Does the study of economics have anything to tell us?

Economics by itself is interesting and has some broad lessons to teach us. But as you note, it is not exact and it is subject to various external forces, which makes much of it wishy-washy.

The more interesting (to me) aspect of economics is the are of Behavioral Economics – why people act the way they do, when things might or might not be in their own economic self interest. I strongly suggest that you read Dan Ariely’s stuff: here is is his website: http://danariely.com/

His first one (Predictably Irrational) was excellent. The second one was more of the same.

The problem with economics is that it is very hard to create a good model of the economy. There are simply too many factors involved.

The way that we have managed to predict the weather is simple: know everything about the current state of the weather, and use supercomputers. There are thousands of weather stations nationwide, and radar and satellites have allowed us to simply see everything.

With the economy, we can’t see everything. We see almost nothing.

Here’s an example of how complex something simple in economics can be:

The price of gold has risen today. Why might that be?
* Increased demand for jewelry?
* Increased usefulness in technology, causing an increase in demand?
* A reduction in the gold supply?
* A reduction in the prediction of supply, as compared to previous predictions?
* Currency instability, driving people to find a replacement for money?
* The fact that the price is rising, leading to speculation? (a bubble)
* Ben Bernanke mentioning something positive about gold today?

There are always a large number of underlying factors, hidden variables that can’t quite be measured. If you want to predict the price of something, you have to understand all of the hidden variables.

There’s simply too many moving parts. It’s impossible to isolate the impact of any one let alone all of them. That and Chaos theory.

glares at paper in one of the boxes around here

One of the first things taught in economics is the concept of caeteris paribus. It pretty much means “one variable”. Economists are not stupid. We know that when you introduce another variable the odds of failure increase dramatically.

I would say the art of economics is more precise when dealing with Microeconomics. Macro is a bit more messy but a hell of a lot more fun.

“Economists are not stupid” Glad you cleared that up because frankly, there was some doubt.

That it’s all a gamble based on theory and observation.

That there is not enough to go around, and the prices to set for goods and services. I know a real economist would say not quite, I personally only have the two introductory university level classes of micro and macro economics with a C+ average. I couldn’t make sense of the graphs when the teacher said up and to the left, but I got some of the concepts and types of government right. Like idocracy which is a government based on the rule of idiots , which is the title of a funny movie.

The only law of economics I know is that it is best to live within your means.

In my mind economics is useful as a toy framework for learning game theory. Game theory is useful all over the place, but it’s important to remember that game theory is a branch of mathematics and therefore meaning-free in itself.

Apart from that, economics seems mainly useful as a tool for politicians to use math to pretend to be smarter than other politicians.

Economics is a chaotic event, which by definition means that it only takes the slightest changes or occurances to drastically change the outcome of the event or system. Most economic forecasters don’t do well because economics, like the weather, is highly vulnerable to the butterfly effect where even the slightest unseens to most observers can (or will) cause a drastically different outcome.

Without the lessons learned from 1929, the 2008 great recession would have become a second great depression.

Economics is an exasperating discipline, not to mention college major. One major perspective that surfaces in the intermediate level classes & beyond is that the overall economy is immensely complex and subject to its own butterfly effect. Yet at the basic level, everything is predicated on measuring supply & demand for a given good or service.

Economics is also highly abstract to the point that it can sound like economists speak a language that isn’t English. Where a lot of the distrust & misunderstanding of economists comes from is their reliance on statistical models when developing their forecasts. These models frequently do not use actual production & sales figures as independent inputs. Rather they start with a set of equations that have been developed to describe the real life numbers & trends.

As a result of my economics background I find it at least fairly easy to spot when either the media, politicians, or both are being deceptive in their remarks on the economy (and the Federal budget). With the media, the age-old adage “if it bleeds, it leads” applies just as much to economic & financial news as to general news. So when the media quotes “experts” that the sky is falling & all is wrong with the economy, I usually just yawn & move on. Politicians—especially Republican—are virtually always wrong about the economic health of the nation, so I just ignore them.