Comment by ploum | Hacker News Reader

Comment by ploum | Hacker News Reader

Parent Full thread

Well, a good example is given by Yanis Varoufakis (which is, ironically, an economist himself) in his book "adults in the room".

In this book, Varoufakis, which was Greece Finance Ministry at the time, explains how he was tasked to negotiate with EU institutions and IMF to alleviate Greece debts. While he proposes restructuring plans after restructuring plans, nobody even try to argue with him on the plans. They all say that there should be a strong austerity, it is the way to go. At one point, he managed to get a glimpse of what is presented to him as a very complex economical model that he (phd in economy) could not understand and, by looking into the code, discover that it is utterly stupid: the whole agenda of austerity is based on the fallacy that you could raise taxes without affecting consumption.

You could say that my example is only saying that there are good and bad economists and that things go wrong when politicians listen to bad economists.

Well, it turns out that politicians only listen to bad economists (because that’s what they want to hear) which make any influential economist a bad one (because you can’t really make a career as a good one who say things like "give more money to the poor" or "tax the rich").

Varoufakis is an exception here but not so much: he was quickly removed from office once people understood that he would not agree to become a bad economists to stay in power.

I took a couple of courses in economics at Uni, because you are forced to do a few electives. The micro economics looked similar to physics applied to money to me, meaning it was mathematical models applied to very simple situations. It was interesting but the world is not simple. They term their attempts to expand it to real world models macro economics. That worked about as well as using physics to predict the weather which is to say not bad, but you wouldn't bet your life on the predictions. The math and logic was pleasingly rigorous, but the models were either too simple or beyond the most powerful computer.

That was Uni. Then I started read pieces by "economists" in the popular press. They written "pop science" style, where the science being discussed is economics. But where pop science is often a genuine attempt to educate, these articles by "economists" were invariably little better than opinion pieces. To this engineer they often read like near pure bullshit. Worse, after a while, it because obvious it was paid by the word bullshit. As in, if you look at the job description for "Chief Economist" at a bank it reads like a PR position, not someone paid to predict economic outcomes.

I do feel sorry for the academic discipline. The tarnish painted by the brushes held by the colleagues paid by politicians and PR services reeks, which in turn means they go through life wearing the snide comments you see about their efforts here. Balancing that is things like the current interest rate. If I believe what I read, the worlds reserve banks kept interest rates low because the worlds top economists told them the COVID cash bazooka would not lead to inflation. WTF? I have no idea if this was just another case of economists saying what they were paid to say, or it really was the underlying academic consensus. But the independent reserve banks acted on that advice, and if they can't pick the paid bullshitters from the those doing true research then I've got no hope.

I’ve also taken a few economic classes during my engineering degree and the math was, most of the time, trivial. But they were proud of it and applying like physics, like you said. The basic hypothesis is "people will act rationally in their own interest".

Well, they just forgot one aspect: people are not rationales. They never are. The whole advertising business relies on people not being slightly rationale at all. There’s no even a point in making people rationales. And this is not always bad: people will sometimes act kindly despise their own interest.

The whole "people act rationally for their own selfish short-term interest" is what gave us most economical theology from Smith to this day (cheers to Ayn Rand for writing the fairy tales about it). It’s mostly as reliable as astrology: sounds mathematics applied on a completely false hypothesis.

And, yes, politicians have been using it exactly like astrology with similar results because one of the key principle is that it justifies the existence of rich people (those are who acted the more rationally and thus are rewarded. Did I say that everyone acts rationally? Well, yes, that’s the hypothesis. Don’t try to confuse me).

Just to highlight how far fetched mainstream economical "science" is, just consider that there is a new field called "behavioral economy". Behavioral economy introduces a whole new paradigm: "what if, instead of assuming that people are rational selfish, we actually observes and make theory from observations".

Which is, you know, what we call "science". And, unsurprizingly, every behavioral economist start to say thing like "hey, if we tax the rich, it works!" "hey, we can help the poor by handing them money". "hey, we should not let banks create money and then hand them the money they created and lost themselves".

It’s a bit like a few astrologists started to consider "what if really tried to look at the starts?" and invented astronomy. But every king, every government was laughing at them for being young and naives.

The error was that somewhere along the way between Aristotle and modern times, humans went from being seen as rationally-capable to rationally-driven. Nobody seriously disputes that we are capable of rationality; it is just that we are still driven more by instinct and emotion in our default modes.

>The basic hypothesis is "people will act rationally in their own interest"

This is, as we all know, true to the "first order" approximation. We know it in business - you get what you incentivise - it's behind Goodhart's law (when a measure becomes a target, it stops being a good measure).

It is however, an incomplete description of human behaviour, again, as we all know. But since "second and higher" approximations of human behaviour are hard to model... they don't do it.

And just so you know, it's just as easy to do bad, "left wing", Lysenkoist economics.

https://www.theguardian.com/music/2015/may/12/greek-finance-...

Reply on news.ycombinator.com