Economics - Science or Cult?Nov 18, 2012
With the recent global economic crisis, many people wonder if our economic policies are built on sound principles or on dubious, unscientific claims.
This week we'll be asking: is Economics a science, or a cult?
Of course, part of economics is a science. That’s been obvious for almost three thousand years, since the philosopher Thales cornered the market on olive presses. Thales is mostly remembered for thinking that everything was water. But he had a practical side too. One year, he noticed that the rains were unusually heavy and he predicted a bumper olive crop. He realized that come harvest time, in the fall, there would be a huge demand for olive presses. Of course, in the Spring, before harvest time, there wasn’t much demand for olive presses. So, he bought up every available olive press on the cheap in the Spring and sold them at a premium in the fall. Since then economists have observed markets under all kinds of conditions and have discovered all sorts of laws and principles -- like the law of supply and demand -- that help us predict and explain how markets work. So, why the suspicions about economics, expressed in our question for the show?
Because there is so much basic, public, disagreement among economists -- way more than in most sciences. You’ve got the Chicago School of economics, supply-side economics, Keynsian economics, and on and on. Beyond the basic law of supply and demand, is there really much that they agree on?
The late Milton Friedman, champion of the Chicago School, used to say things like, “I am in favor of cutting taxes under any circumstances and for any excuse, for any reason, whenever it’s possible.” While modern day Keynsians like Paul Krugman say things like, “the very rich, who have had huge income gains over the last 30 years, should pay more in taxes.” And to top it off, both Krugman and Friedman are Nobel prize winners! What kind of scientific field gives Nobel Prizes to guys who have such diametrically opposed views? If economics were really a science, couldn’t they just go to the blackboard or to the lab and work out who’s right?
Of course, you could have two physicians who disagreed about what was best for a given patient; that wouldn't mean they didn't share an underlying biological theory that’s quite well-founded. But in the case of economics, there doesn’t seem to be a single underlying theory that they all agree on in the first place. The political conservatives, like Friedman, have their theory: monetarianism. The political liberals, like Krugman, have their theory: Keynsianism.
But maybe the conservative position is based on sound science, while the liberal position is based on wishful thinking. Or vice versa. Just because there’s disagreement, doesn’t mean there isn’t a right and wrong of the matter.
To be honest, I've got my own opinion on the matter. Throughout my life, I think Keynsianism has had a lot of predictive success, including the effects of fiscal policy. But Keynes' prescription hasn't been followed. That was, as I understand it, for governments to spend to stimulate economies out of recessions and depression, and to tax and save during economic booms, to keep inflation in check and budgets more or less in balance over the long term. The problem is politicians, from both sides of the aisle, like to follow the first part of the advice and ignore the second -- they differ only on whether they prefer to flout it by increasing spending or lowering taxes. Monetarism seems like a consistent addition to Keynsianism for dealing with the details of monetary policy, but has been largely hijacked by so-called conservatives, who are mostly radicals. The divide between the two sides of monetarism can be seen in Friedman, between his sound scientific work and his ideology driven policy perscriptions. In people like Alan Greenspan and Paul Ryan, it is combined with the weird views of Ayn Rand. Yuk.
Photo by Sharon McCutcheon on Unsplash
Thursday, November 15, 2012 -- 4:00 PMI think you pretty much
I think you pretty much nailed it in your final paragraph. I am an undergraduate philosophy major with economics minor. As far as I can tell, the data support Keynesian models, whereas Austrian/Chicago/Supply-side models haven't panned out in practice. I believe that Keynesian economics is a science and Supply-side is a cult. We shouldn't blame economic theories when politicians make mincemeat out of them.
Friday, November 16, 2012 -- 4:00 PMThis post has great promise
This post has great promise for lively exchange. Asking whether economics is cult or science is akin to asking the same question about politics. If we further consider the influence that politics and economics exert upon each other, we might come to wonder how it is that the stock market functions at all. Both disciplines covet the science title; yet both are subject to fluctuations and quirks of human emotions. The current state of post-election disarray is instructive. So, haul out your Ouija board, sip some tea and have a little seance. It may not relieve your anxieties but could confer a moment's distraction.
Saturday, November 17, 2012 -- 4:00 PMIn France, economics (and
In France, economics (and accounting, too) belong to 'la science' by definition; in Germany, 'die Wissenschaft' is broad enough to include any body of organized knowledge, including economics, accounting, even metaphysics. On the other hand, in the English-speaking world (so far as I'm aware) economics is not a science, strictly speaking.
A strong case can be made for calling economics a cult; but, an even stronger case can be made for calling it sorcery, If so, it is powerful magic. Bertrand Russell began as a student of economics but abandoned it, declaring anyone could turn a parrot into an economist by teaching it to say, "Supply and demand." Adolf Hitler was attracted to National Socialism by the simplicity of its economic theory, particularly its distinction between 'productive capital' and 'parasitic capital,' and its proposal to confiscate the latter. (Productive capital is involved in the production of goods and services; parasitic capital is self-replicating, making money from money. The classic example of the latter is the coup by investor, George Soros, who made $1-billion in a single day speculating on devaluation of the British pound, producing nothing but a transfer of the said sum from the British Treasury to his account.) It must be admitted that before he descended into monsterhood, Hitler did gain considerable political credibility by ending German hyper-inflation.
But, if economics is so logical, why do so many people buy into economic sorcery? The answer is put nicely by professor Stanislav Andreski in his book, Social Sciences as Sorcery: "Even a most cursory survey of human beliefs reveals that man has no innate inclination to seek the truth; and that absurdity and obscurity, far from repelling, have for most people an irresistible attraction....there are several reasons for this proclivity, but the most general of them is that clarity and logic impose upon our thinking severe constraints which prevent it from wholeheartedly ministering to our desires, hates and whims."
Confusion and obscurity are particularly beneficial to government: "So long as authority inspires awe, confusion and absurdity enhance conservative tendencies in society. Firstly, because clear and logical thinking leads to a cumulation of knowledge ... and the advance of knowledge sooner or later undermines the traditional order. Confused thinking, on the other hand, leads nowhere in particular and can be indulged indefinitely without producing any impact on the world. In other words, it is intrinsically static; and this characteristic is connected with its ability to act as a cement for social groupings."
Saturday, November 17, 2012 -- 4:00 PMEconomics is a belief system
Economics is a belief system using numbers.
Economics, Religion, and Governance are three belief systems by which we can measure the tolerable range of irrationality of any culture.
Saturday, November 17, 2012 -- 4:00 PMIt's worth considering Geert
It's worth considering Geert Hofstede's observations about cultural differences in financial theories. Here's a comment on the related field of accounting:
"Finance is an area where one might expect rather limited cultural influence, and indeed power distance has not been researched heavily in this function. Among other dimensions, uncertainty avoidance has been linked to greater reliance on bank finance. 59
... ?In large power distance countries, the accounting system will be used more frequently to justify the decisions of the top power holder(s); in fact it usually is their tool to present the desired image, and figures will be twisted to this end.? 60
... high levels of uncertainty avoidance do fit with disclosure and conservatism in accounting. 61
Harold G. Neuman
Sunday, November 18, 2012 -- 4:00 PMInasmuch as economics and
Inasmuch as economics and governance are outgrowths of religion, Buck's observation is interesting. Human irrationality is just a way of pursuing an agenda, against all arguments/facts that support a contrary conclusion.
Science was the logical evolution of cult thinking: at some point, someone deduced that there must be more to everything than what their shaman(men?) and witchdoctors proclaimed. This all happened before Gallileo and Copernicus, of course, yet, it did happen---else we would not now be where we are. I might say more---but, I'll leave that for others. A hat tip to all;
Monday, November 19, 2012 -- 4:00 PMEconomics is a science-- and
Economics is a science-- and by the way so is philosophy, the foundational science. Science is simply systematic study. This enterprise results in understanding by means of observation based reasoning.
What is there to observe? All kinds of things, along with their actions, attributes and relations.
What does a reasoning man make of observations? He methodically makes ideas--which are then systematically connected to achieve ever greater understanding. Ideas enable understanding which involves identification and explanation. Understanding enables successful goal-directed action by man.
What needed explaining so that economics arose to attempt an explanation? Wealth and the processes responsible for its accretion.
Why is there so much disagreement in this science or that one? Well ideas are not automatically consistent with the facts nor are they always derived according to the proper method. Philosophy defines and should exemplify the proper method of deriving ideas from reality and validating ideas, checking to ensure that they are consistent with reality. The squabbles in economics reflects the unresolved disputes in philosophy.
In time disagreements will get settled one way or another, if we all don't run out of time.
Monday, November 19, 2012 -- 4:00 PM"...if we all don't run out
"...if we all don't run out of time."---As Ken Wilber has said: "And just so." And, as I have said and read: we shall see. The more I read from the natural historians and evolutionary biologists, the less confident I am that we shall survive our own "vain imaginings." Neither economics, philosophy, nor science can overcome intractable ignorance. Sure. Disagreements will get settled---until the next time---until we run out of that.
Tuesday, November 20, 2012 -- 4:00 PMEconomics: I pay cash for
Economics: I pay cash for everything, if I don't have it I don't buy it.
It works for me, why not cities and states and governments, why not everyone?
As for investing in others businesses, I wouldn't invest in my own.
Banks: I think it was Ford who said: don't ever trust them with your money.
Money: Rather than MJA on my dollars it says The United States of America.
Economy is like truth, simple is the Way.
Tuesday, November 20, 2012 -- 4:00 PM"The squabbles in economics
"The squabbles in economics reflects (sic) the unresolved disputes in philosophy." We might also say the squabbles in religion reflect the unresolved disputes in science. But, each is an entity within itself. As Gould stated, they are NOMA (see: Stephen Jay Gould's works, or Google Gould, NOMA; etc.) But, we were discussing economics, yes? Naturally, those who are intimately and professionally vested in economics, tend to think of it as science. No one who has invested blood,sweat, tears and dollars in anything wants to see it as less than advertised. That is a real dilemma of modern living.
I'll end in this way: economics must be one part tradition; one part speculation; and one part dumb luck. I see nothing scientific about it, otherwise we would have beaten inflation---and wars? they would have been obsolete decades ago. So,---maybe, it IS a cult after all? No,---no,-something else. But---what, exactly???? Come on, you must have gotten it by now. I have given you all the clues.
I recently had an idea for a tee-shirt logo: SAVE THE DINOSAURS. They are all extinct? Are you sure?
If you see some bozo wearing that shirt---it could be me. Reflect on that.
Wednesday, November 21, 2012 -- 4:00 PMEconomics is, by one
Economics is, by one definition at least, the study of how people make their living. Food and water would have to come first, and shelter would probably be second. But it's no secret that human motivations go way beyond such self-focused things, and that quickly gets us off into things like psychology and sociology. It's way too big a subject for me to really tackle. But just to address one part of it, the Andreski quote above seems to associate reason with self-interest, and confused thinking with social groupings. But I don't see why reason couldn't be used in the service of social groupings. We learn all kinds of stuff from our elders, language for instance, and learning English enhances our survivability, so taking an English course in college is a perfectly rational thing to do.
Thursday, November 22, 2012 -- 4:00 PMA couple of economists are
A couple of economists are walking down the street when one of them sees a $100 bill lying in the gutter. "That looks like a $100 bill," he points out.
"No, it's not," replies his friend. "If it were a $100 bill, someone would have picked it up by now."
So, they walk by.
An architect, engineer, and economist are out yachting, when their yacht hits a reef and sinks. Fortunately, the accident happens near a deserted island but their yacht sinks so rapidly that all they are able to save are themselves, a crate of beans, a small pen-knife and a lighter. They go off in different directions to see what other resources they may find on the island. Hours later, the architect and engineer return to report only sand and grass all over the island. By now they realize that they are hungry but also realize that they have no can opener.
"Well," says the engineer, "let's collect some of the dried grass, build a fire, then throw the cans of beans into the fire. The pressure inside the cans will cause them to burst; then we'll get at the beans."
"No," replies the architect. "The cans will explode, the beans will be all over the island, and we'll barely get any. We must build an enclosure to capture them."
But, there seems to be no way to build an enclosure. So they go in search of the economist and find him sitting in deep thought by the water.
"So, what have you been up to?" they ask him. "Oh, I've just been here thinking about my girlfriend, what a wonderful time we had before I left, and how upset she will be when she finds out that I'm missing."
They explain their problem with the beans. "That's no problem," replies the economist. "I figured that one out hours ago."
"Wonderful," reply the engineer and architect in unison.
"Yes, says the economist. "Just assume a can opener."
Tuesday, November 27, 2012 -- 4:00 PMI'm late to the game but
I'm late to the game but hopefully, people will still read.
I'll preface this with my background and research: I am an economist (professor) who specializes in the the economics of information and contracts. Philosophy, and its integration with economics, is a secondary interest of mine.
I'll be as brief as I can, but I so want to cover a lot of ground.
(i) economics is the study of the allocation of scarce resources among competing uses -- it is much more than about the macro economy, which has received much of the discussion.
* economists came up with the idea of a market in tradeable pollution rights (or permits), which succeeded wonderfully in nearly eliminating acid rain from the northeast US/southeast Canada
* economic principles, despite the Global Financial Crisis and subsequent Great Recession, have raised standards of living in the developed and especially developing world -- hundreds of millions of people in China, India, and elsewhere have been pulled out of the cycle of poverty and infant mortality
* economic principles can explain the rise of social networking and why there will be very few networks, and the implications for governments that want to control information
* economists use results from economic studies to help policy-makers and businesses design systems for distributing water, determining some "optimal" number of hospital beds to have, designing the health care systems and their relative merits and demerits
(ii) economists have almost always assumed that all economic agents -- firms, consumers, workers, governments, politicians, executives, ... -- behave rationally. What does it mean to behave rationally? It means for the agent to maximize some objective, such as profit or utility, subject to whatever constraints the agent has, be it time, money, legal, technology, ...
Individuals have preferences.
Now, the problem, or rather, conundrum. If an economist assumes that any choice is rational because that maximizes that agent's objective, then we lose all predictive power. Two individuals who are observationally equivalent could still make different decisions, and so we say they are both rational so it must be that they have different (unobservable) preferences. That may be well and good if all we want to do is to explain -- i.e., to predict the past.
But since we want to predict the future -- to anticipate how these agents will act within one system/framework or another -- we need to place limits on the preferences that agents have. An economic analysis that imposes less structure on agent preferences is preferred to another analysis that imposes more structure -- precisely because results of the former are more legitimately extrapolated to a wider set of economies.
So, we want preferences to be very general -- an agent who faces a risky situation is merely risk averse, or risk neutral (or risk loving). Sometimes, we ask what happens if one agent is more risk averse than another. But this concept of utility is ordinal, not cardinal.
Now, assuming these preferences, we then assume that the agent is rational. Why?
* for one, it has yielded remarkably accurate predictions
* moreover, suppose we drop the assumption of rationality? I know that an individual who is rational and indifferent between a hot dog and a hamburger will purchase whichever has a lower price (including his time cost of traveling/waiting). But what would an irrational individual do? An irrational individual might purchase the food that has the higher price, but he might not.
And this is where both experimental and behavioral economics enter. Game theory a significant branch of economics (and political science) -- game theory is the study of how individual "players" behave in strategic situations -- a strategic situation is one in which one player's action affects the welfare of another player, whose also chooses an action that affects the welfare of the first player. However, in much of game theory, particularly the interesting and hard games, one or both players have, or acquire, private information. Well, if a player involved in the game cannot know everything his opponent knows, how can an observer, looking back at the outcomes, infer what the private information was?
And so, some economists run experiments -- humans, usually college students, participate in computerized laboratory games; the experimental economists then try to determine how well economic theory of what equilibrium exists, does actually play out. Hopefully, these experiments closely mimic the economies of actual interest, and the college students are sufficiently sophisticated and motivated to emulate the preferences of the players in those situations.
We know that when an industry has few firms (an oligopoly), coordination by those firms in production or pricing or product development decisions is detrimental to society. So, we call it "collusion" and have advised politicians to enact laws against that behavior. Moreover, recent legislation that allows a colluding firm to confess and pay a smaller penalty than it would if it were discovered, has significantly reduced the number of collusive agreements and how long they last. Not only do existing collusive agreements break down, but fewer are entered into precisely because each firm knows that the other may confess, leaving it with huge penalties.
Behavioral economics goes one step further: it considers that individuals really have "bounded" rationality. Rather than claim that individuals are always rational, or say that anything is rational and it is just the individual's preferences, or throw up their hands and say that nothing is predictable because all individuals behave irrationally, behavioral economists try to discover patterns of departures from rationality.
(iii) all of this leads to what makes economics such a difficult predictive study. At the macro level, the economy is a dynamic, chaotic system subjected to external shocks -- wars, climatic events, political outcomes, epidemics, famines, ... In this sense, it is much like trying to predict the climate. But more complicated/fraught with difficulty:
* much of the data that economists use is not actual data of what occurred, but either data of what occurred after it has been tampered with by an active human, or is a survey of humans, who either may misunderstand the question, may have forgotten their actual decision, may decline to respond, or may want to muck things up. Somehow, I doubt that inanimate machines that can be calibrated before and after measurements have been taken are actually subject to the same data problems and
* what I'll call a huge "Heisinberg effect" -- when a climate scientist proclaims that the next decade will have 20% more category 5 hurricanes in the North Atlantic than the previous decade had, the climate does not react to that statement. When a politician or renowned economist (POTUS or Fed Chairman Bernanke) makes a similar proclamation about the future of the economy, it affects expectations of the individuals in that economy and thereby can, and does, affect what actually does transpire.
And so it is that my greatest wish for economics in the news is to abandon point estimates and instead use confidence intervals. We are 95% confident that in the next quarter, the GDP will grow at an annual rate between 1.7 and 1.8%, for example.
(iv) In part, this is in response to Dave the Carpenter, who wrote that economics is not a science. A science is a systematic study of phenomena whereby a theory is formulated that yields testable hypotheses and then data are acquired in order to determine the accuracy of those predictions. If the predictions are affirmed, then evidence to support the theory is stronger, but if the predictions are not affirmed, then the econometricians (those who use the data) examine the veracity of the data, the mathematical properties of the statistical methods they employed and, if those are sound, tell the theorists to go back to the chalkboard.
In physics, we know that something we call gravity exists, some attraction between objects that have mass. Do physicists agree on a theory of gravity? Google it.
By that definition, economics is most definitely a science.
Wednesday, November 28, 2012 -- 4:00 PMWas there a transcript for
Was there a transcript for this show?
Thursday, November 29, 2012 -- 4:00 PMMoney is produced by any
Money is produced by any government for one purpose. It is produced for the purpose of enslaving people ultimately to work for military industries...or to serve the workers of military industries. If people were free, most of them wouldn't produce things for militaries.
Hence the suspicion of economics.
Thursday, November 29, 2012 -- 4:00 PMIt is not a game. Mr. Silvers
It is not a game. Mr. Silvers is a credentialed professional, if we are to believe his lengthy dissertation. IF (and it is a big if) we are convinced that economics is a science, we must ask: why, in its many years, has it not led to some better sort of caste system? I think I know why, or rather, Jared Diamond and a few ohers know why. In several outings, beginning with his The Third Chimpanzee and culminating (so far) with Collapse, Diamond illustrates why humans have continuously and religiously (tut,tut) followed their instincts and acculturations down the road to demise. I don't think Jared Diamond is a prophet. But the things he and thinkers such as Dawkins, Gould and Osborne have written are certainly more compelling than current economics dogma. Which, by the way, appears to be influenced (if not DRIVEN, by popular culture.)
I wrote about things such as cultural intractibility in 2000. No one read what I had to say then. Well, it is all coming down now. Told you so...
Gary M Washburn
Friday, April 17, 2015 -- 5:00 PMIn the same sense, I suppose,
In the same sense, I suppose, as Freud's Interpretation of Dreams is ?science?. Just because people cannot be prevented from seeing patterns in what cannot be proved to be anything but random, this doesn't validate those patterns.
For a while, in my callow youth, I was paid to plot graphs, to superimpose a standard curve upon the plotting, and derive standard deviations for it. The result was that most of the actual measured data was outside the standard deviation. Questions arose in my mind, such as why should a particularly shaped curve be decided upon to extrapolate very little data? And why were all the deviations vertical, rather than horizontal, in depth, or in some dimension we have not discovered yet? Nothing arbitrary here? And this was physics, not economics!
The right-wing has successfully driven the left out of economic theory (while very often citing the most famous leftist in their own theories!) by painting it as opposed to 'liberty'. This, of course, is analogous to the feudal lord claiming democracy opposed to 'honors'.
But how in hell can there be a science of dogmatics? After all, the issue of economics is getting what I want. You can't take that motive out of it without denaturing it completely. But it's dogma, the very essence of dogma, and at the very heart of the whole project.
Moreover, economists lie. They say one thing to the public, and quite another in private. They claim to be seeing trends in the market, but the private praxis is to buck and manipulate trends. With enough money to play the game you can nudge the market at the nanosecond scale, and clean up, so long as you can ?stay ahead of the 'curve'?, whatever that is. Just look at the way the market spikes. If an 'investor' (manipulator?) can only add up those spikes his 'profits' (takings?) will be an asymptote rather than a gentle curve, let alone a gentle sloping line.
By the way, the uncertainty principle in physics is not at all analogous to the uncertainty in economics. More like weather, perhaps. But if the dogmatics of economics is to be countered by a kind of quantum theory (we could call it a kind of quantum logistics) we have to give up on selfish motives and find the needed completing term in what we do not feel worthy of possessing.
Saturday, April 18, 2015 -- 5:00 PMThe NZ economist Marilyn
The NZ economist Marilyn Waring pointed out in her film that "traditional" economists don't consider stay home mothers as contributing to the economy, and that economic disasters like the Exxon Valdez were actually good for business and even that when you have a car accident you are contributing positively to the economy.
Then we look at German companies that profited from the war using slave labor like Volksvagen that were then penalized and asked to pay retributions, contrasted with present companies like Bechtel and Halliburton and the huge U.S. weapons industries that profit from keeping us in a constant state of war.. From a philosophical point of view when our economies are thriving because we're arming most of the wars currently going on (and when we arm for example Iraquis fighting in Syria, their weapons fall into the hands of ISIS) how can we justify becoming rich off human misery?
Eco Doc Jeff
Wednesday, April 22, 2015 -- 5:00 PMAs an ecologist dealing with
As an ecologist dealing with natural systems, and how they are managed by human actions (think salmon populations in the Pacific Northwest, and should society support publicly fund hatcheries to support a commercial salmon harvest; and various hunting laws, etc), I think that this show is belaboring the obvious.
In my field, there are usually mostly clear distinctions between pure science, which looks into "how and why things happen", and how we understand events; applied science, which looks into how we can use our knowledge to manage or influence outcomes of events; science based advocacy for a particular point of view with the intent of changing public policy and/or personal practices ("conserve water, don't pollute"); and "information free" advocacy for a particular point of view (climate change is a fabrication). The discussion I've heard so far this evening seems to be focused on advocacy and influence, rather than what the science of economics does.
Perhaps a better question to discuss might be "What should or should not a scientific economist do, in the context of advising or advocating public policy?" In ecology, that is often a daily question.
Saturday, April 25, 2015 -- 5:00 PMLot's of good stuff here - I
Lot's of good stuff here - I was interested on a comment concerning " predictive " aspects of " economic theory " or theories ----- anyway, I am somewhat convicted that Shrodinger's cat or equation could have something effective to say within the framework of economics - and perhaps some of that has been tried - maybe not very successfully. Very important ideas, which become relevant in the atmosphere of "looming" --- national presidential elections - which should be a long way away, but are actually next year ( OUCH ). And my prediction is that there will be a lot of GOOEY stuff - sloshed about the medium - on this subject that will quite often mean : less than nothing. I guess we should all enjoy it while we can.
By GOOEY I think I mean - like - Huey, Louie, and Dewey but different.