A Striking Claim

Having spent much of my time in the first few years of sporadically writing here attacking right wingers for appropriating morality, spending more time on Twitter has led me to start feeling obliged to attack those more closer to my natural leaning, lefties, for varying reasons.

One is for a general lack of evidence to support claims made.  This has led me into very long and protracted discussions with two folk in particular on Twitter, @unlearningecon and @austerity_sucks. I've been labelled a hack by the latter for questioning the certainty with which we can make policy conclusions based on econometric evidence, whilst the former sided with the latter despite later very openly critiquing econometric methods in a separate discussion.  To me this seems inconsistent, but that's not my point in this post.

Regardless, the most recent unsubstantiated claim I decided to pick up on was by @unlearningecon, and was:

Students & the public are turning against economists and all they can do is be smug. Won't help them in the long run.
— Unlearning Economics (@UnlearningEcon) October 29, 2013

The subsequent (seemingly) endless discussion that followed didn't really address the main point: What is the basis for such a striking claim?

The claim(s) are:

1) Students are turning against economists.
2) The public are turning against economists.
3) Economists are just being smug in response to this.
4) This being smug won't help them in the long run.

So three empirically verifiable claims, and one forecast (which we won't be able to appraise for a while, if ever, due to its vagueness - what's the time horizon, for example?).

So, (1).  Students are turning against economists.  What does this mean, exactly?  Does it mean students are stopping taking economics courses because they realise how utterly vacuous the subject really is?  However, the numbers do not appear to support this (not had time to see whether economics is above/below any general trend in applications). From UCAS we can find that since 2006, the number of applications has risen by about a third from around 36000 to about 50000.  Maybe it's the graduates that are feeling the pinch?  Sadly I haven't the time to explore graduate destinations for students across subjects, but the data must exist (for example, see here).

Claim (2) ought to be explorable in an objective way (rather than simply one person asserting their opinion without any evidence provided to support), and ideally it would be.  Are economists getting increasingly more virulent tweets directed at them, are feeds like @unlearningecon starting up, is Twitter reflective of "the public", etc.

Claim (3) is more tricky.  But from further dialogue, being smug means "asserting your critics are ignorant without explaining".  Now academics in general (not just economics) are remarkably good at being smug, aloof, and generally socially inept, so let's try and ignore that.  I'm open to what smug would look like - and ideally it would be something where we can observe movements over time.  A clear implication of smug is that there's no debate taking place (or at least a one-sided debate), so maybe again Twitter is an interesting place to go - can we identify economists on Twitter (probably), and can we work out whether they are increasingly ignoring criticisms being made of them, or otherwise?

The forecast (4) we can't appraise just yet, but it would be great if a bit more clarity could be provided:
a) What is the time horizon?
b) By what metric (student enrolments, journals in existence, etc.) should we judge the forecast?
c) Based on that metric, what exactly is the forecast?  (i.e. 50% fewer applications/enrolments, 50% fewer journals, etc)

Now, of course, those that provide such striking statements as @unlearningecon may object at this point: (1) We can't use data for everything, and (2) I'm being pompous and smug.

(1) This is true, but it's important if one is making striking claims to be able to substantiate them.  This claim is a big one, and if true it's one economics needs to take very seriously indeed.  If they can't be substantiated, then why should anyone take them seriously?

(2) It is not pompous or smug to ask for some clarity on an important and striking claim regarding the future of one's subject.

Arguments I'm tired of hearing on Twitter No. 2: Model X is WRONG!!

This is a very common argument on Twitter, especially by those keen on criticising "economics" (whatever that means - see some future post).  Specifically, the assertion is that the efficient markets hypothesis (EMH) is WRONG, caused the crisis, and shouldn't economists be apologising for this?

The problem is that models and theories can't be wrong - there is no absolute metric for judging them, only relative - and relative to our current level of understanding.

And that level of understanding, contrary to those who think economists are just behind the curve on getting to a point where they know enough, will never be sufficient to say a model, or a theory, is wrong.

The simple reason is Type I Errors, couching ourselves in terms of statistical language.  We may falsely reject a correct theory because we just cannot know whether it's true or false.  We can collect data, we can observe the world, we can even come to something close to accepted fact in some cases, but we cannot know what leads to Y happening after X has happened.  We are just not privy to the kind of knowledge regarding how and why nature or some other higher force.  The name of this blog makes it very clear my beliefs regarding higher powers - but you don't have to be a Christian to recognise the obvious with levels of knowledge - as Sir David F. Hendry (anything but a Christian!) points out in the introduction to Dynamic Econometrics.

Given that we can't know things, as a result we can't know a theory is WRONG (or RIGHT), we can only document where the evidence supports, or disputes, a theory.  If we reject theories out of hand we run the risk of rejecting good theories out of hand.  If we accept them out of hand, we run the risk of accepting bad theories.

The point I'm making isn't that we should protect bad theories endlessly, it's simply that they are bad theories, rather than WRONG theories.

A side argument.  It's often asserted furthermore that bad economic theories were responsible for the financial crisis - the idea being that economists advised politicians and they put in place regulatory regimes that subsequently caused the crisis.  The interesting thing here is that the focus is on EMH, rather than all the myriad other policies put in place by governments that assume anything but EMH and some very different model of economic behaviour.  The idea is that we can pinpoint everything that went wrong around the economic crisis to one single bad theory, and everything else was superfluous (i.e. has no explanatory power above EMH).

A few things:

(1) What responsibility must be attached to the politician(s) putting in place policies that led to the financial crisis?  An argument is that economists oversold their favourite EMH theory and hence because they did that, they must accept some responsibility.  They probably should - any serious academic ought to be humble enough to accept responsibility if a recommendation of theirs led to things going horribly wrong.  The issue is whether there's a direct link from the economist recommending their theory and the events that went wrong.

(2) If an economist does ever sell a theory to a politician as being 100% true, they shouldn't be part of the profession (someone would assert I'm following the "no true Scotsman" cop out here, but the reality is I'm making an obvious statement that should apply to any academic profession).

(3) What about the various other government policies pertaining to financial markets that helped along the way in the crisis?  For example, the competition policy (no doubt influenced by economic ideas) which thought that having large banks able to compete on a global scale was important, thus creating "too big to fail"?  Is it really possible to argue without any doubt that the sole cause of the crisis was one bad economic theory?  How do we rule out the lender of last resort policy, and competition policy, as significant contributing factors?

(4) Intervening to regulate markets further relies on economic theory regarding market outcomes - by and large another economic theory that's very hard to generate falsifiable predictions based upon (at least at the macro level).  Why should we rely on those economic theories, but not on others?  On what basis do we judge economic theories given that RIGHT and WRONG has to be ruled out?

Arguments I'm tired of hearing on Twitter, No. 1

The more I frequent Twitter, the more I end up simply arguing/debating with people - usually on all sides of the political spectrum, although it's worth noting oddly that I seem to end up countering lefty arguments more than right-wing ones on Twitter, whereas it's the opposite on Facebook. Not sure why.

Anyhow, argument number one I dislike hearing on Twitter but can't express why easily in 140 characters: The failure to predict the financial crisis (even GFC to some) presents an existential crisis to economics.  E.g.:

Economists who can't predict a GFC or the value of the Aus dollar, yet attack Scientists complex models #qanda #auspol

— steve (@steveUsername1) October 21, 2013

Not true on so many levels, but the simplest is the following. It confuses economics and forecasting, and it's very easy to argue that better economics models will not necessarily forecast better.

Forecasting depends on the thing you forecast being predictable - i.e. you could throw something in (another economic variable usually) and you'd reduce the forecast errors of forecasts over just using a random walk to predict (i.e. predict for tomorrow today's value).

So, even if we assume something *is* predictable, and we then construct a wonderful model which explains what's going on perfectly well (unlikely in economics but never mind), what happens if tomorrow a structural break happens and the variable becomes totally unpredictable? Then you've failed to forecast what happened next (other than by total fluke).

Upshot: Better economic models will not forecast better in a world that is constantly changing. So therefore economists don't need to sit around worrying about their existence because their best models generally failed to spot the crisis coming.

Clarifications:
1) This argument is based on one commonly used by Sir David Hendry, which doesn't make it right by the sheer fact of the size of his brain, but just to give credit where credit is due.
2) This argument doesn't imply I think the economics profession can instead be complacent about itself, or become arrogant again about any of its models. They are all subject to this critique. As Keynes once mused, I'd be delighted if economists were thought of as humble and competent as dentists.
3) Equally I don't make this argument because I think economics has already processed everything to be learnt from the crisis and hence is immutable to criticism related to that. Many criticisms are very valid, I just have an issue with this particular line of argument. 4) This argument is very different to the kind of argument put forward by @unlearningeconomics in his point 2 about why economists haven't got a clue in that it's obviously not based on any economics models (e.g. EMH) but instead on forecasting theory and econometrics.

Later comes argument 2: Model X/Theory Y is WRONG!

Off Topic but a Fascinating Discussion

In the last few days I've ended up in a very long debate with @unlearningecon on Twitter on the state of economics. My protagonist writes a blog with the same name: unlearningeconomics.wordpress.com/.

It's clear that while Twitter is good for a great many things, it can be constraining when it comes to meaningful debate, as 140 characters gets a bit too few, and sending multiple tweets gives the impression of badgering someone.

unlearningecon essentially writes that economists are a pretty out of date, aloof bunch whose models are so woefully inadequate that they aren't fit for purpose. These models aren't fit for purpose because along a number of meaningful dimensions, it's quite easy to point out where some of the basic models taught to undergraduates fall down. He then at length points out where he believes heterodox economists have pushed alternative theories but been ignored by the mainstream in its pursuit of mathematical beauty at the expense of empirical validity.

In my discussion with him it seems that much of his thrust is against macro theory and DSGE models - the wonderful representative agent (or agents).

What I think he fails to understand is (a) how any discipline must be taught, and (b) the distinction between basic textbooks and research, and (c) the basic process of research. I could of course be totally wrong on this, and I await correction. As he appears to have got particularly angry in recent exchanges, I decided it best to spend some time trying to set out my position in a format that might help make things clearer without fanning the flames.

On (a), he is clearly a very incisive person, however he does not appreciate that the ability to abstract and think about modelling the world around us is not something that comes naturally to most undergraduate students. Furthermore, it would be a very unusual teaching method that launched straight into the most complex alternative theories to explain individual behaviour in the marketplace, as microeconomics tries to. Hence we begin by teaching the simplest models to our students, fully aware of their faults. And we then use those faults to enable students to start grasping at the difference between a model and reality, and the purpose behind modelling - to try and better understand that reality. I suspect he hasn't been faced with a room full of undergraduate students waiting for a microeconomics course, but I'm happy to be corrected on this.

On (b), he appears to think that economics research simply builds on the foundations of stuff written decades and even hundreds of years ago, unquestioningly. I've pointed him in the direction of New Economic Papers in the hope that he looks at a few of the recent papers in, say, microeconomic theory in order to help him realise that even micro theorists are looking at better ways to understand individual behaviour.

The reality is that most research is attempting to empirically validate (or otherwise, most likely) the various theories economists have proposed over the years. He criticises behavioural economics as a minor tweaking of the basic neoclassical framework that he thinks is the source of all the ills in economics. However, behavioural economics quantifies all the biases individuals exhibit in their day-to-day decision-making, and in that sense can hardly be a minor modification of the assumption of rationality on the part of individuals. Eventually, with empirical and experimental work to boot, hopefully behavioural economics will help us better understand how we make decisions and develop theories that fit the data and results we find.

I sense unlearningecon is totally unaware that this is the purpose behind most research carried out in economics.

Finally, for (c), unlearningecon appears to blur the distinction between claims and facts, making regular unsubstantiated comments (subsequently getting angry when challenged on them).

He asserts, for example, that physics has a much better empirical and forecasting record than economics. This may well be true, but it is simply an assertion and without any evidence to support it, remains that. It may well be that physicists have developed some excellent models that forecast very accurately - but how do we compare that accuracy to models developed in economics? unlearningecon appears to do this based on his personal perception of various economic theories, which he finds implausible, and on an unquestioning stance towards assumptions made in other fields.

What is needed in order to compare the forecasting record of physics and economics is a metric upon which comparisons can be made. A metric such as mean squared forecast errors might be one, yet this may well ignore the intrinsic uncertainty (unpredictability) of many processes we seek to forecast in either field. Yet without it, we are comparing apples to oranges and can make no progress. unlearningecon has got frustrated with me making this point, and appeals to it being a supposedly well known "fact" that physics forecasts better than economics. Maybe people have already conducted an exercise like that set out here, and if so I'll be interested to read it. In the meantime however, unlearningecon is simply pushing an assertion and getting angry that I contest it.

Middle Ground

"Cranmer" notes that the Pope has written to the British Prime Minister regarding various government policies.

Ignoring the obvious bizarreness of the letter more generally (why did Cameron feel the need to justify his policies to the Pope in the first place?), I wanted to comment on this section from "Cranmer" himself:

"Catholic social doctrine talks about taking care of those who can’t take care of themselves, people who need help," US Vice-President Joe Biden explained last year. For him, it's all about social justice. For his then opponent, Paul Ryan, the preferential option for the poor remains one of the primary tenets of social teaching, but it means you 'don’t keep people poor, don’t make people dependent on government so that they stay stuck at their station in life'. Roman Catholic social doctrine compassionately sustains poverty - it fails the poorest. David Cameron wants the poor to take responsibility for their indolence and inaction.

I've been thinking more and more about what it is that gets the Tory party known as the "nasty party" when it, to some extent, embodies policies many conservative Christians would strongly support, and I wonder whether this is close to that.

What I mean by "this" is essentially the last bit - the wholesale dismissal of any kind of social policy whatsoever as "failing the poor".  If we give them benefits, they become dependent on the state and hence never stop being poor.

Now of course the point is that people are still poor, and were 50-100 years ago hence such "liberal" interventionist policies in the form of various social insurance schemes, hence clearly there's some failure here.

I'm not convinced though, of course.  Yes, some will abuse any system that pays out benefits - but does that mean it's failed the poor?  Is it the same people that are poor in each generation?  Has work been done to look at this, in particular at inter-generational social mobility?

Why is it not the case that a welfare system providing insurance for the poor that they otherwise could not obtain has enabled many to launch themselves out of poverty and on to better things?

Fundamentally, the empirical success of the welfare state is something we as human cannot ever hope to know about - the data just does not exist for us to do proper appraisals.  The positions people such as "Cranmer" thus take are based on prejudice and extrapolation and not on evidence, and hence come across badly particularly to those who benefit from those systems and who take an opposite (usually also prejudiced) position - as nasty, in fact.

Reflections on Gay Marriage

In the last couple of days I've had some interesting exchanges on Twitter with a range of folk surrounding gay marriage here in the UK. The debate has profoundly affected me - as all debate should. A big part of my engaging in it was to work out exactly what my position is.

I figured since it's very easy for those entrenched on either side of the debate to paint those on the other side in rather ungenerous terms, I should set out my position in a form of media that allows more than 140 characters per post.

First and foremost, I am a Christian, and Bible-following one at that (in that I attempt as much as humanly possible not to pick'n'choose the bits of the Bible that suit me). Hence as the Bible does tell us all sexual activity outside heterosexual marriage is sinful, homosexual activity must fall in that bracket (as do many heterosexual acts), and I am forced to conclude that - uncomfortably.

However, that said, it does not mean that I hate gay people, or that I would wish they have a more difficult life, or a worse set of circumstances than I.  Christians must in their actions reflect that although they characterise homosexual activity as sinful, they themselves are thoroughly sinful and are saved only by the grace of God.  So no judging others is permissible, and furthermore there is no reason why the apparatus of the state ought to be used to favour Christians over any other group in society.

The difficulty with that latter statement is that it is very difficult indeed to ensure the state is balanced in its favouritism towards particular groups - and in reality, the government of the day simply appeals to whichever groups have the most political power.

Nonetheless, the principle is clear - the government should not necessarily thus pass legislation outlawing particular behaviours the Bible declares as sinful - clearly (for example) murder is a different category entirely in that all moral codes, be they biblical or otherwise declare murder to be wrong.

Hence there is no reason why homosexual couples (and long-term/stable heterosexual ones living out of wedlock) should be deprived the legal rights afforded to married couples - and for this to be the case is, to my mind, wrong. There ought to be full equality before the law of all these types of couples - the law shouldn't be judging whether one type of couple is more acceptable than any other.

But my sense is this. That equality before the law can be achieved without redefining marriage in the way proposed. If, instead, any remaining flaws in the civil partnerships legislation were ironed out, surely that would have the same effect.

However, having said that, one particular exchange on Twitter, along with observing David Cameron's reflections on gay (and lesbian - as later clarified...) teenagers "standing taller", suggests to me that something radical like that being proposed is necessary. It's horrible that homosexual youngsters (and older folk) feel vilified, get bullied and thus feel themselves to be on the fringes of society - it's a horrible outpouring of a fallen and sinful world that this kind of thing happens - sinners bullying fellow sinners.

Hence do we need something drastic like this redefinition of marriage to start to challenge long-accepted social norms and attitudes?  As an economist I think of a very different situation that perhaps acts as some kind of analogy.  Some economists argue that it took making the Bank of England independent in 1997 - a seemingly drastic move - to jolt inflation expectations down from their 1970s and 1980s levels. Evidence suggests it did, even though in essence the monetary policy being implemented (inflation targeting) didn't change. Maybe it's the same for how we perceive homosexuality, and particularly amongst younger folk as well as Christians - we're all made in the image of God, hence wonderfully beautifully created yet sinful.

Perhaps we do, but perhaps then we also need to think yet more radically about marriage, the church and the state. The church has its definition of marriage, contained in the Bible. That is something the government cannot change no matter how powerful it thinks it is. And by trying to change this, it is surely going to meet with fierce resistance from Christian groups. Yet the government can change the state's definition of marriage should it wish to.

So instead of messy compromises (banning the Church of England from carrying out gay marriages), why not simply do as happens in other countries (e.g. France, Canada), where the marriage officially takes place in a registry office according to the laws of the land?  This way the church's definition of marriage needn't change. There'd be no more signing of the registry (formally) at a church wedding, but is that really so much of an issue? The church ceremony would thus have no legal or public setting and hence (hopes) thus wouldn't be the focus of a test case by anyone wishing to have a church wedding whom a church determines is inappropriate to given their definition of marriage.

The final reflection I want to make is that compared to a group which until recently its behaviour was considered illegal (homosexuals), it seems churlish and hard to fathom that Christians whine about the difficulties equal marriage will cause them. The fear is of churches and registrars being prosecuted for failing to carry out a public duty - marrying a couple asking to be married. A fair sounding response is - why is it an issue, it's not like the Christians are forced to be IN the homosexual marriage.

The response, of course, of the Christian to that critique is much longer and more nuanced. For the church the problem is clearer - if that church is a bible-adhering church, then to be allowing gay marriages in its premises has to be viewed as giving approval to such actions - but clearly such a contradiction cannot be permitted if the church also teaches the bible's sexual ethics and wants to avoid being labelled hypocritical. The principle has to be the same for the Christian registrar: How can they in their daily work give permission for things that lead to them being hypocritical when, say, they talk to their children in the evening, or to other friends?

Outside the Christian cocoon, such "preaching" - essentially telling others that according to someone's moral code their actions are "wrong" - is not the done thing. Yet the Bible tells believers that they must engage in that - with sensitivity and with God's love (Jesus's approach with the woman at the well is perhaps a good example). So a Christian cannot live out their faith if they must be suppressed and forced into particular actions that are contrary to Christian teachings in their daily work life.

Now, of course, relative to having your actions declared illegal, forcing some Christians to change profession in order to be able to act with what they see to be integrity is mild - but if another way exists to ensure homosexual couples get all the legal (and social) recognition they should get, shouldn't we explore that?

The final final point this leads on to is the parallels with racism that are often labelled at Christians. On this, my only thought is that this relates to choice. We have no choice over the race we are born into, and the Christian is told in the Bible we are all created equal regardless of race, sex, age, etc. However, we have a choice about what to do about our sexual attractions. The Christians in a heterosexual relationship contemplating sex face the same pressure the Christian with same-sex attractions do - the Bible says it's wrong. The choice is not easy in either case - and it seems inherently wrong for God to determine that one of those couples can get married and have sex, yet the other cannot. At that point I can't go any further other than to say it's a crux point where some decide against God, and others decide to submit to God's reasoning on this, despite how hard it is. But it remains the case that choices are being made here, and hence the parallel with racism I don't think is appropriate.

Just some thoughts I've been having on what is a remarkably thorny issue. Please do comment - I would like discussion. I am a Christian but that doesn't mean I don't reason or think or have compassion - as hopefully this post makes clear.