6 Jul 2012

Economists vs Weather Forecasters

Why did god make economists?

To make weather forecasters look good.
Imagine that I am a weather forecaster. I use a mathematical model to predict the weather. But weather is very complex and so I make some assumptions.

Firstly I notice that the total amount of rain is the same as the amount of water put into the atmosphere by evaporation and transpiration. The nett water flow is zero. So I assume that water does not play an active role my model. Similarly wind movements do not change the total amount of air, so I assume that overall it is not important.

In terms of climate I make an arbitrary decision that climate is just big weather. I ignore the way that changes of scale affect how systems behave. And I also assume that weather will tend towards equilibrium that the amount of water in the air, and air movements due to pressure changes will settle down and stay the same unless acted on by an external force (such as an asteroid striking the earth).

The model I produce is a reasonably complex series of algebraic equations that can be handled by a moderately powerful computer.

Would you trust my weather forecasts? Or would you think I was delusional? Would you not point that that when water accumulates it can have dramatic effects such as floods? Would you not point out that localised air movements from tornadoes to hurricanes are actually quite important features of weather? Would you not think that global climate is different from local weather since it covers longer time frames and is on an entirely different scale? And would you not point out that the idea of weather stabilizing at an equilibrium is patently ridiculous, that everyone knows that the weather is inherently unstable and very difficult to predict? Would you not point out that weather and climate modelling can only be done on the worlds most powerful supercomputers and is still far from 100% reliable? Would you not call me a fool?

And economists? Well they have mathematical models too. In these models they see that debt is also credit and cancels out, so it isn't included in their models. They assume that banks are merely passive mediums of money exchange. They assume that the macro-economy is simply a scaled up micro-economy, and that like a simple supply and demand relationship the economy is always seeking equilibrium. In these models consumers are assumed to have perfect knowledge for making decisions, including perfect knowledge of the consequences of their actions, and that masses of people behave no differently from this perfect individual.

It's all patently idiotic. One doesn't have to be an economist to understand that this approach simply cannot work. And it becomes more clear why this approach has not worked. The models will never work. The number of completely insupportable assumptions make it a certainty that they will only ever be right by accident.

Here's Steve Keen explaining it to a group of economists. And note that Unlearning Economics would probably find my analysis overly simplistic: How Not to Criticise Economics.

Now these people, directly or through back seat driving, have repeatedly driven the economy into a ditch. And yet they still clutch the wheel and claim to be doing, and refuse to let anyone else have a go. They seem sincere in their belief that they're continued mayhem is the best that anyone could do under the circumstances. And yet a few marginalised economist who are more willing to ask questions, have made accurate predictions of the present crisis. These people were prescient enough to see the crisis coming, and to write and publish books on the subject. The present crisis was foreseen, it was avoidable, and there is another way. But politicians still have their heads in the sand.
We have to tell our politicians that time is up for economists of the Neo-Classical bent. We need a better model. Better models are available. I have my preferences, but I think the first step is an acknowledgement of failure by the current lot, then a public debate about alternatives, where we can let people, like Steve Keen, like Ann Pettifor, like Joseph Stilitz, like Michael Hudson be heard. Then use democracy to make a choice and give it a generation to make a difference, and then have a review.


  1. There are some wierd white blanks on this post on my computer.

    I wanted to point out that 'Positive Money' website hs a great 3 minute clip whic h succinctly explains how private banks create money out of nothing etc... They recomend trying to educate your local MP who probably has an incorrect understanding of how banks work (as did I and a few other people I tested this out on). They recomend that this simple action (seeing or e-mailing yout MP and requesting that they watch the clip is a good start). Anyway I did that. I guess if lots of people do it then something might start to change.

    Unfortunately i keep coming across the view that the citizen cannot change anything in politics. My own reflection is that up until this week I (and presumably millions of other people) have never actually tried!!!).

  2. White was because I copied that text and the formatting came with it.

    Yes. The money supply is arcane. Lots of people don't understand the difference between printing money to give to banks, and wealth required to buy services like NHS, Police, Army etc.

    Politicians, especially conservative politicians, control the cognitive map. One of my explicit goals is to challenge this! We are 50 Million adults in the UK, and if we all moved together they would have to do whatever the fuck we told them to!

  3. On point. I remember economists making almost exactly this point about derivatives in 2007: they cancel out, so no problem.

    Janet Tavakoli pointed out Michael Lewis repeating this error in her article called "michael lewis, junior salesgirlyman" or something like that. I can find the link if you can't. On HuffPo ~2010 I believe.


Keep is seemly & on-topic. Thanks.