tag:blogger.com,1999:blog-11906042.post4991726748891261587..comments2024-03-29T10:51:27.752+13:00Comments on Not PC: Can Economists Ever Get It Right? [updated]Peter Cresswellhttp://www.blogger.com/profile/10699845031503699181noreply@blogger.comBlogger16125tag:blogger.com,1999:blog-11906042.post-54387603191584757882014-03-18T20:39:29.099+13:002014-03-18T20:39:29.099+13:00Mark. "Pointing out that some people are prep...Mark. "Pointing out that some people are prepared to pay for predictions really adds nothing to the argument, because some people are prepared to pay for palm readings too."<br /><br />One of the points I made to Peter applies here as well. I should have thought of it earlier. Individuals, households, buy palm reading not firms. The market pressure and objectives of the two institutions are different. Households set out to maximise utility and getting palm readings may do this for some people. Households can spend their income in anyway to achieve utility maximisation. Firms on the other hand wish to maximise profits and face market pressure to do this. This means that they face pressures to desist with any activities that lower profits. Paying for worthless forecasts must lower profits, they are a cost with no benefit. Household don't face such pressure and thus can indulge in what we may see as irrational, but fun, activities. Paul Walkerhttps://www.blogger.com/profile/13731003529546075700noreply@blogger.comtag:blogger.com,1999:blog-11906042.post-20046056793356566202014-03-18T20:02:34.430+13:002014-03-18T20:02:34.430+13:00Peter. May be. And if it were households doing the...Peter. May be. And if it were households doing the buying I would be more likely to agree with you. But market pressures forces firms to be more rational. Firms that are using them as "good luck charms" make less profit than firms that don't and thus should exit the market or stop using forecasters. What we should see therefore is a market with no forecasters or a market with forecasters who provide some useful information to those who hire them.Paul Walkerhttps://www.blogger.com/profile/13731003529546075700noreply@blogger.comtag:blogger.com,1999:blog-11906042.post-5138671074651322872014-03-18T18:11:00.650+13:002014-03-18T18:11:00.650+13:00Mark. Most government and banking econ work is don...Mark. Most government and banking econ work is done in house so if we see a supply of private forecasters its likely because there is private demand for their services. Also if businessmen who pay for forecasts make less profit because of it you would expect them to be driven out of the market. So if they keep buying them they must see some good business reason for it.Paul Walkerhttps://www.blogger.com/profile/13731003529546075700noreply@blogger.comtag:blogger.com,1999:blog-11906042.post-30382514812323111422014-03-18T15:49:16.602+13:002014-03-18T15:49:16.602+13:00I have 2 problems with the "Free market in pr...I have 2 problems with the "Free market in predictions" being peddled above:<br /><br />Firstly: Most predictions are paid for with taxpayer money. Without an interventionist govt most economists will be out of business.<br />Secondly: There is an inherent conflict of interest in most commercial economists work. An economist working at a bank/real estate agent may have a rather negative message internally (as he may be well versed in Mises etc), however, the bank/real estate agent as a business requires a "growing" economy based on positive sentiment, meaning the external message needs to be sexed up.<br /><br />No doubt that this contributes to the fact that most economists are overly optimistic. They are paid to be. <br /><br />Dolfnoreply@blogger.comtag:blogger.com,1999:blog-11906042.post-21842162556226406732014-03-18T12:57:37.267+13:002014-03-18T12:57:37.267+13:00@ Paul: Firstly, I think you're over-estimatin...@ Paul: Firstly, I think you're over-estimating the demand for these economic predictions in the free market. I don't know of many entrepreneurs who would pay for them. Gov't departments might, and the mainstream banks might, but few others to my knowledge.<br /><br />Secondly, you seem to be arguing against a straw man. If Peter was arguing for economic predictions to be banned by the state, then your argument would be relevant - in that if someone wants to pay for them, they obviously see some value in it (real or imagined), and so it should be there choice. But that's not what he's arguing.<br /><br />Pointing out that some people are prepared to pay for predictions really adds nothing to the argument, because some people are prepared to pay for palm readings too. Human progress depends on testing ideas against reality and discarding those that don't work. If we adopted your position that we can't critique bad ideas just because somewhere, someone sees some value in them, there would never be any progress in any field - and we'd still be assuming the world is flat.MarkThttps://www.blogger.com/profile/06199883270652041621noreply@blogger.comtag:blogger.com,1999:blog-11906042.post-22833281655933886442014-03-18T11:43:02.271+13:002014-03-18T11:43:02.271+13:00Successful entrepreneurs are proving that they are...Successful entrepreneurs are proving that they are probably best at understanding true macro economics and applying it at a micro level. <br /><br />Conversely my economics tutor, Dr Shamim Shakur whould have arrived in a lear jet to Uni each day. He did not. Shane Pleasancehttps://www.blogger.com/profile/06144367923437327037noreply@blogger.comtag:blogger.com,1999:blog-11906042.post-71594251398494580382014-03-18T09:54:15.921+13:002014-03-18T09:54:15.921+13:00@Paul, You are arguing then that forecasts are, in...@Paul, You are arguing then that forecasts are, in Menger's terms, an imaginary good, i.e. things that are incapable of actually satisfying the needs they are supposed to serve, but valued either because of imagined properties or because of imagined needs.<br />In other words, they have about as much value as a good luck charm.<br />Menger expected that as civilisation advanced examples of this sort of nonsense would become progressively fewer. He's still right.Peter Cresswellhttps://www.blogger.com/profile/10699845031503699181noreply@blogger.comtag:blogger.com,1999:blog-11906042.post-13079382346307766532014-03-17T17:09:49.970+13:002014-03-17T17:09:49.970+13:00Ben
>You seem to be arguing that forecasts fro...Ben<br /><br />>You seem to be arguing that forecasts from economists must be worthwhile because people are willing to pay for them. That doesn't make sense. There are lucrative markets for scientology and astrology but that doesn't mean they have merit.<br /><br />"Merit" in this case is subjective. People's valuation of a a good or service is up to them. Scientology or astrology may not be worth much to you and me but as a result we don't pay for it. But for some people it is worth paying for, that up to them. Same with forecasts, some people are willing to pay for them. That tells us they get something from them. Also there is a selection pressure for firms. If firms that use forecasters and act on their advice make less profit they will be forced out of the market or forced to change how they do business including getting ride of their forecasters. Either way if we see a market for forecasting that is long lived, and we do, then we have to conclude forecasting firms survive because these firms are doing something somebody values.<br /><br />>PS I'm glad the rumours of your death were false.<br /><br />Not half as glad as I am !!Paul Walkerhttps://www.blogger.com/profile/13731003529546075700noreply@blogger.comtag:blogger.com,1999:blog-11906042.post-81828511794645983382014-03-17T16:42:22.257+13:002014-03-17T16:42:22.257+13:00@Paul Walker
You seem to be arguing that forecast...@Paul Walker<br /><br />You seem to be arguing that forecasts from economists must be worthwhile because people are willing to pay for them. That doesn't make sense. There are lucrative markets for scientology and astrology but that doesn't mean they have merit.<br /><br />Some people are idiots and spend money for no actual benefit. Or they have ulterior motives.<br /><br />PS I'm glad the rumours of your death were false.Bennoreply@blogger.comtag:blogger.com,1999:blog-11906042.post-39273117371823458312014-03-17T14:47:10.882+13:002014-03-17T14:47:10.882+13:00>"Why would they need to be told?" Pr...>"Why would they need to be told?" Presumably because they haven't noticed that the results are dire.<br /><br />But if you are so knowledgeable about the results how is it that those buying them are not? Do the customers not have the best information and best incentives to check the results? Why if entrepreneurs are smart enough to handle all other issues to do with their business are they not smart enough to handle the results of forecasts?<br /><br />>Or to the alternative of not making forecasts at all?<br /><br />Could be, but the market tells me that isn't better than having the forecasts. If it was entrepreneurs would stop buying forecasts. <br /><br />>Why do people continue to pay for them? Perhaps as a tangible excuse for their own failures ("see, it's not just me...")? Or because they share the same misconceptions as the forecasts' authors? Or, as a combination of the above, because that's the model of economics that governments continues to purchase.<br /><br />In which case the forecasts are proving a service people are willing to pay for and markets are about giving people what they want. The value of the forecast, just like any other good, is subjective. How can we know the value that someone else get from an good or service? What we observe is market outcome and that says people value forecasts.Paul Walkerhttps://www.blogger.com/profile/13731003529546075700noreply@blogger.comtag:blogger.com,1999:blog-11906042.post-88986205445988405632014-03-17T14:24:43.098+13:002014-03-17T14:24:43.098+13:00"Why would they need to be told?" Presum..."Why would they need to be told?" Presumably because they haven't noticed that the results are dire.<br /><br />"Also the forecasts don't have to be right they just have to be better than the alternative." What alternative? Better than continuing to the pretence they can forecast the future? Than the fiction presented that economics is about mathematical manipulation? That forecasts can be used to justify politicians and policymakers orchestrating the activities of folks back home?<br />Or to the alternative of not making forecasts at all?<br /> <br />Why do people continue to pay for them? Perhaps as a tangible excuse for their own failures ("see, it's not just me...")? Or because they share the same misconceptions as the forecasts' authors? Or, as a combination of the above, because that's the model of economics that governments continues to purchase.<br /><br />You might ask yourself why the omens and forecasts of seers and soothsayers were valued in ancient royal courts when they were no more accurate than the forecasts of today's court economists. The reasons were very similar...Peter Cresswellhttps://www.blogger.com/profile/10699845031503699181noreply@blogger.comtag:blogger.com,1999:blog-11906042.post-76743195633580984152014-03-17T13:01:18.566+13:002014-03-17T13:01:18.566+13:00Why would they need to be told? If the forecasts s...Why would they need to be told? If the forecasts sre wrong then aren't the businessmen in the best position to know this? Also the forecasts don't have to be right they just have to be better than the alternative. And if the forecasts are not better why do people pay for them?Paul Walkerhttps://www.blogger.com/profile/13731003529546075700noreply@blogger.comtag:blogger.com,1999:blog-11906042.post-40679747974608240022014-03-17T12:28:57.354+13:002014-03-17T12:28:57.354+13:00Mind you, for box-tickers the forecasters provide ...Mind you, for box-tickers the forecasters provide an organised way of going wrong with confidence -- and a tangible excuse for failure ("see, it's not just me...")Peter Cresswellhttps://www.blogger.com/profile/10699845031503699181noreply@blogger.comtag:blogger.com,1999:blog-11906042.post-25206613486877769922014-03-17T12:27:56.164+13:002014-03-17T12:27:56.164+13:00"...businessmen must think the forecasts are ..."...businessmen must think the forecasts are worth the money."<br />Maybe they should be told they're not.Peter Cresswellhttps://www.blogger.com/profile/10699845031503699181noreply@blogger.comtag:blogger.com,1999:blog-11906042.post-65307380816146072852014-03-17T11:57:04.934+13:002014-03-17T11:57:04.934+13:00You do of course realise that 99 percent of econom...You do of course realise that 99 percent of economists never forecast. Also note for those that do some business is paying them to do it so those businessmen must think the forecasts are worth the money.Paul Walkerhttps://www.blogger.com/profile/13731003529546075700noreply@blogger.comtag:blogger.com,1999:blog-11906042.post-37540205117109497102014-03-17T11:56:01.261+13:002014-03-17T11:56:01.261+13:00I'm reminded of a presentation by, I think it ...I'm reminded of a presentation by, I think it was, ASB's chief economist. He made a telling comment as part of his disclaimer before he started his presentation on the latest state of the economy and where it's headed. He commented that "Economists make predictions, not because they know, but because they're asked."Paranormalhttps://www.blogger.com/profile/09356284718669009511noreply@blogger.com