Can Science Help Solve the Economic Crisis?

[Sapiens]

Re: Can Science Help Solve the Economic Crisis?

Through this failed logic we could damn all progress. Fire, stone implements, medicinal herbs - gone. Economics will no problem in your cold, dark cave. You can thank science and the good scientists that created it for your long life and your ability to laugh at science.

I am not laughing at science, I am laughing at the naiveté that science is not used in running the economic system. If you are paying attention, you will notice that the system works quite well for those that are at the favorable end of the fraud.

[Kcim67]

Re: Can Science Help Solve the Economic Crisis?

"All Swans are White" that is until a black swan turns up! Schroedingers Cat is Dead and Alive at the same time but doesn't chose what state it shall stay until we observe it. The odds on the Atom bomb turning us into a ball of fire or the LHC crushing us in a black hole couldn't be known but they were happy to build them anyway! Sounds like economists to me!!!!

[Spartacus]

the extent to which science is missing

is the extent to which the quants are ordered to produce a result, and the extent to which sales droids excised warnings from reports.

I doubt you get a PhD in math or statistics without knowing something about the scientific method.

Sales pushed the agenda. Those of you who've ever worked in software know first hand how this works.

At the ratings agencies, for example. I bet any scientists / mathematicians / statisticians / PhD engineers working there put their caveats in their reports - these just never made it past the sales people to the customers in any way that could be understood.

Science or lack thereof had nothing to do with it, IMHO.

addendum : also IMHO there's a limit to how much science you could ever apply in economics. You can't do controlled experiments, all you have is the entire system to observe. When someone like Mish makes an absolutist, blanket assertion "stocks do well in a disinflation" I just have to laff out loud. As if we've had hundreds of disinflations, controlled for all kinds of factors like computerization, automation, outsourcing, offshoring, currency devaluations, etc .... and during each and every case of disinflation stocks did well. PLEASE.

This is what I meant also when I wrote (with respect to another issue) Mish was "making an extraordinary claim to knowledge".

the only part of the scientific method you can really apply in the most general sense is an overall sense of skepticism and caution, footnoting all the assumptions made in your derivations and spreading warnings around liberally. And of course, that kind of thing tends to put a damper on a sales pitch, so the customer never sees it.

[Rajiv]

Re: Can Science Help Solve the Economic Crisis?

A small quote from my mentor - C. West Churchman

“How can we design improvement in large systems without understanding the whole system, and if the answer is that we cannot, how is it possible to understand the whole system?”

For Werner Ulrich, the implication of West's question was

I began to capture the real challenge posed by the systems idea: its message is not that in order to be rational we need to be omniscient but, rather, that we must learn to deal critically with the fact that we never are. What matters is not “knowing everything” about the system in question but understanding the reasons and possible implications of our inevitable lack of comprehensive knowledge. It is because we never know enough that understanding, i.e., critical judgment, becomes essential – not only from an intellectual but also from a moral point of view. Uncertainty about the whole systems implications of our actions does not dispense us from moral responsibility; hence, “the problem of systems improvement is the problem of the 'ethics of the whole system'.” (Churchman 1968a, p. 4)

Further Ulrich says about West

the ultimate impetus for Churchman's relentless quest for comprehensiveness is of a moral rather than of a scholarly nature. “It would be a good thing,” West avows in Thought and Wisdom, “if the systems planner's germination was moral outrage and not just a mild felt need. In other words, I do not think we should view the major problems of the world today with calm objectivity. We shouldn't first ask ourselves for a precise and operational definition of malnutrition. We should begin with 'kids are starving in great numbers, damn it all!'” (Churchman 1982b, p. 17)
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This overwhelming connectedness of problems forces systems designers, no less than any other planners, to content themselves with partial solutions that consider only a limited number of whole systems implications – usually those of interest to the involved decision makers. But thought cannot turn that which is normal into an ethically justified norm. It cannot, for instance, excuse our morally outrageous indifference to worldwide starvation, our very prevalent lack of concern for future generations, or our tolerance of war. As West would insist, we cannot, by complaining about the overwhelming connectedness of the world, escape our responsibility for the poor and hungry whom we let suffer, or for the future generations whose options we confine today. Whether we want it or not, the connectedness of the world makes us responsible for the whole-systems implications of our bounded systems rationality.

Churchman accepts this moral consequence of the systems idea, despite the difficulties it causes him as a philosopher of planning. Thus it is only natural that he would like to see many more systems scientists and planners feeling moral outrage at the common acceptance of bounded systems thinking – not because he thinks moral outrage can or should replace intellectual effort, but because it is apt to help us break through the commonly accepted bounds of systems rationality.

For West Churchman, such moral outrage renders systems thinking – the attempt to understand the world we live in in terms of whole systems – an inescapable obligation to every planner or manager, if not to every active subject. The systems idea is thus not a merely theoretical idea; rather, it embodies an unavoidable moral challenge to all people of good faith.

[politicalfootballfan]

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[*T*]

Re: the extent to which science is missing

I agree with ASH & others re. meaning of science.

Also I'd note that many quant models were based on unrealistic untested assumptions. This together with the disregard for robustness would be heresy in engineering. The motivation was profit, not product.

Economics has become a priesthood. The best econ papers are being published in physics journals.

Mandelbrot, the first guy in economics to say something new in ages, was treated as a heretic and shunned by the economics profession. He was absorbed into physics and mathematics and went on to produce some new and original mathematics used to describe many physical processes. Still people price options using returns as Markov processes.

Let's teach economists introductory thermodynamics, for God's sake.

[ASH]

Re: Can Science Help Solve the Economic Crisis?

The odds on the Atom bomb turning us into a ball of fire or the LHC crushing us in a black hole couldn't be known but they were happy to build them anyway! Sounds like economists to me!!!!

Actually, those odds were known to be zero in the case of the LHC. The LHC can't achieve energies as high as the most energetic cosmic rays. Since cosmic ray collisions aren't generating black holes, we already had empirical evidence that the LHC wouldn't either. This "new physics machine is going to generate black holes" canard keeps surfacing year after year, whether it be the Relativistic Heavy Ion Collider at Brookhaven or the LHC. It makes a good story, but common sense rules it out.

A better example might be the Castle Bravo nuclear test, which exceeded its planned yield by a factor of about 3 because the designers missed a reaction pathway. Arguably, your example of the atom bomb is better as well, since I don't think they could have had an empirical counter-example (as with the LHC) to rule-out catastrophe. I believe the Manhattan Project scientists relied upon calculation in that case... more like the economists.

[sunskyfan]

Re: Can Science Help Solve the Economic Crisis?

But thought cannot turn that which is normal into an ethically justified norm. It cannot, for instance, excuse our morally outrageous indifference to worldwide starvation, our very prevalent lack of concern for future generations, or our tolerance of war. As West would insist, we cannot, by complaining about the overwhelming connectedness of the world, escape our responsibility for the poor and hungry whom we let suffer, or for the future generations whose options we confine today.


I love Humanity but this kind of thinking has horrific unintended consiquences. We cannot ignore the poor or the starving but we can't "fix" them either. Dropping food into a perpetual desert is not being a humanitarian. It is a desperate emotional act that prolongs suffering.

You want to change the world and create a better humanity? Convey the understanding of the effectiveness of birth control and a skeptical respect for compound interest and you will prevent more starving and cure more poverty than you ever will with concepts such as morality.

[we_are_toast]

Re: Can Science Help Solve the Economic Crisis?

Arguably, your example of the atom bomb is better as well, since I don't think they could have had an empirical counter-example (as with the LHC) to rule-out catastrophe. I believe the Manhattan Project scientists relied upon calculation in that case... more like the economists.

Fermi had done extensive testing of nuclear reactions in Chicago from 1942 to the 1st test.

Of course a popular rumor was:

To break the tension, Fermi began offering anyone listening a wager on "whether or not the bomb would ignite the atmosphere, and if so, whether it would merely destroy New Mexico or destroy the world."

[dcarrigg]

Re: Can Science Help Solve the Economic Crisis?

With more science, and less faith, at work in the markets, you would have less money riding on untested theories. Don't conflate mathematical complexity with science...That's why you have to directly test your theory in the real world before you go committing the lives (or finances) of others to something you engineer based upon theory.

Ash,

With this in mind, it becomes obvious that to increase utility, good national democratic governance must turn towards transparency and accountability to allow for theories to be tested by independent researchers (economists and market researchers). Policy by its nature must be implemented prior to an any accurate test given the nature of social systems. At least, through greater transparency, conceptual models may be applied independently to better test what is engineered as it is being built, rather than after the fact.

A measure of the velocity and vector of good democratic governance could likely serve this purpose. Measuring governance vectors (the change in quality of democratic governance over time) would provide quantitative data that is directly applicable to the utility and mitigation of risk within a nation. Given the parallels found in comparing the cases of the Japanese Asset Price Inflation and the American (worldwide) Financial Crisis, one can quickly ascertain that measures such as % land value over GDP over time, asset price categories over median wages over time, and security rating over asset price growth over time would yield quick, quantifiable data sets upon which to base assumptions of democratic governance vector velocities. Further, these data sets, if widely publicized, would provide a free press with ammunition to question the quality of governance being delivered by a government in power, and potentially serve to mobilize public opinion to counter the lobbying strength of those who stand to gain greatly from a swift asset price inflation (despite the increase risk burden assumed by the state on their behalf).

The following illustration may help in the clarification of this concept:


We cannot stop from engineering prior to directly testing theories due to the complexity of social systems. Yet we can damn sure identify shoddy construction as it is occurring.

[ASH]

Re: Can Science Help Solve the Economic Crisis?

Ash,

With this in mind, it becomes obvious that to increase utility, good national democratic governance must turn towards transparency and accountability to allow for theories to be tested by independent researchers (economists and market researchers). Policy by its nature must be implemented prior to an any accurate test given the nature of social systems. At least, through greater transparency, conceptual models may be applied independently to better test what is engineered as it is being built, rather than after the fact.

Incremental empiricism, transparency, and data-driven policy are all things I'd get behind. I think what you are describing is the only rational way to govern.

Even so, one needs to be choosy about how fast you innovate, depending upon what is at stake. The risk models that failed recently seemed to be working -- just like fiat currency seems to be working. If you build too much on foundations that have only been tested in the short term, you are asking for trouble. Since, as you say, we have to develop policy with incomplete information, then I suppose the best that can be done is to avoid betting the farm.

[ASH]

Re: Can Science Help Solve the Economic Crisis?

Fermi had done extensive testing of nuclear reactions in Chicago from 1942 to the 1st test.

Of course a popular rumor was:

To break the tension, Fermi began offering anyone listening a wager on "whether or not the bomb would ignite the atmosphere, and if so, whether it would merely destroy New Mexico or destroy the world."

Yeah, I had heard the origin of the "ignite the atmosphere" story, but I wasn't clear as to the adequacy of experimental data. I thought most of Fermi's testing related to fission, but the concern was about the potential for thermonuclear fusion (which was less well understood at that point). Now that I think about it, Fermi's data probably could have yielded some decent data on nuclear capture cross sections, so maybe they did have an empirical basis to estimate the potential for a conflagration.

[Rajiv]

Re: Can Science Help Solve the Economic Crisis?

"Moral outrage" is quite different from "Morality" -- I think you are misinterpreting what is said -- Moral outrage is what causes one to act when one sees injustice or outrageous acts happening in front of you - and allows you to leap out of the box you find yourself in.

See also - Diminished Sense Of Moral Outrage Key To Holding View That World Is Fair And Just, Study Shows

People who see the world as essentially fair can just maintain this perception through a diminished sense of moral outrage, according to a study by researchers in New York University's Department of Psychology. The findings appear in the March issue of the journal Psychological Science, which is published by the Association for Psychological Science.

Psychologists have long studied system-justification theory, which posits that people adopt belief systems that justify existing political, economic, and social situations or inequities in order to make themselves feel better about the status quo. Moreover, in order to maintain their perceptions of the world as just, people resist changes that would increase the overall amount of fairness and equality in the system. Instead, they often engage in cognitive adjustments that preserve a distorted image of reality in which existing institutions are seen as more equitable and just than they are.

The NYU research sought to explain how individuals make these cognitive adjustments in maintaining their world view, despite evidence of ongoing social and economic inequality. In the first part of the study--an experiment involving a series of questions and scenarios--the researchers found that the more people endorsed anti-egalitarian beliefs, the less guilt and moral outrage they felt. The reduction in moral outrage (but not guilt) led them to show decreased support for helping the disadvantaged and redistributing resources.
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[politicalfootballfan]

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[c1ue]

Re: Can Science Help Solve the Economic Crisis?

The problem with the idea that transparency and democracy somehow saves the day is that what we're seeing now is a common occurrence in man: the use of all available tools for selfish gain.

How can democracy avoid having lobbyists for corporations steer government action for corporate aims?

How can regulators do their jobs is everyone around them has a vested short term benefit from avoiding regulation?

Ultimately it all comes down to either an incorruptible government (impossible) or imposition of fairness through tyrannical force.

Not saying that Communism or dictatorships are better, merely that it is idealistic to the extreme to think somehow Democracy fixes everything.

After all, there's India.