Big facts

Chris Dillow has a great post about "big facts" in economics which he illustrates with three examples. The first is the Efficient Markets Hypothesis:

Take, for example, the efficient markets hypothesis. Researchers have found countless small facts that seem to refute this – well over 100 anomalies at the last count. All these, however, run into the Big Fact – that fund managers do not beat the market.

The second is involuntary unemployment:

Here’s a second example. A Big Fact is that the unemployed are significantly less happy than those in work. This is inconsistent with ideas that unemployment is voluntary: people should be happy if they’re on holiday. It thus refutes labour market-clearing real business cycle theories.

The third is the inability to predict recessions:

A third Big Fact is that mainstream economic forecasters have consistently failed to predict recessions – something which pre-dates the 2008 crisis – and in fact are much worse recession predictors than the simple yield curve.

Off the top of my head, I think I'd only add Okun's law to this list. Maybe the disappearing Phillips curve as well. But overall, I've addressed all three of these big facts using the information equilibrium framework:

• The EMH as a statement of maximum entropy as well as deviations from it.
• Unemployment dynamics and shocks to matching functions
• Predicting recessions and leading indicators (including yield curve inversion)