Guest essay by Eric Worrall
The Huffington Post is worried that faltering faith in the field of Economics, whose experts spectacularly failed to predict the 2008 crash and the post Brexit economic boom, might spill over into skepticism about predictions of climate driven economic collapse.
With Economics In Disarray, It’s Time To Rethink Climate Change
We heard this week that the economics profession is in crisis. The inability to foresee the 2008 financial crisis and mis-judgments about the impact of the Brexit vote mean economics has lost the trust of politicians and the public.
If indeed economics as a science and way of seeing and understanding the world has had its day, then we quickly need to work out what that means for our ideas about dealing with climate change. Because make no mistake, economics has dominated and defined our understanding of climate change in exactly the same way economics has dominated and defined every other area of our lives.
That’s the reason why the Stern Review on Climate Change (written by Nicholas Stern, an economist) received such wide covered upon its publication in 2006, becoming ‘the reference work for politicians and green campaigners‘. Here at last was someone telling us what to do, and telling us in the only language that mattered – economics. None of that hippy ‘going to live in caves’ nonsense. No doom and gloom. Instead the Review ‘considers the economic costs of the impacts of climate change, and the costs and benefits of action to reduce the emissions of greenhouse gases (GHGs) that cause it’. The ultimate objective of climate policy was to ensure climate change did not damage economic growth.
…
What is needed instead is a way of engaging with climate change which is built from the bottom-up and speaks to the values, experience, hopes and concerns of everyday life. It is about showing the connections between a future which benefits the many, not just the few, with the possibility of a good quality of life that can be shared by all without ruining the quality of life for subsequent generations.
…
Read more: http://www.huffingtonpost.co.uk/chris-shaw/climate-change-economics_b_13984596.html
When I worked with merchant bankers, the bankers never attempted to use their economic and trading models to predict the future, because they knew that didn’t work – bitter experience taught them that their painstakingly constructed economic models had no predictive skill. Instead, they used the models to try to understand the present, to try to detect weaknesses in the structure of their portfolios.
Only in academia and government, where nobody faces consequences for failure, do you find people who are stupid enough to believe they know what is going to happen.
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How well does Keynesian economics deal with anything? Perhaps it would be good for analysing imaginary things other than “climate change”, such as the tooth fairy, or the flying spaghetti monster.
About as well as not at all.
Karabar, re: the Flying Spahgetti Monster, I would rather you didn’t disparage my religion.
Oops, break out the safe room…
Joe Crawford gives me an idea for a new brew or Liqueur called …. “Safe Room” …
hahahahahahhaha
Dr. Robert G. Brown in a comment here a couple of years ago called Keynes “a statistical GOD. [Emphasis his.]
I’m pretty sure he was being sarcastic.
No, he wasn’t, MarkW. He explained why, IIRC. One of his long comments at the end of a thread.
Consider the source. Salon, Vox, PuffHo, NYT, WaPo and The Guardian at this point have all the credibility of those loony vans that ride around Tokyo, spewing propaganda via bull-horn. BULL is all that it is. Wait another month or so, and the realization of their irrelevance is about to sink in. Meanwhile, We the Deplorables will rock on!
Goldrider: The sources you list and other MSM folks miss much and, also, just make stuff up.
The economic crisis was not missed:
6 economists who predicted the global financial crisis
Careful karabar, the Pastafarians might lash out with limp noodles
there is a school of economics that traditionally gets it right when the other schools are totally wrong.
there forecast for the near future is a repeat of the end result of all financial bubbles. Hold on to your hats.
jvcstone
Noted.
I will ensure I have tin foil in mine – two layers!
And a lucky thingy, whatchamacallit, hanging from the outside.
Auto
Keynes is a lot like communism.
No matter how many times it fails, it’s always because it wasn’t done right.
Next time it’s going to work.
The same thing can be said for “trickle-down economics (also known as voodoo-economics.)
Keynes either said or wrote, Capitalism is necessary to bring us out of the tunnel of necessity into the sunlight of abundance. And he stated Utopia after capitalism, not outsidecapitalism.
Most of what people believe or know about Keynes is like what the #NeverTrumpers believe about Trump. Off the effing wall.
Rob Bradley, remember that:
The Reagan years brought annual real GDP growth of 3.5 percent — 4.9 percent after the recession.
The 80’s were a happy time, too.
The economy also grew over 5%/ year in real terms after the Kennedy tax cuts.
Gee, trickle-down economics does work.
Rob, the big difference is that trickle down has always worked.
It worked when Kennedy did.
It worked when Reagan did it.
Keynesian economics is great for understanding the movements of economics. It’s only when you try to control the economy using Keynesian ideas that things actually fall flat, primarily due to the law of unintended consequences. Don’t disparage the idea because it is so often misapplied.
Well, FDR created the middle class using Keynes’ ideas. Fixed the Great Depression, Reduced inflation to 1.5%, and gave everyone a job. [See Keep From All Thoughtful Men by military historian Jim Lacey.]
Actually—and this is fascinating to me—Keynes was preceded by Marriner Eccles, a millionaire Republican Mormon banker from Utah who didn’t finish highschool and who used the same Keynes ideas with FDR. In fact, four years before Keynes’ book was published in 1936! he didn’t know about Keynes. Eccles was a plain-speaking person who experienced the manifestation of how destructive the gold standard was by ruiniing the lives of his customers. Eccles was invited to DC by FDR’s friend and advisor in 1932.
Eccles wanted us to get off the gold standard pronto, and get the federal government to start deficit spending bigtime to get the unemployment down from 25% via provisioninng itself using massive jobs programs and big federal projects. In two years, It was down to 14%. The Republicans spooked FDR in 1937, who foolishly cut spending in response and against Eccles’ advice—Eccles was now FDR’s first chairman of the Federal Reserve—and unemployment shot back up to 19.4% within 8 months. FDR got the drift. WWII loomed and Britain and Canada needed planes and ships, materiel. The detail of how three government economists using Keynes/Eccles’ ideas created the incredible economic growth from 1939 on to the end of the war is in Keep From All Thoughtful Men.
Eisenhower used “Keysian/Eccles” ideas when he built the interstate highway system in the 50s; taxpayers didn’t pay a cent; no debt to children and grandchildren. Ditto Kennedy’s Space Program. You can see the years with a massive increase in deficits in Table 1.1 on the White House Historical Tables: https://www.whitehouse.gov/omb/budget/Historicals. They match the years of tremendous economic growth.
As I recall, Utah banks did not close as they did in the rest of the U.S. at that time.
Inter-states were built to evacuate urban areas when needed and for military use. This was based on the European WW 2 experience of trying to evacuate civilians and move the military at the same time.
Interstates have saved countless lives during severe weather conditions.
MRW, wrong, FDR created the great depression using the ideas of Keynes.
It was the elimination of the many regulations and government agencies so that industry could help fight WWII that got us out of the depression.
It was industry that created the middle class. Rising productivity created the wealth.
Competition meant that the wealth was distributed based on relative contributions.
Barbara, cities and states were already building the roads that they needed.
Eisenhower sped up this process and used military need as the excuse.
MARKW says: ” FDR created the great depression”
.
.
MARKW fails to understand that FDR took the oath of office March 4, 1933, more than two years after the start of the Great Depression. The stock market crash which signaled the start of the depression was on October 29, 1929.
What orifice did you find that snippet in? You are 1000% wrong historically.
Ignorant comment. Completely irresponsible.
B.S. You know zip about American economic history. You’re a Canadian, aren’t you?
MRW wrote “What orifice did you find that snippet in? You are 1000% wrong historically.”
It would be better to leave it at 100 percent. Even multiples of 100 percent wrongness cancel out; you have five cycles of wrong-right, assuming of course that !wrong==right and !right==wrong.
The WPA was a pretty good investment and I’ve driven across many WPA constructed bridges, roads and used mountain trails. When viewed as an investment it is much less objectionable to libertarians. If the United States had been communistic, the WPA would have consisted largely of forced labor rather than employment.
Wrong. it was government.
The consequence of what the government did then was more industry, and therefore more citizens employed in gainful, productive work.
The government’s WPA and youth-employment programs created tens of millions of jobs, built tens of thousands of schools and hospitals, built the national parks so tourists could actually use them, did major public works like the Hoover Dam, created airports, improved telecommunication reception in rural areas, hired out-of-work artists, writers, and musicians to record the cultural history of the US and create public art works in key locations, and fed the hungry in soup kitchens all over the country, which made use of local farmers’ produce, improving the farmers’ lot as well.
The notion that industry created this is ludicrous. Industry doesn’t invest in plant and new-hires (workers) and infrastructure unless there are sales to justify it. At least, that’s how a real businessman operates. There are no sales unless people have jobs that provide income. A businessman is not going to create a job unless his sales show it’s justified; he’s not in the business of saving the economy. He wants to make a profit.
If you don’t have an income, you can’t spend. Only spending increases sales (aggregate demand). Unless people have jobs, they can’t spend, they don’t have the income.
Industry is not going to create the necessary jobs as some altruistic act. Why? That is economic suicide for them. Only 14% of all spending in this country comes from business. 70% of all spending comes from households. From people who have jobs.
The only entity in the United States that can create jobs in a downturn is the US federal government.
Better than most of its competitors.
” might spill over into skepticism about predictions of climate driven economic collapse. ”
i thought it already had.
Richard Tol helped with that by showing up all the faults in the lauded Stern Report.
As the author writes, economics is simply a word given to observations about trading behavior averaged over populations. Whether you or I will always choose the least expensive product is much less predictable.
I think people no longer buy on price and now include cost/benefit considerations. For example, you can spend less on clothing purchased from Walmart but you’ll end up buying more clothing in the long run because of inferior quality.
Buying on price alone is a marketing ploy that has negative consequences for the consumer.
I think MOST people buy on price. Just a notion of mine…
Well, depending on how ‘well off’ I am at the moment I’m shopping for something does factor into my decision of the price.
Gosh Rocky, I think that price is the real motivator in most if not all buying. I am loathe to put forward one example as doubtless there are others that contradict, but take air travel as just one example. The success of budget airlines is all about the fare.
Herbert Simon won a Nobel prize in economics for his theory of bounded rationality in which he shot down the old theory of the rational consumer. In it he said that most people were not rational consumers. They tended to seek a satisfactory solution rather than an optimal one, e.g. in certain situations a high price might be more satisfactory than a low price or a median price might outweigh both.
Value is not an intrinsic property, it is assigned to goods and services on an individual basis, by individuals. And this varies with time and circumstance, which a lot of economic theory fails to take into account. This means economics is intractably fuzzy. Whether I value water, tea, or a cola varies with not only how thirsty I am, but a lot of other imponderables. Thus the price I am willing to pay varies, and it takes into account the value I assign to my time (at that moment), how much money I have in hand, etc.
Unless it is a “less expensive” piece of cr@p
Economics is really just random guesswork and if applied to climate change the more people that are removed from poverty now the better off will be the future generations. That is just common sense. To deliberately sabotage current economic growth rates for future generations is oxymoronic ( without much oxy).
Economics is mostly common sense already, or so it would be if sense was more common.
Michael 2, climate was a science in the days of Koppen and others. But climate science was steamrolled by climate seance i.e., anthropological induced global warming, then climate disruptions, climate change, etc.. Climate can be a legitimate area of good science and scientific research as soon as the money tap is turned off and the profit for dissembling is turned into a penalty.
The basics perhaps, but trying to predict t hecombined and cumulative the actions of 7 billion people many years into the future is (I) impossible and (ii) obviously not sensible, common or otherwise.
Leonard Lane you have belled the cat. “Climate seance” That is just so beautifully accurate.
“climate science was steamrolled by climate seance”
And it couldn’t have happened without massive government funding and a compliant media.
If, “Economics is really just random guesswork,” it would be impossible to deliberately sabotage anything. How would you know that what you did would have any effect let alone the desired effect?
Only democrats are fundamentally oxymoronic. It is all they know.
So should we borrow heavily to get people out of poverty? Borrowing for growth now takes away growth from the future. That is the puzzle we need to figure out in the face of worsening demographics, off-shoring and automation and the African population growth expectations. Do we get value out of money borrowed by our governments to create growth when they only borrow to enhance their re-election prospects? Economystics seem to be rather oblique if not outright obtuse on these important questions, so we stumble on toward the future unprepared and obsessed with Global Warming that won’t happen and would be inconsequential if it did. Thank for nothing, economics!
Worst of all was passing round junk investments worth billions from institution to institution, country to country. Where were the economists then? Even an economics simpleton like me can see this as a bad idea, each movement of this junk devalues it further ie sucks progressively more and more liquidity out of the system. Eventual disaster was as plain as plain can be to predict – and yet not a whisper, carry on as normal, dont dare to interfere with the status quo, dont say anything to upset the paymasters – my job will be at stake. Sound familiar!!! Just the tiniest dose of pragmatism would have saved economics the embarrassment of 2008, the same amount of pragmatism would also save climate scientists. There are just far to many lackeys in the system for any pragmatism.
They should all read HC Andersens ‘The Emerors New Clothes’ and then go and look in the mirror
Or perhaps ‘The Emperor’s New Clothes’!
Businesses borrow because they believe (and are usually correct) that the stuff they are buying or building with the borrowed money will create an income stream greater than the borrowing costs.
Government on the other hand, borrows to finance current spending, which has no income stream.
Beyond that, government borrowing crowds business borrowing out of the market, which results in less economic growth.
Correct.
Bu****it. Utter rubbish. The USG creates the US dollar. Only–and I mean only–legal entity worldwide that is allowed to do so. The USG is the monopoly supplier of US dollars worldwide. Otherwise, someone is counterfeiting.
In the USA, US money takes two forms: currency and treasury securities, usually called bonds, for short.
Currency and bonds are the same thing. Currency and bonds are interchangeable. A currency—a physical dollar bill—is just a bond with zero maturity. Only 11-12% of all US money is currency. The rest are treasury securities (bills, notes, and bonds).
To recap, US money:
Physical currency has a zero maturity.
Bills have a one-year maturity.
Notes have a ten-year maturity.
Bonds have a 30-year maturity. [ipeople usually buy bonds because the yield is higher, and since they are 100% tradable any day on the open market, highly liquid.
Here’s how it works, operationally
(1) The government spends first. Congress votes the new dollars into existence with legal “appropriations,” or spending bills. No one calls up the IRS to ask if there is enough money in the kitty for the new spending. No one. The IRS collects after the spending has occurred, not before.
(2) The US Treasury authorizes its banker (the Federal Reserve) to mark up its General Account in the exact amount of congressional spending. Let’s say $400 billion to repair interstate highways in all 50 states.
(3) The Federal Reserve marks up Treasury’s General Account with $400 billion using keystrokes and disperses this $400 billion to the approved vendors in all 50 states that it receives from Congress. (Yeah, it’s just this simple).
(4) The money supply is now bursting with $400 billion in new money in the real economy, BUT the US Treasury’s General Account is empty. (You got that? VIP.)
(5) A law from the gold standard days, around 1917, says that the US Treasury’s General Account cannot have an overdraft. This law was put in place at the time (along with the “Debt Ceiling”) to protect the nation’s gold supply: put a pair of suspenders on, and a belt around, it.
So in those days—pre-gold standard—Congress went on the open market and sold treasury securities in the amount of the proposed spending. Treasury securities had a catch then. You could trade ‘em, you could sell ‘em, just like cash, but you could not exchange them for gold until they reached maturity, regardless of who owned them. Remember, the higher yield treasury bond has a 30-year maturity. The USD, on the other hand, could be exchanged for gold at any bank. Anytime. It was written on the back of every dollar bill. Twenty of them bought an ounce of gold then.
The federal government needed its gold to pay for foreign wars, feeding the troops in Europe (WWI) and buying them fuel. Protecting that gold supply was paramount. The federal government wanted to prevent the people from cashing in their dollars for gold, and hiding the bars in their mattresses, so they offered a sweet deal: treasury securities. They paid interest unlike gold or currency! yubba-doo. And the federal government made them 100% safe. You could never lose your money, unlike a commercial bank that (today) only insures individual accounts to $250,000. You lose the rest if the bank goes belly-up, as happened to so many retirees in 2008.
(6) OK, back to regular programming. The economy is now bursting with $400 billion in new congressionally-created dollars but the US Treasury’s General Account is empty.
The US Treasury then issues $400 billion in new treasury securities and auctions them on the open market through 12 “primary dealers.” [man…to have that concession!] They usually sell in nanoseconds. People, businesses, banks, trusts, foreign govts, foreign banks and investors the world over clamor to exchange their cash for safe and secure treasury securities. China’s $1.4 trillion in treasury securities are its Walmart/Best Buy/etc profits.
(7) Treasury always issues treasury securities in the amount of congressional spending about two weeks to two months after the Federal Reserve uses its keystrokes to pay the vendors in 50 states. The money from the sales of the US Treasury-issued treasury securities goes into Treasury’s General Account, and the money supply is beautifully restored to balance throughout the real economy.
(8) The term “borrowing” to describe steps (5), (6), and (7) above is from pre-1933 days operations, when the federal government did borrow on the open market to protect the gold supply, as explained above. It’s a kind of shorthand that never went away. Congress didn’t change the law described in (5) because it was still on the gold standard internationally until 1971. So the law stands to this day as a self-imposed constraint, not a necessity!
This idiotic idea is repeated by people who have no idea what reserve accounting is, do not understand how the US Treasury and Federal Reserve work transactionally, and are devoid of any knowledge of financial operations at the federal government level.
It is 100% wrong, a tired shibboleth lemmings utter as they goose-walk their ignorance.
“It is 100% wrong, a tired shibboleth lemmings utter as they goose-walk their ignorance.”
Long on knowledge, short on humility. Its a good thing we have you to ‘splain things.
Maybe so, but those lemmings are on TV every night bamboozling people because they’re ignorant. Their greatest crime, imo, is what they have done to Millennials who are now stuck with university loans that they might not be able to pay off until they are about to retire. All completely unecessary. Reporters, had they known, could have called Biden and Cheney on their bulls**t bank loan plan in 2005, and saved an entire generation from misery.
Or another: healthcare. There is no reason for high costs to the people. We have government “of the people, by the people, and for the people.” A congressional vote could give all Americans the best healthcare on the planet for a near-honorarium–with no debt to children or grandchildren–if our congresspeople understood what they were in charge of financially at the federal level.
Economics *is* the primary lens of reality to an economist for whom such things are truly important. Things have no importance of themselves. As to reality; it is impossible to perceive it. It is infinitely recursive. The act of perceiving something has changed the perceiver; and if the perceiver is part of the set of things being perceived, then what is to be perceived has just changed by the act of perception.
Economics is important to me. It is not magic; it is mostly structured observation and helps a person make better decisions. If your business happens to be in a commodity market then to have any profit you must make the thing at less cost to you than anyone else. IF it is not a commodity, and you are successful, then pretty soon it will be a commodity. This is not difficult to understand.
DeBeers created demand for diamonds pretty much out of thin air, reversing the usual course of a thing becoming a commodity.
The demand for diamonds is high because the DeBeers managed to convince people diamonds are rare.
Diamonds are rare. Check the geology. And diamonds were highly prized long before DeBeers. Ever heard of Koh-i-noor?
The whole western chunk of Africa sits on what is what is in effect a gigantic diamond factory.
Ever heard of Koh-i-noor?
Yes. It’s my favourite Indian Restaurant. Miles better than the Taj Mahal.
Ever heard of Koch-i-noor? Yes? Ever heard of “glass”? Far, far, far more valuable in those days than diamonds….
We should evaluate things in terms of economics, however, we should not pretend that one macroeconomic number defines the reality for everyone — GNP can rise, but if 200% of the GNP rise goes to a wealthy few, that is not a benefit.
Nor should we should twist economics to fit a perspective.
That is what the Stern Review is. He modified the model assumptions until he “proved” that we needed to act on on climate change. The very definition of poor economics.
Nope, it’s a drafting pencil.
http://s23.postimg.org/7y4h910yj/rapidomatic.png
Diamonds are not even the most beautiful precious gem, only the hardest. Speaking as a woman, I much prefer diamonds as accents to sapphires, rubies, and emeralds, they really liven up a colored stone.
PMK
it is mostly structured observation and helps a person make better decisions.
As Keynes pointed out in his General Theory (which about 62 people have actually read; Keynes is not taught in univ*), it depends on whether you’re in stable times or disruptive times.
In stable times, you can determine risk, which Keynes described as like a deck of cards, variable, but measurable. You can determine probability (risk mmodels, etc) and can therefore estimate your chances.
In disruptive times, you have irreducible uncertainty, and you can’t estimate. There is no calculable probability. You do not have any basis to know. (No one knows, for example, whether there will be war, or what the price of oil will be, in 10 years.)
______________________
* Nobel Prize winner in Economics Paul Samuelson was considered the keeper of the Keynes flame, and it was his understanding of Keynes that everyone has…to this day. Samuelson wrote the seminal 1948 textbook Economics: An Introductory Analysis that is still assigned to Econ 101 students, the most successful econ book of all time; he is also Larry Summers uncle.
Samuelson learned about Keynes’ theory at Harvard from the seminar notes that a visiting London School of Economics student took in Hayek’s classes at LSE about Keynes’ theory taught before the book was published in 1936. Samuelson later admitted in a 1989 interview that he never really understood Keynes and didn’t bother finishing the last half of the book (or after Chapter 16, can’t remember).
My comment was for Michael 2 @ur momisugly January 6, 2017 at 10:00 pm.
The first bold line is his. I mistakenly used bold instead of blockquote. Sorry about that.
You describe the Copenhagen Interpretation of quantum mechanics. The act of observation disturbs the observed.
Observation collapses the wave function; a very different kettle of fish than disturbing the observed.
I suppose in this context I can mention that MS and AG created a market for carbon dioxide also out of thin air. Demand must be stimulated and the item desired must be scarce or regulated. Economics IS the lens to use when understanding the proposed response to global warming.
Mississippi and who would AG be?
Or do you mean Microsoft and AG – still, who is AG? AG as in ‘agriculture’ (possibly “big ag” in your book?)
AG may also refer to Attorney General or Attorneys General, but only you know for sure …
Jim @ur momisugly 11:16 am: My guess is that MS and AG are Maurice Strong and Al Gore respectively..
As it’s been said here many times before: trying to predict chaotic systems like climate and economics with our traditional tools of statistics is futile.
If we understood them….we wouldn’t call them chaotic
In this context, “chaotic” has a mathematical definition which is much more precise than its traditional meaning. Look it up on the internet.
RE “the impossibility to predicting chaotic weather and climate systems””:
Bill Illis developed a three-month predictor of Tropical Lower Tropospheric temperature that works quite well, based on Nino3.4 SST’s and other inputs. The Nino3.4 area is only about 1% of global land surface area. As I recall, Bill’s formula also included the impact of major volcanoes, the (lesser?) impact of the AMO, and the almost insignificant impact of CO2.
I later independently developed a simpler four-month predictor of Global Lower Tropospheric temperature based only on Nino3.4 temperatures. The cooling impact of major volcanoes is clear in this simpler model.
I also demonstrated in 2008 that dCO2/dt changes ~contemporaneously with temperature and therefore CO2 lags temperature by ~9 months in the modern data record.
Others have developed longer-term models that correlate global temperature with solar activity. I have not personally verified them but they look credible.
Others such as WeatherBell have a good track record of weather prediction, based on historic analog models of weather systems
My general observation is that perhaps this “chaotic, unpredictable climate system” is not all that unpredictable after all.
Maybe “climate science” has simply been steered into a deep ditch for the past several decades.
Regards, Allan
Background information:
https://wattsupwiththat.com/2017/01/03/2016-edges-1998-as-warmest-year-in-satellite-record-by-0-02c/comment-page-1/#comment-2388188
Great work Bill.
Here is my similar post from July 2016, with more recent comments.
The cooling is right on schedule.
Best, Allan
https://wattsupwiththat.com/2016/12/02/climate-advocate-outrage-over-global-cooling-congress-tweet/comment-page-1/#comment-2358088
This drop in temperature was predicted four months ago in July in this post. The Nino3.4 area temperatures continue to fall, so the UAH Global LT temperatures should soon catch up with the LT land temperatures.
Bill Illis did an earlier and more detailed analysis of this subject, with a three-month predictor of Tropical LT temperatures..
Regards, Allan
https://wattsupwiththat.com/2016/07/01/spectacular-drop-in-global-average-satellite-temperatures/comment-page-1/#comment-2250667
I plotted the same formula back to 1982, which is where I (I think arbitrarily) started my first analysis. Satellite temperature data began in 1979.
That formula is: UAHLT Calc. = 0.20*Nino3.4SST +0.15
It is apparent that UAHLT Calc. is substantially higher than UAH Actual for two periods, each of ~5 years,
BUT that difference could be largely or entirely due to the two major volcanoes, El Chichon in 1982 and Mt. Pinatubo in 1991.
This leads to a startling new hypothesis: First, look at the blue line, which shows NO significant global warming over the entire period from 1982 to 2016. Perhaps the “global warming” observed after the 1997-98 El Nino was not global warming at all; maybe it was just the natural recovery in global temperatures after two of the largest volcanoes in recent history.
Comments?
Regards, Allan
https://www.facebook.com/photo.php?fbid=1030751950335700&set=a.1012901982120697.1073741826.100002027142240&type=3
Actually, Austrian School economists had been predicting the crash for quite some time. And — the important part — they even had the causes right. (Which are commonly acknowledged now, but only in hindsight).
It’s the “mainstream”, and particularly Keynesian, economists that never seem to see it coming. Because it contradicts their pet theories having to do with interventionism keeping things under control.
If you are disinclined to believe, you can see Austrian school Peter Schiff discussing it with investors and economists in the video below. He was literally laughed at… by, amongst others, Art Laffer himself. (Who, contrary to popular belief, is a staunch Keynesian. He claims to this day he learned his Laffer Curve from Keynes’ teachings.)
Here’s the video: https://www.youtube.com/watch?v=sgRGBNekFIw
Early Austrians predicted the Great Depression. Later, Austrians predicted the post-WWII boom (mainstream economists predicted massive economic downturn and unemployment) and the Stagflation of the 70s-80s, which classical and Keynesian economists had declared literally impossible. They predicted the 2000 tech bubble, and the 2008 crash well in advance.
Their record of prediction is actually not bad at all.
But much government power is based on economic intervention. Don’t expect government bureaucrats and economists to let the failure of their economic predictions dissuade them from that approach.
+ 1×10^6 … Austrian School of Economics rocks!
Better than the Frankfurt School of Critical Theory, hopefully.
@PiperPaul: No relation whatever. Or even similarity.
The congressional committee’s Democratic chairman, Henry Waxman, pressed him: “You found that your view of the world, your ideology, was not right, it was not working?” Greenspan agreed: “That’s precisely the reason I was shocked because I’d been going for 40 years or so with considerable evidence that it was working exceptionally well.”
Greenspan was an idiot who presided over a Fed that was a one trick pony with “easy money” as the cure all for everything. Y2K? Low rates! Tech bubble burst? Low rates? 9-11? Low rates? Could anybody really be surprised that people turned easy money into a massive asset bubble? I’m a high school drop out and I saw it coming and sold my house in 2007 to position to buy after the reality check. I didn’t foresee that the whole stupid world was connected to the U.S. real estate craziness so my re-entry was somewhat delayed but now I own two successful businesses. The problem was so obvious that the idea that the Fed and world economic authorities couldn’t see it coming is flat out ridiculous. Once again, the experts knew NOTHING!
6 economists who predicted the global financial crisis
https://intheblack.com/articles/2015/07/07/6-economists-who-predicted-the-global-financial-crisis-and-why-we-should-listen-to-them-from-now-on
Only one of them is an Austrian. Peter Shiff first predicted it in 2006. Global economist Jan Hatsius of Goldman Sachs predicted it in 2004. Dr. Stephanie Kelton and Dr. Randy Wray predicted it in 1999 and 2000.
None of this contradicts what I wrote in any way.
Keen, for just one example, is very definitely not a Keynesian or classicist.
But even if they were, the question remains: why do classical, “mainstream”, and primarily Keynesian interventionist economists ignore the voices of these people, and the evidence that is right in front of them?
Further, these others do not appear to be members of any particular “school”… but Austrians have been saying the same things they are for 100 years.
https://www.amazon.com/Where-Keynes-Went-Wrong-Governments/dp/1604190442
An excellent book. I’ve given out copies.
I would be interested to read this book. My understanding has always been that Keynes believed governments should attempt to “even out” the economic cycle by borrowing to invest in public works during recessions to limit damage to productive capacity and then run surpluses during expansions to limit excesses and prevent chronic deficit and debt. The problem came about in entrusting this task to democratic governments who like the borrowing and spending part but not so much the taxing and cutting back part. The fantastic growth of special interest groups and the ignorance of the general public adds the excuses that governments barely need to act as spendthrift fools on our behalf. We get the government we deserve.
Witness Climate Change idiocy!
The biggest problem with Keynes was that the vast pool of unused resources that he envisioned the government tapping into never existed.
Additionally, the only way government can take money out of the economy is by putting the money into a vault somewhere. The minute the government puts that money into a bank account, anywhere, that money is put back into the economy.
When did economics become a “Science” ???
Maybe when politics became a “Science” and they started giving out Poly-Sci degrees?
Not to mention social becoming a “science” and climate becoming a “science”.
If a subject has the word “science” in its title, that’s a pretty good indication that it is not science.
People have lost the original definition of the word “science” which means simply “knowledge.”
So you can have the “science” of theology, for example, and yes, “political science,” a structuring of knowledge about a subject and how to the parts interrelate.
I roll my eyes when I hear or read something like “well, there’s science and then there’s religion…” No. There’s only truth, and mankind’s attempts to discover it.
Yes. The motto of my Alma Mater is Ex Scientia Tridens: From Knowledge, Sea Power.
Although I appreciate that is a motto and the trident represents Neptunes trident or Seapower in the case of the USN. Much better would be to replace ‘tridens’ with ‘potestatem’ meaning straightforwardly ‘power’- “from knowledge (comes) power”
I have learned something tonight. Thomas Carlyle, the person who coined the term “Dismal Science” was no one that I admire and was decidedly disapproving of the economic Laws of Supply and Demand. Carlyle was no supporter of Laisse-Faire. He much preferred the whip.
I have to confess that this pedigree of the term Dismal Science was unknown to me despite my Ph.D. in Mineral Economics. The more popular story, actually myth, was that “Dismal Science” was in relation to Malthus. But this historian seems to peg Carlyle’s coinage of the term to his animosity to those free market economists that objected to his totalitarian, slave master ideals.
I think I shall wear that badge of “Dismal Science” with greater honor in the future. It is Dismal only to those who prefer force to freedom.
Forgot to add the source of the quoted text above:
The Origin of the Term “Dismal Science” to Describe Economics
Robert Dixon
Department of Economics
University of Melbourne
Parkville
Victoria 3052
cannot find a date, though the latest reference is 1994
Keynesian economics is indeed the Dismal science. It’s crucial to remember who Dismas was: The thief on the left.
@billk. The role of Dismas seems to be literally a matter of perspective. You view him as the “Thief on the Left. But according to Wikipedia, Dismas was the name given to the “penitent thief” crucified on Christ’s right in the apocryphal Gospel of Nicodemus (4th Century AD).
The word “Dismal” seems to come from Latin as “Evil Days” or “Bad Days”. But what is to be learned from the bit about Carlyle, what is bad or evil is most definitely a matter of perspective and foundational morals.
The invention of farm machinery would have done in slavery in the U.S. anyway? Farming became much less labor intensive.
Thank you.
Astute observation!
It became a ‘science’ when Paul Samuelson, the first Nobel Prize winner in Economics, started convincing the world economics was a science, like physics. As I wrote above, he wrote an economics textbook (1948) that is still assigned today. He thought economics being a ‘science’ would make his ideas weightier, and his acceptance in the world would be heightened.
A science is astronomy. You can calculate the position of the planets 4,000 years ago, and use the same calculation to determine the position of the planets 4,000 years from now.
Economics is a social science, taught in that department. Some know maths; some don’t. None of them seem to know accounting.
Just to be clear, there is not a Nobel prize for economics. There is a Nobel-like like prize for the very narrow discipline of anecdotal observation of human behaviour that pertains to trade and which is called economics. Archaic definitions of science notwithstanding, the application of scientific method in economics is rudimentary at best. The “Austrian” school may be the exception but economics has about the same success with predicting and altering economic outcome as human sacrifice and it still persists as a discipline for much the same reason that human sacrifice remained popular for so long. Economics and human sacrifice are not really about making it rain but rather are all about controlling the message. The amount of media coverage that economic pronouncements get in relation to their utility is truly astonishing. The only way that economics could actually improve the economy would be if all economists went to work making widgets.
OK, BCBill, the full title is Nobel Memorial Prize in Economic Sciences.
As MIT News reported in its obituary, The Swedish Royal Academies stated, when awarding the prize, that he “has done more than any other contemporary economist to raise the level of scientific analysis in economic theory”.[4]
http://news.mit.edu/2009/obit-samuelson-1213
“Some critics argue that the prestige of the Prize in Economics derives in part from its association with the Nobel Prizes, an association that has often been a source of controversy. Among them is the Swedish human rights lawyer Peter Nobel, a great-grandson of Ludvig Nobel.[27] Nobel criticizes the awarding institution of misusing his family’s name, and states that no member of the Nobel family has ever had the intention of establishing a prize in economics.”
https://en.m.wikipedia.org/wiki/Nobel_Memorial_Prize_in_Economic_Sciences
You’re dead on, BCBill. I thought it was the Bank of Sweden that issued it, but the MIT obit says otherwise. They have a different awards night as well, so they dont get the big oom-pah-pah. But you’re right: they’re piggy-backing on ‘ole Alfred Nobel. Paul Samuelson worked hard to get that first one, damning economics by making it ‘a science’.
It should also be noted, in relation to that video: the mainstream economists are always saying, as they did there, “Come on in! The market’s fine!” just before a recession.
Proto-Keynsian Irving Fisher famously made the same pronouncement publicly , literally one day before the market crash of 1929. Exactly the same as in that 2007 video.
They think a strong stock market equals a healthy economy. Despite well over 100 years of consistent evidence that directly contradicts.
Anne, The higher they fly the further they fall. Sadly in the case of the stock markets it is not the little guy that takes the fall. ( not in the stocks, can’t afford it) but inevitably the result is that the supply system breaks down and that system is completely inflated on the stock market.
Anne when a Keynsian invites you in, it’s only to share the impending pain or give up your seat (when the music stops)!
when a Keynsian invites you in
==========
It is so they will have a naive investor on which to unload their stocks. Before that time they are silently buying, hoping you will stay out of the market so prices will remain low. Once they have bought they will promote the hell out of the stock, so you will want to buy.
The more you hear a market is a great buy, the faster you should run for the exit.
They want you to buy their book before events prove what hacks they are.
Worth a read:
The Trouble With Macroeconomics, Paul Romer, Stern School of Business, New York University and entrepreneur, and Chief Economist and Senior Vice President of the World Bank.
Delivered January 5, 2016 as the Commons Memorial Lecture of the Omicron Delta Epsilon Society. Forthcoming in The American Economist.
Abstract
For more than three decades, macroeconomics has gone backwards. The
treatment of identification now is no more credible than in the early 1970s
but escapes challenge because it is so much more opaque. Macroeconomic
theorists dismiss mere facts by feigning an obtuse ignorance about such simple
assertions as “tight monetary policy can cause a recession.” Their models
attribute fluctuations in aggregate variables to imaginary causal forces that
are not influenced by the action that any person takes. A parallel with string
theory from physics hints at a general failure mode of science that is triggered
when respect for highly regarded leaders evolves into a deference to authority
that displaces objective fact from its position as the ultimate determinant of
scientific truth
Could have in fact also mentioned climate science.
Should the “Delivered” line have 2017 rather than 2016?
No its a year old, I just cut and pasted the header with the abstract off the text of the speech, adding the World Bank role. Available here: https://paulromer.net/wp-content/uploads/2016/09/WP-Trouble.pdf.
No truer words.
20 years ago, I read Henry George’s books., then
Prof Mason Gaffney’s “The Corruption of Economics”
(with Fred Harrison).
Why the crashes take the economists by surprise is
quite simply they are miseducated. Economics is lilke
Climate science: a pseudo science. Watch Dr.
Michael Hudson’s blog
if you want to see economic analysis of the economy how
it really is.
I’m thinking, from the present state of the economy, that
we might just have a downturn in October this year, 2017,
with recession within the next six months of that. It will be
something like the 1999 downturn. It should pick up again
in 2019 and boom all the way to 2026.
Of course, I could be quite wrong. Forecasting the future
is always a risky thing 🙂 But I’m prepared to say it and
watch.
I know absolutely nothing about “economy” – but my layman’s guess is that there will be a post-Trump boost to the economy simply because of the immensely better economic conditions we will experience because of Trump’s policy of aiming for cheaper energy. The market will soon figure that out.
Already up. Ford were going to build a factory in Mexico. Now, Ford are going to EXPAND operations in the US.
The U.S. auto industry has been openly harassed by environmental groups since at least 2007 and probably covertly before that. So now maybe the U.S. auto industry has a chance to survive?
This has been a subject of Congressional inquiry.
U.S. House of Representatives, Aug.10, 2012
Committee on Oversight and Government Reform
‘A Dismissal of Safety, Choice, and Cost …’, 46 page report on the the U.S. auto industry.
Read the Committee findings at:
http://www.oversight.house.gov/wp-content/uploads/2012/08/CAFE-Report-8-10-12-FINAL.pdf
In the above U.S. House 2012 Report, scroll down to:
P.6: ‘Aspen Discussion’, October 2008
NRDC, Sierra Club and Union of Concerned Scientists participation.
Then vilify companies that move elsewhere. Get the companies both ways.
But U.S. coal mines can’t be moved. So forced to shut down.
Sierra Club involved in U.S. auto, coal mining, and electric utilities sectors.
@Sophocles
I suspect you are likely close to correct. From Trump’s inauguration on, the clock is ticking. Any economic strength results in higher interest rates. Higher rates are a headwind to real growth. The economy has already had an extended, if weak expansion. All real growth takes place against the backdrop of declining demographics and productivity as well as a chronic balance of payments issue and massive debt. The markets are already at extreme multiples and will have a hard time pushing higher. Once the initial Trump Bump fades a little, people will realize that the initial conditions for growth do not exist. Then things start to get ugly. The “new economy” is excited about I-phones and virtual reality. These things don’t make productivity or really even improve lives. We are in decline.
The Stern Review has been thoroughly debunked many times as a load of nonsense. For example https://wattsupwiththat.com/2012/09/03/a-stern-rebuttal-to-the-stern-review/
Hey, remember when “Futurism” (Alvin Toffler et al) was going to be a burgeoning new branch of science, allowing us to peer into an ACCURATE, computerized crystal ball and determine the probable course of macro-events for humanity?
Gee, whatever happened to that “new science,” and could my kid get into “futurism” as a career?
“Just machines that make big decisions
Programmed by fellas with compassion and vision
We’ll be clean when their work is done
We’ll be eternally free, yes, and eternally young…”
– Donald Fagan, “I.G.Y.” (1983)
The article laments the inability of economists to see the 2008 financial crisis coming, and then goes on to recommend we pay attention to a report by an economist from 2006.
Do these people not proof read their own drivel?
With Chris Shaw, it seems the disfunction goes deep. ” My work aims to develop a space in which global publics can share their perspectives on how much climate change is too much.”
He says ” … Stern was able to admit in 2013 his calculations were wrong … ” “Admit” generally means to declare the reality or truth of something. Stern doubled down on the follies of his previous errors.
What your economists discovered is that statistical trends on time series of independent variables where the economy is not a functions of time, has no meaning. Like the PIOMASS trend glibly predicting negative sea ice in 10 or so years. What then? This proves the trend has no meaning. Just as commodity price trends have no predictive meaning, neither does any climate variable graphed in relation to time. The trends have meaning only for dependent variables. X is independent, and Y depends on X. Y = f(X). Y is a function of X. Then least squares and correlation coefficients have meaning. Since PIOMASS scientists do not understand that time does not make ice, their trend has no meaning is lost on them. Since all climate graph trends are all based on time, this proves to me that climate science at this point has no competent clue for predictive purposes, any idea what drives climate statistically. They know colloquially about the sun, but not statistically. This is why we get overlays of sun spots and temperature but not one graph of sun spots versus temperature. The skeptics laugh at the doomsters, and rightfully so, but meanwhile the skeptics have no better idea of what drives climate at a statistically significant level. If you aren’t going to graph solar radiance versus temperature and just overlay two time series, this means that all your watts in and watts out have no statistically relevant meaning for predictive purposes. These are propositions of future study, but they are not answers as to what is driving climate. A lot of people seem to confuse propositions with answers. A proposition is the start of a scientific inquiry, not the end of it.
statistical trends on time series of independent variables where the economy is not a functions of time, has no meaning.
=============
Agreed. If you see “time” as the X or Y axis of a graph, the result are almost certainly wrong when applied to the future, except for the most trivial of examples.
This applies to virtually all time series projections/predictions of real world situations. Rarely if ever are they a function of time, so why use time as your dimension of interest?
The problem for most humans is that “time” is perhaps the most confusing dimension there is. We think because time is everywhere that we understand it, but in point of fact we don’t. And because time is everywhere, it affects and colors all our conclusions, typically without us even being aware.
CO2 emissions are an input into the climate models. Indeed, the most alarming models take CO2 emissions as the most important input.
CO2 emissions in the future are not observed – it’s the future.
CO2 emissions in the future are the outputs of predicted economic activity. That is they are the outputs of economic models.
If you doubt the economic models you must doubt the models that use them.
I would submit that the inherent mathematical instability of GCM models makes them worthless when predicting future temperatures (the earth is far more stable than the models, so why use them?)
And since H2O is a more influential GHG than CO2, why use a politically-charged excuse rather than the real deal in modeling?
$
It seems to me that climate scientists have a common bit of knowledge about what their goals are, linear straight lines that point up. Just like the carbon dioxide data from Mauna Loa. Seems simple when there is only one pattern to try to describe in all the papers.
So when it doesn’t fit with the play book, they throw it out.
Sensitivity has everything to do with the scale being used. Expand the scale and it becomes a lofty goal, decrease the scale and it becomes noise. Take out the straight ramp (should be a simple task for statistics) and then expand the scale to see the noise. Then compare the noise to other noise to see if the signals are related. Isn’t that the way science should be done?
More generally there is much lamenting and pointing-and-shrieking about diminishing respect for “experts”, but this is due to more than just their insufficient knowledge of their limitations, both economics and environmentalism are lousy with hidden political agendas.
What we are seeing is expert overreach caused by a lack of accountability.
Everyone should be familiar with the work of Philip Tetlock. He wrote “Expert Political Judgment: How Good Is It? How Can We Know?”. He uses decades of research to show that experts are no better at predicting the outcome of events than are dart-throwing monkeys.
Tetlock points out that experts are never held responsible for their lousy predictions. That’s the problem. If experts were held to account for their failed predictions, they would be a lot more circumspect.
+10
Will the MSM be held accountable for their “prediction” of a Hillary Clinton Presidency?
I’d hardly call the MSM “experts”.
What techniques did the author use to test the dart-throwing abilities of monkeys?
Economics has long been labelled the “dismal science”. This is hardly surprising. What is surprising is that it gets awarded a Nobel prize each year.
It’s not a Nobel prize, actually. The family has disassociated itself from the prize in fact..
In as much as Economics predicts both booms and busts for the economy and whereas Climate Science predicts doom for the entire planet unless mankind be culled to a seventh its current size, I move that Economics be stripped of its title the “Dismal Science” and that title be awarded to Climate Science. All in favor Harrumph . . . all opposed Neigh. The Harrumphs have it. Climate Science henceforth shall be addressed as the Dismal Science.
The Leftist paradigm is collapsing.
People are FINALLY realizing: Keynesian economics is a failed economic onstruct, you can’t spend yourself into prosperity, penalizing success ensures less success, government controlled economies fail, wealth redistribution through massive welfare Statism doesn’t work, $2 trillion/yr in regulation compliance costs stifles economic growth, war mongering is insane, Jihadism is a real thing, CO2 doesn’t warm the earth much, tribalism under identity politics is destructive, PC stifles free speech and new ideas, $20 trillion in national debt is bad, fiat currencies don’t work, zero-interest rate policies create economic bubbles, etc.
People are now more open to conservatism: smaller governments, less spending, balanced budgets, slashing excessive regulations, individual rights supersede collectivism, lower taxes, non-interventionism, free-market capitalism, gold-backed currencies, etc.
Rather than learning from their terrible mistakes, Leftists are doubling down on their failed ideas by increasing the scope of them: more spending, more regulations. higher taxes, open borders, expanding the welfare state, etc., which only makes matters worse..
Just give Leftists more rope and they’ll hang themselves with it.
Well put, Samurai, and I believe the Leftist have done so.
Talking leftists Tim Blair at the daily telegraph in oz has a statistic that 25% of leftists and greens are on medication for a mental disorder, his punch line “that means 75% of them are getting around untreated”
Is it? Berne Sanders’ existence and popularity among the under 30 crowd seems to be at odds with this claim.
Leftists have lost about 1,200 Federal & State Legislature seats, governorships and mayorships over the past 8 years, and are the weakest since the 1920’s.
You’re sadly right about Millennials, however, few of them actually know what Socialism means ideologically.
Most of reality is at odds with the under 30 crowd, which explains the Bernie’s popularity.
Don’t forget, barely over 50% of Americans voted. About 50% of them voted Democrat. Bernie generously had the support of about half of Democrats. So 12.5% of Americans thought Bernie’s stupid 1930’s solutions to 1960’s problems were “cool”. And most of them don’t vote regularly. It’s just a function of generational stupidity. Keep an eye on them though! Free basket weaving degrees! Cool!
Leftism has always been popular with the young.
It’s a function of the pre-frontal cortex not finishing it’s development until around age 25.
Beyond that, everything sounds good when it’s being preached to you by a college prof.
However once one enters the real world, reality quickly disproves the glorious theories.
SAMURAI, for most of them it means free stuff paid for by evil rich people.
So of course it’s popular.
Then they enter the work force and become one of those evil rich people.
Maybe there will be a trend toward Adam Smith economic thinking and the micro-economics of individuals.
Unfortunately, we may hang with them.
Heh. Great minds run in the same gutters.
Unfortunately, we will all hang together unless we hang them separately.
The quote from Ezra Solomon seems apposite, ““The only function of economic forecasting is to make astrology look respectable”
“The only function of economic forecasting is to make astrology look respectable”
First chuckle of the day.
make astrology look respectable
============
astrology is under-rated. not as practiced in horoscopes, but the underlying principle. where patterns in the heavens can be used to predict the future, even when cause and effect is not understood.
thus, for example, the seasons. these were predicted reliably long before we understood the mechanism. something that modern science ignores, in its insistence on mechanism as a condition of prediction.
I’ve been checking star charts through a whiskey glass. Saturn says there is no global warming ahead. Spread it around to the flaky crowd where that kind of message carries great weight. That’s about 90% of the AGW crowd. Should shut them up for a while.
‘Blaming the failure of economic models to cope with “irrational behaviour” in the modern era, the economist said the profession needed to adapt to regain the trust of the public and politicians.’
The easy answer, blame the subject of investigation, not yourself or your models.
The Brexit vote for those who lived through the hope of a secure European Common Market is eminently rational.
When young they supported the idea and praxis of free trade and mobile people with usable skills.
After the crash of the European banks and bailout of weaker economies in the PIGS, they looked on askance as Germany loaned weak economies at interest rates up to 22%, then charged countries to put the same
Euros into its banks.
Despite this Deutsche bank crashed;
http://www.spiegel.de/international/business/the-story-of-the-self-destruction-of-deutsche-bank-a-1118157.html
A splendid endorsement of the wisdom of Brexit.
The cohort of the young grew old and wise , saw the self destruction of the Eurozone,its manifest failure.
While they still could, they voted for personal, economic and national identity and self assurance.
The rest of the Anglophone supports them.
How can they lose.
How maturely rational.
blame the subject of investigation, not yourself or your models.
============
the Russians caused Hillary to be defeated. It had nothing to do with the DNC dirty tricks revealed by the emails.
In the meanwhile
http://img.yle.fi/uutiset/kotimaa/article9391034.ece/ALTERNATES/w960/tuulivoimakuva%20tuulivoima%20palaa%20tulipalo_MPP_20170106_D3B0357%20copy1920.jpg
More about it at http://yle.fi/uutiset/osasto/news/fires_strike_residential_buildings_wind_turbine/9391170
I am sure that will polish out, bit of t-cut, and she’ll be right!
That’s it. Burned to FUBAR and, yet, it’s as good as new. No impact on power supply.
This is sure to work http://guffsturdpolish.com/images/products/turdpolishSM.png
‘Firefighters watch windmill blaze’ not a completely wasted journey.
Why didn’t they just make it go to 11 so that it would blow out the fire? Stupids…
A burning windmill produces more energy than any other.
It’s generating excess power! Lol!
Climate Change: The infallible ideology. If it warms, cools, rains, or in drought it’s climate Change. Sea change is covered, the tide rises and falls twice a day. I just wish it was a horse for Christ sake, you couldn’t lose.
Especially if you start at Gallup Poll position.
Over-reliance on computer models where not all the variables are fully understood or even known, and sample data is too small or incorrect. But don’t let that stop people treating the output as fact.
Lawrence, I could not agree more. And to think that these same people take the average of an ensemble of 95 model outputs and believe that it has some sort of meaning.
…the chaos is a reflection of the process.