tag:blogger.com,1999:blog-6837159629100463303.post5887712513890748998..comments2023-06-18T01:25:08.748-07:00Comments on Information Transfer Economics: "Economics is a social science"Jason Smithhttp://www.blogger.com/profile/12680061127040420047noreply@blogger.comBlogger35125tag:blogger.com,1999:blog-6837159629100463303.post-14028834488163338982016-03-19T11:45:36.127-07:002016-03-19T11:45:36.127-07:00Are you sure you took a quick look?
And what are ...Are you sure you took a quick look?<br /><br />And what are these things you saw; I'm genuinely interested because I've searched and searched for years and I haven't come up with anything that is related.<br /><br />Information equilibrium recovers a lot of basic mainstream economics in various limits -- and a lot of Keynesian economics.<br /><br />You took a cursory glance at the history of economics and concluded it didn't work? Keynes is garbage?<br /><br />This is one of my least favorite criticisms (of anything). Dismissal by analogy. "I looked at your stuff and it looks the same (in some way) as unnamed/named idea X and X didn't work so your stuff doesn't work."<br /><br />But the thing is, I did what all good theorists do: ensure your theory reduces in appropriate limits to accepted theory. There isn't much accepted in economics, but there are a couple of things. In order to throw my theory out, you have to throw out <b>supply and demand</b> and <b>marginalism</b>.<br /><br />No really! The fundamental equation of the information equilibrium framework is<br /><br />dA/dB = k A/B<br /><br />which is just a generalization of marginalism (adding the k). Marginal rate of substitution. Marginal cost. From this equation comes supply and demand. <br /><br />So you threw this out with a quick glance?Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-45886605621512040232016-03-19T05:21:31.853-07:002016-03-19T05:21:31.853-07:00Jason - I have read your work, relatively quickly....Jason - I have read your work, relatively quickly. It looks similar to things I have seen that did not work. (No formal name, just called "data mining".) It would be easy to say that it is the same thing (as the techniques that did not work); it would be harder to determine that it is not data mining.Brian Romanchukhttps://www.blogger.com/profile/02699198289421951151noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-19280209567604762712016-03-18T15:29:11.169-07:002016-03-18T15:29:11.169-07:00"but who cares?"
I would if it turned o..."but who cares?"<br /><br />I would if it turned out that the underlying theory was correct, but everyone decided to come up with a wrong, yet empirically accurate model to replace it. I'm worried about Kuhn's paradigm shifts going backwards because no one realizes that empirical evidence can't completely falsify (to the extent that a paradigm shift is necessary) a model in economics.John Handleyhttps://www.blogger.com/profile/16057855086740377031noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-59076104255635760022016-03-18T15:23:58.403-07:002016-03-18T15:23:58.403-07:00"empirical evidence on the minimum wage doesn...<i>"empirical evidence on the minimum wage doesn't disprove the idea that minimum wage increases in a closed system result in lower employment"</i><br /><br />But since economics is an open system, how is this knowledge useful?<br /><br />And the original theory for the minimum wage (and other price floors) was that it worked even in an open system! That's why they even bothered. Economics is an open system; if you go about making theories that only can be tested with closed systems, that's totally useless.<br /><br />Additionally, the minimum wage has been tested in a open system with a natural experiment (looking at e.g. the region near the border of New Jersey and Pennsylvania when one adopted a higher minimum wage and the other didn't) and the econ 101 effect doesn't work. That's convincing enough for a theory of open (i.e. existing) systems. Maybe it econ 101 works for non-existent closed economic systems, but who cares?Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-46305661273715093822016-03-18T15:10:53.102-07:002016-03-18T15:10:53.102-07:00"The Galapagos didn't "prove" i..."The Galapagos didn't "prove" it either. Wallace studied insects all over the world."<br /><br />That wasn't my point. I was simply arguing that research in Biology is done in a (quasi?)-closed system, even if it's not in a laboratory setting. <br /><br />"In economics, you could consider a theory proven by its policy recommendations working, predicting a new correlation that hadn't been discovered, or accurate forecasts."<br /><br />I agree, but I don't think you can disprove a model in economics, because of the arguments I've been making the entire time (i.e., empirical evidence on the minimum wage doesn't disprove the idea that minimum wage increases in a closed system result in lower employment).John Handleyhttps://www.blogger.com/profile/16057855086740377031noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-90870574881557119442016-03-18T15:07:00.592-07:002016-03-18T15:07:00.592-07:00Hi Brian
I am not offended. I just find things li...Hi Brian<br /><br />I am not offended. I just find things like this baffling:<br /><br /><i>I am highly skeptical about mathematical methods in economics. The unfamiliarity of your approach would mean that it would take a lot of work for me to understand it before I could endorse it. Conversely, I could easily write up a skeptical article.</i><br /><br />What would that skeptical article be based on?<br /><br />You also said:<br /><br /><i>... the most interesting part of economic forecasting is calling recessions</i><br /><br />But previously you said:<br /><br /><i>For those of us in the post-Keynesian tradition, we have very good reasons to believe that the cycle cannot be forecasted.</i><br /><br />So the most interesting part of economics can't actually be done? No wonder it's called the dismal science!Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-7454128741156820422016-03-18T14:01:18.536-07:002016-03-18T14:01:18.536-07:00Sorry to cut in again, but I'm liking these sh...Sorry to cut in again, but I'm liking these short "sixty symbols" interviews. <a href="https://www.youtube.com/watch?v=jcJC0a1n1B0" rel="nofollow">This one</a> is about the hypothesized "planet 9" and the multiple pieces of evidence for it. There's some tie-ins to the "cause and effect" discussion in an open system (perhaps), and a bit on the weakness of competing hypotheses to explain the evidence. Though we're a long way from anything conclusive at this point, it sounds like. A direct sighting would be a big win of course.Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-68390635197648724512016-03-18T13:17:17.634-07:002016-03-18T13:17:17.634-07:00The Galapagos didn't "prove" it eith...The Galapagos didn't "prove" it either. Wallace studied insects all over the world.<br /><br />The things that "proved" evolution were the predictions of the theory -- and the lack of anything that rejects it. Transitional forms. The discovery of a molecule that transfers information from generation to generation.<br /><br />In economics, you could consider a theory proven by its policy recommendations working, predicting a new correlation that hadn't been discovered, or accurate forecasts.<br /><br />Even in social science, theories generally have to lead somewhere new in order to be useful.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-12108261326243929712016-03-18T13:10:21.810-07:002016-03-18T13:10:21.810-07:00"But evolution was considered accepted theory..."But evolution was considered accepted theory long before it was ever shown in a lab. Those lab experiments didn't "prove" evolution -- and they wouldn't have rejected evolution if they had negative results."<br /><br />I disagree. No, the theory of Evolution wasn't proven in 1991 by Lenski et al, but the various models in Evolution (e.g., natural selection) were tested by observing different species in closed systems (say, for instance, the Galapagos islands). Does that count as a completely closed system? No, but it is a whole lot more closed than anything that can be achieved in macroeconomics.John Handleyhttps://www.blogger.com/profile/16057855086740377031noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-63313073465876021562016-03-18T12:12:24.828-07:002016-03-18T12:12:24.828-07:00Brian, your write above:
"...the most intere...Brian, your write above:<br /><br />"...the most interesting part of economic forecasting is calling recessions."<br /><br />Your skepticism about mathematical methods for that purpose may be well grounded. However, perhaps your focus is too narrow, and mathematical methods are useful for other purposes.<br /><br />As an example in a different field, predicting Earthquakes is certainly a desirable goal of Earth sciences (geology, plate tectonics, etc), but it may prove to be forever elusive. That doesn't mean that the science as a whole is useless though, or that math isn't useful in other regards for geologists.<br /><br />I don't think Jason has any strong claim about his framework being able to forecast recessions. He has addressed the topic, but it's not his focus (from what I can tell). That doesn't mean he's barking up the wrong tree with his math though.Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-47375429291105025402016-03-18T10:55:19.267-07:002016-03-18T10:55:19.267-07:00Jason,
Hi, I looked back on my comment, and I did...Jason,<br /><br />Hi, I looked back on my comment, and I did not emphasize this enough -- I am not a reader in particular that you should be targeting (as I explain below). However, I wanted to give feedback about the barriers you will face from readers with a similar background. My wording was too harsh, sorry. But if I was too polite, my comments would have been meaningless.<br /><br />In my case, I am highly skeptical about mathematical methods in economics. The unfamiliarity of your approach would mean that it would take a lot of work for me to understand it before I could endorse it. Conversely, I could easily write up a skeptical article. At the same time, I am under a lot of time pressure. This creates an obviously unfair bias, and so I prefer to not delve into the topic. I am not hugely prominent, so this is not a major loss for yourself. At the same time, other people with similar backgrounds may have a similar barrier to acceptance for your work.Brian Romanchukhttps://www.blogger.com/profile/02699198289421951151noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-52798439485677376262016-03-18T10:47:29.736-07:002016-03-18T10:47:29.736-07:00Jason & John: you've probably noticed that...Jason & John: you've probably noticed that Noah Smith has another post up today on empiricism in economics.Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-52909105099679976332016-03-18T10:43:34.642-07:002016-03-18T10:43:34.642-07:00Another strong result in economics:
log r ~ log ...Another strong result in economics: <br /><br />log r ~ log NGDP/MB<br /><br />I have a post calling this the cleanest experiment ever.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-38297143663560247232016-03-18T10:42:23.278-07:002016-03-18T10:42:23.278-07:00BTW, I'm clearly no evolutionary biologist eit...BTW, I'm clearly no evolutionary biologist either, but I thought <a href="https://www.youtube.com/watch?v=kjEVpkJu_5k&list=PL7C90EE51FA96E8CE" rel="nofollow">this series of six short videos</a> (each one addressing a particular point) was pretty convincing regarding why evolution should be considered to be scientific (he's responding to creationist arguments that it's not).<br /><br />What would the equivalent set of six videos look like for economics? :DTom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-66029970629860116512016-03-18T10:41:00.509-07:002016-03-18T10:41:00.509-07:00I'm not sure why I said:
"You don't ...I'm not sure why I said:<br /><br />"You don't need a closed system to have experiments."<br /><br />I should have said:<br /><br />"You don't need a closed system and experiments to prove models useful (or reject them)."<br /><br />Probably due to losing my train of thought while tapping out letters one at a time on my phone :)Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-7847510367909543712016-03-18T10:37:25.147-07:002016-03-18T10:37:25.147-07:00But evolution was considered accepted theory long ...But evolution was considered accepted theory long before it was ever shown in a lab. Those lab experiments didn't "prove" evolution -- and they wouldn't have rejected evolution if they had negative results.<br /><br />You don't need a closed system to have experiments.<br /><br />In macroeconomics, Okun's law has held up for almost 60 years (and across different policy regimes). It has a level of usefulness and validity that I would call proven (to a given level of accuracy/first order theory). So does supply and demand (when you impact the quantities, not the price ... that seems to have different effects).<br /><br />But as I mentioned on your post, John: Popperian falsifiability as Popper stated it isn't how science works.<br /><br />The IE model in the head to head with the NY Fed DSGE model has "falsified" the latter in my view. Not because it is inconsistent with the data, but because the IE model is simpler and slightly more consistent with the data and comes from a framework with more empirical successes with simple models. I still need to convince the community of this, and if it proceeded more like a social science instead of a branch of politics or (mathematical) philosophy, this would be easier.Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-86597026822911250352016-03-18T10:34:24.102-07:002016-03-18T10:34:24.102-07:00"not by, e.g., running around watching E. Col..."not by, e.g., running around watching E. Coli evolve wherever we find them naturally."<br /><br />No, but evolution makes certain predictions about the outcome of natural experiments or what will be discovered outside the laboratory. It predicts, for example, that rabbit fossils will not be found in a pre-Cambrian layer (to use a famous example).<br /><br />Also, I see that Jason has addressed usefulness in a comment on your post.Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-50800952665425499042016-03-18T10:27:26.847-07:002016-03-18T10:27:26.847-07:00Ah, makes sense. The holographic principle is one ...Ah, makes sense. The holographic principle is one of the things Susskind was talking about (a talk geared towards laymen).Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-68327688366887950682016-03-18T10:09:20.032-07:002016-03-18T10:09:20.032-07:00Maldecena has the most cited theory paper in physi...Maldecena has the most cited theory paper in physics -- he came up with the AdS/CFT correspondence conjecture. Supergravity on an anti de Sitter (AdS) space (a constant curvature space time) is equivalent to a conformal field theory (CFT) on its boundary.<br /><br />It's a statement of the holographic principle in string theory,Jason Smithhttps://www.blogger.com/profile/12680061127040420047noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-7456733657201595642016-03-18T00:08:53.668-07:002016-03-18T00:08:53.668-07:00Tired of physics analogies to explain economics? T...Tired of physics analogies to explain economics? <a href="https://www.youtube.com/watch?v=RznZ_e6aDHc" rel="nofollow">This guy uses economics to explain physics!</a> (He's referring to another physicist, ... it sounds like "Maldecena"... a physicist I heard Leonard Susskind praise a day or two ago... I'd never heard of him before that) Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-19238608938386997702016-03-17T22:36:02.401-07:002016-03-17T22:36:02.401-07:00If I were to frame my critique in a more Popperian...If I were to frame my critique in a more Popperian way, I would say that none of the models are falsifiable, so are useless from that point of view. If every economic model has this problem, then empirical evidence is just a waste of time and we can resign ourselves to using it sparingly and never to completely reject a model.<br /><br />That, of course, doesn't mean we can't reject an assumption that is wrong, like (at least according to Jason) "micro sticky prices."John Handleyhttps://www.blogger.com/profile/16057855086740377031noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-64545012288853388762016-03-17T22:28:22.714-07:002016-03-17T22:28:22.714-07:00"I'm just not seeing why social sciences ..."I'm just not seeing why social sciences need what appears to me to be special treatment."<br /><br />That may not necessarily be it. Maybe empirical evidence just doesn't work in general without closed systems.<br /><br />When it comes to Evolution, though, there are closed systems (e.g., Lenski et al 1991). If we are talking about testing a model in biology, this is done in the lab, not by, e.g., running around watching E. Coli evolve wherever we find them naturally.John Handleyhttps://www.blogger.com/profile/16057855086740377031noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-47336966441672498572016-03-17T22:02:44.453-07:002016-03-17T22:02:44.453-07:00It seems to me there are plenty of examples amongs...It seems to me there are plenty of examples amongst the natural sciences that don't have the benefit of a closed system to work with, yet are nonetheless capable of having their hypotheses tested against empirical data. At least to some extent. Cosmology comes to mind as an example. Evolution seems like another. Perhaps meteorology, plate tectonics or climate science as well. By a closed system he's really saying a laboratory setting, no? Sure a laboratory can augment some of those fields I mention, but they all suffer at least to some extent from relying on natural experiments, no? You're the scientist, so you'd know better than me.<br /><br />I wrote a comment earlier (that I erased) with gravity waves as an example. Nobody can create measurable gravity waves in any closed system, or in anyway way whatsoever actually. And yet we've now detected them. They were predicted by general relativity and created by natural events that we could never hope to emulate. Their detection is another piece of positive evidence for general relativity. If instead we'd built instruments that according to the theory had been sensitive enough to detect these kinds of natural events (e.g. two black holes colliding) and we had some idea of the frequency of these events (again, according to other aspects of cosmological theory), and yet we never found evidence for gravity waves... perhaps when it seemed highly probable that we should have (perhaps after trying for a century or more?)... then that would be evidence that something is wrong, wouldn't it? Either with GR or with the expected rate of occurrence of detectable gravity wave producing events... something in the puzzle would be amiss. <br /><br />I can't really relate that to John's cause and effect example. But still, I'm just not seeing why social sciences need what appears to me to be special treatment.Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-77390844405805682202016-03-17T21:21:37.759-07:002016-03-17T21:21:37.759-07:00Jason, I'm sure you're aware that John Han...Jason, I'm sure you're aware that <a href="http://ramblingsofanamateureconomist.blogspot.com/2016/03/the-lack-of-usefulness-of-empirical.html" rel="nofollow">John Handley has another post</a> on the subject of empirical evidence in economics.<br /><br />Are there examples from other branches of science which have the problem John sketches regarding functions f() and g(), and yet are still able to consistently use empirical evidence to test hypotheses?Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-6837159629100463303.post-30178363078881161052016-03-17T16:39:24.123-07:002016-03-17T16:39:24.123-07:00Jason,
As I said, I do not do a lot of math on my...Jason,<br /><br />As I said, I do not do a lot of math on my site. I may eventually write a report on SFC models, but that would not be in the same style, and I would not be posting the mathematics on the site. Yes, some bloggers get away with posting equations (including yourself), but that is not the market I am aiming for, nor do I think I would have much success with it.<br /><br />What I wrote:<br />[discrete time back history series ] -(algorithm)> [discrete time series forecast]<br /><br /><br />As for my "World's Simplest Bond Model," I believe that it is a 120-month moving average. I did not describe it, since everyone in finance and economics knows what that is. It could be viewed as sarcasm, although it may have significance to readers who are familiar with other bond valuation models. Eyeballing the chart conveys quite a bit of information, at least if you are familiar with such models. Pretty well everyone with access to time series data can replicate it in seconds, so I saw little need to discuss its time series properties.<br /><br />If I had highly accurate interest rate forecasting models, there's no way I would be publishing them on the Internet. I know people in fixed income hedge funds. The models I built when I worked in the industry were aimed at making money, and would only be of interest to those doing fixed income relative value.<br /><br /> I have serious doubts about creating accurate economic forecasting models, which is why I do not spend too much time building the things on the blog. I created a few "teaching models" using SFC techniques, which is how Godley & Lavoie use them in their text.<br /><br />Extrapolating a variable works -- until it doesn't. Other than doing something like estimating the effect of policy changes (for example, see the debate over Sander's plan), the most interesting part of economic forecasting is calling recessions. By definition, you cannot call a recession based on extrapolating the data from the expansion. That's why post-Keynesians think economic forecasting is doomed; we do not care about extrapolating trends during an expansion, our worry is the recession.<br /><br /><br /><br /><br /><br />Brian Romanchukhttps://www.blogger.com/profile/02699198289421951151noreply@blogger.com