them?
Someone doesn't know the difference between econ and financial engineering! The kind of neoclassical econ, based on rational agents and utility maximization, that gets so much grief on the blogs was not even involved in the models that brought down the financial system. Financial engineering is more applied math than econ - no assumptions of individual rationality, just a bunch of assumptions about statistical relationships. Yes, an unjustified belief in market efficiency helped people get complacent and ignore the gathering risks. No, economists were not the only, or even the loudest, voices telling people not to worry.


4. "Econ uses too much math."

Luyendijk:
Over the past decades mainstream economics in universities has become increasingly mathematical, focusing on complex statistical analyses and modelling to the detriment of the observation of reality.
Complex statistical analyses, eh? What do you think they are analyzing? Data. And what is data? Systematic observation of reality.


5. "Economics tries too hard to be value-neutral. In fact, it's always ideological."

Luyendijk:
Perhaps the most pernicious effect of the status of economics in public life has been the hegemony of technocratic thinking. Political questions about how to run society have come to be framed as technical issues, fatally diminishing politics as the arena where society debates means and ends. Take a crucial concept such as gross domestic product. As Ha-Joon Chang makes clear in 23 Things They Don’t Tell You About Capitalism, the choices about what not to include in GDP (household work, to name one) are highly ideological. 
So everything economists do is ideological, and instead of trying to pretend to be objective, economists should embrace the ideological nature of their discipline and try to have an ideology of Good instead of one of Evil. How many times have I heard this one?

There's just a small problem with that. If you embrace ideology, people won't take your ideas seriously unless they buy into the same ideology. If you discard objectivity in favor of activism, people will know that you are not an honest broker of ideas and evidence. 

Sure, it's impossible to eliminate all ideology from science (any science!), but you should at least try. 

Luyendijk:
The same applies to inflation, since there is nothing neutral about the decision not to give greater weight to the explosion in housing and stock market prices when calculating inflation.
Lujendijk, you don't have any idea what that even means. You want to say that the value of your retirement portfolio going up is the same as the price of milk going up at the grocery store?? Seriously?? Or did you just hear from someone that QE was causing "asset price inflation", and that this was Dangerous and Bad, and so you decided to toss that out there??

Before you criticize technocracy for hiding its politics, you should at least have a working understanding of what those politics are


Anyway, this litany of critiques, repeated ad infinitum since the crisis, strikes me as mostly pretty lazy. There are good critiques out there. These are not they. 

That said, I like Luyendijk's idea of adding a general social science prize to the Nobel roster. Nobels are silly anyway, so why not have one for every field? While we're at it, how about one in math and computer science, and one in psych/neuro/cognitive science? And one in visual arts? And one in writing snarky point-by-point rebuttals in blog posts?

62 comments:

  1. Anonymous1:05 AM

    "...did you just hear from someone that QE was causing "asset price inflation", and that this was Dangerous and Bad, and so you decided to toss that out there?? "

    From Cecchetti, S G, H Genberg, J Lipsky and S Wadhwani (2000): "Asset prices and central bank policy" Geneva Reports on the World Economy :

    " A central bank concerned with both hitting an inflation target at a given time horizon, and achieving as smooth a path as possible for inflation, is likely to achieve superior
    performance by adjusting its policy instruments not only to inflation (or its inflation
    forecast) and the output gap, but to asset prices as well. Typically modifying the policy
    framework in this way could also reduce output volatility. We emphasize that this
    conclusion is based on our view that reacting to asset prices in the normal course of
    policymaking will reduce the likelihood of asset price bubbles forming, thus reducing the risk of boom-bust investment cycles."

    Lots of other real , live economists have expressed similar opinions , and , like Cecchetti above , many did so before the housing bubble.

    I don't know what to say about your weak critiques. They strike me as mostly pretty lazy. There are good critiques out there. These are not they.

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    1. This response is a literal example of "...did you just hear from someone that QE was causing "asset price inflation", and that this was Dangerous and Bad, and so you decided to toss that out there??"


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    2. HAHAHA, nice, A.

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    3. Isn't the point that while the price of milk has been stable, the price of housing (in the UK, where I live) hasn't been. As such I am unable to buy a house, which has a negative impact on my life. Whether you decide to include housing in your inflation measuring basket is a political decision, because it reflects the things policymakers care about and the type of people they choose to care about (i.e. home owners vs. prospective buyers).

      (I admit to being baffled at your supposed bafflement at this. I understand perfectly well what this bloke is saying, but I don't understand why you think his point is laughable).

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    4. Inflation is supposed to measure the price of a consumption basket. When you buy a house, part of that is consumption, and part is purchase of a financial asset (saving). Inflation statistics try to separate out the consumption part, i.e. the cost of living in a house, which is why they include Owners' Equivalent Rent: http://www.bls.gov/cpi/cpifacnewrent.pdf

      But more importantly, calculating an inflation measure isn't inherently ideological. I don't buy that at all. Targeting that inflation measure as a matter of policy is partly ideological. The Fed could target house prices if it (and Congress) wanted to. It could target some weighted sum of house prices and the CPI. Calculating the CPI the way we do does not prevent the Fed from including house prices in its policy target. No way, no how.

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    5. I'm still not convinced. Isn't that just pushing the question back to: 'why do policy makers accept that people use their houses as vehicles for savings, when this leads to massive house price inflation, to the detriment of prospective buyers?'

      I also don't agree with your implication that there exists some Platonic ideal (but non-ideological!) measure of inflation, to which all actually-existing measures are crude but good-enough approximations. In any society of people with heterogenous tastes there are going to be people who think it's more important that certain things remain price-stable, or rise in price, or fall in price. Any actually-existing inflation measure is going to make compromises that will benefit/disbenefit different groups of people.

      While I understand why economists get annoyed at the endless and inevitable stream of itsnotarealnobelprizeyouknow and sub-Steve Keen-esque browbeating that comes along at this time of year, I do understand entirely why these articles appear: economics is always going to be political. That doesn't mean it's not going to be technical (quite the opposite), but it does mean that people are going to think you're trolling if you *insist* economics can exist as an objective, wholly un-ideologically inflected discipline (which I'm sure you don't, personally :)).

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    6. Isn't that just pushing the question back to: 'why do policy makers accept that people use their houses as vehicles for savings, when this leads to massive house price inflation, to the detriment of prospective buyers?'

      Yes, absolutely! Policy making is always value-driven, data gathering is not necessarily (and I'd argue, relatively rarely) value-driven.

      I also don't agree with your implication that there exists some Platonic ideal (but non-ideological!) measure of inflation, to which all actually-existing measures are crude but good-enough approximations.

      I don't think there is. Nor do the people who make inflation statistics! They have a whole bunch of alternative measures, for example core (excluding food and energy) vs. non-core.

      Any actually-existing inflation measure is going to make compromises that will benefit/disbenefit different groups of people.

      Only if policymakers choose that measure as a target!

      economics is always going to be political. That doesn't mean it's not going to be technical (quite the opposite), but it does mean that people are going to think you're trolling if you *insist* economics can exist as an objective, wholly un-ideologically inflected discipline (which I'm sure you don't, personally :)).

      The question is whether economists ought to try to be as objective and apolitical as possible.

      I think they should.

      Others argue that since they will never succeed 100% at being objective and apolitical, they should embrace politicization and try to make sure their politics are the right politics. I think that's a bad idea.

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    7. The whole "inflation is ideological" to me seems to completely miss the point. In that case everything can be is ideological: for instance measuring somebody's height not including his shoes may not necessarily tell you if he will bang his head on doors. Silly height ideologues causing a lot of head bumps, if only they knew..

      The same with GDP. GDP is measure of money people spent on newly produced goods and services (money earned by selling newly produced goods and services). It therefore logically excludes things exchanged in barter or sales of things that were produced 100 years ago (except the service of intermediation).

      GDP is just a measure. Now some people may say that GDP is a good indicator of well-being. But then you just have to show if there is any relation between high GDP and and high well-being in the same way that high people may be more prone to bang their heads on doors.

      PS: I feel really stupid just having to write these things. Is it not absolutely obvious?

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  2. Anonymous2:37 AM

    You are right economic theory is wank. It is just made-up nonsense. It has no ontological or epistemological basis at all. What Sargent, Romer and Fama have created is wank. What the top monetary economists are doing is wank.

    I use the British English meaning of this word, and not the American.

    And there is no better word for it.



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  3. Anonymous3:09 AM

    How much of economics is exactly science and how much is politics? Secondly, in how far is human behaviour static (can you model it?) Because I tend to think we might have a chose in how we behave or not which makes matters complex. "If you embrace ideology, people won't take your ideas seriously unless they buy into the same ideology." So you think ideas based on the behaviour of human beeings can be detached from ideology? Ideology does not influence how we behave? If it does only a little bit we already have a problem in regards to social science. Maybe I am just ignorant which could be true. I am open for enlightment.

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    2. "Secondly, in how far is human behaviour static (can you model it?) Because I tend to think we might have a chose in how we behave or not which makes matters complex."

      This is a common sense idea, but it might be wrong.

      First of all, I think the evidence so far indicates that we don't have free will (see Soon et al, 2008), which makes sense: we're made of largely deterministic matter (I say largely because of quantum indeterminancy, if it exists (see Everett)). But even if we do, perhaps the behavior of individuals isn't very important in the study of aggregate behaviors (like macro economics). Maybe it's sufficient to model our individual behavior as if it was random. Here's what I would consider to be a non-lazy investigation of that very idea as applied to economics (it's the result of about 2 years of work by the author).

      By chance, when I went to the author's blog to find that link above, I noticed that he has a new post addressing Noah's post here.

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    3. The 1st link I provided above is wrong, it should have been to this paper:
      http://arxiv.org/abs/1510.02435

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    4. Anonymous3:45 AM

      Thank you mr Brown. "First of all, I think the evidence so far indicates that we don't have free will." This I think is really the essence. Correct me if I am wrong but are you suggesting that human beeings are in a sense deterministic? And yes macro economic might in the right circumstances be objective.

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  4. Anonymous3:23 AM

    What he is saying in all these points, but especially 3 and 4 is really that economics does not have a solid empirical foundation. That is it has not justified its existence on the basis of knowable reality - ontology and epistemology. Yes it looks at data. But really to properly analyse what multiple decades of data means you need an accompanying book which just outlines the historical record (not an easy exercise and if done properly, it MUST be abstraction and model free - that purely documents the historical events). Then you introduce the social and other historical context.

    Once this is done then we can talk about models and theories. But this is not the most important part of the exercise.

    This is more what a proper science looks like. There are some good works post 1960. For sure Friedman 1967 (A Monetary History) and Piketty 2014 are such examples. But this is not representative of how most economists work today.

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  5. I cannot believe anybody is still trying to defend criticism of the economics profession, but Noah Smith does give it a go.

    The fact that asset prices are not in any inflation index is of course one of the reasons we had 2008.

    What happens in 2015? No inflation index includes asset prices. However, QE is pumping asset prices up. Therefore asset price inflation good, other inflation bad.

    Why? Because asset price inflation helps the rich, and other inflation helps the poor (deflating the real value of their debts!)

    The main other point, which Luyendijk makes is that there is no field study which really analysis how stuff works in economic. That is a very valid criticism.. It's all theory, no applied economics in real life!

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    1. Anonymous7:51 AM

      Imagine the thought process and smugness that went behind writing this comment.

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    2. Anonymous7:58 AM

      Anonymous (7:51),

      Indeed. Your comment is the epitome of lack of thought and smugness.

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    3. Anonymous8:19 AM

      That would only be the case if I dismissed the entire econ profession, kinda like your buddy who made the original comment.

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    4. I am not dismissing the economic practitioners, I am taking issue with the dismissal of criticism, when it is blatantly obvious that one of the reasons for the biggest financial crash since the thirties is the way inflation is calculated. For example.

      This is not even controversial any more, in fact ex Central Bankers like Axel Weber have called for a review of how inflation is calculated.

      There is no field study, or is there? Governments make economic decisions all the time. How much economic analysis goes into their decision, for example. Where do they get their advice from, do they adhere to it, do governments dismiss it?


      That would be useful contributions to economics, instead of trying to defend the indefensible. What is smug about that?

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    5. Anonymous11:52 AM

      "one of the reasons for the biggest financial crash since the thirties is the way inflation is calculated."

      In what way?

      "This is not even controversial any more, in fact ex Central Bankers like Axel Weber have called for a review of how inflation is calculated."

      There already are numerous inflation metrics beyond just CPI, look them up.

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    6. "There already are numerous inflation metrics beyond just CPI, look them up."

      I do not need to look them up, the Bank of England or CEB, or Fed needs to target them. What is so difficult to understand.

      The guy who used to be in charge of the Bundesbank said as much! And economists should take note.

      How difficult is it to include property prices in the inflation index? Which are completely ignored at the moment.

      2008 would not have happened, if we had!

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    7. This is just silliness. The consumer price inflation index is a measure of (big surprise) consumer prices. If you throw in a bunch of asset prices into it, you will no longer have a CPI.

      I think what you mean to be arguing is that central banks should take asset price inflation into some account as a sign of overheating and likely misallocation, which I agree with. Formally targeting stable equity prices seems just a little bit barking, though.

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    8. If the Bank of England targetted an aggregate CPI + asset prices index, firstly there would be no way that the target would remain at 2%. Secondly, there would be the temptation to react to an asset price bubble by triggering deflationary policies that affect consumer goods and services - a process that would be disastrous. You can't 'balance out' a housing bubble with a deflationary death spiral. It's a separate issue.

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  6. So, what has been going on in recent years to some extent is that economics has become the "Social Science" prize, with some non-economists such as Kahnemann and Ostrom getting it, much to the annoyance of many more orthodox economists. I see no problem with this.

    Regarding the huffing and puffing about "science," well, we all know that social sciences are not as "hard" as portions of physics, chemistry, and biology, and maybe Luyendijk has a point on that one. But then he wants a general "social sciences" prize. Really? I do not have a problem with replacing "Economic Science" with just "Economics" in the name of the prize or just "Social Studies." But if one wants a prize in "Social Sciences" they had better not complain about how economics is being treated as a science. It is certainly at least as scientific as anthropology and sociology, not to mention "political science," which I gather is Luyendijk's discipline.

    In that regard a funny observation I have from all the old discussions about complexity is that when people discussed how complexity economics was drawing in influences from other disciplines, ranging from physics to psychology and so on, these lists would usually include even sociology and anthropology. The funny thing was that the one discipline I never heard anybody suggest was providing interesting or potential input into economics in that regard was poli sci. About all I can see in poli sci that is useful has been strongly influenced or is close to economics, political economy, with Ostrom indeed deserving her Nobel, and I would not sneeze if somebody like Robert Putnam were to get it (and he might), although he also takes heavily from economics as well as sociology, a real social scientist. He has long argued that game theory is where economics and political theory really converge.

    Oh, and as for "wank," that is kind of amusing, but I think that anonymous may have made that one up, although maybe it is in use these days in British pubs. I do not know. As it is whether he just made it up or it exists, this is turning a verb into a noun. "To wank" has a very specific meaning, and a "wanker" is someone who wanks a lot. How "wank" becomes a noun from that is a bit of a stretch, although it is kind of amusing, if essentially meaningless (other than to imply that something is meaningless with a snark added, I guess).

    Barkley Rosser

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    1. Anonymous6:42 AM

      I can confirm that in the UK, it's in common usage. Eg "£1000 pcm for a 2 bed flat?? That's wank!!"

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    2. You can have a wank. It's a noun

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    3. Anonymous11:05 AM

      Have a wank means to masturbate. Just put the word into google. It is very common in English-English and Australian English. It is a metaphor for people who do not do the real thing. If people say that 'economics is a wank', it means it is intellectual masturbation.

      I wonder if this referring to people who mess around with DSGE models?

      Anyway, hope its clear now.

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    4. Anonymous2:36 PM

      Noah Smith uses the word 'wanky' a lot. That is the adjectival form of 'a wank' the noun and 'to wank' the verb.

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    5. Thaks to several for verifying that "wank" is indeed a word in wide use with the obvious meaning.

      I made an error regarding Luyendijk. He is a journalist and not the person I thought he was, who is Bo Rothstein, a member of the Swedish Royal Academy and a political scientist academically. He had called just recently for a moratorium on giving out Nobels in economics on the grounds that economics is not a science (as if poli sci is). Anyway, I find it ironic that this thread has a lot of arguing about price indices, with the prize being given to someone (Deaton) who has done a lot of research on precisely this issue and how these are used to measure economic welfare.

      JBR

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    6. Anonymous8:15 PM

      JBR there is a long way to go, but Deaton is a step in the right direction. He is aware of the weaknesses and limitations of economic theory and is not arrogant about it. He is an empiricist, understands that we are dealing with heterogeneity and regards representative agent theory as dangerous. My only quibble would be that he could also be a bit more wary of the limitations of econometrics. The Nobel Committee makes small steps, sometimes a few steps back as with Fama and Sargent, but this is moving in the right direction. You are right about Political Science, but it does not pretend to be a science ala the hard sciences. 101s in that subject study several theories, rational choice and game theory being only one of them. They study Marxism and Realism as well, at the very least. Most likely Post Modernism and Social Constructivism too. They discuss the limitations of mathematics and positivist approaches.

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  7. Anonymous4:00 AM

    The best thing in this post? The reference to Joris Luyendijk.

    I had never read him, but after Noah's bad reference, I decided to check for myself. And I found that Luyendijk used to write a very interesting blog on the sociology and anthropology of bankers:

    http://www.theguardian.com/commentisfree/joris-luyendijk-banking-blog/2013/oct/01/10-best-quotes-financial-insiders-banking-blog

    Pretty cool.

    Thanks, Noah

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    1. Is that you Joris?

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    2. Anonymous2:19 PM

      No, that's not me, Noah

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  8. "Financial engineering is more applied math than econ"
    It was applied arbitrage and salesmanship more than anything else. The math part was just the icing, making it look like a cake.

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    1. That's how it works at banks. Those methods can be very useful, however.

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  9. Anonymous6:52 AM

    Newton's laws are valid for everyday scale but lose validity on very small/large scales. They stood for 200 years. How long does an average econ theory hold? Is rational expectations still valid? How about rationality itself? Here's a fun question: how big a sample size you need to disprove an economic assumption?

    Mr Luyendijk made a great point. If you're an economist historian, you're probably out of a job. This is really sad.

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  10. "If so, it's just one more reason why Nobel prizes are silly."
    -Bingo. The peace and lit prizes mean nothing these days. As A. Karlin pointed out, the latest lit prize recipient was chosen 120% for political reasons. Peace was also given to President not-Bush (future President ISIS).
    "and still too accepting of sexism"
    -I'm assuming that last part's a joke.

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  11. If there is a difference in terms of inflation between the price of milk and the price of assets in a retirement portfolio, it's mostly political. In general, I agree with Luyendijk.

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    1. Yes, there is a huge difference based on what you want to achieve. For instance if you want to have a measure that captures increases in costs of living so that pensioners retain their life standard - then measuring consumption (especially consumption relevant for pensioners such as healthcare services) is more important than let's say price of investment wines or bars of gold.

      A question may be political (how do we keep the standard of living of elderly), but the answer "measure price of things elderly purchase" definitely is not political.

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  12. I actually groaned when I read the title of the Guardian article but found the content wasn't too bad. I think you're unfair in many places, e.g.:

    3. Is not just about finance. Macroeconomics as whole, including the models/frameworks used by central banks and regulators, failed to anticipate or understand the crisis.

    The point about not measuring asset prices in inflation is also quite pertinent to the crisis and you don't do it justice

    5. Is a straw man. He's not saying 'be ideological'; he's saying 'don't exclude the value judgements embedded in your models'

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    1. Anonymous12:04 PM

      And now we hear from the worst of the cesspool called the economics blogosphere. Go play in a toilet.

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    2. Looks like someone put on his grumpy-pants this morning! Turn that frown around! :-)

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    3. Forgot to mention, econ also has a huge replication problem!

      http://t.co/zMPdEqfmt7

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  13. Ideology drives economics but the problem is that its too political. If you are a physicist who is ideologically driven to advance some other competing theories, this is wholly different than someone who is driven by political vision. The point is that ideology in physics is directly relevant to the theories, you have an ideology to push a theory, not one to push a narrative.

    Also did you just say economics is sexist?... talk about lazy critiques... or ideological pushes, take your pick.
    The more of a journalist you become the more you see sexism.

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  14. Good post. My favorite sentence is this one:

    "It creates the impression that economists are not in the business of constructing inherently imperfect theories, but of discovering timeless truths."

    As you note, all science is "inherently imperfect." Indeed, so is all human activity. This sentence tells us nothing about economics, but speaks volumes about its author. It "creates the impression" that economics is dishonest, as if the author's unwillingness to understand what the profession is about is somehow grounds for suspicion. Yuck.

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  15. I think the prize going to Deaton was the best retort, but yours is pretty good.

    You could cut closer to the bone on #5. Two out of the three examples he gives of supposedly ideologically motivated decisions in national accounting (excluding domestic work one does for one's own household from GDP, excluding home sales from consumer price inflation) were motivated by simple pragmatics not ideology. The third (excluding equity from CPI) is simple logic (it's not consumption).

    It's simply much more convenient to take rents as a proxy for average housing costs for homeowners and renters than to try to come up with some way to translate home sales prices into an index of average housing costs for homeowners. Using rents as a proxy of housing costs for homeowners probably exaggerates the extent to which housing costs rise for homeowners when home sales prices rise (the opposite of what those who complain about the practice usually assume).

    As for domestic work for one's own household, it's excluded from GDP because it's uncompensated, and not for any ideological reason. On the contrary, ideological motivations were behind the decision to include in GDP a limited set of domestic work for one's own household: maintenance of one's own home and notional "profit" relative to renting from home ownership. These were added to GDP so that increasing home ownership would not be a negative factor in GDP (since maintenance work on and profit on residential rental buildings are included in GDP). The problem with doing that is it adds an arbitrary, practically meaningless factor to GDP growth. (Did the productivity of homeowning improve? What would that even mean? But our GDP data puts a number on it.)

    The only reasons to count more uncompensated work for one's one household in GDP are ideological. There is no practical purpose to attaching notional values to uncompensated work. Do you really want GDP statisticians estimating how much the productivity of home cooking improved this year?

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  16. This is hilarious. Econ is superior to Psych, because they have a problem with replication? Too funny. Yes, econ does not have a problem with replication, since nobody does any.

    I'm pretty sure majority of empirical econ and finance work is just noise.

    But wait, Econ has advanced econometrics to save it! Simply comedy.

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  17. What this mostly tells me is that Noah has not read any anthropology or sociology.

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    1. Anonymous12:53 PM

      Ya think? (Of course, to get anything out of those subjects he'd actually have to think out side his box. Every so often it seems he can, but then we get these kinds of posts.)

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  18. Anonymous3:10 AM

    "Someone doesn't know the difference between econ and financial engineering! etc"

    You're way off beam here Noah. It's all part of the same mindset.

    And most of your other criticism's are way offline also.

    While most of Luyendijk's criticisms now have the status of platitudes, they are mostly valid.

    Henry

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    1. Economists supported the deregulation of the financial markets in the 1990s which ultimately led to the financial crisis. In that sense economics contributed in a large way to the financial crisis.

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  19. What I find so disgusting about these criticisms is that they feel like Luyendijk found some of his political enemies hiding out in the house of econ but since he (or his cronies) have a right to hunt down those dastardly varmints without any unfair burden like having to learn some economics he's going to burn the whole damn house down rather than learning something and dragging his enemies into the light.

    I mean 1 & 2 are basically just whining that someone has pulled in pesky factual questions (what effect will raising the minimum wage have in these circumstances) into the constant war to show our political foes are amoral selfish bastards. How dare hard empirical questions interfere with moral condemnation of my foes.

    Even if you thought that modern economics was no better at predicting market forces than astrology you can't deny that the underlying phenomenon (people buying selling working) is very real and observable. If modern economics really was in such shambles you should be crying out for a nobel prize in economics (just awarded differently) to motivate a better theory. Even if you had strong reasons to suspect that no useful economic theory could be formulated a compelling case for that claim would itself be a useful result about economic behavior supported by convincing evidence (and itself be a noble worthy result in economics).

    While economists have been guilty of needless mathematical formalism merely for it's signaling value trying to dismiss the whole subject because it uses hard math sounds more like something a hungover college student would say on his way to class Monday morning than something a serious journalist would allege.

    Most revealing, however, is the 4th complaint about the definition of terms like inflation and GDP. It is here that Luyendijk reveals he couldn't give a rat's ass about the academic discipline of economics; he is just mad that the public has attached significance to terms like inflation or GDP and those pesky economists are using these terms in a way that offers a modicum of protection to his enemies.

    Someone who was more focused on the science instead of it's rhetorical fallout would immediately realize that there isn't even a fact of the matter about what is and isn't inflation or GDP. They are terms one DEFINES to help us formulate theories in a concise manner. If you passed a law forcing economists to include your assets in their measurements of inflation everyone would just shift to theories relating "inflation minus the effect of asset prices" to other economic variables. It's patently obvious that economists are perfectly willing to use all sorts of economic measurements in theory, not ignoring them because of some ideologically driven definition.

    However, it's the last point (as well as the tone of the article) that really gives up the goat. Luyendijk is comfortable with the rhetoric of moral disapproval and arguing for the perifidy of his enemies. How dare economics, with all that hard math he doesn't understand, stick it's head into his domain with it's facts and right answers. Obviously, public policy questions should be decided by the kind of emotional moral rhetoric he is skilled at and we should be outraged that anyone dares hide behind economic claims and demands we use scientific argument and empirical evidence to root them out.

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  20. Anonymous11:13 AM

    just making sure my former post was ignored and not just filtered away

    -john-

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  21. Re Inflation: It does seem to me that at the policy level we see passionate arguments over the difference between 0% inflation and 2% inflation. I suspect that we do not have a common understanding or a measure of inflation accurate to withing plus or minus 2%.

    If the price of housing in England goes up because a bunch of wealthy Russians want to crowd into London - is that really "inflation"? If the price of farm land, or food, goes up because the world population is growing and we are competing for ever scarcer resources, is that "inflation"?

    Plus, of course, there are the small problems of adjusting for the benefits of increased choice or quality.

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  22. Anonymous2:31 AM

    I think it is David Glasner who has finally nailed this:

    http://uneasymoney.com/2015/10/12/representative-agents-homunculi-and-faith-based-macroeconomics/

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  23. Anonymous5:50 PM

    I find it sort of nauseating when people 'critiquing' Econ through the lens of 'literary criticism' never bother opening a textbook or surveying any of the literature. Basically a whole lot of 'critiques' based on other 'critiques' and a belief that if enough number of people say so, it will be so.
    What's worse is, if you call them out on this, they'll take it as confirmation that you're a paid corporate gun or brainwashed by the 'Neoliberal'(whatever that means) Illuminati or something. It's a lot like climate change or evolution denial, but something that is seen as far more legitimate across the political spectrum and especially on college campuses.

    http://www.slate.com/articles/business/the_dismal_science/1996/10/economic_culture_wars.single.html

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  24. This whole text is a bit disturbing and raises some concerns. Why on earth wpould anybody want to reach for the moon?

    "Sure, it's impossible to eliminate all ideology from science (any science!), but you should at least try. "

    Well, I'm sorry to say this, but no. You don't go after the impossible in science. In economics you might do it, but that's what makes economics such a silly project.

    What you can do however is to acknowledge the fact that you can't get rid of myths, values and illusions in economics. But that's just not how modern economist see their science. They do just as you do, they try to argue that subjective philosophies can be translated into objective ones if we just try hard enough.

    "Anyway, this litany of critiques, repeated ad infinitum since the crisis, strikes me as mostly pretty lazy. "

    I only listen to economist who acknowledge the fact that economy is not a hard science. You know why? Because they are not as much lost as you are. You call a perfectly good critique "lazy" yet you agree with its premises - mainly that objectivity can never be reached. But still you stick up with objectivity rather than discard it. Why you do that?

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    1. Anonymous9:03 PM

      You're clearly confused in between aiming for an ideal and what happens in practice. With due respect, if you actually *did* study the natural sciences, you'd probably understand that objectivity is an ideal- which while unattainable, is an ideal that every single empirical science feels is necessary.
      Why? Because otherwise we'd basically be sitting around coffee tables and telling each other, 'That's just like your opinion, man.'
      Good luck developing life-saving drugs with that kind of thinking!

      Also, how *would* you do economics instead? When you make policy based on a 'Critical Theory Economics', how do you compare one policy measure to another without committing to some objectivity?
      We routinely hear a lot of postmodern hate being poured on the subject, but rarely do we hear postmodern critics offer anything close to a solution.
      Just saying.

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