Monday, September 14, 2009

Earthquakes, Financial and Geological

As Paul Krugman’s diagnosis of the state of economics bounces around the blogosphere, we are being treated once again to the old debate over whether economics can ever be as scientific as the “real” sciences, the hard ones that have big budgets for lab gear.

If you want to talk about hard sciences, talk about geology. They even have hardness tests, which I remember from my freshman course many long years ago. (I did pretty well in it, but would have done better if I could have ID’ed coal on a midterm exam.) Yet when it comes to a crucial task like predicting earthquakes, geologists are not much better than the pseudo-scientists who populate economics departments. They do even worse, actually, when you consider that their margins of error are hundreds of miles, hundreds of years, and an order of magnitude or two. This makes Alan Greenspan look like Nostradamus.

But of course, that’s not what does or does not qualify geology as a science. Rather, scientists are researchers who subject themselves to rigorous falsification testing that, in the long run, weeds out error. What’s important about the study of earthquakes, for instance, is not its predictive power but that it’s based on an understanding derived from plate tectonics. Yet this was not always the case. That freshman course I mentioned was taught by some of the last holdouts against plate theory; we learned about igneous intrusions and isostatic rebound, but not subduction faults.

You can’t take a course like that any more, because the reward system for geologists gives lots of points for devising critical tests and takes away even more for failure to pass them. Suppose there were a parallel universe in which geologists acted like economists. You might have a popular school of thought that holds that earthquakes are caused by the differential pressure exerted by topography; that’s why there are more quakes in California than Kansas. You could show that the coefficient on topographical variation is significant at a very low p-value in a pooled cross-section. You could calibrate a model showing how much variation is associated with how many earthquakes. Hell, you could generate hundreds of models with different functional forms and control variables and estimators and build whole careers around nuanced discussions of which one “performs” better.

But none of this has anything to do with science. In the universe we actually live in, geologists looked for critical tests: evidence that decisively discriminated between plate tectonics and competing theories.

If you want to tell me that people formulate lifetime spending plans based on the present value of their expected future stream of real after-tax income, and that because of this any dollar of additional government spending is a dollar less of private spending, fine. But don’t calibrate it or show me results “consistent” with it. Think of a critical test, a real-world situation in which we would get a particular result only if this story is correct, and then live or die by the result. Yes, I know this can be difficult in economics, just as it is in geology, but it’s even harder if you don’t try.


BruceMcF said...

Precisely, and precisely why Math is so convenient for a scientistic approach to a social science - emulating forms and appearances of science without actually doing the science part.

Take rational addiction theory. It came pre-falsified by studies in physical addiction, and yet its "publishable research". said...

Curiously, while most econophysicists draw on statistical mechanics, one who draws on geophysics and earthquake models has scored some hits in forecasting financial market crash dates, most recently and spectacularly, a shortly-before and within days accuracy for the mid-summer crash of the (latest) Chinese stock market bubble, although he and his group have also had their share of embarrassing false calls.

He is Didier Sornette at ETH in Zurich, and his Financial Observatory can be found at, which might be worth side barring here.

His China bubble crash forecast paper (with many coauthors) is at

I note that I have some problems with their approach, but I give them credit for their recent calls.

Shag from Brookline said...

Without exalting or agreeing with Krugman's views, hasn't he performed a valuable public service as demonstrated by the resulting discussions taking place in the blogosphere on these crises between both economists and non-economists? Or is the ostrich alternative preferable?

Peter Dorman said...

Barkley, that's quite interesting. If they could call real earthquakes they would perform an extremely valuable public service. (Even several false positives per correct call would be OK if they could hold down the false negatives.) But my point is that what makes geology a science, pace Milton Friedman, is not its ability to predict, but its ability to explain, by providing the mechanisms that generate observed events that stand up to the most rigorous scrutiny. Maybe my teachers of 40 years ago were just as good (and bad) at predicting earthquakes as the plate tectonic folks, but they have gone the way of the dinosaurs.

Myrtle Blackwood said...

"when it comes to a crucial task like predicting earthquakes, geologists are not much better than the pseudo-scientists who populate economics departments. They do even worse, actually, when you consider that their margins of error are hundreds of miles, hundreds of years, and an order of magnitude or two....

I can't resist wandering into an esoteric subject here.

Could it be that geologists have missed something?

Physicist Jeffrey Goodman, in the early 1970s, worked with a psychic by the name of Abrahamsen (amongst others). The readings they did together, Goodman wrote, presented a way of viewing the universe and our solar system in a way that was quite different from professional astonomers. Abrahamsen said that the laws of magnetism were very important.

Page 189:"He pictured the solar system as a giant electromagnetic field, in which lines of magnetic force stretch out between the sun and the planets. He said that the planetary system is carefully balanced and each planet acts like a magnetic gyrocompass, where the sudden deviation of one planet almost immediately and very directly affects all the other planets through this magnetic field. Thus, according to Abrahamsen, small planets, which have small gravitational effects, could nevertheless have large (magnetically derived) effects on the other planets when they were located at pivotal positions.

Under this system we can see how a temporary deviation in Mars could cause a disturbance on earth. That Mars was singled out is interesting when we consider that Mars, and only Mars, bears a number of striking similarities to the earth in regard to its balance in space....The increase in the earth's wobble that Mansinha and Smylie found accompanying large earthquakes...[they] found that the earth's pole path and wobble changed five to ten days BEFORE most of the large quakes. It seems as if Mar's deviation and wobble is resonantly picked up by the earth through the self-balancing quality of an electromagnetic field, like one magnet moving another. This change in the earth's equilibrium in turn sets off an earthquake. Such an earthquake, if other critical factors were present in maximum force, could provide enough of a jolt to disturb planetary wobble and precipitate a pole shift.

Later in the book Goodman describes the existence of electro-magnetic fields around humans that can travel out and interact with similar fields in the environment much like tuning forks of the same wavelength responding or resonating to each other. He writes that the psychics said that the thought forms given off and created by man interact with the factors behind earthquakes, volcanoes, and geological activities, as well as the factors behind climatic change...[page 198] "In the case of an earthquake-prone area, thought forms could cause temperature or pressure changes and thus affect the occurence and nature of the earthquakes that hit the area." 'Turmoil' would tend to increase the severity of an earthquake.

This phenomena was termed 'biorelativity'.

So, a direct rather than just an indirect link, between our minds' functioning and our environment is asserted. (Not that this assertion is a new discovery for me, but I'm inclined to revisit it after so many references in Goodman's 1979 book entitled 'The Earthquake Generation' and (now) everywhere about imminent climate change, pole shift, increase in earthquakes, widespread drought.

The happiest man is he who learns from nature the lesson of worship. Ralph Waldo Emerson

Anonymous said...

"Yet when it comes to a crucial task like predicting earthquakes, geologists are not much better than the pseudo-scientists who populate economics departments."

While geologists are not yet to the point where they can predict, with any level of accuracy, WHEN an earthquake will happen, haven't they made much progress in predicting WHERE it will probably happen?

Have economists achieved even this level of expertise. It seems Cochrane says no, and predicts they will never achieve it.

message_in_a_bottle said...

The laws of nature allow theories of mathematical precision.

The social sciences do not operate in the context of anything like The Laws of Nature.

There are no unchanging laws of human behaviour.
Therefore there cannot be mathematically precise theories of human behaviour.

The appearance of mathematical rigor instills confidence which is not warranted.