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February Low Economic Content Thread February Low Economic Content Thread

02-03-2010 , 10:59 PM
Old news for you, but this just in: Econ sub-forum is occasionally great.
Thx for the legwork.
02-04-2010 , 04:02 PM
Interesting essay on praxeology vs. positive economics:

http://mises.org/daily/4061
02-04-2010 , 04:09 PM
Quote:
Wednesday's big events provided a study in contrasts between production and predation. Barack Obama, the orator and politician, talks about hope and change. Steve Jobs, the innovator and capitalist, delivers it.
Lines that will be lost to history but shouldn't be ignored.
02-04-2010 , 06:32 PM
Quote:
Originally Posted by Borodog
Interesting essay on praxeology vs. positive economics:

http://mises.org/daily/4061
Milton Friedman's quote sounds a little less crazy in context.

Quote:
The two stages of constructing hypotheses and testing their validity are related in two different respects. In the first place, the particular facts that enter at each stage are partly an accident of the collection of data and the knowledge of the particular investigator. The facts that serve as a test of the implications of a hypothesis might equally well have been among the raw material used to construct it, and conversely. In the second place, the process never begins from scratch; the so-called “initial stage” itself always involves comparison of the implications of earlier set of hypotheses with observation; the contradiction these implications is the stimulus to the construction of new hypotheses or revision of old ones. So the two methodologically distinct stages are always proceeding jointly.

Misunderstanding about this apparently straightforward process centers on the phrase “the class of phenomena the hypothesis is designed to explain.” The difficulty in the social sciences of getting new evidence for this class of phenomena and of judging its conformity with the implications of the hypothesis makes it tempting to suppose that other, more readily available, evidence is equally relevant to the validity of the hypothesis - to suppose that hypotheses have not only “implications” but also “assumptions” and that the conformity of these “assumptions” to “reality” is a test of the validity of the hypothesis different from or additional to the test by implications. This widely held view is fundamentally wrong and productive of much mischief. Far from providing an easier means for sifting valid from invalid hypotheses, it only confuses the issue, promotes misunderstanding about the significance of empirical evidence for economic theory, produces a misdirection of much intellectual effort devoted to the development of positive economics, and impedes the attainment of consensus on tentative hypotheses in positive economics.

In so far as a theory can be said to have “assumptions” at all, and in so far as their “realism” can be judged independently of the validity of predictions, the relation between the significance of a theory and the “realism” of its “assumptions” is almost the opposite of that suggested by the view under criticism. Truly important and significant hypotheses will be found to have “assumptions” that are wildly inaccurate descriptive representations of reality, and, in general, the more significant the theory, the more unrealistic the assumptions (in this sense). 12 The reason is simple. A hypothesis is important if it “explains” much by little, that is, if it abstracts the common and crucial elements from the mass of complex and detailed circumstances surrounding the phenomena to be explained and permits valid predictions on the basis of them alone. To be important, therefore, a hypothesis must be descriptively false in its assumptions; ittakes account of, and accounts for, none of the many other attendant circumstances, since its very success shows them to be irrelevant for the phenomena to be explained.

To put this point less paradoxically, the relevant question to ask about the “assumptions” of a theory is not whether they are descriptively “realistic,” for they never are, but whether they are sufficiently good approximations for the purpose in hand. And this question can be answered only by seeing whether the theory works, which means whether it yields sufficiently accurate predictions. The two supposedly independent tests thus reduce to one test.
Basically, what he is talking about is building hypotheses that predict economic phenomena and not ones that explain economic phenomena. This is how economists and political scientists are able to make forecasts about the future.

For example, I am currently trying to build a model to predict the box office. You tell me how to do that using praxeology? My model uses past polling data and variables I think causal and correlated with the weekend box office. Some of the variables turned out to not be true or at least not statistically significant. Some variables seem to be causal but don't help the model in its accuracy.

My model makes some wild inaccurate assumptions. That weather around the country is the same or doesn't matter for every movie (I have no variable for that), that reviews do not matter (or at least not the score derived from RottenTomatoes).

It's not that these variables do not matter, or do not help to explain what may be affecting the box office (I blame the blizzard for my inaccurate prediction of Avatar) for example. It's that these variables are either useless or do not do a good job of explaining the observed data compared to other data I may have.
02-04-2010 , 08:18 PM
Quote:
Originally Posted by The 13th 4postle
Milton Friedman's quote sounds a little less crazy in context.



Basically, what he is talking about is building hypotheses that predict economic phenomena and not ones that explain economic phenomena. This is how economists and political scientists are able to make forecasts about the future.
Uh huh. Like the perpetual rise of housing prices. Mainstream economic models are not "hypotheses".

Quote:
For example, I am currently trying to build a model to predict the box office. You tell me how to do that using praxeology?
You tell me how to unclog my toilet with quantum mechanics first. Seriously, wtf.

Quote:
My model uses past polling data and variables I think causal and correlated with the weekend box office. Some of the variables turned out to not be true or at least not statistically significant. Some variables seem to be causal but don't help the model in its accuracy.

My model makes some wild inaccurate assumptions. That weather around the country is the same or doesn't matter for every movie (I have no variable for that), that reviews do not matter (or at least not the score derived from RottenTomatoes).

It's not that these variables do not matter, or do not help to explain what may be affecting the box office (I blame the blizzard for my inaccurate prediction of Avatar) for example. It's that these variables are either useless or do not do a good job of explaining the observed data compared to other data I may have.
Great. This isn't economics. Economics is the study of how people allocate scarce resources to achieve their chosen ends, not predicting the length of next years hem lines. And last time I checked, nobody is using your box office model to destroy the economy of the world via horrendously bad policy recommendations and econovoodoo justifications thereof.
02-04-2010 , 09:00 PM
Quote:
Originally Posted by Borodog
Uh huh. Like the perpetual rise of housing prices. Mainstream economic models are not "hypotheses".
There were plenty of other economists and traders that predicted the housing bubble along with Austrians. No doubt their were different models and different predictions for what would happen in the housing industry and those that did better at predicting had a better hypothesis.

Quote:
Originally Posted by Borodog
You tell me how to unclog my toilet with quantum mechanics first. Seriously, wtf.
Thanks for making my point. Austrian economics has done almost nothing in the way of mathematics to try and support their theories or ideas. Just proclaim them to be logically sound and voila!

Quote:
Originally Posted by Borodog
Great. This isn't economics. Economics is the study of how people allocate scarce resources to achieve their chosen ends, not predicting the length of next years hem lines. And last time I checked, nobody is using your box office model to destroy the economy of the world via horrendously bad policy recommendations and econovoodoo justifications thereof.
What I'm doing is an example of how one could analyze the economy and economic interactions. What I am doing is just specific for the box office. Concerning positive economics

Quote:
it deals with “what is,” not with “what ought to be.” Its task is to provide a system of generalizations that can be used to make correct predictions about the consequences of any change in circumstances. Its performance is to be judged by the precision. scope, and conformity with experience of the predictions it yields. In short, positive economics is, or can be, an “objective” science, in precisely the same sense as any of the physical sciences.
Problems in our financial system are due to normative economics not positive economics. The belief that the government should subsidize homeownership to better the economy, the belief that interest rates should be kept really low for really long when data supports higher interest rates keeping easy credit in check, etc, etc....
02-05-2010 , 09:48 PM
This guy:



Says I'm still partying at 33 Liberty street!!!



NYFRB Press Release: Jamie Dimon and Jeffrey B. Kindler Reelected New York Fed Directors
Quote:
February 5, 2010 NEW YORK—Jamie Dimon, chairman, president and chief executive officer of JPMorgan Chase, has been reelected a Class A director and Jeffrey B. Kindler, chairman and chief executive officer of Pfizer, has been reelected a Class B director of the Federal Reserve Bank of New York. Mr. Dimon has been serving as a Class A director since January 2007 and Mr. Kindler has been serving as a Class B director since October 2009. Mr. Dimon and Mr. Kindler will be serving new three-year terms ending December 2012.

Mr. Dimon became JPMorgan Chase’s chairman of the board in January 2007
, following his appointment as chief executive officer on January 2006. He also assumed the title of president upon the company’s merger with Bank One Corporation in July 2004.
...

The board of directors of the Federal Reserve Bank of New York consists of nine members, three of whom are appointed by the Board of Governors of the Federal Reserve Systems as class C directors. The remaining six (three class A and three class B directors) are elected by member banks in the Second Federal Reserve District. Class A directors are drawn from among the banking community. Class B & C directors are individuals chosen from professions outside the banking community and typically represent business, industry, agriculture, labor and consumers.
============



Yup, don't mess with the BIG DOG, especially one with a hand on the "printing press." Is it really any wonder how he "slaughters" everybody else?

02-05-2010 , 09:49 PM
Quote:
Originally Posted by The 13th 4postle
Austrian economics has done almost nothing in the way of mathematics to try and support their theories or ideas.
I think you have may have it backwards. This *is* what Austrians do. They use econometrics/modeling to elucidate concepts.

Contrast this with more mainstream economics, where the approach is more about deriving theory from mathematics/modeling.

He was a brilliant mind (although perhaps slightly less than a pleasant fellow), but Paul Samuleson (along with Kenneth Arrow and others) have done more to totally screw up economics.
02-05-2010 , 10:19 PM
I'm watching this speech right now by Tom Woods, and he talks a bit about Paul Samuelson.
02-06-2010 , 05:30 AM
Via Jesse- CFR with an LDO



Quote:
"The Federal Reserve plans to stop buying securities issued by government housing loan agencies Fannie Mae and Freddie Mac by the end of the first quarter.

This is not only likely to push up mortgage rates; Treasury rates should rise as well. Throughout 2009, the private sector sold a portion of their agency holdings to the Fed and used those funds to buy Treasurys.

Once the Fed’s agency purchases stop, this private sector portfolio shift will end, removing a major source of demand in the Treasury market.

As the chart shows, since the start of 2009 the Fed has bought or financed the entire increase in Treasury issuance. As Fed purchases slow and Treasury issuance continues at a high level, interest rates will have to move up to attract new buyers."
=================

If you don't know why even CFR talking about this is something here is sorta what the naysayers say about CFR:

Quote:
Controversy

The Council has been the subject of debate, as shown in the 1969 film The Capitalist Conspiracy by G. Edward Griffin, the 2006 film by Aaron Russo, America: Freedom to Fascism and a 2007 documentary Zeitgeist, the Movie.

This is partly due to the number of high-ranking government officials in its membership, along with world business leaders, its secrecy clauses, and the large number of aspects of American foreign policy that its members have been involved with, beginning with Wilson's Fourteen Points. Wilson's Fourteen Points speech was the first in which he suggested a worldwide security organization to prevent future world wars.[6]

The John Birch Society believes that the CFR is "[g]uilty of conspiring with others to build a one world government...".[30]

Historian Carroll Quigley, who was the official historian for the CFR, "became well known among those who believe that there is an international conspiracy to bring about a one-world government. In his book Tragedy and Hope, he based his analysis on his research in the papers of an Anglo-American elite organization that, he held, secretly controlled the U.S. and UK governments through a series of Round Table Groups. The Round Table group in the United States was the Council on Foreign Relations. ... Conspiracy theorists assailed Quigley for his approval of the goals (not the tactics) of the Anglo-American elite while selectively using his information and analysis as evidence for their views."[31]
http://en.wikipedia.org/wiki/Council...ns#Controversy

As you can probably guess CFR was/is a pumper of the "OMG China saved too much" casual explanation.
02-06-2010 , 02:48 PM
Quote:
OMG China saved too much
This always cracks me up.
02-06-2010 , 03:10 PM
Quote:
Originally Posted by J.R.
I think you have may have it backwards. This *is* what Austrians do. They use econometrics/modeling to elucidate concepts.

Contrast this with more mainstream economics, where the approach is more about deriving theory from mathematics/modeling.

He was a brilliant mind (although perhaps slightly less than a pleasant fellow), but Paul Samuleson (along with Kenneth Arrow and others) have done more to totally screw up economics.
Which Austrians are using econometrics and modeling?
02-06-2010 , 03:19 PM
Quote:
Originally Posted by Borodog
This always cracks me up.
ZOMG doncha know savings = destruction?????///???

Paradox of thrift imo.
02-07-2010 , 12:39 PM
02-07-2010 , 01:11 PM
Quote:
Originally Posted by The 13th 4postle
Which Austrians are using econometrics and modeling?
Paul Cwik for one?
02-07-2010 , 01:17 PM
Quote:
Originally Posted by Borodog
Paul Cwik for one?
And what do you think of his work?
02-07-2010 , 02:26 PM
It's very interesting stuff. He's a personal friend of mine. Before I moved up to NoVa, we used to talk about economics virtually every Sunday before heading out swing dancing. He thanked me in one of his papers a couple of years ago. He publishes the Distress Index for FEE (Foundation for Economic Education). In his dissertation he developed a model to explain the normal slope of the yield curve and why it inverts before a recession. In a recent paper he shows how, from a corporate finance angle, the liquidation phase of the business cycle is necessary to reset the economy on a solid growth trajectory (as opposed to simply explaining the business cycle through the upper turning point, the traditional Austrian strong point).
02-07-2010 , 02:54 PM
Quote:
Originally Posted by Borodog
It's very interesting stuff. He's a personal friend of mine. Before I moved up to NoVa, we used to talk about economics virtually every Sunday before heading out swing dancing. He thanked me in one of his papers a couple of years ago. He publishes the Distress Index for FEE (Foundation for Economic Education). In his dissertation he developed a model to explain the normal slope of the yield curve and why it inverts before a recession. In a recent paper he shows how, from a corporate finance angle, the liquidation phase of the business cycle is necessary to reset the economy on a solid growth trajectory (as opposed to simply explaining the business cycle through the upper turning point, the traditional Austrian strong point).
The distress Index looks pretty interesting. I kind of agree about the liquidation phase of a recession resetting the economy. Lots of companies laid off many employees that weren't efficient anymore. No doubt many have found other ways to cut costs. Now companies across the country are leaner and stronger and poised to make even higher profits if demand grows to previous levels.
02-08-2010 , 02:35 PM
I just send in a few emails through Downsize DC to support Ron Paul's bill on legalizing competing currencies.
02-09-2010 , 10:22 AM
"Citi plans crisis derivatives"

What could possibly go wrong?
02-09-2010 , 02:39 PM
Quote:
Originally Posted by ErikTheDread
"Citi plans crisis derivatives"

What could possibly go wrong?
The end is awesome.

Quote:
...only the government can cover unlimited losses
02-09-2010 , 10:39 PM
Not much time, but here's a couple China links I've run across:

China's debt bomb

Quote:
By their carelessness Congress and the Obama administration are steadily handing over control of America's economic and financial future to a handful of Chinese officials and generals in Beijing.
Quote:
But many at the Pentagon are starting to realize that, thanks to our growing fiscal irresponsibility, we may be surrendering control of America's destiny to a rival superpower -- and all without a shot being fired.
Quote:
Indeed, back in 1999, the Chinese literally wrote the book on how to use economic asymmetries as a blunt instrument, entitled "Unrestricted Warfare."

It draws no meaningful distinction between military, economic and political force (including using cyberspace) as means to defeat an enemy. Instead, it shows how a nation can dominate its opponents not with planes, ships and soldiers, but with foreign exchange rates, trade embargoes and armies of computer hackers.
Quote:
Last March, the Pentagon held its first-ever economic-warfare war game, with China as the putative opponent and with economists and bankers (including from UBS) helping out.

Details of what unfolded are still classified. However, sources told Fox Business News that the scenario played out as planned. That was the good news.

The bad news is that China won.

China PLA officers urge economic punch against U.S.


Quote:
Senior Chinese military officers have proposed that their country boost defense spending, adjust PLA deployments, and possibly sell some U.S. bonds to punish Washington for its latest round of arms sales to Taiwan.
Quote:
"Our retaliation should not be restricted to merely military matters, and we should adopt a strategic package of counter-punches covering politics, military affairs, diplomacy and economics to treat both the symptoms and root cause of this disease," said Luo Yuan, a researcher at the Academy of Military Sciences.

"Just like two people rowing a boat, if the United States first throws the strokes into chaos, then so must we."

Luo said Beijing could "attack by oblique means and stealthy feints" to make its point in Washington.

"For example, we could sanction them using economic means, such as dumping some U.S. government bonds," Luo said.
02-11-2010 , 12:49 AM
I wonder how the folks in charge think of the mass of treasuries. Do they hope/plan to get value out of it? Or is it more like a bomb where you don't exactly care if anything valuable is left after you drop it? It'd be a helluva bomb.

      
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