I heard this on NPR–it was literally a driveway moment as I sat and listened to it. I *immediately* thought of your blog entry.

http://www.npr.org/templates/story/story.php?storyId=103612277

Thanks As Always For Such A Fab Blog!

Joe

Surely you are correct that the global economy is much, much more complex than the global climate. Physicists have it easy: their fundamental objects of study are all particles which can be described by very few parameters. Economists, on the other hand, have to contend with people — billions of them. So I do not mean to imply that economics itself should be as clear or as detailed as climate science, but rather that the educational material and available information should be every bit as good.

If we truly don’t have the ability to predict what will happen, I wish the limits of our forecasting ability would be discussed more clearly and more often. Meanwhile, action must be taken, and I’ll credit the powers that be with having reasons for their choices. However, I can’t seem to find the chain of justification that leads them to believe that what they are doing is the right thing. Instead I find a lot of ideology and many qualitative remarks, and very little in the way of detailed econometric reports, solid historical studies, or careful argument from known principles. This is my complaint.

With a messy, complex, unpredictable problem like fixing the global economy, epistemology is critical; one must have very good reasons for one’s beliefs. In a democracy, it’s equally important to put serious effort into communicating those reasons.

Great article, and thanks for the compliment.

You ask who is right about the bad assets. I think the answer shows one difference between the economic crisis and climate change. Whether or not bad assets will remain bad or will recover is unknowable right now. First, for the ordinary reason: the value of those assets will depend on the overall state of the economy in the future, which is itself unknowable. Second, there is an endogeneity problem: the future state of the economy depends in part on people’s current beliefs about those assets. If people were very optimistic about the assets, they would stop worrying about banks, housing prices would recover, people would consume more, the economy would recover, and the assets in question would recover. If the opposite, the opposite.

Now, there might be an analogy to climate change here. I think it is pretty well established by the IPCC that climate change is occurring and, more or less, why. But I believe (I only know this on the level of NYT articles, so maybe I’m wrong) that there is less agreement about the evolution of temperatures in the future, and how it would be affected by various policies or changes in emission levels. That’s because we don’t understand how the various systems involved will interact with each other, creating positive or negative feedback loops. I think the future state of the economy is similar, at a very high level of generalization.

But, you might ask, why can’t we at least get an account of how we got here that is comparable to our understanding of global warming? I’m not sure. But one hypothesis (besides the possibility that economists are just not as smart as physicists, which is probably true, at least in the traditional sense) is that economic systems are actually more complex than physical systems. The economy is affected by the decisions of 6 billion individuals, and some exogenous shocks like natural disasters, and we don’t fully understand how even one of those individuals behaves. I don’t even know how to compare this to the natural world, which might be far more complex, so I’ll stop there.

James