How To Fix The Economy

[Dayuhan]

The tool for this is called preferences; people need to somehow express their preferences for/against the side effects in monetary terms and then economists have the tools to factor them in.

People don't always express their preferences in monetary terms. Sometimes they express them by voting the bastards out of office, or by hanging the bastards from lamp-posts. Economists may not be able to factor those reactions into an equation, but the bastards - those who make policy - have to.

Plate tectonics, as a theory, is well enough established that almost all geologists subscribe to it. Same with evolution and biologists.

True, but once you get past the broad guidelines there's a fair bit of contention within those professions as well, though it's a good deal less public and receives a lot less attention, since the subject matter has a lot less immediate impact on daily life. When the subject is money, there's a lot more scrutiny and the inaccuracies and uncertainties get noticed a whole lot more.

To use an example already cited, most economists would agree on the basic framework of the relationship between supply and demand. Take it to specific real-word cases with unique contextual details, and there will be a lot less agreement. I suspect that this is true in other disciplines as well: biologists may agree on the broad framework of evolution, but get down to the specifics of how it works and where it's going and the agreement will evaporate... not that many people will notice.

[slapout9]

People don't always express their preferences in monetary terms. Sometimes they express them by voting the bastards out of office, or by hanging the bastards from lamp-posts. Economists may not be able to factor those reactions into an equation, but the bastards - those who make policy - have to.

Yep!

[Fuchs]

Economists are still the ones working on how to measure preferences. The difficulties could be overcome if psychology (and for some problems also philosophy) make the required advances.

So far, much can be understood with what has been measured already.
The time-value preference rate (sorry, don't know the exact translation) is for example known: It's the base interest rate. All other (real) interest rates can be explained with additional factors - and one who understands the theory of interest rates isn't prone to fall prey to typical interest-related market failures any more.


Likewise, most economic problems are not only explainable, but also predictable (save for their exact timing). People just don't want to listen to dry theory - and cognitive dissonance is a powerful opponent to theory anyway.
In the end, it's not so much a failure of economic science that crisis happens and isn't accurately predicted, but a lack of understanding of economic science by laymen (not the least because of the use of poor sources and lack of patience).
There is a reason why some countries are in a circle of boom-crash-boom-crash with 8-11 year wavelength while others do not produce any real boom or any real crash, save for flimsy copies of booms invented elsewhere (such as the dotcom boom): Economic science has a different influence in different countries.
Some countries have actually implemented all economic science advances of the 19th century already and are working on adapting 1960's economic science advances into their society. Meanwhile, other countries still think they can somehow cheat their way around the backside of the coins.