Robert Heilbroner — The Embarrassment of Economics: Weekend Reading

Robert Heilbroner hits it out of the park in this short article, originally a speech. It's a fun read, too.

Grasping Reality
Robert Heilbroner (1996): The Embarrassment of Economics: Weekend Reading
Brad DeLong | Professor of Economics, UCAL Berkeley

Peter Radford — Those Lumps Matter

Funny critique of economics as patent nonsense.

The Radford Free Press
Those Lumps Matter
Peter Radford

Lars P. Syll — Econophysics

Quote worth pondering.

Lars P. Syll’s Blog
Econophysics
Lars P. Syll | Professor, Malmo University

David F. Ruccio — “They aren’t laws of nature”

Nicola Headlam is, I think, right with respect to “how the rules of the economy are set”:

“Somehow, someone, somewhere made these rules up. They aren’t laws of nature.” And they determine “who’s got what and where and why”.

The question is, how do we teach economics so that that message gets through?

What to do? Start calling BS for starters.

This is yet another example of economics as philosophy, which is rationally based, rather being than science, which is empirically based. This is a foundational mistake that biases the entire structure. As soon as one encounters the term "natural, that's a tell to check the empirical warrant.

And, for the most part, that means pushing students through the chapters of a traditional textbook of economics, and therefore teaching them a narrow version of economics, consisting almost entirely of neoclassical and Keynesian theories, approaches, and policies.

That way of teaching economics has the effect of naturalizing a capitalist economy. First, it reduces the universe of relevant economic thought to contemporary mainstream economics. No other economic theories, now or in the past, need apply. (Nor, for that matter, should knowledges about the economy beyond mainstream economics, from either disciplines or from outside the academy.) Second, the methods and models are taught in a “common sense” manner. As I discussed back in May, markets have a magical, quasi-mystical status within mainstream economics. They are the original starting-point of neoclassical theory—presented as being “just there,” with the requisite price and quantity axes and supply and demand schedules, as the origin and focus of economic analysis. As for macroeconomics, which I discussed this past April, the premise and promise of both Keynesian and neoclassical macroeconomics is that, with the appropriate institutions and policies, capitalism can be characterized by and should be celebrated for achieving full employment and price stability. In both cases, at the micro and macro levels, the rules governing the economy are considered to be natural laws, which are correctly captured within the models of mainstream economics—and then, of course, meant to be respected and obeyed....

Occasional Links & Commentary
“They aren’t laws of nature”
David F. Ruccio | Professor of Economics, University of Notre Dame

The Economics Novice

Weekend reading. There are only three entries. Easy read.

Ed Zimmer is an engineer and has only recently encountered economics.

But I had now picked up an interest in macroeconomics — and started seriously reading many of the economists' blogs and papers. But the more I read, the more disillusioned I became. Having no previous introduction to economics, I initially assumed economists were scientists (and that was reinforced by the math I was seeing). But as I read their blogs and papers and worked through many of their mathematical models, I came to realize they're not scientists at all — but philosophers. A model reflecting reality simply CANNOT be built from variables that cannot be precisely defined and accurately measured — so their models are essentially useless. They may give insights (for readers to test with their own logic), but any notion that they're offering "truths" is just simplistic.

And to compound that weakness, most economists' papers share the academic weakness of trying more to disprove other economists' work than offer viable solutions to real-world problems. So much of what is found in today's economics textbooks and blogs is simply false — the real-world truth often being the exact opposite of what is written. Economics is not that complicated — little more than the disiplined logic every human is capable of.

So that's how this site has become The Economic Novice. It gives me a platform to lay out my solutions (admittedly novice, but hopefully clear and logical) to societal problems resulting from technological change. I'm doing this as a webpage (rather than a blog) simply because I don't want arguments mucking up the presentation. I'll point to this site as applicable in others' Comments sections and that's where arguments will occur. If anyone wants to argue via email, you'll find me at edzimmer@zimmer-foundation.org.

• About us
• The "No Free Lunch" Myth
• A Job Guarantee Program

The Economics Novice

Jason Smith — Macro criticism, but not that kind

With all the tired and plain wrong critiques of economics out there that are easily shot down by even the most critical student of economics, I thought I'd try my hand at writing at one that might pass muster. I did write a book, but it was more aimed at taking a new direction; this will be a more specific critique.

First, let me avoid the common mistake of using the word "economics" but then exclusively talking about macroeconomics: my critique is being leveled at macroeconomics (macro). This is not to say I don't also have criticisms of microeconomics or growth theory, but rather let me just focus on macro because that is what most people are interested in. I'm pretty sure the comeback "Auction theory is successful!" isn't really going to cut it with the Post Crash Economics Society or in general anyone who's life was turned upside-down by the Great Recession.

Second, let me avoid the common mistake of saying macroeconomists don't think about X. They do. There's a good chance they've thought about X much more than you have. Instead, let me focus on how macroeconomists think about thinking about X — the context, the spoken and unspoken narratives, the institutional knowledge.

And finally, let me avoid the common mistake of decrying the use of math in economics (this time in general). Mathematics is an extraordinarily useful tool. I know — I'm a physicist. I don't think economists have "physics envy", but the charge does carry a nugget of truth that I'll get to later....

Information Transfer Economics

Macro criticism, but not that kind
Jason Smith

Jason Smith — The economic way of thinking?

More on the foundations of economics.

Information Transfer Economics
The economic way of thinking?
Jason Smith

Jason Smith — Corporate taxes and unscientific economists

Another takedown.

But let's take this result at face value. So now we have a largely model-independent finding that to first order the effect of corporate tax cuts is increased wages. The scientific thing to do is not to continue arguing about the model, but to in fact compare the result to data. What should we expect? We should a large change in aggregate wages when there are changes in corporate tax rates — in either direction. Therefore the corporate tax increases in the 1993 tax law should have lead to falling wages, and the big cut in corporate tax rates should have lead to even larger increase in wages. However, we see almost no sign of any big effects in the wage data...

Now you may say: Hey, there are lots of other factors at play so you might not see the effect in wage data. This is the classic "chameleon model" of Paul Pfliederer: we trust the model enough to say it leads to big wage increases, but when they don't appear in the data we turn around and say it's just a toy model....

And this is the problem with economics — because what if Mankiw's and Cochrane's derivations and definitions of "static" analysis were mathematically and semantically correct? Would they just say I guess you're right — corporate tax cuts do raise wages. Probably not. They'd probably argue some on some other tack, much like how Cochrane and Mankiw would argue on a different tack (in fact, probably every possible tack). This is what happens when models aren't compared to data and aren't rejected when the results are shown to be at best inconclusive....

Data is the great equalizer in science as far as models go.

Conventional economists remind of the well-known Texan putdown, "All hat and no cattle."

Information Transfer Economics
Corporate taxes and unscientific economists

Jason Smith

Jason Smith — Lazy econ critique critiques

I agree that "unrealistic assumptions" has to be just about the laziest econ critique in existence. I wrote a post I was particularly proud of about how a lot of econ criticism is starting to look like vacuous art criticism.

Information Transfer Economics
Lazy econ critique critiques
Jason Smith

Heiner Flassbeck — Are Keynesianism and Neoclassical economics antipodes?

Over time, it has become abundantly clear that Keynesians made a major strategic mistake to consider neoclassical economics as a scientific counterpart that has to be opposed. Instead of characterizing neoclassical economics had from the very outset as a normative structure, which serves no scientific purpose, they took it on as a science. But no science can ever win the confrontation with an ideological superstructure. The neoclassical attempt is not directed to make genuine scientific progress, but to defend its own position at all costs and even if this cost comes with the high price of inconsistency no one cares. The “general theory,” which Keynes attempted to write, was not ‚general‘ because neoclassicism was not a special brand of economic theory, but a normative structure.

Flassbeck argues that neoclassical economics has an ideological bias toward a government-free market based economy and creates a narrative that pictures a "natural" economy based on supply and demand in markets as one without government. Their solution to market failure is therefore to blame government intrusion and to seek to reduce the role of government. Flassbeck observes that this has no empirical basis and is completely ideological.

A problem with many "Keynesians, " e.g., New Keynesians, is that they have acknowledged the scientific basis of neoclassical economics, where there is none, and tried to shape their views in reaction but within the same flawed framework. This, too, results in pseudoscience.

flassbeck economics international
Are Keynesianism and Neoclassical economics antipodes?
Heiner Flassbeck | Director of Flassbeck-Economics

Noah Smith — Anti-empiricism is not humility

Excellent post on foundations of economics and critical thinking. 

The alternative to empiricism in economics is not agnostic humility, but intuitionism - the idea that we can know about the world by thinking about how it works, and that exposure to evidence will only pollute the truths that we divine from our own minds. And that's something I think economists need to avoid....

Noahpinion
Anti-empiricism is not humility
Noah Smith | Bloomberg View columnist

Oscar Valdes-Viera — The Borrowed Science of Neoclassical Economics

"Science" with an agenda = pseudoscience.

The Minskys
The Borrowed Science of Neoclassical Economics
Oscar Valdes-Viera

Lars P. Syll — The perils of calling your pet cat a dog …

Applied math is not science. 

Math deals with possible worlds. (Think science fiction, or space fiction, depending on where you are from.)

Science purports to describe the real world of facts and events. This is called "semantic interpretation." (Think maps.)

Lars P. Syll’s Blog
The perils of calling your pet cat a dog …
Lars P. Syll | Professor, Malmo University

Lars P. Syll — What it takes to make economics a real science

Robert Gordon quote that sums it up by attacking George Stigler's claim that rigor supersedes relevance in economics. This would make economics a branch of mathematics and logic rather than a science that describes the world of facts and events that has a history. 

Under Stigler's view, which is the dominant view in conventional economics, economics is not a "real" science like other sciences but that rather a bogus one that only looks like a science. 

Conventional economics is better categorized as applied mathematics instead of science, and conventional economists approach it as such. They should just call it by it right name and let others do economic science without criticizing them for prioritizing relevance over rigor.

Lars P. Syll’s Blog

What it takes to make economics a real science

Lars P. Syll | Professor, Malmo University

Diane Coyle — Shadow-boxing with reality

Mulling over the debate under way about general equilibrium and macroeconomics, I picked up Paul Samuelson’s Foundations of Economic Analysis for the first time in ages. In the foreword to my 9th (1979) edition, he wrote: “In a hard, exact science a practioner does not really have to know much about methodology. … By contrast, a scholar in economics who is fundamentally confused concerning the relationship of definition, tautology, logical implication, empirical hypothesis and factual refutation may spend a lifetime shadow-boxing with reality. In a sense therefore, to earn his daily bread as a fruitful contributor to knowledge, the practitioner of an intermediately hard science like economics must come to terms with methodological problems.” Hmm. We have a lot of shadow-boxers, I fear.

The Enlightened Economist
Shadow-boxing with reality
Diane Coyle | freelance economist and a former advisor to the UK Treasury. She is a member of the UK Competition Commission and is acting Chairman of the BBC Trust, the governing body of the British Broadcasting Corporation

Jason Smith — Of phlogiston and frameworks

…This could be summarized as simply saying there is no framework for macroeconomics. Frameworks, like string theory and quantum field theory, do two things: they tell you how to start looking at a problem, and they represent a shorthand for capturing the empirical successes of the field. My first criticism above says that string theory is a framework, so you can't make an analogy with macro which doesn't have a framework. My second criticism above says that until you have a working framework, you should be skeptical of any "natural experiments" because the interpretation of the natural experiments change with the framework.

In spite of this, for the most part I liked Romer's take on macroeconomics and I think he delivered some powerful arguments.…

Information Transfer Economics
Of phlogiston and frameworks
Jason Smith

Graham Caswell — The Ongoing Collapse of Economics

If we accept the rapidly growing body of evidence and authority suggesting that many of the core concepts of conventional macroeconomics are bollox, and that economists don’t really know what they’re doing, then the important question becomes ‘What next?’ As conventional macroeconomic theory crumbles in the face of facts, what will replace it?

One of the primary contenders is Modern Monetary Theory, which focuses on money itself (something which, believe it or not, conventional macroeconomic theory doesn’t do). Another possibility is that macroeconomics will learn from complexity and systems theory, and that its models (and, hopefully, their predictive ability) will become more like those used in meteorology and climate science. Anti-economist Steve Keen is working in this direction, influenced by the Financial Instability Hypothesis (FIH) of Hyman Minsky, whatever that is.

But wherever macroeconomics is going, it’s clear that the old order is collapsing. The theoretical orthodoxy that has guided the highest level of economic management for many decades is crumbling. Either economics is an objective science or it’s not. And if economics is not an objective science, then we quickly need an economics that is. Countless livelihoods and lives will be deeply affected by the revolution we are witnessing in theoretical macroeconomics. It may be dry, it may be boring, it may be theoretical, and it may seem incomprehensible.

But it’s hard to think of any discussion that’s more important.

Graham Caswell

The Ongoing Collapse of Economics

Merijn Knibbe — Insider critiques of neoclassical macro models

Some history of economics and the shoulders of giants. Links, too.

Real-World Economics Review Blog
Insider critiques of neoclassical macro models
Merijn Knibbe

Lars P. Syll — Lazy theorizing and useless macroeconomics

Lars Syll chimes in on Paul Romer's article.

In physics it may possibly not be straining credulity too much to model processes as ergodic – where time and history do not really matter – but in social and historical sciences it is obviously ridiculous. If societies and economies were ergodic worlds, why do econometricians fervently discuss things such as structural breaks and regime shifts?

That they do is an indication of the unrealisticness of treating open systems as analyzable with ergodic concepts.

The future is not reducible to a known set of prospects. It is not like sitting at the roulette table and calculating what the future outcomes of spinning the wheel will be.… 

Lars P. Syll’s Blog
Lazy theorizing and useless macroeconomics
Lars P. Syll | Professor, Malmo University

Jason Smith — Macroeconomists are weird about theory

For those into macro theory.

Information Transfer Economics

Macroeconomists are weird about theory

Jason Smith