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?