What’s the point of economists?

Just had to reference this article from Economia – the magazine for Chartered Accountants.

It starts off by saying that economists only get things right about 4 times out of 10.  If I have read the grade boundaries issued by one of the exam boards correctly that would have been enough to get a grade F at GCSE economics units 11 and 12.  And if we use the lower mark “3 or 4 times” offered later in the article it is barely even enough for a grade G.

It then goes on to say economics is not a black and white science – but then what is?  Even the physics of light has to take account of colour.

The profession is likened to a sports coach who cannot guarantee a win even by putting out the best team possible.  Except that economists do not seem to get the sack for repeated poor performance.

Or economists should be likened to medics who would not be able to predict when you are going to get ill but should be able to advise you how to get better.  Except that economists do not seem to be able to agree on a course of treatment – should we spend our way out of recession or should we cut back on public expenditure to balance the books.  Or should we do a George Osborne and try a bit of both – cut back on public expenditure till it hurts and still borrow more.

And then the article talks about the benefit of hindsight giving us 20/20 vision.  But again I am not sure that it does, as economists don’t seem to be able to agree whether they should have been expected to predict the 2008 financial crisis.

But perhaps I am biased in my thinking that economics is not science if we follow the Oxford dictionaries definition:

The intellectual and practical activity encompassing the systematic study of the structure and behaviour of the physical and natural world through observation and experiment

It is included as a social science:

The scientific study of human society and social relationships

which attempts to use scientific methodology but is severely limited because it is not easy (or even legal) to experiment on human society and relationships – so that it is limited to observation without being able to test any theories about how economics works.

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The fiction of forecasting

I realise that this article was written by an accountant (Richard Creepicture of Richard Cree is editor-in-chief of economia, which is the magazine for Chartered Accountants) and can therefore be rubbished by all practising economists, but I do like his suggestion that economic forecasts are about as useful as a 5-year weather forecast.

Here are some highlights

About Mark Carney:

A week ago, on what some in the media insisted on labelling “Super Thursday”, (because how can a day feel important without a hashtag-friendly label?) the Bank of England governor, Mark Carney, released a huge quantity of economic data. From the slew of numbers and insights he offered up, one headline jumped out. Contrary to his advice the last time he gave such “forward guidance”, way back in July when the economics clearly looked completely different and when he announced interest rates were on the verge of being hiked up, rates would now not be going up until 2017.

 

This week, as better than expected numbers on unemployment suggest the economy may be on the verge of over-heating, it now seems plausible that Carney’s next forward guidance may move that 2017 date forward again.

About George Osborne:

Meanwhile, across town in Westminster the chancellor, George Osborne, is planning his next mini-Budget (how long ago it seems since he pledged to scrap these in favour of a return to an annual Budget). At the heart of his Autumn Statement will be a set of economic forecasts from the Office for Budget Responsibility (OBR). Or rather, a set of revised forecasts. And they will be wrong, or more accurately they will only be a best guess of what might happen. Apologies to the doubtless very clever economists at the OBR if they’ve landed a couple, but most OBR forecasts have had to be revised. In fact, the recent record of most of those who make a living from reading the economic runes hasn’t been great. Only a handful of economists predicted the economic crash (and many of those are from the Cassandra school of economics, rather like the former business secretary Vince Cable, who was once accused of predicting “nine out of the last three recessions”). Today you can find an economist prepared to collect together a bunch of financial and economic indicators that point to either the start of the next recession, the beginning of a golden recovery or anything in between. Can someone please just admit we haven’t really got a clue, that the models, if they were ever fit for purpose are broken?

If you want to read the whole article go to The fiction of forecasting

Macroeconomics — totally messed-up

Until a few years ago, economists of all persuasions confidently proclaimed that the Great Depression would never recur. In a way, they were right. After the financial crisis of 2008 erupted, we got the Great Recession instead. Governments managed to limit the damage by pumping huge amounts of money into the global economy and slashing interest rates to near zero. But, having cut off the downward slide of 2008-2009, they ran out of intellectual and political ammunition.

For more click on the link below

macroeconomics totally messed up

It was the cartoon that really got me!

Cartoon - I want to be an economist