8 Comments
Aug 2, 2022Liked by Joachim Klement

Great article!

I've always wondered why economics is regarded as science when it clearly isn't. The number of existing economic theories that contradict each other on fundamental premises is mind-blowing, and none of them can be tested in experiments that resemble the real world. It's clearly a field like philosophy or theology... great thinkers, but no real results. That's not to say it's impossible to do good small-scale experiments on smaller questions in economics that produce results. That's been done, but it will always remain impossible to scale these results up to whole economies.

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Well, they even gave Schiller and Fama the Nobel Prize in the same year!

Economics isn't a science, it's a craft.

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Aug 2, 2022Liked by Joachim Klement

Fun fact: there isn't even Nobel Prize for Economics.

Nobel Prizes have been awarded since 1901 in Physics, Chemistry, Physiology/Medicine, Literature and Peace. The prize for Economics was established in 1969 and is called "The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel". It is funded by the Swiss central bank. And according to Wikipedia the great-grandnephew of Ludvig Nobel isn't a fan: "Nobel despised people who cared more about profits than society's well-being", saying that "There is nothing to indicate that he would have wanted such a prize", and that the association with the Nobel prizes is "a PR coup by economists to improve their reputation".

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I am a trained physicist and we always emphasise that there is no Nobel Prize in economics, but I didn't want to go down that rabbit hole.

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Aug 2, 2022Liked by Joachim Klement

"If finance were a true science, the majority of academics would dedicate their life to formulating and testing better theories of asset pricing"

Love your work, and I don't really disagree with anything you've said here. But a slightly different framing:

I think asset pricing is by nature unpredictable because it's all based on future cash flows. No one is confused about pricing a risk free bond. Equities are ultimately the same thing but the cash flows are much more uncertain

Asset pricing models are going to be wrong because companies will do unpredictable things. I guess the least wrong model is the most useful.

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Yes, and no. I would argue that physicists for example have learned a long time ago how to deal with complex stochastic processes that you cannot predict exactly, but only in a stochastic sense. It is called thermodynamics. Yet, in finance, we build models that are essentially based on mechanics (and I don't mean quantum mechanics). I think the very approach of using DCF models is flawed.

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Aug 2, 2022Liked by Joachim Klement

Consistent thought provoking posts, this being one of the best......amazing author

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"Which one of these cards do you have to turn over to make sure this rule is true?"

I think you mean "Which TWO of these cards do you have to turn over to make sure this rule is true?"

Nice article. Clear and interesting.

P.S. Judging by the number of youthful drinkers all the pubs in provincial England are run by economists.

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