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The idea that markets approach efficiency is a hypothesis. Markets could also approach maximum exploitation. That is another hypothesis. Which one is better at
by atoav 2y ago
The idea that markets approach efficiency is a hypothesis. Markets could also approach maximum exploitation. That is another hypothesis. Which one is better at explaining any given economic system is a matter of interpreting the data and trying not to lie to yourself.
The problem with most of economic science is that latter part. Where most other sciences try to decouple themselves from their subject or at least aknowledge the limitations of their field, many economists seem to have a much more loose relationship with their field. E.g. if a hypothesis failed to explain so many real world phenomena as many popular economic ideas, any natural scientist would throw their hands in the air and admit they had no idea what was actually going on. Yet my feeling isn't that economists are like: "We have that part here figured out and that part over there is work in progress" but more of an airquotes-science, like Lacanism or Freudianism, where what you say depends on whose school of thought you subscribe to.
Granted if one imagined how a truly serious about describing-what-is-economic-science would have to work like, that would be a gargantuan endeavour as it not only encompasses mathematics and complex systems, but also fields like psychology, sociology and geography. So I am the last to blame any serious economist for not being able to explaining everything. What I can however blame them for is when they defend a hypothesis that has been falsified by reality countless times by moving the goal posts by saying the conditions have to be just right for their hypothesis to make sense. Yeah sure.
- nostrademons 2y agoEfficiency and exploitation are not mutually exclusive. Efficiency is usually defined as "maximizing output while minimizing input". Exploitation is about how equal the deal is, whether the returns will be spread evenly across all people who contributed vs. concentrated in one person. There are a great many situations where the most efficient way to produce something is to have one person tell lots of people exactly what they should be doing and then work them as hard as possible while giving them the minimum needed to induce them to take the job. The whole profession of management and theory of a firm is based on this idea. Many people would agree that efficiency is good while exploitation is bad, but we shouldn't let our feelings toward each idea cloud our understanding of the relationship between them. It's very possible for a concrete situation to be both good and bad at the same time, depending on which part of it we look at.
- atoav 2y agoEfficiency and exploitations were just two example hypothesis — it being them and not others is not fundamental to the argument I made.
- gmd63 2y agoHistory of economic thought should be covered in Economics 101 to really drive this point home. Going through the entire history of the discipline you recognize that the practical purpose of economics is mainly serving to justify a society wide experiment on why the latest theory is wrong.
- legitster 2y agoI still have my Econ 101 textbook. History of economic thought was indeed the first several chapters we covered.
- legitster 2y agoI'm not sure if you read the article in question - but it is literally interviewing Fama (the person who coined the term "efficient market hypothesis) about ways markets continue to be inefficient. Regardless of how much efficiency there is or is not, it's still a good theoretical framework for understanding markets. No one assumes the cost of a wheat future is a completely made up number so obviously there is some efficiency.
- atoav 2y agoMy point wasn't about the hypothesis of efficiency per sé. It was about the field of a whole. I have nothing against useful tools or models. But all too often these get confused with reality in economics — with potentially world-changing consequences. Granted this wasn't the point of the article, it was more like a tangential thought.
- readthenotes1 2y agoEconomy is astrology with fancy math...
- rrrrrrrrrrrryan 2y agoYour critique of the field would be largely correct a half century ago when theory and ideology reigned, but if you speak to any group of econ doctoral candidates today I think you'd be surprised how hard they're genuinely striving to root themselves (and the discipline at large) in empiricism and evidence-based thought. The old guard still runs the show, of course, and the field will advance one death at a time.
- atoav 2y agoI hope you are correct and the field gets better.