An age of understanding in economics is coming

[couvi]

Just as with other great scientific revelations in the vast history of human understanding, a consensus worldview of scientific economics, brought upon by the sophisticated accumulation and widespread dissemination of undeniable evidence, will alter popular perceptions of human existence. We need not forget that we live in a world of very imperfect understanding in economics. It is a result of the wide availability of differing opinions which gives most otherwise reasonable individuals the feeling that economics is unknowable.

There is, however, only one proper economic theory and it will win out as our knowledge is built and shared. It will win out because it is the only theory which consistently describes the real world. It sometimes takes centuries of evidence to convince the masses of scientific truth; but as societies continue to rise and fall in this age of free and vast information, as so much data is easily recorded, stored, and accessed, true economic law will be more fully and widely realized.

The treatment of economics by those who excuse unnatural and destructive market interventions is such that it is similar to treating physics with the imposition of an idol worshipping religious doctrine. Why does consensus intellectual opinion on physics and other natural sciences rely upon scientific understanding while economics remains muddled by the religion of economic interventionism? The state of civilization is constantly evolving, but the general trend is toward a more perfect knowledge of the natural laws which rule our existence. Many of the other sciences have been released from popular but demented interpretations--economics will have its turn to truth just the same.

Those laws which clearly govern the behavior of physical objects are more obviously present than the laws which govern the human social behavior studied by economists. There is a correct way to study economics; understanding is made possible by reducing complexity to its most basic component. The most basic component in economics is individual human action. Upon the realization of the importance of the individual and his singular actions, which are brought upon by his unique motivations, one will easily dismiss the irrational economic ideas which are slowly losing claim to the science.

As societies of people come to understand the natural economic law, the law which Austrian economists currently proliferate, the world will enter a new realm of unimaginable prosperity. It is my feeling that perhaps we are at just the beginning of the age of a popular understanding of rational economics. Perhaps it will take centuries before this understanding is adequately applied to civilization, but the arrival of such a world seems inevitable.

[hazek]

Wow you just brightened my day and I hope to god I know doesn't exists that you are right!

[Travlyr]

Humans have been interacting for thousands of years and the masses are just now coming to an understanding of economics. Thanks Internet!

I think the ruling class has understood it all along. Hence, teach the children Keynesian bull$#@!, and ban those other guys. It was a nice little wealth making secret for them.

[couvi]

Humans have been interacting for thousands of years and the masses are just now coming to an understanding of economics. Thanks Internet!

I think the ruling class has understood it all along. Hence, teach the children Keynesian bull$#@!, and ban those other guys. It was a nice little wealth making secret for them.

"Thanks internet" really says it. The internet may very well be the most important invention as far as human prosperity goes. Communication builds knowledge.

[ababba]

How exactly can a theory which is incapable of making a quantitative prediction be taken seriously as a theory which predicts the future?

[Xenophage]

Unfortunately, this isn't a given.

The physical sciences didn't experience a revolution until the philosophic bedrock was already laid in place. A philosophy of reason and objectivity, which was presented first by Aristotle and then reintroduced and refined more than 1500 years later, led to the Renaissance which enabled science to flourish.

The rediscovery of logic by Europe also led to tremendous political and social change, the epitome of which was the American Revolution. Economic understanding has flourished as well, but at every step of the way we must be consciously wary of the various intellectual forces aligned against reason. Without reason, no human progress is possible, in any field.

But it is not enough simply to assert the supremacy of logic, and then flounder in a search for an objective standard that's compatible with reality. Economics is a highly abstracted field of human understanding, directly related to one's politics, and a proper understanding of economics has to be supported by a fully rational, fully integrated philosophy. That means that your politics has to be rational as well - otherwise you haven't got much support for a rational economic theory. A rational political theory needs to be rooted in a rational ethical theory, which relies in turn on your epistemology.

It's a long uphill battle to promote the philosophic change that is required to come to a rational understanding of economics. The economic witch doctors of our time are powerful.

[MoneyWhereMyMouthIs2]

There is, however, only one proper economic theory and it will win out as our knowledge is built and shared. It will win out because it is the only theory which consistently describes the real world.

There is plenty of neoclassical economic theory that consistently describes the real world. Mathematics and data too, even. But I agree that a more educated populace is certainly a good thing to keep politicians from their constant lies. Austrian econ should be a tool in the toolbox, not a reason to throw all other tools away.

[Travlyr]

How exactly can a theory which is incapable of making a quantitative prediction be taken seriously as a theory which predicts the future?

It's not really a theory. This is done through observation of human action, honesty in dealing with each other, and realizing reality.

[ababba]

I don't care what you call it. Whatever it is can't be used to make a quantitative prediction and yet somehow everyone is claiming it predicts the future. Its internally contradictory.

[Travlyr]

I don't care what you call it. Whatever it is can't be used to make a quantitative prediction and yet somehow everyone is claiming it predicts the future. Its internally contradictory.

Anybody can predict the future. Very few can accurately predict the future.

Have Keynesian quantitative predictions been right more often than they have been wrong? If so, please elaborate.

[ababba]

Anybody can predict the future. Very few can accurately predict the future.

Have Keynesian quantitative predictions been right more often than they have been wrong? If so, please elaborate.

At the beginning of the crisis, when the FED started printing money, extreme Keynesian economists wanted more stimulus saying we were in a liquidity trap. Other people were saying there would be an imminent hyperinflation. The Keynesians got that one right, almost three years later and price inflation is still below historical averages.

One thing that mainstream economists are particularly good at is saying when we shouldn't be able to predict things. For example, in the price inflation forecasting literature, the best economists are saying that price inflation isn't really forecastable out of sample. Of course if you overfit a regression to some data, you will be able to predict inflation in that sample of data. But when you apply that same model to additional data, inflation is not forecastable.

This same type of literature says that some things clearly predict real GDP growth. One of the primary ones is the slope of the yield curve, which works even out of sample. But all of these things aren't perfect.

These types of models are particularly good at realizing that not everything that happens is predictable before it happens. There are a lot of things that couldn't be anticipated.

[ababba]

The point is that there is a group of economists that are doing the proper statistical tests to confirm whether the future is predictable by certain past information. You guys don't even have a quantitative prediction to test on data to begin with.

[sratiug]

At the beginning of the crisis, when the FED started printing money, extreme Keynesian economists wanted more stimulus saying we were in a liquidity trap. Other people were saying there would be an imminent hyperinflation. The Keynesians got that one right, almost three years later and price inflation is still below historical averages.

One thing that mainstream economists are particularly good at is saying when we shouldn't be able to predict things. For example, in the price inflation forecasting literature, the best economists are saying that price inflation isn't really forecastable out of sample. Of course if you overfit a regression to some data, you will be able to predict inflation in that sample of data. But when you apply that same model to additional data, inflation is not forecastable.

This same type of literature says that some things clearly predict real GDP growth. One of the primary ones is the slope of the yield curve, which works even out of sample. But all of these things aren't perfect.

These types of models are particularly good at realizing that not everything that happens is predictable before it happens. There are a lot of things that couldn't be anticipated.

The keynesians didn't get inflation right. Why shouldn't prices be much lower now than before the crash?

[ababba]

The keynesians didn't get inflation right. Why shouldn't prices be much lower now than before the crash?

Two groups of people, one predicting imminent hyperinflation, one predicting continued low inflation. Continued low inflation resulted. Not a large sample, only a single observation, doesn't mean a ton but its an important example.

[hazek]

At the beginning of the crisis, when the FED started printing money, extreme Keynesian economists wanted more stimulus saying we were in a liquidity trap. Other people were saying there would be an imminent hyperinflation. The Keynesians got that one right, almost three years later and price inflation is still below historical averages.

One thing that mainstream economists are particularly good at is saying when we shouldn't be able to predict things. For example, in the price inflation forecasting literature, the best economists are saying that price inflation isn't really forecastable out of sample. Of course if you overfit a regression to some data, you will be able to predict inflation in that sample of data. But when you apply that same model to additional data, inflation is not forecastable.

This same type of literature says that some things clearly predict real GDP growth. One of the primary ones is the slope of the yield curve, which works even out of sample. But all of these things aren't perfect.

These types of models are particularly good at realizing that not everything that happens is predictable before it happens. There are a lot of things that couldn't be anticipated.

HAYEK
I don’t want to do nothing, there’s plenty to do
The question I ponder is who plans for whom?
Do I plan for myself or leave it to you?
I want plans by the many, not by the few.

Let’s not repeat what created our troubles
I want real growth not a series of bubbles
Stop bailing out loser, let prices work
If we don’t try to steer them they won’t go berserk

KEYNES
Come on, Are you kidding? Don’t Wall Street’s gyrations
Challenge your world view of self-regulation?
Even you must admit that the lesson we’ve learned
Is more oversight’s needed or else we’ll get burned

HAYEK
Oversight? The government’s long been in bed
With those Wall Street execs and the firms that they’ve bled
Capitalism’s about profit and loss
you bail out the losers there’s no end to the cost

the lesson I’ve learned? It’s how little we know,
the world is complex, not some circular flow
the economy’s not a class you can master in college
to think otherwise is the pretense of knowledge

[ababba]

It’s how little we know,
the world is complex, not some circular flow
the economy’s not a class you can master in college
to think otherwise is the pretense of knowledge

Yes, thanks for agreeing with me that the Austrian theory can't predict the future. I don't quite get how you agreed with the original post given that you believe this.

[Travlyr]

These types of models are particularly good at realizing that not everything that happens is predictable before it happens. There are a lot of things that couldn't be anticipated.

If you know that Keynesian theory cannot accurately predict the future, then why would you expect anything better from people who aren't even trying?

Human interaction using honest money does not need to predict the broader economy. Individuals and businesses may want to try and predict situations to get a leg up, but without a central planner there is no need for quantitative predictions to which you refer.

[Diurdi]

The point is that there is a group of economists that are doing the proper statistical tests to confirm whether the future is predictable by certain past information. You guys don't even have a quantitative prediction to test on data to begin with.

I think the greatest prosperity that the Austrian economics can provide us is the understanding that Government Intervention in the economy is harmful.

[hazek]

Yes, thanks for agreeing with me that the Austrian theory can't predict the future. I don't quite get how you agreed with the original post given that you believe this.

The point is that there is a group of economists that are doing the proper statistical tests to confirm whether the future is predictable by certain past information. You guys don't even have a quantitative prediction to test on data to begin with.

I'm confused.

First you acknowledge that it's impossible to accurately predict the future and then you claim there are people who are trying to learn how to? Well how can they learn the impossible?

[anaconda]

Apparently the understanding of Economics is evolving at an unprecedented pace right now.

[hazek]

Apparently the understanding of Economics is evolving at an unprecedented pace right now.

An understanding that they don't understand what they thought they understood is also a very important one to understand.

[ababba]

I'm confused.

First you acknowledge that it's impossible to accurately predict the future and then you claim there are people who are trying to learn how to? Well how can they learn the impossible?

Then you are confused about the OP, which exactly argued that Austrian economics can predict the future.

I am saying Austrian economics does not make quantitative predictions about the future. This is often motivated by Hayek like arguments that you made. Its silly to then go and say that the theory predicts the future. (Think of this as a proof by contradiction, in order to do that you don't have to agree to the premises, you just have to show that they contradict each other).

I'm not saying that predicting the future is impossible, I am saying it is testable, and most of the empirical tests show a lot less true predictability than people would have thought. Conventional economists find it very difficult to predict the future, when you use proper statistical techniques. However, there are a few cases where there is clear out of sample evidence of predictability in things like asset prices and GDP growth.

[ababba]

I think the greatest prosperity that the Austrian economics can provide us is the understanding that Government Intervention in the economy is harmful.

And yet even if true, its a theory which will not quantify how harmful government intervention is.

[Xenophage]

At the beginning of the crisis, when the FED started printing money, extreme Keynesian economists wanted more stimulus saying we were in a liquidity trap. Other people were saying there would be an imminent hyperinflation. The Keynesians got that one right, almost three years later and price inflation is still below historical averages.

One thing that mainstream economists are particularly good at is saying when we shouldn't be able to predict things. For example, in the price inflation forecasting literature, the best economists are saying that price inflation isn't really forecastable out of sample. Of course if you overfit a regression to some data, you will be able to predict inflation in that sample of data. But when you apply that same model to additional data, inflation is not forecastable.

This same type of literature says that some things clearly predict real GDP growth. One of the primary ones is the slope of the yield curve, which works even out of sample. But all of these things aren't perfect.

These types of models are particularly good at realizing that not everything that happens is predictable before it happens. There are a lot of things that couldn't be anticipated.

You're seeking quantitative prediction where it's impossible. The fact is, there are too many variables influencing the outcome, many of which can't be accurately measured. So, even the best mathematical models will have a very high margin of error, and the effects of uncertainty are compounded in the short term.

Long term you can predict trends using Austrian theory with a very high degree of accuracy, but attempting to nail down precise values and timing becomes a guessing game. The reason is simple and obvious: Economics is NOT a physical science. It's a study in human psychology.

Austrian theory holds up in light of real world historical data, and Austrians continue to make correct predictions of long term trends. In fact, it's the only theory who's predictions consistently hold up historically.

[Travlyr]

And yet even if true, its a theory which will not quantify how harmful government intervention is.

Here is how harmful government intervention is in an economy. Argentinians ended up calling the IMF the International Misery Fund. Watch the video and you'll see what happens to fiat money when government debts get too large.

http://www.blinkx.com/watch-video/ar...9LkRbR0zu4LJrg

[ababba]

You're seeking quantitative prediction where it's impossible. The fact is, there are too many variables influencing the outcome, many of which can't be accurately measured. So, even the best mathematical models will have a very high margin of error, and the effects of uncertainty are compounded in the short term.

Long term you can predict trends using Austrian theory with a very high degree of accuracy, but attempting to nail down precise values and timing becomes a guessing game. The reason is simple and obvious: Economics is NOT a physical science. It's a study in human psychology.

Austrian theory holds up in light of real world historical data, and Austrians continue to make correct predictions of long term trends. In fact, it's the only theory who's predictions consistently hold up historically.

All right, what are the long-term quantitative predictions that the Austrians are making?

I can make millions of correct long-term predictions without magnitudes. Dumb things like real GDP will increase over the next 50 years. What is an interesting quantitative prediction with a magnitude attached that the Austrian's make?

[hazek]

All right, what are the long-term quantitative predictions that the Austrians are making?

This:

[ababba]

This:

So you guys believe something worse than the Great Depression will happen soon?

I'll take the other side of that bet.

[hazek]

Then you are confused about the OP...

Xenophage has already addressed this post of yours in his #23 post in this thread so I wont repeat his words.

[hazek]

I am saying it is testable, and most of the empirical tests show a lot less true predictability than people would have thought.

Hold on, I guess I do have to address this post of yours!

If there is "less true predictability" as you say, then please explain how Schiff in 2006 held the following presentation and nailed the housing bubble to a t?!: