Drake Bennett
(FF Editorial: In the past few weeks, I have been relentless and merciless in my criticisms of economists especially Nobel Laureates who creates mathematical models to forecast volatility and prices for derivative products. No less, a bunch of pseudo scientists who got it so wrong on the global financial tsunami. For long they have got away with their nonsensical theories about the market especially the derivative market. It is no consolation that these charlatans are now questioning their very own relevance. The accompanying article should shut up my critics who swallow whatever shit that is unloaded by the so-called experts. This was most evident when an economist, no less than a Nobel Laureate was in Kuala Lumpur to spin his discredited theories. To my critics, God gave you a brain. Use it!)
The deepening global economic downturn has been hard on a lot of people, but it has been hard in a particular way for U.S. economists.
For most people, pain and apprehension have been mixed with amazement at the complexity of what has unfolded: the dense, invisible lattice connecting home prices to insurance companies to job losses to car sales, the inscrutability of the financial instruments that helped spread the poison, the sense that the ratings agencies and regulatory bodies were overmatched by events, the recent wild gyrations of stock markets.
It is hard enough to understand what is happening, and it seems absurd to think we could have seen it coming beforehand. The vast majority of us, after all, are not experts.
But academic economists are. And with very few exceptions, they did not predict the crisis, either. Some warned of a housing bubble, but almost none foresaw the resulting cataclysm. An entire field of experts dedicated to studying the behavior of markets failed to anticipate what may prove to be the biggest economic collapse of our lifetime. And now that we are in the middle of it, many frankly admit that they are not sure how to prevent things from getting worse.
As a result, there is a sense among some economists that as they try to figure out how to fix the economy, they are also trying to fix their own profession.
The discussion has played out in blog posts and opinion pieces, in U.S. congressional testimony, at conferences and in working papers. A field that has increasingly been defined, at least in the public eye, by quirky studies explaining the economics of our everyday lives has turned decisively, in the past couple months, to more traditional economic turf.
And at U.S. economics powerhouses like Harvard, Massachusetts Institute of Technology and the University of Chicago, faculty lunch discussions that once might have centered on theoretical questions and the finer points of Bayesian analysis are now given over to dissecting bailout plans. Long-held ideas - about the stability of the business cycle, the resilience of markets and the power of monetary policy - are being challenged.
"Everyone that I know in economics, and particularly in the worlds of academic finance and academic macroeconomics, is going back to the drawing board," said David Laibson, a Harvard economist. "There are very, very, very few economists who can be proud."
A few suggest, as well, that there are deeper problems in the discipline. U.S. economists are asking aloud whether the field has grown too specialized, too abstract and too divorced from the way real-world economies actually function. They argue that many models used to predict the dynamics of financial markets or national economies have been scrubbed clean, in the interest of theoretical elegance, of the inevitable erraticism of human behavior.
As a result, the analytical tools of the trade offer little help in a crisis and have little to say about the sort of collapses that led to this one.
"You can't just say, 'I have a model for tremors that works great - I just can't explain earthquakes,"' said Kenneth Rogoff, an economist at Harvard who has studied financial crises.
Historically, periods of severe economic distress have shaken up economics and helped drive its evolution. And amid the current crash, there is an urgent search for approaches and models that might better illuminate ways to speed the recovery, forecast future meltdowns and help better describe the unruly flow of money.
The question of how well economists can model crises takes on an even greater importance because of the central role economic experts will play in the U.S. administration of President-elect Barack Obama - not only at the Federal Reserve, the Council of Economic Advisers and the Treasury Department, but in the Economic Recovery Advisory Board, a newly formed body created by Obama and led by the former Fed chairman Paul Volcker.
Obama has a reputation for placing a great deal of stock in expertise and the power of data. For better or worse, the evolving understanding of economic breakdowns will have ample opportunity to test itself against the real thing.
Along with everything else they have done, the financial meltdown and economic slump have spurred unprecedented political attention and participation by economists.
"In my lifetime as an economist I've never seen economists so engaged by what's going on," said Richard Thaler of the University of Chicago. "At the University of Chicago people always talk economics at lunch, but for the last three months they've all been talking about the crisis and the bailout and writing op-eds."
This is something of a change. The topics economists study often have little to do with the average person's economic life. As in almost any academic field, practical relevance sometimes has little to do with judgments about what questions are most interesting and rewarding.
This divergence was exacerbated, many economists say, during the span of almost uninterrupted economic growth that began in the late 1980s, a period when many practical questions in the making of economic policy came to be seen as having been settled. For years, leading economic figures like Lawrence Summers and Alan Greenspan argued that the United States had more or less brought the business cycle to heel.
Partly as a result, many bright young economists turned to questions that were quirkier, or more purely mathematical. To the wider public, the most visible ramification of this was the boom in papers and books about the economics of everyday life. Economists like Steven Levitt of the University of Chicago, Ray Fisman of Columbia, Edward Miguel of the University of California, Berkeley, and Justin Wolfers of the University of Pennsylvania used economics as a forensic tool to examine family dynamics, speed-dating, parking scofflaws, basketball games and the life choices of street criminals.
For those who stayed on more traditional economic turf, however, the trend was toward narrower and more abstract questions. Financial economists set out to figure out why it was that stocks earned more than bonds or to devise better ways of calculating the correlation between the price of a single asset and the price of the market it was part of.
Wolfers, being an economist, describes these intellectually challenging but less policy-relevant questions as a sort of scholarly luxury good. "During good times we all consume more luxuries," he said, "but during a bad economy, it feels to macroeconomists that what we should be doing is stuff to help today."
Some economists have suggested that this focus may account for the failure of so many to see the warning signs of the financial crisis and to predict the size and scope of its fallout.
Others see a broader problem, in that the sort of behavior that has been seen in everyone from home buyers to investment bankers in recent months is hard to fit into economists' analytical tools. The models used by macroeconomists do a poor job of describing the messiness of an actual market in flux.
As a result, economists end up oversimplifying such situations when they model them - or simply avoid studying them at all.
"We have a very restrictive set of language and tools, and we tend to work on the problems that are easily addressed with those tools," said Jeremy Stein, a financial economist at Harvard. "Sometimes that means we focus on silly questions and ignore greater ones."
Blindsided by crisis, economists rethink profession along with theories - By Drake Bennett (LATEST UPDATE - 28/12/08)
Drake Bennett
(FF Editorial: In the past few weeks, I have been relentless and merciless in my criticisms of economists especially Nobel Laureates who creates mathematical models to forecast volatility and prices for derivative products. No less, a bunch of pseudo scientists who got it so wrong on the global financial tsunami. For long they have got away with their nonsensical theories about the market especially the derivative market. It is no consolation that these charlatans are now questioning their very own relevance. The accompanying article should shut up my critics who swallow whatever shit that is unloaded by the so-called experts. This was most evident when an economist, no less than a Nobel Laureate was in Kuala Lumpur to spin his discredited theories. To my critics, God gave you a brain. Use it!)
The deepening global economic downturn has been hard on a lot of people, but it has been hard in a particular way for U.S. economists.
For most people, pain and apprehension have been mixed with amazement at the complexity of what has unfolded: the dense, invisible lattice connecting home prices to insurance companies to job losses to car sales, the inscrutability of the financial instruments that helped spread the poison, the sense that the ratings agencies and regulatory bodies were overmatched by events, the recent wild gyrations of stock markets.
It is hard enough to understand what is happening, and it seems absurd to think we could have seen it coming beforehand. The vast majority of us, after all, are not experts.
But academic economists are. And with very few exceptions, they did not predict the crisis, either. Some warned of a housing bubble, but almost none foresaw the resulting cataclysm. An entire field of experts dedicated to studying the behavior of markets failed to anticipate what may prove to be the biggest economic collapse of our lifetime. And now that we are in the middle of it, many frankly admit that they are not sure how to prevent things from getting worse.
As a result, there is a sense among some economists that as they try to figure out how to fix the economy, they are also trying to fix their own profession.
The discussion has played out in blog posts and opinion pieces, in U.S. congressional testimony, at conferences and in working papers. A field that has increasingly been defined, at least in the public eye, by quirky studies explaining the economics of our everyday lives has turned decisively, in the past couple months, to more traditional economic turf.
And at U.S. economics powerhouses like Harvard, Massachusetts Institute of Technology and the University of Chicago, faculty lunch discussions that once might have centered on theoretical questions and the finer points of Bayesian analysis are now given over to dissecting bailout plans. Long-held ideas - about the stability of the business cycle, the resilience of markets and the power of monetary policy - are being challenged.
"Everyone that I know in economics, and particularly in the worlds of academic finance and academic macroeconomics, is going back to the drawing board," said David Laibson, a Harvard economist. "There are very, very, very few economists who can be proud."
A few suggest, as well, that there are deeper problems in the discipline. U.S. economists are asking aloud whether the field has grown too specialized, too abstract and too divorced from the way real-world economies actually function. They argue that many models used to predict the dynamics of financial markets or national economies have been scrubbed clean, in the interest of theoretical elegance, of the inevitable erraticism of human behavior.
As a result, the analytical tools of the trade offer little help in a crisis and have little to say about the sort of collapses that led to this one.
"You can't just say, 'I have a model for tremors that works great - I just can't explain earthquakes,"' said Kenneth Rogoff, an economist at Harvard who has studied financial crises.
Historically, periods of severe economic distress have shaken up economics and helped drive its evolution. And amid the current crash, there is an urgent search for approaches and models that might better illuminate ways to speed the recovery, forecast future meltdowns and help better describe the unruly flow of money.
The question of how well economists can model crises takes on an even greater importance because of the central role economic experts will play in the U.S. administration of President-elect Barack Obama - not only at the Federal Reserve, the Council of Economic Advisers and the Treasury Department, but in the Economic Recovery Advisory Board, a newly formed body created by Obama and led by the former Fed chairman Paul Volcker.
Obama has a reputation for placing a great deal of stock in expertise and the power of data. For better or worse, the evolving understanding of economic breakdowns will have ample opportunity to test itself against the real thing.
Along with everything else they have done, the financial meltdown and economic slump have spurred unprecedented political attention and participation by economists.
"In my lifetime as an economist I've never seen economists so engaged by what's going on," said Richard Thaler of the University of Chicago. "At the University of Chicago people always talk economics at lunch, but for the last three months they've all been talking about the crisis and the bailout and writing op-eds."
This is something of a change. The topics economists study often have little to do with the average person's economic life. As in almost any academic field, practical relevance sometimes has little to do with judgments about what questions are most interesting and rewarding.
This divergence was exacerbated, many economists say, during the span of almost uninterrupted economic growth that began in the late 1980s, a period when many practical questions in the making of economic policy came to be seen as having been settled. For years, leading economic figures like Lawrence Summers and Alan Greenspan argued that the United States had more or less brought the business cycle to heel.
Partly as a result, many bright young economists turned to questions that were quirkier, or more purely mathematical. To the wider public, the most visible ramification of this was the boom in papers and books about the economics of everyday life. Economists like Steven Levitt of the University of Chicago, Ray Fisman of Columbia, Edward Miguel of the University of California, Berkeley, and Justin Wolfers of the University of Pennsylvania used economics as a forensic tool to examine family dynamics, speed-dating, parking scofflaws, basketball games and the life choices of street criminals.
For those who stayed on more traditional economic turf, however, the trend was toward narrower and more abstract questions. Financial economists set out to figure out why it was that stocks earned more than bonds or to devise better ways of calculating the correlation between the price of a single asset and the price of the market it was part of.
Wolfers, being an economist, describes these intellectually challenging but less policy-relevant questions as a sort of scholarly luxury good. "During good times we all consume more luxuries," he said, "but during a bad economy, it feels to macroeconomists that what we should be doing is stuff to help today."
Some economists have suggested that this focus may account for the failure of so many to see the warning signs of the financial crisis and to predict the size and scope of its fallout.
Others see a broader problem, in that the sort of behavior that has been seen in everyone from home buyers to investment bankers in recent months is hard to fit into economists' analytical tools. The models used by macroeconomists do a poor job of describing the messiness of an actual market in flux.
As a result, economists end up oversimplifying such situations when they model them - or simply avoid studying them at all.
"We have a very restrictive set of language and tools, and we tend to work on the problems that are easily addressed with those tools," said Jeremy Stein, a financial economist at Harvard. "Sometimes that means we focus on silly questions and ignore greater ones."
Di pos oleh Arbain Muhayat pada 28 December 2008