Decent criticisms of economics? Here are 111 of them.

1 like = 1 criticism of mainstream economics

— Unnerving Economics (@UnlearningEcon) October 17, 2017

Courtesy of a lengthy Twitter thread following the above tweet by @UnlearningEconomics, here are 111 criticisms of economics. Most are spot on. My personal favourites are 42, 51, 58, 66, 80, 87, 92, and 106.

1. Too many unobservable parameters that change every time they are 'measured'
2. The functions are all smooth, when everything interesting that happens in a capitalist economy is not
3. Defends unrealistic assumptions on the basis that they can make good predictions. Almost never makes good predictions.
4. Embeds libertarianism, consumerism and capitalism into models without questioning them
5. Excessively 'thin' conception of the environment as amenable to cost-benefit analysis, no acknowledgement of how ecosystems work
6. Obscene levels of professional arrogance
7. Bizarre obsession with optimisation models. Guys, there's other kinds of maths
8. Use of the word 'proof' for things that are either trivial or don't technically count as 'proofs'
9. Textbooks/classes that teach model first, reality second (or never)
10. Bizarre obsession with linear regression. Guys, there's other kinds of statistics
11. Literally no case of an acknowledgement that a model/theory is flat out wrong and should be completely discarded
12. No real concept of the social. Putting 'identity' in a utility function doesn't count
13. Ridiculously hierarchical journal system that stifles creativity
14. Articles that are way too long, despite pretension that maths allows one to be concise
15. Virtually no conception of power, exploitation, conflict
16. Possibly worst of all, has undue levels of influence on policy despite its huge shortcomings
17. Huge problem with under-representation of women and POC
18. Research largely centred on the USA and other western countries, who need it least
19. At best, only pays much attention to pressing social issues *after* a catastrophe
20. Is the source of 'you just don't understand economics', repeated ad nauseum by academics and internet knuckle-draggers alike
21. Defines itself by a methodology instead of the object of study
22. Is taught as ‘economics’, so that students don’t even realise they are only learning one perspective
23. In practice, has generally favoured the powerful through its influence on policy
24. Is rife with aggregation problems, and pretends they don’t exist
25. Absorbs concepts used by critics/non-mainstream economics, watering them down to the point of being unrecognisable
26. Spends large amounts of time, pages, volumes, on issues which are basically trivial
27. Related: has little conception of its own history. Has been reinventing the wheel (but with maths!) for a long time
28. Insists on approaching history largely through the use of statistics, preferring even bad statistics to the qualitative
29. Makes its students more selfish (don’t @ me)
30. Uses maths to represent quantities which don’t have measurable, scientific units
31. A lot of statistical results are essentially obtained through p-hacking. (Though this isn’t specific to econ)
32. Little in the way of professional ethics or duty
33. Irritating habit of defining all criticisms as someone else’s problem. “That’s sociology!” Or “I’m not even a macroeconomist!”
34. Overuse of equilibrium & comparative statics, little conception of how things actually change
35. Crises are not exogenous shocks
36. Dear microeconomists. Why do I care what people do in laboratory gambles? Besides, Gigerenzer did it better.
37. Behavioural economics: making economic man more realistic by having him solve more complex utility functions
38. Also behavioural economics: ‘nudging’ people to be more ‘rational’, because economists clearly have that idea down
39. Game theory weirdly convinces it’s practitioners it’s applicable almost everywhere when it’s applicable almost nowhere
40. Preference satisfaction & efficiency/output are the focal points of almost every model. The normative implications are rarely laid bare
41. Calibration. Wtf
42. Large areas of undergraduate economics are the same as books from hundreds of years ago, with no empirical reason for why
43. The EMH is either the most trivial or most ridiculous theory I’ve ever seen, depending on who is arguing for it
44. On the whole, mainstream textbooks and economists STILL don’t get why banks work
45. Rational expectations is blatantly absurd to even the most casual observer
46. Models are invented too fast, and used before they are fully understood (my latest medium post is about this)
47. Prices simply do not play the coordinating role attributed to them by mainstream economists in many markets
48. Abuse of labels like ‘dynamic’ ‘imperfect information’ or ‘bounded rationality’, when the models do not truly reflect these ideas
49. With the way it’s taught, people who learn it often cannot think any other way. It is difficult to do even if you want to
50. The ‘law’ of demand and supply is quite clearly no such thing. Counterexamples are easy to find
51. The certainty with which comparative advantage is propagated as an argument for free trade is proportional to its utter inapplicability
52. No appreciation of the social economy. I bet most economists don’t even know what it is
53. In general, workplace dynamics are absent (except in terms of contract efficiency)
54. ‘Intuitive’, ‘plausible’. What the hell do these mean and why are they in every econ paper?
55. The spectrum auctions were  flawed, please stop going on about them
56. The ‘empirical revolution’ aka we’ve got clever statistical methods and look at them no not over there the shiny bit here
57. Randomised control trials, because we like experimenting on poor people-how else do we determine which experiments on poor people work?
58. Instrumental variables, because the best way to deal with unverifiable assumptions about endogeneity is to introduce another one
59. Regression discontinuity design, because that thing that’s obvious from looking at one graph needs an entire paper
60. Subjective well-being research has yet to tell us anything we didn’t already know
61. Utility as a concept has always been circular. Revealed preference doesn’t help, it just makes it more obvious
62. Functional forms are only chosen for tractability reasons, and every popular functional form has counterfactual implications
63. Excessive use of mathematical notation in explicit detail for god knows what reason. Makes it seem more scientific, I guess?
64. Similar love of graphs as apparently making ideas that are obviously wrong seem right. Laffer, Kuznets, environmental Kuznets, etc.
65. Convergence, as implied by the Solow model, is obviously wrong. 'Conditional convergence' just makes it unfalsifiable
66. Total Factor Productivity is an artefact of accounting, it doesn't measure productivity
67. Pareto optimality/efficiency are close to useless concepts, unverifiable and unobtainable in the real world
68. The market for lemons is so clearly wrong I'm not sure how it's so popular. The original referee rejections were right
69. Specific version of #27, but worth saying: I can't believe what the mainstream has done to Keynes. Sorry mate
70. Abuse of the term 'fallacy', which means an *objective* error in logic, to mean 'doesn't fit my little story about hotdogs'
71. Virtually ignores household work, care work, and anything else that isn't directly counted in GDP
72. Regional inequality buries GDP as a measure of national welfare. The UK is a case in point, the US isn't much better
73. Overly complicated statistical models hide assumptions and obscure more transparent relationships in descriptive data
74. The concept of 'marginal' anything is completely alien to most people, firms, governments, I don't know why it's used
75. The 'but there is a paper that does X' defence. 1. It will never be part of 99% of the mainstream 2. It's probably a crap attempt anyway
76. Kaldor-Hicks compensation is such a poorly thought out idea. People who've lost their jobs don't want 'transfers', they want jobs
77. 'Heterogeneity' in macroeconomics means 'people differ by one or two parameters', which is limited heterogeneity, to say the least
78. 'Models help us be logical and scientific'
79. EU was invented when mathematicians didn't know the difference between time averages & ensemble averages. Now they do, so get rid of it.
80. Markets don't clear, and they don't 'try' to clear. Businesses deliberately keep stocks to deal with uncertainty/change
81. Idea that maths is necessary for being logical has 2 issues (1) maths isn't always (Godel) & (2) words can obviously be logical
82. The basis of public choice theory - that political actors are selfish - has been convincingly falsified
83. Coase's theory of firms is either so vague as to be useless or wrong, otherwise all activity would be subsumed under a single firm
84. Where are the activist economists? Global slavery, meat-eating, the environment, are all both huge economic and huge moral issues
85. Has any economist ever been dismissed from the profession/respectability for doing terrible things? Scholes, Schleifer, etc.
86. Regulation policy is insufficiently systemic, overly focused on individual firms. Huge problem in the run-up to the crisis (see VAR)
87. There is generally little in the way of legal and institutional understanding when economists discuss policy
88. The overarching idea that 'competition is good' ignores the many cases where it is negative (such as arms races)
89. Unnecessary level of deference to existing models/literature, regardless of how wrong it is
90. Repetitive education. No I do not want to learn oligopoly theory 5 times
91. Lack of habitual use of case studies, survey methods, interviews, and other non-statistical research methods
92. Too much use of downloadable statistics without really knowing where they came from and their limitations
93. Time series, with the exception of finance, has data which verge on useless
94. The Lucas critique is a devastating critique of mainstream economics. Too bad it's somehow been interpreted as support for it.
95. Economists got Brexit wrong, and they barely even understand how. Hint: 'but our forecasts were right!' isn't the point
96. Econometrics "assumes independent, identically distributed populations when modelling unique & interdependent individuals" HT @BruceMcF
97. Excessive conviction in 'human capital' as a way to solve social problems and inequality
98. Any discipline which not only produces but *rewards* people like Robert Barro, Ed Prescott and Eugene Fama clearly has problems
99. It is common to see accounting identities interpreted as causal, probably due to economists mistaking them for equilibrium conditions
100. The causality paradigm in applied micro has completely overreached. Many social phenomena do not have 'causes'
101. 'Yes, we know this idea is wrong but we use it as a benchmark'
102. Inflation targeting (esp. CPI) played a huge role in blinding policymakers to the brewing financial crisis. No idea why it's still used
103. Monetarism is the single most ridiculous and most repeatedly falsified doctrine to have ever made it into policy. Still it lives on.
104. Becker-esque economic imperialism is so obviously counterfactual it's hard to believe it ever had a place in the discipline
105. Well-worn, but yes-it *is* sad/strange that economists invented their own 'Nobel'
106. The idea that the 'supply side' and 'demand side' are independent is wrong, and a source of (very) bad policy
107. Economists are largely responsible for Uber's surge pricing policy. 'nuff said
108. Major disciplinary institutions like the AEA were formed during in the red scare, hugely biasing them. These biases persist.
109. The Chicago School of anti-trust has taken over the discipline and competition authorities, doing irreparable damage
110. Ideas like 'government intervention' and 'externalities' only make sense if you assume the status quo is neutral. Which it isn't.
111. OK one more. Economic forecasts are really bad. Everyone knows it so why do we carry on making them??

Corruption fighter joins contest for South Brisbane

Corruption fighter and Game of Mates author Dr Cameron Murray has thrown his hat into the ring to challenge Deputy Premier Jackie Trad for the hotly contested South Brisbane seat at the upcoming Queensland election.

University of Queensland economics lecturer and corruption fighter Dr Cameron Murray will be contesting the seat of South Brisbane as an Independent candidate.

After the release of his book earlier this year on political favouritism in Australia, entitled Game of Mates: How favours bleed the nation, Dr Murray decided it was time to take the next step and try and enter politics to clean it up.

“People are sick of professional politicians working in the interests of their mates rather than the hard-working public,” said Dr Murray. “Across the state, people have been telling me they want a fresh approach, free of corruption and big-party backroom deals, and that needs real people with experience from outside of politics to put their hand up and offer a sensible alternative.”

“I have been working for years now with community groups and anti-corruption campaigners, including Rob Pyne, the independent Cairns MP who has exposed corruption across Queensland councils. Being an independent elected member of parliament would allow me to continue this work and leverage that position to really help clean up Queensland politics.

“One issue I am passionate about is better planning. Communities across the State are being ignored while their cities, suburbs and towns are radically changed to benefit a small set of well-connected property developers. Drawing from lessons in Australia and abroad I will push for a range of effective policies, including selling new development rights to developers and enacting citizen juries to decide on local planning schemes. These will rescue ratepayers who are now subsidising overdevelopment, and provide true democratic input into these highly valuable decisions that are unfortunately being corrupted by political mates.

“I also believe that our current crop of politicians has forgotten about the basics. I would focus at every chance on maintaining the high quality of life we enjoy in Queensland. For that we need secure jobs in a diverse economy, not just relying on the booms and busts of mining and housing cycles. We need affordable housing for first home buyers and renters. And of course, we need a sustainable environment that preserves our rare natural gifts for future generations.

“I look forward to offering a sensible alternative in this election and bringing fresh economic thinking to Queensland politics,” said Dr Murray.

A Bitcoin Bet

I have yet to hear reasoned arguments about why Bitcoin should be considered a currency. Nor have the perceived advantages over existing currencies and their settlement systems ever really been properly elucidated.

Somehow that does not stop people believing that Bitcoin is a currency. In many cases, people argue that it is even better than existing national currencies without even knowing about the security and settlement features of the current payment systems used across the world. Perhaps this is why the benefits of crypto-currencies are never made clear, and all you get is hand-waving about governments debasing their currency, being anonymous, or some such thing.

Bitcoin is a financial roulette wheel, spinning on ideology, and attracting suckers with every turn. It has none of the core features of a currency, which means it will never be used as one.

Professor Jason Potts, a founder of Crypto Economics, seems for some reason to think otherwise. On Facebook, I suggested to a mutual friend that I was willing to bet that Bitcoin will never be used as a currency, by which I mean as the unit in which goods and services are priced and as the medium for settling payments.

I said:

I have yet to hear why Bitcoin or any other cryptocurrency functions better than current monetary and payment systems, except nonsense anarchist handwaving about being 'distributed', and something about 'trust', which is no longer even the case with a small set of Chinese organisations essentially taking over Bitcoin mining, and the trust problem being totally misinterpreted...

Jason decided that a bet was interesting and would take me up on it if I decided terms. After a little back and forth the following terms were agreed to.

I [Cameron] will lose the bet if, as at 19 September 2022, Bitcoin (meaning Bitcoin or any other cryptocurrency not backed by a national banking institution) meets all of the following criteria. 

1. Bitcoin can be used to buy groceries in a physical store in my suburb where prices are posted in Bitcoin and not simply converted from AUD pricing periodically.

2. More than three listed companies in Australia pay salaries in Bitcoin (or have an option to), and advertise their salary rates in Bitcoin (i.e. you do not just get paid AUD converted at the going exchange rate each time).

3. At least one OECD country accepts Bitcoin for income tax payments and will calculate tax obligations in Bitcoin (not convert from the local currency to Bitcoin). 

4. Jason Potts is being paid in Bitcoin at a fixed Bitcoin price (not simply converting an AUD salary to Bitcoin). 

Loser pays the winner AUD 100 at an event the loser organises in their city that involves lively discussions, debates, and socialising.

I see a huge number of problems with Bitcoin and want to outline some of them here in the context of this bet. Some of the main ones are:

Money-ness
It is not clear what the advantage of a blockchain tracking all transactions is. My view is that this comes from a fundamental misunderstanding of money. Money is a not an object, or token. It is not a gold coin. It is a common accounting system.

This is why we price in the national currency. There is nothing stopping any company setting their prices in all manner of things — gold, iron, US dollars, or other units. But we don’t. Because we want to integrate into the common system of accounting that our suppliers and customers use, and one where it makes financial sense to can keep relatively stable and predictable pricing, in addition to easy payment.

Every online store that I have found that accepts Bitcoins does not price in Bitcoins. It prices in the national currency, and allows you to pay using Bitcoin. An Australian service that allows you to ‘get paid in Bitcoin’ prefers to be paid themselves in Aussie Dollars for that service.

Indeed, the fundamental misunderstanding of money is evident at some of these retailers. For example, when Mission Market announced they would start accepting Bitcoin, they noted the following:

Unlike credit cards, Bitcoin payments are not sent through a labyrinthine network of banks and processors, meaning that transactions can be completed faster and more cheaply than conventional electronic transactions. Bitcoin retains many of the useful features of cash while offering more security. And because Bitcoin has a finite supply and is not issued by a central bank such as the Federal Reserve, its purchasing power cannot be eroded through excessive money creation. [my emphasis]

Here again, we get the ‘money as object’ myth rearing its head. Payments are not ‘sent’. They are accounted for. The ‘finite supply’ again reinforces this idea.

Now, this same myth is true in much of economics. The quantity theory of money talks about the supply of money very much as a token. This is why the theory fails routinely. Properly considering the nature of money, the theory would not apply to some quantity stock measure, but would instead apply to the rate of expansion of current money accounts used for transactions of newly-produced real goods and services. But that is a fight for another day. 

The last main problem for Bitcoin in terms 'money-ness' is that if its value keeps rising no one will want to use it for transactions when an alternative currency that isn't rising in value is available. That's just Gresham's Law. And of course, if the value doesn't keep rising, it is not clear why anyone would want Bitcoin as a means of payment, and its value will likely converge to zero. 

Governments
Since money is a common accounting system, those who make the rules of money — government, central banks, and private banks — can exercise a great deal of power via this system. As we see now in China, those holding this power do not want it threatened. If a private crypto-currency did evolve into a more widely accepted alternative monetary system, it would be immediately crushed politically.

Trust
One of the arguments in favour of Bitcoin is that you don’t need to trust a banking system to settle a payment, nor identify yourself. Instead, you trust a different system. Surely in normal commercial arrangements, the very choice to use Bitcoin rather than established currencies would be a signal of a lack of trust on the part of a transaction partner.

Imagine you are a new retailer in a market and approach a wholesaler about purchasing a variety of goods. You ask to pay in Bitcoin. What would their response be? Would it increase their trust that you will pay your bills, or decrease it?

Perhaps this is why Bitcoin’s main commercial use has been in black markets.

And indeed, the main advantages of using Bitcoin — the anonymity of your transaction partner in digital payments — seem to be the very reasons that governments would want to crack down, particularly if it is widely used to avoid tax.

Technical limits
Around $180 billion worth of non-cash payments are settled each day in Australia. This excludes a great number of within-bank settlements between account holders, and all cash payments in the economy. Since cash payments are about 30% of all payments, and accounting for some within-bank settlements, the total daily payments could be closer to $300 billion.

I have no idea how Bitcoin or any other crypto-currency could handle that sort of settlement need in a timely manner. That’s over $200 million per minute. And yet, the Bitcoin system can only settle about 3 to 7 transactions per second. Mmmm…

Compare this to, say, VISA, the credit card payments company. They alone settle over 56,000 transactions per second during peak times.

Also, the cost of settling Bitcoin transactions is growing. To buy a coffee in Bitcoin today takes over 10 minutes and costs a few dollars for the transaction.

My view
If Bitcoin wants to be more “currency like” it will have to start centralising and becoming a lot more like existing currencies. It will have to change its structure to allow the balance sheets of the system to grow extremely rapidly as the market for them grows. In effect, it will have to become more like existing currencies. Which will then beg the question -- why change to a new private currency that works fundamentally the same as the existing one?

Finding Australia's "missing million"

I am responding here to Aidan Morrison's brilliant deep dive into the ABS population statistics entitled "The Missing Million: Is Australia's migration rate actually high?".

1. The ABS always strings together their data after series breaks. It is really bad in the economic data where the whole concept of what they are trying to measure can change (like the 1998 CPI revision). You could do a similar deep dive into every ABS dataset and finish with more questions than answers. 


2. Many people who use the data (including most of those people in your example) know there is a series break in 2006. But as you have shown, it doesn’t really make much of a difference in the end. The divergence with the raw arrivals/departures data that started in the early 2000s remains. The new 12/16 rule applies symmetrically to those who leave and arrive, and although the ABS notes that it increases the NOM estimate during their 2003-06 test period, this was kind of the point. They were classifying many arrivals as short-term (i.e. not in ERP) when they stayed more than 12 out of 16 months, but not consecutively. This applies to much of the international student cohort, of which there are now over 600,000, compared to 200,000 in 2001.  


3. My point is, the discrepancy you point out between your physically present population (PPP) and the estimated resident population (ERP) is not primarily because of this change in methodology in 2006. The difference is simply the number of residents currently abroad, short term, at any point in time, minus short term visitors (under the new definitions of short-term). The census also won’t catch the million residents who are abroad that night. 
And while short term departures are growing, the number abroad at any point in time will grow as well.

4. The new methodology means that the ERP is higher than the old methodology because it makes sense to count people who reside in Australia more than 12 out of 16 months as residents who need the type of long-term facilities that residents need. In my view, ERP is the more important concept economically than physical bodies on the ground on any day. It also matches more closely the way these things are measured internationally. 


5. So if the whole issue boils down to net short-term movements what is causing the change since 2001-02? From ABS 3401 we see that this is mostly from the rise in short-term resident departures for holidays!


Also, mostly these trips are for less than a couple of months. 



We can see that the increasingly popular destinations are NZ (big boost in 2003-04), Indonesia (likely Bali) and the US. Less so to China or India, as many might expect.


I would guess that retirees are a big portion of the post-2002 short term departures boom (a lot of baby boomers started retiring 10 years ago). There are plenty of anecdotes to back this up. And it’s now a hot button political issue that pensioners are getting the pension while on cruises and travelling abroad.

The data also shows that the number of people over 65 travelling abroad has tripled in the 10 years to 2015-16, with a relative decline in the share of short-term resident departures coming from people aged 30-60.

The other point to note is that both the baby boomers and their children (the baby-boomer echo) were, in the past ten years, at the stage of life where they are more likely to travel abroad.

We can see below that what data we have shows that people over age 60 have been a larger share of short-term departures recently, with people aged 30-60 being a declining share of the total.

6. Which brings us full circle. The 2006 methodology change meant that some inward immigration which was previously considered short-term, like international students, is now considered long term (i.e. residents), while there has been a rise in short-term departures from baby-boomers and their children holidaying in Bali!

Should we subtract retirees on holidays in Indonesia and on cruise ships from our resident population figures? I suspect not. Do their holidays mean that inbound residents residing more than 12 out of 16 months don't need to be considered in terms of housing and infrastructure needs? Probably not.

Overall, after a lot of thinking on this topic, I suspect that the ABS data, although imperfect, and although hiding a series break, is probably the ‘better’ metric to use in planning and economic analysis.