Unsolved problems in economics(en.wikipedia.org)
en.wikipedia.org
Unsolved problems in economics
https://en.wikipedia.org/wiki/List_of_unsolved_problems_in_economics
245 comments
I posted the Wikipedia article hoping you and others like you would fill out what is an obviously incomplete list.
I have tried adding edits, many that I thought would have been beneficial as being part of that particular industry / having intimate knowledge of a topic; only to be rejected by some moderator that could not bother to understand the topic.
It's infuriating. I've stopped trying to contribute.
It's infuriating. I've stopped trying to contribute.
> only to be rejected by some moderator that could not bother to understand the topic
This is a tired trope, and it shows you're the one who can't be bothered to understand Wikipedia. Wikipedia is basically an anarchy (most of the time...), meaning that it's unlikely that the person who "rejected" your changes had elevated privileges, it was probably just another editor like you. Incompetent and/or malicious admins do exist on Wikipedia, but its much less likely you encountered one of those as opposed to just a regular user who disagreed with your change.
I'm neither a fan nor a Wikipedia apologist (WP has loads of issues), just trying to explain some basics.
BTW, I assumed you meant "Wikipedia admin" when you said "moderator"; real moderators (Wikimedia employees) do exist, but they're even less likely to encounter.
On the other hand, you say:
> having intimate knowledge of a topic
These kinds of edits sometimes get reverted on Wikipedia, and rightly so. I'm sure you understand that anyone can pretend to have "intimate knowledge of a topic", ideally edits should be backed with good references/sources instead of the editor's (unverifiable) knowledge.
This is a tired trope, and it shows you're the one who can't be bothered to understand Wikipedia. Wikipedia is basically an anarchy (most of the time...), meaning that it's unlikely that the person who "rejected" your changes had elevated privileges, it was probably just another editor like you. Incompetent and/or malicious admins do exist on Wikipedia, but its much less likely you encountered one of those as opposed to just a regular user who disagreed with your change.
I'm neither a fan nor a Wikipedia apologist (WP has loads of issues), just trying to explain some basics.
BTW, I assumed you meant "Wikipedia admin" when you said "moderator"; real moderators (Wikimedia employees) do exist, but they're even less likely to encounter.
On the other hand, you say:
> having intimate knowledge of a topic
These kinds of edits sometimes get reverted on Wikipedia, and rightly so. I'm sure you understand that anyone can pretend to have "intimate knowledge of a topic", ideally edits should be backed with good references/sources instead of the editor's (unverifiable) knowledge.
The de facto reality of how wikipedia operates is that certain people own certain topics, usually with an agenda in mind. If you try to push back they call in their friends and shout you down. The actual merits of the edits are irrelevant. The anarchy stuff is just marketing nonsense.
I basically agree with you, except for your last sentence:
> The anarchy stuff is just marketing nonsense.
With this sentence you're implying that Wikipedians want the public to believe that Wikipedia is anarchic, but this is incorrect, see: https://en.wikipedia.org/wiki/Wikipedia:What_Wikipedia_is_no...
The link is a Wikipedia policy, so pretty much as official as it gets. The sad truth is that Wikipedia policies, guidelines, etc are mostly irrelevant to the functioning of Wikipedia.
The real de facto reality of how Wikipedia operates is that it's a complicated system with most decisions being made being local to only a single or a few articles. Furthermore, nothing is set in stone at Wikipedia, be it content or policy, they all change with the whims of the editors currently active at the relevant place and time. Which is also why policy is mostly powerless.
> The anarchy stuff is just marketing nonsense.
With this sentence you're implying that Wikipedians want the public to believe that Wikipedia is anarchic, but this is incorrect, see: https://en.wikipedia.org/wiki/Wikipedia:What_Wikipedia_is_no...
The link is a Wikipedia policy, so pretty much as official as it gets. The sad truth is that Wikipedia policies, guidelines, etc are mostly irrelevant to the functioning of Wikipedia.
The real de facto reality of how Wikipedia operates is that it's a complicated system with most decisions being made being local to only a single or a few articles. Furthermore, nothing is set in stone at Wikipedia, be it content or policy, they all change with the whims of the editors currently active at the relevant place and time. Which is also why policy is mostly powerless.
Is that not anarchy though?
All of my contribution are always referenced and well sourced.
My references themselves (from impact factor 10+ journals) were attacked and the cause of rejection. I'm not pretending that I know more than someone else; I'm leading the audience toward where they can assess the data for themselves and make their own conclusion.
I do this by referencing high quality, peer-reviewed, reproducible research. I don't post opinion (on Wikipedia). I state facts corroborated by multiple sources.
My references themselves (from impact factor 10+ journals) were attacked and the cause of rejection. I'm not pretending that I know more than someone else; I'm leading the audience toward where they can assess the data for themselves and make their own conclusion.
I do this by referencing high quality, peer-reviewed, reproducible research. I don't post opinion (on Wikipedia). I state facts corroborated by multiple sources.
I have tried adding edits, many that I thought would have been beneficial as being part of that particular industry / having intimate knowledge of a topic; only to be rejected by some moderator that could not bother to understand the topic.
yup this is a common problem with Wikipedia.
yup this is a common problem with Wikipedia.
"It's infuriating. I've stopped trying to contribute."
You aren't the only one (albeit in my case, for more mundane/esoteric topics)
You aren't the only one (albeit in my case, for more mundane/esoteric topics)
If you mean filling it out on wikipedia they will have little to no hope unless they are accepted by the wikipedia editorial politiburo.
This is weird. I have made edits with a new account on articles and they were accepted.
Not very significant articles, maybe.
It's the same thing with stack overflow/exchange, in which good questions and answers not uncommonly get downvoted and or removed. I think there is an epidemic of petty academic tyrants. These are people who are objectively quite smart but maybe not as accomplished as they wished or hoped so they take out their frustrations on others in the only way they can have control in a world in which they are otherwise irrelevant and powerless. Universities , graduate departments churn out so many students relative to the supply of good paying jobs annually that not everyone will be able to achieve their idealization of career success. What I do know: the TED talk stuff will not work on these people.
Out of curiosity, how does one even begin to address such a question? Because it seems to me that the answer turns entirely on your choice of a quality metric, which is entirely subjective. If you are a consumer, you would come up with one answer, and if you are a shareholder you would come up with a different one. On what principled basis could one possibly resolve this?
Theory and data.
Both are hard, especially in the cases I listed.
With a good theory of (e.g.) platforms, you could likely identify a few different fundamental forces which may push in different directions. Hypothetical example: force X would benefit the platform at the expense of sellers, force Y would benefit the sellers at the expense of the platform. A priori it may not be possible in theory to put a magnitude on those effects: there may be nothing that would say "we can show that X > Y in every case."
This is where you need data. (This part is especially hard for platform markets!) You would need data on the platform side AND on the consumer side AND on the supplier side. You write down a model of (generally) consumer demand, supplier response and platform behavior (at least - probably taking a somewhat simplified approach to at least one of those sets of agents). With your estimates, you would try to answer the "Is X > Y?" question posed above.
You can also simulate the impacts of counterfactual policies, among other things.
Both are hard, especially in the cases I listed.
With a good theory of (e.g.) platforms, you could likely identify a few different fundamental forces which may push in different directions. Hypothetical example: force X would benefit the platform at the expense of sellers, force Y would benefit the sellers at the expense of the platform. A priori it may not be possible in theory to put a magnitude on those effects: there may be nothing that would say "we can show that X > Y in every case."
This is where you need data. (This part is especially hard for platform markets!) You would need data on the platform side AND on the consumer side AND on the supplier side. You write down a model of (generally) consumer demand, supplier response and platform behavior (at least - probably taking a somewhat simplified approach to at least one of those sets of agents). With your estimates, you would try to answer the "Is X > Y?" question posed above.
You can also simulate the impacts of counterfactual policies, among other things.
Thanks!
> This is where you need data.
More specifically, this is where you need data which does not and cannot exist. Specifically, an objective scale which would allow you to compare the cost or benefit of policy to the platform and the sellers. There is no such objective scale, because value is subjective and not comparable between different economic actors, or even for the same actor at different times. Any model which assigns numeric "estimates" for these costs and benefits so they can be compared is substituting the authors' own subjective valuations in place of those of those who will be affected by the policy.
More specifically, this is where you need data which does not and cannot exist. Specifically, an objective scale which would allow you to compare the cost or benefit of policy to the platform and the sellers. There is no such objective scale, because value is subjective and not comparable between different economic actors, or even for the same actor at different times. Any model which assigns numeric "estimates" for these costs and benefits so they can be compared is substituting the authors' own subjective valuations in place of those of those who will be affected by the policy.
> More specifically, this is where you need data which does not and cannot exist.
This is wrong. All important work in my field in the past 25 years has been empirical.
> Any model which assigns numeric "estimates" for these costs and benefits so they can be compared is substituting the authors' own subjective valuations in place of those of those who will be affected by the policy.
Very, very wrong. You’ll never get away with picking your own parameter values in modern empirical IO.
If you don’t know the field that’s fine. I probably don’t know your field either. But don’t make these overconfident and totally wrong claims about what’s done in a field you don’t know anything about.
This is wrong. All important work in my field in the past 25 years has been empirical.
> Any model which assigns numeric "estimates" for these costs and benefits so they can be compared is substituting the authors' own subjective valuations in place of those of those who will be affected by the policy.
Very, very wrong. You’ll never get away with picking your own parameter values in modern empirical IO.
If you don’t know the field that’s fine. I probably don’t know your field either. But don’t make these overconfident and totally wrong claims about what’s done in a field you don’t know anything about.
Not the OP. Designing a policy for minimization of dead weight loss in the economy (typically centered around consumer surplus), with preferential properties including time stability, enforceability, and fairness across implementees.
But "dead weight", "fairness", and the desirability of time stability (weighed against other considerations) are all judgement calls.
Deadweight loss is not a judgement call, it's an actual calculable amount, effectively the loss of productivity due to the tax. https://en.wikipedia.org/wiki/Deadweight_loss
The first sentence in the article is: "Deadweight loss ... is a measure of lost economic efficiency when the socially optimal quantity of a good or a service is not produced."
But there is no link for "socially optimal", and the phrase appears nowhere else in the article, so this definition is incomplete at best and vacuous at worst because its meaning turns entirely on the meaning of "socially optimal" but I can't think of any reasonable way to define it that is not a judgement call.
But there is no link for "socially optimal", and the phrase appears nowhere else in the article, so this definition is incomplete at best and vacuous at worst because its meaning turns entirely on the meaning of "socially optimal" but I can't think of any reasonable way to define it that is not a judgement call.
> when the socially optimal
Technically Pareto optimal. Pareto optimal points are not necessarily socially optimal.
https://en.wikipedia.org/wiki/Pareto_efficiency
Technically Pareto optimal. Pareto optimal points are not necessarily socially optimal.
https://en.wikipedia.org/wiki/Pareto_efficiency
You are right, wikipedia is not a great source for economics. I just reached for it first because it's generally decent for most things. You can find a great definition in https://bankicollege.ac.in/wp-content/uploads/2020/12/Princi... but simply it's difference between the surplus before and after an intervention. Obviously minimizing deadweight loss isn't our end goal, it's just one measure we can use to compare interventions.
While not an economist, I've read enough economic papers that I actually agree with Wikipedia's definition. You can "plug-in" values to your dead weight loss calculation depending on judgement calls. For example, do you consider the fact that the carbon footprint of an object is ignored a subsidy? If so, your dead weight loss calculation changes. Suddenly you're trying to discount cash flow against the future cost of carbon removal and things are very complicated.
Maybe its just the way things are described on Wikipedia, but isn't there an almost complete lack of citing any experiments or empirical evidence on that page?
I'm not sure what you mean. Deadweight loss is tautological. Maybe you're asking for evidence that taxes distort markets? If you accept that as true it's easy to see that deadweight loss is just the difference in surplus before and after the tax. Every econ paper on tax policy will try to measure the deadweight loss of the intervention.
I guess I just find it weird to have a page on Wikipedia about a quantity with no mention of what that quantity has ever been measured to be?
Wikipedia is a very difficult way to learn economics. In many ways it's like trying to learn mathematics or physics from an encyclopedia. The encyclopedic approach is - pedagogically speaking - sub-optimal.
But if I look at the page for "friction" it has tables of actual values and many references to practical experiments?
NB I was just comparing the writing style of that page (which seemed a bit odd to me) with other examples.
https://en.wikipedia.org/wiki/Friction
NB I was just comparing the writing style of that page (which seemed a bit odd to me) with other examples.
https://en.wikipedia.org/wiki/Friction
So in this context, how does one calculate what's "socially optimal?"
The problem I have with much of economic theory is that it tries to tie things back to what's beneficial or not to societies and tries to do so through a very thick utilitarian lens. There's often a heavy amount of fairly sophisticated math, statistics, and modeling parading as certainty when the fact is, there's a very high amount of uncertainty in many assumptions and in variety of economic theories that are just hand-waved away. It's not to say the problems economists face are simple, they're actually incredibly challenging and I think it's good economist continue to push for a better understanding of these systems.
My gripe arises when economists masquerade or imply current theory with certainty when in many cases, as if it were a mature science. It simply isn't and far too many use the appearance of certainty hidden in complexity of theory as certainty to push a biased personal agenda or perspective. When you overload terms like efficiency, efficiency in what context? Efficient for whom and through what perspective of the world? Very clear definitions need to be made so I don't question the motives of the attempt of quantification and can look at flaws and oversights that may exist in such metrics.
Most economic theory lacks real empirical evidence because it's just to difficult to play the experiments and interplay of micro, meso, and macroscale systems at a global scale without actually running the experiment (changing policies).
The problem I have with much of economic theory is that it tries to tie things back to what's beneficial or not to societies and tries to do so through a very thick utilitarian lens. There's often a heavy amount of fairly sophisticated math, statistics, and modeling parading as certainty when the fact is, there's a very high amount of uncertainty in many assumptions and in variety of economic theories that are just hand-waved away. It's not to say the problems economists face are simple, they're actually incredibly challenging and I think it's good economist continue to push for a better understanding of these systems.
My gripe arises when economists masquerade or imply current theory with certainty when in many cases, as if it were a mature science. It simply isn't and far too many use the appearance of certainty hidden in complexity of theory as certainty to push a biased personal agenda or perspective. When you overload terms like efficiency, efficiency in what context? Efficient for whom and through what perspective of the world? Very clear definitions need to be made so I don't question the motives of the attempt of quantification and can look at flaws and oversights that may exist in such metrics.
Most economic theory lacks real empirical evidence because it's just to difficult to play the experiments and interplay of micro, meso, and macroscale systems at a global scale without actually running the experiment (changing policies).
Eh, it's difficult to blame economists, or any other type of scientist here. They all deal with improbability and uncertainty.
It's the politicians and voting public that are the problem.
It's easy to get massive numbers of people to vote for you by giving out is completely wrong as long as you're extremely confident in your presentation of it. It's easy for these political winners to drive the economic systems to collapse while increasing authoritarianism by said false confidence. People want to vote uncertainty away, authoritarianism is one way of doing that.
It's the politicians and voting public that are the problem.
It's easy to get massive numbers of people to vote for you by giving out is completely wrong as long as you're extremely confident in your presentation of it. It's easy for these political winners to drive the economic systems to collapse while increasing authoritarianism by said false confidence. People want to vote uncertainty away, authoritarianism is one way of doing that.
If you go look at the theories, you will find that economics uses a lot of those overloaded terms, but they have perfectly reasonable objective meanings for them that are different from the popular subjective meaning.
OK, but it doesn't help to answer a question posed by a layman using overloaded terms of art without defining them, or at least providing references, or at least pointing out that the words you are using do not mean what they mean in common usage.
So where do I find these definitions? Because I am still highly skeptical that they can be defined in ways that do not conceal hidden judgement calls.
So where do I find these definitions? Because I am still highly skeptical that they can be defined in ways that do not conceal hidden judgement calls.
If we applied that same standard when talking about programming here, we would never get past talking eli5 semantics and definitions.
You can be skeptical, but the cure for that skepticism is something more akin to taking an undergrad course, or two.
You can be skeptical, but the cure for that skepticism is something more akin to taking an undergrad course, or two.
No, they really aren't.
- Lacking time stability means no one tomorrow has any incentive to stick to the policy, and means the policy is unlikely to succeed in its objectives.
- Deadweight is lost efficiency
- The only arguable one is "fairness", and to clarify I blunted the term to avoid the nuance of explaining Pareto optimality. But sure, we can also consider egalitarianism and other moral frameworks.
- Lacking time stability means no one tomorrow has any incentive to stick to the policy, and means the policy is unlikely to succeed in its objectives.
- Deadweight is lost efficiency
- The only arguable one is "fairness", and to clarify I blunted the term to avoid the nuance of explaining Pareto optimality. But sure, we can also consider egalitarianism and other moral frameworks.
> - Lacking time stability means no one tomorrow has any incentive to stick to the policy, and means the policy is unlikely to succeed in its objectives.
That's true, but time stability means that a bad policy is going to be maintained even in the face of evidence that it is bad. Deciding which is worse is, as I said, a judgement call.
> Deadweight is lost efficiency
The flip side of increased efficiency is decreased resilience. Without unused capacity (i.e. inefficiency) the slightest contingency will send the entire system into chaos. How much inefficiency you want to maintain as a hedge against contingencies is a judgement call. Different people have different risk postures.
> Pareto optimality
I think it's safe to assume that people on HN understand Pareto optimality (or are capable of looking it up). Do you really think that Pareto optimality is synonymous with "fairness"?
> we can also consider egalitarianism and other moral frameworks.
Of course we can consider these things. But that doesn't answer my question, which is how do we address them in a principled way that doesn't degenerate into a political dispute?
That's true, but time stability means that a bad policy is going to be maintained even in the face of evidence that it is bad. Deciding which is worse is, as I said, a judgement call.
> Deadweight is lost efficiency
The flip side of increased efficiency is decreased resilience. Without unused capacity (i.e. inefficiency) the slightest contingency will send the entire system into chaos. How much inefficiency you want to maintain as a hedge against contingencies is a judgement call. Different people have different risk postures.
> Pareto optimality
I think it's safe to assume that people on HN understand Pareto optimality (or are capable of looking it up). Do you really think that Pareto optimality is synonymous with "fairness"?
> we can also consider egalitarianism and other moral frameworks.
Of course we can consider these things. But that doesn't answer my question, which is how do we address them in a principled way that doesn't degenerate into a political dispute?
Many industries got rid of deadweight only to find during the pandemic they and their industry had lost resilience when circumstances changed (which they always do).
See: CPUs and GPUs in 2020-2021, baby formula in 2022, etc.
It can absolutely be a judgment call.
See: CPUs and GPUs in 2020-2021, baby formula in 2022, etc.
It can absolutely be a judgment call.
The "fair" way to do it is allocation of costs per value of sales AND zero access to data by market owner.
So everyone pays the same charge for IT costs AND market does not have an unfair advantage.
So everyone pays the same charge for IT costs AND market does not have an unfair advantage.
Now I'm inordinately curious how many other economics PhDs and professors visit here, between your comment and Amazon's hiring under Pat Bajari.
One additional data point: I'm approximately an associate professor of economics in North American terms. Also curious how many of us there are here. As it happens, one of my colleagues was recently hired by Amazon (quite nearly appending an extra zero to their salary in the process).
Amazon is the second largest employer of economists, behind only the Fed: https://www.cnn.com/2019/03/13/tech/amazon-economists/index....
I've talked to several big names that have told me about megaoffers from Amazon. (They probably don't care if people know, since they told me, but I'm not going to name them.)
I've talked to several big names that have told me about megaoffers from Amazon. (They probably don't care if people know, since they told me, but I'm not going to name them.)
What does an Amazon economist do?
They hire in three buckets:
- Time series forecasting.
- Reduced-form causal inference
- Structural, especially what is called "structural IO".
Among the questions people in the last category will answer are: how should we price this product? How should we decide which new markets to enter?
- Time series forecasting.
- Reduced-form causal inference
- Structural, especially what is called "structural IO".
Among the questions people in the last category will answer are: how should we price this product? How should we decide which new markets to enter?
Quite a few, but the benefit of participating in discussions about economics on HN is less than the opportunity cost. As economics is heavily computational, HN is as natural a fit for an economics PhD as a CS PhD.
PhD economics/econometrics, ex-research economist, turned machine learning engineer. In my personal experience the mathiness in both fields are comparable, but pay-to-effort ratio was much better in machine learning.
Finished my masters in economics. Went on to do my PhD in economics but dropped by the end of the first semester. Realized it was going to be too much with a young family at the time.
Checking in. I did my PhD in polisci, but invaded.
Econ PhD here! Also IO.
Please chime in if you think anything that I said is wrong.
> In my own specialty (industrial organization) unsolved problems which would be of interest to readers here include optimal regulation of platforms and two-sided markets. Theory and empirics are difficult, so regulators are to some extent fumbling in the dark a bit. It is not at all clear how to regulate (for example) Amazon’s offering its own versions of products sold on its marketplace OR what the right tariff Apple should charge for access to the App Store is.
The subject was "unsolved problems in economics", not "unsolved problems in politics". Regulation is a political topic, not an economic one.
That last point might be economic in nature, but only if Apple is the one making the decision, and is free to choose their own price without fear of regulation. Otherwise it's still politics.
The subject was "unsolved problems in economics", not "unsolved problems in politics". Regulation is a political topic, not an economic one.
That last point might be economic in nature, but only if Apple is the one making the decision, and is free to choose their own price without fear of regulation. Otherwise it's still politics.
> the subject was "unsolved problems in economics", not "unsolved problems in politics". Regulation is a political topic, not an economic one.
If you don’t care about getting it right, fine. Ask politicians to do whatever they want on the basis of whatever biases they have.
If you want to get it right, then you need to weigh the costs and benefits of different regulatory policies. That requires theory and data.
If you don’t care about getting it right, fine. Ask politicians to do whatever they want on the basis of whatever biases they have.
If you want to get it right, then you need to weigh the costs and benefits of different regulatory policies. That requires theory and data.
I suspect that "Solved Problems in Economics" would be a shorter list.
I have a couple questions, from the point of view as an outsider, I see there being three big problems with economics at least the way it is popularly understood:
1) many of the assumptions in economics are culturally specific
2) many of the models in economics, while self consistent and plausible, have not been adequately tested with real world data
3) economic models don’t seem to take constraints into account leading to absurd results like infinite growth
Within the field, are any of those three seen as important problems? Thank you
1) many of the assumptions in economics are culturally specific
2) many of the models in economics, while self consistent and plausible, have not been adequately tested with real world data
3) economic models don’t seem to take constraints into account leading to absurd results like infinite growth
Within the field, are any of those three seen as important problems? Thank you
>1) many of the assumptions in economics are culturally specific
Which ones and maybe I can comment. I don't think this is true.
> 2) many of the models in economics, while self consistent and plausible, have not been adequately tested with real world data
This is everything that we do. The entire field is all about data and has been for probably 30 years (more actually, but we can point to an improvement in our own standards in the mid-1980's).
> 3) economic models don’t seem to take constraints into account leading to absurd results like infinite growth
A very basic definition of economics in undergrad classes is "the theory of optimizing behavior subject to constraints" so constraints are very much our bread and butter.
Separately I don't think most (or any) macro economists (or growth guys) would say "yeah my model gives great predictions for what the situation will be 1,000 years in the future". Even 50 years in the future is pushing it.
>> at least the way it is popularly understood
This may be your problem. The understanding of the field you find from commenters on this website is a million miles from what it is really about.
Which ones and maybe I can comment. I don't think this is true.
> 2) many of the models in economics, while self consistent and plausible, have not been adequately tested with real world data
This is everything that we do. The entire field is all about data and has been for probably 30 years (more actually, but we can point to an improvement in our own standards in the mid-1980's).
> 3) economic models don’t seem to take constraints into account leading to absurd results like infinite growth
A very basic definition of economics in undergrad classes is "the theory of optimizing behavior subject to constraints" so constraints are very much our bread and butter.
Separately I don't think most (or any) macro economists (or growth guys) would say "yeah my model gives great predictions for what the situation will be 1,000 years in the future". Even 50 years in the future is pushing it.
>> at least the way it is popularly understood
This may be your problem. The understanding of the field you find from commenters on this website is a million miles from what it is really about.
> three big problems with economics at least the way it is popularly understood
The popular understanding of economics has very little to do with economics.
The popular understanding of economics has very little to do with economics.
You say “optimal” and “right” nonchalantly. Under what ethical framework are you trying to solve these “problems”?
> Theory and empirics are difficult, so regulators are to some extent fumbling in the dark a bit.
So, just like economists!
So, just like economists!
> It is not at all clear how to regulate (for example) Amazon’s offering its own versions of products sold on its marketplace
I’m glad people like you are at least thinking about it. I have no insights (different degree), but I was wondering about that exact thing a few months ago.
I’m glad people like you are at least thinking about it. I have no insights (different degree), but I was wondering about that exact thing a few months ago.
What would be a good place for a beginner to start working on a problem related to IO economics of platforms?
I've studied MITx Microeconomics course. It appears undergrad level Micro course, and a background in machine learning and software engineering.
I've studied MITx Microeconomics course. It appears undergrad level Micro course, and a background in machine learning and software engineering.
It's a hard field b/c there is not that much introductory / accessible material.
There is a recent book by Belleflamme and Peitz, which should some day be followed up by a second volume about regulation.
There is also a recent survey of the empirics by Marc Rysman and two coauthors.
There is a recent book by Belleflamme and Peitz, which should some day be followed up by a second volume about regulation.
There is also a recent survey of the empirics by Marc Rysman and two coauthors.
A lot of these seem like systems thinking problems, rather than pure economics. Tackling it across multiple perspectives might not even result in a satisfactory answer for any party, but it can improve the situation.
>This is a list of some of the major unsolved problems, puzzles, or questions in economics.
The opening line.
The opening line.
IMO, economics as a science is all about making up theories to 'scientifically' (but actually, just academically) justify whatever the ruling powers want to do.
In a larger sense, academia and a big chunk of contemporary western "culture" is all about coming up with stories, narratives, explanations, mindsets (frameworks) to ignore the exploitation of humans as a resource for the sake of ill-defined (by design) notions of "the group" or "us all" when in fact the end result is a big hierarchical pyramid with little room at the top which requires lots and lots of desperate people at the bottom (by this point, the bottom is entire countries).
In a larger sense, academia and a big chunk of contemporary western "culture" is all about coming up with stories, narratives, explanations, mindsets (frameworks) to ignore the exploitation of humans as a resource for the sake of ill-defined (by design) notions of "the group" or "us all" when in fact the end result is a big hierarchical pyramid with little room at the top which requires lots and lots of desperate people at the bottom (by this point, the bottom is entire countries).
The problem is that economics as a field spans from sociology and mass-psychology (almost impossible reason about, fully quantify or prove anything in a scientific manner) to mathematics (easy to reason about, model and publish results - but at the risk of not actually modeling the real world). The incentives of the academic world nudges researchers toward the math side of the field, but the risk in that is that the field becomes disconnected from reality.
> sociology and mass-psychology (almost impossible reason about, fully quantify or prove anything in a scientific manner)
On the contrary, sociology is way more scientific than economics in building probabilistic models of social behaviors. Such models are quantitative and testable.
Economics is opinion based by design.
On the contrary, sociology is way more scientific than economics in building probabilistic models of social behaviors. Such models are quantitative and testable.
Economics is opinion based by design.
This is complete nonsense, economics is by far the strongest social science field in terms of empirical methodology. Pretty much all the modern causal inference methods were developed in econometrics. Try taking a look at the big econ journals (like Journal of Political Economy, American Economic Review, or Journal of Finance) and I assure you you won't find anything resembling arbitrary "opinions".
Economics may be the most elaborate in manipulating mediocre data to support a hypothesis, but it is important to remember how incredibly easy it is to be wrong or mislead others when using data and complex statistical methods.
There is a simple method to disprove your wild claims that comes from system theory.
Regardless of the field, be it economics, cookery or mechanical engineering, you can ask a pool of experts:
- How can I solve problem X? What will happen if I do nothing?
- How confident are you that the solution will be effective or the prediction will be accurate?
The problem X is the input and then you compare predictions and real outputs.
There is abundant literature on the effectiveness of economical models and the ability to make prediction and the outcomes are clear:
- Economists systematically overestimate their ability to make predictions
- There is not even a single economical theory. Economists have different schools of thought that are incompatible with each other (!)
There are countless examples of economists failing to predict the future or having wildly different opinions.
Regardless of the field, be it economics, cookery or mechanical engineering, you can ask a pool of experts:
- How can I solve problem X? What will happen if I do nothing?
- How confident are you that the solution will be effective or the prediction will be accurate?
The problem X is the input and then you compare predictions and real outputs.
There is abundant literature on the effectiveness of economical models and the ability to make prediction and the outcomes are clear:
- Economists systematically overestimate their ability to make predictions
- There is not even a single economical theory. Economists have different schools of thought that are incompatible with each other (!)
There are countless examples of economists failing to predict the future or having wildly different opinions.
Right, can science accurately model the 3 body problem? Or turbulent flows in fluids?
I guess science is a failure then, better give it up.
I guess science is a failure then, better give it up.
You are making a strawman.
Ask meteorologists about their models and they will honestly tell you the limitations of such models and the success rate at predicting the weather. They have little incentive to lie.
It will be difficult to find meteorologists with clear "anti snow" or "pro rain" biases.
Same goes for getting a blood check: they are not 100% reliable, yet it's difficult to find a lab with an ideological bias skewing the results.
Then, ask economists and you'll quickly find out that their predictions and advice on economic policies aligns with the school of though they belong to.
Politicians routinely ask for advice from this or that economist depending on what they want to hear.
Ask meteorologists about their models and they will honestly tell you the limitations of such models and the success rate at predicting the weather. They have little incentive to lie.
It will be difficult to find meteorologists with clear "anti snow" or "pro rain" biases.
Same goes for getting a blood check: they are not 100% reliable, yet it's difficult to find a lab with an ideological bias skewing the results.
Then, ask economists and you'll quickly find out that their predictions and advice on economic policies aligns with the school of though they belong to.
Politicians routinely ask for advice from this or that economist depending on what they want to hear.
Politicians commonly ask advice from this or that scientist depending on what they want to hear rather than looking for peer reviewed models. I would say that's a problem of a different nature.
Nice example.
Economics almost by definition can not make good predictions wanted by the public, because as soon you figure out precise model “a” of the economy, the economy takes the model “a” into account and mutates to model “b”.
Economics almost by definition can not make good predictions wanted by the public, because as soon you figure out precise model “a” of the economy, the economy takes the model “a” into account and mutates to model “b”.
> There is not even a single economical theory
This applies to all social science.
> There are countless examples of economists failing to predict the future or having wildly different opinions.
This applies to all social science.
This applies to all social science.
> There are countless examples of economists failing to predict the future or having wildly different opinions.
This applies to all social science.
Some would beg to differ https://larspsyll.wordpress.com/2021/04/06/econometrics-a-cr...
> the risk in that is that the field becomes disconnected from reality
it's not a risk, it's a measurable fact.
it's not a risk, it's a measurable fact.
What's the measure?
The fact that it doesn't make predictions any more reliably than astrology.
>The fact that it doesn't make predictions any more reliably than astrology.
yup.
Physics: apply force F to projectile of mass M and know in advance where and when it'll land modulo a tiny error margin.
Economics: raise the interest rates by X%, wait unknown amount of time Y, observe state of the system after time Y, formulate complex theory as to why action led to "cause", go write a paper about it. Get wined and dined by policy makers who see great benefit in your "explanation".
The phenomenon is not new BTW, oracle, druids and shamans have occupied that ecological niche for as long as there has been tribes and leaders needing to justify their actions to the masses.
They just changed their names in the 20th century to sound more respectable.
yup.
Physics: apply force F to projectile of mass M and know in advance where and when it'll land modulo a tiny error margin.
Economics: raise the interest rates by X%, wait unknown amount of time Y, observe state of the system after time Y, formulate complex theory as to why action led to "cause", go write a paper about it. Get wined and dined by policy makers who see great benefit in your "explanation".
The phenomenon is not new BTW, oracle, druids and shamans have occupied that ecological niche for as long as there has been tribes and leaders needing to justify their actions to the masses.
They just changed their names in the 20th century to sound more respectable.
Were it reduced to "predictions". It isn't. And people take for granted a lot of popular concepts borne of the study as though it was always known. E.g. the relationship between interest rates & exchange rates, supply and demand, etc.
Any "science" that can't reliably make reliably make predictions isn't a science. That's the litmus test.
You've just eliminated all social sciences, by your metric of "reliably".
edit: your take-away from this should be that you're mis-defining science.
edit2: you all forgot that medical and nutritional science has a reproducibility crisis, it's no less "science" for it. Add to the fact, the notion that nothing is reproducible in Economics is false. See for example: https://www.caltech.edu/about/news/famous-economics-experime... , https://www.science.org/doi/10.1126/science.aaf0918
edit: your take-away from this should be that you're mis-defining science.
edit2: you all forgot that medical and nutritional science has a reproducibility crisis, it's no less "science" for it. Add to the fact, the notion that nothing is reproducible in Economics is false. See for example: https://www.caltech.edu/about/news/famous-economics-experime... , https://www.science.org/doi/10.1126/science.aaf0918
Absolutely.
> edit: your take-away from this should be that you're mis-defining science.
No thanks.
> edit: your take-away from this should be that you're mis-defining science.
No thanks.
> You've just eliminated all social sciences
Because they're indeed not sciences.
They call themselves that to attract funding.
Predictive power and reproducibility are defining characteristics of sciences.
Social "sciences" have neither and therefore aren't sciences.
Because they're indeed not sciences.
They call themselves that to attract funding.
Predictive power and reproducibility are defining characteristics of sciences.
Social "sciences" have neither and therefore aren't sciences.
reproducibility has improved over time as well - https://pubs.aeaweb.org/doi/pdfplus/10.1257/jel.20171350
Volcanologists cannot exactly predict when a volcano will erupt. Seismologists cannot exactly predict when an earthquake will happen. Both can only offer uncertain probabilities. But these are definitely both sciences.
They don't have to predict everything, especially things that aren't predictable.
What kind of precision of prediction is required? Economics predict some things. For example if you print exceedingly a lot moneys, inflation will happen.
At the same time, physicists have problem telling precise location and momentum of the atom (at the same time; precisely).
(footnote: I love physics more than economics, but world is not perfect and sciences are not perfect. Except for math maybe https://xkcd.com/435 . Perfection and usefulness are not the same)
At the same time, physicists have problem telling precise location and momentum of the atom (at the same time; precisely).
(footnote: I love physics more than economics, but world is not perfect and sciences are not perfect. Except for math maybe https://xkcd.com/435 . Perfection and usefulness are not the same)
Economists cannot predict exactly when market crashes will occur. Is volcanology not a real science because volcanologists cannot predict the moment a volcano will erupt?
In both cases scientific study can help us determine when the risk is higher or lower, and can tell us definitively when one does occur. But no field that studies stochastic processes like markets or volcanic activity can make 100% certainty predictions years in advance.
These fields are all dealing with probabilities, asking for a yes or no answer is missing the point.
In both cases scientific study can help us determine when the risk is higher or lower, and can tell us definitively when one does occur. But no field that studies stochastic processes like markets or volcanic activity can make 100% certainty predictions years in advance.
These fields are all dealing with probabilities, asking for a yes or no answer is missing the point.
Can you point me to any good quantitative research on astrology? Steelman style treatment, preferably. I haven’t actually looked into astrology with much seriousness. I worry that I might be like one of those people who dismiss economics because of envy or some other weird psychological mechanism. It sounds like you might have some information to share?
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To me, this kind of thought is mostly equivalent to creationists who say Evolution "is just a theory". When scientific findings contradict our strongly held beliefs, we often choose our beliefs.
That said, it's important to separate Microeconomics and Macroeconomics.
Microeconomics is a solid Hard Science which has helped us understand many important things. Macroeconomics, OTOH, is a very difficult field, in part because the object under study is aware of the findings, and adjusts to it.
That said, it's important to separate Microeconomics and Macroeconomics.
Microeconomics is a solid Hard Science which has helped us understand many important things. Macroeconomics, OTOH, is a very difficult field, in part because the object under study is aware of the findings, and adjusts to it.
I hard disagree. Economics (of any flavor) is as soft as any other social science. The field of economics can be a useful lens to help one understand the world and human behavior, but it relies too much on human behavior to be consistently testable in the same way as 'Hard Science'.
I think the term "hard science" is squishy enough to where you both can argue in good faith, but have a different definition in-mind.
I agree that Econ doesn't quite have the hardness of say Physics, but insofar as you can characterize physics as the development of models that can meaningfully explain reality within reasonable error bounds and feasible energy usage, then Microeconomics sometimes does do this as well.
I agree that Econ doesn't quite have the hardness of say Physics, but insofar as you can characterize physics as the development of models that can meaningfully explain reality within reasonable error bounds and feasible energy usage, then Microeconomics sometimes does do this as well.
Microeconomics is math. But science requires something more than math. A theory motivating why a certain mathematical structure should manifest in reality and describe our observations.
In the case of economics such a theory would be something like "people are rational actor optimizing some quantity". This is however *highly* controversial and many of the predictions such a theory makes contradicts observation.
I'm not an Economist, but my impression is that the predictions of microeconomics have vast practical applications and the cases where they fail are few, but of course they get a lot of attention, just like happens in Physics or any science.
To be less jargon-y, microeconomics is sometimes called "price theory", and in its basic form models prices as depending on supply and demand.
To be less jargon-y, microeconomics is sometimes called "price theory", and in its basic form models prices as depending on supply and demand.
Microeconomics study the interaction of marginal costs with the demand curve, too bad that in real life marginal cost is undefined (and the demand curve doesn't exist in a vacuum).
"People are rational actors at optimizing quantity X, unless they are made aware of what quantity X is".
Economics seems to break under Goodhart's Law.
Economics seems to break under Goodhart's Law.
At the risk of some meta-irony, important to point out that Goodhart was an economist.
People are rational actors at optimizing their own well-being, as they see it. That holds in all cases but it isn't very helpful to the politicians.
What breaks is trying to get people to optimize for some other factor by manipulating economic signals (e.g. with inflation). Once they know about the manipulation they'll compensate for it. Not 100%, not always even in the right direction, but enough to make the eventual outcome chaotic.
What breaks is trying to get people to optimize for some other factor by manipulating economic signals (e.g. with inflation). Once they know about the manipulation they'll compensate for it. Not 100%, not always even in the right direction, but enough to make the eventual outcome chaotic.
> People are rational actors at optimizing their own well-being
What experiment can we make to empirically verify this claim? If no experiment is needed then the statement is a tautology.
What experiment can we make to empirically verify this claim? If no experiment is needed then the statement is a tautology.
I'm fine with considering it a tautology, as that implies you're using the correct definition for "rational actor" and the correct perspective (i.e., theirs) for evaluating the expected effect on their well-being.
The problem is the recurring claim that people are not rational actors, either because of imperfect information (sometimes things don't turn out as expected) or because what people choose to do isn't always what someone else thinks of as their own best interest. That isn't what is meant when we say that people are rational actors. Anything can be a rational action within some system of preferences; the point of the "rational actor" model is that if you assume people are potentially irrational actors, deliberately making choices which they expect a priori to satisfy their preferences worse than other options they are aware of, then the system is underconstrained and you can't say anything about people's preferences based on observations about their choices. Assuming rationality doesn't constrain people's behavior at all, but it is a more useful way of interpreting it.
The problem is the recurring claim that people are not rational actors, either because of imperfect information (sometimes things don't turn out as expected) or because what people choose to do isn't always what someone else thinks of as their own best interest. That isn't what is meant when we say that people are rational actors. Anything can be a rational action within some system of preferences; the point of the "rational actor" model is that if you assume people are potentially irrational actors, deliberately making choices which they expect a priori to satisfy their preferences worse than other options they are aware of, then the system is underconstrained and you can't say anything about people's preferences based on observations about their choices. Assuming rationality doesn't constrain people's behavior at all, but it is a more useful way of interpreting it.
That sounds like an unnecessarily complicated way of going about it. If someone does something really strange, we have to interpret it as a rational action in a strange value system? Instead of stating the obvious: sometimes people do strange things. Would you also consider animal behavior rational by definition? Why not?
I think this way of framing things, while not imposing any constraints, as you point out, is just quite confusing. We know people are not perfect logicians, why pretend that they are? (except of course in the situations where this is a good approximation).
I think this way of framing things, while not imposing any constraints, as you point out, is just quite confusing. We know people are not perfect logicians, why pretend that they are? (except of course in the situations where this is a good approximation).
> If someone does something really strange, we have to interpret it as a rational action in a strange value system?
Pretty much, yes. That's the only way you get any useful information.
Look, everyone knows that people sometimes make choices they later regret. That does not refute the rational actor model, because the rational actor model is about what they knew and what their hidden preferences were in the moment, at the time they made the choice. That includes preferences they may not even understand themselves. To refute the rational actor model you would need to show that the person knew there was a better choice, one whose a priori expected outcome was superior in all respects from their own point of view, and deliberately decided not to take it. Since you can't know how they valued all the possible outcomes from their point of view—they don't even know that—that means it can't be refuted at all. It's a framework for understanding people's revealed preferences, not a means of empirically predicting their behavior. At best you can use it to say that if people prefer A over B then they will choose A and not B, but it doesn't tell you whether a person will actually prefer A over B at any given point in the future, even if you can infer from their actions that they did in the past. Preferences change; circumstances change. No two choices are ever made in exactly the same context.
> We know people are not perfect logicians, why pretend that they are?
It's not a matter of perfect logic. It's saying that people (are assumed to) pick the course of action that seems to lead to be best outcome from their own point of view. That can, of course, include others' well-being, if they value such things. There is no requirement that their expectations be perfectly logical, or grounded in perfect knowledge.
There is a separate principle, not part of the rational actor model, which basically says that people either learn to hold expectations which closely align with reality over time or tend to lose wealth, and thus influence in the economy, over time. This implies that most of the economically significant actions are taken by those who make decisions they are not likely to later regret. Of course this breaks down a bit when poor decisions get subsidized, propping up the economic influence of poor decision-makers.
Pretty much, yes. That's the only way you get any useful information.
Look, everyone knows that people sometimes make choices they later regret. That does not refute the rational actor model, because the rational actor model is about what they knew and what their hidden preferences were in the moment, at the time they made the choice. That includes preferences they may not even understand themselves. To refute the rational actor model you would need to show that the person knew there was a better choice, one whose a priori expected outcome was superior in all respects from their own point of view, and deliberately decided not to take it. Since you can't know how they valued all the possible outcomes from their point of view—they don't even know that—that means it can't be refuted at all. It's a framework for understanding people's revealed preferences, not a means of empirically predicting their behavior. At best you can use it to say that if people prefer A over B then they will choose A and not B, but it doesn't tell you whether a person will actually prefer A over B at any given point in the future, even if you can infer from their actions that they did in the past. Preferences change; circumstances change. No two choices are ever made in exactly the same context.
> We know people are not perfect logicians, why pretend that they are?
It's not a matter of perfect logic. It's saying that people (are assumed to) pick the course of action that seems to lead to be best outcome from their own point of view. That can, of course, include others' well-being, if they value such things. There is no requirement that their expectations be perfectly logical, or grounded in perfect knowledge.
There is a separate principle, not part of the rational actor model, which basically says that people either learn to hold expectations which closely align with reality over time or tend to lose wealth, and thus influence in the economy, over time. This implies that most of the economically significant actions are taken by those who make decisions they are not likely to later regret. Of course this breaks down a bit when poor decisions get subsidized, propping up the economic influence of poor decision-makers.
> Pretty much, yes. That's the only way you get any useful information.
Nah I don't agree. Sometimes people act irrationally. A otherwise friendly person might seem unfriendly because they've had too little to eat. Or because they had a bad day at work. Typically they would agree that their temporary unfriendlyness is not in accordance with their eithical principles, nor generally in theirs or anyone else's best interest. They (we) are just limited as beings. Unable to do what they know to be best.
Another way to look at it could be to say that people are not a single actor. What is the self? What we perceive as a unified I could very well be a much more shattered / distributed fenomena. Relying on the "rational actor model" limits the perspectives we can take on what a conscious being really is.
And I do think logic is a *requirement* for rationality (agree knowledge is not though). Maybe perfect logic is not necessary, behavior of sufficiently rational actors is perhaps well approximated by the rational actor model.
But maybe not! Question is - will increasingly rational actors eventually converge to the same behavior? If not - then rational actor theory cannot even approximate human behavior, it intrinsically has to be a theory about "human logic".
Nah I don't agree. Sometimes people act irrationally. A otherwise friendly person might seem unfriendly because they've had too little to eat. Or because they had a bad day at work. Typically they would agree that their temporary unfriendlyness is not in accordance with their eithical principles, nor generally in theirs or anyone else's best interest. They (we) are just limited as beings. Unable to do what they know to be best.
Another way to look at it could be to say that people are not a single actor. What is the self? What we perceive as a unified I could very well be a much more shattered / distributed fenomena. Relying on the "rational actor model" limits the perspectives we can take on what a conscious being really is.
And I do think logic is a *requirement* for rationality (agree knowledge is not though). Maybe perfect logic is not necessary, behavior of sufficiently rational actors is perhaps well approximated by the rational actor model.
But maybe not! Question is - will increasingly rational actors eventually converge to the same behavior? If not - then rational actor theory cannot even approximate human behavior, it intrinsically has to be a theory about "human logic".
"God was very harsh with economists, as in Economics, the atom thinks, speaks and reacts" - Delfim Netto, Brazilian economist.
do scientific findings contradict the notion that we are using economic theory to "ignore the exploitation of humans as a resource for the sake of ill-defined (by design) notions of 'the group' or 'us all?'"
Microeconomics is scientific… in theory!
> Microeconomics is a solid Hard Science
And what's you opinion on astrology?
FYI microeconomics is the most controversial part of economics. Doing advanced math on abismally poor world models doesn't make a hard science, especially when none od your results are falsifiable…
And what's you opinion on astrology?
FYI microeconomics is the most controversial part of economics. Doing advanced math on abismally poor world models doesn't make a hard science, especially when none od your results are falsifiable…
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Have you read Kim Stanley Robinson? This could be a paraphrase of "Anyway that's a large part of what economics is - people arbitrarily, or as a matter of taste, assigning numerical values to non-numerical things. And then pretending that they haven't just made the numbers up, which they have. Economics is like astrology in that sense, except that economics serves to justify the current power structure, and so it has a lot of fervent believers among the powerful." from Red Mars.
This is absurd. Economists devote their lives to academics, just to serve their former colleagues who are thousands of times richer than them? If you actually paid attention to real policy and the sort of policies economists actually want, you'd notice a huge disconnect.
I don't think the possible irrationality of the situation refutes OP's point. Historically there are plenty of people happy to serve more powerful people for a small slice of privilege, especially when that privilege is backed by ideology or religion. Why were sharecroppers fighting the Confederacy's war? Why do employees feel loyalty toward their company for the free snacks? People's motivations are not economically rational.
I think there is a potential issue with funding/sponsorship bias leaking into the consensus of the field, as there is with any field. It's just that economics has ramifications for very core government policy in a way that most other fields don't.
I agree that economists as individuals are working competently and in earnest, it's just that certain economists will find it harder to get funding than others and that could manifest as bias with potentially wide reaching implications.
I agree that economists as individuals are working competently and in earnest, it's just that certain economists will find it harder to get funding than others and that could manifest as bias with potentially wide reaching implications.
There is definitely a subset of economists who are hacks who advocate positions because they want to help some group and not because they think they are true, just as there were doctors who said smoking was fine.
This is absurd. Naturopaths devote their lives to health and medicine, just to serve their former colleagues who are hundreds of times richer than them? If you actually paid attention to real policy and the sort of practices naturopaths actually want, you'd notice a huge disconnect.
...
A lot of people practice things that they feel genuine and sincere about and they can even build entire institutions around those practices... doesn't mean anything if what they're doing doesn't have a measurably positive impact and there doesn't need to be any malice involved whatsoever. If anything, the people I know who believe in homeopathy are among the nicest and most honest people who deeply care about health, and yet... they are still full of crap.
...
A lot of people practice things that they feel genuine and sincere about and they can even build entire institutions around those practices... doesn't mean anything if what they're doing doesn't have a measurably positive impact and there doesn't need to be any malice involved whatsoever. If anything, the people I know who believe in homeopathy are among the nicest and most honest people who deeply care about health, and yet... they are still full of crap.
OP is accusing economists of being pawns of the ruling class, which indicates a severe lack of understanding of the field. If your argument against naturopathy is a conspiracy theory about how naturopaths serving the wishes of the elite rather than scientific studies that debunk it, you also deserve to be ridiculed.
You're suggesting that there is some coordinated and intentional scheme by the ruling class to use economists as a way to serve them, my whole point is that there need not be any such conspiracy or intentional malice for this to occur by any party.
It could simply be an emergent phenomenon where economists whose opinions align with the ruling class get more exposure and more prestigious appointments than those whose opinions disagree with them, or even worse disparage them.
I am reminded of a TV news reporter/presenter who took offense to the idea presented to them that they are spreading political propaganda in service of the elites and flippantly asked something along the lines "Do you think I am self-censoring myself in service to the elite class, like I'm just a pawn taking a paycheck to say whatever the elite want me to say?" and the response to that question was "You most likely believe everything you say and are honest about your position, but if believed something different you wouldn't be sitting where you are."
It could simply be an emergent phenomenon where economists whose opinions align with the ruling class get more exposure and more prestigious appointments than those whose opinions disagree with them, or even worse disparage them.
I am reminded of a TV news reporter/presenter who took offense to the idea presented to them that they are spreading political propaganda in service of the elites and flippantly asked something along the lines "Do you think I am self-censoring myself in service to the elite class, like I'm just a pawn taking a paycheck to say whatever the elite want me to say?" and the response to that question was "You most likely believe everything you say and are honest about your position, but if believed something different you wouldn't be sitting where you are."
Well I'm not the other guy, and I don't think there's any sort of "seekrit society with the elites". But having done undergrad study of finance, it seems like there's a sort of "ideological capture" in the field of economics. I have never had anyone explain to me why interest rate intervention doesn't fundamentally undermine the quality of work we're doing (giving businesses loans they shouldn't be able to afford means we're wasting effort). All the economists just agree it's totally okay based on less than 100 years of data, which, IMO isn't long enough to really observe the policy effects.
Suppose you open a spreadsheet right now, discount 100 years of cash flows, and measure each cash flow as a % contribution to the sum (aka npv). You will find that at medium to higher rates years 0-20 make up the greatest percentage of the npv by far. But as you lower them, that relationship flips and cash flows for years 20 to 100 become the lion's share of the valuation. Pretty sure this is how we wound up with WeWork and all the similar fiascos, meanwhile huge swaths of the capable working-age population has dropped out of society for lack of well-compensated opportunity. Hell, there's a lot of issues right now that seem pretty easily explained with a simple DCF interpretation.
All I ever seem to get is "lowering interest rates gets the economy rolling again by allowing businesses to continue hiring, and even if those jobs are just digging & filling in holes, those people have to buy food and housing and stuff so it gets the economy rolling again!" But that doesn't explain what happens if you "get it rolling again" too many times and the ratio of hole-diggers to food-makers starts to approach 1/2 (or wherever a "tipping point" may be). Hey great! Low unemployment! Except what's actually getting done is worthless.
Is there such a thing as the 'natural interest rate' in economics? A way to determine what the yield curve would be if we hadn't been intervening for the last half a century?
Suppose you open a spreadsheet right now, discount 100 years of cash flows, and measure each cash flow as a % contribution to the sum (aka npv). You will find that at medium to higher rates years 0-20 make up the greatest percentage of the npv by far. But as you lower them, that relationship flips and cash flows for years 20 to 100 become the lion's share of the valuation. Pretty sure this is how we wound up with WeWork and all the similar fiascos, meanwhile huge swaths of the capable working-age population has dropped out of society for lack of well-compensated opportunity. Hell, there's a lot of issues right now that seem pretty easily explained with a simple DCF interpretation.
All I ever seem to get is "lowering interest rates gets the economy rolling again by allowing businesses to continue hiring, and even if those jobs are just digging & filling in holes, those people have to buy food and housing and stuff so it gets the economy rolling again!" But that doesn't explain what happens if you "get it rolling again" too many times and the ratio of hole-diggers to food-makers starts to approach 1/2 (or wherever a "tipping point" may be). Hey great! Low unemployment! Except what's actually getting done is worthless.
Is there such a thing as the 'natural interest rate' in economics? A way to determine what the yield curve would be if we hadn't been intervening for the last half a century?
I don't understand what your DCF example is supposed to illustrate. A higher interest rate also enables wealthier people to stay wealthy without doing anything. Meanwhile, Wework and similarly useless companies circulate wealthy investor's money into regular people's pockets by renting out office spaces at a loss.
For the most part, I don't think low interest rates are a bad thing (though I don't think that they should have ended quantitative tightening prematurely in 2019). I share your sentiment that too much money is circulating around, but I don't blame the Fed. They have no way to stop Wework from receiving cheap cash without hurting useful small businesses. IMO, if Congress weren't so bad at balancing a budget, the government wouldn't have to issue so much debt, and in turn the Fed wouldn't have to buy so much of it back to achieve a similar effect with QE.
For the most part, I don't think low interest rates are a bad thing (though I don't think that they should have ended quantitative tightening prematurely in 2019). I share your sentiment that too much money is circulating around, but I don't blame the Fed. They have no way to stop Wework from receiving cheap cash without hurting useful small businesses. IMO, if Congress weren't so bad at balancing a budget, the government wouldn't have to issue so much debt, and in turn the Fed wouldn't have to buy so much of it back to achieve a similar effect with QE.
>You're suggesting that there is some coordinated and intentional scheme by the ruling class to use economists as a way to serve them
I wasn't suggesting that. OP did. Nothing I said suggests that economics is an incorruptible field. The problem is that a disproportionate demand for economists comes from people with an agenda. We all know that lobbying exists. When politicians get most of their knowledge about economics from these lobbyists rather than from less biased sources, of course it will seem like the field is more broken than it actually is.
I wasn't suggesting that. OP did. Nothing I said suggests that economics is an incorruptible field. The problem is that a disproportionate demand for economists comes from people with an agenda. We all know that lobbying exists. When politicians get most of their knowledge about economics from these lobbyists rather than from less biased sources, of course it will seem like the field is more broken than it actually is.
I will never understand why ideas like this - both completely detached from reality and actively harmful to the people who espouse them - have become so popular on Reddit.
There are a couple of orthogonal ideas in there, so I don't know what you're referring to. That economists isn't a science? That most economists are propagandists? That human societies tend to form a pyramid?
The main idea that I took offence to was the "economic incel" ideology - ie that the our entire society is nothing more than a tool for siphoning resources from the "underclass" into the hands of a few dozen multi-billionaires, and therefore if one engages in any productive activity beyond the absolute minimum necessary to survive, they're a sucker.
It's popular on various front-page(!!!) subreddits like r/antiwork and r/latestagecapitalism.
I say "incel" there very deliberately. It's a set of toxic beliefs that prevents the formation of normal, healthy economic relationships, and this reinforces the toxic beliefs in a positive feedback loop.
I've seen a friend get sucked into this and it was (still is) absolutely devastating.
It's popular on various front-page(!!!) subreddits like r/antiwork and r/latestagecapitalism.
I say "incel" there very deliberately. It's a set of toxic beliefs that prevents the formation of normal, healthy economic relationships, and this reinforces the toxic beliefs in a positive feedback loop.
I've seen a friend get sucked into this and it was (still is) absolutely devastating.
The worst part is that it’s entirely narrative, so not really disprovable in the same way that “it is raining outside right now” is.
And it is like you said self fulfilling, where the world makes more sense the less economic success one has, and the narrative provides no moral option to changing one’s economic status within the system.
And it is like you said self fulfilling, where the world makes more sense the less economic success one has, and the narrative provides no moral option to changing one’s economic status within the system.
>the narrative provides no moral option to changing one’s economic status within the system.
This is where my friend is right now. It really, really sucks.
This is where my friend is right now. It really, really sucks.
[deleted]
Could you elaborate? I'm not sure how calling an idea 'detached from reality and actively harmful' and then vaguely referencing a different social media platform contributes anything.
He did and the comment was removed. It didn't seem terrible, I don't know why it was removed. I responded to it and then it was gone.
this is hackernews
Enginerrrd(2)
> IMO, economics as a science is all about making up theories to 'scientifically' (but actually, just academically) justify whatever the ruling powers want to do.
I see this with macroeconomics, but economics is still a fairly broad field. Microeconomics has the spherical cow problem but econometrics has many useful applications, as does game theory.
A piece of evidence to your point is who quant firms hire: a lot more physics and math PhDs than economists. You would think someone who studies the science of the economy would be good at making money, but the real economy doesn't seem to care as much about those theories.
I see this with macroeconomics, but economics is still a fairly broad field. Microeconomics has the spherical cow problem but econometrics has many useful applications, as does game theory.
A piece of evidence to your point is who quant firms hire: a lot more physics and math PhDs than economists. You would think someone who studies the science of the economy would be good at making money, but the real economy doesn't seem to care as much about those theories.
When I see comments like this I just want to ask: could you do us a favour and name and explain a single economic theory?
Let's start with the basics. In economics, what is "utility"?
Let's start with the basics. In economics, what is "utility"?
I'm not the person you're responding to, but I hold the opinion that economics isn't a science, that it's akin to numerology, and that it's social role is that of modern-day court astrologers.
> In economics, what is "utility"?
First result (using https://andisearch.com/ ):
https://www.investopedia.com/terms/u/utility.asp
> Utility is a term in economics that refers to the total satisfaction received from consuming a good or service. Economic theories based on rational choice usually assume that consumers will strive to maximize their utility. The economic utility of a good or service is important to understand, because it directly influences the demand, and therefore price, of that good or service. In practice, a consumer's utility is impossible to measure and quantify. However, some economists believe that they can indirectly estimate what is the utility for an economic good or service by employing various models.
Circular definition, "impossible to measure", "indirectly estimate", "various models"...
Sounds like mumbo-jumbo with math to me.
"Utility" isn't a scalar value, or a vector, or even a matrix. It's got to be a higher-order tensor or some even more exotic mathematical object, eh?
> I remember my friend Johnny von Neumann used to say, "With four parameters I can fit an elephant, and with five I can make him wiggle his trunk."
~Fermi
> In economics, what is "utility"?
First result (using https://andisearch.com/ ):
https://www.investopedia.com/terms/u/utility.asp
> Utility is a term in economics that refers to the total satisfaction received from consuming a good or service. Economic theories based on rational choice usually assume that consumers will strive to maximize their utility. The economic utility of a good or service is important to understand, because it directly influences the demand, and therefore price, of that good or service. In practice, a consumer's utility is impossible to measure and quantify. However, some economists believe that they can indirectly estimate what is the utility for an economic good or service by employing various models.
Circular definition, "impossible to measure", "indirectly estimate", "various models"...
Sounds like mumbo-jumbo with math to me.
"Utility" isn't a scalar value, or a vector, or even a matrix. It's got to be a higher-order tensor or some even more exotic mathematical object, eh?
> I remember my friend Johnny von Neumann used to say, "With four parameters I can fit an elephant, and with five I can make him wiggle his trunk."
~Fermi
So to sum up, you don't know what utility is, you've looked it up on investopedia, and on the basis of a web page, and your own entirely mistaken imagination of what the maths might be, you're gonna pontificate? I think you're proving my point!
> you don't know what utility is
I don't think anyone does.
> you've looked it up on investopedia, and on the basis of a web page
Is that definition wrong? Can you provide a better definition or link?
> your own entirely mistaken imagination of what the maths might be
But I do know what math is, eh? And I know how to use it to do things like design electronic circuits that work "like it says on the tin". Do economists have anything like Ohm's law? Can you describe the math? Does it makes predictions? How can it make predictions when there are no empirical ways to measure e.g. the "utility"?
I don't think anyone does.
> you've looked it up on investopedia, and on the basis of a web page
Is that definition wrong? Can you provide a better definition or link?
> your own entirely mistaken imagination of what the maths might be
But I do know what math is, eh? And I know how to use it to do things like design electronic circuits that work "like it says on the tin". Do economists have anything like Ohm's law? Can you describe the math? Does it makes predictions? How can it make predictions when there are no empirical ways to measure e.g. the "utility"?
Sure. Utility is a way of representing preferences. A utility function goes from the choice set X to the real number line. A preference relation, in turn, is a binary relation on X satisfying completeness and transitivity. Utility function u represents preference relation >> if and only if u(x) > u(y) iff x >> y.
Yes, utility makes predictions, because preference relations make predictions. See the Weak Axiom of Revealed Preference and its cousins. If I see you choosing oranges over apples, and then the price of apples falls and you still choose oranges, we have learned that you strictly preferred oranges at the old price. More generally, some patterns of choices are rationalizable by a preference ordering. Others aren't. So a claim about someone's preference ordering has empirical content. (It sounds as if you imagine measuring utility as something that might need a brain scanner. We haven't thought that way since about World War II.)
This is all Econ 101 (at a bit higher level than a first year undergrad). I don't expect you to know it. I do expect you to know it if you intend to pontificate about it. Similarly, I know nothing about Ohm's Law, and for this reason, I avoid making broad pronouncements about the invalidity of all of physics. I find this basic commitment to intellectual humility helpful.
Yes, utility makes predictions, because preference relations make predictions. See the Weak Axiom of Revealed Preference and its cousins. If I see you choosing oranges over apples, and then the price of apples falls and you still choose oranges, we have learned that you strictly preferred oranges at the old price. More generally, some patterns of choices are rationalizable by a preference ordering. Others aren't. So a claim about someone's preference ordering has empirical content. (It sounds as if you imagine measuring utility as something that might need a brain scanner. We haven't thought that way since about World War II.)
This is all Econ 101 (at a bit higher level than a first year undergrad). I don't expect you to know it. I do expect you to know it if you intend to pontificate about it. Similarly, I know nothing about Ohm's Law, and for this reason, I avoid making broad pronouncements about the invalidity of all of physics. I find this basic commitment to intellectual humility helpful.
First, thanks for putting your math where your mouth is, but I'm sorry to admit that I just hear "spherical cow in a vacuum" in what you describe. I mean it, I really do appreciate you trying, but what you're describing sounds ridiculous to me.
Sorry for relying on investopedia again but, uh:
> Weak Axiom of Revealed Preference (WARP): This axiom states that given incomes and prices, if one product or service is purchased instead of another, then, as consumers, we will always make the same choice. The weak axiom also states that if we buy one particular product, then we will never buy a different product or brand unless it is cheaper, offers increased convenience, or is of better quality (i.e. unless it provides more benefits). As consumers, we will buy what we prefer and our choices will be consistent, so suggests the weak axiom.
https://www.investopedia.com/terms/r/revealed-preference.asp
The word "axiom" is inappropriate here. This isn't science, it's a "just so" story. It's cereal box psychology. It's an attempt to dress up in big kids' clothes and I've got no respect for it.
> It sounds as if you imagine measuring utility as something that might need a brain scanner. We haven't thought that way since about World War II.
That's a shame, disdaining the source of real data. Of course brain scanners weren't that good back then, eh? But you don't need them. Pupil dilation, changes in pulse and respiration, capillary response, there are all sorts of signals that let you see "inside" the brain w/o fancy technology.
> I do expect you to know it if you intend to pontificate about it.
First, I'm not pontificating, I'm decrying. Second, I don't need to know details about the nature of the BS, I can tell from the smell alone. Economics is in the same epistemological boat as Numerology and Astrology. Just as I don't need to study those in depth to know they're BS, I don't need to know much about economics to see that it's barren and, frankly, ridiculous.
> I know nothing about Ohm's Law
You might want to learn. Not only would learning electrical engineering give you a great working example of how to use math to reason about real world phenomenon, and unlike economics you can actually use it reliably to build useful devices.
> I find this basic commitment to intellectual humility helpful.
It would have been most welcome and helpful a couple of comments ago.
- - - -
See, the thing about Ohm's law is you don't have to take my word for it, or anyone's, not even Ohm's. You can build the circuit, apply the meter, and measure it for yourself. Humility or arrogance doesn't enter into it.
The problem isn't that economists want to study the economy and are doing it badly, the problem is that they want to be treated as if they are physicists, and we want to treat them that way because of politics and psychology. And even that's isn't a problem until we make mistakes and our blind following of the not-physicists' "science" prevents us from stopping or fixing the errors. Next thing you know, the Aral Sea is gone!
https://en.wikipedia.org/wiki/Aral_Sea
Sorry for relying on investopedia again but, uh:
> Weak Axiom of Revealed Preference (WARP): This axiom states that given incomes and prices, if one product or service is purchased instead of another, then, as consumers, we will always make the same choice. The weak axiom also states that if we buy one particular product, then we will never buy a different product or brand unless it is cheaper, offers increased convenience, or is of better quality (i.e. unless it provides more benefits). As consumers, we will buy what we prefer and our choices will be consistent, so suggests the weak axiom.
https://www.investopedia.com/terms/r/revealed-preference.asp
The word "axiom" is inappropriate here. This isn't science, it's a "just so" story. It's cereal box psychology. It's an attempt to dress up in big kids' clothes and I've got no respect for it.
> It sounds as if you imagine measuring utility as something that might need a brain scanner. We haven't thought that way since about World War II.
That's a shame, disdaining the source of real data. Of course brain scanners weren't that good back then, eh? But you don't need them. Pupil dilation, changes in pulse and respiration, capillary response, there are all sorts of signals that let you see "inside" the brain w/o fancy technology.
> I do expect you to know it if you intend to pontificate about it.
First, I'm not pontificating, I'm decrying. Second, I don't need to know details about the nature of the BS, I can tell from the smell alone. Economics is in the same epistemological boat as Numerology and Astrology. Just as I don't need to study those in depth to know they're BS, I don't need to know much about economics to see that it's barren and, frankly, ridiculous.
> I know nothing about Ohm's Law
You might want to learn. Not only would learning electrical engineering give you a great working example of how to use math to reason about real world phenomenon, and unlike economics you can actually use it reliably to build useful devices.
> I find this basic commitment to intellectual humility helpful.
It would have been most welcome and helpful a couple of comments ago.
- - - -
See, the thing about Ohm's law is you don't have to take my word for it, or anyone's, not even Ohm's. You can build the circuit, apply the meter, and measure it for yourself. Humility or arrogance doesn't enter into it.
The problem isn't that economists want to study the economy and are doing it badly, the problem is that they want to be treated as if they are physicists, and we want to treat them that way because of politics and psychology. And even that's isn't a problem until we make mistakes and our blind following of the not-physicists' "science" prevents us from stopping or fixing the errors. Next thing you know, the Aral Sea is gone!
https://en.wikipedia.org/wiki/Aral_Sea
> The word "axiom" is inappropriate here. This isn't science, it's a "just so" story. It's cereal box psychology. It's an attempt to dress up in big kids' clothes and I've got no respect for it.
I don't see any substantive criticism here. Can you explain what's wrong with WARP? I see it as a way of going from theories (people's preferences are such-and-such) to predictions (given WARP and these preferences, we expect these choice patterns, and not those).
>That's a shame, disdaining the source of real data. Of course brain scanners weren't that good back then, eh? But you don't need them. Pupil dilation, changes in pulse and respiration, capillary response, there are all sorts of signals that let you see "inside" the brain w/o fancy technology.
If you think that, then you can build a theory of utility involving that. There is an approach called neuroeconomics which tries to do so. My point is not to disdain these sources of information, it's that they aren't strictly necessary: preferences exist to predict choices and a given claim about someone's preferences can be falsified by observing their choices.
> Second, I don't need to know details about the nature of the BS, I can tell from the smell alone. Economics is in the same epistemological boat as Numerology and Astrology.
Of course, if so, then there's nothing further to discuss. Meanwhile:
* Autor et al. claim "import competition explains one-quarter of the contemporaneous aggregate decline in US manufacturing employment." What's wrong with their method? Why is it astrology?
* Banerjee and Duflo analyse microcredit using a randomized controlled trial. They find "no significant changes in health, education, or women's empowerment" and almost no long run effects. It seems important to understand whether popular anti-poverty policies work. Why is this barren?
* James Heckman has spent his life trying to understand how to help disadvantaged children, building mathematical theories of human capital and testing them on data. Why is this numerology?
* You blame economists for the loss of the Aral Sea. I would think it's more to do with Soviet planning. I hold no brief for Marxist economics, which was far from the mainstream already by the 1950s, but in any case, which economists were to blame?
I don't see any substantive criticism here. Can you explain what's wrong with WARP? I see it as a way of going from theories (people's preferences are such-and-such) to predictions (given WARP and these preferences, we expect these choice patterns, and not those).
>That's a shame, disdaining the source of real data. Of course brain scanners weren't that good back then, eh? But you don't need them. Pupil dilation, changes in pulse and respiration, capillary response, there are all sorts of signals that let you see "inside" the brain w/o fancy technology.
If you think that, then you can build a theory of utility involving that. There is an approach called neuroeconomics which tries to do so. My point is not to disdain these sources of information, it's that they aren't strictly necessary: preferences exist to predict choices and a given claim about someone's preferences can be falsified by observing their choices.
> Second, I don't need to know details about the nature of the BS, I can tell from the smell alone. Economics is in the same epistemological boat as Numerology and Astrology.
Of course, if so, then there's nothing further to discuss. Meanwhile:
* Autor et al. claim "import competition explains one-quarter of the contemporaneous aggregate decline in US manufacturing employment." What's wrong with their method? Why is it astrology?
* Banerjee and Duflo analyse microcredit using a randomized controlled trial. They find "no significant changes in health, education, or women's empowerment" and almost no long run effects. It seems important to understand whether popular anti-poverty policies work. Why is this barren?
* James Heckman has spent his life trying to understand how to help disadvantaged children, building mathematical theories of human capital and testing them on data. Why is this numerology?
* You blame economists for the loss of the Aral Sea. I would think it's more to do with Soviet planning. I hold no brief for Marxist economics, which was far from the mainstream already by the 1950s, but in any case, which economists were to blame?
Thank you for replying in such a constructive way, and I apologize for being uncouth in my previous comments. You've made your original point: I've admitted that, as a critic of economic science, I'm speaking from gross ignorance.
I want to be clear, I don't object to the study of economics, it's obviously an important and valuable field of study. What I object to is the (IMO) unearned social/political status of the field. I don't believe that economics is science (yet!) and so it seems to me that it functions (en mass) as a kind of psychological blind or bluff to let us feel like we have more agency than we in fact do. If I were to try to put it in a pithy "clickbait" phrase, "Alan Greenspan is a priest not an engineer." Hmm?
I don't think I'm going to convince you that economics is pre-scientific, and you're not going to convince me that it's a proper science. But let me try to be a little bit constructive. To me a legit scientific economics would have to be essentially:
Psychology, on the other hand, is a huge mess, far worse than economics. I'm not going to get into it here but the only rigorous engineer-able psychology I know of is dismissed as pseudoscience by academics, so there we are.
We're halfway there, viewed optimistically.
- - - -
> Can you explain what's wrong with WARP?
I can pick apart the definition and maybe that will illustrate where I'm coming from.
> This axiom states that given incomes and prices, if one product or service is purchased instead of another, then, as consumers, we will always make the same choice. The weak axiom also states that if we buy one particular product, then we will never buy a different product or brand unless it is cheaper, offers increased convenience, or is of better quality (i.e. unless it provides more benefits). As consumers, we will buy what we prefer and our choices will be consistent, so suggests the weak axiom.
To me, this is obviously a statement about psychology, but it's trying to treat the human being as a kind of "black box" by applying an abstraction ("as consumers") that's almost cartoonish, and then reasoning over this abstraction in ways that don't particularly match up to what you see in the real world, where people buy things for all kinds of reasons, most of them largely unconscious. There's the phenomenon where the price of something goes up and people want it more. Or the package changes and the sales go up (or down) even though the other qualities (price, convenience, quality) are the same.
Then there's the methodological difficulties. How do you actually measure these things to test the theories? How are these predictions stated?
To me, WARP says "people have habits" without adding anything of substance. It's taking a commonsense, prosaic truism and dressing it up in a lab coat.
> My point is not to disdain these sources of information, it's that they aren't strictly necessary: preferences exist to predict choices and a given claim about someone's preferences can be falsified by observing their choices.
If you have access to lots of purchasing data then, yes, I'm sure you can find regularities. If you're talking about predicting individual behaviour than again, how are you measuring this stuff? Are people following subjects around and recording them?
I want to be clear, I am pro-science. I'm not trying to undermine the authority of science, I'm trying to protect it. If we restrict the word to mean those fields of study that can make reliable predictions, or in other words that lead to reliable engineering disciplines, then it becomes pretty much unassailable. Only a fool doubts a physicist (in re: physics) eh? Chemistry is already a little squiffy though: e.g. nicotine "research".
If we continue to insist that psychology, sociology, economics, and the other "soft" sciences should carry the same authority when it's obvious to a lot of people that they are nothing like physics, then it seems to me we risk throwing the baby out with the bathwater.
I'm not going to go through those examples you gave, and I apologize for that. The first one sounds like it might be a statistical correlation backed by a lot of data, so perhaps it's okay? The second two sound like numerical naval gazing. Why study poverty? Just give people food and money. The reason poverty exists is that we lack love.
> You blame economists for the loss of the Aral Sea.
In re: the Aral sea. I do not blame the economists, or even the Soviets per se, I blame human nature. We are dumb, ignorant, and prone to hallucinations. That's why science is so important. These folks thought they had a correct economic theory but they were wrong and they didn't have the ability to notice and react. We (modern, Western) folks tend to talk and act like we have a correct economic theory but then things like the 2008 meltdown come along and Alan Greenspan is like, "Whoops."
To the extent that economics helps us see and understand reality, it's terrific! To the extent that it helps us fool ourselves, it's as dangerous as relying on astrologers.
I want to be clear, I don't object to the study of economics, it's obviously an important and valuable field of study. What I object to is the (IMO) unearned social/political status of the field. I don't believe that economics is science (yet!) and so it seems to me that it functions (en mass) as a kind of psychological blind or bluff to let us feel like we have more agency than we in fact do. If I were to try to put it in a pithy "clickbait" phrase, "Alan Greenspan is a priest not an engineer." Hmm?
I don't think I'm going to convince you that economics is pre-scientific, and you're not going to convince me that it's a proper science. But let me try to be a little bit constructive. To me a legit scientific economics would have to be essentially:
Ecology + Psychology
Psychology, on the other hand, is a huge mess, far worse than economics. I'm not going to get into it here but the only rigorous engineer-able psychology I know of is dismissed as pseudoscience by academics, so there we are.
We're halfway there, viewed optimistically.
- - - -
> Can you explain what's wrong with WARP?
I can pick apart the definition and maybe that will illustrate where I'm coming from.
> This axiom states that given incomes and prices, if one product or service is purchased instead of another, then, as consumers, we will always make the same choice. The weak axiom also states that if we buy one particular product, then we will never buy a different product or brand unless it is cheaper, offers increased convenience, or is of better quality (i.e. unless it provides more benefits). As consumers, we will buy what we prefer and our choices will be consistent, so suggests the weak axiom.
To me, this is obviously a statement about psychology, but it's trying to treat the human being as a kind of "black box" by applying an abstraction ("as consumers") that's almost cartoonish, and then reasoning over this abstraction in ways that don't particularly match up to what you see in the real world, where people buy things for all kinds of reasons, most of them largely unconscious. There's the phenomenon where the price of something goes up and people want it more. Or the package changes and the sales go up (or down) even though the other qualities (price, convenience, quality) are the same.
Then there's the methodological difficulties. How do you actually measure these things to test the theories? How are these predictions stated?
To me, WARP says "people have habits" without adding anything of substance. It's taking a commonsense, prosaic truism and dressing it up in a lab coat.
> My point is not to disdain these sources of information, it's that they aren't strictly necessary: preferences exist to predict choices and a given claim about someone's preferences can be falsified by observing their choices.
If you have access to lots of purchasing data then, yes, I'm sure you can find regularities. If you're talking about predicting individual behaviour than again, how are you measuring this stuff? Are people following subjects around and recording them?
I want to be clear, I am pro-science. I'm not trying to undermine the authority of science, I'm trying to protect it. If we restrict the word to mean those fields of study that can make reliable predictions, or in other words that lead to reliable engineering disciplines, then it becomes pretty much unassailable. Only a fool doubts a physicist (in re: physics) eh? Chemistry is already a little squiffy though: e.g. nicotine "research".
If we continue to insist that psychology, sociology, economics, and the other "soft" sciences should carry the same authority when it's obvious to a lot of people that they are nothing like physics, then it seems to me we risk throwing the baby out with the bathwater.
I'm not going to go through those examples you gave, and I apologize for that. The first one sounds like it might be a statistical correlation backed by a lot of data, so perhaps it's okay? The second two sound like numerical naval gazing. Why study poverty? Just give people food and money. The reason poverty exists is that we lack love.
> You blame economists for the loss of the Aral Sea.
In re: the Aral sea. I do not blame the economists, or even the Soviets per se, I blame human nature. We are dumb, ignorant, and prone to hallucinations. That's why science is so important. These folks thought they had a correct economic theory but they were wrong and they didn't have the ability to notice and react. We (modern, Western) folks tend to talk and act like we have a correct economic theory but then things like the 2008 meltdown come along and Alan Greenspan is like, "Whoops."
To the extent that economics helps us see and understand reality, it's terrific! To the extent that it helps us fool ourselves, it's as dangerous as relying on astrologers.
I think we are probably more or less coming closer, and in danger of overloading HN's servers, so I will stop here :-)
I studied economics. Everything except basic micro is nonsense. Intermediate micro is just calculus with silly variables. All the macro we studied was based on like fifty years of data, that of course showed the amazing power of economic theory, that everything compounds forever! Wow, what incredible achievements us humans have made. Pat on the back for us!
Can you define utility? It's an unsolved problem in economics.
What? It isn’t even a problem in economics.
I think if you divided economists up into two groups, with A including all the economists with popular media platforms or who work in government policy, and with B including the rest, those stuck in academia writing papers that only other economists ever read, then you would find that group A fits your quip very nicely, and group B does not.
Is it somehow righteous for academics to study self-referential things that their offspring then go to study in perpetuity? For example, money holes like string theory haven't produced any major breakthroughs, and in fact, that is by design. Chipping away at the near infinite scope of the infinite problem is good for writing papers to get PhDs. It is not good for science, or human progress.
Group B would probably be split in one bigger group that fits and another smaller one that doesn't.
Yeah, I think it's mostly that, but also as I just commented in another thread:
> economics is a psuedoscience like all social sciences and astrology. They've predicted absolutely nothing of value. It's just people studying these things prior to them becoming scientific, like people did with alchemy and whatnot before chemistry.
> economics is a psuedoscience like all social sciences and astrology. They've predicted absolutely nothing of value. It's just people studying these things prior to them becoming scientific, like people did with alchemy and whatnot before chemistry.
I mean...sort of? You're right about everything...but the way you portray it is..not so black and white. Life is quite nuanced.
Life is certainly nuanced, but complexity is more often leveraged to justify corruption than it is the cause of failure.
[deleted]
The problem with economics is that every problem becomes a wicked problem. You just can't test your theories in a controlled manner. And everything has confounding factors.
Esther Duflo won the Nobel prize for implementations of randomized controlled trials in a very non-wicked way. Experimental economics is a mature and active field.
"Wicked" doesn't mean bad, it means there are inherent difficulties in testing and implementation.
The Nobel Memorial Prize for Economics is what it is. Both Hayek and Friedman both won it, even though they have very different ideas about how the economy should be run. As did Paul Krugman. Yet I've seen no one mention his Nobel prize when it comes time to criticize him.
Even looking at what her study that won her the Nobel showed:
"Banerjee, Duflo and their co-authors concluded that students appeared to learn nothing from additional days at school. Neither did spending on textbooks seem to boost learning, even though the schools in Kenya lacked many essential inputs. Moreover, in the Indian context Banerjee and Duflo intended to study, many children appeared to learn little: in results from field tests in the city of Vadodara fewer than one in five third-grade students could correctly answer first-grade curriculum math test questions."
You can only get those results by implementing the solution. You can only know it doesn't work by trying it and seeing it doesn't work. That's part of what makes the problem wicked.
And unlike one of the people who responded who wanted to use my statement as support for saying economics is not a "real science". What it really means, is that this shit is hard because it is incredibly hard to conduct experiments in ways that don't irreparably harm some group.
The Nobel Memorial Prize for Economics is what it is. Both Hayek and Friedman both won it, even though they have very different ideas about how the economy should be run. As did Paul Krugman. Yet I've seen no one mention his Nobel prize when it comes time to criticize him.
Even looking at what her study that won her the Nobel showed:
"Banerjee, Duflo and their co-authors concluded that students appeared to learn nothing from additional days at school. Neither did spending on textbooks seem to boost learning, even though the schools in Kenya lacked many essential inputs. Moreover, in the Indian context Banerjee and Duflo intended to study, many children appeared to learn little: in results from field tests in the city of Vadodara fewer than one in five third-grade students could correctly answer first-grade curriculum math test questions."
You can only get those results by implementing the solution. You can only know it doesn't work by trying it and seeing it doesn't work. That's part of what makes the problem wicked.
And unlike one of the people who responded who wanted to use my statement as support for saying economics is not a "real science". What it really means, is that this shit is hard because it is incredibly hard to conduct experiments in ways that don't irreparably harm some group.
Yeah, exactly, so it's not science at all and is of no value other than for what the OP said.
> The problem with economics is that every problem becomes a wicked problem. You just can't test your theories in a controlled manner. And everything has confounding factors.
Or, to put it simply: economics is not a scientific discipline for any generally accepted definition of the term.
Or, to put it simply: economics is not a scientific discipline for any generally accepted definition of the term.
This criticism is usually applied to MMT. MMT says that in times of inflation you should raise taxes. Nobody is doing that.
That's not what MMT says. It says that excessive spending in the economy can create inflation. A possible way to compensate (not the only one) is to raise taxes.
But it doesn't say that the only cause of inflation is excessive spending. That idea is a monetarist fantasy, who are able to keep saying that even in the middle of a pandemic, with a logistic collapse, an energy crisis and a major war. Still, they think that everything will be OK raising interest rates and taxes.
Totally crazy. I'm curious to see what they will say if we see something a lot worse, deflation, in the next years.
But it doesn't say that the only cause of inflation is excessive spending. That idea is a monetarist fantasy, who are able to keep saying that even in the middle of a pandemic, with a logistic collapse, an energy crisis and a major war. Still, they think that everything will be OK raising interest rates and taxes.
Totally crazy. I'm curious to see what they will say if we see something a lot worse, deflation, in the next years.
"This criticism is usually applied to MMT. MMT says that in times of inflation you should raise taxes. Nobody is doing that."
Except that it doesn't say that.
The basics of MMT analysis is that put forward by Warren Mosler in Argentina recently. [0]
- Floating exchange rate
- 0% interest rates and no further issuance of public debt
- a guaranteed job for all at a fixed living wage
Taxes are very much secondary in MMT analysis. The stabilisation comes from government refraining from giving people free money for doing nothing, which is what paying interest on debt and reserves represents.
"As Mosler tirelessly repeated in his expositions, the price level of an economy, and therefore its level of inflation, can only be explained by the price that the State is willing to pay for the goods and services it needs to supply itself. This especially concerns the price of labour reflected in wages, since the origin of all goods and services is socially embodied human labour. "
[0]: https://gimms.org.uk/2022/05/16/journey-to-the-heart-of-arge...
Except that it doesn't say that.
The basics of MMT analysis is that put forward by Warren Mosler in Argentina recently. [0]
- Floating exchange rate
- 0% interest rates and no further issuance of public debt
- a guaranteed job for all at a fixed living wage
Taxes are very much secondary in MMT analysis. The stabilisation comes from government refraining from giving people free money for doing nothing, which is what paying interest on debt and reserves represents.
"As Mosler tirelessly repeated in his expositions, the price level of an economy, and therefore its level of inflation, can only be explained by the price that the State is willing to pay for the goods and services it needs to supply itself. This especially concerns the price of labour reflected in wages, since the origin of all goods and services is socially embodied human labour. "
[0]: https://gimms.org.uk/2022/05/16/journey-to-the-heart-of-arge...
That's Mosler's MMT, there are other MMT proposals which are closer to the path taken by the administration. Kelton's for example.
It's the same thing with a different marketing emphasis. Although increasingly they appear to be heading down the same policy dead ends as Post Keynesianism, simply to try to appeal to the Democratic Party.
You won't find any MMT proposal that proposes changing taxes to control inflation, because that doesn't work any more than changing interest rates does. You don't want humans involved in the stabilisation system - it has to be done by the automatic stabilisers, and on the spend side.
Taxes are set based upon fiscal policy goals which are, or should be, indifferent to the business cycle.
The analysis within MMT comes from an understanding that we control inflation via a buffer stock of human labour, and that government sets the price of currency when it spends.
You won't find any MMT proposal that proposes changing taxes to control inflation, because that doesn't work any more than changing interest rates does. You don't want humans involved in the stabilisation system - it has to be done by the automatic stabilisers, and on the spend side.
Taxes are set based upon fiscal policy goals which are, or should be, indifferent to the business cycle.
The analysis within MMT comes from an understanding that we control inflation via a buffer stock of human labour, and that government sets the price of currency when it spends.
This is because the money and prestige is in academically justify the ruling powers and economists are simply rational agents engaged in maximizing their personal utility.
There's more money in demonstrating that raising the minimum wage destroys jobs than there is in demonstrating that it destroys profits.
There's more money in demonstrating that raising the minimum wage destroys jobs than there is in demonstrating that it destroys profits.
There is a kernel of truth in there, I'll give you that. It is hard to extract social sciences from the zeitgeist.
But let's call a spade a spade: this is just another iteration of Marxist epistemological ideas. For Marx, the division between the proletariat and the bourgeoisie was much deeper than exploitation. Bourgeois had their own unsound systems of intertwined knowledge built to benefit their position in society.
Not to be flippant, but that's how forced re-education was morally justified by socialist regimes of the 20th century.
But let's call a spade a spade: this is just another iteration of Marxist epistemological ideas. For Marx, the division between the proletariat and the bourgeoisie was much deeper than exploitation. Bourgeois had their own unsound systems of intertwined knowledge built to benefit their position in society.
Not to be flippant, but that's how forced re-education was morally justified by socialist regimes of the 20th century.
I don't understand why this comment is almost downvoted to oblivion.
This type of thinking is exactly what led to mass starvation in the Soviet economy.
It turns out, markets are really good at figuring a LOT of that out. Planned economies are probably computationally infeasible even with vastly simplifying assumptions.
It turns out, markets are really good at figuring a LOT of that out. Planned economies are probably computationally infeasible even with vastly simplifying assumptions.
> This type of thinking is exactly what led to mass starvation in the Soviet economy.
In this case, the problem was indeed that Soviet "scientists" - as bsedlm postulates - "were making up theories to 'scientifically' (but actually, just academically) justify whatever the ruling powers want to do" - in this case lysenkoism:
> https://en.wikipedia.org/wiki/Lysenkoism
In this case, the problem was indeed that Soviet "scientists" - as bsedlm postulates - "were making up theories to 'scientifically' (but actually, just academically) justify whatever the ruling powers want to do" - in this case lysenkoism:
> https://en.wikipedia.org/wiki/Lysenkoism
There was mass starvation in Russia under the Czars too.
Tangent here: how do arbitrary, mass decisions differ when they are done independently versus when they are done in the open? Looking at this from the perspective of 'mob rule' which frequently makes very bad decisions.
Because markets are actually making a LOT of different decisions with incredible granularity and specificity across time and many other metrics. This is essentially computationally infeasible to do in a centralized way even if you make many simplifying assumptions.
It can go wrong of course! But there essentially is no alternative that is even close to working.
It can go wrong of course! But there essentially is no alternative that is even close to working.
But those decisions are done in a fairly isolated fashion, i.e. you don't know what your neighbor is doing.
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Markets existed long before “Economics”.
The Soviets had economists too. They just had different dodgey theories.
The Soviets had economists too. They just had different dodgey theories.
The more interesting question would be what problems has economics solved?
Roth and Shapely won the 2012 Nobel Prize for theoretic work that helped match donors with patients in need of organ transplants: https://www.npr.org/sections/health-shots/2015/06/11/4122248...
Ask any bank or mega-corp who hires economists for 7 figures what problems they solve... Up-thread it was pointed out that Amazon hires many economists.
I can't speak for Amazon, but in finance, employers are much more interested in the tools that Economists learned in the process of getting their degrees than they are in their economic forecasts.
Well forecasting is a small part of macroeconomics. For lots of traders and firms it also doesn't really matter and if it does, it would be only one small team of many.
Most of the stuff I learned that I've used in my career is related to things like consumer choice, price bundling and profit optimization, game theory, stats and econometrics.
Most of the stuff I learned that I've used in my career is related to things like consumer choice, price bundling and profit optimization, game theory, stats and econometrics.
Well Google/facebook/the entire internet are built on the back of auction systems designed by economists to start.
If you add "Macro", then yeah, valid question.
Fiat currency has lead to the longest period of growth in human history. America was in a 50 year depression prior to the introduction of fiat because the government wasn't able to control deflation, which it turns out is about the worst thing that can happen to an economy.
I guess so - but is a fiat currency an outcome of the study of macroeconomics? I think they had fiat in china a thousand years ago. Maybe someone at that time and place was making up some theory which would reasonably be regarded "macroeconomics" ?
Shorter list would be “solved problems in economics”. And how many economists pretend that expanding the money supply doesn’t increase inflation?
This list [1] shows answers from the IGM Economic Experts Panel polls where economists agree most strongly. There are lots of questions where economists show a consensus or near-consensus. You could consider those to be solved problem.
[1] https://github.com/Aransentin/IGMscrape/blob/master/results....
[1] https://github.com/Aransentin/IGMscrape/blob/master/results....
And how many economists pretend that expanding the money supply doesn’t increase inflation?
Japan spent decades trying to create inflation to no avail. Despite trillions in spending from 2008-2020 inflation was very low, until finally spiking in 2021.
Japan spent decades trying to create inflation to no avail. Despite trillions in spending from 2008-2020 inflation was very low, until finally spiking in 2021.
Economists are less certain about what causes inflation all the time. The current blast of inflation has been linked to market consolidation (e.g. monopoly) by some more adventurous economists. We wish economists would agree that monopoly is bad by some measure...
I don't know why you're getting downvoted. When I first took econ, we used a book by Gregory Mankiw that featured a list of 10 things that Economists generally agreed upon, and the percentage of Economists in some survey that agreed. I think the most agreed upon one was "people respond to incentives." And the second-most was "there's a short term inverse relationship between interest rates and unemployment." This was 20 years ago, and I think we're already at the point to where that second statement has been rendered obsolete.
So, yeah, I think I agree that all that Economists have left is "people respond to incentives."
So, yeah, I think I agree that all that Economists have left is "people respond to incentives."
Which isn't really even economics but just psychology or even biology...
> And how many economists pretend that expanding the money supply doesn’t increase inflation?
A live demonstration of the Dunning-Kruger effect in action. The effect of change in money supply on overall inflation is mediated by the velocity of that money. If the money supply were doubled but banks & consumers sat on the cash, stowing it under their mattresses, then there's no inflationary pressure on products to be had. Conversely, if an asteroid were to strike us in a year, then regardless of if the money supply was shrinking, if people were spending their life savings in days then inflationary pressure would skyrocket.
A live demonstration of the Dunning-Kruger effect in action. The effect of change in money supply on overall inflation is mediated by the velocity of that money. If the money supply were doubled but banks & consumers sat on the cash, stowing it under their mattresses, then there's no inflationary pressure on products to be had. Conversely, if an asteroid were to strike us in a year, then regardless of if the money supply was shrinking, if people were spending their life savings in days then inflationary pressure would skyrocket.
Issues in real estate and land markets stand behind the biggest societal problems that the human population is experiencing in early 21th century. There is no economical school or theory which covers real estate and land markets.
All contemporary economic issues, including the ones mentioned in the article, are problems which are easy to describe, not those which are important to society (McNamara fallacy).
Economics as a discipline describes an idealized fictional human-like colony on Mars, locked in a greenhouse. It doesn't even attempt to describe humans living on Earth, so be careful how you interpret it.
All contemporary economic issues, including the ones mentioned in the article, are problems which are easy to describe, not those which are important to society (McNamara fallacy).
Economics as a discipline describes an idealized fictional human-like colony on Mars, locked in a greenhouse. It doesn't even attempt to describe humans living on Earth, so be careful how you interpret it.
There absolutely is a whole area of study of the economics of housing and land use. https://en.wikipedia.org/wiki/Real_estate_economics . In the US we have chosen not to implement any of the recommended policies. There are whole blogs dedicated to the interaction between economics and the built environment https://marketurbanism.com/
My favorite novel policy for addressing land markets is the Land Value Tax. https://en.wikipedia.org/wiki/Land_value_tax
My favorite novel policy for addressing land markets is the Land Value Tax. https://en.wikipedia.org/wiki/Land_value_tax
A Land Value Tax of 100%, as part of Henry George's thinking, was the foundation of one of the oldest parties in Denmark. They had moderate success up until early 80's, and has been in government. My family was much involved in this, and I think it is a fine example of political influence on economic theory. At least here it was caught in between the classical political divide, as is not difficult to imagine from having as its primary position that "resources created by society should belong to society", 100% LVT and 0% tax on everything else. Both sides thought of them as opponents, and gradually georgist professors disappeared from academia
As prosperous and socialist as they might seem, Denmark also has the ugly determination of being #2 in the world's inequality index (only behind South Africa). Intentionally or not, the policies have had entirely the opposite effect.
The most common misconception of Denmark is that we are socialists, something that could not be farther from the truth. Take a look at COVID restrictions and compare to the individual states in the US.
When speaking to young Danes that have been indoctrinated by non-danes online about how we are I usually go with the following examples: liberation of porn; Christiania; abolition of slavery. Porn was set free in Denmark to remove it from the black market. Initially CP was legal as well, and the idea was to set everything free and then regulate minimally if needed. Christiania is where weed is dealt in Copenhagen. It is an old military area that the bz movement broke into and took. We had observed the severe problems it had created in other European cities, and it was decided to take a laissez faire approach and try to contain in that area. Slavery was abolished gradually in Denmark. It had been observed in other countries that it could politically dangerous to keep it going. Thus we made a gradual move away where it was made illegal to acquire new slaves, but those already in slavery were not freed. The reason it was a gradual process over a period of years, was to make sure that the slaveowners had time to build a slave population that was self sustainable from breeding. Only acquiring new slaves was illegal.
Edit: I forgot the most important one. We have no minimum wage in Denmark.
Edit: I forgot the most important one. We have no minimum wage in Denmark.
It's nonetheless very high in happiness and life satisfaction surveys. Socialism with Scandinavian characteristics (including a healthy dose of economic freedom and overall openness, as in Denmark) still has plenty of things to recommend for it.
So would it be fair to say that land use is a "solved" economics problem, we just chose not to implement the proper policies that economists generally agree on.
Most economic problems are solved problems. The problem is that political priorities impact the actions taken to "solve" or even "identify" those problems.
Though in a way, that too is an economic problem...
Though in a way, that too is an economic problem...
>Economics as a discipline describes an idealized fictional human-like colony on Mars, locked in a greenhouse. It doesn't even attempt to describe humans living on Earth, so be careful how you interpret it.
I'm an economist, and this is not remotely true. It's not even true for economic theory (international trade, environmental economics).
Here are some economic articles about humans on earth:
Case and Deaton's Deaths of Despair paper: https://mronline.org/wp-content/uploads/2020/07/15078.full_....
Duflo and Banerjee, Poor Economics
Easterly, The White Man's Burden
Autor et al's China Syndrome on the effect of trade with China: https://www.nber.org/system/files/working_papers/w18054/w180... and their subsequent papers on its effect on social outcomes (marriage, divorce, drug overdoses) and political extremism.
The idea that economists don't study real estate markets is also absolutely false. Google scholar "real estate economics" gives about 2.5 million results. There's the Journal of Urban Economics. There's Glaeser's book Triumph of the City. Et cetera.
I'm an economist, and this is not remotely true. It's not even true for economic theory (international trade, environmental economics).
Here are some economic articles about humans on earth:
Case and Deaton's Deaths of Despair paper: https://mronline.org/wp-content/uploads/2020/07/15078.full_....
Duflo and Banerjee, Poor Economics
Easterly, The White Man's Burden
Autor et al's China Syndrome on the effect of trade with China: https://www.nber.org/system/files/working_papers/w18054/w180... and their subsequent papers on its effect on social outcomes (marriage, divorce, drug overdoses) and political extremism.
The idea that economists don't study real estate markets is also absolutely false. Google scholar "real estate economics" gives about 2.5 million results. There's the Journal of Urban Economics. There's Glaeser's book Triumph of the City. Et cetera.
> There is no economical school or theory which covers real estate and land markets.
You forgot about Georgism
You forgot about Georgism
I wouldn't categorize this as the biggest, unless you consider the US, or even urban/emerging US markets, as encompassing the whole world.
I'm presently reading, Linda Yeuh, "The Great Economists: How Their Ideas Can Help Us Today ". I like reading about economic ideas in a historical context, seeing what situations the economists were seeking to understand.
Modern economics seems to treat all spending as valuable; there is no distinction between money spent on bridges vs Netflix vs education. Am I wrong about that? How to know the value add of a fiscal policy?
In the national accounts [0] spending on bridges shows up as investment, while Netflix is consumption
Keynes' book General Theory breaks down GDP into components, of which consumption and investment are two
Dynamic choices about consumption vs investment are at the core of macro models. In analysis of long term trends, the Solow growth model admits analysis of national savings rates. In the analysis of shorter term fluctuations, DSGE models explicitly address the household intertemporal consumption-savings question, seen in the Euler equation
[0] https://en.m.wikipedia.org/wiki/National_accounts
Keynes' book General Theory breaks down GDP into components, of which consumption and investment are two
Dynamic choices about consumption vs investment are at the core of macro models. In analysis of long term trends, the Solow growth model admits analysis of national savings rates. In the analysis of shorter term fluctuations, DSGE models explicitly address the household intertemporal consumption-savings question, seen in the Euler equation
[0] https://en.m.wikipedia.org/wiki/National_accounts
Knowing the value add of fiscal policy, but economics does understand the difference between spending on bridges vs netflix vs education – spending on netflix only benefits netflix and the person doing the spending, while spending on a bridge benefits everyone who uses the bridge as well as everyone who benefits from people being able to use the bridge (for example businesses on one side of the bridge who benefit from people being able to drive from the other side and visit their business).
Yes, you are wrong about that.
Modern economics isn't unanimous about this.
Most theories will clearly distinguish a bridge from Netflix. And even that "valuable" word is problematic, modern economics thinks about events and consequences, while "valuable" is a subjective take on the consequences, that is outside of the subject (and are almost always mixed anyway).
Modern economics isn't unanimous about this.
Most theories will clearly distinguish a bridge from Netflix. And even that "valuable" word is problematic, modern economics thinks about events and consequences, while "valuable" is a subjective take on the consequences, that is outside of the subject (and are almost always mixed anyway).
One open problem not listed, probably under the "Financial Economics" heading: the closed end fund premium discount puzzle, referenced her https://scholar.harvard.edu/files/shleifer/files/investorsen...
I didn't see "wage-price spiral" on that list. It's something that's definitely being trotted out at the moment to justify not giving raises despite rampant inflation, but it's far from a proven concept.
Most of these aren't really unsolved problems though, many have clear explanations, or are simply based on false assumptions (like the dividend puzzle).
Sure, some of them are difficult to have clear empirical answers and quantification of the effect impact due to huge amounts of confounding variables, but that doesn't mean the explanation isn't clear and obvious.
Sure, some of them are difficult to have clear empirical answers and quantification of the effect impact due to huge amounts of confounding variables, but that doesn't mean the explanation isn't clear and obvious.
Equity premium puzzle: The equity premium puzzle is thought to be one of the most important outstanding questions in neoclassical economics.[6] It is founded on the basis that over the last one hundred years or so the average real return to stocks in the US has been substantially higher than that of bonds. The puzzle lies in explaining the causes behind this equity premium. While there are a number of different theories regarding the puzzle, there still exists no definitive agreement on its cause.[7]
So solved in this context means consensus, not as in something mathematically rigorous. I think this is the problem with a lot of these unsolved problems. When I think of something being solved, it means that it absolves doubts.
Improved Black–Scholes and binomial options pricing models: The Black–Scholes model and the more general binomial options pricing models are a collection of equations that seek to model and price equity and call options. While the models are widely used, they have many significant limitations.[11] Chief among them are the model's inability to account for historical market movements[12] and their frequent overpricing of options, with the overpricing increasing with the time to maturity.[13] The development of a model that can properly account for the pricing of call options on an asset with stochastic volatility is considered an open problem in financial economics.[citation needed]
This is already done. There are a plethora of models to account for everything. It's not an open problem. It's just messy mathematically and does not have the elegant solution like the Black Scholes option pricing model does.
So solved in this context means consensus, not as in something mathematically rigorous. I think this is the problem with a lot of these unsolved problems. When I think of something being solved, it means that it absolves doubts.
Improved Black–Scholes and binomial options pricing models: The Black–Scholes model and the more general binomial options pricing models are a collection of equations that seek to model and price equity and call options. While the models are widely used, they have many significant limitations.[11] Chief among them are the model's inability to account for historical market movements[12] and their frequent overpricing of options, with the overpricing increasing with the time to maturity.[13] The development of a model that can properly account for the pricing of call options on an asset with stochastic volatility is considered an open problem in financial economics.[citation needed]
This is already done. There are a plethora of models to account for everything. It's not an open problem. It's just messy mathematically and does not have the elegant solution like the Black Scholes option pricing model does.
"a total and complete inability to prevent total environmental collapse" strangely isn't on the list
Doesn't "Equity premium puzzle"[0] tells us to barrow money to buy equities for infinite profits?
[0] https://en.wikipedia.org/wiki/Equity_premium_puzzle
[0] https://en.wikipedia.org/wiki/Equity_premium_puzzle
I dont understand this problem.
Is it saying that government bonds pay less then the free market and then asking why?
Why should that NOT be the case? Governments don't do anything productive, so why should there be an equal expected return compared to the private sector?
I dont understand this problem.
Is it saying that government bonds pay less then the free market and then asking why?
Why should that NOT be the case? Governments don't do anything productive, so why should there be an equal expected return compared to the private sector?
I dont understand this problem.
> Governments don't do anything productive
I don't know what you mean by this. It seems false. All states produce many goods and services, primarily security, but many others like health care and such.
I don't know what you mean by this. It seems false. All states produce many goods and services, primarily security, but many others like health care and such.
I guess I wasn't really thinking outside my bubble, but generally around me I don't see much of the government getting involved with directly producing marketable goods. The government may equip a police force, but it doesn't produce the guns or vests or cars directly, and it doesn't liquidate its services.
I mean, in general, we don't have to government do jobs that would be profitable, but rather the jobs that we believe are necessary regardless of profit. Schools don't turn any monetary gains, but we believe it's necessary for the betterment of our children.
I therefore wouldn't expect the government to be turning large gains back afterwords. Feels like underperformance in that sense should be expected.
I mean, in general, we don't have to government do jobs that would be profitable, but rather the jobs that we believe are necessary regardless of profit. Schools don't turn any monetary gains, but we believe it's necessary for the betterment of our children.
I therefore wouldn't expect the government to be turning large gains back afterwords. Feels like underperformance in that sense should be expected.
The puzzle is not that the government should be as productive as the private sector. The first part of the puzzle is, given that historically equities have returned a lot more (5% to 8% annually, compounding in the long term), why is there still so much money invested in T-Bills (which is what makes their return low and enables the US gov to borrow cheaply).
The classical answer is that stocks might return much more on average but are also much riskier / more volatile. Now the second part of puzzle is, that explanation only holds when investors in the aggregate are extremely risk-averse, much more so than how they are observed to behave in practice (such as in simple betting situations).
The classical answer is that stocks might return much more on average but are also much riskier / more volatile. Now the second part of puzzle is, that explanation only holds when investors in the aggregate are extremely risk-averse, much more so than how they are observed to behave in practice (such as in simple betting situations).
Thanks for clearing that up for me, that makes alot more sense as a puzzle.
I wonder if it's something to do with corporate lobbying and a "if you scratch my back, I'll scratch yours" game going on.
For instance "If you give me the money (buy my overpriced bonds) I can do the things that get me re-elected, and meanwhile I can look into revising that bill you wanted me to look at."
Just a conspiracy theory though, I'm way too blue collar to properly understand this sorta stuff.
I wonder if it's something to do with corporate lobbying and a "if you scratch my back, I'll scratch yours" game going on.
For instance "If you give me the money (buy my overpriced bonds) I can do the things that get me re-elected, and meanwhile I can look into revising that bill you wanted me to look at."
Just a conspiracy theory though, I'm way too blue collar to properly understand this sorta stuff.
Notably, there is no reference to one of the heavy-hitters:
https://en.wikipedia.org/wiki/Efficient-market_hypothesis
https://en.wikipedia.org/wiki/Efficient-market_hypothesis
It seems to me that the answer to the equity premium puzzle is that while equities are market-priced determined, the interest rate is controlled by the central bank.
Missing "externalities."
Looking at problems like the Backus–Kehoe–Kydland puzzle and the PPP Puzzle I see a reliance on the concept of shocks. If these shocks are treated as exogenous factors, that's a bit disappointing. Hopefully one day economics can be advanced enough to do away with the concept of exogeneity barring sunlight and asteroids.
And some of these might never be stalled. repeat after me, macroeconomics is not a hard science. There is no clear mechanism for experiment -> observation -> inference and every single new treatment has no previous precedent since conditions are changing.
I'm confused about the dividend puzzle. I thought that dividends were really the only thing giving the stocks of high-performing companies concrete value. Wouldn't you naturally value high-dividend paying stocks more highly?
What is money?
> Dividend puzzle
It's not a puzzle. When investors buy a stock that pays a dividend, they're looking mostly at yield. Dividend-yielding equities compete with fixed-income securities (bonds), not speculative equities. So dividend yielding stocks get bought up until the point where the yield is more or less the same as fixed-income securities.
> Home bias in trade puzzle:
It's not a mystery; most people are smart enough to know that when money stays in the community, everyone benefits. Even if the average consumer doesn't know this, enough experts do to push 'buy local' schemes. This is all else being equal of course.
It's not a puzzle. When investors buy a stock that pays a dividend, they're looking mostly at yield. Dividend-yielding equities compete with fixed-income securities (bonds), not speculative equities. So dividend yielding stocks get bought up until the point where the yield is more or less the same as fixed-income securities.
> Home bias in trade puzzle:
It's not a mystery; most people are smart enough to know that when money stays in the community, everyone benefits. Even if the average consumer doesn't know this, enough experts do to push 'buy local' schemes. This is all else being equal of course.
This is a partial list. Any specialist in any subfield of the discipline could list a large set of open problems. Nearly all have broader significance.
In my own specialty (industrial organization) unsolved problems which would be of interest to readers here include optimal regulation of platforms and two-sided markets. Theory and empirics are difficult, so regulators are to some extent fumbling in the dark a bit. It is not at all clear how to regulate (for example) Amazon’s offering its own versions of products sold on its marketplace OR what the right tariff Apple should charge for access to the App Store is.
Extremely confident claims that such behavior is permissible or should be forbidden are likely unsupported by any careful analysis one way or the other.