Trouble with Macroeconomics by Paul Romer

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rogergaret
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Trouble with Macroeconomics by Paul Romer

Postby rogergaret » Mon Mar 20, 2017 12:59 am

I'm reading this paper https://paulromer.net/wp-content/uploads/2016/09/WP-Trouble.pdf by Paul Romer (Chief Economist and Vice President of the World Bank). I just wanted to share it with you and read your comments on it.

Cheers

AlohaJoe
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Re: Trouble with Macroeconomics by Paul Romer

Postby AlohaJoe » Mon Mar 20, 2017 1:37 am

Bogleheads is a good resource for personal investing and retirement planning. I'm not sure it is a great place to be asking opinions about macroneconomic models, just like I wouldn't ask here about martial arts training or knitting patterns.

Romer's paper generated a substantial amount of discussion in the months after its release; with a bit of Googling it should be pretty easy to find many of the replies and counter-replies from actual practicing academics who are much closer to the subject and more likely to offer more substantial replies.

rogergaret
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Re: Trouble with Macroeconomics by Paul Romer

Postby rogergaret » Mon Mar 20, 2017 3:36 am

AlohaJoe wrote:Bogleheads is a good resource for personal investing and retirement planning. I'm not sure it is a great place to be asking opinions about macroneconomic models, just like I wouldn't ask here about martial arts training or knitting patterns.

Romer's paper generated a substantial amount of discussion in the months after its release; with a bit of Googling it should be pretty easy to find many of the replies and counter-replies from actual practicing academics who are much closer to the subject and more likely to offer more substantial replies.


Thank you for your response. I posted this thread under Investing Theory, News & General because I thought it would be a nice thing to share a very interesting paper with the community that actually goes outside of A.A, etc.
If I don't make a mistake, there are a lot of post asking opinions about buying a car, eyeglasses, books and so on. :mrgreen:

Peace,

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nisiprius
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Re: Trouble with Macroeconomics by Paul Romer

Postby nisiprius » Mon Mar 20, 2017 7:10 am

Making the best case I can for this being a legitimate topic, I'd say: generally this forum is not too sympathetic to using macroeconomic analyses to guide investments. Speaking for myself, the reasons include:

1) All financial predictions are unreliable. In April 2014, Bloomberg, asked 68 economists for their six-month forecasts of the 10-year Treasury rate. 68 out of 68, all, unanimously predict the rate would go up by varying amounts. The rate went down. If they can make that kind of mistake, why pay much attention to anything they say?

2) Macroeconomic phenomena are visible to everyone. Anyone who wants to can find out the GDP of India, the economic policies of Joko Widodo, or the national debt of Argentina. On the efficient market hypothesis, one would expect any fairly certain macroeconomic trends to be priced in.

To this, rogergaret adds a paper that says:

3) And besides, macroeconomics is bunk.

So, another reason to stay the course.

However, although I'm not going to report this thread myself, don't be too surprised if the thread gets locked. You should read the forum policies to understand why postings on topics like buying eyeglasses and cars are OK and posts that are just generally about economics are not. The relevant section is section 4. The policy is mostly the work of Alex Frakt, and I personally think it's a work of art. In any case, this website actually belongs to Alex Frakt and Larry Auton; it's their forum and ultimately their rules.

The policy is very pragmatic and very much based on actual past experience. Past experience is that postings that touch on politics, even in the lightest, most neutral, most rational way, fairly quickly go off the rails and turn into flame wars. Similarly, the policies lay great stress on topics being "actionable:" "If readers can't do anything with the content of a topic other than argue about it, it does not belong here."
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Earl Lemongrab
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Re: Trouble with Macroeconomics by Paul Romer

Postby Earl Lemongrab » Mon Mar 20, 2017 11:03 am

Even if the market were somehow inefficient, I take it as a guiding principle that the inefficiency isn't going to be something I can exploit. If there's any juice to squeeze, the big boys with their Wharton grads, best computer systems, and instant access to information will get there first. So instead, I have an investing plan with an asset allocation and rebalancing guidelines. That way I don't have to trouble myself with trying to guess what the market will do in response anything, macro or micro.
This week's fortune cookie: "You will enjoy doing something spontaneous this weekend." Apparently that meant working on a dead PC, but I didn't enjoy that much.

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grayfox
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Re: Trouble with Macroeconomics by Paul Romer

Postby grayfox » Mon Mar 20, 2017 11:31 am

rogergaret wrote:I'm reading this paper https://paulromer.net/wp-content/uploads/2016/09/WP-Trouble.pdf by Paul Romer (Chief Economist and Vice President of the World Bank). I just wanted to share it with you and read your comments on it.

Cheers


Thanks for bringing this subject to our attention. Despite what some may believe, economics provides the theory that provides the foundation for finance and investing. The academics that studied markets, pensions, etc. are even called financial economists. So if there are parts of economic theory that is shaky, or outright bunk, this must have implications for investors.

What I would like to knows how much of economics is bunk.
Is it only macroeconomics or does it include microeconomics?
Is it everything in the past 30 years? Or more?

I would like to think that what is in Samuelson's Economics textbook is still correct.
Gott mit uns.

rogergaret
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Re: Trouble with Macroeconomics by Paul Romer

Postby rogergaret » Mon Mar 20, 2017 2:43 pm

nisiprius, thank you for your response.

You're right, without any intention I broke one of the rules of the forum. So if any administrator think it must be blocked, fine with me.

Let me clarify, I don't take any economic prediction by any economist or person to make an investment. In my short experience I've read my fair share of things that never happen. As often is said here, our crystal balls are cloudy, to say the least.

What strike me about this paper was the criticism, from a very respected economist, of the very huge flaws of the models that the specialist are using to draw general conclusion about the overall performance of Macroeconomics. And the affirmation that they are leaving behing the evidence to draw conclusions, or that they are actually not excercing science at all.

I mean, I live in a country that have to live with IMF, credit rating agencies, and so on. Almost every one of this agencies base their diferent analysis on the models that Paul Romer is calling BS. I can't even think how deep is this rooted around the world.

Again, sorry if it was to long and for breaking the rules of the forum.
I don't want to initiate any pitfight.

Be well everyone, I wish you a lot of success on your investments and life.
:beer


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