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I read a lot of economics and policy blogs (Marginal Revolution, Felix Salmon, Brad DeLong, etc...) and have come to the conclusion that the macro side of econo

I read a lot of economics and policy blogs (Marginal Revolution, Felix Salmon, Brad DeLong, etc...) and have come to the conclusion that the macro side of economics is still so in its infancy that it's can barely be called scientific. What you see is that various ideologies adopt their particular model (Keynsian, Austrian, etc...) and from there, the general lack of empiricism (never possible to run an experiment without confounding variables) plus confirmation bias (all deviations from your model can be explained by special circumstances) fuels a never ending debate. So I try to remain skeptical of (seemingly polemical) works such as this one.

kongqiu 15y ago
Your conclusion is well-founded. The micro side of economics is one part science and one part logic; the macro side is one part logic and one part hand-waving.
Locke1689 15y ago
The most objectionable and frustrating aspect of Austrian economics, to me, is the almost complete abandonment of formal mathematical models in their analyses. To be clear, I am an empiricist and believe that the study of systems can only come about through careful experimentation, modeling, and formal mathematics. Mathematics, in my opinion, is the only objective measure by which we can analyse systems and trends. I would concede that many of the macroeconomic models and experimentation in mainstream economics are weak and misused. However, I think any mainstream economist would agree with you and say that they are working hard to deal with the explosion of mathematical complexity in these kinds of analyses. They don't present their results as gospel, but they do formally state the models, meaning that they also formally state the assumptions being made. Austrian economics, meanwhile, seems whole unscientific. Almost all Austrian economic systems eschew formal mathematics in favor of cute rhetorical devices. This book is a perfect example -- where are the mathematical models and formal reasoning? Formalism is good. Formalism is how we know what we are actually discussing and what we are trying to deduce. An example of how formalism is essential is Turing's PhD thesis. Without getting into details, Turing was trying to find the answer to a certain intuitive mathematical relation. What Turing found, however, was that there was no answer -- the statement itself could not be well-defined in a formal sense, meaning that it was not a good question. This small example simply represents the large class of problems which can't be analyzed without formal breakdowns, simply because what seems interesting in rhetoric may be wholly untrue in a strict sense. Rothbard, especially, seems guilty of my criticism. In a number of works he stated that he believed that historical analysis and modeling could never apply to economics and that all of economics could be explained by a priori relations. The troubling thing is that Rothbard should have known from physics and chemistry (and now somewhat formalized by statements about Turing machines and automata) that there can be underlying principles in mathematical systems and that can still be absolutely useless in analyzing the results of those systems. The three body problem, for instance, operates on very simple principles, but those principles are of almost no use in predicting the results of such a system. So, in conclusion, I'm not saying that Austrian economics has no useful ideas, but what I am saying is that an underlying philosophy of many of Austrian economics' most celebrated evangelists is directly in conflict with my own. I don't believe that the right way to do economic or systems analysis is through rhetorical flourish or logical argument. These things are convincing on Internet boards but are not scientific and not well-defined. We should be trying to bring more science and formalism to economics, not less.
- joelhooks 15y ago
  Applying mathematical models to human action is interesting, no doubt, but we are a long way off from anything approaching a hard science when it comes to economics. I'm certainly no economist, but economics in general seems to be more of a sociological problem than a mathematical one. I'm happy that there are two sides to the coin. I've delved into Keynes's General Theory a bit, and witness on a daily basis how that approach is fouled by the actions of humans.
- jeffdavis 15y ago
  "To be clear, I am an empiricist and believe that the study of systems can only come about through careful experimentation, modeling, and formal mathematics. Mathematics, in my opinion, is the only objective measure by which we can analyse systems and trends." I think we have to be a little careful about approaching economics as a problem to be solved. Logic, math, and empiricism have their limits (even if they are the best tools we have). For one thing, empiricism relies on being able to control the variables. But that's hard to do, because others can always refute the results by introducing other variables and factors. And (as you point out) the possibilities explode so quickly that it's very difficult to reason purely based on logic from base principles. And there are humans involved, which makes it even more difficult (if not impossible). I'm not criticizing logic and empiricism as tools. But I think they can very easily give a false confidence in the answers you get. You have to realize how small a piece of the problem space your logic actually covers; and how difficult it is to distill real world events into a nice clean, unbiased data set.
  - Locke1689 15y ago
    I would argue that mathematics can only give you false confidence if you fail to understand it completely. A sound formal mathematical definition holds all assumptions within the definition itself. Note that I think that if you can't encode your theory in mathematics than it is non-predictive by definition. If it is non-predictive then I see no use for it in any real sense. I hold all economic systems to the same level of critique, by the way. If your Keynesian system doesn't encode its assumptions and predictions in mathematics then it is by definition useless.

kongqiu 15y ago

Your conclusion is well-founded. The micro side of economics is one part science and one part logic; the macro side is one part logic and one part hand-waving.

Locke1689 15y ago

The most objectionable and frustrating aspect of Austrian economics, to me, is the almost complete abandonment of formal mathematical models in their analyses. To be clear, I am an empiricist and believe that the study of systems can only come about through careful experimentation, modeling, and formal mathematics. Mathematics, in my opinion, is the only objective measure by which we can analyse systems and trends. I would concede that many of the macroeconomic models and experimentation in mainstream economics are weak and misused. However, I think any mainstream economist would agree with you and say that they are working hard to deal with the explosion of mathematical complexity in these kinds of analyses. They don't present their results as gospel, but they do formally state the models, meaning that they also formally state the assumptions being made. Austrian economics, meanwhile, seems whole unscientific. Almost all Austrian economic systems eschew formal mathematics in favor of cute rhetorical devices. This book is a perfect example -- where are the mathematical models and formal reasoning? Formalism is good. Formalism is how we know what we are actually discussing and what we are trying to deduce. An example of how formalism is essential is Turing's PhD thesis. Without getting into details, Turing was trying to find the answer to a certain intuitive mathematical relation. What Turing found, however, was that there was no answer -- the statement itself could not be well-defined in a formal sense, meaning that it was not a good question. This small example simply represents the large class of problems which can't be analyzed without formal breakdowns, simply because what seems interesting in rhetoric may be wholly untrue in a strict sense. Rothbard, especially, seems guilty of my criticism. In a number of works he stated that he believed that historical analysis and modeling could never apply to economics and that all of economics could be explained by a priori relations. The troubling thing is that Rothbard should have known from physics and chemistry (and now somewhat formalized by statements about Turing machines and automata) that there can be underlying principles in mathematical systems and that can still be absolutely useless in analyzing the results of those systems. The three body problem, for instance, operates on very simple principles, but those principles are of almost no use in predicting the results of such a system. So, in conclusion, I'm not saying that Austrian economics has no useful ideas, but what I am saying is that an underlying philosophy of many of Austrian economics' most celebrated evangelists is directly in conflict with my own. I don't believe that the right way to do economic or systems analysis is through rhetorical flourish or logical argument. These things are convincing on Internet boards but are not scientific and not well-defined. We should be trying to bring more science and formalism to economics, not less.

joelhooks 15y ago
Applying mathematical models to human action is interesting, no doubt, but we are a long way off from anything approaching a hard science when it comes to economics. I'm certainly no economist, but economics in general seems to be more of a sociological problem than a mathematical one. I'm happy that there are two sides to the coin. I've delved into Keynes's General Theory a bit, and witness on a daily basis how that approach is fouled by the actions of humans.
jeffdavis 15y ago
"To be clear, I am an empiricist and believe that the study of systems can only come about through careful experimentation, modeling, and formal mathematics. Mathematics, in my opinion, is the only objective measure by which we can analyse systems and trends." I think we have to be a little careful about approaching economics as a problem to be solved. Logic, math, and empiricism have their limits (even if they are the best tools we have). For one thing, empiricism relies on being able to control the variables. But that's hard to do, because others can always refute the results by introducing other variables and factors. And (as you point out) the possibilities explode so quickly that it's very difficult to reason purely based on logic from base principles. And there are humans involved, which makes it even more difficult (if not impossible). I'm not criticizing logic and empiricism as tools. But I think they can very easily give a false confidence in the answers you get. You have to realize how small a piece of the problem space your logic actually covers; and how difficult it is to distill real world events into a nice clean, unbiased data set.
- Locke1689 15y ago
  I would argue that mathematics can only give you false confidence if you fail to understand it completely. A sound formal mathematical definition holds all assumptions within the definition itself. Note that I think that if you can't encode your theory in mathematics than it is non-predictive by definition. If it is non-predictive then I see no use for it in any real sense. I hold all economic systems to the same level of critique, by the way. If your Keynesian system doesn't encode its assumptions and predictions in mathematics then it is by definition useless.