Why economists are not able to predict the global economic crisis - and why their support is still important for recovery
Most economists are not able to predict the worst economic crisis, since he 1930h. Now they can not agree about its permission. People begin to wonder: does how well you worked as an economist? One columnist recently wrote in a blog on the housing sector, economists forecast that the housing market were worse than the assumptions of their parents, have no special education. "If you, as an economist, did not notice the approximation of crisis, it is worth thinking seriously about the value of education, and perhaps do something more useful for society, for example, the collection of vegetables," - he writes. "Think about it, egghead! Go and sprygnite with the curve!
For the sake of justice is worth noting that the hope for is any kind of accurate prediction of the economic future of a priori futile. World too complex designed for this purpose. But thanks to the joint efforts of the economists should be able to warn of imminent danger. And if a disaster happens, they should know what to do. In fact, people pay attention to economists at the time just because of that, they believe, they know how to avoid a repeat of the Great Depression. However, after 70 years after the Depression, the economists have not agreed on what lessons should be learned. In recent weeks the controversy only increased. To combat the economic slowdown the Fed head Ben Bernanke, Finance Minister Timothy F. Gaytner and the head of the National Council for the Economic Development of Lawrence Summers provide an unprecedented package of financial incentives and take special measures in the field of monetary policy. If this will be achieved through sustainable recovery - and already there are some encouraging signs - they look like heroes. Nevertheless, at this point they have taken many policy measures are concerned, because of its size and scope, they transcend the limits of what has recently been trained, or intended to teach economists.
Economists blame that they are too cocky, far from reality and overly focused on politics. They claim to accuracy, but none of their original data or their knowledge can not guarantee anything like it. Too many people think that people act like the mythical man economically sensible "(homo economicus), rational thinking and all-knowing. And they are parties to the dispute, which only lock the research process. Those few who defy the traditional knowledge, simply ignored. Critics yazvyat. Nassim Nicholas Taleb, devoted to the study of random events, the author of "nicely left happenstance" (Fooled by Randomness) and "Black Swan" (The Black Swan) says: "There is a need to create a society independent of economists forecasts idiots." Financial expert Paul Uilmott, said: "The current economic models are awful. They do not take into account such important phenomena as the human factor." Yaruyu take into account the above criticisms, I would like not to pay attention to the profession. But do not go. First, in order to get out of this scrape and try to prevent a recurrence of the crisis, it is necessary to attract the best minds of generations. Macroeconomists, that is Those who specialize in studying business cycles and economic growth - are making a significant contribution. For example, a study in the 1970s, has helped many countries to get rid of chronic high inflation, stressing the need to establish a credible and independent central banks.
Even now, the vision of progress. Scientists of all stripes with a late try to accelerate the development of modern financial industry. Because they were taught to believe in the efficiency of financial markets, many economists have been unable to recognize the threat posed by poorly controlled mortgage lending, mired in debt and financial institutions to obscure the complex derivative instruments. "There was a good time for new ideas, as well as in the 1930h and the 1970s", - said Roger EA Farmer of the University of California, Los Angeles. Moreover, even if you doubt the importance of economists, they can not be discounted. Here's why: Any idea about this crisis is based on some assumptions about the mechanisms of the world. Realize you have it or not, but all these assumptions are made by a School of Economics. According to British economist John Maynard Keynes, "the practice, which sees itself as a nepodverzhennymi intellectual influences, are usually the slaves of an economist." Therefore, it is better to hope that one will make the job of economists to act together. Will not be easy, since the crisis sypet salt on old wounds. With his offensive resumed talks on a disputed macroeconomic issue, namely the ability of the public deficit spending (ie fiscal policy) to stimulate demand and to return people to work.
In January, a dispute broke out among the public about the financial policies following the statement made by Barack Obama: "There is no doubt that our government should take steps to develop a recovery plan, which will help to boost the economy." Some time later, about 250 economists, conservatives in the open letter published in leading newspapers, wrote: "With all respect to you, Mr. President, this is not true." David Kolander, an economist from the College Middelberi, which is also suspicious of the package of incentives, said: "This is a reasonable argument. Unwisely that we started it now, rather than tens of years ago. The most grievous sin of economists - arrogance. In the 1960s, free-market economist Milton Friedman has convinced virtually all of the profession that the Great Depression was the result of the actions of the Fed. Perhaps, it is understood that when a more effective policy of the Fed, led by economists, it would avoid a repetition. Bernanke then described in his speech on the ninetieth Friedman, the role of the Fed in the coming Depression. He told Friedman: "You are right, this is our fault. We are very sorry. But you do not happen again." Famous words.
Confident in the power of the Fed, economists for the most part, stopped the study in the use of fiscal policy to fight recession or depression. Moreover, the recession attacked less and were not so deep - the so-called "great calm" (Great Moderation). So who needs a boost? Javier Gabaiks, an economist from New York University, said: "A year ago, if you're talking about the optimal financial policy, your views would call obsolete." The commitment of leading economists established traditions are also reflected in their unwillingness to see bubbles in the housing market and stock markets. Former Fed Chairman Alan Greenspan denied any possibility of a bubble in the housing market because housing was not a unified market. He also shrugged off the inventions such as the Wall Street derivatives. Only last year, he admitted that was wrong. He told the Senate that he was shocked to discover "crack" in his ideology, and added: "For 40 years I was completely sure that it works just perfectly."
Politicians have exacerbated the difficulties. To get started, you can divide the macroeconomists into account their concerns about economic instability. One group, committed to the ideas of Keynes, concerned about the endless recession, after which the economy is on the bottom. In doing so, it is impossible to avoid such a collapse. Members of this group argue that the Government needed to break the downward spiral, taking tough measures, such as those that exist in the United States now - lower interest rates and increased government spending. The group includes Paul Krugman, an economist at Princeton University and Nobel laureate; Nuriel Rubin of New York University, predicted onset of a deep recession, and Robert J. Shiller, the predicted collapse of the housing market and the collapse of stock sektora.Drugie technological economists more sure that the economy is stabilizing. In their view, the low interest rates and deficit spending does not yield the desired result and lead to the formation enormous debt. These include Robert Barro of Harvard, Robert E. Lucas Jr., of Chicago, Edward Prescott of the University of Arizona, Patrick J. Kehou from the University of Minnesota, and VV Chari. Not surprisingly, the Republicans hold the teachings of the "balance", while the Democrats were in favor of intervention. Before the crisis, it seemed that economists will be able to resolve their differences. In the first edition of the textbook "Macroeconomics" (2006), Krugman wrote that "little secret of modern macroeconomics is that, whether economists reach agreement over the past 70 years."
Today, much worse. On the one hand, Krugman says: "Really a shame that we have to lose precious months, returning to the disputes that were resolved 70 years ago." On the other hand, John H. Kokreyn from the University of Chicago Keynes denies the proposed incentives, arguing: "The professional economists, the guys with whom I socialize and enjoy the ideas of ancient keynsianstva no more than the physics of the teachings of Aristotle, if they can not understand how fast the universe is increasing." There are those who took an intermediate position, such as Michael Vudford of Columbia University, and argue that macroeconomists use a methodology to ask questions. But even Vudford agrees that "the controversy is not very conducive to the association."
The most mild criticism of the macroeconomists is the fact that they were not able to predict the recession, despite many warnings. According to a study by Blue Chip Economic Indicators, in early September 2008. average forecast for growth in the fourth quarter was 0.2%. In fact, the productivity of the economy for the year fell by 6.3%. It was not a wing, and from the Fed. In July of 2008. Central Bank officials had planned that in the fourth quarter of 2008. the unemployment rate will reach 5.5 - 5.8%. In fact, it was 6.9%. Their forecast for the fourth quarter of 2008. Prepared, at the same time, amounted to 5.2 - 6.1%. Today, unemployment stands at 8.5%, and according to most forecasts by the end of 2009. it has reached two-point. Now that the financial policy of re-discuss, economists argue about the extent of the wave effect - or "multiplier" - from increasing government spending. Economists-intervention supporters think that the factors are increasing, decreasing performance when the economy - that is now happening. According to the report dated April 15, the Fed does not use a third of the production capacity of manufacturing, the highest level since 1948.
Obama Administration believes that the fiscal policy on track. As the head of the National Council on Economic Development Summers Maria Bartiromo, the program will allow the introduction of incentives "to make consumers more active." "A few months ago there were no positive signs." Christina D. Romer, chief economic adviser to Obama and the researcher of Depression, in March said that "at some point in time recovery will happen by itself." Until that time, she said, the government must show the utmost attention "to ensure the stabilization of the private sector." Other economists say that increased public spending may in fact exacerbate the situation surrounding employment in the private sector. In a March 30 meeting of the Council on Foreign Relations Lucas (Chicago) called the policy of multiplying "a kind of shock the economy." The point is that even supporters of the package of incentives can not be sure it will work. After World War II, many economists feared that because of reduced military spending growth will stop. Sivel Averi, head of Montgomery Ward, was so alarmed by the postwar depression, which refused to open new stores. Economists are still not sure why he was not human, so they can not exactly say whether the package will put an end to the financial incentives that a recession or just suspend it. "Can increasing funding to ensure sustainable recovery, or are you just trying to buy time?" - Asked Krugman, who advocated the introduction of financial incentives coupled with decisive action to restore the banks. How can we move forward? Once the crisis is overcome, macroeconomists will need to rebuild the vitality of the economy - enough to cope with the errors of future politicians, bankers and economists. Taleb, studying the impossibility of forecasting, said that the vitality of nature is achieved through redundancy, which economists thought would be useless: two hands, two eyes, etc. Blake LeBaron of the University of Brendis proposes to prevent major crises, allowing for minor variations, the same way that the foresters use controlled burning to avoid the growth of flammable undergrowth. Perhaps from the ashes left after the collapse, will be more qualified representatives of the macroeconomic profession.
Peter Koym
By The Business Week
Most economists are not able to predict the worst economic crisis, since he 1930h. Now they can not agree about its permission. People begin to wonder: does how well you worked as an economist? One columnist recently wrote in a blog on the housing sector, economists forecast that the housing market were worse than the assumptions of their parents, have no special education. "If you, as an economist, did not notice the approximation of crisis, it is worth thinking seriously about the value of education, and perhaps do something more useful for society, for example, the collection of vegetables," - he writes. "Think about it, egghead! Go and sprygnite with the curve!
For the sake of justice is worth noting that the hope for is any kind of accurate prediction of the economic future of a priori futile. World too complex designed for this purpose. But thanks to the joint efforts of the economists should be able to warn of imminent danger. And if a disaster happens, they should know what to do. In fact, people pay attention to economists at the time just because of that, they believe, they know how to avoid a repeat of the Great Depression. However, after 70 years after the Depression, the economists have not agreed on what lessons should be learned. In recent weeks the controversy only increased. To combat the economic slowdown the Fed head Ben Bernanke, Finance Minister Timothy F. Gaytner and the head of the National Council for the Economic Development of Lawrence Summers provide an unprecedented package of financial incentives and take special measures in the field of monetary policy. If this will be achieved through sustainable recovery - and already there are some encouraging signs - they look like heroes. Nevertheless, at this point they have taken many policy measures are concerned, because of its size and scope, they transcend the limits of what has recently been trained, or intended to teach economists.
Economists blame that they are too cocky, far from reality and overly focused on politics. They claim to accuracy, but none of their original data or their knowledge can not guarantee anything like it. Too many people think that people act like the mythical man economically sensible "(homo economicus), rational thinking and all-knowing. And they are parties to the dispute, which only lock the research process. Those few who defy the traditional knowledge, simply ignored. Critics yazvyat. Nassim Nicholas Taleb, devoted to the study of random events, the author of "nicely left happenstance" (Fooled by Randomness) and "Black Swan" (The Black Swan) says: "There is a need to create a society independent of economists forecasts idiots." Financial expert Paul Uilmott, said: "The current economic models are awful. They do not take into account such important phenomena as the human factor." Yaruyu take into account the above criticisms, I would like not to pay attention to the profession. But do not go. First, in order to get out of this scrape and try to prevent a recurrence of the crisis, it is necessary to attract the best minds of generations. Macroeconomists, that is Those who specialize in studying business cycles and economic growth - are making a significant contribution. For example, a study in the 1970s, has helped many countries to get rid of chronic high inflation, stressing the need to establish a credible and independent central banks.
Even now, the vision of progress. Scientists of all stripes with a late try to accelerate the development of modern financial industry. Because they were taught to believe in the efficiency of financial markets, many economists have been unable to recognize the threat posed by poorly controlled mortgage lending, mired in debt and financial institutions to obscure the complex derivative instruments. "There was a good time for new ideas, as well as in the 1930h and the 1970s", - said Roger EA Farmer of the University of California, Los Angeles. Moreover, even if you doubt the importance of economists, they can not be discounted. Here's why: Any idea about this crisis is based on some assumptions about the mechanisms of the world. Realize you have it or not, but all these assumptions are made by a School of Economics. According to British economist John Maynard Keynes, "the practice, which sees itself as a nepodverzhennymi intellectual influences, are usually the slaves of an economist." Therefore, it is better to hope that one will make the job of economists to act together. Will not be easy, since the crisis sypet salt on old wounds. With his offensive resumed talks on a disputed macroeconomic issue, namely the ability of the public deficit spending (ie fiscal policy) to stimulate demand and to return people to work.
In January, a dispute broke out among the public about the financial policies following the statement made by Barack Obama: "There is no doubt that our government should take steps to develop a recovery plan, which will help to boost the economy." Some time later, about 250 economists, conservatives in the open letter published in leading newspapers, wrote: "With all respect to you, Mr. President, this is not true." David Kolander, an economist from the College Middelberi, which is also suspicious of the package of incentives, said: "This is a reasonable argument. Unwisely that we started it now, rather than tens of years ago. The most grievous sin of economists - arrogance. In the 1960s, free-market economist Milton Friedman has convinced virtually all of the profession that the Great Depression was the result of the actions of the Fed. Perhaps, it is understood that when a more effective policy of the Fed, led by economists, it would avoid a repetition. Bernanke then described in his speech on the ninetieth Friedman, the role of the Fed in the coming Depression. He told Friedman: "You are right, this is our fault. We are very sorry. But you do not happen again." Famous words.
Confident in the power of the Fed, economists for the most part, stopped the study in the use of fiscal policy to fight recession or depression. Moreover, the recession attacked less and were not so deep - the so-called "great calm" (Great Moderation). So who needs a boost? Javier Gabaiks, an economist from New York University, said: "A year ago, if you're talking about the optimal financial policy, your views would call obsolete." The commitment of leading economists established traditions are also reflected in their unwillingness to see bubbles in the housing market and stock markets. Former Fed Chairman Alan Greenspan denied any possibility of a bubble in the housing market because housing was not a unified market. He also shrugged off the inventions such as the Wall Street derivatives. Only last year, he admitted that was wrong. He told the Senate that he was shocked to discover "crack" in his ideology, and added: "For 40 years I was completely sure that it works just perfectly."
Politicians have exacerbated the difficulties. To get started, you can divide the macroeconomists into account their concerns about economic instability. One group, committed to the ideas of Keynes, concerned about the endless recession, after which the economy is on the bottom. In doing so, it is impossible to avoid such a collapse. Members of this group argue that the Government needed to break the downward spiral, taking tough measures, such as those that exist in the United States now - lower interest rates and increased government spending. The group includes Paul Krugman, an economist at Princeton University and Nobel laureate; Nuriel Rubin of New York University, predicted onset of a deep recession, and Robert J. Shiller, the predicted collapse of the housing market and the collapse of stock sektora.Drugie technological economists more sure that the economy is stabilizing. In their view, the low interest rates and deficit spending does not yield the desired result and lead to the formation enormous debt. These include Robert Barro of Harvard, Robert E. Lucas Jr., of Chicago, Edward Prescott of the University of Arizona, Patrick J. Kehou from the University of Minnesota, and VV Chari. Not surprisingly, the Republicans hold the teachings of the "balance", while the Democrats were in favor of intervention. Before the crisis, it seemed that economists will be able to resolve their differences. In the first edition of the textbook "Macroeconomics" (2006), Krugman wrote that "little secret of modern macroeconomics is that, whether economists reach agreement over the past 70 years."
Today, much worse. On the one hand, Krugman says: "Really a shame that we have to lose precious months, returning to the disputes that were resolved 70 years ago." On the other hand, John H. Kokreyn from the University of Chicago Keynes denies the proposed incentives, arguing: "The professional economists, the guys with whom I socialize and enjoy the ideas of ancient keynsianstva no more than the physics of the teachings of Aristotle, if they can not understand how fast the universe is increasing." There are those who took an intermediate position, such as Michael Vudford of Columbia University, and argue that macroeconomists use a methodology to ask questions. But even Vudford agrees that "the controversy is not very conducive to the association."
The most mild criticism of the macroeconomists is the fact that they were not able to predict the recession, despite many warnings. According to a study by Blue Chip Economic Indicators, in early September 2008. average forecast for growth in the fourth quarter was 0.2%. In fact, the productivity of the economy for the year fell by 6.3%. It was not a wing, and from the Fed. In July of 2008. Central Bank officials had planned that in the fourth quarter of 2008. the unemployment rate will reach 5.5 - 5.8%. In fact, it was 6.9%. Their forecast for the fourth quarter of 2008. Prepared, at the same time, amounted to 5.2 - 6.1%. Today, unemployment stands at 8.5%, and according to most forecasts by the end of 2009. it has reached two-point. Now that the financial policy of re-discuss, economists argue about the extent of the wave effect - or "multiplier" - from increasing government spending. Economists-intervention supporters think that the factors are increasing, decreasing performance when the economy - that is now happening. According to the report dated April 15, the Fed does not use a third of the production capacity of manufacturing, the highest level since 1948.
Obama Administration believes that the fiscal policy on track. As the head of the National Council on Economic Development Summers Maria Bartiromo, the program will allow the introduction of incentives "to make consumers more active." "A few months ago there were no positive signs." Christina D. Romer, chief economic adviser to Obama and the researcher of Depression, in March said that "at some point in time recovery will happen by itself." Until that time, she said, the government must show the utmost attention "to ensure the stabilization of the private sector." Other economists say that increased public spending may in fact exacerbate the situation surrounding employment in the private sector. In a March 30 meeting of the Council on Foreign Relations Lucas (Chicago) called the policy of multiplying "a kind of shock the economy." The point is that even supporters of the package of incentives can not be sure it will work. After World War II, many economists feared that because of reduced military spending growth will stop. Sivel Averi, head of Montgomery Ward, was so alarmed by the postwar depression, which refused to open new stores. Economists are still not sure why he was not human, so they can not exactly say whether the package will put an end to the financial incentives that a recession or just suspend it. "Can increasing funding to ensure sustainable recovery, or are you just trying to buy time?" - Asked Krugman, who advocated the introduction of financial incentives coupled with decisive action to restore the banks. How can we move forward? Once the crisis is overcome, macroeconomists will need to rebuild the vitality of the economy - enough to cope with the errors of future politicians, bankers and economists. Taleb, studying the impossibility of forecasting, said that the vitality of nature is achieved through redundancy, which economists thought would be useless: two hands, two eyes, etc. Blake LeBaron of the University of Brendis proposes to prevent major crises, allowing for minor variations, the same way that the foresters use controlled burning to avoid the growth of flammable undergrowth. Perhaps from the ashes left after the collapse, will be more qualified representatives of the macroeconomic profession.
Peter Koym
By The Business Week
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