When an analyst is "shocked", is that usually a good sign?

[Beet]

No.

[King]

I find analysts to be easily shocked.

[memphis]

I find analysts to be easily shocked.

This is because they are almost always wrong. Especially economic soothsayers.

[Stranger in a strange land]

I find analysts to be easily shocked.

This is because they are almost always wrong. Especially economic soothsayers.

Academics as a whole get so wrapped up in their paradigms that it's hard for them to imagine that the world can operate in other ways.

[politicus]

More often than not.

[Gustaf]

The economy cannot be predicted, pretty much by definition. There is nothing wrong with economists who predict things wrongly.

[Beet]

I mean this as more than just economically. For example, when a law professor is "shocked" about Obama's comments on judicial review. Or, a former colleague is "shocked" that the special prosecutor in Florida is skipping a grand jury. Etc. etc.

I would put "shocked" in the same category as "confused." Nominally they can either be positive or negative, and are technically neutral, but in practice, "confused" often means "boneheaded, but can't say that on the record" and "shocked" means the same thing. I mean, if your best friend was arrested for walking down the street with his private parts sticking out and a reporter asked you about it, what would you say? You were "shocked."

[memphis]

The economy cannot be predicted, pretty much by definition. There is nothing wrong with economists who predict things wrongly.

If, by definition, something cannot be predicted, why would somebody try to predict it?

[Gustaf]

The economy cannot be predicted, pretty much by definition. There is nothing wrong with economists who predict things wrongly.

If, by definition, something cannot be predicted, why would somebody try to predict it?

Perhaps I should have qualified my statement. Some things can of course be predicted. Like, I can predict that China's GDP per capita relative to that of the US will be higher in 20 years than it is now. Or I can predict that the US debt will be higher next year because there will still be a deficit this year. Stuff like that.

But things that one makes money out of can't be predicted. Which is why few real economists do that. Of course, if someone pays you to make up predictions there is every incentive to do so. But thoe guys who make a living out of doing that on tv typically don't know as much as they pretend to.

[Torie]

No, it is a bad sign if they are competent analysts, who know how to measure uncertainty. It suggests an omega event, like the aftermath of Lehman Bros., which next to nobody predicted (almost all the financial institutions in US and Europe essentially failed, and were rendered insolvent).

[tpfkaw]

The economy cannot be predicted, pretty much by definition. There is nothing wrong with economists who predict things wrongly.

If, by definition, something cannot be predicted, why would somebody try to predict it?

Perhaps I should have qualified my statement. Some things can of course be predicted. Like, I can predict that China's GDP per capita relative to that of the US will be higher in 20 years than it is now. Or I can predict that the US debt will be higher next year because there will still be a deficit this year. Stuff like that.

But things that one makes money out of can't be predicted. Which is why few real economists do that. Of course, if someone pays you to make up predictions there is every incentive to do so. But thoe guys who make a living out of doing that on tv typically don't know as much as they pretend to.

That's actually the Austrian position you just took, y'know...

[Gustaf]

The economy cannot be predicted, pretty much by definition. There is nothing wrong with economists who predict things wrongly.

If, by definition, something cannot be predicted, why would somebody try to predict it?

Perhaps I should have qualified my statement. Some things can of course be predicted. Like, I can predict that China's GDP per capita relative to that of the US will be higher in 20 years than it is now. Or I can predict that the US debt will be higher next year because there will still be a deficit this year. Stuff like that.

But things that one makes money out of can't be predicted. Which is why few real economists do that. Of course, if someone pays you to make up predictions there is every incentive to do so. But thoe guys who make a living out of doing that on tv typically don't know as much as they pretend to.

That's actually the Austrian position you just took, y'know...

Eh...how so?

[tpfkaw]

Eh...how so?

That it's impossible to create an accurate economic model because the economy is far too complex and has too many variables to model with any degree of certainty.

(This is apparently an outrageous proposition to some folks, even though it's essentially chaos theory).

[Beet]

No one claims they have an economic model that can produce absolute accuracy.

[tpfkaw]

No one claims they have an economic model that can produce absolute accuracy.

But plenty of people claim they have economic models that produce high levels of accuracy for years or even decades on end, which would have you laughed out of the room at a meteorological conference, for example.

I'd also point out I never said anything about "absolute accuracy," but whatever.

[Beet]

No one claims they have an economic model that can produce absolute accuracy.

But plenty of people claim they have economic models that produce high levels of accuracy for years or even decades on end, which would have you laughed out of the room at a meteorological conference.

All economic models are estimates. If anyone claims that their economic model takes into account all possible factors, and that adherence to it is equivalent to a sort of natural law, then they deserve to be laughed at. But most economic models are simply best-guesses based on some selected variables deemed to be the most likely to be significant.

No, you never said anything about "absolute accuracy." But that's part of the problem; terms like "any degree of certainty" (what counts as a degree of certainty? yes it's a manner of speech, but an uncertain and ambiguous one), or "accuracy" or a "high level" of something are inherently subjective. No one is denying the riskiness of the future; that is not a uniquely Austrian position.

Just the other day I was having a discussion with an Austrian about the price Apple charges for its iPhones. I pointed out that 51% of the iPad 3's cost is actually Apple profits (which judging by their $100 billion cash stockpile and recently announced dividend, they have no useful purpose for), 56% for the iPad 2, whereas only 2% was the cost of Chinese labor. I said that whether one considers that fair or not is inherently subjective, and he said yes, that is the Austrian position. As if by agreeing that price is subjective, I have binded myself to it. No, not at all. It is subjective, and in my mind, subjectively injustified, and thus pressure on Apple to raise wages is justified. But that was a different matter...

[tpfkaw]

Meteorologists have access to highly-accurate measurements of thousands of different variables, worldwide, in real time.  With this information, they are able to predict certain the values of certain variables (high/low temperature, humidity, dewpoint, etc.) in a given location for up to about 7 days.  After 7 days, the prediction of even the most sophisticated meteorological model loses any statistically-significant relation with reality.  Economists have access to questionable estimates of a few hundred different variables, in certain jurisdictions, months after the fact.  With this they claim they can predict the workings of the global economy for years or even decades.  This is blatant pseudoscience of the highest order.  It is mathematically impossible for any economic model to have any real predictive power (any data is too old to have predictive power for future data, and in any case even real-time data could only be useful for a matter of days).  Any accurate "modelling" would simply be the statement of a pseudo-tautology:  "When it's humid, it's likely to rain," would be a meteorological equivalent.

[Torie]

Meteorologists have access to highly-accurate measurements of thousands of different variables, worldwide, in real time.  With this information, they are able to predict certain the values of certain variables (high/low temperature, humidity, dewpoint, etc.) in a given location for up to about 7 days.  After 7 days, the prediction of even the most sophisticated meteorological model loses any statistically-significant relation with reality.  Economists have access to questionable estimates of a few hundred different variables, in certain jurisdictions, months after the fact.  With this they claim they can predict the workings of the global economy for years or even decades.  This is blatant pseudoscience of the highest order.  It is mathematically impossible for any economic model to have any real predictive power (any data is too old to have predictive power for future data, and in any case even real-time data could only be useful for a matter of days).  Any accurate "modelling" would simply be the statement of a pseudo-tautology:  "When it's humid, it's likely to rain," would be a meteorological equivalent.

Time horizons matter. Accuracy in both economics and meteorology dramatically improves the shorter the time horizon. Random/the lower odds outcome, future events have a cumulative effect over time.

[Gustaf]

Eh...how so?

That it's impossible to create an accurate economic model because the economy is far too complex and has too many variables to model with any degree of certainty.

(This is apparently an outrageous proposition to some folks, even though it's essentially chaos theory).

Oh. That's just because they don't really understand modern economics.

I haven't studied Austrian economics that much (I have better things to do) but I think what they claim is very different from what I claim.

My claim is simply that future movements of things like stock prices are based on everyone's predictions. Predicting stock prices is predicting what others will predict that others will predict...that can by definition not really be done accurately.

Economic theory is hardly tautological, since a lot of people don't accept even basic concepts of it. Still, a lot of it has considerable empirical support.

[Torie]

Economics teaches that future stock prices are unpredictable, around an expected trend line that goes up (if the expected trend line was going down, spot prices of course would go down until the trend line regained an upslope, since nobody invests for expected negative returns - except of course government, e.g. Solyndra). Having said that, behaviorists suggest certain additional complexities, but I digress.

[Beet]

Government faces the same risks and rewards as anybody else. The fact that government suffers losses (Solyndra) doesn't make it any worse than any private sector actor that occasionally suffers losses. The main difference is that economics does not allow for consideration of distributional questions, while such questions are at the center of governmental behavior.

[Torie]

Government faces the same risks and rewards as anybody else. The fact that government suffers losses (Solyndra) doesn't make it any worse than any private sector actor that occasionally suffers losses. The main difference is that economics does not allow for consideration of distributional questions, while such questions are at the center of governmental behavior.

Yes, but anyone underwriting a loan to Solyndra would have realized they would not get their money back. It was that bad. In another instance, the feds lent money to an outfit that had never sold a product (and no prospect that they ever will), then they sold some product to their Canadian subsidiary, and got a subsidy for doing that.  It seems that their main "product" is their political connections to the government.

[TJ in Oregon]

Social science field models are nearly always awful at predicting future events.

[memphis]

Government faces the same risks and rewards as anybody else. The fact that government suffers losses (Solyndra) doesn't make it any worse than any private sector actor that occasionally suffers losses. The main difference is that economics does not allow for consideration of distributional questions, while such questions are at the center of governmental behavior.

Yes, but anyone underwriting a loan to Solyndra would have realized they would not get their money back. It was that bad.

As opposed to Countrywide's subprime loans from 2006?

[TJ in Oregon]

Government faces the same risks and rewards as anybody else. The fact that government suffers losses (Solyndra) doesn't make it any worse than any private sector actor that occasionally suffers losses. The main difference is that economics does not allow for consideration of distributional questions, while such questions are at the center of governmental behavior.

Yes, but anyone underwriting a loan to Solyndra would have realized they would not get their money back. It was that bad. In another instance, the feds lent money to an outfit that had never sold a product (and no prospect that they ever will), then they sold some product to their Canadian subsidiary, and got a subsidy for doing that.  It seems that their main "product" is their political connections to the government.

There is an underlying problem somewhat specific to the solar energy field. Solar technology is very much still in the experimental stages and one its biggest problems is durability, which is very difficult to test in a lab. If you want to see if a solar panel will last 1, 5, 10, or 20 years before the efficiency starts to fall apart, the best way to test it would be to wait 1, 5, 10, or 20 years, but that's not practical because people want to buy stuff now. So what ends up happening is the company (in this case Solyndra) slaps a 15 year warranty on the thing, sells it anyway and just accepts that if the panels don't last 15 years they'll be out of business anyway and it won't matter. Then the company declares bankruptcy, folds, and the people who pushed it leave for another company.