Emanuel Derman FTW
Tyler Cowen linked to this symposium in the Guardian on Piketty’s success. Emanuel Derman’s response is awesome; here’s the latter half:
[Economists] can’t agree on the efficacy of money printing or austerity. They keep changing their minds every few years about conventional wisdom while at every instant appearing to be certain that they are right. My gripe with economists is not that their models don’t work well – they don’t, look at the role of central banks in the financial crisis – but that they seem so reluctant to acknowledge the riskiness of their advice. And yet, beware their fearsome unelected power. Anyone visiting from Mars last year and asking to be taken to our leader would undoubtedly expect to meet Bernanke.
As a result their public arguments have an incestuous yet masturbatory quality that is exhausting to follow. The only field more self-confidently but just as regularly wrong as economics is nutrition, whose recommendations to shun butter/margarine or red meat/carbohydrates regularly reverse themselves.
Natural scientists (physicists, chemists, biologists) have had frightful power, and not always used it well. But at least they can more or less agree about truth and efficacy. Economists cannot, except by using statistical regressions which are often flawed and prove little.
So I cannot currently bring myself to read over 600 pages by an economist. One day I do hope to read Piketty’s book.
Heidi Moore asked Emanuel Derman why a book he hasn’t read is a bestseller. He presented her with a rant about economics in general. Oddly, his view of economics is somewhat similar to Piketty’s:
“To put it bluntly, the discipline of economics has yet to get over its childish passion for mathematics and for purely theoretical and often highly ideological speculation, at the expense of historical research and collaboration with the other social sciences. Economists are all too often preoccupied with petty mathematical problems of interest only to themselves. This obsession with mathematics is an easy way of acquiring the appearance of scientificity without having to answer the far more complex questions posed by the world we live in. There is one great advantage to being an academic economist in France: here, economists are not highly respected in the academic and intellectual world or by political and financial elites. Hence they must set aside their contempt for other disciplines and their absurd claim to greater scientific legitimacy, despite the fact that they know almost nothing about anything.”
Oh I just reminded myself of my joke about the influence of Marx on Piketty. Well I thought it was funny:
https://www.facebook.com/photo.php?fbid=773984999278905&set=a.201680776509333.52342.100000022373084&type=1
Had me guessing to the very end.
Too funny! It must be prefaced with a warning -I got close to throwing up due to the physiological effects of its exemplary humor.
That Piketty could write that with a straight face speaks volumes.
I think there is a methodological problem, centered around overfitting of data from prior events. It’s very easy to fall into this trap, particularly in social sciences, statistics, climate, finance, and machine learning. I’ve read defenses of varying macro approaches which eschew universal, timeless laws in favor of a custom, boutique approach to address “this” specific economic period, where we have throw away the previous approach because it only addressed the last, totally different economic period. Leaving aside the major, obvious epistemological concerns, we’ve now got the significant problem of identifying and classifying these various periods: are they global or merely regional, when exactly do they begin and end, what is the transition like, how do we know when we’ve entered a new period, and how do we know if this new period is brand new or previously classified. This is an invalid approach and unscientific to boot.
Hayek had it right with identifying scientism and the curious task of economics.
Piketty is better than Marx. At least Piketty admitted he doesn’t understand economics.
Marx couldn’t refute the teachings of the classicals using reason, so he attacked reason itself.
Here’s a mathematician complaining about too much weight on invalid mathematics employed by economists, having observed the Krugman Keen Kerfuffle http://www.advisorperspectives.com/newsletters12/An_Attack_on_Paul_Krugman.php
Why the book’s so popular of course, is obvious-it’s a way for the leftist Democrat media to get out the white, educated, upper class to lower middle-class vote. It was an implicit (and inevitably false) promise that, as the Republicans have failed to expropriate the expropriators, the Democrats surely will do so. Piketty’s book is a sort of intellectual armor-its sheer weight is meant as a bulwark against Republican intellectual arguments and as a standard for the Party of Elizabeth Warren.
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 and physics. 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 to be 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.
The failure of any macroeconomic theory to predict makes all of those theories useless. It is laughable that support for some theories comes from what supposedly didn’t happen. The US government spent $800 billion in “economic stimulus”, and proof of its good effect is supposedly that the recession wasn’t worse. There remains no official prediction of the following dismal unemployment rate or slow growth in GDP. All we have are possible explanations of the past given after the fact. That is narrative, story telling, apology, not science.
Some economists spin theories which would supposedly help if government executed the resulting policies, but governments don’t do it the right way. But, these economists fail to predict what the result of of the bad policies is in detail, except that some good result supposedly didn’t happen.
The real purpose of macroeconomics seems to be to give politicians a justification to spend more money on the projects of their cronies and supporters. Is there a theory which calls for less government spending and lower taxes?
There is such a naive theory. We look at the productivity of private companies compared to the productivity of publicly supported ones, and we see that the private ones are more productive. Yet, the popular macro theories all prescribe through complex mathematics that we are really better off taking resources from private businesses and giving those resources to the government to spend wisely. These theories say that we are multiples better off. Politicians love these theories and always want to give them a try.
It is all summed up by three words: The fatal conceit.
If people wonder what the fatal conceit actually looks like as a picture. Here is one example:
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/04/forward%20guidance.JPG
Just a few more months we’ll muddle through don’t worry we’re all dead in the long run haha.
With enough muddling, the long run may not be so long off after all..
I wonder how they get those sophisticated looking wiggles into these projections, seems like they draw them just by freehand. It’s not as if if would change anything anyway, does it?
Can I ask what exactly you like about this? It seems like a pretty standard rant from someone that doesn’t want to take the time to actually understand the discussion or the claims.
My gut reaction was “he’s clearly an intelligent guy – likely natural science or engineering training with some sort of narrow economics experience that he has improperly analogized to the natural sciences that leads him to dismiss the whole field”. (Which would be quite a resume for someone imploring others to be less self-confident).
After googling “Emanuel Derman” it looks like I’m exactly right. I’ve heard of his book before but didn’t know the author. You can get versions of this criticism much better argued from people that actually work in the science and don’t say ridiculous things like “They keep changing their minds every few years about conventional wisdom”.
So what is it you like about this exactly?
“…someone that doesn’t want to take the time to actually understand the discussion or the claims.”
How would you know that? Just because he doesn’t want to engage the Piketty discussion, doesn’t mean he didn’t do his homework with any other topic regarding economics before.
Of course that doesn’t change that it is just a rant, but you can’t just conclude that he doesn’t understand any of it, just because he has no PHD in economics..
“…has improperly analogized (economics) to the natural sciences…”
I thought that is the actual problem mainstream economics suffers in general…
Hmmm.
You really have no reason to jump to “because he has no PhD in economics” as an explanation. I don’t have a PhD in economics, after all. Lots of insightful people don’t.
Granted I didn’t give you my reasons but I can now. After reading his piece that’s my judgment. My judgment is based on his characterizations and how he handled his characterization of the claims of economics.
re: “I thought that is the actual problem mainstream economics suffers in general…”
I think you’re wrong on that.
It looks like it was you who jumped to conclusions. You wrote:
“My gut reaction was “he’s clearly an intelligent guy – likely natural science or engineering training with some sort of narrow economics experience…”
And then “After googling “Emanuel Derman” it looks like I’m exactly right. … You can get versions of this criticism much better argued from people that actually work in the science…”
So you obviously brought his school/career up und therefore jumped to conclusions that he doesn’t know what he is talking about. Also with PHD I basically meant formal economic education (with or without PHD at the end). And I am sure you are working on your PHD, or aren’t you?
“I think you’re wrong on that.”
Fed forward guidance on feds fund rate doesn’t look like you are right with that.
Don’t get me wrong, “taking the time to actually understand the discussion or the claims” is correlated with various degree levels. If you’re going to put time into thinking about this you might as well get a credential for it (though there are costs to that decision too), and to continue in formal education you have to work at not understanding the discussion or else you tend to get tossed out (I suppose some really brilliant people can fake it here and there).
So there’s a correlation. But it’s not a perfect correlation. And it certainly wasn’t a standard that I ever used.
Daniel when Krugman said we had re-entered a “Dark Age of Macro” did you get mad at him? Derman is saying (in more exaggerated humorous form) stuff that I have been saying for years. Obviously I personally haven’t changed my views but then again the paleo diet guy hasn’t changed his nutrition views either. But to the average person it looks like economists keep flip flopping, whereas that’s not how physicists or chemists appear.
I believe physicists and chemists do change their views. The raging debates about black holes have been settled. Quarks are accepted now. Super symmetry is dying.
You are boasting about a weakness.
Impatient, nothing you said contradicts what I said. Harry Truman never said he wanted a one-armed physicist on his staff. The public doesn’t know which physicists believe in string theory.