Sunday, January 1, 2012

Economics is not a science, again

I assume that like me this gray island read with panting relief the news that the Irish government is to thwart the exodus of public-sector workers over the next year by hiring some additional economists.

The Irish Times article points out that:

A TEAM of economists will be recruited next year to carry out specific assignments across Government departments.

They will be part of a limited recruitment to the public service scheduled for 2012 and will be qualified to master’s level or above.

(ht Irish Economy)

A question of competence and spheres of solid knowledge arises. Economics as a profession is one of the few domains where predictive competence is not routinely tested, and where intellectuals can emerge from their lair once a quarter, pronounce on the future, and then depart without being questioned on their prior record. The ESRI is a key example of this phenomenon.

The actual predictive value of economic forecasts is equivalent to an astrologers pronouncement on the life-trajectory of an Aries as measured against the movement of Andromeda.

This is because economics measures in aggregate the bumps and bluffs of human behaviour, a quark variable. As Nassim Taleb points out in The Black Swan, there is no such thing as an "economic expert" in the same way that one can find a "surgical expert" or an "expert engineer". In the latter two domains, expertise is possible. The former is only guesswork. Very elegant guesswork, perfected guesswork, one might say, but still guesswork.

(Nor can one be an "expert" in politics - in the sense that there is a clear-threaded route to this or that outcome - hence partisan division.)

There are many competing cults in economics (Keynesian, Austrian, Ricardian, NeoClassical, etc) , and each cult interprets each new set of data in a different and ideological manner - another sign that expertise is impossible. And modern economics - the laminate calligraphy one finds in undergraduate textbooks - is largely an attempt to codify in nonsense mathematics the opinions of a small, historical group of people.

Because expertise is impossible in economics, we should be wary of any council of platonic experts to guide us toward righteousness. One frequently hears that one of the problems with Ireland and other European polities is the lack of a finely grained expert class above the tribulations of hand-shaking and baby-kissing that ordinary politicians have to endure.

The record of Elders, however, has not been rose and bee orchid. China has been run by economic experts for some time now, transitioning now and then from one cult to another, and it does not appear better run than anywhere else, and is probably heading toward a banking crisis and property crash of their own. Apart from Barack Obama, I don't think that any soul in the current US cabinet was formally elected by voters, all Harvard alum and technocrats, and yet is America governed in a superior way? Certainly not. Italy is now formally run by economists, so everything is going to be okay now, right?

An economy cannot be controlled, no matter the Ravens IQ or degrees of the people involved.

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