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Re: Is there a market solution to economists?

EconomistInTraining — Mon, 27 Sep 2010 17:18:24 GMT

Don't businesses normally employ people with degrees in economics for predictions and econometrics?

Bingo. I made a topic a while asking about this little anomaly, nobody seemed to have an answer that I found to be up to scratch. Firms spend lots of money on the work of PhD economics, econometricians and the like.

OP, I actually think this is one area that the market fails. Look, I think that there is a lot of science out there that is uncertain and doubtful that will one day come to fruition and possibly yield more practical insights that will make us better off in our day to day lives. And a lot of this is science that may be too speculative and too doubtful to ever command resources on a market economy. I don't know much about physics but from reading and speaking to physicist friends of mine I'm under the impression that a lot of the very abstract, very theoretical insights out there actually have some very useful practical applications.

Certainly, as far as economic goes there's a lot of theoretical statistics and abstract mathematics that may once have appeared to be idle theorizing that now yield important practical results (financial econometrics used by firms, macroeconomic insights now used in CB policy, mechanism design and so on). Would the market have ever financed research in these areas? Quite possibly not.

Re: Is there a market solution to economists?

JAlanKatz — Sun, 26 Sep 2010 23:43:08 GMT

The state does not intervene in mathematics, yet there are mathematicians. The state does not intervene in physics, yet there are physicists. It seems that many here believe that the only purpose of economists is either to argue for or against the state. Why not see economics as a legitimate area of human endeavor where we'd like to know how things work more completely than we do? Advancing the frontiers of human knowledge has value too, you know.

Re: Is there a market solution to economists?

Prateek Sanjay — Sun, 26 Sep 2010 19:02:17 GMT

Azure, you must understand the context in which we speak.

It's not the services of economists that I discuss, but only ideas. Were we not living in a statist world, ideas would not matter by themselves, because in real life, practical realities and the need to make decisions on the margin influence all undertakings and ventures, not ideology.

Unfortunately, in our statist world, here's how it is with things. Heads of state suffer from limitations of knowledge and inability to collect information. Even though they are elected by some kind of democratic process, they can not really know what millions of people exactly want, or if he did, whether intentions would be same as results.

Thus, in most capital cities of the world, giant armies of think tanks and institutes exist to generate ideas, because it's only through these narrow groups that heads of state can get any reports or suggestions at all. Huge money is poured into these think tanks and institutes. Large number of financial newspapers and financial journalists also conduct a similar function.

They all provide their various benefactors and customers exactly what they want. But their ideas are allocated across decision-makers in the state, who are capable of ruining the lives of millions because of one simplistic suggestion. We know this, because there is a law of unintended consequences.

Even when bad results come, these think tanks and institutes can hide behind unfalsifiability and claim they were still correct. "You didn't do enough of a stimulus", for example. Did these generators of ideas, partly responsible for policies implemented, pay any price for being wrong? No, others did. And when recessions come, all think tank industries boom, and their members get even higher speaking fees.

Of course, it was the heads of state who were responsible, and not these people who do idle chatter. But in the lucky situation that a head of state were an altruistic man (fat chance), maybe having him understand limitations of knowledge and unintended consequences could stop these problems. But how? Maybe if there were a price to be paid for being wrong, in some way? It's not about incentives and constraints either, since we know the huge speaking fees and institute salaries could make up for it. But there is information. When we know economists lost a huge amount of money in their predictions, we'd have some information?

In a way, it does actually happen. If John Maynard Keynes had not wiped out all his huge gains in the stock market, while his friend Hayek did not, would all those universities, especially MIT, have held back Keynesians in the 1950s and 1960s? That is indeed what was often said to be discussed in the back rooms of their departments: "This Keynes lost all his money in a recession he betted against, and yet this Samuelson still idolizes him. I don't care how logical he thinks he is, we can't risk putting this man in higher responsibility", as Subramaniam Swamy seemed to indicate from his days in MIT.

Re: Is there a market solution to economists?

liberty student — Sun, 26 Sep 2010 07:27:18 GMT

pentahedron:
Like Liberty Student said, you're probably confusing it with political philosophy.

He's definitely confusing it with political philosophy. It's ok to be pissed off with the state and its apologists, but that doesn't have a lot to do with economics one way or the other. Unfortunately, Rothbard's political advocacy has become somewhat synonymous with AE, which is why some people might think there is no purpose for von Mises in a stateless world.

I'll bet $5 people who feel this way cannot explain the difference between subjective value and labor value (while arguing that there is no need for economics).

Re: Is there a market solution to economists?

Michelangelo — Sun, 26 Sep 2010 07:15:57 GMT

@Nonfederal

I don't care for the state, but I do not see its replacement occuring within our lifetimes. As long as the state does exist I stick with my proposal that we are better off with an openly corrupt government that steals from us, but refrains from glorifying itself as legitimate.

Edit: On the matter of tax preparers, I would say that they were doing a valueble service. Again, I would prefer to pay someone else to go through the agony of filing out the papers for the overlords than spending said time myself. Similarly I find the tax lawyer's services valueble; in so far as they allow individuals to avoid taxation wherever possible.

Re: Is there a market solution to economists?

pentahedron — Sun, 26 Sep 2010 07:12:14 GMT

For some reason I get the feeling your grasping at straws with these responses :(

Using what you are arguing, every marketing division in a company shouldn't be be profitable since they would fall victim to socialists calculation despite the fact that there is an economy, private property, and competition.

Re: Is there a market solution to economists?

Nonfederal Nonreserve — Sun, 26 Sep 2010 07:04:51 GMT

So the bigger it gets, the more accurately in can calculate? I don't think so. If that were true, it would be best for one company to own everything and centrally plan everything. It's not true, because the bigger it gets, the bigger the effect it has on what it is calculating in the first place. So the future doesn't match its calculations, because its very ability to make the calculations changes the future.

Re: Is there a market solution to economists?

pentahedron — Sun, 26 Sep 2010 06:59:03 GMT

That would be as useful as tax preparation.

For a small business maybe, but for a larger business I would disagree.

Re: Is there a market solution to economists?

Nonfederal Nonreserve — Sun, 26 Sep 2010 06:56:35 GMT

You're missing the point. There wouldn't be any lobbyists without the government. There would be nothing to lobby and no rent seeking would be possible.

Re: Is there a market solution to economists?

Michelangelo — Sun, 26 Sep 2010 06:53:06 GMT

@Nonfederal Nonreserve

Well, lobbyists DO provide a valueble service for those who hire them. Its not the lobbyists we should concern ourselves with though, but the government workers who accept the bribes. -And even then, a good number of times one wishes that the government was more corrupt. I for one would certainly prefer to pay the 'security' personnel at airports to leave me alone than go through their rituals.

Re: Is there a market solution to economists?

Nonfederal Nonreserve — Sun, 26 Sep 2010 06:50:11 GMT

That would be as useful as tax preparation. Hey since people pay for tax preparers, does that mean tax preparers are providing a valuable service? Or are all tax preparers rent seekers?

Re: Is there a market solution to economists?

pentahedron — Sun, 26 Sep 2010 06:44:59 GMT

Again what does that have to do with an economist in a business setting? I don't disagree with you on them using their skills to make predictions about the economy and relate to where the business is stands, but their skills also come in useful when it comes to tracking sales,growth, how much they plan to make, their competitors,etc...

Like Liberty Student said, you're probably confusing it with political philosophy.

Re: Is there a market solution to economists?

Nonfederal Nonreserve — Sun, 26 Sep 2010 06:33:04 GMT

It has everything to do with it. If they can't predict the future, then that only leaves rent seeking. Let's get the government to give us a lower tax rate than our competitors (i.e., let's make our competitors pay more than we do). Our company should figure out how to get a monopoly granted by the government; we can use GDP and unemployment charts to show that it would be good for the economy. Etc.

Re: Is there a market solution to economists?

pentahedron — Sun, 26 Sep 2010 06:28:31 GMT

Because you can prove anything with statistics, and you can't use the past to predict the future.

Are you being sarcastic? What does that have to do with a economic student not having marketable skills?

Re: Is there a market solution to economists?

Nonfederal Nonreserve — Sun, 26 Sep 2010 06:22:50 GMT

"If Soros or Koch are willing to pay for economists then they must be providing a valuable service."

Wow. So if they're willing to pay for lobbyists then they must be providing a valuable service.