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If Dante Alighieri were alive today, I wonder to which circle of Hell he would consign neo-liberal economists. In the ninth Bolgia of the Eighth Circle - just next to the Ninth Circle, in which the most evil people are found, the "giant sinners" of the Bible, such as Judas, with Satan himself at the very center - Dante stuck the "evil counselors." But these were people who encouraged others to commit fraud, not people who gave bad advice. In the tenth, final Bolgia of the Eighth Circle, Dante placed various "falsifiers" such as alchemists, counterfeiters, perjurers, and impostors. Because these people are, according to Dante, a "disease on society," they are horribly afflicted with various disfiguring diseases.

Since neo-liberal economists combine all these sins in one neat package -- their mathematically modeled theories of the economy amount to so much alchemy; some have been caught counterfeiting data and research, such as Reinhart and Rogoff;  some, like Glenn Hubbard, have perjured themselves in court; and then there is Alan Greenspan, who was forced to basically admit, in Congressional testimony no less, that he was an imposter, after his theories helped blow up the world economy -- I suspect that Dante would have created an eleventh Bolgia as a sort of bridge to the Ninth, the last, the deepest, most wretched circle of Hell, for neo-liberal economists. That would place neo-liberal economists as pretty much the most evil people in history, after the inmates of the Ninth Circle.

One of the most evil of these evil neo-liberal economists has got to be Eugene Fama - though perhaps the (dis)honor should go to former top Bush Jr. economist H. Greg Mankiw, whose moral bearings and sense of propriety are so utterly lacking that he actually wrote, just this past June (almost two full years after Occupy) Defending the One Percent.

What makes Fama so evil? Well, he has been unceasing in his defense of the "efficient market hypothesis," the neo-liberal economics theory that "the markets" are all-knowing and all-wise, and, being all-knowing and all-wise, the destinies of nations should be left to the wisdom of "the markets" and government must be prevented from interfering with the wise, immutable, and inscrutable workings of "the markets." The market crash of 2007-2008, of course, showed all but the most hard-core neo-liberals that the efficient market hypothesis (EMH), shall we say, has a few flaws. But, you see, Fama made his fame and fortune promulgating EMH, so he has a vested interest in making sure it does not eventually come to be seen as the fraud it is. (I - and others - would even argue that EMH is a blasphemy, because it attributes to "the markets" all the attributes of omniscience, omnipresence, and omnipotence all religions have traditionally ascribed to deities.)

So, of course, the Riksbank of Sweden decided to give Fama a Nobel Prize for economics this year.

More below the jump...

masaccio at FireDogLake performs a perfect set-up and take-down of Fama by excerpting from a January 2010 interview of Fama by New Yorker writer John Cassidy (this was the interview, by the way, that led to the series of posts by Paul Krugman blasting Fama and EMH). Fama asserted that "the markets" accurately forecast the financial crash because prices of stocks and other financial instruments were declining. All masaccio had to do was post two charts of the Down Jones Industrials Average and the Standard and Poor's 500 Stock Index to show that Fama is either a complete idiot, or an accomplished liar.

Since Fama can do complex math, and teaches at the University of Chicago Booth School of Business, I think we can narrow down our choices by setting aside "complete idiot."

Fama's Nobel has provoked some quite informative writing disparaging neo-liberal economics, though much too politely for my liking. Brad DeLong has reposted some of  the stupid things Fama has said or written over the years (you will have to do search for "Fama" on DeLong's website to find them), such as fretting that the bailout of the auto industry would require a growth in government debt that would "crowd out" other, potentially more useful investment. This when we were dealing with a shortfall in national output of six or seven percent.

But I think the best summary of Fama getting a Nobel for economics is by Jon Larson, my partner at Real Economics. As usual, Jon is short, pithy, and concise:

Considering the almost never-ending list of major economic catastrophes that afflict the planet, it would seem that the Riksbank Prize (Nobel) committee should consider suspending their award out of sheer embarrassment.  I mean, what exactly must go further wrong before they decide that maybe, just maybe, the folks they have been giving the prizes to are crazy.

Well, it didn't happen this year.  They managed to find some more neoliberal crackpots that have managed to hide their bullshit beneath some fancy-sounding theories and good-looking math.  This is apparently enough (according to the Riksbank jurors) to make folks forget that their economics will lead to neofeudalism, slavery, child labor, massive unemployment, environmental catastrophes and the rest of lovely manifestations of backward economic thinking.

The whole Riksbank / Nobel charade was designed to single out economics as somehow more scientific than the rest of the social sciences.  This is clearly a lie—real science recognizes errors and seeks to correct them.  This is why science makes progress while other form of thinking do not.  How any thinking that deliberately seeks to bring back 19th century capitalism can been considered scientific is a mystery.  But then, the Riksbank Prize isn't designed to reward scientific progress—it is designed to put a "scientific" gloss on some ugly and evil ideology.  The prizes of 2013 do just that.
 

UPDATE:
A few commenters argue that I am attacking all economists or the entire economics profession. I am not. I was at pains to copy and paste "neo-liberal" before each time I used the words "economist" or "economics." My focus was on - and was intended to be on - Eugene Fama, not the other two economists who were given the Riksbank (Nobel) prize along with Fama.

A few commenters (pretty much the same bunch, it appears) - also dispute my derision toward neo-liberal economists' pretensions to be engaged in "science." A standard retort to these commenters is: "Did you or your guys foresee the financial collapse?"

Now, that is a good enough retort, but I think there is an even better test, which I will present shortly. Right now, I want to call attention to Fama's absurd reply to this question in his reply to Cassidy's question:

O.K., right. Here’s a question to turn it around. Can you have a bubble in all asset markets at the same time? Does that make any sense at all? Maybe it does in somebody’s view of the world, but I have a real problem with that. Maybe you can convince me there can be bubbles in individual securities. It’s a tougher story to tell me there’s a bubble in a whole sector of the market, if there isn’t something artificial going on. When you start telling me there’s a bubble in all markets, I don’t even know what that means. Now we are talking about saving equals investment. You are basically telling me people are saving too much, and I don’t know what to make of that.
Now, this is a very interesting answer by Fama, because it leads directly to the (what I consider) devastating critique of neo-liberal economics as being an apologia for a status quo dominated by plutocrats and oligarchs. There is a simple reason why there can be, have been, and are "bubble[s] in a whole sector[s] of the market." And it is not the reason of the Federal Reserve pouring trillions of dollars into financial markets to prevent another collapse in prices of financial assets. That is certainly happening, but this, as a specific reason, could be categorized by Fama and neo-liberals as an "artificial" interference with the market.

The simple reason is people in fact "are saving too much" - but you have to preface "people" with "rich" to get at what's going on. As I explained in my February 2013 post, Why the rich act the way they do, America's plutocratic leaders and elites are NOT investing in the development of new productive capabilities. The data clearly show that the United States economy is being de-industrialized and de-capitalized, and has been for decades. That's because plutocrats / oligarchs actually don't have the stomach to engage in management of advanced industrial enterprises (see Veblen's     The Engineers and the Price System for a detailed discussion of this point - warning: PDF file). Plutocrats / oligarchs more typically engage in usury, speculation, and economic-rent seeking behavior. And it is these practices of usury, speculation, and economic-rent seeking behavior that cause gross mis-allocations of credit and money in the economy that result in speculative bubbles.

And since the speculative bubbles are caused by the behavior of plutocrats / oligarchs, it is obviously not in the interests of neo-liberal economists to admit that there are speculative bubbles, let alone attempt to explore their causes.

Now, to what I consider a better question than: "Did you or your guys foresee the financial collapse?" How about we begin asking economists "Did you foresee and warn that NAFTA and GATT would cause a race to the bottom and help cause the destruction of America's working and middle classes?" There were economists who warned about that; Thomas Palley comes immediately to mind. How an economist answers this question about free trade will go a long way in separating the real economists from the neo-liberals.

Originally posted to NBBooks on Wed Oct 16, 2013 at 10:05 PM PDT.

Also republished by Anti-Capitalist Chat and Community Spotlight.

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Comment Preferences

  •  Fake Nobel for Fake Science (36+ / 0-)

    How fitting for an academic branch that serves primarily as grinning, wet-chinned fluffers for the plutocrats looting the planet.  They should just move right on to selling indulgences and burning heretics.

    •  Selling indulgences is profitable. (17+ / 0-)

      Burning heretics is expensive, and bad p.r. Better to trick the marks to pay monthly fees to be surveilled, lied to, and distracted, constantly. They'll never get anywhere.


      Actual Democrats: the surest, quickest, route to More Democrats. And actually addressing our various emergencies.

      by Jim P on Wed Oct 16, 2013 at 10:59:42 PM PDT

      [ Parent ]

    •  If you think it is fake science I suggest you (0+ / 0-)

      put your money where your mouth is.

      Let's see who can get the best risk adjusted return over the period of a year.

      I'll put my money into a total market index, you pick 10 stocks.

      Let's see who gets the best result.

      Lost pays winner $10,000.

      •  Because economists invented the average (21+ / 0-)

        and economics is the science of picking stocks?  

        here's my bet:
        Next time the the world economy is crashed, there will be economists who cheered for the causes of the crash, claim they never saw it coming, then prescribe even stronger adherence to neo-liberal doctrine as the solution.

        You can put lipstick on a pig, and graphs on religious claims, but they remain cheap deceptions.

        •  Well, actually Fama's work is all about the (3+ / 0-)

          science of picking stocks vs. market averages.

          He is particularly well known for the Fama French Three Factor Model for understanding asset returns and pricing and for his work on efficient markets.

          Assuming Fama's efficient market theory is correct (Fama is one of the originators of the EMH), even the best stock picker cannot, on average, beat an overall market index on risk adjusted return.  When you take into account lack of diversification and trading and research costs, the stock picker should usually do worse.  That makes this bet exactly appropriate.

          You can put lipstick on a pig, and graphs on religious claims, but they remain cheap deceptions.
          Precisely which of Fama's claims do you think is "religious" or a "cheap deception"?  Perhaps you can point to a specific paper of his?  Do you even have any idea what his work was about?
          •  The EMH (7+ / 0-)

            as a hypothesis it is just dandy, elevated to dogma used by policymakers and 'regulators', it is deadly.

            •  There are certainly critiques of it, some quite (0+ / 0-)

              telling - look up behavioral finance for example.

              But can you explain how the actual EMH is in any sense "deadly"?

              My guess is that you actually don't know the difference between your ass and EMH, so to help you out I've included the very nice explanation from Wikipedia.

              There are three major versions of the hypothesis: "weak", "semi-strong", and "strong". The weak-form EMH claims that prices on traded assets (e.g., stocks, bonds, or property) already reflect all past publicly available information. The semi-strong-form EMH claims both that prices reflect all publicly available information and that prices instantly change to reflect new public information. The strong-form EMH additionally claims that prices instantly reflect even hidden or "insider" information.
              Why don't you start by telling us which version of EMH is "deadly".
              •  I'll take door number 4, Ed (2+ / 0-)
                Recommended by:
                NBBooks, katiec

                All of the above, when elevated to dogma, as I clearly stated. If this were just pure speculation about possible behavior of idealized theoretical markets that remained in an academic petri dish, it would be harmless academic simplification, like the spherical cow in a vacuum used by physics students. Alas, the term and expansions of the very limited theory have taken on a life of their own, and morphed into the idea that 'markets are efficient' and thus a self-regulating way of finding an optimal solution. I don't need to lecture anyone on the deadly results of that fallacy. Nor, I think, is it necessary to point out that real stock prices are driven by irrational behavior, disinformation, front-running, and fundamental-free algorithmic trading that merely uses price dynamics to drive price dynamics in a tightly coupled feedback loop that scientists studying dynamical systems recognize as inherently destabilizing, even without flash crashes to measure.

                •  Here's the problem (1+ / 0-)
                  Recommended by:
                  Ed Gein

                  If the marketplace is as messy and irrational as you say it is, how can individual humans in the government do it any better?

                  Is gas too expensive or not expensive enough?
                  Are rents too high or too low?
                  Etc

                  With a market, individuals make their own decisions.

                  If the government does it, a few people do it and might be wrong, but their choices are inflicted on the population anyway.

                  I'm not saying there's no role for the government anywhere, but I think the government should be biased toward not interfering with things unless it's clear it has to. Social and economic freedom.

                  (-5.50,-6.67): Left Libertarian
                  Leadership doesn't mean taking a straw poll and then just throwing up your hands. -Jyrinx

                  by Sparhawk on Thu Oct 17, 2013 at 04:49:21 PM PDT

                  [ Parent ]

                  •  I'm sorry, what? (2+ / 0-)
                    Recommended by:
                    Selphinea, Sandino
                    If the marketplace is as messy and irrational as you say it is, how can individual humans in the government do it any better?
                    So let me get this straight: your assertion is that

                    a) If the EMH is correct (which of course it self-evidently isn't, so let's say 'more or less correct') then it is impossible for humans to outguess the market, ipso facto, qed.

                    b) If markets are too noisy and have too much noise and chaos for the EMH to be a reasonable hypothesis, than human beings can't possibly understand them and so therefore the market will always outperform human beings, ipso facto, qed.

                    That's awfully... nice... don't you think?

                    In reality, of course, the government often can and frequently should price things more rationally. For example, 'rational', market-based pricing of a material (say oil) that is in finite supply will keep it ridiculously low in price until that commodity starts becoming significantly more difficult to produce, at which time the price will shoot up by an order of magnitude. If the economy, which of course is perfectly rational at all times, has become dependent upon it, then we discover that it is perfectly rational for the economy to crater and millions of people to starve to death.

                    Which brings up another point about the EMH: human suffering is actually extremely efficient.

                    I'm not saying there's no role for the government anywhere, but I think the government should be biased toward not interfering with things unless it's clear it has to. Social and economic freedom.
                    Which is a lovely statement because it means nothing whatsoever. Is it 'clear' that the government has to 'interfere' with 'things' when someone is starving to death? How about a hundred someones? Do you think the ACA is bad, because it 'interferes', or good, because it doesn't 'interfere' nearly as much as a sensible solution would?
                    •  This is silly almost beyond words (0+ / 0-)
                      For example, 'rational', market-based pricing of a material (say oil) that is in finite supply will keep it ridiculously low in price until that commodity starts becoming significantly more difficult to produce, at which time the price will shoot up by an order of magnitude. If the economy, which of course is perfectly rational at all times, has become dependent upon it, then we discover that it is perfectly rational for the economy to crater and millions of people to starve to death.
                      So let's say you own a patch of land with 1 million barrels of oil under it with an extraction cost of $9 / barrel.

                      You can extract and sell the oil today, at $10 per barrel, getting $1 million.  Or you can wait a few decades until the price hits $50 / barrel, and get $41 million.  Well, 41x return on waiting.  You wait.

                      Of course, if you have some other land with oil with an extraction cost of $5 / barrel you may pump it today - waiting a few decades for just a 9x return isn't worth it.

                      This means a lot of oil stays in the ground at the $10 price.  That means the price will increase.  In general, the price will increase until it makes economic sense to extract enough oil now at that price instead of waiting for the price to increase to match demand at that price.

                      Very simple and self regulating.

                      Mind explaining how the government's algorithm to set oil prices should work and why it would be better?

                •  I think door number 4 is "I totally don't (0+ / 0-)

                  understand this stuff."

                  Alas, the term and expansions of the very limited theory have taken on a life of their own, and morphed into the idea that 'markets are efficient' and thus a self-regulating way of finding an optimal solution.
                  There's nothing "optimal" in any of Fama's work that I've read and pretty much nothing about "solutions".  (In fact, first question - an "optimal solution" to what problem?)

                  The closest you could come to twisting these words into Fama's theory is to suggest that efficient markets find the "optimal solution" to the problem of setting asset prices so expected risk adjusted returns based on public information is the same for all assets.

                  I would love to hear you explain the "deadly results of that fallacy" or even why you think it is a fallacy.

                  Nor, I think, is it necessary to point out that real stock prices are driven by irrational behavior, disinformation, front-running, and fundamental-free algorithmic trading that merely uses price dynamics to drive price dynamics in a tightly coupled feedback loop
                  Can you explain why any of this invalidates the EMH?
                  in a tightly coupled feedback loop that scientists studying dynamical systems recognize as inherently destabilizing, even without flash crashes to measure.
                  Now, that's interesting.  Somehow I've missed that in the literature.  Can you provide a cite?
              •  The EMH is just total bullshit (0+ / 0-)

                There are so many examples of securities being mispriced, often due to emotion or sentiment.  The severe flaw is the idea that the consensus is always right.  A large number of people can also be totally wrong, and they often are.  We can see that in the tech and real estate bubbles.  

                What's more, if there weren't people trying to buy things that were undervalued and sell things that were overvalued, the market wouldn't reach equilibrium either.  The idea that the market price is magically right at any single time is not even remotely plausible.  The world is not that perfect.  People aren't that perfect.  

                Fama should not have gotten that Nobel.  In the long run his theories are going to be thoroughly discredited.  In my opinion they already have been.  

          •  It's all crap. What of the consequences of market (16+ / 0-)

            based economics?

            All you're talking about when you praise Fama's work is different ways for the wealthy elite of the world to gamble efficiently. Meanwhile the rest of us suffer from the fallout of the growing income gap from things like financial stress, poisoned land, food, air and water and the conditions of the impoverished of the world grow worse with each passing day.

            The entire concept of giving someone a prize for aiding and abetting the growing income gap is simply offensive.


            "We must make our choice. We may have democracy, or we may have wealth concentrated in the hands of a few, but we can't have both." - Louis Brandies

            by Pescadero Bill on Thu Oct 17, 2013 at 06:51:23 AM PDT

            [ Parent ]

            •  The real world significance of Fama's (3+ / 0-)
              Recommended by:
              Ed Gein, Loge, gramofsam1

              efficient market hypothesis is that "the markets" absorb and account for new information nearly instantaneously. So the individual investor is unable to profit from new information because, by the time she is able to act on it, the markets have already acted on the info and accounted for it in their pricing.
                Unless you have information that nobody else has (IOW, insider trading) you can't pick stocks better than the overall market.
                 The logical conclusion: Individual investors would do best in an index fund long run.
                 Although there are serious criticisms of the EMH, it isn't a neoliberal theory in and of itself.
                 Fama may have said some things that you don't like, but the Prize for EMH, which was split with other economists who've studied markets is, IMHO, perfectly justified.

              •  The problem is the theory is completely false (2+ / 0-)
                Recommended by:
                Selphinea, Sandino

                Let's just forget about the stock market for a moment, since it can react very quickly.  

                The real estate market reacts extremely slowly in comparison.  Any change in circumstances can take months, if not years, to filter through the real estate market.  Each transaction takes a relatively long time to close (weeks/months compared to seconds with stocks).  How could that market "almost instantly" react to any piece of information?  It simply can't.  

                The individual investor should still buy index funds, but  the reason isn't because the market is efficient.  Rather, it's that the vast majority of people are terrible investors.  They are their own worst enemies and taking themselves out of the equation is by far the smartest thing they can possibly do.  

                •  Why do you think real estate markets react (0+ / 0-)

                  slowly?

                  How long does it take them to react when a tax change is announced, interest rates change, or new infrastructure development is announced?

                  My understanding is that the reaction is virtually instantaneous.

          •  Anyone with any reasonable understanding of (9+ / 0-)

            the types of dynamical systems that include, as a particular subset, markets knows very well that markets are not optimally efficient -- that even under ideal conditions, they might, for an instant, be drifting toward optimal efficiency -- but probably are not, but are instead drifting toward a "local optimum", which may fall far, far short of the true optimum.

            And that is under ideal conditions -- in particular, the economists' beloved "all else being equal", an especially stupid formulation given that what they are studying is a dynamical system with a trillion feedbacks, in which all else is never equal, even for an hour.

            To put the torture behind us is, inevitably, to put it in front of us.

            by UntimelyRippd on Thu Oct 17, 2013 at 07:30:03 AM PDT

            [ Parent ]

            •  Can you please define "optimal efficiency"? (0+ / 0-)

              And can you explain the relationship to Fama's work?

              I certainly have not read all of Fama's papers, but I don't remember any of his work being about any kind of "optimal efficiency".

              Do you remotely know what you are talking about?

              •  Yes. (1+ / 0-)
                Recommended by:
                Sandino

                I remotely know what I'm talking about.

                To put the torture behind us is, inevitably, to put it in front of us.

                by UntimelyRippd on Thu Oct 17, 2013 at 10:53:26 AM PDT

                [ Parent ]

                •  So then which of Fama's papers is about (0+ / 0-)

                  "optimal efficiency"?  I'd be happy to take a look at it.

                  •  Optimality is at the core of his entire economic (1+ / 0-)
                    Recommended by:
                    Sandino

                    dogma. The efficient-market hypothesis revolves around the idea that the price set by the market is, in fact, the best possible estimate of what the price "should" be -- meaning, more or less, a reasonable estimate of what the price is going to be in ten minutes -- given all of the available information and human understanding of that information. This is, without doubt, an "optimization problem", of the sort typically associated with machine learning algorithms that apply to dynamical systems.

                    It wouldn't be true even if human beings were all rational; As I've noted, anybody who studies dynamical systems other than in economics understands this perfectly well. (Or heaven help any that don't; they aren't very good at what they do.)

                    You take pride in taking his advice and making money by buying index funds. And indeed, this is a foolproof way to make money, in a rising market. Maybe, mind you, not a hell of a lot of money, depending on what else is going on around you. It is also a foolproof way to lose money, in a declining market.

                    To put the torture behind us is, inevitably, to put it in front of us.

                    by UntimelyRippd on Thu Oct 17, 2013 at 06:12:58 PM PDT

                    [ Parent ]

                    •  Gah... whether or not you can use the word (0+ / 0-)

                      "optimal" to describe the prices Fama predicts, the term is not used in that sense in that area of science.

                      The efficient-market hypothesis revolves around the idea that the price set by the market is, in fact, the best possible estimate of what the price "should" be -- meaning, more or less, a reasonable estimate of what the price is going to be in ten minutes -- given all of the available information and human understanding of that information.
                      Well, that's self obviously true.  For example, Apple closed at 504.50 today.  I will happily bet you that it will open tomorrow within 10% of that.  Asset prices are "sticky".

                      A more complicated question is whether Apple's past price movements tell me anything about whether Apple will open higher or lower tomorrow than it closed today.  That's a much more interesting question.

                      Short answer:
                      1. Beta is sticky - it does not change over relatively long periods of time.
                      2. Expected return based on risk free rate, beta, and market premium is sticky as well.  (Actually, should use Fama French 3 factor model, but I'm trying to keep this simple.)
                      3. Fluctuations around the expected return are totally unpredictable

                      This is what Fama got his prize for.

                      This is, without doubt, an "optimization problem", of the sort typically associated with machine learning algorithms that apply to dynamical systems.
                      Well, it's got nothing to do with machine learning algorithms - in fact, Fama's work can be applied to argue that no such algorithm can beat the market.

                      As for an optimization problem, well, here's the definition of Optimization: "optimization includes finding "best available" values of some objective function given a defined domain".  This is not what Fama's work is about.

                      You can apply optimization together with Fama's work - for example, finding the set of securities with the best expected risk adjusted rate of return, taking into account trading costs, for your mutual fund, but that's not what Fama studies.

                      You take pride in taking his advice and making money by buying index funds. And indeed, this is a foolproof way to make money, in a rising market. Maybe, mind you, not a hell of a lot of money, depending on what else is going on around you. It is also a foolproof way to lose money, in a declining market.
                      I don't take any particular pride - investing in index funds is as easy as falling off a log.  But I'm glad I did it.

                      I agree, in a rising market index funds do well, and in a falling market they do badly.  Key point is that stock pickers have the same problem... except that they have more idiosyncratic risk and higher fees.  That's what you get out of Fama's research.

                      •  The term "optimal" is used in exactly that (1+ / 0-)
                        Recommended by:
                        Sandino

                        way in that kind of mathematical and computer science, which is what the economists at least purport to be doing.

                        I do not claim that Fama's work is about finding optimization schemes for "beating" the markets. As you note to the contrary, his strongest claim is that such schemes are generally doomed.

                        But Fama's reason for claiming that they are doomed is that he believes the market itself is executing an optimization algorithm that works better than any other possible algorithm.

                        I strongly believe that Fama is very, very wrong about that -- in particular, all of my experience with such systems indicates to me that the market's inherent algorithm can't possibly be doing even a very good job of solving this particular optimization problem.

                        Similarly, I believe that the entire "wisdom of the crowd" movement is:

                        A. Wrong
                        and
                        B. Motivated primarily by a dogma that rests on wishful thinking and a sad combination of libertarian idealism and inane anti-elitism.

                        To put the torture behind us is, inevitably, to put it in front of us.

                        by UntimelyRippd on Thu Oct 17, 2013 at 08:01:42 PM PDT

                        [ Parent ]

                        •  An optimization algorithm to solve precisely what (0+ / 0-)

                          problem?

                          But Fama's reason for claiming that they are doomed is that he believes the market itself is executing an optimization algorithm that works better than any other possible algorithm.
                          The market sets prices, but it's not an optimization algorithm in the usual sense of the word.
                          I strongly believe that Fama is very, very wrong about that -- in particular, all of my experience with such systems indicates to me that the market's inherent algorithm can't possibly be doing even a very good job of solving this particular optimization problem.
                          Can you back that up with anything more than a theory?

                          How about an algorithm that beats the market?  We can start a hedge fund together, become .00001 percenters, and run for office as Republicans.

          •  So Fama is better at picking averages (2+ / 0-)
            Recommended by:
            Sandino, NoMoreLies

            That's like being better at picking horses at the racetrack.

             It means you are good, but it doesn't mean you are a scientist.

            None are so hopelessly enslaved, as those who falsely believe they are free. The truth has been kept from the depth of their minds by masters who rule them with lies. -Johann von Goethe

            by gjohnsit on Thu Oct 17, 2013 at 11:39:40 AM PDT

            [ Parent ]

            •  No... what he has shown is that you can't beat (0+ / 0-)

              the averages.

              His work is very influential and is changing the way money is managed.

              For example, Calpers is moving away from managers who pick stocks.

              This raises some very interesting questions - if everyone just buys market indexes then who will set the prices of individual stocks?

              What percentage of the market can just buy market indexes before markets become marginally inefficient?

              How can a money manager determine the optimum amount of money to spend on research to take advantage of such inefficiencies?

          •  the problem (0+ / 0-)
            "Assuming Fama's efficient market theory is correct (Fama is one of the originators of the EMH),"
            is that it is NOT correct.  It's been proven over and over and over to not be correct.  
      •  isn't it odd that with all this "science" . . . (4+ / 0-)
        Recommended by:
        NoMoreLies, Sandino, caul, Jim P

        you never seem to have gotten rich in the stock market . . . ? Indeed, people who pick stocks by throwing darts at a stock listing seem to do no worse than all those dazzling scientific forecasters.

        BTW, Ed, how's your mother?

        •  Lenny Flank - You're actually supporting Fama's (4+ / 0-)
          Recommended by:
          MGross, Loge, Ed Gein, gramofsam1

          theory.

        •  She's a little under the weather (1+ / 0-)
          Recommended by:
          Sparhawk
          isn't it odd that with all this "science" . . .
          you never seem to have gotten rich in the stock market
          I've done quite well by investing in low cost index funds, exactly as you would expect based on Fama's work.

          I've also done very well by diving in when everyone else is panicking - for example buying financial stocks at the end of 2008.  That's contrary to Fama's work, but I'm not an Efficient Markets absolutist.

          I personally believe that markets are mostly efficient but that there are certain obvious inefficiencies (ie. due to the fact that humans and even computers take finite time to react markets cannot instantly move based on all available information but will instead take milliseconds or longer).  In times of major market disruption (ie. 2008) normal price setting mechanisms may not work because so many player have exited the market and because the utility function for those who remain is biased to stay with the herd because you can always explain to investors if you lost money when everyone lost money but you can't explain if you lost money when other people made money.

          But that doesn't mean that Fama French isn't incredibly important or that EMH doesn't pretty much define our current understanding of asset markets.

          •  um . . . . (3+ / 0-)
            Recommended by:
            Sandino, Selphinea, katiec
            I personally believe
            I thought economics is, ya know, a science.  Why would science give a flying fuck what you personally believe or not?
            •  Science does not care, but people do (0+ / 0-)

              As an example, anthropic global warming is science, but the details are hotly debated and different scientists have different beliefs... including some who believe that the current level of anthropic global warming is low enough that it is lost in the normal climate variation noise.

              Statistics is a science (or, arguably, even more fundamental - math does not depend on experiment and observation), but the statistical techniques used to calculate global warming rates are still hotly debated.  For example, the famous "hide the decline" quote was about removing tree ring data from the final years of the analysis because in recent years, when we have good data from other sources, tree ring data seems to have become uncorrelated from temperature.  However, this obviously leads to complex questions about whether historical tree ring data should then be kept and about whether the process of removing uncorrelated data when it disagrees with our other measurements but keeping data that may not be linked to temperature but, due to random variation, appears correlated is artificially inflating the significance (used in its mathematical sense) of the temperature results.

              In the same way, what Fama does is on the edge between science and math, and there is little question that it is mathematically correct, but understanding exactly how it applies in the real world with all of its complications is very complex and people disagree about it.

              •  AGW is not a science. AGW is a concept. (1+ / 0-)
                Recommended by:
                Sandino

                Climatology is a science.  AGW is a specific possible scenario predicted by that science.

                That aside, the specifics of the current warming trend are not up for much debate. We know how much warming we've experienced, with only a few small questions as to where all of the energy has gone. It's the future impact and potential for acceleration of the trend which is debated.

                * "Power attracts the corruptible. Suspect all who seek it." - Frank Herbert * (-9.38; -8.15)

                by Selphinea on Thu Oct 17, 2013 at 09:51:35 PM PDT

                [ Parent ]

        •  Rec'd for the Ed Gein reference (1+ / 0-)
          Recommended by:
          Sandino


          Actual Democrats: the surest, quickest, route to More Democrats. And actually addressing our various emergencies.

          by Jim P on Thu Oct 17, 2013 at 10:14:31 AM PDT

          [ Parent ]

        •  Good stock investors don't become economists... (1+ / 0-)
          Recommended by:
          Sandino

          That's an important factor to take into account.  

      •  well, you 1%er investors (5+ / 0-)

        can fellate each other about your financial acumen in the Free Lunch Market.  Most of us will  get up this morning and go to work and actually earn money that gets spent to keep the economy going that you all suck off of.

        don't always believe what you think

        by claude on Thu Oct 17, 2013 at 08:21:53 AM PDT

        [ Parent ]

      •  That's like saying (2+ / 0-)
        Recommended by:
        Sandino, NoMoreLies

        you have a better system at playing cards.

         You might be better at the blackjack table than me, but that doesn't mean what you have is science.

        None are so hopelessly enslaved, as those who falsely believe they are free. The truth has been kept from the depth of their minds by masters who rule them with lies. -Johann von Goethe

        by gjohnsit on Thu Oct 17, 2013 at 11:38:07 AM PDT

        [ Parent ]

      •  That's a dangerous gamble... (2+ / 0-)
        Recommended by:
        Selphinea, Sandino

        Not knowing anything about the poster.  My performance since the financial crisis in 2008 has been pretty remarkable.  By buying more stocks when they were cheap in 2008/2009, I had recovered all of my losses by 2010.  I then went heavily into rental real estate at the end of 2011/early 2012, highly leveraging myself by taking out loans for 75% of the value of the properties I purchased.  

        Since then I've probably basically doubled the money I put into the properties just on appreciation (remember I only put in 25%, so a 25% gain means a 100% gain), and that's ignoring the income stream.  

        Maybe it sounds like I'm bragging, and maybe I am, but my real point is to say that markets are efficient because people like me help make them efficient.  We buy things when they're cheap and everyone is scared to buy them, and we sell things when they are expensive and everyone is clamoring to get on board.  

        Most people will do better in an index fund, because most people are terrible investors.  They buy when they should sell and sell when they should buy, nearly always doing the wrong thing at the wrong time.  Their loss is my (and others') gain, but in my defense I don't actually force them to do anything, they do it to themselves, I'm just there to accept the other side of the trade.  

        So, all I'm saying is you have no idea whether the other guy knows what he's doing.  If he does you'll almost certainly lose.  If he doesn't, you'll almost certainly win.  

        By the way, the EMH is pure bullshit.  It was clear that real estate was a good buy a couple years ago.  Properties were priced to provide double digit rental yields.  It didn't even matter what happened with the property value, the yield alone was enough (I wish prices had continued to drop, I would have bought a lot more), and that most definitely was not reflected in the market price.  The market was highly undervalued.  

    •  As a biologist by training (18+ / 0-)

      and familiar with the limits of natural systems of which Earth is a large example, I have realized that these limits,  not to mention externalities are totally ignored by mainstream economics.  Therefore I have long ago concluded that the vast majority of economics is a voodoo pseudo science.

      Trickle Down Economics 101: They get the golden parachute, we get the golden shower.

      by NoMoreLies on Thu Oct 17, 2013 at 05:47:15 AM PDT

      [ Parent ]

      •  But I like the Golden Shower: (6+ / 0-)

        Cassia fistula, that is.

        patrickesnyder's golden shower album on Photobucket

        The GOP can't win on ideas. They can only win by lying, cheating, and stealing. So they do.

        by psnyder on Thu Oct 17, 2013 at 06:15:10 AM PDT

        [ Parent ]

      •  Quite ... (2+ / 0-)
        Recommended by:
        katiec, NoMoreLies

        ... though the tendency of the neoliberal economists to treat most non-mainstream economists as not existing at all tends to exaggerate how many economists fall into this group, by reducing the visibility of those who do not.

        Support Lesbian Creative Works with Yuri anime and manga from ALC Publishing

        by BruceMcF on Thu Oct 17, 2013 at 01:20:56 PM PDT

        [ Parent ]

      •  Economics is a science in the same way (0+ / 0-)

        John R. Brinkley was a doctor.

        muddy water can best be cleared by leaving it alone

        by veritas curat on Thu Oct 17, 2013 at 06:06:57 PM PDT

        [ Parent ]

      •  If you believe that you haven't studied much (0+ / 0-)

        economics before spouting off about it.

        Suggest you look up TFP in Development Economics, which encapsulates, among other things, the impact of environmental degradation on economic growth.

        Many of the initiatives launched to combat environmental degradation are also based on economics, such as pollution permit trading and tradeable long term fishing permits / quotas.

      •  We made...make...it all up. It is Our System, (2+ / 0-)
        Recommended by:
        Selphinea, Sandino

        total fiction. It is the one system that we, as a species, have complete control over, yet, somehow, "The Market" is given complete autonomy, an entity which we, as a species, just follow. The markets aren't even voodoo science, just utter fiction. Zombie Ants are real, "The Free Market" is not. The only reason it is upheld is through subsidies from nation states, each vying for a common form of leverage. The real tragedy is the pain and suffering that we cause on members of our species, and all others on this planet, in the name of economics, in the name of the "Free Market", a term which has never had correlation in reality. So, the rich get richer through the monies of the rest. Yet, still, somehow, this is an object of debate and even more speculation. The Yeti has more basis in reality than "The Free Market". And stocks? Really?? The crash of 2008 resulted in a greater Debt than the GDP of the entire Globe. Are you kidding me? That was Game Over. The curtain drawn back and the great Oz revealed. Please.

        The dream knows no frontier or tongue,/ The dream no class or race. Langston Hughes

        by parse this on Thu Oct 17, 2013 at 09:13:41 PM PDT

        [ Parent ]

        •  Well, capitalism is a religion, after all. (1+ / 0-)
          Recommended by:
          parse this

          Free markets are just another variation on a theme.

          All forms of economic thought, all forms of political thought, all forms of spiritual thought, all forms of philosophical thought... In fact, all forms of thought, when not subjected to examination by reason and science.

          People are dogmatic. They view their own positions as superior, and especially so the greater their perceived social support. Conformity increases group cohesion and mid-term reproductive success, after all... So, reality be damned, people are going to believe.

          (I haven't been accused of scientism yet, but I'm sure I will be one day!)

          * "Power attracts the corruptible. Suspect all who seek it." - Frank Herbert * (-9.38; -8.15)

          by Selphinea on Thu Oct 17, 2013 at 10:11:03 PM PDT

          [ Parent ]

    •  Just becase there are bad economists doesn't mean (1+ / 0-)
      Recommended by:
      Loge

      it's not real science.

      •  At best a 'soft science' (13+ / 0-)

        yet it takes its models for reality, and lets them be used for catastrophic policy making which somehow happens to benefit a tiny investor class. I would say the demonstrable tendency of Modern/Neo-Liberal Economics to fit theories to match ideological goals instead of empirical data is puts it closer to something like Lysenkoism, applying tools and language of science to support a political or ideological end.
        If we got economists to define 'Free Market', how many would describe something like Adam Smith's definition?

        •  Economists of today don't use reality (4+ / 0-)
          Recommended by:
          Sandino, Selphinea, Alumbrados, parse this

          They describe an ideal world that requires everyone to make rational decisions based on perfect knowledge.

            It doesn't exist.
          That's why economists can't make tests that other can duplicate consistently - a requirement for science.

          None are so hopelessly enslaved, as those who falsely believe they are free. The truth has been kept from the depth of their minds by masters who rule them with lies. -Johann von Goethe

          by gjohnsit on Thu Oct 17, 2013 at 11:43:33 AM PDT

          [ Parent ]

          •  Mainstream economists of today ... (0+ / 0-)

            ... do not lapse into the neoliberal tendency to pretend that they are the only economists in the room.

            Support Lesbian Creative Works with Yuri anime and manga from ALC Publishing

            by BruceMcF on Thu Oct 17, 2013 at 01:23:34 PM PDT

            [ Parent ]

          •  It's amazing how much of the discussion here (0+ / 0-)

            is by people who apparently can't use Google.

            Economists of today don't use reality
            They describe an ideal world that requires everyone to make rational decisions based on perfect knowledge.
            Actually, a lot of the work in economics is about why markets behave on a large scale as if everyone is rational and knows all public information even when they don't.

            This is actually fascinating.

            For example, I haven't checked the cites myself, but I had a recent discussion about this topic with a behavioral economist in London.  According to him, even before the Black Scholes equation was published, option prices on public markets were quite close to the prices predicted by Black Scholes.  If you think about it, that's actually pretty amazing - somehow the markets were empirically deriving mathematically correct prices for options based on underlying asset prices and volatility before anyone knew the math on how to do this.

            •  The fact that you are using the Black Scholes (1+ / 0-)
              Recommended by:
              Sandino

              equation to prove something, after it failed so badly with LTCM, shows that you need to do some Googling yourself.

              None are so hopelessly enslaved, as those who falsely believe they are free. The truth has been kept from the depth of their minds by masters who rule them with lies. -Johann von Goethe

              by gjohnsit on Thu Oct 17, 2013 at 09:57:38 PM PDT

              [ Parent ]

              •  And if Einstein couldn't catch a thrown ball that (0+ / 0-)

                would mean that his physics was wrong?

                What do you think the failure of LTCM had to do with the Black Scholes equation (as opposed to Black's and Scholes' capabilities as investment managers)?

                •  This is an easy one (0+ / 0-)

                  Myron Scholes was a member of the board of directors of LTCM.

                  LTCM invested in derivatives based on the formula that Scholes invented.

                  LTCM imploded in a spectacular fashion during a bull market.

                   And yet you still compare that formula to Einstein's.

                  None are so hopelessly enslaved, as those who falsely believe they are free. The truth has been kept from the depth of their minds by masters who rule them with lies. -Johann von Goethe

                  by gjohnsit on Sat Oct 19, 2013 at 01:05:25 PM PDT

                  [ Parent ]

                  •  You apparently understand neither LTCM or Black (0+ / 0-)

                    Scholes.

                    http://en.wikipedia.org/...

                    As LTCM's capital base grew, they felt pressed to invest that capital and had run out of good bond-arbitrage bets. This led LTCM to undertake more aggressive trading strategies. Although these trading strategies were market neutral, i.e. they were not dependent on overall interest rates or stock prices going up (or down), they were not convergence trades as such. By 1998, LTCM had extremely large positions in areas such as merger arbitrage (betting whether mergers would be completed or not) and S&P 500 options (net short long-term S&P volatility). LTCM had become a major supplier of S&P 500 vega, which had been in demand by companies seeking to essentially insure equities against future declines.[14]
                    In short, LTCM was taking positions that could win or lose, not arbitraging.

                    You also don't understand Black Scholes.

                    Even if I put all my money into options that are mispriced according to Black Scholes, that does not mean that I can't get unlucky.  Black Sholes gives the current value of an option based on the underlying stock's price and volatility.  It says nothing about the future value of that option.

          •  I'm glad to know that evolution is not science (0+ / 0-)
            That's why economists can't make tests that other can duplicate consistently - a requirement for science.
            Since neither Intelligent Design nor evolution are sciences according to you, do you support giving them equal time in the classroom?
            •  So you're saying... (2+ / 0-)
              Recommended by:
              Sandino, gjohnsit

              ...that evolutionary theory (which is not a science, of course: it's a tenant of biology, which is) cannot make predictions and then scientists cannot design experiments based on those predictions, which other scientists can then duplicate?

              Sorry, did you stop in the wrong blog? The science-deniers blog is over ---> that way.

              Meanwhile, over here in the real world, every incidence of bacterial resistance to antibiotics is another fresh duplication of a prediction made by evolutionary theory. And, as you may or may not know, this is happening with worrying regularity...

            •  You need to study evolution (1+ / 0-)
              Recommended by:
              Sandino

              because you are under some basic misundestandings.

              None are so hopelessly enslaved, as those who falsely believe they are free. The truth has been kept from the depth of their minds by masters who rule them with lies. -Johann von Goethe

              by gjohnsit on Thu Oct 17, 2013 at 09:58:34 PM PDT

              [ Parent ]

      •  Utility-theoretic model based economics ... (2+ / 0-)
        Recommended by:
        Sandino, katiec

        ... isn't science irrespective of how good or bad the particular economist in question may be. It is long since falsified as a general model of human decision making, and one cannot both work in scientific pursuit of valid cause and effect explanations and at the same time base your theory exclusively on utility theoretic models.

        Support Lesbian Creative Works with Yuri anime and manga from ALC Publishing

        by BruceMcF on Thu Oct 17, 2013 at 01:23:01 PM PDT

        [ Parent ]

    •  The Nobel is, indeed, "fake" (5+ / 0-)

      ...however, I disagree strongly on the characterization of economics.

      As in all disciplines, especially "soft" disciplines, there are purveyors of hokum.  But it's important to remember that along with the charlatans are the Krugmans, Bakers, and Keynes of the world.

      It's also important to keep in mind that much of the kleptocrat-serving material out there has been produced in spite of, not by, the available expertise of economists.

      If economists as a group can be most faulted for anything, it is that common failing among academics: avoiding the world of politics and not setting the record straight.  Since economics is more often than most misused in the service of bad policy, that failing is just more glaring.

    •  Exactly. Why not just call (4+ / 0-)
      Recommended by:
      Sandino, Jim P, veritas curat, parse this

      the theory of free markets what it is, a religion, which like all religions provides a faith based system that supports it believers and adherents--no matter the facts on the ground and, indeed, oftentimes in spite of them?

      He who would trade liberty for security deserves great customer service.

      by Publius2008 on Thu Oct 17, 2013 at 08:30:18 AM PDT

      [ Parent ]

      •  Yes, priests of Cthulhu (2+ / 0-)
        Recommended by:
        Sandino, Selphinea

        Milton Friedman as Old Castro:

        Then mankind would have become as the Great Old Ones; free and wild and beyond good and evil, with laws and morals thrown aside and all men shouting and killing and revelling in joy. Then the liberated Old Ones would teach them new ways to shout and kill and revel and enjoy themselves, and all the earth would flame with a holocaust of ecstasy and freedom.

        muddy water can best be cleared by leaving it alone

        by veritas curat on Thu Oct 17, 2013 at 06:32:01 PM PDT

        [ Parent ]

  •  on a 'theological' note: (16+ / 0-)

    We're cursed with neo-liberalism as a punishment for having so many hypocrites using god's name for their own self-service.

    Neo-liberalism and Faked-Again Christianity are two ends of the same stick. A stick named 'It's All for Me.'


    Actual Democrats: the surest, quickest, route to More Democrats. And actually addressing our various emergencies.

    by Jim P on Wed Oct 16, 2013 at 10:55:42 PM PDT

  •  Anybody who thinks that Creationism (18+ / 0-)

    and Global Warming Denial are the ultimate in anti-science behavior has failed to notice that in Economics the Market Fundamentalist inmates bought out the asylum.

    At least on Global Warming, the markets are saying correctly that the time for coal is over, except in making steel, where the carbon goes mainly into the alloy, not the atmosphere. In what I have seen, apart from the Wall Street Journal and some at Forbes, the rest of the financial press recognizes Grid Parity (cheaper electricity from renewables than from coal) and approves. This includes Bloomberg, Business Week, Business Insider, The Financial Times, The Economist, and others. Goldman-Sachs has published advisories against investing in coal-fired power plants and coal export terminals. We are now shutting down way more coal-fired plants in the US than we are building, by a large multiple.

    Ceterem censeo, gerrymandra delenda est

    by Mokurai on Wed Oct 16, 2013 at 10:56:30 PM PDT

    •  I believe China and India are taking up the slack (3+ / 0-)

      The market correction for climate change is way too little, way too late for planet earth.

      And so it is that markets often 'correct' after the harm is done. When it comes to climate change, that harm will last for thousands, and quite possibly, millions of years.

      The physics of earth climate and chemistry don't give a shit about markets.


      "We must make our choice. We may have democracy, or we may have wealth concentrated in the hands of a few, but we can't have both." - Louis Brandies

      by Pescadero Bill on Thu Oct 17, 2013 at 06:58:58 AM PDT

      [ Parent ]

      •  A market economy is kinda like a thousand (6+ / 0-)

        Exxon Valdezes all jockeying for position to get out of Prince William Sound, while a million small fishing boats with bad radios and superstitious crews captained, as often as not, by wannabe Ahabs, buzz around trying to catch as many fish as possible before the other guys do, their skippers imagining that if they catch enough fish (while there still are fish) their little fishing boat will transmogrify into an Exxon Valdez. Meanwhile, 300,000,000 people are paddling around in dinghies and canoes and kayaks, trying to collect enough rainwater to stay alive, without getting run down by an Exxon Valdez or caught up in a trawler's gear or capsized by the chaotic wavescape of overlapping wakes.

        And this guy wins a big non-Nobel prize for a bunch of fanciful tautological equations that assume that every decision being made by every skipper is not only in the immediate best interest of that skipper, but magically is also in the long-term best interest of the skipper, the crew, and all of the other skippers and crews, whether sailing on a tanker or paddling a vinyl inflatable that's already been patched too many times and is suffering significant UV damage.

        To put the torture behind us is, inevitably, to put it in front of us.

        by UntimelyRippd on Thu Oct 17, 2013 at 07:53:58 AM PDT

        [ Parent ]

      •  Exactly right (4+ / 0-)
        Recommended by:
        NoMoreLies, Sandino, katiec, catfishbob

        The "markets" are going to find out what a "hard stop" looks like when the realization is reached that there really is no such thing as an externality.  External to what ?  The planet ?  I don't think so.

        We march steadily on to our Limits to Growth - while the economists fumble over themselves in an attempt to repeal the 2nd Law of Thermodynamics...

      •  China and India are ramping up renewables (0+ / 0-)

        at a considerable rate. They will reach the crossover point where they can build them out faster than demand grows in a surprisingly short time, and then stop building coal-fired plants as rapidly as anybody else. China actually has a severe overcapacity problem in solar PV panel production, in large part because it did not occur to the government to buy and install them itself. It has focused too much on wind and hydro among renewable power sources.

        The speed of the conversion will be surprising, anyway, to those who cannot fathom the nature of compound interest and exponential growth, and particularly those with their fingers in their ears concerning Grid Parity.

        We can discuss methods for extracting CO2 from the atmosphere and oceans, collectively known as geoengineering, with the caveat that they all come with side effects that have to be evaluated, and countermeasures considered, before any of them can be scaled up to meet the need.

        The problem is exceedingly difficult, but not inherently impossible.

        Ceterem censeo, gerrymandra delenda est

        by Mokurai on Fri Oct 18, 2013 at 12:04:18 AM PDT

        [ Parent ]

    •  asdf (1+ / 0-)
      Recommended by:
      Sandino
      ...except in making steel, where the carbon goes mainly into the alloy, not the atmosphere.
      Pretty sure that's not correct.  The carbon acts as a reducing agent taking oxygen away from the oxidized iron.  The final product is usually less than 2% carbon (cast iron is more).

      Politics means controlling the balance of economic and institutional power. Everything else is naming post offices.

      by happymisanthropy on Thu Oct 17, 2013 at 08:57:54 AM PDT

      [ Parent ]

      •  That certainly used to be true (2+ / 0-)
        Recommended by:
        Sandino, Selphinea

        and it is also true that I did not state the current situation clearly enough. The industry has been steadily adopting technology for reducing its CO2 emissions. Here is the latest in cutting-edge research from MIT on the problem, back in May of this year.

        Study: new steel production method cuts out carbon dioxide emissions

        Material chemists at MIT have developed a way to produce steel without carbon dioxide as a side product, potentially heralding a way to eliminate one of the major sources of carbon dioxide emissions worldwide…The production of steel—from extracting the iron ore to smelting the steel itself—accounts for more than three percent of global carbon dioxide emissions by some estimates.
        The research was aimed at extracting oxygen from iron oxide moon dust for use at a moon base, using solar power and electrolysis. It unexpectedly turned out that it could be used as an economical method for producing iron from iron oxide here on Earth.

        I should have said that carbon emissions from steelmaking have been declining sharply, and if this new technology pans out, could go away almost completely for new steelmaking capacity, assuming also that coal is not burned for heat in the process, and that renewables are used in mining, transportation, and so on at some point.

        Ceterem censeo, gerrymandra delenda est

        by Mokurai on Fri Oct 18, 2013 at 12:17:51 AM PDT

        [ Parent ]

  •  the link i think you want @ FDL (7+ / 0-)

    Economics Prize Goes To Neoliberal Eugene Fama
    By: masaccio Tuesday October 15, 2013 2:31 pm

    http://my.firedoglake.com/...

    Faux News ruined my state

    by sc kitty on Wed Oct 16, 2013 at 11:00:55 PM PDT

  •  When I heard 3 Americans won Nobel Economics (12+ / 0-)

    I was certain it would be Paul Ryan, Ted Cruz and John Boehner, LOL.

    Imagine my disappointment.

  •  The Obscurity of the Economics Nobel (5+ / 0-)
    Recommended by:
    Habitat Vic, AuroraDawn, Rogneid, native, J M F

    An interesting recent article in The Economist on why so-called economic laureates are often academic lame ducks. Citations of their lifetime work often decrease after they get the prize.

    ACADEMIC economists crave citations. And if a researcher gets an appointment at a prestigious university, or becomes a government adviser, it might mean that they get a few more. But what is the effect of the most prestigious prize of all? You would think that the Nobel Memorial Prize in Economic Sciences, first awarded in 1969, would send the winner’s citation count through the roof. But a new paper*, by researchers from Oxford and Uppsala University, paints a different picture.
    (snip)
    People tend to win Nobel prizes when their career has nearly reached its peak. The Swedish Academy, which makes the award, plays it safe. After winning the prize, there is a small boost to winner’s citation count. But then it declines.
    The economist is reporting an academic paper by researchers ( *  Bjork et al) from Oxford and Uppsala universities.
    The authors are not entirely sure what these findings demonstrate. Nobel prize-winners might not get cited as much as they once did because their research is so well known that nobody bothers to reference it. To me, the results show that economics is a fickle discipline. Ideas that were once all the rage are quickly forgotten. Staying power in economics, even for those who win the discipline's most coveted prize, is hard to come by.
    The defunct economists who in Keyne's memorable image enslave 'practical men'.

    * Bjork, S., Offer, A., & Söderberg, G. (2013). "Time series citation data: the Nobel Prize in economics", Scientometrics, 1-12 vol. 95 (forthcoming 2013, available online).

    Violence is the last refuge of the incompetent.

    by saugatojas on Thu Oct 17, 2013 at 02:13:34 AM PDT

  •  Alfred Nobel invented dynamite, (17+ / 0-)

    and since neoliberal economic practices seem to blow up markets on a regular basis, the prize could be considered apropos.

    “The universe implodes. No matter.” -Liam Williams

    by northsylvania on Thu Oct 17, 2013 at 02:17:26 AM PDT

  •  In tne great tradition of Milton Friedman and (5+ / 0-)

    Gary Becker.

    "When dealing with terrorism, civil and human rights are not applicable." Egyptian military spokesman.

    by Paleo on Thu Oct 17, 2013 at 02:45:40 AM PDT

  •  This is the real Cubs curse (14+ / 0-)

    It's not the billygoat or Steve Bartman.  It's the University of Chicago Economics Department.

    "When dealing with terrorism, civil and human rights are not applicable." Egyptian military spokesman.

    by Paleo on Thu Oct 17, 2013 at 02:47:34 AM PDT

  •  What does it take to kill a failed ideology? (11+ / 0-)

    Neoliberal economic ideology is a reality-denying failure, but it continues onward because the powers-that-be feed it funding.

    People in the financial industry and the pollution industry have a vested interest in government deregulation (individuals do great for themselves from marginal short term gains even if the policies are disastrous long term).  So, it's no surprise that they will keep this zombie ideology alive by institutionally funding it.  It's sad that they drink their own kool-aid, but that's not surprising either.

    My question is broader, though...there have been plenty of well funded self-serving ideologies in the past--like the ideology of slavery in the US.  But it's possible for those failed ideologies to eventually die out.

    What's it going to take to kill this failed ideology?

    •  A lot, apparently. (9+ / 0-)
      What does it take to kill a failed ideology?
      Politico posted an article the other day about the resurrection of Art Laffer's career as the official "GOP Tax Man".
      Four decades ago at the Washington Hotel, a quirky economist made a pitch on the back of a napkin to Ford administration officials Dick Cheney and Donald Rumsfeld: Cutting taxes would create an economic boom.

      Back then, many Republicans opposed tax cuts, but that famous “Laffer curve” chart made young Arthur Laffer a conservative legend and spawned a generation of tax-cutting revolutionaries — while Laffer went on to make a fortune in the private sector...

      Now, Laffer is back. The 73-year-old helped Gov. Sam Brownback (R-Kan.) sell his tax reform idea to Kansas, pushed Republican Tennessee Gov. Bill Haslam to ditch the estate tax and gave momentum to North Carolina lawmakers desperate to slash rates. All told, Laffer has advised about a dozen GOP-run states on taxes in the past couple of years.

      Who would have guessed, say, fifteen years ago, that we'd be hearing from this twit again? If the economic disaster that was the Bush presidency didn't convince these fools that trickle down, supply-side economics is a joke, I don't know what could. But right-wingers still cling to these failed policies. They seem to feel a tremendous emotional attachment to their bad ideas and failed plans.

      As for rising inequality, many on the right don’t even think it’s a problem...Conservatives seem to believe that the rich will work harder if we give them more, and the poor will work harder if we give them less ~ E.J. Dionne

      by AuroraDawn on Thu Oct 17, 2013 at 05:20:27 AM PDT

      [ Parent ]

  •  God made economists so astrologers can look good (14+ / 0-)

    God Invented Economists To Make Astrologers Look Good -- So Why Do Economists Get All The Nobel Prizes?

    Any day now the Bank of Sweden will announce a new Nobel economics laureate. Judging by the bank's record, he is likely to be an aging Anglophone, Caucasian male.

    He is also likely to be a dangerous crank.

    For many years, the great majority of recipients of the Swedish bauble have been advocates of extreme laissez-faire. As such, they have been precisely the people we have to thank for the radical financial deregulation that has blighted the lives of so many home buyers and small investors in the United States (not to mention Ireland, Spain, and elsewhere)....

    Go read it to amuse yourself.

  •  Do the negatives for Nobel winners hold for Krugm (5+ / 0-)

    an as well? I am Joe Sixpack (totally unschooled)when it comes to serious economics but I had always considered it a validation for Krugman to have won the prize. As a layman with average intelligence I am always trying to find objective authorities to give credibility to things which affect my life but I cannot, on a practical level, afford the time to research.

    I had hoped for the Nobel to be such an authority but your diary indicates the committee is as reliable as a stopped clock and is right twice a day but usually wrong. Since Stiglitz and Krugman both have won the prize I considered it a trustworthy indicator. That you would consign a recent recipient to the innermost depths of Hell gives me pause to question that assumption. I will continue to rely on experts whose theories incorporate the impact of their practices on the whole of humanity instead of just the economic elites as neo-liberals do.  

    •  That's a fair point and points out the (1+ / 0-)
      Recommended by:
      Sandino

      contradictions that have come with the awarding of the Prize.


      "We must make our choice. We may have democracy, or we may have wealth concentrated in the hands of a few, but we can't have both." - Louis Brandies

      by Pescadero Bill on Thu Oct 17, 2013 at 07:05:44 AM PDT

      [ Parent ]

    •  Krugman is a mainstream economist ... (2+ / 0-)
      Recommended by:
      Sandino, katiec

      ... when it comes to the long run, pursuing a theory in which the short run can still act more or less as Keynes described while the long run operates along the same neoliberal lines. This is what is called the "New Keynesian" approach.

      So take care whether Krugman is talking about the short term or the long term ... the further ahead he is pointing to, the closer it is to the neoliberal hokum.

      Support Lesbian Creative Works with Yuri anime and manga from ALC Publishing

      by BruceMcF on Thu Oct 17, 2013 at 01:29:54 PM PDT

      [ Parent ]

    •  K. is pretty much a monetarist, except when (0+ / 0-)

      you near 0% interest rates, then he realizes the Fed has run out of tricks, so maybe fiscal policy is a good idea.

  •  I wish I could see this on the front page (8+ / 0-)

    You know, I really have come to despise economists. At least the political scientists know they are aware of very little and keep to their tiny tasks of seeking the holy grail of predicting human behavior. Economists routinely lie to themselves like children, and even the peerless intellects of Krugman and Stiglitz mean nothing to them.  They still get paid.

    Perhaps if political scientists got paid to lie on teevee we'd be as bad as these scumbags from Chicago.  I don't know.

    Anyway, vast damage has been done to the little people while these fools tip back their wine glasses at night and get prizes.  Omfg.

    Thanks for this.  Some day, in some way, these Chicago pipsqueaks of intellect will shut up.  I swear they will have to, it's impossible to be so wrong for so long, even in the grossly distorted human realm of reality.

  •  I think that Fama is a sterling (5+ / 0-)
    Recommended by:
    NoMoreLies, tardis10, NBBooks, Sandino, Ed Gein

    example of the problem of bias in the social sciences.

    For a part of my graduate thesis, I needed to read Fama's Agency Problems and the Theory of the Firm. It's a nifty little paper which specifies conditions under which there are no agency problems, since an efficient capital market provides data to an efficient labour market which reduces a shirking manager's future income when contract renewal comes up, ensuring the agent will act in the principal's interest.

    Here's the catch: In that paper Fama acknowledges that the markets may not do their job (although he cautions that a strong presumption against efficiency may not be appropriate). But even on first read I thought the qualifications were made somewhat reluctantly, more for appearance's sake than anything else.

    Now, Fama's model is actually useful, since knowing a hypothetical optimum can help explore if and why such an optimum is not reached in practice (asset specifity, limited number of contractual revisions, information decay with regard to time, difficulties in separating the marginal products of different board members...). Basically, the model provides a nice starting point for further research.

    The tragedy is that it appears a large portion of economists don't think like that. They don't adopt positions as a result of research, but guide their research on the basis of their existing political beliefs. While that can provide a strong incentive to expose the flaws of existing theories, it creates a danger of developing blind spots when it comes to flaws in your own theories.

    Iuris praecepta sunt haec: Honeste vivere, alterum non laedere, suum cuique tribuere. - Ulpian, Digestae 1, 3

    by Dauphin on Thu Oct 17, 2013 at 05:32:38 AM PDT

    •  I think there is strong evidence that this flaw (0+ / 0-)

      applies to all sciences that are studies by human beings.

      The tragedy is that it appears a large portion of economists don't think like that. They don't adopt positions as a result of research, but guide their research on the basis of their existing political beliefs. While that can provide a strong incentive to expose the flaws of existing theories, it creates a danger of developing blind spots when it comes to flaws in your own theories.
      In a few hundred years we my have flawless scientists with computer brains.  Until then we're going to have to live with this.
  •  anti science whiff of this article is disturbing (8+ / 0-)

    The anti-science whiff of the article is disturbing. If there is anything resembling the rightwing's hate of climate science or other scientific results when these collide with their ideology, then it is the left's relationship with economics (and some biology).

    Let it go. There is nothing to gain and much to loose in hate-articles against scientists.

    Science evolves, and i does so in controversial debate, but not in hate-fests by ideologues. Scientists are not evil because their results do not fit your comfort level. They may be wrong, but that will evolve in the scientific debate.

    •  It's anti-PSEUDOscience (6+ / 0-)

      just like any article mocking astrologers, Tarot readers, Atlantis freaks, and other people who build cloud castles on utterly wrong ideas.

      The difference is that the former quacks have a limited range of damage - fake economists don't.

      If it's
      Not your body,
      Then it's
      Not your choice
      And it's
      None of your damn business!

      by TheOtherMaven on Thu Oct 17, 2013 at 05:59:39 AM PDT

      [ Parent ]

      •  the exactly same arguments (3+ / 1-)
        Recommended by:
        Sparhawk, duhban, Ed Gein
        Hidden by:
        happymisanthropy

        are leveled against climate scientists by the right wing.

        And the same answers apply here. They are real scientists because they are employed as such by real universities and scientific debate doesn't happen here but in peer reviewed scientific journals.

        You are the quack , because you think that you, a pajamas clad highschool dropout or writer or coder commenting on a blog actually know better.

        You don't.

        •  Bush II graduated from Yale and with a Harvard MBA (2+ / 0-)
          Recommended by:
          happymisanthropy, Sandino

          These universities are considered to be among the cream of the crop in academia.Did that lend an air of legitimacy to the way he ran the country or make W a giant of intellect? Does your assertion that economics is a legitimate science prove that it i is without further evidence. The fact that you have resorted to personal attacks this soon in the discussion proves one of two things: either you have a very thin skin or you are simply a troll. When the ad hominem attacks come out the second concluson appears to be the more reasonable.

          Trickle Down Economics 101: They get the golden parachute, we get the golden shower.

          by NoMoreLies on Thu Oct 17, 2013 at 06:44:45 AM PDT

          [ Parent ]

          •  not sure where the personal attack is (1+ / 0-)
            Recommended by:
            duhban

            "high school dropout or writer or coder" describes, inter alii, myself (it professional holding with a masters degree in cs) as well.

            "quack", of course is YOUR OWN CLAIM, turned around.

            •  YOU claimed the article was "anti-science" (4+ / 0-)

              and then jumped all over anyone who expressed skepticism about neoliberal economics, claiming they were opposed to ALL economics and by extension ALL science.

              Bogus premises, bogus argument.

              IMHO there are "fake economists" out there, and they are capable of a great deal of damage. Ever hear about Pinochet's Chile, under the influence of the Chicago School of economics? No? You might learn something.

              If it's
              Not your body,
              Then it's
              Not your choice
              And it's
              None of your damn business!

              by TheOtherMaven on Thu Oct 17, 2013 at 07:44:19 AM PDT

              [ Parent ]

            •  I came across with a broad brush approach (1+ / 0-)
              Recommended by:
              Sandino

              Not all economics is total voodoo, .  Microeconomic models also tend to be more accurate in predicting behavior in very small systems, and heterodox economics which factors in information gathered from other disciplines, including the hard sciences, is much more useful in solving the broad problems we face.

              Examples of this would include Ecological and steady state economics, which do acknowlege that economics is a subset of environmental and societal factors, and cannot be analyzed in an isolated bubble.

              However, mainstream or neoclassical economics factors in some very dubious assumptions with which it uses as foundation, or ignores as inconvenient, including the inability to assign value to non-monetized societal and ecological services, and biophysical limits, and to quantify externalities.

              The main benefit of mainstream economics is that its theories work very well as a legitimation tool for the enrichment of elites, and yet another example of he who has the gold makes the rules, so lets make theories of its allocation a tool for legitimating decisions that benefit elites at the benefit of everyone else. Biology and other hard sciences can also be misused to enrich elites; witness the misuse of pesticide resistant genes and transgenic organisms.

              The problem with mainstream economics as it has been set up as a discipline is:

              Its conclusions are presented as immutable

              Conclusions and practicioners, particularly among academic departments endowed by wealthy elites, are directed to highlight benefits that are derived from those elites.

              Alternative theories, such as heterodox economics and ecological economics are driven to the margins of the discipline as they don't necessarily come up with research and theories that would benefit wealthy elites.

              Discredited theories such as the Laffer Curve and trickle down economics have been largely disproven, yet they still are respected as mainstream within the discipline.

              Mainstream economics, as a discipline, is not concerned with using empirical evidence to solve problems of wealth distribution, shared prosperity and ecological degradation.  Too much is focused on using conclusions and a priori assumptions that benefit an already outsize, bloated and corrupt financial sector at the expense of everybody else.

              Its the 1) the misuse of the discipline in service of big money, and 2) the use of academia to legitimize conclusions that favor big money.

              Trickle Down Economics 101: They get the golden parachute, we get the golden shower.

              by NoMoreLies on Thu Oct 17, 2013 at 08:30:45 AM PDT

              [ Parent ]

              •  the laffer curve? (3+ / 0-)
                Recommended by:
                duhban, Sparhawk, Ed Gein

                Thats one of the most simple concepts in economics, and its not discredited at all.  There is all kinds oif debate about its actual shape and parameters, but its core assumption is so elementary its hardly even debatable.

                If you tax 100% of income, people wont work in taxable fashion (as they have to eat), so you get next to no taxes.
                If you tax 0% you dont get any revenue either.

                Somewhere those two points must be a point that provides the maximum tax revenue possible.  Thats simple math, and simple math has not been discredited yet.

                Which gets us to economical make believe land of simplicist left wing ideology. Because some variant of the Laffer curve is the underlying assumption of tax cuts, it must therefore be dicredited.

                Why this perceived consequence is nonsensical is left as an exercise for the reader :-)

        •  DBAD. (1+ / 0-)
          Recommended by:
          NoMoreLies

          Eugenics was once studied in universities, and I believe there were peer reviewed eugenics journals as well.

          The HR is for personal abuse.

          Politics means controlling the balance of economic and institutional power. Everything else is naming post offices.

          by happymisanthropy on Thu Oct 17, 2013 at 09:07:37 AM PDT

          [ Parent ]

          •  Eugenics is scientifically sound, though. (0+ / 0-)

            Ethically, perhaps not, but scientifically, yes.

            The Nazis went and used pseudo-eugenics to justify racism, much like how Republicans use pseudo-economics to justify wealth inequality; however, eugenics and economics are both still valid fields of study, when applied scientifically rather than ideologically.

            * "Power attracts the corruptible. Suspect all who seek it." - Frank Herbert * (-7.25; -5.64)

            by Selphinea on Thu Oct 17, 2013 at 09:48:51 AM PDT

            [ Parent ]

            •  There may be some scientific validity (0+ / 0-)

              to be found in eugenics, but NONE of what was published in the early 20th century was sound.

              Politics means controlling the balance of economic and institutional power. Everything else is naming post offices.

              by happymisanthropy on Thu Oct 17, 2013 at 10:38:07 AM PDT

              [ Parent ]

              •  Denying eugenics is denying natural selection. (1+ / 0-)
                Recommended by:
                Ed Gein

                Please don't actually go anti-science here. The theoretical core of eugenics is as firmly established as science can be.

                As for what was published in the early 20th century, I couldn't say--I'm not a scientific historian.

                * "Power attracts the corruptible. Suspect all who seek it." - Frank Herbert * (-9.38; -8.15)

                by Selphinea on Thu Oct 17, 2013 at 10:57:29 AM PDT

                [ Parent ]

              •  If you don't let the mentally disabled have (0+ / 0-)
                There may be some scientific validity (0+ / 0-)
                to be found in eugenics, but NONE of what was published in the early 20th century was sound.
                children then over time you will have fewer mentally disabled people.

                There was plenty of stuff along those lines published in the early 20th century and, as mental disability is often genetic, it is incontrovertibly true.

                •  The drawback is that you may have fewer geniuses. (0+ / 0-)

                  By removing the results on one end of the curve, you may reduce overall variation, depending on the biological basis for both. Eugenics is something to be practiced only with great caution.

                  * "Power attracts the corruptible. Suspect all who seek it." - Frank Herbert * (-9.38; -8.15)

                  by Selphinea on Thu Oct 17, 2013 at 10:20:00 PM PDT

                  [ Parent ]

                  •  Can you provide any evidence that this is likely? (0+ / 0-)

                    Why would removing variability at the bottom end of the curve affect the top end?

                    •  Men are more likely to be geniuses than women, (1+ / 0-)
                      Recommended by:
                      Sandino

                      but also more likely to be intellectually disabled.

                      People with bipolar disorder are more likely to have high IQs, but also more likely to have low IQs.

                      Schizophrenia is more common in people with low IQs, but the DARPP-32 gene variant correlated with schizophrenia is also much more common in creative geniuses than in the general population. They simply don't present with clinical symptoms--though they do score highly on the schizotypy scale.

                      The human body is a very complex system. Some disabilities may actually be advantages when combined with the right traits.

                      * "Power attracts the corruptible. Suspect all who seek it." - Frank Herbert * (-9.38; -8.15)

                      by Selphinea on Fri Oct 18, 2013 at 01:26:05 AM PDT

                      [ Parent ]

          •  I'm not HRing you back (1+ / 0-)
            Recommended by:
            Ed Gein

            but rest assured I consider your HR abusive.

      •  TheOtherMaven - As an economist myself, I have (4+ / 0-)
        Recommended by:
        NoMoreLies, J M F, Sparhawk, duhban

        to say that economics is not a pseudo-science. It is, at its best, an observational science. Like astronomy.
           At the micro-level, economics is pretty non-controversial.
           At the macro-level, there is serious debate among economists about what the data mean. It isn't unusual in the sciences for scientists to disagree with the meaning of observations.
           It is at the macro-level, though, that economics becomes corrupted by political bias on the part of economists themselves. It is also where there is big money for big name economists who support positions advocated by the wealthy and powerful.
           Rather than simply denouncing economics and economists in general, Progressives would do well to study it.
           Economics is a set of tools. Understand it and you can play the game, too.

    •  In what way is economics a legitimate science? (5+ / 0-)

      When compared to one of the hard sciences like biology,  chemistry or physics?  None of the hypotheses or theories are testable in the real world and the models fall apart with the flimsiest of empirical evidence.  If you can provide a real world example disproving this, please enlighten us. Economics ignores real world physical limits, can add but not subtract since it nearly always ignores negative externalities, and clings to a world view where certain actors in the economy are dismissed because to include them discredits the preconceived notion. Case in point - austerity and neo liberal trickle down economics.  It is warped by the worldview of those who benefit from its myopic tunnel vision.

      Trickle Down Economics 101: They get the golden parachute, we get the golden shower.

      by NoMoreLies on Thu Oct 17, 2013 at 06:05:57 AM PDT

      [ Parent ]

      •  yeah, just like climate science. (2+ / 0-)
        Recommended by:
        MGross, duhban

        ... Or evolutionary biology.

        Science you don't like is never real science.

      •  Economics is a science (3+ / 0-)
        Recommended by:
        NoMoreLies, J M F, duhban

        This statement is overbroad.

        Externalities are covered in most intro textbooks and well understood throughout the field. Macro economics is a mess, but there are still many useful areas of research ongoing.  (Think about Paul Krugman's nobel-prize winning work on international trade, or Larry Diamond's nobel-winning work on unemployment, or Christina Romer's work on economic history or Alan Blinder's and George Akerlof's work on new Kensyian models)

        As for your point about Austerity economics, the vast majority of economic research has discredited the idea under most circumstances (see the replication of Rogoff and Reinheart's debt paper, and pushback on Alesina's doctrine of expansionary austerity -- which is how any science is supposed to work, some one puts up a theory, tests it and gets results. Then others try to replicate it and if they can't they question it) Just because policy makers embrace bad economics, doesn't mean that all (or most) economists do bad science.

        For a good introduction to econ (as a science!) that a lay person can understand, try Krugman's "Peddling Prosperity" or "The Incidental Economist"

      •  Or also read Elinor Ostrom (5+ / 0-)

        She's a political scientist who did a lot of economics and thought through a variety of economic assumptions, game theory and organizational models to classify, develop and observe different ways to organize society to respond to common pool resource problems (one form of externality). Some of those ways involve private property rights, but the point is that her work expands beyond that to see how non classical liberal (or neo-liberal) arrangements can align incentives appropriately to maximize use of a fishery or forest while not depleting it.

        Try reading her "Governing the Commons," which is the foundation of the work that got her the Nobel in economics several years ago.

      •  You seem to be believing the neoliberal economists (2+ / 0-)
        Recommended by:
        duhban, Selphinea

        that they are the only economists.

        There are economists that generate hypotheses and theories that are testable in the real world. They are, of course, utility theoretic economists, and so ignored by neoliberal economists, but they do exist.

        There are economic approaches that do not ignore real world physical limits, there are economic approaches that do not ignore negative externalities.

        Austerity and neoliberal trickle down economics only indict those pseudo-science approaches to economics that fall for that claptrap.

        Support Lesbian Creative Works with Yuri anime and manga from ALC Publishing

        by BruceMcF on Thu Oct 17, 2013 at 01:36:28 PM PDT

        [ Parent ]

      •  Try trading options on a large scale without (0+ / 0-)

        using Black Scholes.  Come back and lets discuss whether or not economics is science after you lose a few million dollars.

        Actually, the stories about the options markets in the mid-70s after Black and Scholes published their first paper are pretty interesting.

        At the beginning, virtually all the traders laughed at the idea that you could price options without betting on the direction of the underlying stock and ignored it, but a few people understood the theory and were able to get the backing to trade based on it.

        Over time it became a major cultural divide - the quants vs. the old time traders who swore that they could time the market and buy calls when stocks were going up and puts when they were going down.

        Pretty soon the old time traders were put out to pasture or became managers and the quants ran the show.

        Within a few years all options trading except for retail investors was based on Black Scholes.

    •  Oh boy here we go (3+ / 0-)
      Recommended by:
      Selphinea, NoMoreLies, Sandino

      >free-market "economics"
      >science
      >top lel

      I believe that economics is generally scientific, there's just a lot of money poured into, similar to climate science, ensuring that "findings" that go AGAINST empirical observation are pushed and promoted.

      Neoliberal "economics" essentially says "hey, our models can't account for these factors without producing outcomes that our funders don't like, so ignore those factors!"

    •  Oh bullshit ... (3+ / 0-)
      Recommended by:
      Sandino, NoMoreLies, happymisanthropy

      ... critiquing neoliberal economics is a defense of science. "Its not valid but it emulates the economy well enough to pretend that its as if its valid" is no basis for a scientific study of the economy.

      Support Lesbian Creative Works with Yuri anime and manga from ALC Publishing

      by BruceMcF on Thu Oct 17, 2013 at 01:31:36 PM PDT

      [ Parent ]

  •  Economics: The new pseudoscience! (3+ / 0-)
    Recommended by:
    LynChi, happymisanthropy, Sandino

    Are we at the point where psychologists can make better predictions about the behavior of a patient than economic scientists can about economies?

    The joke used to be that being a weatherman was the best job in the world, because you could be wrong half the time and keep your job. Economists blow that job out of the water.

    Sometimes, I wonder why I consider myself a Democrat. Before too long though, dumb Republicans saying dumb things come along to remind me.

    by LnGrrrR on Thu Oct 17, 2013 at 06:35:08 AM PDT

    •  Both human behavior and money behavior are FAR (2+ / 0-)
      Recommended by:
      NoMoreLies, Sandino

      more complex than weather, and so correspondingly more difficult to model;  however, economic behaviors are largely simplified shadows of the much more complex behaviors of humans, which must be referenced in addition to the math so highly prized.

      Even the very best models of human behavior are still woefully short of any real predictive value, but the best ones are accurate enough that, with a large enough 'aperture' and sufficient 'depth of field', they reveal enough to secure their value.  That value, however, is PRIMARILY to those who are trying to improve the models and enhance their value;  economics OTOH has not yet figured out how to clear its calculations of the preconceived certainties of the individual economist, which seriously undercuts the instructive as well as the predictive value of those models (see "Austrian School" models for a wealth of exhibits).

      Being therefore less suggestive and less corrective (that is, tending NOT to improve the theoretical models themselves or the generation of those models) lead rather inevitability renders  economics less substantial than one expects of a science.

      trying to stay alive 'til I reach 65!

      by chmood on Thu Oct 17, 2013 at 07:59:26 AM PDT

      [ Parent ]

      •  Hence why I originally compared it w/psychologists (2+ / 0-)
        Recommended by:
        Sandino, chmood

        I hope that, at least, they've thrown out the idea that people are fully rational actors, and will always choose whatever is in their best economic interest. I would hope game theory has put that idea to rest.

        I'm waiting for someone to disprove trickle-down, personally. (Though the effects are probably enough proof.)

        Sometimes, I wonder why I consider myself a Democrat. Before too long though, dumb Republicans saying dumb things come along to remind me.

        by LnGrrrR on Thu Oct 17, 2013 at 08:52:50 AM PDT

        [ Parent ]

        •  One of those Austrian School notions w/ NO support (2+ / 0-)
          Recommended by:
          Sandino, LnGrrrR

          in the real world whatsoever.  My info on game theory in not exhaustive, but IIRC that it reinforces the rational-actor myth.

          "Trickle-down" is a feel-good fatuity beloved of plutocrats, oligarchs and social Darwinists;  I don't think it requires a more formal disproof than its well-noted and universal failure to operate as predicted anywhere in the real world.  I think instead we need to LAUGH AT people who seriously suggest such nonsense.  Less wear-and-tear, plus the effects will last longer.

          trying to stay alive 'til I reach 65!

          by chmood on Thu Oct 17, 2013 at 02:01:07 PM PDT

          [ Parent ]

          •  On Game Theory (1+ / 0-)
            Recommended by:
            chmood

            The one experiment I was thinking of was the $10 dollar game. (Probably known by another name, but that's how I know it.)

            You have $10. You have to offer another person some amount of that money in dollar increments. if the person refuses, neither person gets any money.

            The "best" offer is to only offer a dollar. You maximize your earnings that way. For the other person, it's "rational" to accept the deal, since the choice is either a dollar or nothing.

            But most studies show people offer something near $5, making it even. When the amount offered gets too low, most reject, because the feeling of getting "cheated" isn't worth the dollar. Humans are funny people. :D

            Sometimes, I wonder why I consider myself a Democrat. Before too long though, dumb Republicans saying dumb things come along to remind me.

            by LnGrrrR on Fri Oct 18, 2013 at 06:58:07 AM PDT

            [ Parent ]

            •  IIRC Nash himself now attributes game theory to (1+ / 0-)
              Recommended by:
              LnGrrrR

              the alienation and dissociation he experienced before receiving treatment for his mental illness.  As a result, I find I now view that entire exercise as suspect and undependable (until PROVEN otherwise)

              trying to stay alive 'til I reach 65!

              by chmood on Fri Oct 18, 2013 at 07:03:40 AM PDT

              [ Parent ]

              •  Hm interesting (0+ / 0-)

                I'm not a statician or anything; I just have a passing interest in it. I will have to read up on that. Thanks for the info!

                Sometimes, I wonder why I consider myself a Democrat. Before too long though, dumb Republicans saying dumb things come along to remind me.

                by LnGrrrR on Fri Oct 18, 2013 at 07:37:44 AM PDT

                [ Parent ]

  •   Robert Schiller also won this year (7+ / 0-)

    Schiller has very different ideas about how the world works than Fama does. This is a very basic oversight this diary makes.

    Also please keep in mind that Fama wasn't honored for his recent stupid statements, but for some initial models he developed more than a decade ago. There are serious holes in those models, but they did intellectually move the field forward and are useful as abstractions. (Same thing goes for Robert Lucas, who got the prize a few years back -- he exposed some serious holes in Kensyian theory, which were then patched by people like Akerlof, Blinder and others.)

    •  Ha ... didn't see this and posted (1+ / 0-)
      Recommended by:
      duhban

      almost the exact same thing.

      I also believe there's a big difference between the economic science (or models as you state) of 'efficient markets' and the religion which has developed in certain circles.

      Economists would say just about anything is a model - perhaps useful, but with an understanding of what it means and in which situations. Not to be used as a magic predictor of everything.

  •  I once pissed off an entire room full of economics (7+ / 0-)

    students by pointing out to them that economics is not a science--it's just an apologetic for the existing social order.

    I was not invited to speak to them again.

    :)

  •  This is more a reply to some of the comments (3+ / 0-)
    Recommended by:
    NoMoreLies, native, parse this

    than it is to the diary.

    No, economics is not a science - at this time. It is more on the order of alchemy, which was the necessary precursor to chemistry and a broad range of other sciences. The medieval alchemist was not a scientist, but tended to keep careful records of what he did, regardless of the causes he assigned to the phenomena he studied.

    Those experiments and records, no matter how oddly attributed, were one of the main bases that science later developed on top of.

    We may never have a science of economics - or perhaps not until we have a solid scientific understanding of human thought, if that's possible. But if we do, it will be because of the work of these people, in all levels of the multidimensional spectra that currently constitute economics.

    Condemn the people who blindly follow them, for whatever reason, but don't condemn their attempt to understand an inherent part of our society, however off the mark it may seem at the moment.

    At least half the future I've been expecting hasn't gotten here yet. Sigh.... (Yes, there's gender bias in my name; no, I wasn't thinking about it when I signed up. My apologies.)

    by serendipityisabitch on Thu Oct 17, 2013 at 07:09:23 AM PDT

    •  Alchemy was more poetic than economics is, (3+ / 0-)

      with a far more open-ended field of inquiry. I don't see how the study of economics can be anywhere near as fruitful. As currently practiced, economics is so narrowly focused it excludes factors that would properly be axiomatic, if it were to be a true science. It seems to be conceived of more as a tool than as a quest for knowledge.

      •  The quest to be able to convert lead to gold (0+ / 0-)

        was also rather narrowly focused. [and an economic issue, iirc ;)] That didn't stop the information gained in the process from ending up being valuable - once there was enough of it, over a wide enough range of trials.

        I can't, quite frankly, imagine what a science of economics would end up looking like, nor what axioms it might include. That's the point.

        At least half the future I've been expecting hasn't gotten here yet. Sigh.... (Yes, there's gender bias in my name; no, I wasn't thinking about it when I signed up. My apologies.)

        by serendipityisabitch on Thu Oct 17, 2013 at 08:35:02 AM PDT

        [ Parent ]

  •  The OP focuses on the efficient market (2+ / 0-)
    Recommended by:
    serendipityisabitch, J M F

    hypothesis at the expense of what the award was.  Fama's research on the efficient market was recognized - and it was important work such that it created an intellectual foundation for future testing.

    But Fama was sharing the award with Shiller, whose research disputed the Efficient Market Hypothesis.  It was an extension of Fama's original research ... which enlightened on how markets worked while refuting some of Fama's conclusions.  

    Taken as a tandem, the honor makes more sense.  

  •  Really glad you wrote this. I was completely (2+ / 0-)
    Recommended by:
    native, parse this

    disgusted when the prize for Fama was announced. I then stumbled across the Wall Street Journal (of course it would be them) interviewing Fama. It is amazing that a man like Fama can show zero remorse or introspection after the financial crisis. These people are zealots- nothing more. Cassidy's interview with this troll is priceless. Fama's comments demonstrate how bankrupt he is, both as an intellectual and a human being. Dante definitely would have put these bums in hell, and yes, it's time to eliminate the prize for economics. T&R

  •  Don't forget Robert Shiller also won (2+ / 0-)
    Recommended by:
    tardis10, pat208

    He won for illustrating the holes in efficient market theory

  •  I've often speculated which bolgia would get (1+ / 0-)
    Recommended by:
    NBBooks

    Rush and Rove, assuming they aren't actually gathered to the bosom of Abraham. A very good case could be made that they're sowers of discord (especially Rush), but both are professional deceivers as well. Hmm....

  •  These diaries always kill me. (4+ / 0-)
    Recommended by:
    FG, pat208, Sparhawk, Ed Gein

    Mainly, people who claim Economics isn't a science with one side of their mouth, and heap derision upon those who doubt AGW with the other.

    Economists have had a much better predictive decade than climate scientists have.

  •  Sure, any science that the diarist disagrees (4+ / 0-)
    Recommended by:
    Sparhawk, Sky Net, duhban, Ed Gein

    with based on his/her politics is fake. There are no other criteria. What I don't understand is why then anyone complains about people who reject global warming.

  •  i ran, screaming, far far away (3+ / 0-)
    Recommended by:
    NoMoreLies, Sandino, waterstreet2013

    from an initial intent to study economics as an undergraduate ... the term "cognitive dissonance" was not in my vocabulary in 1985, but that was precisely what i was experiencing.

    what a house of cards the discipline is -- predicated upon all manner of assumptions and "all things being equal," most of it laid waste to the bullshit it is with a modicum of ground truthing. meanwhile, we're told that it's some law / force of nature, as opposed to the deeply flawed human construct that it is.

    "i hear you're mad about brubeck ... i like your eyes. i like him too." -donald fagen

    by homo neurotic on Thu Oct 17, 2013 at 10:06:00 AM PDT

  •  Pardon my ignorance (0+ / 0-)

    but why is insisting on a people-crushing "free market" economic theory called neoliberal, or any kind of liberal?

    “The answer must be, I think, that beauty and grace are performed whether or not we will or sense them. The least we can do is try to be there.” ― Annie Dillard, Pilgrim at Tinker Creek

    by 6412093 on Thu Oct 17, 2013 at 10:30:41 AM PDT

    •  A good question, and I sometimes wonder why (3+ / 0-)
      Recommended by:
      NoMoreLies, Sandino, waterstreet2013

      it is not asked more often. Stirling Newberry had a great, short explanation of the answer a few years ago, as just one or two paragraphs in a much longer essay. Basically, the "liberal" part comes from the seventeenth century, when most European economies were pretty firmly controlled by the various monarchs and courts of the various European states. Terms of trade in particular were very strictly controlled; such being the defining characteristic of mercantilist economies. Since the economic system was so tightly controlled by so few, economic incentives and rewards were massively skewed to favor those in charge. Attempts to break the monarchs' and their retinues' strangleholds on the economy were part of the Enlightenment's efforts to liberalize (liberate) political and economic structures to make  incentives and rewards more widely and generally available (ie, general welfare).

      In the seventeenth century, with such concentrated political power, and no political institutions anywhere that could legitimately claim to embody the will of the general population, economic liberalism made a lot of sense. But today, two and a half centuries after the American Revolution, a century after women suffrage, and not even a half century since the Civil Rights movement, we (and many other countries) have developed political institutions that can more or less legitimately claim to embody the will of the general population. So the question arises: is there any need for the institutions of the state if markets can  embody the will of the general population through supply and demand, and price discovery?

      Well, my argument is that you must have a mix - as you see from the history of American economic development. The American economy developed through a great deal of oversight and assistance by the national government.  including the establishment of the Patent Office in 1802; the creation of the Coast and Geodetic Survey in 1807 and other measures to improve river and harbor navigation; the various Army expeditions to the west, beginning with Lewis and Clark's Corps of Discovery in 1804 and continuing into the 1870s, almost always under the direction of an officer from the Army Corps of Topographical Engineers, and which provided crucial information for the overland pioneers that followed; the assignment of Army Engineer officers to assist or direct the surveying and construction of the early railroads and canals; the establishment of the First Bank of the United States and Second Bank of the United States as well as various protectionist measures (e.g., the tariff of 1828). After the War of 1812, modern metal-cutting machine tools were developed in the U.S. armories run by the Army and the War Department. Samuel Morse was given direct support for development of the telegraph. The auto industry depended on the roads and highways built by government. Commercial aviation was supported by payments for carrying the mail, by government aeronautical research, and by government safety investigations of accidents. Radio was first developed under the auspices of the Navy. Computers were first developed under the auspices of the War Department. The internet began as the ARPA Net of the Defense Department.

      But in the 1970s, along came Milton Friedman, and Maggie Thatcher, and Ronald Reagan, arguing that government is the problem, and should get out of the way. Well, who benefited? Cui bono? That tells you a lot about what the "neo"-liberalism is really all about. It is a great ironic twist on history! Originally, four and five centuries ago, liberalism was aimed at tearing down the power of oligarchs. Now, neo-liberalism has resulted in the rise of new oligarchs.

      A conservative is a scab for the oligarchy.

      by NBBooks on Thu Oct 17, 2013 at 03:06:49 PM PDT

      [ Parent ]

  •  You get the award (2+ / 0-)
    Recommended by:
    dharmasyd, Sandino

    for justifying the status quo.

    None are so hopelessly enslaved, as those who falsely believe they are free. The truth has been kept from the depth of their minds by masters who rule them with lies. -Johann von Goethe

    by gjohnsit on Thu Oct 17, 2013 at 11:36:32 AM PDT

  •  Au Contraire! (1+ / 0-)
    Recommended by:
    duhban
    (I - and others - would even argue that EMH is a blasphemy, because it attributes to "the markets" all the attributes of omniscience, omnipresence, and omnipotence all religions have traditionally ascribed to deities.)
    I see it differently.  Although EMH may attribute god like qualities to the markets, qualities which they do not possess, I see it as another indication pointing to the need for 'we the people' to grow and become more 'godlike' in our consciousness and interactions.  Though not as clearly evident as the acquisition of nuclear power, it is another, although lesser, indicator.  
    With the splitting of the atom, everything changed save man's way of thinking, and thus we drift toward unimaginable peril.
                  Einsntein
    We need to become moral (god-like) in our being in the world.

    the war being waged...is the relentless ...struggle... by the rich against the poor. " by Andrew O'Hehir in "Salon"

    by dharmasyd on Thu Oct 17, 2013 at 01:47:18 PM PDT

  •  can we leave the good/evil out of this? (1+ / 0-)
    Recommended by:
    Asak

    It's frankly unnecessary and needlessly inflammatory. You can make your case without it and thus you should.

    Der Weg ist das Ziel

    by duhban on Thu Oct 17, 2013 at 03:36:49 PM PDT

    •  I agree with this... (1+ / 0-)
      Recommended by:
      duhban

      I think Fama is misguided and basically flat out wrong, but to say he is an evil person I think is extremely unfair.  There are many really bad people out there.  Having a bad or stupid idea doesn't mean you should be relegated to the 8th circle of hell.  

      I really think that sentiment is fucked up.  Not that I believe in it anyway, but it still seems terrible to wish something like that on someone.  

  •  sorry, I missed this earlier ... (0+ / 0-)

    republished to AC chat, not because it is AC, but because the economists in the group will enjoy it tremendously ... thanks NBB books!

    "Hegel noticed somewhere that all great world history facts and people so to speak twice occur. He forgot to add: the one time as tragedy, the other time as farce" Karl Marx, The Eighteenth Brumaire of Louis Bonaparte .

    by NY brit expat on Thu Oct 17, 2013 at 05:21:32 PM PDT

  •  Glad for the update. (1+ / 0-)
    Recommended by:
    waterstreet2013

    I got the gist of what you were saying before it though. Totally appreciate this great writing and new research perspective sources.

    By bringing the update in you put another head on the pike. No apology for graphics.

    Awesome. Have some reading to finish...

  •  great diary! thanks. tip'd & rec'd. e/m (1+ / 0-)
    Recommended by:
    waterstreet2013
  •  Back 30 years we had a "4% Rule" (1+ / 0-)
    Recommended by:
    Sandino

    economy.

    We saved at 4%, that money got invested to production, and the society leveled out ot 4% unemployment.

    4% savings => 4% unemployment.

    Dysfunctional acquisition by the 1%ers has turned this on end. We're closer to 4% saving going with 8% unemployment.

    Halving the capital gains tax rate in 1999/2000 created a big part of that mess.

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