My favorite part:
"I think it’s time we admit many economists are just soothsayers. They keep their jobs for a host of reasons that have less to do with accuracy and more to do with politics and obscurantism. Indeed, where do you find them but in bureaucracies—those great shelters from reality’s storms? Governments and universities are places where big brains go to be grand and weave speculative webs for the benefit of the few […]
Take this as a throwing down of the gauntlet. Macroeconomic wizards owe us more than the circular justifications for cushy jobs."
## The Myth of the Model
Max Borders
Most people don’t notice it, but “model” may be the most dangerous word in the English language right now. Models justify a lot of the bad policies that have been, or soon will be, foisted on us. For example, what was used to justify the fiscal policy of the big “stimulus”? That’s right. And as I wrote this, “experts” were using models to gear us up for another one.
More than a year after the original “stimulus,” not only are economists nowhere near consensus about its effects but few if any of the models used to justify it have turned out to be right. Obamanomic adviser Christina Romer, for example, has come under heavy criticism because her team’s plan has performed abysmally. The model behind the plan predicted unemployment would peak at 8.3 percent. It exceeded 10 percent before dropping back slightly. In defending her plan she appealed to counterfactuals—that is, how bad things could have been without it. That her team failed to reach its rosy targets, she says, “prevents people from focusing on the positive impact.” But did Romer ever consider the possibility that her model was just wrong?
When it comes to prediction and explanation, macroeconomic models are often just as bad after the fact as before it. There are just as many debates raging about the effects of the “stimulus” as explanations of the crisis used to justify it. Consensus consistently eludes us. Almost all the arguments presuppose models. There are Keynesian models, “new” Keynesian models, and unbranded models proffered by leading economic lights like Harvard’s Robert Barro. Comparative analyses of these positions offer little except further evidence that, as Stanford’s John Taylor writes, “[T]here is no consensus.”
But why? These people aren’t stupid. I’d like to suggest in nontechnical terms why the problem might be with the models themselves. [continued…]
The vast majority of the “evidence” for the light-speed limit is actually circular and, therefore, not evidence of anything. The truly non-circular evidence (undetectable etheric wind) doesn’t really disprove the existence of an ether, it simply fails to confirm its existence, a much weaker piece of evidence.