Economists ‘Stunned’ that they are clueless

[marmar]

Economists ‘Stunned’ by Errant Job Forecasts Blame ADP, Seasonal Effects
By Timothy R. Homan - Jul 8, 2011 3:02 PM ET


(Bloomberg) Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said he was “stunned” by today’s U.S. employment report.

He wasn’t the only one.

Not a single economist among 85 surveyed by Bloomberg News correctly forecast the 18,000 increase in payrolls in June reported by the Labor Department. Estimates ranged from a low of 60,000 to a high of 175,000. The median was 105,000 -- almost six times the actual number.

“When I’m wrong, I usually go down in flames and this time my forecast crashed and burned,” Joel Naroff, president of Naroff Economic Advisors Inc. in Holland, Pennsylvania, said in a note to clients. Naroff, who wasn’t among the economists surveyed by Bloomberg, declined to give his forecast. ..............(more)

The complete piece is at: http://www.bloomberg.com/news/2011-07-08/economists-stunned-by-errant-job-forecasts-blame-adp-seasonal-effects.html

[xchrom]

1. ...

:rofl: too many of you guys were taught new fangled horse shit economics -- and now you're fuckin stuck.

[socialist_n_TN]

16. THAT IS IT EXACTLY!!!!!!!!

Way too many supply sider, trickle down, Freidmanistas, with WAY too much influence.

[girl gone mad]

38. Neoclassical economics is useless.

I've had countless arguments with these dopes over the years. They quote their Mankiw textbooks as if it's gospel and ignore all of the hard data that contradicts their theories. Now they want to pretend "no one could have seen it coming". Bullshit!

[hifiguy]

55. Exactly, ggm

I discuss this phenomenon downthread in greater detail. Economics claims to be a science but a significant number of its practitioners - all of them reichwing fundamentalists - will never, EVER revise their dogma even in the face of overwhelming evidence to the contrary. It is as though there are still biologists who cling to the notion of the four humours of the body or a chemist still believing in the phlogiston theory. In any other serious academic discipline these people would be laughed off of the planet, yet completely discredited economic "theories" are still propounded as being as unchanging as the laws of gravity despite mountains of evidence to the contrary.

Economics, especially Friedman's economics, are not theoretical or scientific. They are actually the equivalent of religious dogma and thse who believe in it are acolytes, not academics.

[leveymg]

2. Clearly, they need to get some new economists.

[dixiegrrrrl]

3. Best op head line ever, marmar.

The 2nd best one would be:

people"stunned" that economists are stunned by their cluelessness.

[provis99]

4. did they survey any actual Economists, or just "economists".

Bank employees ain't economists. Economists work at universities.

[hfojvt]

14. I never thought economics was about predicting the future

more about understanding the present and the past (and a huge, mainstream branch, is about justifying the actions of the rich and powerful). I don't think university economists spend much time predicting the future, but I did have one graduate school advisor claim he could give me stock tips that would make lots of money. I should have taken him up on that, because it was 1989 and the stock market did very well in the 1990s. Maybe I could have parleyed my $8,000 into $80,000 just by buying stock in Harley Davidson or something.

[IndyPragmatist]

25. I agree with you, economics is a science

and it is a science that we barely know anything about. Economics is just the decisions of every individual on the planet. It's kind of difficult to predict how people will react in any situation. My senior seminar class for my economics degree was the most interesting class I took in college. The first thing he had us read was a 20 page article on "The pretense-of-knowledge syndrome". This basically talked about how the majority of economists, and most other professionals for that matter, like to pretend that they know a lot more than they do. However, because economists are constantly pressured to accurately predict the future, they have to work on assumptions that aren't always true to produce their predictions.


This was a class full of econ majors, and the professor tried to warn us about assuming too much. He tried to get us to be fine with saying "I don't know." When predicting the economy, you can usually get a good idea of the direction things are going. However, variables can change in an instant and completely change the outcome. In trying to predict complex things like job growth in a nation, you have to make a lot of assumptions that may or may not be true. Thus, your real response should be "I don't know what will happen in the future, but if these variables behave as I think they will, I predict that...." instead of "My analysis of the current economic situation tell me that....".

We know very little about economics, the great economic minds all realized this. Hayek & Keynes both were adamant that they did not know the economy, and they were continuing to learn about economics until the day they died.

[Mosby]

32. economists try to be "scientific" but it's not a science

That is why one finds the field of study in business colleges not the College of Liberal Arts and Science.

The primary reason why is that economists can't manipulate anything which is necessary to employ the Scientific Method.

[Fumesucker]

Astronomers can't manipulate what they study either..

And yet astronomy is the oldest science.

[Mosby]

53. That's a good point

But without experimentation economists can't move past the hypothesis stage and develop predictive models. Then again neither can darwinian biology.

Why do you think Economics isn't considered a sub-discipline of Psychology? The entire field is based on human behavior.

[socialist_n_TN]

18. It wouldn't matter. There's more Freidmanistas in the

universities nowdays than not. Who do you think all these "stunned" bank employees learned from?

[provis99]

42. bank employees take business school, not Economics.

Business school is about as useful as astrology for understanding the economy.

[socialist_n_TN]

60. Well I don't really know, but I would think that business

school would require some basic economic courses. And ALL (or damn near all) the economists are Freidmanistas nowdays.

[malaise]

48. Well they've ignored most of the Economists for three decades

They call the supply side Business School morons.

[Xipe Totec]

5. Jobs data hits stocks, but earnings optimism intact

"If you're going to get concerned about the jobs report, you should wait for earnings before going through a complete manic swoon," said Phil Dow, director of equity strategy at Minneapolis-based RBC Wealth Management, which oversees $164 billion.

"Our guess is that we'll see better-than-expected earnings and revenue, and combined with the valuation of the market, this is a compelling time to get in."

http://news.yahoo.com/stock-futures-signal-mixed-open-equities-092244971.html

So, no worries, it's only jobs...

:eyes:

[socialist_n_TN]

21. What this boils down to for Wall Streets is

No jobs equals higher profits. So what else is new?

[Fuddnik]

6. Flabbergasted! Maye because classical economics is based on discredited science?

http://www.scientificamerican.com/article.cfm?id=the-economist-has-no-clothes


The Economist Has No Clothes

Unscientific assumptions in economic theory are undermining efforts to solve environmental problems

By Robert Nadeau | March 25, 2008 | 77


The 19th-century creators of neoclassical economics—the theory that now serves as the basis for coordinating activities in the global market system—are credited with transforming their field into a scientific discipline. But what is not widely known is that these now legendary economists—William Stanley Jevons, Léon Walras, Maria Edgeworth and Vilfredo Pareto—developed their theories by adapting equations from 19th-century physics that eventually became obsolete. Unfortunately, it is clear that neoclassical economics has also become outdated. The theory is based on unscientific assumptions that are hindering the implementation of viable economic solutions for global warming and other menacing environmental problems.

The physical theory that the creators of neoclassical economics used as a template was conceived in response to the inability of Newtonian physics to account for the phenomena of heat, light and electricity. In 1847 German physicist Hermann von Helmholtz formulated the conservation of energy principle and postulated the existence of a field of conserved energy that fills all space and unifies these phenomena. Later in the century James Maxwell, Ludwig Boltzmann and other physicists devised better explanations for electromagnetism and thermodynamics, but in the meantime, the economists had borrowed and altered Helmholtz’s equations.

The strategy the economists used was as simple as it was absurd—they substituted economic variables for physical ones. Utility (a measure of economic well-being) took the place of energy; the sum of utility and expenditure replaced potential and kinetic energy. A number of well-known mathematicians and physicists told the economists that there was absolutely no basis for making these substitutions. But the economists ignored such criticisms and proceeded to claim that they had transformed their field of study into a rigorously mathematical scientific discipline.

Strangely enough, the origins of neoclassical economics in mid-19th century physics were forgotten. Subsequent generations of mainstream economists accepted the claim that this theory is scientific. These curious developments explain why the mathematical theories used by mainstream economists are predicated on the following unscientific assumptions:


(snip)

[bigmonkey]

23. I agree, the problem is at the very basis of the field.

You get this indoctrination at the beginning of the study of economics. The new student is given these principles, and basically told to agree with them or get out of the study of economics. It's difficult to criticize this as a new student, of course, because you feel the social pressure of others in the field of study, Unfortunately, it's also difficult to criticize at a later stage, because huge amounts of economic resources are nowadays used to politically/economically paper-over, stifle, or suppress the evidence that falsifies the entire basis of contemporary economics.

I'm sure that even Obama would feel like he was overstepping his intellectual bounds to criticize the very basis of the advice that his friends like Geithner are giving, yet his choice to step back from that is (I hope temporarily) dooming all of us unnecessarily to follow the myths of this very flawed field of study.

[Adsos Letter]

27. Thanks for the link; that's an eye opener for us non-economist types.

edited to add this statement from the article linked in the OP:

The external resources of nature are largely inexhaustible, and those that are not can be replaced by other resources or by technologies that minimize the use of the exhaustible resources or that rely on other resources.

Are they nuts?! What about air and water? Do they assume population growth/impact a constant? We can have "water" and "air" but if they become unusable through pollution what do they suggest as the "technologies that minimize the use of the exhaustible resources or that rely on other resources?"

Perhaps I'm missing something here...

[MisterP]

35. that's actually Julian Simon's argument: they call it "cornucopianism"

they and Ray Kurzweil and all the others believe that technology is 1) omnipotent and 2) can even dispose of physicality itself via mind uploading (assuming that love or the smell of pickles has a byte value); this underpinned a lot of the "developmentalism" from both Washington and Moscow since 1870, 1920, or 1945 (nobody's really sure on the dates)
similar to these are the population-control backlash of the 60s and 70s: Third-World intellectuals and Helen Moore Lappe argued that 1) the problem was redistribution, the Earth has enough for all, so we shouldn't even mention RU or condoms and 2) it's a PLOT TO WEAKEN THE THIRD WORLD!!! AAAAAGGGGH!! (this was picked up by the LaRouchies)
both of these draw on very old notions that population increase means power increase: in the 1969 Honduras-El Salvador war intellectuals of both sides wanted to triple their populations so the U.S. couldn't push them around; Alfred Sauvy often pops up in natalism--and natalism had a tremendous influence in France after WWI. In 20s France abortionists were called traitors, and 60s Honduran doctors teaching about family planning were called U.S. agents destroying the country by the Communists.

[Atman]

7. All I can think of is "Trading Places."

I still don't understand the movie, after watching Jamie Lee Curtis's breast a hundred times...but something seems to be odd here. The first story I heard today was how this jobs report changed the game for the Dems/GOP. Now, since the job growth didn't happen, tax cuts would be of the table. Can't cut taxes when we're losing jobs. Jesus F. Christ. Is America really this stupid? So Beaks slides a bullshit jobs number to the Dukes just in time to fuck up the whole works. Okay, I know I'm reaching here...but WTF? Now Obama can't get anything because the phony jobs numbers turned in phonier than usual, so tax cuts are off the table again? Really? Fucking really?

.

[jmowreader]

52. You're kidding, right?

Tax cuts for the rich are never off the table. Ever.

If the job creation numbers are down, tax cuts will stimulate hiring.

If the job creation numbers are up, tax cuts will extend the positive trend.

If sales are down, tax cuts will stimulate demand.

If sales are up, tax cuts will make it easier to do business.

The only logical conclusion is, if we reduce the tax rate to zero we'll have so many jobs and so much prosperity everyone will need to have two jobs so all the work can get done.

Here is their problem: Look at http://www.dailykos.com/story/2008/09/27/612643/-Unemployment-Rate-by-President-and-Party

According to this piece...

Carter's unemployment rate was 7.5% on the first day of his presidency and 7.5% on his last.

Reagan took unemployment from 7.5% on First Day to 5.4% on Last Day. This leaves out the 10.5% rate the Kemp-Roth Tax Cut produced. Reagan then went on to sign eleven tax increases and spend the money--okay, more than he collected, which is how he was able to triple both the deficit and the national debt in eight years--which reduced unemployment in line with pure Keynesian economic principles.

Bush I took Reagan's 5.4% and ran it up to 7.3% on his last day. Raw percentages are misleading, because the population was higher on Bush's last day than on Reagan's; hence, even though the percentage is lower the number of people out of work was higher.

Clinton reduced Bush's 7.3% to 4.2% with a program of tax increases.

And finally, Bush II took Clinton's 4.2% to a not-quite-Reaganesque 6.1%.

If you look at the numbers the direction the country must go is clear: Presidents who raise taxes cut the unemployment rate. Presidents who insist on tax cut after tax cut raise it.

[Aerows]

8. It helps if you want to be clueless

Since being intentionally "clueless" allows you to make fucktons of money in the market just before everything disintegrates.

[Rex]

9. I say we default on these failures and get some new ones!

Default the whole fucking system and let a new group try it on for size!

[WillyT]

10. K & R !!!

:kick:

[hifiguy]

11. Economics is to science

what phrenology is to psychology. The smart economists (Krugman, Stiglitz, John K. Galbraith and his son James) admit that at best they are making educated guesses based on history and its trends. They do not claim the scientific rigor of a chemist or geologist. Only Friedmanite assholes do that.

[Taitertots]

47. If only economics was as easy as chemistry or physics

Science can't tell what any one person is going to do. Economists are expected to tell you what every single person on earth going to do. Only people who don't know much about economics even expect that economists will be able to make 100% accurate estimations. Economists don't even claim to have that ability so I don't know where people get the expectation that it will happen.

It has nothing to do with rigor and everything to do with what is being measured and analyzed. It is easy to measure mass, distance, volume, and quantity. It is impossible to measure expectations and they are integral in how people make economic decisions. That is just one variable and there are a near infinite number of potentially interdependent variables in economics.

[hifiguy]

54. Which makes my point exactly

Anything with an infinite number of variables can never be studied scientifically, only observed. Yet the Friedman school of economists claim, at least implicitly and sometimes explicitly, that there are iron laws of economics mandating their version of a "free market." Which is obvious bullshit on stilts to anyone with a functioning cerebral cortex.

The context in which any society's meta-rules exist (mores and social norms) determine the structure of economic exchanges, not vice versa. And the formal rules society enacts in the form of laws are infinitely variable and subject to continuous modification.

Therefore any claim to fundamental economic truth intrinsically makes claims about what human nature is - or more likely what the economist in question seesit as being - which are at best contingent and far more likely to be a tower of unprovable fantasies.

"Scientific economics" is every bit as much of an oxymoron as "intelligent design." "military intelligence," or "Justice Scalia."

[Taitertots]

58. That doesn't make it any less valid or vitally important

Economics is using rigorous statistical and mathematical analysis to find trends in human behavior. Many of these trends are statistically significant. Almost no one claims they are iron laws and/or produce 100% accurate results. That doesn't make them any less important.

[SoDesuKa]

63. Iron Laws

Whether or not there's a school of economic thought that forecasts outcomes better than other schools do, the science of economics deals with economic phenomena, and does so in a way that surprisingly unified. There's no Chicago School of say, "elasticity of demand" as opposed to a Marxist school or an Austrian school regarding the same concept. "Elasticity of demand" has a fairly constant definition among all economists.

Economics is not all relative, depending on your point of view. The very fact of a common terminology among economists sets the field apart from other fields. Nor do I burden economics with having to meet some arbitrary definition of "science." If science is a search for the truth in some normal, regular, disciplined way, that does not preclude economics from being a "real" science. The so-called "hard" sciences are turning out not to be as straight up and down as they were once thought to be. Now that simple mathematical models that once explained physics and chemistry don't have as much explanatory power as they used to, economics isn't quite the mumbo-jumbo its detractors say it is.

[JBoy]

12. "I don't understand it. Everyone I know has a job!"

[elleng]

13. Stupids! Who the hell is ADP?

[slackmaster]

19. ADP is the largest provider of payroll accounting services in the US and Canada

They have shitloads of data, but only about companies that use their services.

[elleng]

22. So 'consider the source(s),' eh?

[Warpy]

15. The ones who followed Milton Friedman/Chicago School

have always been completely clueless, they just never realized it until now.

Krugman is one of the few who retains a clue in the world and even he gets it wrong sometimes, as in failing to recognize the work of hedge funds and investment banks in jiggering commodities futures into bubble markets.

[slackmaster]

17. Automatc Rec for headline worthy of The Onion

:kick:

[Ichingcarpenter]

20. I thought it was an Onion headline and story

but no just the truth once again.....

[QED]

24. I wonder if it's from reduced "government" payrolls

and laid off teachers. The GOP doesn't seem to get the connection between slashing government spending and the people whose jobs it affects.

[EstimatedProphet]

44. Of course they don't

Half of them try to claim that government employees don't really have jobs. As if the money they all make and put into the economy has no impact whatsoever.

[ixion]

26. Any 'Economist' who didn't see this coming should be stunned they're able to be working

as an Economist in the first place, because they're quite lame.

[rucky]

28. Best headline rewrite of the day

:rofl:

[spanone]

29. so what's going on behind the scenes that is causing economists to be stunned?

[xchrom]

31. Since post WWII - too many schools have adopted the Austrian economic

Theories - popularly represented here by Milton Friedman on the economics &
Leo Strauss on the political.

[hifiguy]

33. Indeed

I find it fascinating that Leo Strauss, a Jew who fled the Nazis, spent the rest of his life theorizing a political system that is, at its core, National Socialism shorn of anti-Semitism. The man had some issues.

Friedman on the other hand, was, to paraphrase John Kenneth Galbraith a conservative engaged in one of the oldest philosophical pursuits of mankind: a superior rationalization for base selfishness. A pimp for the rich and selfish is all Friedman ever was.

[BOG PERSON]

30. economists give soothsaying a bad name

[Dept of Beer]

34. His forecast went down in flames, but is salary won't.

Nice job if you can get it I guess. :eyes:

[Buns_of_Fire]

59. It helps me see the error of my ways.

Ignorant me, I chose a field where I had to know what I was doing, set my parameters carefully, test, test, and retest, and be right more often than not.

Damn fool that I was.

[Jim Lane]

36. This is all too much hoopla over a single one-month number

It's certainly hard to forecast long-term macroeconomic changes, but there are some relationships we can be confident of. For example, we know that cutbacks in government spending (to reduce the deficit) will tend to reduce aggregate demand and will therefore exert a negative influence on unemployment.

Forecasting any particular month is another matter, though. There are many factors that can produce a short-term blip in the number.

An analogy: Let's look at the weather on the 17th of the month. We know that, in general, August 17 will be warmer than September 17, which will be warmer than October 17, etc. Do you want to sit there and tell me that you can now predict, with confidence, the high-temperature ranking of each of the twelve 17th's in 2012? Of course you can't. That doesn't mean we know nothing about climate. It doesn't mean that meteorologists should be ridiculed in terms similar to those applied to economists in this thread.

[sendero]

56. It's not REMOTELY.

.... a single one month number and if you were paying attention you'd know that.

The whole quarter shows slippage and Wall Street was expecting/hoping/praying that we'd see some turnaround. Instead we got a confirmation.

Double dip, coming right up.

[Odin2005]

37. Anyone who thinks infinite exponential growrh is possible is either insane or an economist.

[HughBeaumont]

49. A linear system that depends on infinite resources and wealth in a world where neither one exists.

COME on! What can POSSIBLY go wrong!?!?!?

:rofl:

[JCMach1]

39. Krugman has been talking about the problems for weeks...

It is the Chicago philosophy economists that have their head up their ass.

And yeah, those idiots work for Obama too.

[underpants]

61. Chicago - correct. They didn't account for the effects of the stimulus wearing out

private money is hard to come by these days (think that is a coincidence?) so there is no money coming into the system.
There is apparently no growth without signing a note and going into debt.

[JCMach1]

62. also, corporations are sitting on cash as demand has NOT returned.

[Taitertots]

40. Breaking news: Economists can't see into the future

How much better or worse is that than any other group of people?

No one expects forecasting will be 100% accurate, except people who don't understand economics.

[defendandprotect]

41. A corporate mindset that keeps them "asleep" .... or pretending to be ... !!

[Kablooie]

43. How many were old fashioned Keynesians and how many Neoclassical supply siders?

[eridani]

45. I think Krugman and Baker had a clue n/t

[mrdmk]

46. K & R

[sendero]

50. They may be stunned.....

... but I am laughing and have been for at least 5 years. These people by and large could not find their own asses with both hands and a map.

Here's a prediction for you, as most of mine have been working out for the last 5 years. There is NO REASON for the economy to improve. All of the money is concentrated at the top, and those holding that money cannot invest in jobs because there is no market for their product or services. So they engage in riskier and riskier behavior chasing some kind of yield on their holdings which results in massive clusterFucks to the economy. And the taxpayer is expected to pick up the tab, and because most Americans are financially illiterate, we are.

We are barely in the beginning of this mess - not any where near the end. Continuing to paper over losses that have already occurred has never worked historically and will not work now either. Europe is fucked, Japan is fucked China is probably fucked and the US is fucked. Get used to it.

[Zax2me]

51. The numbers are always 'surprising'

To whom?!
The experts?
We can always count on bad numbers, followed by the 'economists were surprised..." line.

[0rganism]

57. did they factor in public employee layoffs by the teabag governors?

There's clearly a coordinated attempt by the GOPers to sabotage any recovery before 2013. I think honest economists would have to account for this kind of activity in their predictions. If so many of them were so very wrong, that suggests a lot of them are in on the sabotage themselves.