Rizzo on Cochrane

Mario Rizzo

Mario Rizzo

Several days ago I highlighted John H. Cochrane’s critique of modern macroeconomics.

In today’s Wall Street Journal Austrian Economist Mario J. Rizzo provides an excellent comment on Cochrane’s defense of modern modeling techiniques.

“Mr. Cochrane’s excessive scientism is on display when he pooh-poohs Paul Krugman’s critique regarding the “haze of equations” that has become standard in this field. Apparently Mr. Cochrane is worried that economics might become “ephemeral” like philosophy. I would welcome the ephemerality of Plato, Aristotle, Aquinas, Hume, Kant, Wittgenstein and so on.”

Prof. Mario J. Rizzo

New York University

New York

Comments

  1. For some, if i make a good point into equations i am a scientist, that is to say I am wrong or stupid, but if i make the same point into sentences then I am a good thinker. Go figure.

  2. Physicists have given mathematics a good name. It seems that equations can predict everything because they predict so much about the physical world. But, this is a shallow understanding of math. Physicists have carefully investigated the predictions made by their equations and have thrown out all of the “non-physical” results. Math predicts physics only because physicists have thrown away all of the math and interpretations which turned out wrong.

    In particular, equations do not care about cause and effect, and it is easy to manipulate some equations and then interpret them as saying that the effect produces the cause.

    This is common in economics, where biased economists compute some result and then proclaim that it must be correct because the equations say so. The worst offender is Keynesian economics. The Kenesian spending multiplier comes from reversing cause and effect.

    In reality, the more complicated the math and the more factors which go into it, the more likely that it is wrong.

    Frank J. Tipler is Professor of Mathematical Physics at Tulane University.
    Macroeconomics is Astrology, Not Science   [edited]
    === ===
    Our leaders are being advised by macroeconomists who haven’t got a clue where they are leading us. Their actions may lead us out of the current recession, or they may lead us into a depression as bad as the Great Depression.

    Science is about prediction and precise explanation. It is not enough to construct a different explanation about each past event. Science must produce a consistent, precise explanation for all of the relevant past events.

    Then, real science predicts the future and is testable according to those predictions. If a “science” cannot predict what will happen, then it is clear that it does not understand enough about what is going on, and of course it is of no practical use in arranging for a better life.

    Real scientists bend over backwards to make their data, methods, and results available for review and criticism. This corrects for personal bias, and allows for quickly sorting out the truth. A true scientist tries to examine all possible explanations for his results, before believing that his new analysis is correct.
    === ===

    We don’t know what the effect of the “stimulus” was, because our government did not give details ahead of time, about what would be helped and how much. We only have the fact that Obama’s economic advisors predicted 8% unemployement and got 10%. Then, they offered the excuse that these things are hard to predict.

    It is easy to do things at random that happen to give you power, then claim the world is complicated and would be even worse without your actions. Anyone can say that at any time.

    Where is the government’s analysis and economic models for public examination? Public policy is vastly more important than the average science experiment. Public policy transfers money and changes lives. We should expect our politicians to develop sound policy and then reveal the details so that we can agree or criticise.

    Let’s see Bernanke’s and Krugman’s spreadsheets, detailed models, and quantitative predictions up front. Otherwise, they are merely gambling with our society based on guesses, not observed and predictable results.

    Of course everything is unexpected. The Obama team has extracted a huge flow of resources from the economy (from the people who produce something). The Obama team “expected” that our huge, wonderful economy would take it in the gut, grunt, and then stand up and smile. “Unexpectedly” it is still lying on the ground in pain. Obama’s prescription is to bleed it some more.

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