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May 02, 2014



"- George Osborne has a high approval rating, even though orthodox economics, as Simon is sick of telling us, tells us that his actions delayed the recovery**."

Only because Simon refuses to engage with the counterfactual that monetary policy could not be so stimulative without fiscal austerity (or at least the rhetoric of fiscal austerity).

The world is full of orthodox economists who in the face of unsustainable deficits (and fears over a weaker currency & higher imported inflation) support fiscal contradiction in order to have a more stimulative monetary policy, it's just that not many are to be found in Oxford senior common rooms.

Thornton Hall

What kind of twisted psychopath thinks the academy should be populated with good stock pickers? The deeper I get into the econoblogosphere, the more convinced I am that nobody in the field has a coherent idea of "doing economics". Let alone a coherent idea of how it might be socially useful.

Socialism In One Bedroom

I note that in the quote Chang says "may be better", so he can't be wrong I guess.

On being an expert in economics, I note that some government ministers struggle to say what the price of a loaf of bread is. In that respect my gran is better at economics than some experts.


How about economists should stop aspiring (if they do) to the status of physics, and settle for engineering? There are some rules, but also a lot of approximations and rules of thumb to deal with messy problems with lots of variables. And it's useful in both disciplines to have an idea of how certain you are.

An Alien Visitor (back for a second look)

"with messy problems with lots of variables"

because they don't exist in Physics!

Dave Timoney

Chang is advocating public engagement in economic policy, which is a good thing; not least because (as you note in the wisdom of crowds/self-fulfilling prophecy story) macroeconomics is simply aggregate behaviour.

The less we think of it as a remote force of nature (that is best abstracted via science), the more we consider our own responsibility. This is therefore an ethical stance, and thus something we should applaud.

Re your contra-Chang examples, individual equity investors underperform trackers in the same way that gamblers (on average) do worse that random number generators. The assumption has to be that they piss their money away for other reasons, such as endorphins or a love of stubby pencils.


"most individual equity investors under-perform the market... this tells us that ordinary citizens know less than the experts - because expert advice is to invest in trackers."

Equating "individual equity investors" with "ordinary citizens" seems problematic, since surely there are ordinary citizens who DO invest in trackers? How do you know that the ratio of ordinary citizens investing in trackers is lower than the same ratio of experts?

Christiaan Hofman

All you've really said is that individuals are crap predictors, and crowds are good predictors. That's not really surprising, and I don't really think it says anything about consumers versus economists.


Interesting Lettau-Ludvigson paper - thanks.

I'm uneasy about the suggested mechanism of the predictive power of consumption/wealth over stock returns.

Surely increased consumption relative to wealth is itself a driver of stock returns over the forecast period. And surely a low wealth relative to consumption is something that might return to the mean (via increased stock returns)?

Is this really prediction rather than causation? I don't think Lettau-Ludvigson address this hypothesis.

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