Exactly. I'm also doubtful that taking a more real science approach to economics (hypothesis -> experiment -> result -> rule) will work. It's a science about societies and societies change.
For example, the financial markets are the most measured markets out there, with the most microscopic details recorded. One interesting thing that happens after financial
crashes are crises of theory. For example prior to 1987 American options didn't show [volatility smiles](https://en.wikipedia.org/wiki/Volatility_smile). After the crash the smiles appeared, making the markets a very different place. The same happened after Subprime and the LIBOR scandal, when the notion of a "risk-free rate" suddenly disappeared: governments now had to compensate for their default risk and market quotes were unreliable. Academics still struggle with the whole notion, although it seems that the current practice is settling around OIS discounting and CVA/DVA.
The point is, rules change. Hence in economics you can't just empirically deduce a rule and let it be, you constantly have to recalibrate it.
Astrology has also developed over a couple of millennia.
The fact that some people use astrology to play the markets, and seem to get results that are as good as those of economic theory, says a lot about both.
Economics is entirely a faith-based pseudo-science, which plays the same role in modern culture as the nonsensical theistic "explanations" of the world put out by the Church played in medieval times.
It's a form of political/rhetorical persuasion and social control, with an implied morality that's never seriously questioned. Even if you accept that it's politically descriptive and not politically predictive, it still fails.
It's not a science in any useful way - it simply pretends to be one, because that makes it appear more authoritative.
The real scandal for me is the fact that skeptics and debunkers like the amazing Randi have spent so much time and energy on trivial topics like the paranormal, while leaving the epic intellectual fraud and imposture behind mainstream economic theory unchallenged.
First of all, not a lot of people actually use academic economic theories to "play the markets". Ask a trader how often does (s)he use the General Theory or monetarism in their daily decision making. There are macro-strategies, used mostly by fund managers, but it's not such a big portion of the market.
Secondly, anyone found to use astrology in their market activities would be fired in nanoseconds. Whichever institution. You can do it privately though.
The fact that one can get good results speculating while using astrology as a decision generator (or in fact any other random mechanism, like a monkey throwing darts) is actually known and used in the financial theory. It is called "the random walk hypothesis" and is the foundation of a lot of assumptions. A good introduction to it would be "A Random Walk Down Wall Street" by Burton Malkiel.
So I urge you to actually build an informed opinion before succumbing to an Alex Jones brand of reasoning.
>First of all, not a lot of people actually use academic economic theories
Maybe not, it you don't consider Black-Scholes and it's endless brood of offspring to be serious academic theories.
Not many people use nation-state Keynesian or other big macro policy theories to play the markets - which is a different point.
But it's a relevant different point, because it highlights the political reality of using macro as a hand-wavey excuse for policy which benefits market operators and the owners of the money behind them at the expense of the rest of the population.
>It is called "the random walk hypothesis" and is the foundation of a lot of assumptions.
Quite. Does it not worry you that this is true, or that even with this insight manic-depressive boom-bust behaviour is apparently still considered a feature, not a bug?
>So I urge you to actually build an informed opinion
I suspect my opinion is at least adequately informed. Perhaps you're mistaking being heterodox for being wrong?
The fact that some people use astrology to play the markets, and seem to get results that are as good as those of economic theory, says a lot about both.
So meteorology isn't a real science either, I assume? Having a perfect model doesn't mean you can predict the behaviour of a system; conversely, not being able to predict the behaviour doesn't mean the model is flawed, or non-scientific.
That said, I do agree that economics is taken way too seriously for its incipient state.
Have you seen the documentary on the amazing Randi? It's called an honest liar. It shows that he actively deceived people in order to push his own agenda of what 'truth' is. So I didn't think he was a debunker as much as a persuader.
FYI - I met Randi personally about eleven years ago. He was a wildly charismatic person to talk to. It doesn't show as much when he's on stage or on an interview speaking to an audience.
Nobody believes that markets are strong-form efficient. There is and always will be differences in information between players in the market. It's just a useful way to talk and think about how a market with perfect information would behave. That's why semi-strong and weak form efficiency are usually taught in the same lecture :)
> Doesn't economic theory say that you can't play the market?
That depends which theory; under most that can be taken as even semi-plausibly as models of the real world, no, unless you assert some simplifying assumptions (which then make them no longer semi-plausible models of the real world).
The simplifying assumptions are common in intro-level Econ classes, for the same reason that, e.g., assuming the absence of friction is common in many parts of intro-level Physics classes.
The thing is that we don't have as many people in the public media trying to sell policy using explanations of physics that leverage the fact that most people that know anything about the subject do so through hazily-remembered intro-level classes as we do for economics...
That is not economics in the macro/micro sense, that is more financial/ financial markets theory. It really is a different branch of thinking than what economists deal with.
>The fact that some people use astrology to play the markets, and seem to get results that are as good as those of economic theory, says a lot about both.
Economists hardly ever try to use the results of economics to predict the stock market...in fact economics is the field that has theories that no strategy exists that can beat the market reliably.
Broadly agree, but I don't entirely blame the economists, the politicians need justifications for what they do, and appealing to economics is a great one. Most political movements that have been successful have had some economic backup (eg Friedman and the libertarian right in the 1980s). In practise much of policy is just trying to change stuff using financial incentives, which in many cases has unintended consequences or is too complex.
Only the real science approach ever works. If your "science" is using any other approach, it is not a science, period.
And there is a proper, scientific approach in the economics: behavioural economics. Instead of hand waving about some "ideal", non-existant agents acting fully rationally upon a 100% correct and impossible information available, as the classic bullshit economics does, the proper, behavioural economics starts with studying the real individuals behaviour (which is very much doable, no matter what the others are saying), and only then drawing conclusions about the herd behaviour in a statistical scale.
I'm sorry, but I don't want to debate your personal definition of the word "science". Per convention economics is called a "social science" and that's a convention I will adhere to.
In addition to what JupiterMoon says, I'd say that individual behaviour was never a real problem in economics. A lot of the theories are built on stupid assumptions about rational behaviour, but that's just it: you always can change the assumptions and see what happens. Behavioural economics is just that.
The real problem of economics is scale and inability to cleanly experiment on that scale. To imply any kind of large scale "herd" behaviour from individual behaviour would still require a tonne of a priori, non-falsifiable assumptions. Even if the assumptions can be shown to be valid now, it would be impossible to prove that they are stable and valid for a long period of time.
Yet, the "spherical cow in a vacuum" expression came from a hard science. Einstein didn't exactly develop his relativity theories by making measurements and drawing statistical conclusions either.
Pure theory has its place in science, as long as one is honest about its limitations.
Relativity theory fits well into this description. It (the special relativity) was derived from a formal attempt to unify classical mechanics and Maxwell electrodynamics, which was only possible if you ditch the Galilean relativity. Both classical mechanics and electrodynamics, in turn, came from a huge body of experimental data.
General relativity is a different thing, it was a pure hypothesis, an extrapolation of the simplest possible generalisation of the special relativity [1]. And it held this hypothesis status up until it was sufficiently confirmed by the incoming experimental data. Before that, a multitude of alternative hypotheses existed which had the same numerical predictions covering the available experimental data (e.g., https://en.wikipedia.org/wiki/Anatoly_Logunov#Relativistic_t...).
So, yes, it's important to distinguish theory from a hypothesis.
[1] this "simplest possible generalisation" method works most of the time, but not always, so it's mostly valid to do so in the hard sciences, and should never be used as a justification for hand waving in the social sciences.
Isn't his point that there is a sort of uncertainty principle in economics? For example when you study people they behave differently and furthermore as soon as they think that you think that they will behave in a certain way they may well behave differently -- especially if there is financial gain at stake for changing their behaviour. As you say this all derives from the biggest problem with all the social sciences people are not rational actors and any mathematical model has to encapsulate real human behaviour.
> For example when you study people they behave differently and furthermore as soon as they think that you think that they will behave in a certain way they may well behave differently
That's not an inherent limitation for applying science. Signal theory has models that represent circuits with feedback loops, where the output ; similar models could be developed to study people who know are being studied.
Also, if you use data collections that were compiled for other purposes, you can study the behavior of people who don't know are participating un such study. Big data is essentially that.
> As you say this all derives from the biggest problem with all the social sciences people are not rational actors and any mathematical model has to encapsulate real human behaviour.
There are theories that don't assume perfect rational agents, and can still predict behavior by studying the common human bias. See the work of behavioral economist Dan Ariely for an academic approach.
For example, the financial markets are the most measured markets out there, with the most microscopic details recorded. One interesting thing that happens after financial crashes are crises of theory. For example prior to 1987 American options didn't show [volatility smiles](https://en.wikipedia.org/wiki/Volatility_smile). After the crash the smiles appeared, making the markets a very different place. The same happened after Subprime and the LIBOR scandal, when the notion of a "risk-free rate" suddenly disappeared: governments now had to compensate for their default risk and market quotes were unreliable. Academics still struggle with the whole notion, although it seems that the current practice is settling around OIS discounting and CVA/DVA.
The point is, rules change. Hence in economics you can't just empirically deduce a rule and let it be, you constantly have to recalibrate it.