Sunday, August 12, 2012

The Economics Profession and the Real World

Three quotations:

"Economics has increasingly become an intellectual game played for its own sake and not for its practical consequences for understanding the economic world. Economists have converted the subject into a sort of social mathematics in which analytical rigour is everything and practical relevance is nothing." - Geoffrey M. Hodgson, Editor-in-Chief of the Journal of Institutional Economics

"Economics has become increasingly an arcane branch of mathematics rather than dealing with real economic problems." - Milton Friedman near the end of his life

"But although the doctrine itself has remained unquestioned by orthodox economists up to a late date, its signal failure for purposes of scientific prediction has greatly impaired, in the course of time, prestige of its practitioners. For professional economists, after Malthus, were apparently unmoved by the lack of correspondence between the results of their theory and the facts of observation; a discrepancy which the ordinary man has not failed to observe, with the result of his growing unwillingness to accord to economists that measure of respect which he gives to other groups of scientists whose theoretical results are confirmed by observation when they are applied to the facts." - (J.M. Keynes, 1936)


Examinator said...

Interesting set of quotes.
In my view it highlights the problem in the the world today in that we as humans tend to.
1. Overestimate the competence of our own minds firstly as individuals, then as a society and finally as a species.
In this case we fill in the gaps with emotions. Emotions that were designed as for an ape like species in its simplest, primitive environment.
2. Part of that then is our sciences and quasi sciences, cultures and religions. The flaw with them appears to be more 'operator error' We assume they provide absolute (black or white) answers... they by and large don't.
Economics and it's second cousin statistics are prime examples . While they provide generalised trends they clearly can't provide specifics. On this basis Economics demonstrably fails the "science tests" of repeatability, prediction, and precision. Largely because there are far too many variables (to allow meaningful tests and therefore to permit prediction.)

The tragedy is that the filler function of Emotion kicks. In the case of many on the right they have effectively created a devoutly held belief structure (religion/culture/ and in America's case a national identity ) out of what is a vague imprecise analytic technique to examine the impact of a created non physical conceptualised construct ( capitalism) in the human environment/condition. Which is predicated on having no infinite growth.
The additional flaw in their religion is that the resources ,including environment, breathable air, potable water on which this system needs are finite. They simply /wantonly ignore the laws of thermodynamics and the implication.
The techniques fail largely because we still can't estimate or predict the human element. Both extremes the 'rationalists' and the non-rationalists' both argue for dominance of one OR the other when reality shows that the truth is at best a combination of at least both and that the balance fluctuates between the two.
Again both side either ignore or under estimate the inherent implication of Human nature.
Like all religions they have their priests, powers and the vastly greater proportion of (ignorant believers) who take the efficacy of precision as a matter of blind faith .

HispanicPundit said...

I am once again reminded of Herbert Steins famous quote, upon working in Washington (parapharsing, dont remember exact words):

"Economists dont know much.

Non-economists know even less."

Jon said...

Re-read the quote from Keynes. The ordinary man has not failed to observe the lack of correspondence between theory and reality.

Let me adapt another great quote I read. The problem with economists is not what they know. It's what they know that ain't true. The ordinary man may not know. But he doesn't claim to know what's false. So he's better than the economist.

Jon said...

Sorry, I wrote that wrong. It's not what they DON'T know. It's what they know that ain't so.

Examinator said...

It's not that they don't know much its just that they over state what they know.

What is missing is that, at best, their musings are GENERALISED, POTENTIAL outcomes. Rightly with caveats up the Wazoo.
The surety is a fiction, an artefact of human nature.
In that 'human nature', there are those who derive strive for power or advantage from such assertions.

The average man substitutes unknowns/ caveats with emotion..a want for ABSOLUTE ANSWERS.

I would go one step further and suggest that in the absence of 'the (totally unachievable) level playing field' there must by definition a need for artificial (government) intervention. The question isn't as inanely simple as NO regulation...or minimal, but WHAT outcomes does the society as a whole NEED. That depends on WHAT outcomes the PEOPLE Determine....And that doesn't mean SOLELY what a very small (rich/ advantaged) minority WANT.