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People have been complaining for 20 years+ that economics chose the wrong tool. It needs psychology, not math. (Or, more accurately: more and less, respectively

People have been complaining for 20 years+ that economics chose the wrong tool. It needs psychology, not math. (Or, more accurately: more and less, respectively – you'll still need math). The old joke about physicists starts "Consider a spherical chicken". It's funny because it gets at the reductionism at the core of physics, and it's even funny for physicists because they actually have been pretty successful with that model. It just doesn't work that way in economics. Even worse, the reductionism in economics is unethical, because when it registered (somewhere) that humans are not "objective, utility-maximising spheres" they more or less started advocating that they /should/ be. That got us to "corporations are people" and 24-step daily checklists to "make better use of your time". It also made fast-food the superior choice (time is money!), so at least the "spherical" part is coming along. After this short rant, which was obviously about microeconomics and therefore off-topic, something different for macro: While he's right that the "growth" debate has had more or less the same trajectory as the Grand Unifying Theory in physics, I wouldn't discount the improvements we've made in other areas. Inflation, for example, is pretty well under control. People don't appreciate that too much, but I remember how my Grandmother talked about inflation. It was basically /the/ catastrophe of her life (Germany in the 20ies – WW2 was just a result of it). So we seem to be doing something right – maybe economics, maybe politics, but certainly better. I also disagree with the very last paragraph of the article where he seems to advocate dropping the scientific method for a model closer to that of the social sciences. An improved discourse would obviously be great, but he seems to be equating math with the scientific method. We can try to get at the complexities of economics with new tools and still verify the results. Ultimately, math should be able to make a comeback when it develops the tools to describe systems of this complexity. It's a lot like the brain: it is obviously possible to describe the brain using physics & math (because it's a physical system). BUT we're not there yet, and until we are, we get better results with the collection of heuristics called "psychology"

yummyfajitas 10y ago
It just doesn't work that way in economics. Even worse, the reductionism in economics is unethical, because when it registered (somewhere) that humans are not "objective, utility-maximising spheres" they more or less started advocating that they /should/ be. That got us to "corporations are people" and 24-step daily checklists to "make better use of your time". It also made fast-food the superior choice (time is money!), so at least the "spherical" part is coming along. Some citations are clearly needed here. In particular about the normative claims you believe economics makes - as far as I know the field is very strictly positive [1]. Economists will say that fast food is better because people are choosing to consume it, and most of those same economists will discuss the topic over a lunch of artisinal kale salad locally grown by vegan hipsters. [1] There are cases where economists are clearly motivated by normative concerns to draw a particular positive conclusion - e.g. that the law of demand doesn't work for low skill labor. But that's a different critique. http://cafehayek.com/2016/12/41844.html http://cafehayek.com/2016/12/41844.html
- matt4077 10y ago
  I guess the scientific term is https://en.wikipedia.org/wiki/Homo_economicus https://en.wikipedia.org/wiki/Homo_economicus. The classic experiment is probably the Ultimatum game. And that's so old, you're tempted to say: see – they did notice the flaws in their theories! Yes, economists will readily admit to these flaws and encourage you to keep it in mind when evaluating their predictions and prescriptions. Unfortunately, people aren't just marginally different from the models. Just yesterday I violated transitivity of preferences when choosing lunch. I did an evaluation of GDO growth forecasts for my bachelor thesis. None of the institutions (Central banks etc.) managed to outperform a well-adjusted random number generator.
  - jernfrost 10y ago
    I don't think economist always are that frank about the limits of their models. E.g. Milton Friedman I think seemed to think that the world worked mostly has homo economicus. He had some rather ridiculous examples. E.g. he was touring a factory in Hong Kong and claimed workers had picked noisy and hazardous work environments over more pleasant ones, because it paid better. That strikes me as a guy with the head in the cloud lost his his theories. Jobs don't exist in endless varieties like that. If I'd rather have a better health insurance but lower paid job, I can't easily change to an almost identical job, with just those differences. I also remember him arguing why it was rational for Ford or GM to install a cheap fix for dangerous fuel tanks. His straw man argument was that an infinitely safe car would cost infinitely amounts of money. With such arguments you can argue in favor of no minimum standards for anything. Never mind that he failed to see the blindingly obvious problem. It simply didn't make any economic sense because any car company making such a cynical calculation would severely damage their reputation and thus their sales. It only works for companies who manage to cover up. And Milton Friedman is one of our most celebrated economists. Sure he create some great theories, but he seemed also to not heed to typical advice of not taking models too literal. He basically advocated policies based on rather fundamentalists interpretations of economic models. If he could do that, then surely lots of other economists would fail in the same manner.
    - 10y ago

yummyfajitas 10y ago

It just doesn't work that way in economics. Even worse, the reductionism in economics is unethical, because when it registered (somewhere) that humans are not "objective, utility-maximising spheres" they more or less started advocating that they /should/ be. That got us to "corporations are people" and 24-step daily checklists to "make better use of your time". It also made fast-food the superior choice (time is money!), so at least the "spherical" part is coming along. Some citations are clearly needed here. In particular about the normative claims you believe economics makes - as far as I know the field is very strictly positive [1]. Economists will say that fast food is better because people are choosing to consume it, and most of those same economists will discuss the topic over a lunch of artisinal kale salad locally grown by vegan hipsters. [1] There are cases where economists are clearly motivated by normative concerns to draw a particular positive conclusion - e.g. that the law of demand doesn't work for low skill labor. But that's a different critique. http://cafehayek.com/2016/12/41844.html http://cafehayek.com/2016/12/41844.html

matt4077 10y ago
I guess the scientific term is https://en.wikipedia.org/wiki/Homo_economicus https://en.wikipedia.org/wiki/Homo_economicus. The classic experiment is probably the Ultimatum game. And that's so old, you're tempted to say: see – they did notice the flaws in their theories! Yes, economists will readily admit to these flaws and encourage you to keep it in mind when evaluating their predictions and prescriptions. Unfortunately, people aren't just marginally different from the models. Just yesterday I violated transitivity of preferences when choosing lunch. I did an evaluation of GDO growth forecasts for my bachelor thesis. None of the institutions (Central banks etc.) managed to outperform a well-adjusted random number generator.
- jernfrost 10y ago
  I don't think economist always are that frank about the limits of their models. E.g. Milton Friedman I think seemed to think that the world worked mostly has homo economicus. He had some rather ridiculous examples. E.g. he was touring a factory in Hong Kong and claimed workers had picked noisy and hazardous work environments over more pleasant ones, because it paid better. That strikes me as a guy with the head in the cloud lost his his theories. Jobs don't exist in endless varieties like that. If I'd rather have a better health insurance but lower paid job, I can't easily change to an almost identical job, with just those differences. I also remember him arguing why it was rational for Ford or GM to install a cheap fix for dangerous fuel tanks. His straw man argument was that an infinitely safe car would cost infinitely amounts of money. With such arguments you can argue in favor of no minimum standards for anything. Never mind that he failed to see the blindingly obvious problem. It simply didn't make any economic sense because any car company making such a cynical calculation would severely damage their reputation and thus their sales. It only works for companies who manage to cover up. And Milton Friedman is one of our most celebrated economists. Sure he create some great theories, but he seemed also to not heed to typical advice of not taking models too literal. He basically advocated policies based on rather fundamentalists interpretations of economic models. If he could do that, then surely lots of other economists would fail in the same manner.
  - 10y ago