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July 29, 2009 4:28pm by David Farrar

New Economics Blog

John Small from Covec is now blogging at Progressive Turmoil. NZ is fortunate to have a number of dedicated economist blogs.

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John Small

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kaya

The desire to be an economist should be enough to bar you from ever actually becoming one. Economics has more in common with witchcraft and fortune telling than any actual scientific study.
Probably the only thing worse than a room full of climate change advocates and opponents would be a room full of economists. None of them have a clue and never have had. Which “school” is in vogue this year? Austrian? Keynsian? Smith? Classical? Chicago? Spare me.
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July 29, 2009 4:45pm
Murray

“NZ is fortunate to have a number of dedicated economist blogs.” It saves the country a fortune in warm milk before bed time.

Seriously are there economics blog groupies who are not short, balding, middle aged men?
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July 29, 2009 4:56pm
ben

Never heard a good word said about John Small’s economics, to be honest. Look forward to what he has to say.
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July 29, 2009 5:33pm
Ruth

Murray economists are good contrarian indicators for investors !
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July 29, 2009 6:13pm
reddeath26

“Economics has more in common with witchcraft and fortune telling than any actual scientific study.”
Ah quite a compliment there as people who use “witchcraft” and “fortune telling can often be community leaders responsible for maintaining the well being of not only the individuals but also the society as a whole. Indeed among peoples who have them, they are the ones who are turned to in order to meet the physical, psychological and spiritual needs of not only the individuals but the community as a whole. This can be demonstrated quite strongly among the Ju|hoansi as well as several other small scale peoples.
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July 29, 2009 6:14pm
goonix

A (complete?) list of NZ economics blogs:

http://www.tvhe.co.nz/2009/07/29/big-ups-to-the-nz-econoblogsphere/

(from what I believe is NZ’s first).
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July 29, 2009 6:34pm
Cerium

I know this is an old one but….

They invented economists to make weather forecasters look good.
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July 29, 2009 7:27pm
Chthoniid

Sorry, I relish old jokes about economists the same way I appreciate sheep jokes told by Australians about kiwis that originated 40 years ago.

Economic forecasts tend to be very good, especially based around consensus forecasts. What economic forecasts can’t do, is use information that it not yet available (a lot of data is published after lags) or is kept concealed. For instance, if people decide to fly planes into buildings or Enron is cooking the books, they’re not going to tell you about it beforehand. In short, economic models actually make a lot of very good use of the information that is available, but it’s often incomplete.

Compare that to a science like ecology. I can do a PVA model to forecast extinction risk. And I’ll make all sorts of assumptions about genetic drift in small populations, the vulnerability of the species to a loss of heterogeniety, the odds of catastrophic events like fires etc. But I’ll ignore completely the introduction of a new predator (e.g. if brown tree snakes make it from Guam to Hawaii). That will be real science right? Fact is, the only way some of these real sciences get away with it, is because nobody checks up on the models. I’ve published a whole bunch of forecasts for native bird species extinction risks. But hey, it’s over a 1000 year period. So, just check back in a 1000 years time and we’ll see how I get on. Cough, cough, yeah, that’s going to happen.

Anyway, good to see some more economic blogs being launched. It could do with some more pretty pictures however 🙂
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July 29, 2009 8:32pm
MajorBloodnok

So, did he predict the global recession? The information WAS available, as some economists were warning it was coming.
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July 29, 2009 10:16pm
kaya

“So, did he predict the global recession? The information WAS available, as some economists were warning it was coming.”

ffs I’m a manual worker and most other tradesmen I know were picking it 18 months ago! It wasn’t rocket science.

Here’s another wee prediction from a non economist, the “market” revival going on at the moment? It’s a myth, it’s a bounce, it will collapse in a messy heap within the next year- AT MOST (honestly I think within the next 3 months). That’s because the “recovery” is based on absolutely nothing tangible. The only profits are coming on the back of the printing presses in the US and UK. Whoops, sorry, quantative easing. Fuck real productivity, making shit and providing services that other people want to buy! As long as we have “faith” it will all be fine!
Cut and paste this and put it in your diary, think how much fun you will have this time next year if I am wrong! Economists are a joke.
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July 30, 2009 12:03am
kaya

reddeath said – “Ah quite a compliment there as people who use “witchcraft” and “fortune telling can often be community leaders responsible for maintaining the well being of not only the individuals but also the society as a whole. Indeed among peoples who have them, they are the ones who are turned to in order to meet the physical, psychological and spiritual needs of not only the individuals but the community as a whole. This can be demonstrated quite strongly among the Ju|hoansi as well as several other small scale peoples.”

NO NO NO!!!! These days we are much more sophisticated, now we burn them at the stake. Non productive, useless bastards.
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July 30, 2009 12:08am
Falafulu Fisi

Err! You people should show respect to economists. Whether you love it or hate it, economics is a proper discipline/field/branch of qualitative/quantitative study of the production, distribution, and consumption of goods and services in the social science arena.

Kaya said…
Economics has more in common with witchcraft and fortune telling than any actual scientific study.

And that comment of yours is more common with someone who endorses horoscopes/psychics ? Economic theories posit hypothesis and postulations and then proceed to validate. Physicists do the same and so as other branches of science. All theories from all disciplines have some shortcomings in their predictive power, but that doesn’t mean that a whole discipline is bullshit because of the shortcomings of some or part of its theoretical foundations. New theories emerge all the time & existing ones improve over time, where some had stood the test of time and became established while others had being ditched because they had been falsified. Civilization is progressive and so is economics, science, etc,… so we must stay away from rubbishing economics.
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July 30, 2009 12:47am
Glutaemus Maximus

Economic modelling is perhaps as accurate as war gaming. Or Chess.

The real problem is that it cannot possibly account for sentiment. The Hedge fund models never factored in the lack of credit, or rather the withdrawl of credit.

Porsche looked very smart in their stealthy takeover of VW Group. A reverse takeover, with the target company being 10 x larger on the top line, and assets.

Porsche skimmed the German Bourse rules, pissed off the Government of Lower Saxony, and were finally unable to fulfill the put and call. No German funder would touch the deal.

Result, a merger? CEO of Porsche got paid off. The family members of Porsche and Piech, came out of the shadows and made the final adjustments.

On the way, Hedge Fund positions got burned to buggery. Bahrain were ready to stick some money in, as were other UAE members.

Human Intervention always will screw the best modelling. Whereas humans have zero impact on climate.

Met office in the UK forecast a ‘Barbecue Summer’. Pissed down all July. So after warning us gullibles to paint our houses white, and what to do in the event of heatstroke. It came to be nothing. Seasonally colder, actually.

This does not fit the UK Governments plan to scare us into more taxation for Green Issues. more heatwaves forecast for every Summer to follow. Better buy that white paint!
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July 30, 2009 1:30am
enough rope

I’ve been working on a state of the art economic forecasting package for a while now. The interface is really nifty, with the choice of pig or chicken entrails.
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July 30, 2009 5:43am
Chthoniid

Before the GFC there was a lot of economic commentary- from Central Banks down- on the risks of recession. These included the housing asset-bubble and growing macro-economic balances (especially on the trade balance side). Just because nobody had the balls to head the recession ‘off at the pass’, doesn’t mean nobody was warned.

Very little actual economics is about forecasting anyway. And the different schools don’t represent irreconciliable differences. I got traing in neoclassical, have used Austrian economics on the crocodile trade and TCE on the Chinese tiger black market. They’re all just tools for the job.

That said, anybody who thinks they can do my job better is welcome to try. Frankly, I’d love to stick some critics in a smuggling hotspot somewhere in Asia, doing some of the covert work on black-markets that entails. I’d like to see how they handle being around say, posionous snakes and how they deal with the risk of getting shot or blown up.
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July 30, 2009 7:37am
Murray

Ruth… I rather think you just illustrated my point.

For 99% of us an investment consideration consists of working out is we have enough money for a takeaway on Friday night rather than cook.
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July 30, 2009 8:13am
Falafulu Fisi

Glutaemus said…
The real problem is that it cannot possibly account for sentiment. The Hedge fund models never factored in the lack of credit, or rather the withdrawl of credit.

There are lots of researches over recent years that attempt to accommodate market sentiments into models (especially financial markets). It has been a limited success, but it is the beginning of a search for a more fundamental structural relation or causation between market prices & people’s perceptions & sentiments. It is very very difficult since an economic system is truly a non-linear complex dynamical system which exhibits self-organized & self-emergent behavioral dynamics and those behaviors can disrupt its predictability at any time-instant. Climate system exhibits the same behavior and this explains of why we distrust economic & climate forecasting these days, not because the theories are completely bollocks (they’re largely valid to huge extent) since they’re based on rock solid principles respectively , but because self-organization & self-emergence dynamics bring wreaked havoc on the models predictability. I too very skeptical of climate modeling and economic forecasting.

Anyway, there are some interesting freely downloadable research papers (PDF) here on market sentiments. The researches on market sentiments have increased over the last few years and I have seen other papers (not available from the link above) of how sentiments can be quantified and used directly as inputs to existing market models. I have collected a large number of papers on market sentiments (only read the abstract/s & not respective entire documents) for further detail study at some stage.

The factor models used in Hedge Funds are just the standard regression models (APT – arbitrage pricing theory) and the shortcoming of this is that it is a linear-model where the real world market is non-linear. The other shortcoming is that the model can only analyze the variables the user inputs into it. If there are some unknown variables to the user that he/she should include but unknown to him/her, then the model tends to be less useful or completely useless. The linearity of APT has been addressed over recent years with non-linear APT regression become available which are better and that’s improvement only in terms of accuracy over the standard linear models, however the shortcomings is still there, because even with non-linear models, there are heaps of economic/finance observables that the models still don’t account for.
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July 30, 2009 10:06am
kaya

Falafulu Fisi said…..

There are lots of researches over recent years that attempt to accommodate market sentiments into models (especially financial markets). It has been a limited success, but it is the beginning of a search for a more fundamental structural relation or causation between market prices & people’s perceptions & sentiments. It is very very difficult since an economic system is truly a non-linear complex dynamical system which exhibits self-organized & self-emergent behavioral dynamics and those behaviors can disrupt its predictability at any time-instant. Climate system exhibits the same behavior and this explains of why we distrust economic & climate forecasting these days, not because the theories are completely bollocks (they’re largely valid to huge extent) since they’re based on rock solid principles respectively , but because self-organization & self-emergence dynamics bring wreaked havoc on the models predictability. I too very skeptical of climate modeling and economic forecasting.

Anyway, there are some interesting freely downloadable research papers (PDF) here on market sentiments. The researches on market sentiments have increased over the last few years and I have seen other papers (not available from the link above) of how sentiments can be quantified and used directly as inputs to existing market models. I have collected a large number of papers on market sentiments (only read the abstract/s & not respective entire documents) for further detail study at some stage.

The factor models used in Hedge Funds are just the standard regression models (APT – arbitrage pricing theory) and the shortcoming of this is that it is a linear-model where the real world market is non-linear. The other shortcoming is that the model can only analyze the variables the user inputs into it. If there are some unknown variables to the user that he/she should include but unknown to him/her, then the model tends to be less useful or completely useless. The linearity of APT has been addressed over recent years with non-linear APT regression become available which are better and that’s improvement only in terms of accuracy over the standard linear models, however the shortcomings is still there, because even with non-linear models, there are heaps of economic/finance observables that the models still don’t account for.

Look, it’s Maori language week, any chance of translating this into maori to give us a chance of understanding it?
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July 30, 2009 10:55pm
Falafulu Fisi

Kaya , I thought you understood what I wrote, because you stated that Economists are a joke and also Economics has more in common with witchcraft and fortune telling than any actual scientific study. That implies that you have a deep understanding of the subject both theoretical & practical to make such an absurd comment. That’s just simply a silly comment to make. Anyway, my comment wasn’t for you but for others who do understand my comment and mind you that there are economists who are silent readers here especially, this thread, so they know what I am sharing here on this very thread. If you don’t understand someone’s message , then skip to the next one, which is easy.
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July 31, 2009 12:24am
kaya

Falafulu Fisi – ok let’s start with an easy one, explain in plain English why fractional reserve banking isn’t a Ponzi scheme? Helllooooooo, the bank can lend me money based on money it doesn’t actually have and I have to pay real money back in interest? Riggghhhhhhtttt.
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July 31, 2009 9:19pm
Chthoniid

First, what banks primarily do is to transform lots of small deposits, payable on demand- into large loans payable over a much longer time frame. That means there is an asset-base and if one right, a range of value-adding projects being financed. This also means there is no resemblance to a Ponzi scheme.

What fractional reserves really do, is provide a system where people’s ‘credit values’ or ‘credit worth’ can be monetised. Which also means that banks are still picky about who they lend to. If you have a low-default risk, you can easily convert that low risk into a more liquid asset- money. The fractional system allows that to occur. If you have a very high default risk, then you face big problems monetising your’credit-worth’. Or if it is monetised, the lender then faces big problems…
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August 1, 2009 11:13am

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