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Before I finally got around to reading it, my main concern about the book was that its message would be interpreted as "experts know nothing" by cranks and assorted do-it-yourself theorists. And it probably will - that's how cranks think.

They already are. I've spotted one climate change denier that is using Dan's book to bolster their denial claims.

And yet he specifically makes the point that uncertainty about long-run climate change forecasts does not invalidate the case for carbon taxes.

I'd say that Gardner is quite clearly the best journalist in Canada. I first remember his series on the war on drugs in the Citizen sometime around 2000. He won a bunch of awards for that IIRC and he's been consistently good ever since

"And that's the real lesson of Future Babble. What people want from forecasters is certainty."

Prediction/betting markets can be very valuable here, since in most circumstances their output is quite close to a consensus forecast. I'd trust a liquid financial market more than any single expert. This goes all the more for large, well-established markets, such as interest rates, inflation, credit events etc.

I like your point about experts making conditional forecasts. This, unfortunately, highlights the biggest failure of the economics profession during the financial crisis.

Yes, its difficult to predict what U.S. house prices might do in the future, and it was especially difficult from 2003-2007. By 2007, however, it was clear that house prices had at least flattened out. When I say it was "clear", I mean it was accepted by most economists.

So what was the conditional probability of subprime securities experiencing large losses once house prices flattened out (eliminating refi cash-outs as a dampener of high subprime delinquencies)? It was much higher than economists predicted.

Once subprime losses escalated, what was the probability that lenders would tighten underwriting standards, and that this would result in steeper house price declines? Much higher than predicted.

And what was the conditional probability of shadow bank liabilities -- backed by subprime collateral -- experiencing runs once subprime losses escalated? Apparently much higher than economists predicted.

And once runs on the shadow banking system began in August of 2007, what was the probability that we might see the failure of large financial institutions, and a more systemic run -- especially since shadow banks were short of a liquidity cushion? Again, much higher...

The biggest lie about the financial crisis is that no one could have predicted it. It holds for house prices, and everything after that was a matter of gauging conditional probabilities. I am not saying all economists should have pegged it exactly, but they massively underestimated the risk once we knew what the housing market was doing.

Well, if that's our biggest failure, then we're doing pretty well; the proportion of economists who follow the US housing market closely enough to offer an informed opinion is very small. And perhaps the real problem is that those who do were too diffident.

Stephen,

If something is about to wallop the real economy, I think its falls into the scope of macroeconomics. To use a metaphor: If I'm charged with catching a trout, I'll travel to the nearest well-stocked stream, not cast a line into my swimming pool. As I said, you didn't have to make predictions about housing, but use what was known about housing to make predictions about the real economy -- based on conditional probabilities.

If I had a macro economist on staff at a large corporation, and after the biggest financial crisis in 80 years cost my firm dearly, I don't think I'd be too happy with the excuse of, "well, I'm not a housing economist, so how could I have been any help?"

The real question is whether you agree that the conditional probabilities above should have been apparent, or not.

Even in hindsight, it's entirely possible that they got the probabilities right and were simply unlucky.

Doubtful. The job of economists is not to make point estimate predictions, but to highlight risks that fall within a range of probabilities. I believe that, as a group, they saw the financial crisis as an event with an exceedingly low-probability event. In this, they were clearly wrong, and not just in hindsight. It was evident from the conditional probabilities I outlined above that there was a material risk of a crisis caused by a plateau in house prices, by an escalation in subprime losses, etc.

Besides, you proposed the that we use economists' ability to analyze conditional probabilities as a gauge of the worth of their research and analysis. Saying that they were "unlucky" in analyzing those probabilities implies using some other gauge instead.

"I believe that, as a group, they saw the financial crisis as an event with an exceedingly low-probability event."

As it turns out, market forecasts (as implied by option prices and other indicators) consistently overestimate the risk of asset market crashes. The 2007-2010 crisis was a partial exception, with volatility indexes at historical lows before the crisis.

On the other hand, if Sumner is right and tight monetary policy is to blame, one could argue that the forecasts were reasonable, since the Fed's response turned out to be especially disappointing given e.g. the Chairman's academic background.

You're trying too hard to be liked by the twitter crowd.

I was assuming this would be a repeat of Tetlock's argument.

"They already are. I've spotted one climate change denier that is using Dan's book to bolster their denial claims."

"And yet he specifically makes the point that uncertainty about long-run climate change forecasts does not invalidate the case for carbon taxes."

But does his argument about experts suggest that climate scientists and the IPCC have gone about advocating for climate change policy all wrong? The results in the actual journal articles are couched in conditional probabilities, but whenever you see climate change scientists in the media or talking to politicians they frame the worst case scenarios as certain events.

I don't like how the G&M experts claim CPC is protecting sensitive environments. GHG-intensive peat is not being sequestered in AB and mountain pine beetle is devastating (again, maybe even to peat and peermafrost). When Gini becomes too high, experts become captured and there are productivity losses until either a USSR style collapse or ?
In the USA, their executive branch is rich-people captured (be all right if not lobbying for a global holocaust), but not their crowns, yet. There is no outrage here becuase of high commodity prices. But what is the incentive for anyone to contribute to preventing rich Canadians from enduring loss of civil order? Harper kills daycare like a RW robot while giving to oil/tar/banks/insurance and the mentally ill. Poor people have to eat fuck live with and tolerate loud AB/CPC subsidized mentally ill people while productive minds are fucked over because AB blames Ignatieff for Great Depression undergovernment. After 1957, the Holocaust in the future became profitable.

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