Archive for July 19th, 2013

Bubbles Forever…

July 19, 2013

Robert Shiller in his recent column at PS. He says he hears talks of bubbles everywhere:

You might think that we have been living in a post-bubble world since the collapse in 2006 of the biggest-ever worldwide real-estate bubble and the end of a major worldwide stock-market bubble the following year. But talk of bubbles keeps reappearing – new or continuing housing bubbles in many countries, a new global stock-market bubble, a long-term bond-market bubble in the United States and other countries, an oil-price bubble, a gold bubble, and so on.

Add India’s housing bubble as well which refuses to burst..

He says bubbles are different from the usual soap bubbles we think about:

One problem with the word bubble is that it creates a mental picture of an expanding soap bubble, which is destined to pop suddenly and irrevocably. But speculative bubbles are not so easily ended; indeed, they may deflate somewhat, as the story changes, and then reflate.

It would seem more accurate to refer to these episodes as speculative epidemics. We know from influenza that a new epidemic can suddenly appear just as an older one is fading, if a new form of the virus appears, or if some environmental factor increases the contagion rate. Similarly, a new speculative bubble can appear anywhere if a new story about the economy appears, and if it has enough narrative strength to spark a new contagion of investor thinking.

Speculative bubbles do not end like a short story, novel, or play. There is no final denouement that brings all the strands of a narrative into an impressive final conclusion. In the real world, we never know when the story is over.

Read more at http://www.project-syndicate.org/commentary/the-never-ending-struggle-with-speculative-bubbles-by-robert-j–shiller#1IukOXsx5GkkxG5c.99

 

 

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Economics is no objective science, its a religion ridden with value-judgments

July 19, 2013

An interesting piece in today’s ET by Mark Buchanan, a physicist.

He questions the rising economic imperialism. He says much of policy economics is based on values held by economists. In a way it is a religion:

Is economics a science or a religion? Its practitioners like to think of it as akin to the former. The blind faith with which many do so suggests it has become too much like the latter, with potentially dire consequences for the real people the discipline is intended to help.

The idea of economics as religion harks back to at least 2001, when economistRobert Nelson published a book on the subject. Nelson argued that the policy advice economists draw from their theories is never “value-neutral” but foists their values, dressed up to look like objective science, onthe rest of us.

Take, for example, free trade. In judging its desirability, economists weigh projected costs and benefits, an approach that superficially seems objective. Yet economists decide what enters the analysis and what gets ignored. Such things as savings in wages or transport lend themselves easily to measurement in monetary terms, while others, such as the social disruption of a community, do not. The mathematical calculations give the analysis a scientific wrapping, even when the content is just an expression of values.

Similar biases influence policy considerations on everything from labour laws to climate change. As Nelson put it, “the priesthood of a modern secular religion of economic progress” has pushed a narrow vision of economic “efficiency,” wholly undeterred by a history of disastrous outcomes.

Nice bit..

 


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