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The Myth of the Economic Model

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John James Posted: Tue, Oct 11 2011 1:14 AM

My favorite part:

"I think it’s time we admit many economists are just soothsayers. They keep their jobs for a host of reasons that have less to do with accuracy and more to do with politics and obscurantism. Indeed, where do you find them but in bureaucracies—those great shelters from reality’s storms? Governments and universities are places where big brains go to be grand and weave speculative webs for the benefit of the few [...]

Take this as a throwing down of the gauntlet. Macroeconomic wizards owe us more than the circular justifications for cushy jobs."

 

The Myth of the Model

Max Borders

 

Most people don’t notice it, but “model” may be the most dangerous word in the English language right now. Models justify a lot of the bad policies that have been, or soon will be, foisted on us. For example, what was used to justify the fiscal policy of the big “stimulus”? That’s right. And as I wrote this, “experts” were using models to gear us up for another one.

More than a year after the original “stimulus,” not only are economists nowhere near consensus about its effects but few if any of the models used to justify it have turned out to be right. Obamanomic adviser Christina Romer, for example, has come under heavy criticism because her team’s plan has performed abysmally. The model behind the plan predicted unemployment would peak at 8.3 percent. It exceeded 10 percent before dropping back slightly. In defending her plan she appealed to counterfactuals—that is, how bad things could have been without it. That her team failed to reach its rosy targets, she says, “prevents people from focusing on the positive impact.” But did Romer ever consider the possibility that her model was just wrong?

When it comes to prediction and explanation, macroeconomic models are often just as bad after the fact as before it. There are just as many debates raging about the effects of the “stimulus” as explanations of the crisis used to justify it. Consensus consistently eludes us. Almost all the arguments presuppose models. There are Keynesian models, “new” Keynesian models, and unbranded models proffered by leading economic lights like Harvard’s Robert Barro. Comparative analyses of these positions offer little except further evidence that, as Stanford’s John Taylor writes, “[T]here is no consensus.”

But why? These people aren’t stupid. I’d like to suggest in nontechnical terms why the problem might be with the models themselves.  [continued...]

 

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Wheylous replied on Tue, Oct 11 2011 9:07 AM

Interesting, given the Mises Daily on it:

http://mises.org/daily/5756/The-Folly-of-Forecasting

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John James replied on Thu, Oct 13 2011 11:25 PM

That is kind of funny that I discovered that article from year ago the day before one on the same topic was published at Mises.

I was also unaware of the neutrinos.  That's insane.

 

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Neodoxy replied on Sat, Oct 15 2011 3:56 PM

The Sentence "Who's 'unsientific' now?" comes to mind.

At last those coming came and they never looked back With blinding stars in their eyes but all they saw was black...
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Wheylous replied on Sat, Oct 15 2011 5:30 PM

Careful with the neutrinos, JJ. While the measurement is outside of the error bounds, they want independent sources to confirm this, as it would apparently destroy many theories currently held (allegedly, even causality, and then libertarianism is screwed).

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Do you have a source for this?  Causation?

 

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Wheylous replied on Sat, Oct 15 2011 6:18 PM

I meant "causality"

http://cosmologyscience.com/cosblog/?p=1878

Find "causality"

Apparently there is also a counterclaim against this claim that causality might be screwed.

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Some good additions:

Does anyone know what this first one is from?...

A Note On Mathematical Economics

An excellent rebuttal to the model maids...

Assuming Away Reality

 

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Vitor replied on Wed, May 2 2012 11:13 AM

BTW, it was already confirmed that there was a error in the neutrino experience, and they are NOT faster than light.

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I don't want to make this a physics thread, but:

Before neutrinos were found to oscillate, they were generally assumed to be massless, propagating at the speed of light. According to the theory of special relativity, the question of neutrino velocity is closely related to their mass. If neutrinos are massless, they must travel at the speed of light. However, if they have mass, they cannot reach the speed of light.

In addition there are some speculative models in which Neutrinos have a tachyonic nature and travel faster than light (see Tachyon#Neutrinos). Also some Lorentz violating variants of quantum gravity might allow faster-than-light neutrinos. A comprehensive framework for Lorentz violations is the Standard-Model Extension (SME). [...]

In September 2011, the OPERA collaboration released calculations showing velocities of 17-GeV and 28-GeV neutrinos exceeding the speed of light in their experiments (see Faster-than-light neutrino anomaly). In November 2011, OPERA repeated its experiment with changes so that the speed could be determined individually for each detected neutrino. The results showed the same faster-than-light speed. However, in February 2012 reports came out that the results may have been caused by a loose fiber optic cable attached to one of the atomic clocks which measured the departure and arrival times of the neutrinos. The cable is going to be fixed and the experiment will be run again to see if the same results are found.[32] An independent recreation of the experiment in the same laboratory by ICARUS found no discernible difference between the speed of a neutrino and the speed of light.[33][34][35]

 

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Clayton replied on Wed, May 2 2012 12:55 PM

The biggest secret of modern physics is that we don't know any more about the ultimate facts of the physical world than were known 500 years ago when Galileo was dropping rocks from the tower of Pisa. ;-) The vast majority of the "evidence" for the light-speed limit is actually circular and, therefore, not evidence of anything. The truly non-circular evidence (undetectable etheric wind) doesn't really disprove the existence of an ether, it simply fails to confirm its existence, a much weaker piece of evidence.

The neutrinos could simply be an anomaly, it's very close to the wire. What isn't close to the wire is this discovery which could just as easily upend relativity theory. Clearly, there is something very fundamental about the nature of the Sun, radioactivity and their relationship of which we are ignorant. The idea that modern physical theory is "nearly a closed book" is downright laughable in the face of this evidence - not that it ever should have been taken seriously in the first place.

The problem with the light-speed limit is that it is little more than theological dogma. It might be true that nothing can move faster than light. Clearly, we don't regularly observe things moving faster than the speed of light. But the absence of evidence is not evidence of the contrary. Much of modern physics is built on speculations that have come to be generally accepted as inviolate truth despite very weak rational bases.

Clayton -

http://voluntaryistreader.wordpress.com
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