One of the embarrassing dirty little secrets of economics is that there is no such thing as economic theory properly so-called. There is simply no set of foundational bedrock principles on which one can base calculations that illuminate situations in the real world. Biologists know that every cell runs off instructions for protein synthesis encoded in its DNA. Chemists start with what the Heisenberg and Pauli principles plus the three-dimensionality of space tell us about stable electron configurations. Physicists start with the four fundamental forces of nature. Economists have none of that. The "economic principles" underpinning their theories are a fraud--not bedrock truths but mere knobs twiddled and tunes so that th right conclusions come out of the analysis.
What are the "right" conclusions? It depends on what type of economist you are, for three are two types. One type chooses, for non-economic and non-scientific reasons, a political stance and a political set of allies, and twiddles and tunes their assumptions until they come out with conclusions that please their allies and their stance. The other type takes the carcass of history, throws it into the pot, turns up the heat, and boils it down, hoping that the bones and the skeleton that emerge will teach lessons and suggest principles that will be useful to voters, bureaucrats, and politicians as they try to guide our civilization as it slouches toward utopia. (You will not be surprised to learn that I think that only this second kind of economist has any use at all.)
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5 comments:
And I of course am that second kind of economist :). If you look at the past and what happened when you twiddled knob X on the economy at a certain situation (like, say, the zero bounds on interest rates), then you can model what will happen this time if you twiddle knob X on the economy. But if you start out with some abstract formula and a predetermined conclusion like "knob X is evil and should never be twiddled", what you get is something that's not useful at all.
For the record, I am not a Keynesian economist. I do not feel that there is any single economic school whose models are accurate for all situations. At the zero bounds the Keynesian models match observed behavior, and that is why I use the Keynesian models at the zero bounds. In other situations I use whatever model best matches the situation -- even the Austrian model if we were looking at a situation of full employment where government spending was crowding out private spending. Which just goes to say that any school of economics that claims that they have the one and only Truth is full of it, because I have seen no school of economics whose models match observed reality in every situation. 'Nuff said on that.
-- Badtux the Reality-based Penguin
Delong suggests (probably inadvertendly) that macroeconomics, even that of the holy Lord Keynes, is not really a science--as in having predictive power (ie reliability in a sense)--but closer to political science (and even, Osiris forbid, with ...ethical aspects....). With enough charts, demographics and high powered stats apps. it may at least appear scientific, however.
Not quite, J. More like he's saying there is no unifying Theory of Everything that is accurate 100% of the time in predicting actions. This does not preclude the existence of models that correctly predict the effects of interventions in a particular problem set, however, just as lack of knowledge of quantum mechanics and relativity did not stop Isaac Newton from formulating his laws of motion. All Newton wanted to do was predict the trajectory of cannonballs, and his equations were quite sufficient for that, thank you very much, since his cannonballs were not moving at even 1% of the speed of light and thus not subject to measurable relativistic effects.
My take on economics is that right now we're at the Isaac Newton level. We have some models that work in certain limited situations, but we haven't put things together enough to be able to deal with more complete or complex problems with any given model. So we're reduced to a toolbox approach -- choosing what model happens to have proven to work in the past for a given situation -- rather than having a unifying Theory of Everything. Give us a few hundred years though... remember, economics as a science is less than 200 years old, whereas Physics as a science is over 400 years old (and did not arrive at Relativity until almost 300 years after its founding). So it's going to take a while... if we have the time before the dimwits drive our economies all the way back to barter and would-be economists are too busy grubbing potatoes to trade for turnips to bother with all that math stuff.
- Badtux the Scientific penguin
Well, you've not quite understood my point. You've probably heard of Lakatos. My point's merely a paraphrase of L's skeptical view of academic economics, which he said did not meet the criteria of authentic science (even Newtonian mechanics)--as in reliability of models, forecasting, predictiveness. Lacking that reliability macroeconomics at least is ...at best a type of social science (ie highly probable, even conjectural). The macro aggregations are themselves dubious (even Krugman says that somewhere).
You see this with even basic attempts at correlations --say what happens when Fed lowers or raises interest rates. It doesn't always trigger investment. It doesn't have really any necessary implications, but is just a rule of thumb. Even if lowering interest rates "more often than not" leads to increased spending or "stronger economy" its hardly statistically relevant (which would mean like 80% at least).
Diogenes J.
There was a time when I believed that mankind would, in the distant future, eventually reach a point where the universe was fully understood, due to the accumulation of knowledge over millennia.
I realize now that that is unattainable, even in the physical sciences. Physics is not 200 yrs old - It's at least 4000 yrs old.
Econ will never even get close. People are not like helium molecules. Behavior patterns are to wildly variable - weird, even.
People do not routinely and reliably make rational choices, and without that, actions are unpredictable, and the marginal utility of anything is a fantasy.
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