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  1. #11
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    Quote Originally Posted by dala View Post
    I would say that economics is almost entirely bullshit. Some of the theories may be relevant in extremely simple situations, or in a world with perfect information or (actually) rational actors, but by and large it just plain doesn't predict, explain, or proscribe solutions for legitimate and important economic problems. There are too many actors and many variables that we're trying too hard to fit into a simple curve, and everyone's pretending that the outliers are not also the important events.

    I feel your assessment of the situation is poor. If what you state were true, psychology would be invaluable because you cant see the mind.

  2. #12
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    Quote Originally Posted by dala View Post
    I would say that economics is almost entirely bullshit. Some of the theories may be relevant in extremely simple situations, or in a world with perfect information or (actually) rational actors, but by and large it just plain doesn't predict, explain, or proscribe solutions for legitimate and important economic problems. There are too many actors and many variables that we're trying too hard to fit into a simple curve, and everyone's pretending that the outliers are not also the important events.
    What you are describing is correct, yet governments and economic advisers continue to try to convince the public that they know what they're doing and that they are in control. Look at the response to the banking crisis: Gordon Brown portrayed himself as the saviour of the world, Barak Obama also interviened, bailing out failing companies. Yet in reality they had no clue this was going to happen until it happened. Even now they pretend to understand its causes blaming greedy bankers and planning on yet more intervention and regulation instead of just letting the market take its course.

  3. #13
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    Quote Originally Posted by SD45T-2 View Post
    It's not supposed to. The classical definition of economics is the study of scarce resources that have alternative uses.

    "Virtually everyone agrees on the importance of economics, but there is far less agreement on just what economics is. Among the many misconceptions of economics is that it is something that tells you how to make money or run a business or predict the ups and downs of the stock market. But economics is not personal finance or business administration, and predicting the ups and downs of the stock market has yet to be reduced to a set of dependable principles." - Thomas Sowell in Basic Economics (third edition)
    You're describing only basic microeconomics. Even back in the 18th century economics was generally used to develop theories on how market economies worked and find ways to increase aggregate economic growth. Anyway, economics tends to describe even the topics you mentioned poorly and incompletely, using axioms that are provably and fatally incorrect and just generally not taking human nature into account.

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    Quote Originally Posted by jontherobot View Post
    I feel your assessment of the situation is poor. If what you state were true, psychology would be invaluable because you cant see the mind.
    I'm sorry, I don't follow your line of thought. Could you elaborate?

  5. #15
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    Quote Originally Posted by dala View Post
    I'm sorry, I don't follow your line of thought. Could you elaborate?

    I think i may have used the word invaluable incorrectly, lol.

    I meant that psychology would have no value, not that it would be beyond value.


    What i was getting at is that psychology and economics are two similar fields of study. Both deal with relative intangible concepts and solutions, both are highly subjective, both take more forces into account than the average manipulator can assess for... yet psychology is useful.

    Hopefully i did a better job this time.

  6. #16
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    Quote Originally Posted by Valis View Post
    What you are describing is correct, yet governments and economic advisers continue to try to convince the public that they know what they're doing and that they are in control. Look at the response to the banking crisis: Gordon Brown portrayed himself as the saviour of the world, Barak Obama also interviened, bailing out failing companies. Yet in reality they had no clue this was going to happen until it happened. Even now they pretend to understand its causes blaming greedy bankers and planning on yet more intervention and regulation instead of just letting the market take its course.
    I agree and disagree. It was partly a regulation failure, partly an information failure, and largely a failure to account for human nature. Asset backed securities allowed for a perfect storm wherein very few people knew what the hell they were doing, even though it was their job to know. The few that knew were either complicit, deliberately driving the bus off a cliff for personal gain, or simply recognized that they could not rectify the situation and went along to save their own skins.

    Ideally, the bank should carry the risk of having a mortgage on its books. They have direct contact with the borrower, they make the decision to give the loan, and by carrying that risk they reduce the chance of default because it is in their interest to do so. When the banks realized that they could sell that risk, it created a perverse incentive to accept un-credit-worthy borrowers. Once one banker realized that they got more commission or a promotion or a raise when they did this, it simultaneously made other bankers who did not look worse. This carried through to organizations as well; if one bank did not accept sub-prime mortgages, then their books suffered. Their stock lost value, and their managers got fired. As such, upper management had a perverse incentive to allow the loans to go through. They felt that their hands were tied.

    Then there were the ABCPs. The papers were designed to be difficult to understand. They were bundled mortgages bundled with more bundles of mortgages, and really not possible to break down. The rating agencies fell asleep at the wheel (understandably, because their paycheck came from the people they were rating), so subprime loans were rated quite highly. The people who bought them should have done their due diligence, but it was pretty much impossible to do so due to the complexity of the instruments, and, like the bankers, they felt compelled to jump on the bus or risk losing their jobs.

    Basically, it is understood that it is better to fail together than to stand alone and be right. Any banker who refused to write the mortgages, anyone in upper management who stopped the practice, anyone at a rating agency who blew the whistle, and anyone responsible for trading in the securities risked their livelihood by not playing this game. No one wanted to hear that it would cause problems, because people were making money hand over fist.

    Proper regulation could have prevented it. Self-regulation could not, because there are too many incentives not to do the right thing.

    As to a solution, I don't have one.

  7. #17
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    Quote Originally Posted by jontherobot View Post
    I think i may have used the word invaluable incorrectly, lol.

    I meant that psychology would have no value, not that it would be beyond value.


    What i was getting at is that psychology and economics are two similar fields of study. Both deal with relative intangible concepts and solutions, both are highly subjective, both take more forces into account than the average manipulator can assess for... yet psychology is useful.

    Hopefully i did a better job this time.
    Much clearer thanks

    I agree that they both suffer from some of the same drawbacks, but they are different in that you can effectively test individual psychological phenomena in a meaningful way (in a controlled setting), whereas is is extremely difficult to test individual economic phenomena without taking into account the whole landscape.

    For instance, if I want to know how to know how people react to Pavlovian triggers, then I can do a controlled, double-blind study. If, once the study is complete, there will be outliers (those who don't react to the bell), but the vast majority will react in a similar way, and from there you can give a generalized conclusion that is meaningful, if incomplete.

    In economics, I can test some things in a similar way. I can take a box of cereal, and offer it to group 'a' at price 'x' and group 'b' at price 'y', and determine that product's price elasticity, and this may give a producer some limited information. However, in economics housing prices increase and wages stagnate and interest rates go down all at once, and all or none of those things could change the elasticity of my products price. Everything is so interconnected to the point that a small change trickles down through the whole system. You increase interest rates, which increases the value of the dollar, which reduces tourism and manufacturing, which results in higher unemployment, resulting in fewer people being able to purchase a luxury product at a higher price, and that is just the most superficial layer of what really happens at each of those steps. You also have to take into account how independent the central bank is, the political climate, available natural resources, economic considerations in other countries, taxation, who your trading partners are, ad nauseum. Isolating variables in all but the most basic of basic experiments (most of which have no bearing on the real world) is impossible.

    I suspect that, in the future, we will be able to use computer modeling to more accurately examine what happens if you chance just one variable (without it cascading and changing everything else). However, I suspect we will be limited in this due to individual human behaviour, since that is hard to program in without actually measuring it first, which would be a monumental undertaking.

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