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March 30, 2009


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Economics a science? No it ain't. I wouldn't call myself an economist but it is what I read at university.

I like my science to have at least a smidgen of predictive capability; a way of demonstrating falsifiability; and it ought to be impossible to use the same empirical data to produce two completely contradictory answers.

No, economics is just a bit more scientific than politics.


I think Taleb nailed the economics as a science myth once and for all (for those you wish to listen, as well as demonstrating Poppers falsification is more than a work around for induction it actually solves it)

Which demonstrates what you do not know is more important that what you do know, so maybe you should be refereing to the "know less" than "know-alls"

The book looks good, ill give it a go, it will help me understand the puzzle solvers dilemmas.

Luis Enrique

oh man, not the is economics a science debate again. The puzzling thing about this debate is what those who like to say economics is not a science think that implies. The main respect in which economics is not like a science is (as any fool knows) the impossibility of running large sample macroeconomic experiments - and the gigantic number of variables in the system - which means, among other things, we cannot distinguish between rival models. Hence there is much less consensus about and understanding of, say, fiscal policy in response to a financial crisis, than there is about what happens when a cricket ball is thrown. But it's a bit rich to hold this against economists - it's just the nature of the beast - and neither does it mean we'd be better off abandoning theory and data, and pulling our understanding of the economy out of our collective arses, which is the approach beloved of many of the subject's critics. You could make many of the same criticisms of macro-scale biology what's that called - ecology? - aren't ecologists scientists?

I'm less sure that DSGE models are useless. After all, if you object to, say, the imposition of rational expectations, you can build a DSGE with some other form of expectation formation. Any decent model of the macro economy needs to be dynamic and stochastic and er... general equilibriumtastic, isn't it?

Here's one response to Buiter:

Bob B

Is "Medicine" a science?

Medicine seems to have verging on as many contentious issues with making falsifiable predictions as does economics. As best I can tell, physicians, lawyers, historians, politicians and journalists are as prone to professional disagreements as economists.

Btw if theoretical physics is the paradigm for scientific method, what then is the fuss over the Higgs Boson all about?

"The Higgs boson is the only Standard Model particle that has not yet been observed. Experimental detection of the Higgs boson would help explain how massless elementary particles can have mass. More specifically, the Higgs boson would explain the difference between the massless photon, which mediates electromagnetism, and the massive W and Z bosons, which mediate the weak force. If the Higgs boson exists, it is an integral and pervasive component of the material world."

And why all the puzzles about explaining the rings around Saturn?

In my humble experience, rubbishing economics is the usual prelude for promoting the ascendancy of all sorts of populist nonsense. As Alan Blinder once put it:

"Murphys law of economic policy: Economists have the least influence on policy where they know the most and are most agreed; they have the most influence on policy where they know the least and disagree most vehemently."
Alan S. Blinder: Hard heads, soft hearts (Addison-Wesley 1987)


I was at the LSE with a man who gave up economics to be a cartoonist. Any time he does a cartoon about economics he uses my name.
The one I liked best was " Lear has built up a great reputation as an economist - he may have been right twice in a hundred. "


"Btw if theoretical physics is the paradigm for scientific method": of course it isn't. The clue is in the adjective.


"..Good managers can be worse than bad..": I wonder into which category this fellow fits? He's the former ice cream vendor who has become CEO of Gucci Group.

He admits to summoning technical support and demanding to have the same BlackBerry as Gucci Group Asia-Pacific CEO Mimi Tang after spotting her superior model.

"It was really upsetting for me," he says. "I need to be the first. I need to lead the way in these new developments. I can't wait for someone else to tell me they have it and I have to wake up. Two days later I had it. I said: 'Guys, don't ever do this to me again.'"

He's pictured in this morning's Telegraph with a nice display of the sort of handbags that my late maiden aunt would have liked.


Great, another book by economists explaining life, the universe, and everything. Cause they've done such a good job explaining the economy, right? Currently ranked 14,559 in the best seller list.


Economics is at best a form of monetary meteorology. With Michael Fish as the paradigm.


Some economists here are very ignorant of science. For example, the point about the Higgs Boson is that it is predicted by the standard model. That it hasn't been observed yet is largely down to us not yet having had good enough kit to detect it in isolation. Doesn't mean it doesn't exist.

Medicine is not explicitly a science, it is an applied science (more akin to engineering) building upon scientific foundations such as biochemistry and physiology (and many other specialisms).

Economic modelling has probably its closest analogue in climate modelling than with theoretical physics, and well we all know what most economists think of how scientific that is!

Bob B

The really sad aspect about a belief that economics is no better than astrology is that this populist notion enables nonsense to flourish.

A classic example was in the mid 1980s, when the Bank of England's base interest rates were set by the Chancellor of the Exchequer who, at the time, believed this policy instrument could be applied both to curb inflation and to manage the Pound exchange rate.

Nigel Lawson, the Chancellor, having formally abandoned in the autumn of 1985 the unworkable Medium Term Financial Strategy - or "monetarism" to the man on the Clapham omnibus - became intent on putting the Pound into the European Monetary Mechanism (ERM). But he wanted to ensure the exchange rate for the Pound would be "competitive" against the DMark on joining the ERM and that meant keeping interest rates down to reduce the attractiveness of holding balances in Pounds.

Unfortunately, that also meant money was cheaper to borrow and so credit boomed leading to an unsustainable boom in the economy - especially since Lawson was also intent on reducing the tax burden - and a renewed surge of inflation which, in due course, led to the Pound dropping out of the ERM in September 1992 despite high interest rates.

If only Lawson had read (Nobel laureate) Tinbergen on The Theory of Economic Policy (1952), he might have avoided such an elementary, ignorant blunder as using one policy instrument to achieve two targets.

"The systematic quantitative treatment of an economic policy problem to attain a set of targets using an appropriate set of instruments was new to many at that time. The necessary equality of number of instruments to number of targets was the first proposition of the work. In the booklet, Istudied the consequences of inequality of these numbers. More targets than instruments makes targets incompatible. More instruments than targets makes instruments alternative"

Btw the IMF's eventual verdict on "monetarism":

"...instability of monetary demand, especially in the context of supply shocks and declines in potential output growth, complicated the task of monetary authorities. As a result, during the 1980s most central banks – with some notable exceptions – either abandoned or downplayed the role of monetary targets".
IMF World Economic Outlook, October 1996, p.106.

And by the election in 1992, taxes in Britain as a percentage of Britain's GDP were about the same as when Mrs Thatcher became PM in May 1979.

So much for Conservative competence at macroeconomic management - and quite regardless of whether economics is a science or not.


Luis Enrique,
I generally like your posts, but this paragraph needs a bit of work:
I'm less sure that DSGE models are useless. After all, if you object to, say, the imposition of rational expectations, you can build a DSGE with some other form of expectation formation. Any decent model of the macro economy needs to be dynamic and stochastic and er... general equilibriumtastic, isn't it?

I'm not actually sure what you are trying to say there. You are less sure that DSGE models are useless ... relative to what or whom?

Now my beef is with the general equlibrium bit (and I don't see how your have justified it).

Now have you seriously attacked the economics is not a science critics accurately by merely saying economics is difficult. There is plenty of evidence around (try Steve Keen for a list) that economic paradigms survive in spite of being rejected by the evidence. Which is the real beef.


Yes, I do accept that economics a science! Because we are discovering new 'methods' in calculating certain parameters such as GDP..moreover I can say that Economics is an application of Mathematics and Science!!

Bob B

I refuse to get excited over whether economics is a science - and I'm deeply suspicious that this question is often invoked to: (a) discredit economics and/or divert discussion away from embarrassing issues; (b) assert authority for claims that should be argued on their own merits with due documentation.

What makes Economics 2.0 - or Keynes's General Theory - interesting is a fresh analysis of old and perhaps previously intractable issues.

Before Keynes's General Theory (1936), the conventional policy prescriptions for dealing with deep recessions were general wage cuts and fiscal belt-tightening by raising taxes and cutting public spending. The standard line of HM Treasury in the 1930s was that funded additional public spending would not boost demand as there would be an offsetting reduction in private spending.

Not many economists nowadays subscribe to those old conventional remedies although economists are still debating about the General Theory so I feel uneasy about claiming that the General Theory is valid because it's "scientific".

Luis Enrique


Fair enough - it wasn't the best argued of points, probably because I'm not standing on very firm ground. I'm less sure that DSGE models are useful, relative to all these people who say they are completely useless! (or economics with the economics taken out, as Chris put it). I think DSGE models are useful for trying to understand the short-run behaviour of the macroeconomy. I think the basic structure of these models is flexible enough for them to remain useful, by forming the basis of models that include things like deviations from rationality, asset and credit bubbles, and so forth. They are easy to critcise, but I am not aware of a superior framework, which may just reflect my ignorance (I am not a business cycle marcoeconomist, so as I write this, I have the uncomfortable sensation of not knowing of what I speak). By saying that any decent model would need to be a general equilibrium model, I meant as opposed to partial equilibrium. For example, the actions of firms must affect the consumption and labour supply decisions of households and vice versa - changes in one part of the economy must have consequences for all the other parts. Unfortunately my knowledge of DSGE stops at the graduate student textbook level, so I don't really know much about multi-sector models, including a finance sector, where general equilibrium effects might be more interesting. Likewise, any decent model is going to need to be dynamic as opposed to static, and you'd probably want it to be able to cope with shocks as opposed to just being purely deterministic (endogenous cycles). Although I agree that having models that can only explain fluctuations by appeal to shocks, is unsatisfactory.

Of course it might be that achieving a more satisfactory understanding of the macroeconomy is going to require chucking the whole DSGE legacy in the bin, I couldn't say.

Luis Enrique

sorry, muddled my usefuls and uselesses in the second sentence - hopefully you can disentangle


I guess I understand. I agree a model has to be complete (i.e. everything effects everything else) but I'm inclined to think that assuming there is an equilibrium and the economy moves towards it is a big assumption and that if that is the case it should be something that emerges from the data rather than something that is assumed. And it is not necessary, we just need to accurately model the dynamics (whatever they are).

Luis Enrique

yes, I don't know enough about this debate over assuming an equilibrium - after all, if you replace the concept of equilibria with something from chaos theory - a "strange attractor" - then isn't that just like an equilibrium that the system wobbles around a bit? I think you get strange attractors from agent based computational models. How different is that from an equilibrium with noise/shocks? After all, real world economies do not zoom around all over the place - they do behave quite like they are fluctuating around equilibrium paths.

[systems with multiple equilibria are another kettle of ball games]

raivo pommer-eesti-www.google.ee

Raivo Pommer-eesti-www.google.ee


Finantzkrise 2008-2015

Um die Folgen der Marktöffnung besser abschätzen zu können, hat der Verband beim Institut für Versicherungswirtschaft der Uni St.Gallen eine Studie in Auftrag gegeben. Sie sollte bis im Juli vorliegen. «Wir prüfen, wie sich eine gegenseitige Liberalisierung auf die Branche und den Standort Schweiz auswirken würde», sagt Professor Hato Schmeiser, «und welche Bereiche davon am meisten profitierten.» Schmeiser sieht vor allem im Pensionskassengeschäft Potenzial. Da läge in der Tat viel drin: Die Branche geht davon aus, dass sich das private Pensionskassenvermögen in Europa von momentan 5000 Milliarden Franken bis 2015 verdoppeln wird. Weniger Bürokratie bei der Aufsicht

Weil Marktöffnungen politisch heikel sind, prüft die Branche auch Alternativen. Im Vordergrund steht dabei die gegenseitige Anerkennung der Aufsichtsbehörden. Heute sehen sich die Schweizer Versicherungen mit vielen national unterschiedlichen Regeln und Gremien konfrontiert. «Ziel ist, dass die im Ausland tätigen Tochtergesellschaften künftig von der Schweizer Aufsicht überwacht werden können. Und dass die Arbeit der hiesigen Kontrolleure als gleichwertig anerkannt wird», sagt Beat Krieger vom Versicherungsverband. «Damit wäre schon viel gewonnen.»


This is just one idea, and perhaps displays no more than my limited imagination. If there are better ideas out there, that amount to more than "implement something called "market socialism" and then - alacazam! - full employment!" then I'd love to hear them. http://www.watchgy.com/ mostly bank deposits, fell by £143.2bn in Q1. And of course there’s no guarantee such buying will continue.

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