"I made the right assumptions; hence my predictions were far closer to reality than theirs. Not because I’m a better economist than they are. I’m not a full economist, anyway. No, these people are better economists by orders of magnitudes".
I disagree. If your predictions or expectations were more accurate than theirs, that means that you are a better economist. There are no prizes for working out very accurately a problem that does not correspond to reality.
Personally, I agree with Michael Hudson and a few others that there are virtually no real (or honest) economists. All the established, recognised, honoured, admired "economists" have sold out to the rich and powerful, and have been made successful as a reward for telling stories that are untrue.
As Dr Hudson remarks, establishment economics doesn't take any account of debt! That's like a theory of aerodynamics that doesn't consider air pressure. But that false, misleading "economics" is taught everywhere and fills up most of the available books.
Because, as Dr Hudson point out, economics graduates have a habit they acquired as children: they like to eat. And as soon as they graduate, they have a choice of two careers. They can climb the academic tree, by teaching false ideas; or they can drive a taxi.
I also like Hudson, who calculated that the outflow of US gold was completely due to wars, when he was working for Chase (Rockefeller) Bank around 1967, which data was rejected by the government after reading it, though it was true. He then gave birth to the Petrodollar, by observing ("Super Imperialism") that the arrangement already existed de-facto. Nixon and Kissinger firmed it up. The biggest thing Hudson says is that debts have to be periodically written down or the system breaks, the society and its real economy break. Debt-holding oligarchs won't pay for that to be said, which is the same problem Jesus had, which Hudson points out. https://michael-hudson.com/2017/12/he-died-for-our-debt-not-our-sins/#:~:text=Jesus%20died%20for%20our%20debt,to%20their%20authority%20and%20wealth.
Aside from that fact, better projection models will give more accurate projections. Financial-economics assume a lot of things that are not real. It assumes that energy and resources will be substituted to replace those that fall short. That is impossible within an economy that is interwoven at many cost points. $140/bbl oil collapsed it. Gail Tverberg has that story pretty regularly. https://ourfiniteworld.com/2023/10/25/todays-energy-bottleneck-may-bring-down-major-governments/
Dr. Tim Morgan has an energetic-economics model, which works well, and he also posts a couple of times per month. The issue is that people refuse to understand, because they/we are currently very invested in not-understanding, because it tells us nicer things, and has worked ok so far. https://surplusenergyeconomics.wordpress.com/
This analysis from 2021 said the original "BAU" (business as usual) graph was tracking pretty well. Take a look. We are at or just past the peak of industrial production, and it really seems like peak-redefined-"oil" happened in late 2018, though not discussed here: https://www.ecologicaleconomicsforall.org/limits-to-growth
All projections, including that Seneca's Cliff for industrial output, assume the sun doesn't go nova, or micronova, or something like that, which appears to happen every 12,000 years when the galactic current sheet whips around again, like it is starting to do now, as the earth's magnetic fields weaken during this polar excursion. https://www.youtube.com/watch?v=ObauZqcHFcU&t=162s
I remember when I was sitting in my macro economics class part of the MBA program at a top US university thinking to myself “these models are crap”.
I challenged the prof (who was Italian) that some of this stuff does not correspond to reality. It’s garbage. People don’t think that way and states don’t behave that way under different geopolitical considerations.
He got uncomfortable because they record these lectures and he can’t agree with me. I don’t even know if he did agree but I made people uncomfortable with my common sense observations.
Modern western economics is built on models that are based on faulty assumptions of how the world works while omitting important details.
I think this is deliberate. I don’t think they want to teach people how things really work because the current fantastical story benefits them and it’s a useful religion to the high priests.
Luckily we do not have the said central planning/forecasting authority. If we had one, it would have had too much power so it would have been instantly corrupted. Look no further than IPCC or WHO for examples in different domains.
What we need is free thinkers that can speak their mind freely, without being afraid of losing their jobs, being ostracised or even persecuted. The best forecast will then emerge bottom up as opposed to the nowadays always preferred top-down approach. Follow the science/experts anybody? We saw how well did the "experts" faired during covid. Good luck with economics - it's no different.
El problema de los pueblos de Europa no está en los malos análisis de sus gobernantes, está en que sus gobiernos no son soberanos, están atrapados en la jaula geopolítica y económica impuesta por los EEUU. Cualquier persona (estúpida incluso) podría tomar mejores desiciones que los actuales goberinos de los países europeos, con sus honrosas y muy limitadas excepciones.
I have found that Hyman Minsky's instability theorem accurately describes observable reality, but that TPTB do not like the implications of this theory.
The reason most economic forecasts are wrong is because the experts, even though they have pedigree Ivy League degrees, are dumb. Until we go back to basic education at the elementary levels that teach the basic skills and develop common sense and critical thinking it will not get better, only worse. As the saying goes, "garbage in-garbage out", and that applies to the human mind as well.
Nice introductory article that is derived from "Emipres." I agree with Meredith Hobbs: both column styles. Your comment, "That’s why I spent hundreds of hours reading books about macroeconomics. And I think that I learned a lot." is striking to me. I've told my daughter, as she enters her masters program, that her real education begins after she graduates from the university. Never stop learning is sage advice.
Which reminds me, is there such a thing/position as an "Economist?" Adam Smith's hidden hand is always prevalent within the economic dealings at the micro and macro level. This can be easily seen in the US, as the economy started its slow implosion circa 1971 (15 Aug to be precise).
Waiting with anticipation for your next article! Cheers from Cheyenne!!
I wonder about the Western influence on economics. How does a capitalist framework affect the formulation of economic theories, measured variables, etc? The societal values are reflected in the analyses and how they are derived (hence social sciences). By contrast, the physical sciences reflect the physical world.
Whatever you write, Alex, is always a pleasure to read. Fascinating to see how you as an independent thinker (not beholden to any establishment) operate.
Personally, I think bias is inevitable in all forms of thinking and analysis. To an extent that’s okay - that’s why we read different sources that help form our own thinking and opinions. In theory, that’s the purpose of honest peer reviews of technical papers as well (I have more experience on that; geopolitics is my hobby; ironically the one that I enjoy more).
Trouble is "western (mainstream) economics" doesn't even have a model of money creation nor banks!
"But neither our work [fifteen or so 'heterodox' economist], nor David's, [Graeber] has influenced mainstream economics one jot. The last resort of the Neoclassical scoundrel is the argument that the fact that money didn't evolve out of barter, but out of credit, is irrelevant: credit makes no significant difference to macroeconomics. Therefore, it's easier to stick with the myth, and model capitalism as a barter system. Nothing of significance is lost.
This is how Neoclassical economists initially reacted to the Bank of England's startling admission in 2014 that the non-mainstream economists who asserted that bank lending—otherwise known as credit—created money, were correct, and the mainstream was wrong, in the paper "Money creation in the modern economy":
The reality of how money is created today differs from the description found in some economics textbooks: Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits. (McLeay, Radia, and Thomas 2014, p. 14. Emphasis added)
You might think that, though economists could ignore one troublesome anthropologist, surely, they couldn't ignore the Bank of England? I did too initially, but time proved me wrong."
Some interesting comments here. Having studied and read up on the topic, it is my view that none of the models have more than a passing and partial resemblance to reality, and, as the author points out, do not really integrate well with geo-political and physical limits and influences. Economics is the dismal science, and understanding it requires more time and brains than I possess. There are a lot of moving parts and one must understand logic, irrational human nature and the nature of imbalances, cycles and timeframes.
My two penny worth is that most "economists" seem to think that equilibrium is the natural state whereas I see things as being permanently out of balance and am waiting for the correction - and that usually takes too long and the imbalance goes to far before that happens. The trigger for a correction is usually but not always not economic in nature but driven by poltical and geo-political events.
This is why war can be waged on the economic front, but might partially explain why the west, and Europe in particular, got the Russian sanctions so spectacularly wrong - and managed to cripple their own economies rather than the Russian one. A European imbalance was the reliance and economic leverage provided by cheap Russian energy, a Russian one a need to disentangle itself from the Western financial system.
I can contribute with two aspects from experiences and readings and one suggestion.
1) Inconsistencies of the "classic" (liberal) economic theory
I studied macroeconomics and corporate economy (microeconomics) as part of a MBA program. Besides passing the exams (first objective...), I tried to get something valuable to be used in life and thus looked for the robustness of the presented models, and found many flaws.
These models base their working assumptions from an extremely simplified set of rules derived the post-WW2 USA and Western Europe economies. They assume very low or no emission of money, public accounts that almost always balance, expectations of economic actors that barely change, etc.
In the case of microeconomics, the distorted simplification is even more blatant. For instance, the professors insist on supply and demand curves and factors, and they spend hours explaining marginal aspects (cost, revenue, etc) and a salad of derivatives, given for granted that demand basically disappears if the supply price is too high. When confronted with the REAL behavior of prices for essential items (for instance, bread and gas and not Louis Vuitton bags), they introduce the concept of "reservation price", which is the maximum price that a consumer would be willing to pay for a given product or service. So the models have, at minimum, weird patches in order to pretend that they work.
Perhaps some complex models more related to operations research, such as System Dynamics by Forrester or Sterman may somewhat work in simulating and understanding these systems, but I'm afraid that the inputs to a real economic model requires hard or "inconvenient" variables such as external rescue initiatives (IMF/US and UK when the GBP collapsed after the Suez Canal incidents) or market crashes. Considering such variables casts doubts on the "aseptic' of such systems (aseptic as non-political).
2) Some Argentine economists not prone to the mainstream classic theory have introduced the concept of economy as political. That is, you cannot study economics as an isolated, "non-contaminated" discipline as you may do with microbiology. Alfredo Zaiat and the late Aldo Ferrer have delved into it. For them, economics is always political-economics.
They explained that Economics is always a space where interests and struggles for wealth distribution exist, and this is particularly clear with the eternal Argentine problem with inflation. While classic economists stress that inflation is almost solely based on currency emission, the alternative economists claim that the distribution struggle between workers and employers/corporations play a much more significant role, as well as the productive and commercial structure of the economy (multiple small suppliers with a small share each or an oligopoly that can create a cartel).
When political forces supporting classic economics come to power in Argentina, they impose "orthodox" plans that dry up of Pesos the financial market. Guess what? Prices increase even more. Companies argue that, given the recessive consequences of such measures, they have to increase prices even more to cover costs. And customers don't have a choice if they need food, transportation or other basic needs.
3) Maybe the UN is dysfunctional for such task, but what about small or mid-range universities? I think that enthusiastic senior-year students and recent graduates can work under a university framework and build robust and sophisticate models, following as much as possible the ethical/scientific principles and avoid the influence of external players who intimidate analysts with ending their jobs or carers for communicating undesirable results or advises.
Ivy League ones are too dependent on big corporations and subsidies to be truly independent. Saying something contrary to the interests of the corporations that grant them money doesn't seem feasible for them. But for small public universities, maybe.
That may start "small". For instance, a pool of universities from different countries doing a much better job in rating bonds and stocks. We know the lousy job that Moody's, S&P and Fitch made previously to the sub-prime crisis. We need evaluation bodies that don't belong to those corporations that these bodies should control.
Forgot to add to my comment: “Nobody has a crystal ball, but Monte Carlo simulations is as good as it gets!”. This was my qualifier to presentations I made about cost / schedule risk assessments (major capital projects).
"I made the right assumptions; hence my predictions were far closer to reality than theirs. Not because I’m a better economist than they are. I’m not a full economist, anyway. No, these people are better economists by orders of magnitudes".
I disagree. If your predictions or expectations were more accurate than theirs, that means that you are a better economist. There are no prizes for working out very accurately a problem that does not correspond to reality.
Personally, I agree with Michael Hudson and a few others that there are virtually no real (or honest) economists. All the established, recognised, honoured, admired "economists" have sold out to the rich and powerful, and have been made successful as a reward for telling stories that are untrue.
As Dr Hudson remarks, establishment economics doesn't take any account of debt! That's like a theory of aerodynamics that doesn't consider air pressure. But that false, misleading "economics" is taught everywhere and fills up most of the available books.
Because, as Dr Hudson point out, economics graduates have a habit they acquired as children: they like to eat. And as soon as they graduate, they have a choice of two careers. They can climb the academic tree, by teaching false ideas; or they can drive a taxi.
I also like Hudson, who calculated that the outflow of US gold was completely due to wars, when he was working for Chase (Rockefeller) Bank around 1967, which data was rejected by the government after reading it, though it was true. He then gave birth to the Petrodollar, by observing ("Super Imperialism") that the arrangement already existed de-facto. Nixon and Kissinger firmed it up. The biggest thing Hudson says is that debts have to be periodically written down or the system breaks, the society and its real economy break. Debt-holding oligarchs won't pay for that to be said, which is the same problem Jesus had, which Hudson points out. https://michael-hudson.com/2017/12/he-died-for-our-debt-not-our-sins/#:~:text=Jesus%20died%20for%20our%20debt,to%20their%20authority%20and%20wealth.
Aside from that fact, better projection models will give more accurate projections. Financial-economics assume a lot of things that are not real. It assumes that energy and resources will be substituted to replace those that fall short. That is impossible within an economy that is interwoven at many cost points. $140/bbl oil collapsed it. Gail Tverberg has that story pretty regularly. https://ourfiniteworld.com/2023/10/25/todays-energy-bottleneck-may-bring-down-major-governments/
Dr. Tim Morgan has an energetic-economics model, which works well, and he also posts a couple of times per month. The issue is that people refuse to understand, because they/we are currently very invested in not-understanding, because it tells us nicer things, and has worked ok so far. https://surplusenergyeconomics.wordpress.com/
Overall, The Limits To Growth graphs of our global economy from about 1972 are still tracking quite well. This is a synopsis of the 30 year update: https://donellameadows.org/archives/a-synopsis-limits-to-growth-the-30-year-update/
This analysis from 2021 said the original "BAU" (business as usual) graph was tracking pretty well. Take a look. We are at or just past the peak of industrial production, and it really seems like peak-redefined-"oil" happened in late 2018, though not discussed here: https://www.ecologicaleconomicsforall.org/limits-to-growth
All projections, including that Seneca's Cliff for industrial output, assume the sun doesn't go nova, or micronova, or something like that, which appears to happen every 12,000 years when the galactic current sheet whips around again, like it is starting to do now, as the earth's magnetic fields weaken during this polar excursion. https://www.youtube.com/watch?v=ObauZqcHFcU&t=162s
Back to you, Aleks! :-D
Thank you John, in addition to Michael Hudson, Tim Morgan and Gail Tverberg there's Tom Murphy with the same de-growth message:
https://dothemath.ucsd.edu/2023/09/can-modernity-last/
And the 'father' of Debt, The First 5,000 years David Graeber
https://archive.org/details/DebtTheFirst5000Years
And Steve Keen, busting open the fraudulent assumptions of mainstream Neoclassical micro and macro economics
https://profstevekeen.substack.com/p/the-macrofoundations-of-macroeconomics
https://profstevekeen.substack.com/p/puncturing-the-hubris-of-economics
And MMT Modern Monetary Theory that posits government can never run of out money and taxes don't fund its spending.
https://www.vox.com/future-perfect/2019/4/16/18251646/modern-monetary-theory-new-moment-explained
http://neweconomicperspectives.org/2014/06/modern-money-theory-basics.html
https://billmitchell.org/blog/?p=41399
All these thinkers contributions are essential to a correct understanding of economics.
Great comment John!
I do argue that LTG model was way off with their accounting for pollution. IMO it should track right up there with industrial output and beyond.
I remember when I was sitting in my macro economics class part of the MBA program at a top US university thinking to myself “these models are crap”.
I challenged the prof (who was Italian) that some of this stuff does not correspond to reality. It’s garbage. People don’t think that way and states don’t behave that way under different geopolitical considerations.
He got uncomfortable because they record these lectures and he can’t agree with me. I don’t even know if he did agree but I made people uncomfortable with my common sense observations.
Modern western economics is built on models that are based on faulty assumptions of how the world works while omitting important details.
I think this is deliberate. I don’t think they want to teach people how things really work because the current fantastical story benefits them and it’s a useful religion to the high priests.
Milton. Mises. Marx.
They’re religions not science.
Luckily we do not have the said central planning/forecasting authority. If we had one, it would have had too much power so it would have been instantly corrupted. Look no further than IPCC or WHO for examples in different domains.
What we need is free thinkers that can speak their mind freely, without being afraid of losing their jobs, being ostracised or even persecuted. The best forecast will then emerge bottom up as opposed to the nowadays always preferred top-down approach. Follow the science/experts anybody? We saw how well did the "experts" faired during covid. Good luck with economics - it's no different.
El problema de los pueblos de Europa no está en los malos análisis de sus gobernantes, está en que sus gobiernos no son soberanos, están atrapados en la jaula geopolítica y económica impuesta por los EEUU. Cualquier persona (estúpida incluso) podría tomar mejores desiciones que los actuales goberinos de los países europeos, con sus honrosas y muy limitadas excepciones.
Las marionetas son allì... porque son marionetas... cultivadas por serlo.
Espero que mi espanol se pueda entender...
:)
I have found that Hyman Minsky's instability theorem accurately describes observable reality, but that TPTB do not like the implications of this theory.
I like long and short. : )
The reason most economic forecasts are wrong is because the experts, even though they have pedigree Ivy League degrees, are dumb. Until we go back to basic education at the elementary levels that teach the basic skills and develop common sense and critical thinking it will not get better, only worse. As the saying goes, "garbage in-garbage out", and that applies to the human mind as well.
Nice introductory article that is derived from "Emipres." I agree with Meredith Hobbs: both column styles. Your comment, "That’s why I spent hundreds of hours reading books about macroeconomics. And I think that I learned a lot." is striking to me. I've told my daughter, as she enters her masters program, that her real education begins after she graduates from the university. Never stop learning is sage advice.
Which reminds me, is there such a thing/position as an "Economist?" Adam Smith's hidden hand is always prevalent within the economic dealings at the micro and macro level. This can be easily seen in the US, as the economy started its slow implosion circa 1971 (15 Aug to be precise).
Waiting with anticipation for your next article! Cheers from Cheyenne!!
I wonder about the Western influence on economics. How does a capitalist framework affect the formulation of economic theories, measured variables, etc? The societal values are reflected in the analyses and how they are derived (hence social sciences). By contrast, the physical sciences reflect the physical world.
Not even the physical sciences are so immune from politicians...
"cough cough"
climate change? wtf?
Michelson-Morley? Wtf?
vaxxxxxx? WTFFFFFFFFFF?
:)
Whatever you write, Alex, is always a pleasure to read. Fascinating to see how you as an independent thinker (not beholden to any establishment) operate.
Personally, I think bias is inevitable in all forms of thinking and analysis. To an extent that’s okay - that’s why we read different sources that help form our own thinking and opinions. In theory, that’s the purpose of honest peer reviews of technical papers as well (I have more experience on that; geopolitics is my hobby; ironically the one that I enjoy more).
The problem of western (mainstream) economics is that they want to express everything in money so they can model it and pretend to be scientific.
This produced plausible answers for a long time because of:
a) A single global hegemony
b) 40 years of falling interest rates.
Both are now over. Now we will see who was swimming naked...
Btw: The new format is fine!
Trouble is "western (mainstream) economics" doesn't even have a model of money creation nor banks!
"But neither our work [fifteen or so 'heterodox' economist], nor David's, [Graeber] has influenced mainstream economics one jot. The last resort of the Neoclassical scoundrel is the argument that the fact that money didn't evolve out of barter, but out of credit, is irrelevant: credit makes no significant difference to macroeconomics. Therefore, it's easier to stick with the myth, and model capitalism as a barter system. Nothing of significance is lost.
This is how Neoclassical economists initially reacted to the Bank of England's startling admission in 2014 that the non-mainstream economists who asserted that bank lending—otherwise known as credit—created money, were correct, and the mainstream was wrong, in the paper "Money creation in the modern economy":
The reality of how money is created today differs from the description found in some economics textbooks: Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits. (McLeay, Radia, and Thomas 2014, p. 14. Emphasis added)
You might think that, though economists could ignore one troublesome anthropologist, surely, they couldn't ignore the Bank of England? I did too initially, but time proved me wrong."
https://profstevekeen.substack.com/p/puncturing-the-hubris-of-economics
Some interesting comments here. Having studied and read up on the topic, it is my view that none of the models have more than a passing and partial resemblance to reality, and, as the author points out, do not really integrate well with geo-political and physical limits and influences. Economics is the dismal science, and understanding it requires more time and brains than I possess. There are a lot of moving parts and one must understand logic, irrational human nature and the nature of imbalances, cycles and timeframes.
My two penny worth is that most "economists" seem to think that equilibrium is the natural state whereas I see things as being permanently out of balance and am waiting for the correction - and that usually takes too long and the imbalance goes to far before that happens. The trigger for a correction is usually but not always not economic in nature but driven by poltical and geo-political events.
This is why war can be waged on the economic front, but might partially explain why the west, and Europe in particular, got the Russian sanctions so spectacularly wrong - and managed to cripple their own economies rather than the Russian one. A European imbalance was the reliance and economic leverage provided by cheap Russian energy, a Russian one a need to disentangle itself from the Western financial system.
Hi Aleks, this is a great discussion topic.
I can contribute with two aspects from experiences and readings and one suggestion.
1) Inconsistencies of the "classic" (liberal) economic theory
I studied macroeconomics and corporate economy (microeconomics) as part of a MBA program. Besides passing the exams (first objective...), I tried to get something valuable to be used in life and thus looked for the robustness of the presented models, and found many flaws.
These models base their working assumptions from an extremely simplified set of rules derived the post-WW2 USA and Western Europe economies. They assume very low or no emission of money, public accounts that almost always balance, expectations of economic actors that barely change, etc.
In the case of microeconomics, the distorted simplification is even more blatant. For instance, the professors insist on supply and demand curves and factors, and they spend hours explaining marginal aspects (cost, revenue, etc) and a salad of derivatives, given for granted that demand basically disappears if the supply price is too high. When confronted with the REAL behavior of prices for essential items (for instance, bread and gas and not Louis Vuitton bags), they introduce the concept of "reservation price", which is the maximum price that a consumer would be willing to pay for a given product or service. So the models have, at minimum, weird patches in order to pretend that they work.
Perhaps some complex models more related to operations research, such as System Dynamics by Forrester or Sterman may somewhat work in simulating and understanding these systems, but I'm afraid that the inputs to a real economic model requires hard or "inconvenient" variables such as external rescue initiatives (IMF/US and UK when the GBP collapsed after the Suez Canal incidents) or market crashes. Considering such variables casts doubts on the "aseptic' of such systems (aseptic as non-political).
2) Some Argentine economists not prone to the mainstream classic theory have introduced the concept of economy as political. That is, you cannot study economics as an isolated, "non-contaminated" discipline as you may do with microbiology. Alfredo Zaiat and the late Aldo Ferrer have delved into it. For them, economics is always political-economics.
They explained that Economics is always a space where interests and struggles for wealth distribution exist, and this is particularly clear with the eternal Argentine problem with inflation. While classic economists stress that inflation is almost solely based on currency emission, the alternative economists claim that the distribution struggle between workers and employers/corporations play a much more significant role, as well as the productive and commercial structure of the economy (multiple small suppliers with a small share each or an oligopoly that can create a cartel).
When political forces supporting classic economics come to power in Argentina, they impose "orthodox" plans that dry up of Pesos the financial market. Guess what? Prices increase even more. Companies argue that, given the recessive consequences of such measures, they have to increase prices even more to cover costs. And customers don't have a choice if they need food, transportation or other basic needs.
3) Maybe the UN is dysfunctional for such task, but what about small or mid-range universities? I think that enthusiastic senior-year students and recent graduates can work under a university framework and build robust and sophisticate models, following as much as possible the ethical/scientific principles and avoid the influence of external players who intimidate analysts with ending their jobs or carers for communicating undesirable results or advises.
Ivy League ones are too dependent on big corporations and subsidies to be truly independent. Saying something contrary to the interests of the corporations that grant them money doesn't seem feasible for them. But for small public universities, maybe.
That may start "small". For instance, a pool of universities from different countries doing a much better job in rating bonds and stocks. We know the lousy job that Moody's, S&P and Fitch made previously to the sub-prime crisis. We need evaluation bodies that don't belong to those corporations that these bodies should control.
Forgot to add to my comment: “Nobody has a crystal ball, but Monte Carlo simulations is as good as it gets!”. This was my qualifier to presentations I made about cost / schedule risk assessments (major capital projects).
http://casseng.cssn.cn/wap/
https://en.theorychina.org.cn/