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July 31, 2009

Comments

Glenn

Even if there were laws for economics, it would be extremely difficult to isolate single hypotheses which you could disprove by scientific experimentation.

Analysis of economic mechanisms involves many different sources of information - some of them are factor inputs, some are outputs, some are proxies etc. There's lots of data, from different sources, of different levels of quality, to process.

Economic forecasts essentially bundle together hundreds of data sources and many mechanisms and disjointed models in order to cobble together future projections. And then further treatment work is applied to make the outputs internally consistent. They are not based on one simple law or equation which pops out an answer.

Sometimes its easier just to use the human brain to make an economic forecasts - very similar process....

I think the commentators you mention are just after writing a new cover on their reprinted textbook...

Mr Art

If your theory explains things but makes no predictions it's no better than story-telling. You might as well say fairies did it.

Dimitrios Diamantaras

Mr Art, this is a tired criticism, hardly worth addressing, but I will try, briefly. A theory starts with some assumptions and then generates conclusions. You can test, in principle, whether these conclusions occurred or not while the assumptions held. This allows falsification of the theory, in principle. But who says that these conclusions have to do with the future, thereby making them predictions in the sense that Wall Street wants to have predictions?

sean

Dialectic materialism needs to justify its claim to science otherwise its toast (which it is IMO)

I am happy with good guesses if you are?

Mr Art

Personally I think economics *does* make predictions. It is especially good at telling us what won't work (see Zimbabwe for example).

But we (the general public) demand impossible accuracy of macroeconomic forecasts. Even a well-run economy has its ups and downs.

David Crookes

"If you need to foresee the future, you are doing something badly wrong."

I don't understand why you say this. Can you elaborate?

To me, making predictions of the future is one of the most important things humans do. What other species attempt to plan out so far and adjust the environment to accommodate their unknown future.

Frank the sales forecaster

"If you need to foresee the future, you are doing something badly wrong."

Wait, Wha? Sounds like sour grapes. We can't do that so doing it is really unimportant, lol.

"...economists will never be able to produce laws which yield systemically successful forecasts."

Economics was created in the age of limited data and the need for overarching simplifying assumptions. As the world has developed the data handling to allow working with billions of rows of data, economists have stayed with their little data sets and big assumptions. Additionally, concepts like operating leverage and ROA, with its trade-off relationship between sales and profitability, is completely lost in the great Supply and Demand curve. Works great for commodities but not so good for laptops. Oh, and the life cycle of the household savings model is a joke, ignoring periods of capital outflow associated with purchase of move-up home and kids in college. Both businesses and households are poorly conceptualized black boxes to economists.

ps. there is a very strong relationship between the age of the head of household and the likelyhood of homeownership. It was very easy to take the demographics of the US and this historical relationship, adjust upward for the lift due to increased educational attainment and increased propensity for 2 income households, and predict a "housing boom" as well as a following "housing bust." The tricky part was adjusting for the timing impact of birth control/abortion.

You keep buying the emh, I say meh.

Roy Lofquist

Dear Sirs,

Mr. Art is precisely correct. Economies are mathematically of the form np-complete or, as your Mr. Roger Penrose would term them, "non-computable". It is not a question of hundreds of variables but rather millions of variables.

No conceivable computer can "solve" the problem in the foreseeable future. Sorry, guys - it's all SWAG, Scientifically Wild Ass Guesses.

Regards,

Roy

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