Real, meaningful, and major differences in economical views are re-emerging?

[crazy canuck]

Not if nobody's around to see it.

Season 1 (I think episode 2) of the Dr. Who reboot proves you wrong.

[fhdz]

You don't really see black swans in the economy though.  Maybe the only one I can think of in recent years is the fallout from the 9-11 attacks.

O_O 9/11. The tsunami. Deepwater Horizon. How deeply the Euro crisis would affect the global economy. That's just off the top of my head.

[Neil]

You don't really see black swans in the economy though.  Maybe the only one I can think of in recent years is the fallout from the 9-11 attacks.

O_O 9/11. The tsunami. Deepwater Horizon

9-11 I mentioned.  I just don't think that the natural disasters or the oil spill had an especially major impact.

How deeply the Euro crisis would affect the global economy. That's just off the top of my head.

No, that was extremely predictable.  That's like saying that the subprime meltdown was a black swan.

[frunk]

They were both black swans for a lot of people who went about their business ignoring the problems, even if it was directly related to the issues.

[Jacob]

You don't really see black swans in the economy though.  Maybe the only one I can think of in recent years is the fallout from the 9-11 attacks.

O_O 9/11. The tsunami. Deepwater Horizon. How deeply the Euro crisis would affect the global economy. That's just off the top of my head.

If a major corporation - much less a government - doesn't have risk management programs in place for those sort of eventualities then they're not doing significant risk management at all IMO.

I mean my wife is doing her actuarial exams, and one of the assignments is advising a grocery chain on how to manage risks in the eventuality of a major pandemic.

You can't necessarily predict if and when a pandemic will hit (or other natural catastrophes), but you certainly can assess the risk and plan to mitigate them.

And yeah, if you don't prepare for systemic failures like the Euro crisis then you're not managing risk at all.

[Razgovory]

You don't really see black swans in the economy though.  Maybe the only one I can think of in recent years is the fallout from the 9-11 attacks.

That's the thing about black swans.  You don't see them coming up.  You only rationalize them in hindsight.

[Neil]

You don't really see black swans in the economy though.  Maybe the only one I can think of in recent years is the fallout from the 9-11 attacks.

That's the thing about black swans.  You don't see them coming up.  You only rationalize them in hindsight.

Yeah, but if you think about the economic crisis, everyone knew that it was going to happen except for the suckers who were being played by their bankers.

[Razgovory]

Incidently, I'm reading the Black Swan right now.  I just got it in the mail the other day.  It is interesting.

[The Minsky Moment]

1) no amount of risk management can properly account for black swans. That's why they're black swans; they're unknown unknowns, to steal Rummy's poetry. You can mitigate some things - maybe even most things - but some things are unforseeable and potentially worse than could be forseen.

Black swans are not the issue - capitalist economies don't experience financial crises because of unexpected, extreme low probability events; rather capitalist economies are inherently prone to cycically recurring financial crises.  It is a certainty that it will happen; the only uncertainty is the precise timing of a severe experience.  Risk management can be used to mitigate the impact of such events but only if the proper incentives are in place to do so. 

Pretty much all future-regarding economic activity - whether characterized as investment or speculation - involves consideration and analysis of "unknown unknowns" - which is a big reason why the RE framework and DSGE models don't work except under conditions of relative stablity.  Ie even something really basic like figuring out cash flows from Project X in year 4 involves considering potentially infinite variety of factors many of which there is just zero tangible information to support; the mainstream framework however in effect treats this as a simple pre-determined probability model akin to predicting the relative probabilities and outcomes of  roulette wheel spins.  Keynes pointed all this out decades ago, but that aspect of his work was mostly ignored until recently.  For a more contemporary take try: http://www.amazon.com/Beyond-Mechanical-Markets-Asset-Swings/dp/0691145776

[fhdz]

Thanks for that, Joan. That's something to chew on.

[Martinus]

Speaking of which (and as a good illustration how things changed, which kinda supports Tamas's original point), I wanted to go to The Economist's website and typed in http://theeconomist.com/

Irony does not begin to describe it. 

[Martinus]

No. Coddled western societies have allowed themselves to indulge in idiotic philosophizing and politicizing when real economics keep paying for their societies.

We, the grown ups, are paying for the idiots who keep increasing in number. We are not getting differing economic views. We are rather coming to a point where the effects of the abdication of responsibility for the economy by the masses is being noticed by the masses.

I think the big question is if the masses will acquire economic literacy by learning from others or if they will acquire it by learning from experience.

Wait wait...what is this historical epic when the masses were savvy with economics and ran the economy?

The epoque with the economics savvyness of the people is the one immediately following an economic catastrophy or an economic miracle. Edwardian Englishmen were dogmatic free traders, post-WWII Germans were dogmatic sound moneyists.

It's not really an golden age of economic literacy, but I suggest that economic literacy is a function of recent economic change.

We are not entering an age where an alternative to liberal free market economics is being proposed, rather that were are in a situation where there is anger at the inability of the market to provide the value that people have assumed would be provided.

Uhm, you do realize that recessions and depressions did happen before WW2, and they were much more painful/destructive than what we have now, right?

[Martinus]

I don't think that there actually are real and/or meaningful differences.  There is a school of thought that represents the best of what we currently know about macroeconomics, and there is a brand of charlatanism being pushed by people who profit from that charlatanism being thought of as a legitimate economic theory.

Would you mind expanding on this?

It seems to me in a very general way that two things can be stated about economies:

1) no amount of risk management can properly account for black swans. That's why they're black swans; they're unknown unknowns, to steal Rummy's poetry. You can mitigate some things - maybe even most things - but some things are unforseeable and potentially worse than could be forseen.

2) economic strategies that work well in bullish markets may not be the same strategies that work well in bearish ones...and the strategies that seem to work acceptably in either may not work at all in a complete unforseen catastrophe. See #1. If anything, the turbulent nature of the global economy is at least itself a partial endorsement of *both* laissez-faire notions and at least somewhat Keynesian interventionism, depending on the market conditions at the time - and also depending on the muscularity of the regulations in place.

I think the recent years simply show that ultimately we have no idea. The global economy is a confidence game with a nearly countless number of actors. I think advanced physics would describe it better than any actual economic theory. This confidence has now largely evaporated and hence we are seeing a downturn even though most likely people today are not less productive than they were 5 years ago.

People in the streets and elsewhere panicking because politicians seem to have no way to stop this, and I don't think they will have. We just need to wait until the turbulences stop. For now it's a free fall.

[Martinus]

You don't really see black swans in the economy though.  Maybe the only one I can think of in recent years is the fallout from the 9-11 attacks.

O_O 9/11. The tsunami. Deepwater Horizon. How deeply the Euro crisis would affect the global economy. That's just off the top of my head.

If a major corporation - much less a government - doesn't have risk management programs in place for those sort of eventualities then they're not doing significant risk management at all IMO.

I mean my wife is doing her actuarial exams, and one of the assignments is advising a grocery chain on how to manage risks in the eventuality of a major pandemic.

You can't necessarily predict if and when a pandemic will hit (or other natural catastrophes), but you certainly can assess the risk and plan to mitigate them.

And yeah, if you don't prepare for systemic failures like the Euro crisis then you're not managing risk at all.

Yeah, that's the cause of the current pain. Not that the crisis happened, but because so many institutions were completely careless during the fat years and just thought it will continue indefinitely (I read recently that apparently a lot of major corporations slashed pension funds of their employees during the era, because they were "too big" as stock prices rose exponentially - this, not the crisis, is a reason why many people are now left with no pension.)

[Tamas]

I think the recent years simply show that ultimately we have no idea. The global economy is a confidence game with a nearly countless number of actors. I think advanced physics would describe it better than any actual economic theory. This confidence has now largely evaporated and hence we are seeing a downturn even though most likely people today are not less productive than they were 5 years ago.

People in the streets and elsewhere panicking because politicians seem to have no way to stop this, and I don't think they will have. We just need to wait until the turbulences stop. For now it's a free fall.

Yes. I think it is ridicoulous to think that local national tinkering with economic policies can have a guaranteed effect in today's world. They just make things worse, as they pump up false confidence and in turn reckless risk-taking which is bound to fail.

Regulations are powerful tools for politicans and their allies in the financial world to get unfair advantage over the rest. They should be minimized, not extended.