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How relevant is economics? Watch

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    I was talking to a 3rd year economics student recently who effectively just told me that a large part of economics is just stupid guesswork, and people just pay attention to whatever theory is fashionable at the time and then it soon falls into disrepute.

    I mean when you look at the recent financial crisis, barely anyone seemed to see it coming, and all these economists have completely different interpretations of the underlying causes.
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    its not

    economics is just stupid guess work
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    So you think we should just blindly stumble along without any idea of the affects of various things on a country?
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    I watch Bloomberg TV sometimes and just think to myself "fcuk you all you bunch of parasites, you are the problem not the solution, the way you represent wealth created by workers and shuffle it around a system using various instruments in the hope some of it sticks."
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    (Original post by Duncan Idaho)
    I watch Bloomberg TV sometimes and just think to myself "fcuk you all you bunch of parasites, you are the problem not the solution, the way you represent wealth created by workers and shuffle it around a system using various instruments in the hope some of it sticks."
    Without their so called 'false' economy, we would be up **** creak toiling in pits still. There quite simply isn't enough manual or semi-manual labour to keep the worlds population busy. Most of the economists stupid enough to go on Bloomberg don't know what they're talking about, they're just the flavour of the minute. Why would someone who knows all the secrets of the economy promptly go on TV and spill?
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    (Original post by elandar)
    I was talking to a 3rd year economics student recently who effectively just told me that a large part of economics is just stupid guesswork, and people just pay attention to whatever theory is fashionable at the time and then it soon falls into disrepute.

    I mean when you look at the recent financial crisis, barely anyone seemed to see it coming, and all these economists have completely different interpretations of the underlying causes.
    Economics is fine day to day, and it generally just serves to prove you have the will to make it in the financial world because it is so excruciatingly boring. The thing it can never predict is the seemingly endless torrent of 'shake ups' caused by bubbles in market after market. For some unknown reason risk models only seem to incorporate these things happening once every hundred years, but they seem to happen at least once every 10.

    The trouble is there are so many economists and politicians throwing out predictions, that whatever happens one will always come up trumps. Which means the public invariably ends up following people like Vince Cable.
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    Economics is just like astrology.
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    how is an economic model supposed to predict a bubble? it can't predict a bank loaning $750,000 to a person who earns $10,000 p.a, the point is people do stupid stuff and economics isn't there to predict their actions. the other point is that you seem to infer that people behind the risk models aren't aware of their problems, they are most likely PHDs who are all in all pretty ****ing smart. the problem comes when there is the incentive to believe it even though they know its wrong i.e people use the model, it makes money, they keep using the model. why should they care if its right or wrong? i would also say that most economists would have recognized the problem but there are clear incentives for them not to do anything about it, again if it makes money who cares?

    the larger point though is that economies are created by people and strange actions that work in the short term are reinforced (as in politics) whereas sensible things aren't. don't forget that before the bad stuff happened it was the actions of everyday people reinforcing the cycle. economics isn't meant to and can't predict anything directly because the stupidity of people is infinite.
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    So Economics is not relevant because it cannot predict the future with 100% accuracy. :facepalm:

    Economics is more relevant than your face OP.
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    (Original post by crcr)
    how is an economic model supposed to predict a bubble? it can't predict a bank loaning $750,000 to a person who earns $10,000 p.a, the point is people do stupid stuff and economics isn't there to predict their actions. the other point is that you seem to infer that people behind the risk models aren't aware of their problems, they are most likely PHDs who are all in all pretty ****ing smart. the problem comes when there is the incentive to believe it even though they know its wrong i.e people use the model, it makes money, they keep using the model. why should they care if its right or wrong? i would also say that most economists would have recognized the problem but there are clear incentives for them not to do anything about it, again if it makes money who cares?

    the larger point though is that economies are created by people and strange actions that work in the short term are reinforced (as in politics) whereas sensible things aren't. don't forget that before the bad stuff happened it was the actions of everyday people reinforcing the cycle. economics isn't meant to and can't predict anything directly because the stupidity of people is infinite.
    I agree economics cannot predict the individual actions like making loans to people but it should have been clear that lending money to people who could not prove their income or had poor credit rating while not pricing the risks properly was bpund to cause problems.

    I would like to know what all the ecomomists in the various banks were doing at the time of the lending explosion. Were they telling their employers the credit crunch was imminent and to take steps or were they blissfully unaware because their "science" was as good as astrology or tarot cards?

    Don't forget people can't get themselves into trouble by reckless borrowing if there are no lenders doing the reckless lending.
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    Given that it's so important and yet still not a complete theory, does that not make it especially relevant?

    Macroeconomic theory should theoretically work in a similar manner to statistical dynamics. It's just they haven't quite figured out how to include everything that is important yet.
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    (Original post by elandar)
    I was talking to a 3rd year economics student recently who effectively just told me that a large part of economics is just stupid guesswork, and people just pay attention to whatever theory is fashionable at the time and then it soon falls into disrepute.

    I mean when you look at the recent financial crisis, barely anyone seemed to see it coming, and all these economists have completely different interpretations of the underlying causes.
    What university does your friend attend and what classification of degree is s/he in line for?
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    (Original post by Maker)
    I agree economics cannot predict the individual actions like making loans to people but it should have been clear that lending money to people who could not prove their income or had poor credit rating while not pricing the risks properly was bpund to cause problems.

    I would like to know what all the ecomomists in the various banks were doing at the time of the lending explosion. Were they telling their employers the credit crunch was imminent and to take steps or were they blissfully unaware because their "science" was as good as astrology or tarot cards?

    Don't forget people can't get themselves into trouble by reckless borrowing if there are no lenders doing the reckless lending.
    right well it was clear but give people a choice between making money doing something wrong or getting fired cos other people are making money doing thing you thought was wrong and people will just choose to make money.

    economists at banks clearly were aware (because this was fairly obvious). ironically, banks that actually predicted the time of the collapse (very different from predicting its existence which was obvious) ended up getting crucified by government.
    however, there are more interesting areas. first, once you get into this stuff you can't get out, even if you know its coming your ****ed either way, there is never enough liquidity. even if economists could predict it, the incentives are still the same.. also economists inside banks weren't in any position to talk about this. the banks didn't want them to, it wasn't their job. there is a reason why the people who predict these things don't come from the mainstream. its not because the mainstream is stupid, its because there is no incentive to deal with these issues in banks.

    but i digress, economics is useful. It tells us certain things about the way our system works. Yes, things go in and out of fashion but this is the way with everything. to make it more specific to the area of interest, it can tell us a bubble is present but this was largely clear to anyone with a spine. but it can't say when a bubble is going to end as this is largely decided by random events. the bigger problem isn't economics, its about incentives and i would say that it always seems to end with politicians who, out of anyone, have the least incentive to do the right thing. economics isn't (and will never be) objective, but that doesn't mean its useless.
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    (Original post by Maker)
    I agree economics cannot predict the individual actions like making loans to people but it should have been clear that lending money to people who could not prove their income or had poor credit rating while not pricing the risks properly was bpund to cause problems.

    I would like to know what all the ecomomists in the various banks were doing at the time of the lending explosion. Were they telling their employers the credit crunch was imminent and to take steps or were they blissfully unaware because their "science" was as good as astrology or tarot cards?

    Don't forget people can't get themselves into trouble by reckless borrowing if there are no lenders doing the reckless lending.
    What you're saying is that whilst making years of crazy profit an economist at a bank should report to his CEO and tell them to stop operating in these highly profitable areas? I'm sure that will go down well at the shareholder meeting.
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    Let's vote this government out. Let's form an all UK student political party.
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    (Original post by yoyo462001)
    What you're saying is that whilst making years of crazy profit an economist at a bank should report to his CEO and tell them to stop operating in these highly profitable areas? I'm sure that will go down well at the shareholder meeting.
    I bet the CEO at Lehman Bros wished he had someone who advised him do things differently before the bank collapsed.
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    (Original post by crcr)
    right well it was clear but give people a choice between making money doing something wrong or getting fired cos other people are making money doing thing you thought was wrong and people will just choose to make money.

    economists at banks clearly were aware (because this was fairly obvious). ironically, banks that actually predicted the time of the collapse (very different from predicting its existence which was obvious) ended up getting crucified by government.
    however, there are more interesting areas. first, once you get into this stuff you can't get out, even if you know its coming your ****ed either way, there is never enough liquidity. even if economists could predict it, the incentives are still the same.. also economists inside banks weren't in any position to talk about this. the banks didn't want them to, it wasn't their job. there is a reason why the people who predict these things don't come from the mainstream. its not because the mainstream is stupid, its because there is no incentive to deal with these issues in banks.

    but i digress, economics is useful. It tells us certain things about the way our system works. Yes, things go in and out of fashion but this is the way with everything. to make it more specific to the area of interest, it can tell us a bubble is present but this was largely clear to anyone with a spine. but it can't say when a bubble is going to end as this is largely decided by random events. the bigger problem isn't economics, its about incentives and i would say that it always seems to end with politicians who, out of anyone, have the least incentive to do the right thing. economics isn't (and will never be) objective, but that doesn't mean its useless.
    Banks are quite poorly run I agree. All the main banks in Ireland have collapsed and a lot of banks in America and Europe have done the same. Its a good job they have the muscle to make governments bail them out whenever they get caught out.
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    It's a social science. The problem is that people treat it like an actual science where the results of every action are the same every time - this is not the case.
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      (Original post by elander)
      I mean when you look at the recent financial crisis, barely anyone seemed to see it coming, and all these economists have completely different interpretations of the underlying causes.
      Huh?! I think the overall theme of the crisis is pretty well agreed upon: banks were in a situation where they held incorrectly valued assets (because of information asymmetry, and perverse incentives, etc.) and were not able to remain liquid when a better (much lower) valuation of the assets became known. I can't imagine (m)any mainstream economists would disagree with that!
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      Been reliably told and seen my Business lecturers moc Economics
     
     
     
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