Friday, May 06, 2005

Conflict of the Faculties: The Dismal Science

Economics is dismal, all agree, but a science?

Correspondents at Angelica's battlepanda blog are the first to go:

i) "I don't know if this economics class is anything like what I think it is, but here's one thing that always makes me think "bullshit!" when I'm dealing with economics.

Basically, taking something that works fairly well for an economy as a whole (for example, the Cobb-Douglas production function) and then applying it to, say, one firm. A lot of my intro economics was, along the lines of, "the firm's technology is K^(a)L^(1 - a). Price is p. Use a Lagrangian to find the optimal output." and that sort of stuff. Meanwhile, I'm thinking, "right. A firm that produces widgets with a Cobb-Douglas production function. Which firms does this describe? General Motors? Wal-Mart? Microsoft? Ikea?"

I think that the most important thing that an economics class is communicate the core "intellectual tools" of economics: oppurtunity cost, Pareto optimality, no-arbitrage conditions.

Instead of telling kids, "As you can see from the Slutsky decomposition, it is entirely possible, at least in theory, for the income effect to be negative and larger than the substitution effect: this is known as a Giffen good," then drawing a pair of budget constraints and indifference curves in which a decrease in the price of good 1 leads to a decrease in the consumption of good 1, try putting them in the shoes of an Irish peasant. "Assume you must get 12 meals a week. Suppose you have $18 a week. You prefer cauliflower to potatoes. A meal of potatoes cost $1 each. A meal of cauliflower costs $2 each. What is your consumption of potatoes and cauliflower? Suppose the price of potatoes goes up to $1.50. What is your consumption of potatoes and cauliflower?" There! The core idea of the Giffen good. No Slutsky equation, no Lagrangean multipliers.

Basically, I think that the most powerful things in economics -- at least at the lower levels, like introductory courses -- are the ideas, not methods. If I understand correctly, all the methods I'm learning now for economics are worthless anyway, since Debreu said we can't use multivariable calculus in our economics anymore, and we have to use a bunch of point-set topology instead." (Julian Elson)

ii) "I am, to be up-front, a heterodox product of UMass Amherst, so discount this as much as you please. But when I was an undergrad at Dartmouth 25 years back my experience was similar. I thought intro econ classes would teach me about actual economic life. Instead I got silly models. I had a better math background than the classes were designed for, so I had no trouble mastering the models, but I could also see how arbitrary their assumptions were. Intro micro in particular pushed me over the edge -- how could you do a whole course around a little bit of dumbed-down constrained optimization? So I went off and did humanities, which offered more interesting challenges, and only came back to a Ph.D. program in econ ten years later.

When I teach this stuff now, I try to build in student research projects that help them learn to use real-world data, so that at least I can show them by the end of the class that the world is more transparent. But I'd never talk about "believing in" economics -- it's not a religion, it's a social science and still a rather inadequate one." (Colin Danby)

iii) "....economics is, in fact, a quack science." (dsquared (Daniel Davies), of Crooked Timber)

iv) "I'm not sure I can speak to RJ's viewpoint, because my Econ 101 left very little impression on me (my core courses were extraordinarily intense). All I know is that my personal skepticism of simplistic economics (by which I mean 90% of public discussions of economics) has been met by shrill horror by economists I know. Kind of like how orthodox Christians I know respond to my feelings on that topic.

I adore DeLong's site, and appreciate much of his thinking, but I also see an awful lot of insular thinking - at some point, the model becomes more precious than what it supposedly models. I think economic thinking is very valuable, but its rigorous mathematical pursuit strikes me as being (somewhat) less so. Perhaps this is because it is, fundamentally, a social science. Humans aren't billiard balls, and while you can get pretty far modelling them that way, at some point they're just not going to act in the way your model has predicted, and all the formulae in the world can't change that.

All of which supports the idea that economics needs to be more widely taught, but as a mode of thought, not a series of formulae. The formulae won't help the layman think about economics issues for himself, but concepts and examples - like the excellent potato/cauliflower one - will." (JRoth)

v)"I'm finishing a Master's now, and boy, do I ever hate it. I'm finding that the writings of people like Mark Blaug, Tony Lawson, Leontieff, etc, have a lot of resonance with me right now: ie academic economics has become a pointless, sterile mathematical exercise that has the square root of sweet **** all to do with reality. And understanding REALITY was what made me want to do this in the first place.... models are only interesting to me to the extent that I feel they are shedding light on reality, not as math games in their own right. But the models we learn about all seem to have two features in common

1. They make howlingly implausible assumptions (and Milton Friedman can get stuffed, that DOES matter).

2. They fail brutally as soon as they are confronted with real data, that is, if they are even testable at all.

What a pathetic waste of time this has been. I'm going to go out, get a job, learn about REAL economic institutions, and flush 90% of this stuff right down the toilet as the useless and irrelevant crap that it is." (Darren)

vi) As someone who decided that my econ major was a terrible mistake, but only after it was too late to finish undergrad on the four year plan if I changed majors, I would suggest:

1) Assumptions that every undergrad instantly sees as inane;
2) Rational expectations;
3) A total lack of discussion of the political element that truely determines macro policy;
4) Comparative advantage (Explain to me why anyone would prefer 19th century Portugal's economy to England's. I can't remeber whether that example was Smith or Ricardo, but it sure seemed to me as a exceptionally strong arguement for Portugal to put up trade barriers and promote investment in manufacturing. Not the conclusions that were intended I think); and
5) Micro classes fixated on utitilies, which as best I can figure out, was invented solely to provide an alternative to the labor theory of value, and is utterly useless for anything but making the models elegant." (Paul)

vii) Very interesting comments here. I would also add that the jargon used is a real barrier to understanding.

For example, the following phrase is from a recent post at Delong's (which I read almost daily, and find useful & enjoyable):

"...employers can use the threat of withdrawal of these rents..."

What do most students understand by the word "rent"? Quite a bit of explanation is needed to make them understand the sense in which it's used in the phase quoted, and even then a process of mental translation from vernacular to jargon is needed EVERY TIME they read it. Similarly, terms like "return to capital (or labor)" are used when common usages like "return ON investment" are familiar to many if not most.

I would suggest that an introductory course for non-economists built around a book like "The Economist's View of the World" by Stephen Rhoads would be a good place to start. Although not a textbook (and possibly in need of some updating from 1985) the book concentrates on real-world effects of economic thinking. This could be expanded with details, models, etc as appropriate. The important thing is that it ties the concepts and models back to something potentially meaningful to the student.

BTW, I'm an electrical engineer, and my field is jam-packed with jargon. But I have spent a good portion of my professional life explaining engineering things to non-engineers. It can be done, but you have to abandon the jargon. Otherwise it turns into buzz buzz buzz and they fall asleep." (John in Maryland)

viii) On rent: I have several undergrad courses, and I'm on the verge of finishing a Master's, and I have *never* heard the word 'rent' used inside an economics classroom in its economic sense. I suspect rent is quite a useful thing to understand if you want to actually understand the world, but of course that's the last thing that academic economics is interested in, so any discussion of rent is avoided.

(Explaining the world to non-economists is equally uninteresting to the profession, therefore dropping the jargon is undesirable as well)." (Darren)

ix) "........... Too many economists thinks the answer to how to communicate to the public is to bamboozle them into submission rather than an honest dialog. *ahem* Alan Greenspan *ahem*.

And yes. Milton Friedman can get stuffed. .........." (battlepanda)

x) "I dismissed econ as a law student mostly because it seemed to make people stupid -- while I can see that patently unrealistic assumptions (e.g. perfect information) might be a useful first step in trying to figure things out, you can't stop there. I had one too many conversations with people saying "Look, economics irrefutably establishes X -- my logic is flawless," to which the only reasonable response was "Perfect logic won't get you anywhere if your premises are nonsense; your premises, and your results, are just that."

I'm regretting it now -- I wish I'd taken econ as an undergrad, and paid more attention to it in law school. Still, there are a lot of people out there giving econ a bad name, by using it to support arguments that just don't stand up." (LizardBreath)

xi) "After years of rigorous math and physics classes, my first course in macro-economics was jaw-dropping. I couldn't believe the fascile hand-waving explanations and shoddy math. Syllogism by metaphor seems to be the standard of reason. Even worse is the conceit that economics is a science. Economics may be complicated, and may use what looks like math, but it's no science.

Perhaps economics has value in providing some means of measuring and categorizing economic activity, but as an analytical and predictive model it's a farce.

And as a justification for public policy it's a scam." (Archie)


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