Queen Elizabeth joins the macro debates

Mario Rizzo attempts to answer a Mother (Queen, that is) question of why economists can’t predict.

He gives a good summary of the state of the art (or non-art) in economics. A big element of the answer is that economists study the wrong things — themselves, their models, themselves, etc.  In a way, Rizzo says that economists don’t know enough about things outside economics that affect real-world economies.  Nassim Taleb said the analogous thing about philosophers and philosophy.

Rizzo also makes an interesting reference to those who “dance on the grave” of the Efficient Markets Hypothesis.  I agree in part.

EMH is like Murphy’s Law (“If something can go wrong, it will”).  EMH says if a profit can be made, it will; and financial market prices will reflect all the collective effort to get profits.

In the case of Murphy, it too can go wrong when folks work smart or hard enough to control quality, which is what “ordinary business” (remember good Alfred, Marshall that is) is all about.

In the case of EMH, it can go wrong when enough people are irrational, but there are too few rational ones who are sure enough that they can take advantage of the former.  Why can’t the rational ones be sure enough?  Because economists can’t predict.  Ahah!


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s