Saturday, April 20, 2013
vast scandal in the economics of austerity
Luda just showed me a rather interesting story about an economics grad student named Thomas Herndon at UMass Amherst who has just had a huge abrupt impact on the world
of economic policy:
I tried to post a comment, but the site is one of those with creeping demands, so I just post my reactions here:
The story is quite interesting for additional reasons beyond the obvious. Of course it was essential to science and the progression of knowledge that the truth should come out. Yet Carmen should not have a strong incentive to withhold data; there is severe moral hazard in punishing her on that. As information is not a private good, we face huge dilemmas of this flavor, seriously inhibiting our ability to learn more about reality in many fields of science. (NIH's open access policy is one good step to deal with some aspects, but perhaps journals should support efforts to require data to be open.)
Also... it seems that this particular world of policy making relies on stuff like mass clinical trials, versus the underlying "physiology" of the world economy. I have wondered for some time why all but a few people involved in austerity decisions seem to be unable to understand obvious basic concepts like Pareto optimality and how it plays out concretely here. The problem with the clinical trial approach (done right or done sloppily) is that the reality is very multivariate, and we need to understand nonlinear relations whose projection into simple linear statistics is essentially random. If people could think more analytically (or for that matter if they had used rational algorithms to assess mortgage packages), we wouldn't be having the problems right now. Just my personal opinion...