The Future of Everything

April 24, 2018

Storm warnings

Filed under: Economics, Forecasting — Tags: — David @ 2:17 pm

“The test of science is its ability to predict”
— Richard Feynman

As if governed by some deterministic law, the current debates between economists and critics follow a predictable path. Critics begin by mentioning the failure of economists to predict or warn of the crisis. Howard Reed for example recently wrote in Prospect that ‘When the great crash hit a decade ago, the public realised that the economics profession was clueless.’

Thus provoked, economists then reply by pointing out that macroeconomic forecasting is only a small part of what economists do, that their models are based on mathematics and logical consistency, and that it is critics who don’t know what they are talking about – as in the riposte by Diane Coyle, which describes Reed’s piece as ‘lamentable’, a ‘caricature’ and an ‘ill-informed diatribe’ that furthermore ignores existing guidelines on what criticism is ‘good’ and ‘bad’ (the former includes ‘The criticism is by an economist’ which doesn’t seem in the multidisciplinary spirit, and would rule out this piece since I am an applied mathematician).

In a similar debate last year in Times Higher Education, Steve Keen wrote that the global financial crisis caught ‘leading economists and policy bodies completely by surprise. A decade later, economics is a divided and lost discipline.’ Christopher Auld responded that ‘Criticism of economics that relegates the field to … failed “weather” forecasting is not just misguided, it is anti-intellectual and dangerous.’

Over in the Guardian, Larry Elliott wrote that ‘Neoclassical economics has become an unquestioned belief system and treats those challenging the creed as dangerous’. A group of economists from the Institute for Fiscal Studies (IFS) appeared to confirm the latter when they called the article ‘dangerous’ and ‘ill-informed expert bashing … Like most economists, we do not try to forecast the date of the next financial crisis, or any other such event. We are not astrologers, nor priests to the market gods. We analyse data.’

The usual excuse offered for failing to predict the crisis, as Robert Lucas put it in 2009, is that ‘simulations were not presented as assurance that no crisis would occur, but as a forecast of what could be expected conditional on a crisis not occurring.’ That is like a weather forecaster saying their forecast was explicitly based on no storms. (The claim here reflects the efficient market-related idea that changes are caused by random external shocks.) Another is that no one else predicted it either – though a number of heterodox economists and others would beg to disagree.

But for both sides, the debate soon veers from discussing the crisis, to the topic of politics, with critics saying that economic models have been exploited by the right, while mainstream economists claim that in fact they are terribly progressive.

I would argue though that the debate isn’t really about politics, and less so about what most economists do with their time (the oft-advertised fact that economists apply their models to many things other than macroeconomic forecasting isn’t necessarily reassuring to a critic). Instead it is one of scientific legitimacy, and it as old as the word ‘forecast’.

Forecast

The argument between orthodox economists and their critics resembles one that occurred in weather forecasting in the mid-nineteenth century, with the establishment of the UK Meteorology Office in 1854 by Admiral Robert FitzRoy.

As captain of the Beagle, FitzRoy had taken Charles Darwin on the trip around the world that sparked Darwin’s theory of evolution. Seeing the potential that weather forecasting had to save lives by warning mariners of storms, he set up a network of 40 weather stations around the UK, with weather reports published in London newspapers.

However FitzRoy’s efforts were not well received, either by the public or the scientific establishment. At the time, weather prediction was something practised by astrologers, and the popular press enjoyed themselves comparing the Met. Office’s inaccurate predictions with those from sources such as ‘Zadkiel’s Almanac’. The mainstream scientists saw this prediction contest as a threat to their reputation, just as economists do today.

FitzRoy tried to blunt the comparison with astrology by avoiding use of loaded words such as ‘prediction’, and instead invented a new word of his own: forecast. ‘Prophecies or predictions they are not; the term forecast is strictly applicable to such an opinion as is the result of a scientific combination and calculation.’ In 1863, he published The Weather Book, which tried to make the weather comprehensible to people of average education. However the attempt to popularise the subject only further annoyed elitist scientific institutions like the Royal Society.

Two years later, FitzRoy took his own life at the age of 59. He may have been affected by his association with Darwin’s theory of evolution, which, as a creationist, he considered blasphemous. However it appears that the primary cause of his depression was being caught between the so-called astro-meteorologists on the one side and the scientific establishment on the other.

After his death, a committee chaired by Darwin’s cousin, Sir Francis Galton, released a report which claimed that his forecasts were ‘wanting in all elements necessary to inspire confidence’ and storm warnings were suspended. However FitzRoy was not without supporters; fishermen, maritime insurers, and the Navy had actually found the warnings useful, and they were reinstated in 1867. And today of course we rarely head out on a trip without checking the forecast.

Deniers

Now, one might think that astrology and creationism would have little to do with a debate over the scientific legitimacy of modern economic forecasting, but it seems that not much has changed. Indeed, in recent years – when most people have found economic forecasts ‘wanting in all elements necessary to inspire confidence’ – economists have been as anxious to draw distinctions between what they see as science and non-science as FitzRoy once was.

Diane Coyle for example writes that Reed’s piece conforms to a list of ‘bad’ criticisms helpfully compiled by Auld, which begins: ‘Every mainstream science which touches on political or religious ideology attracts more than its fair share of deniers: the anti-vaccine crowd v mainstream medicine, GMO fearmongers v geneticists, creationists v biologists, global warming deniers v climatologists. Economics is no different.’ Economist Pieter Gautier similarly explained the existence of heterodox approaches by saying that ‘You also see this happening in the other sciences; in biology you have intelligent design, in climate science you have the climate skeptics.’ Pontus Rendahl told the Financial Times in 2016 that calling for more pluralism in economics is ‘the same argument as the creationists in the US who say that natural selection is just a theory,’ while Michael Ben-Gad said that student groups want to be ‘liberated from neoclassical economics’ dogmatic insistence on internal logic, mathematical rigour and quantification … Still, we do not teach astrology or creationism in our universities, though some students might enjoy them more than physics.’ According to Simon Wren-Lewis, the problem with pluralism is ‘obvious once you make the comparison to medicine. Don’t like the idea of vaccination? Pick an expert from the anti-vaccination medical school.’ Or as the IFS economists put it, ‘We are not astrologers’.

Just as Robert FitzRoy had to defend the Met. Office against astrologers (though not creationists, since he was one), so economists are in a battle for what counts as science – which as Feynman noted has always been associated with the ability to predict. The difference is that, while FitzRoy was distancing himself from actual astrologers, mainstream economists tar a broad range of critics as ‘ill-informed’ and ‘dangerous’ deniers, regardless of their background or experience, in what looks like a kind of Hegelian ‘othering’.

Reality check

However, the issue is not ‘political or religious ideology’, it’s science. Predictions are obviously an important part of the scientific method, and when predictions do go badly wrong, it should serve as a reality check. While providing storm warnings is far from being the only job of economists (and expectations are much lower than in something like meteorology), it is surely one of the most important, which is why central banks for example devote considerable resources to it. And reflexively stamping critics and heterodox economists as anti-scientific deniers doesn’t seem very scientific – especially when some of them actually seem to be better at the prediction stuff.

Of course, as I point out in my forthcoming book Quantum Economics, economics should not be compared directly with weather forecasting. For one thing, the fact that economists’ predictions and models affect the economy (the financial crisis of 2008 for example was in part caused by faulty economic risk models) means that their responsibility is more like that of engineers or doctors. Instead of predicting exactly when the system will crash (no one has ever asked for a precise ‘date’), they should warn of risks, incorporate design features to help avoid failure, know how to address problems when they occur, and be alert for conflicts of interest and ethical violations. The profession’s failings in these areas, rather than any particular forecast, are the real reason so many are calling for a genuinely new paradigm in economics, as opposed to a rehashed version of the old one.

In the meantime, perhaps economists should just follow FitzRoy’s lead and invent a new word for their predictions. Econo-prognostications?

This piece first appeared at openDemocracy on April 24, 2018.

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October 10, 2016

More quantum money

Filed under: Economics — Tags: , , — David @ 2:37 pm

New discussion paper at Economic Thought is called A Quantum Theory of Money and Value, Part 2: The Uncertainty Principle.

Here is the abstract:

Economic forecasting is famously unreliable. While this problem has traditionally been blamed on theories such as the efficient market hypothesis or even the butterfly effect, an alternative explanation is the role of money – something which is typically downplayed or excluded altogether from economic models. Instead, models tend to treat the economy as a kind of barter system in which money’s only role is as an inert medium of exchange. Prices are assumed to almost perfectly reflect the ‘intrinsic value’ of an asset. This paper argues, however, that money is better seen as an inherently dualistic phenomenon, which merges precise number with the fuzzy concept of value. Prices are not the optimal result of a mechanical, Newtonian process, but are an emergent property of the money system. And just as quantum physics has its uncertainty principle, so the economy is an uncertain process which can only be approximated by mathematical models. Acknowledging the dynamic and paradoxical qualities of money changes our ontological framework for economic modelling, and for making decisions under uncertainty. Applications to areas of risk analysis and economic forecasting are discussed, and it is proposed that a greater appreciation of the fundamental causes of uncertainty will help to make the economy a less uncertain place.

Download the paper here.

July 17, 2012

Stop sign

Filed under: Physics — Tags: — David @ 12:26 pm

Now that the Higgs boson has (apparently) been discovered at the Large Hadron Collider, physicists are turning their attention to the next big thing. Theorists have long predicted that the LHC would produce supersymmetric particles, but these have so far failed to make an appearance. There was some hope that data would show signs of the stop particle (the supersymmetric partner of the top quark) but that too appears to be fading.

Yesterday Michael Peskin gave a talk in which he argued that the LHC evidence did not imply that supersymmetry was dead – only that we needed a bigger accelerator, such as the International Linear Collider. His argument was in part based on the “sociological evidence” that “1. No theorist who believed in SUSY before 2009 has renounced SUSY in the light of the LHC exclusions,” and “2. Model builders are still building models with 200 GeV charginos.”

As someone who is interested in the sociology of scientific prediction, I would argue that the fact that theorists do not renounce their beliefs due to lack of experimental confirmation, or refrain from building models, is not exactly convincing proof that a theory is right.

A safer prediction is that supersymmetry will remain attractive for a long time yet – in large part because of its aesthetic qualities – and will continue to be used as an argument for larger accelerators. The lack of a stop at current energies is just a green light.

June 13, 2012

Climate Change and its Impact on Preservation Management of Archaeological Sites, Athens

Filed under: Talks — Tags: , — David @ 1:40 pm

Talk on climate change and cultural heritage, Athens

Talk at roundtable on climate change and cultural heritage in Athens, April 2012.  Watch video

April 20, 2012

Video of TEDx talk on prediction at Park Kultury, Moscow

Filed under: Talks — Tags: — David @ 1:02 pm

Theme of this event was Future 2112

 

November 2, 2011

Where’s the puck?

Filed under: World Finance column — Tags: , — David @ 7:39 am

Latest World Finance column is on the science of prediction. And hockey.

The Canadian ice hockey player Wayne Gretzky once said, “A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be.”

Businesses and societies try to perform a similar trick, through forecasting. We seem to have a genetic urge to look into the future, to see around the corner, to guess where the puck is going. In fact even simple bacteria have genetic networks that are used to predict the location of food, and move towards it.

Traditionally the domain of religions, astrologers, and mystics, the role of prognosticator-in-chief has now passed to scientists, who use highly complex mathematical models to predict the weather, the spread of diseases, the economy, and much else – positioning ourselves better for whatever is coming up.
Unfortunately, their track record is less impressive than Gretzky’s.

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