Lars P. Syll — Mathematics and economics

Many mainstream economists have the idea that because heterodox people — like yours truly — often criticize the application of mathematics in economics, we are critical of math per se.

This is totally unfounded and ridiculous. I do not know how many times I have been asked to answer this straw-man objection to heterodox economics....

There is another issue in the use of math with respect to economics. That is translating what a model says and implies for policy formulation.

For example, do policy recommendations based on a model exceed the the scope of the model? From a practical and historical perspective, this is a big one.

Conventional economists explain that their models did not foresee the global financial crisis because the event was the result of "exogenous shock," which means "beyond the scope of the model." Yet, they continue to use the conventional approach as if it were a universal truth because it a formal model, and, worse, won't listen to "heterodox" views because "the methodological debate is over."

It's true that heterodox economists did not "predict" the global financial crisis with precision as the outcome of a model — "put a number on it." But they did foresee a crisis as highly likely and warned of it developing for reasons that are not included in the models being used by conventional economists — at central banks, for instance, where the most sophisticated macro models are developed.

Alan Greenspan even blew off a warning from the FBI that mortgage fraud was rampant in the US housing market several years before the crash. The chairperson of the Fed is the chief financial regulator as well as overseer of monetary policy. Greenspan, whose ideology was lax regulation, did nothing because he saw nothing to be concerned over in his model. Isolated "froth" he called it. Many still regard him as a wizard anyway.

Philosophers are often caricatured as "ivory tower intellectual" and abstract mathematicians as stumbling over obstacles in their path that go unnoticed because they are eyes are fixed upward.

What about conventional economists?

Lars P. Syll’s Blog
Mathematics and economics
Lars P. Syll | Professor, Malmo University

Cathy O’Neil — “Algorithms Are Opinions Embedded in Code”

Algorithms are opinions embedded in code. It’s really different from what you think most people think of algorithms. They think algorithms are objective and true and scientific. That’s a marketing trick. It’s also a marketing trick to intimidate you with algorithms, to make you trust and fear algorithms because you trust and fear mathematics. A lot can go wrong when we put blind faith in big data.

Naked Capitalism
Data Scientist Cathy O’Neil: “Algorithms Are Opinions Embedded in Code”

Cathy O'Neil (aka mathbabe)

Compare with

An Interview with James Buchanan From the Austrian Economics Newsletter, Fall 1987

AEN: People have often labeled your work “normative.” Could you give us your thoughts on striking the balance between truth-seeking and advocacy?

Buchanan: I have never been especially concerned about making a sharp dividing line between what is positive and what is normative. I don’t consider myself a scientist whose task is discovering a reality that somehow exists independently of me. The model of hard sciences is not at all appropriate for economics. There is an important distinction to be made between taking an ideological position and then trying to make arguments to support that position, and on the other hand, working out the consequences of ideas and coming to an ideological position.

People do sometimes interpret my work as always being in defense of liberty. But it is less a preconceived notion and more a result of my methodology. It’s analogous to an artists that only knows and uses red paint. You should not be surprised when his paintings come out in various shades of red. Methodological individualism characterizes everything that I’ve done because I simply don’t know how to proceed with anything else, as if I only had red paint. Another artist might consciously decide to create a red painting so he goes out and buys red paint. But that is an entirely different approach.

Compare also

Thomas Aquinas in De Ente et essentia, 1

A small mistake in the beginning is a big one in the end, according to the Philosopher in the first book of On the Heavens and the Earth....

Compare Alfred Marshall

Balliol Croft, Cambridge27. ii. 06

My dear Bowley …

I had a growing feeling in the later years of my work at the subject that a good mathematical theorem dealing with economic hypotheses was very unlikely to be good economics: and I went more and more on the rules — (1) Use mathematics as a short-hand language, rather than as an engine of inquiry. (2) Keep to them till you have done. (3) Translate into English. (4) Then illustrate by examples that are important in real life. (5) Burn the mathematics. (6) If you can’t succeed in 4, burn 3. This last I did often ….

Your emptyhandedly,Alfred Marshall

Math is a tool that can be used in many ways for different purposes. In the hands of those who use the tool to manipulate and control others, math is much like Latin in the hands of a priesthood.

Math Problems

Assessing this is beyond my math chops to assess, but it is an interesting criticism of the use of math in economic by two math guys. 

Somewhat wonkish, but all verbal explanation. No math, although some familiarity with the context is required. Even without knowing the details, anyone should be able to catch the drift of these relatively short posts without being familiar with the references. 

The claim is that "mistakes were made."

Nassim Nicholas Taleb Blog
Inequality and Skin in the Game

Nassim Nicholas Taleb, scientific adviser at Universa Investments

This was posted in 2011 but it is still relevant.

Rick Bookstaber Blog
A Crack in the Foundation: An error that has wended its way through economics for 77 years

Rick Bookstaber | Research Principal in the Office of Financial Research