How Political Bias Alters Economic Understanding

If the facts go against us, we just dismiss them by selective editing or simply making stuff up to support our original thinking. When it comes to politics, when it comes to economics, the facts don’t really matter. Human reasoning is not designed to pursue truth but to argue a point. It’s mainly about philosophical predisposition

Consistency

Once politicians set policy and commit to it by signing it into existence, they would rather risk losing office than change course

Why markets fail

George Soros makes the case for economics as a social science using his theory of reflexivity. Here are some additional thoughts to help understand why markets fail

Do The Facts Really Matter?

Partisans have a well-developed political world view. Facts don’t change that view. How does one deal with that? If you’re wrong, you will be confronted with a decision on how to react. The insidious thing about this is that when we are wrong, we react automatically in defense without even thinking about it. And that’s where we get into trouble. Being wrong is humbling, humiliating, shaming – and shame is an emotion that is about as powerful as fear in driving motivations. But being wrong can be a good thing. I will leave you with a TED video by Kathryn Schulz on being wrong. I think it gets at what I’m trying to say

Case-Shiller Housing Data Confirm Move Below Post-Bubble Trough

The house price data has been dismal in the last several months. With the S&P/Case Shiller Home Price Indices released today, we have now passed below the post-bubble trough and are hitting new low prices across the country. For data through January 2011, the broad Composite-20 index is down 3.1% compared to January 2010. The

Human Complexity and the Strategic Games of Uncertainty

In a recent post I discuss the limitations of neoclassical economics and the strain of behavioral economics that remains tethered to it. I argue that they fail because the market is inhabited by people, heterogeneous and context-sensitive, who do not live up to the lofty assumptions of mathematical optimization and Aristotelian logic that underlie these approaches – and do not do so for good reasons.

The nature of complexity also is different in the economic realm from that in physical systems because it can stem from people gaming, from changing the rules and assumptions of the system. Ironically, “game theory” is not suited to addressing this source of complexity. But military theory is

I don’t write about some topics for a reason

This is just a reminder that, while I write about a broad array of topics here (the economy, monetary policy, investing, banks, Europe, technology, etc., etc.), there are some topics about which I don’t know enough information to take an informed stance. I have views on these issues, but my expertise is limited enough –

Canada and Oil: More Complicated than One Might Suspect

We have found that the correlation between oil and the Canadian dollar has collapsed. We conduct the correlation analysis on a 60-day rolling basis, using percent change. The correlation peaked at the end of last year near 0.76. It now stands at -0.1 (see graph from Bloomberg below This is the first time the correlation is inverse since the July-Oct 2007 period. In the 1992-2002 period, the correlation was often inverse, but in recent years this is an exception

Charts of the Day: U.S. Unemployment above 10%, Underemployment near 20%

With the jobs numbers coming out tomorrow, it bears noting that the official U.S. data have been marred by low labour participation rates. The reality is that while the jobs picture is improved, many of the long-time unemployed have dropped out of the labour force and are not being counted as unemployed as a result.

Russia Widens RUB Trading Band, Signaling Comfort With Further Strength

By Win Thin Russia central bank First Deputy Chairman Ulyukayev confirmed that it has widened the so-called “floating corridor” for the ruble basket to 32.45-37.45 vs. 32.95-36.95.  The band is now 5 rubles wide, and continues a slow and steady process of liberalizing the ruble exchange rate regime.  Back in October 2010, it eliminated the

Case-Shiller: US House Prices Are Closing In On the Post-Bubble Trough

The S&P/Case Shiller Home Price Indices shows that house prices in the U.S. continue to decline this winter.  For data through December 2010, the broad Composite-20 index is down 2.4% compared to December 2009. The Composite-10 index is down 1.2% in that time frame. While these numbers were in line with expectations, they point to

Why are We ‘Irrational’: The Path from Neoclassical to Behavioral Economics 2.0

By Rick Bookstaber A few months ago I discussed the failing of econophysics, and more generally, the economic paradigm that treats people like computers and views economic dynamics like physics. The natural follow up question is, “What can you say that is constructive?” The answer is an emerging approach to behavioral economics. Over the past