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Bitcoin, an online-only currency scarcely four years old, is breaking out to new highs this week and now sports a total value of $2.8 billion.  Just a few months ago, it looked like this economic experiment as the world’s first decentralized technology-based form of money would crash and burn.  Since then, ConvergEx’s Nick Colas points out that the U.S. government has shut down a large drug website which accepted bitcoins and promised further scrutiny of its uses; and omputer science experts have warned that bitcoin is neither especially private – one of its notional values – or especially well constructed.  The market doesn’t seem to care, with incremental demand from U.S. citizens (through Second Market) and Chinese nationals leading the path higher. Could bitcoin still fail? Sure.  But, as Colas notes, its success to date speaks to how much the world is changing…  Technology – properly packaged – can engender enough trust to develop a new asset class. 

Bitcoin will eventually have to develop a lot more infrastructure to be a useful global currency, to be sure.  But there’s close to $3 billion of real money to help back that transition.

Via ConvergEx’s Nick Colas,

Bitcoin – The Lazarus Currency

Every great religion, or company, or country, or rock band has a dramatic ‘Creation myth’ – the story of its birth.  The Judeo-Christian tradition has the story of God creating the world in seven days.  Google has the grad-student thesis story.  American culture is still informed by the Revolutionary War.  And where would the Rolling Stones be if Keith hadn’t chatted up Mick on the train, just because he holding some new R&B albums from the States?

Bitcoin, the online-only stateless currency, has its own creation myth and it is purpose-made to appeal to exactly the kind of people who would find value in it.  The highlights are:

The original design for bitcoin comes from a 2008 paper published by a person named Satoshi Nakamoto.  Who, by the by, doesn’t actually exist.

 

Bitcoin’s basic architecture is decentralized – no one is “In control.”  People with fast computers and some coding skills compete to solve a puzzle created by the algorithm described in Satoshi’s paper.  Simultaneously, they track all the transactions in the bitcoin universe – people and businesses exchanging value for goods and services.  Every ten minutes, on average, some lucky coder – or group of coders – solves the puzzle, gets a few new bitcoins, and validates the transaction list.  Then the whole thing resets and everyone gets to work on the next puzzle.

 

In principle, this process leaves everyone exchanging or “mining” (cracking the code gets you 25 bitcoins currently) anonymously in the system.  Everything in bitcoin is identified with a nearly-impossible-to-crack coding of letters and numbers.  No names, phone numbers, or addresses needed.

Now, who do you think would find this creation story appealing?  A few candidates:

Tech savvy people, who by their nature and high-functioning professional skills tend to have a few shekels lying around? Yep – classic early adopters.

 

Then there might be independence-minded older white males in the U.S., ticked off by the Federal Reserve and government in general.  Yes, they like the story as well.

 

And then there are the criminals – drug dealers and so forth – who might not know a creation myth from crystal meth, but appreciate the potential for secrecy.

 

Offshore millionaires from essentially anywhere in the world, looking for classic diversification and a liquid investment.  All you need to access your bitcoins is that long alphanumeric key and a local bank account which links to a ‘Wallet’ – an online repository to hold the currency.  Deposit money in China, write down the key, fly to Monaco and go into an Internet café.  Easy-peasy.

The basic appeal of this “Genesis” creation story lit a fire under bitcoin, starting at the beginning of 2012 at around $5 and ending up in a spectacular bubble top at $240 in April 2013.  The cause of that peak – overwhelming tulip-bulbish demand for bitcoin – was its undoing.  Exchanges where people went to trade dollars or euros for bitcoin couldn’t keep up with the volume.  Accounts froze or moved very slowly, and confidence in the currency dropped, along with the price.  Just a few days after the $240 high, bitcoin was trading for less than $60.

Creation myths are great anchors for a belief system, but there have to be other parts to the narrative; bitcoin is safely into its own “Exodus” – the second book of the Old Testament.  That fall from the highs was just the beginning of its problems.

The U.S. government made it clear that they expect all currencies and their users to adhere to anti-money-laundering laws, including know-your-customer statutes which eliminate the notional secrecy of bitcoin.

 

The Feds also went after the druggies, shutting down Silk Road – a widely known website for the purchase of illicit substances.

 

In an odd twist of fate, the U.S. government now owns about 174,000 bitcoins, with a current value of $42 million thanks to the Silk Road bust and other actions.

If bitcoin were a company, the class action lawyers would be circling, fighting for air with the bankruptcy experts.  There is simply no way so much legal action, let alone several ongoing problems with security in the system, would have left Satoshi Nakamoto’s creation as anything but roadkill on the world’s economic superhighway.

But here’s the beauty part: bitcoin is making a new high this week, breaking through the spiky bubble levels of April in a pretty controlled and orderly manner.  What gives? A few points:

The biggest bitcoin exchange is now in China, displacing Japanese, American and European sources of demand.  That enterprise is called BTC China, and its CEO Bobby Lee hails from Yahoo! and Walmart China. Oh, and he graduated from Stanford with a degree in Computer Science.  In short, an apparently pretty clever fellow.

 

Our sources in the bitcoin community also agree that Second Market, the New York based business best known for trading pre-IPO company stock, has become a major player in demand for bitcoin.  Earlier this year they started the Bitcoin Investment Trust, an open ended product to buy and hold bitcoins.  There’s no way to know how much Second Market has purchased on behalf of its clients, but it must be a popular offering – the banner ad on their site for the trust occupied the top third of their front page.

 

It’s not all been roses for bitcoin, even in this recent run-up. Back in September computer science researchers from UC – San Diego showed that it was actually fairly easy to track individual transactions in the bitcoin transaction ledger. 
Just this week, academics at Cornell proposed that bitcoin could eventually be coopted by a handful of “Miners” who could hijack the system.

So why is bitcoin seemingly minted on Teflon?  Limited supply, for one reason.  There will never be more than 21 million bitcoins, and there are only 12.0 million currently.  In the 4-ish minutes it has taken you to read this far, the most new bitcoins that might have been issued is 25, or $6,250.  In the same timeframe, the Federal Reserve has pushed another $7.8 million into the financial system with Quantitative Easing.  And then there is the undeniable creation-story appeal – a technology based sort-of-secret store of value.  If James Bond, Sergey Brin and Paul Volcker all got together and designed their ideal currency, it might look a lot like bitcoin.

At the same time, the story isn’t over yet.  If the “Exodus” analogy is to fit at all, then bitcoin is still in the wilderness.  It has clearly withstood many challenges, and there are probably more to come.  The end of the journey actually has little to do with how much bitcoin is worth, but what it might be good for.

That’s the piece some investors – many made quite wealthy by the incredible increase in bitcoin’s value – are working on now.  A few final thoughts here:

Bitcoin is a more efficient method of transferring money than the current global banking system.  The transaction ledger is essentially kept for free by the mining community.  Want to send $100 to someone in England and have them redeem British pounds? It will likely cost you $5 or more.  A bitcoin transfer is essentially free.

 

Merchants can accept bitcoin payments without paying the typical credit card fees of 1-5%.  That’s one reason for the growing acceptance of bitcoin in China – online merchants are starting to accept this online currency.

 

Bitcoin could become a country’s ‘Second currency’.  One of the more interesting conversations with one of our industry sources is the thought that one or more sovereign nations would entertain making bitcoin a parallel currency to their existing monetary system.  Keep in mind that our source owns a lot of bitcoin personally….  But it is an intriguing thought nonetheless. 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/jSxlmZS1wrU/story01.htm Tyler Durden

By EconMatters  

 

China-US Wealth Transfer

Outsourcing Includes Management Positions

 

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via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/qoQlGz-34fY/story01.htm EconMatters

For the first time, in addition to anecdotal evidence that the first several days of the Obamacare rollout (with 248 enrollees in the first two days) have been an abysmal failure, and the days since have been no better, HHS Secretary today finally admitted that over a month after the rollout of healthcare.gov, the enrollment figures have been “very low.” Of course, being able to qualify the number didn’t mean she could or would actually put it in numeric terms – it would have been simply too humiliating and may have forced her to finally do what so far nobody in the Obama administration has done: take responsibility for one after another failure (after all, for everything else, there’s “Mr. Chairwoman getting to work”) and resign. One thing, however, is certain, the “very low” number whatever it may be, is orders of magnitude below Obama’s mission critical goal of enrolling 494,620 people in October, and another 706,600 for November.

Why is this critical? Because like any other Ponzi, this particular welfare program needs an influx of new registrants, especially young ones, to keep the funding coming in and succeed. Otherwise, not even all central bank chairmen getting to work around the globe creating wealth effects for a few hundred thousand people, or all false-flag, YouTube justified diversionary wars around the world, will do much to deflect attention from how the supposedly crowning achievement of Obama’s two-term presidential career has disintegrated before everyone’s eyes.

Politico has more on Sebelius’ testimony before the Senate Finance Committee:

“We intend to give you as much information as we can validate,” Sebelius said of the enrollment figures being released next week. She said the numbers will include both Medicaid and health plan enrollment in the new insurance exchanges. She said the numbers will cover “the first month of enrollment,” which began on Oct. 1.

She also intends to give more figures that she can fabricate but there is neither here nor there. All that matters is that she has her job. Kinda like Greece and the Euro.

Curiously it was not just republicans crucifying the HHS Secretary…

Republicans chastised Sebelius for what they called misleading testimony that the website would be working when it went live Oct. 1, and a broken promise that consumers could keep their coverage.

 

Sen. Pat Roberts, a Republican from Sebelius’s home state of Kansas, repeated his call for her to resign because of her poor leadership. Sebelius did not respond.

 

The top Republican on the committee, Sen. Orrin Hatch (R-Utah), said Sebelius’s earlier testimony to the committee about the website’s readiness was “at best, misinformed.” He predicted more problems ahead and called for Sebelius to visit the committee once a month with status updates.

 

Several Republicans questioned the security and testing of the website, but Sebelius said that neither security consultants nor the administration felt those concerns warranted halting enrollment.

 

“No one suggested the risks outweighed the importance of moving forward,” she said, “including Mitre, who made recommendations to CMS as is required.” Mitre is a federally-funded nonprofit that handles much of the marketplace’s security.

… it was democrats as well – supposedly those facing stiff competition in the upcoming elections.

In the Finance committee, Democrats expressed vast “frustration” with the website. But they also had harsh words for the contracters tasked with building HealthCare.gov.

 

“I want you to burn their fingers and make them pay for not being responsible,” Sen. Bill Nelson (D-Fla.) told the secretary.

Just don’t burn your own Madame Secretary: after all it is well-known that in Obama’s administration the buck never stops with whoever is in charge – you see, they were never aware of the failures, ever. They only had full supervision over the successes, if any.

Of course, she wouldn’t work for Obama if she didn’t end it on a Hopiumy note:

Sebelius told the committee that the site will be repaired by the end of the month amid a “couple of hundred” functional fixes that have been identified. “We are into the list but we are not where we need to be,” she said. She also said the experts who have looked at the site and its problems have advised making repairs, not taking the site down completely.

Well, maybe not hopiumy enough.

But going back to the original issue, and a far deeper problem with Obamacare than the ongoing website debacle, is that the targeted core constituency of Obamacare, young people under 35, are nowhere near the fastest enrolling population group, with that distinction instead going to the oldest group, people 55 and over, which also happens the be the biggest use of funds within Obamacare. From the WSJ:

 

Insurers say the early buyers of health coverage on the nation’s troubled new websites are older than expected so far, raising early concerns about the economics of the insurance marketplaces.

 

If the trend continues, an older, more expensive set of customers could drive up prices for everyone, the insurers say, by forcing them to spread their costs around. “We need a broad range of people to make this work, and we’re not seeing that right now,” said Heather Thiltgen of Medical Mutual of Ohio, the state’s largest insurer by individual customers. “We’re seeing the population skewing older.”

 

…the numbers demonstrate a real-world fallout from the digital snafus: Less-healthy customers are more likely to persevere through technical obstacles to gain coverage, insurers say. Younger, healthier customers who feel less need for insurance—but whose widespread participation is important to the financial success of the system—could be quicker to give up.

Naturally, the central-planners had a response ready for this too:

A White House official said the Obama administration expects most young, healthy enrollees to wait until the last minute to sign up, citing research showing that pattern when Massachusetts embarked on a similar health overhaul in 2007. People have until Dec. 15 to enroll in coverage starting Jan. 1, with open enrollment for coverage during the year lasting through next March.

Because, you see, young people are so busy watching the Kardashians, working part-time jobs (if they are lucky), and hunting the rats in their parents’ basement, they just can’t afford to figure out how to complete a sign up form.

Finally, even assuming all these quirks are resolved, the worst case as most know by now, is that Obamacare is actually launched albeit with a several month delay. Because the hit to broader discretionary income will be so big, the Fed will have no choice but to engage in precisely the kind of NGDP targeting, read literal paradropping of cash, that we said would happen over a month ago now that the central bank’s back is against the wall and nothing else has worked so far.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/YbxyuYJFGOw/story01.htm Tyler Durden

For the first time, in addition to anecdotal evidence that the first several days of the Obamacare rollout (with 248 enrollees in the first two days) have been an abysmal failure, and the days since have been no better, HHS Secretary today finally admitted that over a month after the rollout of healthcare.gov, the enrollment figures have been “very low.” Of course, being able to qualify the number didn’t mean she could or would actually put it in numeric terms – it would have been simply too humiliating and may have forced her to finally do what so far nobody in the Obama administration has done: take responsibility for one after another failure (after all, for everything else, there’s “Mr. Chairwoman getting to work”) and resign. One thing, however, is certain, the “very low” number whatever it may be, is orders of magnitude below Obama’s mission critical goal of enrolling 494,620 people in October, and another 706,600 for November.

Why is this critical? Because like any other Ponzi, this particular welfare program needs an influx of new registrants, especially young ones, to keep the funding coming in and succeed. Otherwise, not even all central bank chairmen getting to work around the globe creating wealth effects for a few hundred thousand people, or all false-flag, YouTube justified diversionary wars around the world, will do much to deflect attention from how the supposedly crowning achievement of Obama’s two-term presidential career has disintegrated before everyone’s eyes.

Politico has more on Sebelius’ testimony before the Senate Finance Committee:

“We intend to give you as much information as we can validate,” Sebelius said of the enrollment figures being released next week. She said the numbers will include both Medicaid and health plan enrollment in the new insurance exchanges. She said the numbers will cover “the first month of enrollment,” which began on Oct. 1.

She also intends to give more figures that she can fabricate but there is neither here nor there. All that matters is that she has her job. Kinda like Greece and the Euro.

Curiously it was not just republicans crucifying the HHS Secretary…

Republicans chastised Sebelius for what they called misleading testimony that the website would be working when it went live Oct. 1, and a broken promise that consumers could keep their coverage.

 

Sen. Pat Roberts, a Republican from Sebelius’s home state of Kansas, repeated his call for her to resign because of her poor leadership. Sebelius did not respond.

 

The top Republican on the committee, Sen. Orrin Hatch (R-Utah), said Sebelius’s earlier testimony to the committee about the website’s readiness was “at best, misinformed.” He predicted more problems ahead and called for Sebelius to visit the committee once a month with status updates.

 

Several Republicans questioned the security and testing of the website, but Sebelius said that neither security consultants nor the administration felt those concerns warranted halting enrollment.

 

“No one suggested the risks outweighed the importance of moving forward,” she said, “including Mitre, who made recommendations to CMS as is required.” Mitre is a federally-funded nonprofit that handles much of the marketplace’s security.

… it was democrats as well – supposedly those facing stiff competition in the upcoming elections.

In the Finance committee, Democrats expressed vast “frustration” with the website. But they also had harsh words for the contracters tasked with building HealthCare.gov.

 

“I want you to burn their fingers and make them pay for not being responsible,” Sen. Bill Nelson (D-Fla.) told the secretary.

Just don’t burn your own Madame Secretary: after all it is well-known that in Obama’s administration the buck never stops with whoever is in charge – you see, they were never aware of the failures, ever. They only had full supervision over the successes, if any.

Of course, she wouldn’t work for Obama if she didn’t end it on a Hopiumy note:

Sebelius told the committee that the site will be repaired by the end of the month amid a “couple of hundred” functional fixes that have been identified. “We are into the list but we are not where we need to be,” she said. She also said the experts who have looked at the site and its problems have advised making repairs, not taking the site down completely.

Well, maybe not hopiumy enough.

But going back to the original issue, and a far deeper problem with Obamacare than the ongoing website debacle, is that the targeted core constituency of Obamacare, young people under 35, are nowhere near the fastest enrolling population group, with that distinction instead going to the oldest group, people 55 and over, which also happens the be the biggest use of funds within Obamacare. From the WSJ:

 

Insurers say the early buyers of health coverage on the nation’s troubled new websites are older than expected so far, raising early concerns about the economics of the insurance marketplaces.

 

If the trend continues, an older, more expensive set of customers could drive up prices for everyone, the insurers say, by forcing them to spread their costs around. “We need a broad range of people to make this work, and we’re not seeing that right now,” said Heather Thiltgen of Medical Mutual of Ohio, the state’s largest insurer by individual customers. “We’re seeing the population skewing older.”

 

…the numbers demonstrate a real-world fallout from the digital snafus: Less-healthy customers are more likely to persevere through technical obstacles to gain coverage, insurers say. Younger, healthier customers who feel less need for insurance—but whose widespread participation is important to the financial success of the system—could be quicker to give up.

Naturally, the central-planners had a response ready for this too:

A White House official said the Obama administration expects most young, healthy enrollees to wait until the last minute to sign up, citing research showing that pattern when Massachusetts embarked on a similar health overhaul in 2007. People have until Dec. 15 to enroll in coverage starting Jan. 1, with open enrollment for coverage during the year lasting through next March.

Because, you see, young people are so busy watching the Kardashians, working part-time jobs (if they are lucky), and hunting the rats in their parents’ basement, they just can’t afford to figure out how to complete a sign up form.

Finally, even assuming all these quirks are resolved, the worst case as most know by now, is that Obamacare is actually
launched albeit with a several month delay. Because the hit to broader discretionary income will be so big, the Fed will have no choice but to engage in precisely the kind of NGDP targeting, read literal paradropping of cash, that we said would happen over a month ago now that the central bank’s back is against the wall and nothing else has worked so far.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/YbxyuYJFGOw/story01.htm Tyler Durden

Authored by Bob Shiller, originally posted at Project Syndicate,

I am one of the winners of this year’s Nobel Memorial Prize in Economic Sciences, which makes me acutely aware of criticism of the prize by those who claim that economics – unlike chemistry, physics, or medicine, for which Nobel Prizes are also awarded – is not a science. Are they right?

One problem with economics is that it is necessarily focused on policy, rather than discovery of fundamentals. Nobody really cares much about economic data except as a guide to policy: economic phenomena do not have the same intrinsic fascination for us as the internal resonances of the atom or the functioning of the vesicles and other organelles of a living cell. We judge economics by what it can produce. As such, economics is rather more like engineering than physics, more practical than spiritual.

There is no Nobel Prize for engineering, though there should be. True, the chemistry prize this year looks a bit like an engineering prize, because it was given to three researchers – Martin Karplus, Michael Levitt, and Arieh Warshel – “for the development of multiscale models of complex chemical systems” that underlie the computer programs that make nuclear magnetic resonance hardware work. But the Nobel Foundation is forced to look at much more such practical, applied material when it considers the economics prize.

The problem is that once we focus on economic policy, much that is not science comes into play. Politics becomes involved, and political posturing is amply rewarded by public attention. The Nobel Prize is designed to reward those who do not play tricks for attention, and who, in their sincere pursuit of the truth, might otherwise be slighted.

Why is it called a prize in “economic sciences,” rather than just “economics”? The other prizes are not awarded in the “chemical sciences” or the “physical sciences.”

Fields of endeavor that use “science” in their titles tend to be those that get masses of people emotionally involved and in which crackpots seem to have some purchase on public opinion. These fields have “science” in their names to distinguish them from their disreputable cousins.

The term political science first became popular in the late eighteenth century to distinguish it from all the partisan tracts whose purpose was to gain votes and influence rather than pursue the truth. Astronomical science was a common term in the late nineteenth century, to distinguish it from astrology and the study of ancient myths about the constellations. Hypnotic science was also used in the nineteenth century to distinguish the scientific study of hypnotism from witchcraft or religious transcendentalism.

There was a need for such terms back then, because their crackpot counterparts held much greater sway in general discourse. Scientists had to announce themselves as scientists.

In fact, even the term chemical science enjoyed some popularity in the nineteenth century – a time when the field sought to distinguish itself from alchemy and the promotion of quack nostrums. But the need to use that term to distinguish true science from the practice of imposters was already fading by the time the Nobel Prizes were launched in 1901.

Similarly, the terms astronomical science and hypnotic science mostly died out as the twentieth century progressed, perhaps because belief in the occult waned in respectable society. Yes, horoscopes still persist in popular newspapers, but they are there only for the severely scientifically challenged, or for entertainment; the idea that the stars determine our fate has lost all intellectual currency. Hence there is no longer any need for the term “astronomical science.”

Critics of “economic sciences” sometimes refer to the development of a “pseudoscience” of economics, arguing that it uses the trappings of science, like dense mathematics, but only for show. For example, in his 2004 book Fooled by Randomness, Nassim Nicholas Taleb said of economic sciences: “You can disguise charlatanism under the weight of equations, and nobody can catch you since there is no such thing as a controlled experiment.”

But physics is not without such critics, too. In his 2004 book The Trouble with Physics: The Rise of String Theory, The Fall of a Science, and What Comes Next, Lee Smolin reproached the physics profession for being seduced by beautiful and elegant theories (notably string theory) rather than those that can be tested by experimentation. Similarly, in his 2007 book Not Even Wrong: The Failure of String Theory and the Search for Unity in Physical Law, Peter Woit accused physicists of much the same sin as mathematical economists are said to commit.

My belief is that economics is somewhat more vulnerable than the physical sciences to models whose validity will never be clear, because the necessity for approximation is much stronger than in the physical sciences, especially given that the models describe people rather than magnetic resonances or fundamental particles. People can just change their minds and behave completely differently. They even have neuroses and identity problems, complex phenomena that the field of behavioral economics is finding relevant to understanding economic outcomes.

But all the mathematics in economics is not, as Taleb suggests, charlatanism. Economics has an important quantitative side, which cannot be escaped. The challenge has been to combine its mathematical insights with the kinds of adjustments that are needed to make its models fit the economy’s irreducibly human element.

The advance of behavioral economics is not fundamentally in conflict with mathematical economics, as some seem to think, though it may well be in conflict with some currently fashionable mathematical economic models. And, while economics presents its own methodological problems, the basic challenges facing researchers are not fundamentally different from those faced by researchers in other fields. As economics develops, it will broaden its repertory of methods and sources of evidence, the science will become stronger, and the charlatans will be exposed.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/GhS2MDPp5E0/story01.htm Tyler Durden

Authored by Bob Shiller, originally posted at Project Syndicate,

I am one of the winners of this year’s Nobel Memorial Prize in Economic Sciences, which makes me acutely aware of criticism of the prize by those who claim that economics – unlike chemistry, physics, or medicine, for which Nobel Prizes are also awarded – is not a science. Are they right?

One problem with economics is that it is necessarily focused on policy, rather than discovery of fundamentals. Nobody really cares much about economic data except as a guide to policy: economic phenomena do not have the same intrinsic fascination for us as the internal resonances of the atom or the functioning of the vesicles and other organelles of a living cell. We judge economics by what it can produce. As such, economics is rather more like engineering than physics, more practical than spiritual.

There is no Nobel Prize for engineering, though there should be. True, the chemistry prize this year looks a bit like an engineering prize, because it was given to three researchers – Martin Karplus, Michael Levitt, and Arieh Warshel – “for the development of multiscale models of complex chemical systems” that underlie the computer programs that make nuclear magnetic resonance hardware work. But the Nobel Foundation is forced to look at much more such practical, applied material when it considers the economics prize.

The problem is that once we focus on economic policy, much that is not science comes into play. Politics becomes involved, and political posturing is amply rewarded by public attention. The Nobel Prize is designed to reward those who do not play tricks for attention, and who, in their sincere pursuit of the truth, might otherwise be slighted.

Why is it called a prize in “economic sciences,” rather than just “economics”? The other prizes are not awarded in the “chemical sciences” or the “physical sciences.”

Fields of endeavor that use “science” in their titles tend to be those that get masses of people emotionally involved and in which crackpots seem to have some purchase on public opinion. These fields have “science” in their names to distinguish them from their disreputable cousins.

The term political science first became popular in the late eighteenth century to distinguish it from all the partisan tracts whose purpose was to gain votes and influence rather than pursue the truth. Astronomical science was a common term in the late nineteenth century, to distinguish it from astrology and the study of ancient myths about the constellations. Hypnotic science was also used in the nineteenth century to distinguish the scientific study of hypnotism from witchcraft or religious transcendentalism.

There was a need for such terms back then, because their crackpot counterparts held much greater sway in general discourse. Scientists had to announce themselves as scientists.

In fact, even the term chemical science enjoyed some popularity in the nineteenth century – a time when the field sought to distinguish itself from alchemy and the promotion of quack nostrums. But the need to use that term to distinguish true science from the practice of imposters was already fading by the time the Nobel Prizes were launched in 1901.

Similarly, the terms astronomical science and hypnotic science mostly died out as the twentieth century progressed, perhaps because belief in the occult waned in respectable society. Yes, horoscopes still persist in popular newspapers, but they are there only for the severely scientifically challenged, or for entertainment; the idea that the stars determine our fate has lost all intellectual currency. Hence there is no longer any need for the term “astronomical science.”

Critics of “economic sciences” sometimes refer to the development of a “pseudoscience” of economics, arguing that it uses the trappings of science, like dense mathematics, but only for show. For example, in his 2004 book Fooled by Randomness, Nassim Nicholas Taleb said of economic sciences: “You can disguise charlatanism under the weight of equations, and nobody can catch you since there is no such thing as a controlled experiment.”

But physics is not without such critics, too. In his 2004 book The Trouble with Physics: The Rise of String Theory, The Fall of a Science, and What Comes Next, Lee Smolin reproached the physics profession for being seduced by beautiful and elegant theories (notably string theory) rather than those that can be tested by experimentation. Similarly, in his 2007 book Not Even Wrong: The Failure of String Theory and the Search for Unity in Physical Law, Peter Woit accused physicists of much the same sin as mathematical economists are said to commit.

My belief is that economics is somewhat more vulnerable than the physical sciences to models whose validity will never be clear, because the necessity for approximation is much stronger than in the physical sciences, especially given that the models describe people rather than magnetic resonances or fundamental particles. People can just change their minds and behave completely differently. They even have neuroses and identity problems, complex phenomena that the field of behavioral economics is finding relevant to understanding economic outcomes.

But all the mathematics in economics is not, as Taleb suggests, charlatanism. Economics has an important quantitative side, which cannot be escaped. The challenge has been to combine its mathematical insights with the kinds of adjustments that are needed to make its models fit the economy’s irreducibly human element.

The advance of behavioral economics is not fundamentally in conflict with mathematical economics, as some seem to think, though it may well be in conflict with some currently fashionable mathematical economic models. And, while economics presents its own methodological problems, the basic challenges facing researchers are not fundamentally different from those faced by researchers in other fields. As economics develops, it will broaden its repertory of methods and sources of evidence, the science will become stronger, and the charlatans will be exposed.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/GhS2MDPp5E0/story01.htm Tyler Durden

Presented with no comment…

 

 

(h/t @Not_Jim_Cramer)

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/znXoz3Bfr54/story01.htm Tyler Durden