Hating economics
The article “Why Americans Hate Economics” caught my eye, for obvious reasons.
Here’s a quote:
Christina Romer, the University of California at Berkeley economics professor and President Obama’s first chief economist, once relayed the old joke that “there are two kinds of students: those who hate economics and those who really hate economics.” She doesn’t believe that, but it’s true. I’m surprised how many students tell me economics is their least favorite subject. Why? Because too often economic theories defy common sense. Alas, the policies of this administration haven’t boosted the profession’s reputation.
The problem is manifold. Much of what economists say is indeed counter-intuitive—especially if we use our own most familiar circumstances, managing a household’s finances, as a guide. For instance, stimulus spending by the government is going to help the economy? Doesn’t seem quite right. Raising taxes might not always yield more revenue? Why not?
The explanations—and there are always many—somewhat suffice. But then there are the counterarguments, and they are seemingly endless as well. The math (which economists say constitutes the proof of the pudding) is so arcane that most people can’t do it or understand it. Nor are we sure the math matters, as we’ve learned from the financial quants, who assured us that the derivatives trade was a-okay and housing could never fall and all that jazz.
And even if 75% of economists agree on something, there’s always that other 25% (or even 10%, or 5%) who just might turn out to be correct. We’ve seen people be wrong, wrong, wrong before, and suffered for it. Prognostications? Don’t make me laugh; the track record is just not good, nor is it consistent.
That isn’t to say I disrespect economics. I don’t (some of my best friends…). Most of them work very hard at a task fraught with inherent difficulties: analyzing what went wrong in the complex system known as our economy, and what might be done to make it right.
If you want to make your head spin, just take a look at the arguments over the Great Depression, and whether FDR’s policies helped it or prolonged it, and what finally got us out of it. If the past is that hard to understand and that controversial, how much more so is the present and the future? And yet so much is riding on being correct.
Forget the math. I highly recommend the series of podcasts at econtalk.org
I think it was Harry Truman who said he wanted to be adivsed by a one armed economist.
He was tired of hearing them say “on the one hand this…and on the other hand that….’
The sad truth is that behavior of every complex system is counter-intuitive, and common sense just does not work in such situations. It took me 20 years of study non-linear dynamics, which is, indeed, a rather arcane math, to begin to avoid some obvious for me (now) fallacies, which, I am sure, 99% of quite reasonable people almost surely fall into. The same is true about economy, evolution theory, climate change and most of ecology.
Most of what is called economics these days is more akin to storytelling. It is another example of a word that has lost its meaning through repeated misuse.
Walter E. Williams, the economist I want to be when I grow up, defines econ as the study of allocating scarce resources that have multiple uses. Ideally, it is positive, not normative. Trying to describe and model a complex system is beyond human capacity. Pretending to know what is “best” and how to achieve that is pure hubris.
Macroeconomics shares the same flaws as epidemiology. All it identifies is correlation. It tells us nothing about causation and the mechanisms by which people make decisions about resources.
And also much of econ these days is actually finance. It is determining how to pay for things, instead of deciding which things should be pursued at which prices.
Perhaps one of the reasons students hate economics is the poor way in which its taught. Now that I’m older, I find the subject fascinating. As an undergrad I had the opportunity to take a team-taught Econ 101 course. One of the faculty team was a woman who went on to serve on President Nixon’s board of economic advisers; no slouch she. I dropped the course after 3 sessions because it began as the most uninteresting class I ever had the misfortune to enroll in. Conversely, one of the best economists I’ve ever heard speak is Lester Thurow who can explain advanced concepts with examples in the workaday world. (I heard Thurow speak most recently in 2002, taped the lecture and listen to it every 18 months or so. I’m still gleaning new understanding from his presetnation).
I think that many economists are so mired in theory that they can’t understand direct applications in the real world and thus can’t teach in a cause and effect manner.
Neo, I think that with regards to the arguments over the great depression, you are confusing economics with revisionist, or partisan, history.
I am barely literate in economics although I took a few courses. I believe that part of the problem on the national scale is the the sheer complexity of the issue. Sort of like global warming, excuse me, climate change. Some folks simply cannot resist pretending that they have a grasp of issues that are simply too complex and too massive to grasp. So, they build computer models, with simplified assumptions, and proclaim the results infallible.
As a gut reaction, I suspect that economic stimulus is effective to a point. But, if it involves massive deficit spending, on top of huge existing deficits, and a tremendous overhang of debt, not to mention “entitlement” obligations, it does not take an economic guru to say “oh, oh”.
Should have noted, that the assumptions that go into models are occasionally, if not more frequently, based on pre-existing prejudices. Thus, differing results from different “well qualified” sources. Possibly generated from the same model.
Sergey is right. It takes a long time to comprehend how complex the modern economy really is. Adam Smith arrived at his free market ideas at a time when things were much less complex. He recognized that millions of everyday decisions by people trying to improve their individual situations led to the best results. Times have changed, economies are more complex, there is more global connectivity, but that idea is still the best explanation for improving economic results. Yet, as Sergey states, it is very hard to comprehend and not intuitive.
The dems are trying to claim that government regulation does not harm economic results. Well, how about this?
“Exxon Fights Regulatory Pirates
Exxon’s discovery will also create thousands of jobs – at a time of 9.1% unemployment. Already the oil industry supports 9.2 million jobs and 190,000 more will be added if Gulf drilling is allowed to resume – along with a big multiplier effect. Many of those jobs will be in manufacturing – in places like Youngstown, Ohio, which just opened a new steel plant to make drilling pipes.
It’s a sorry spectacle to see Exxon – which willingly endured the risk, put in vast infusions of investment capital, sent out brave men to watery no-man’s land to drill, and invested massive amounts in R&D – lose its entire operation over a petty permit dispute.”
Read the whole thing here:
http://tinyurl.com/3pcssbz
Regulation doesn’t hurt the economy? The hell it doesn’t!
Economic interpretation of the real world suffers from too many variable variables. Cherry pick your variables and you can convince yourself that your theories are provable. Unfortunately no two situations are identical even forgetting the unknown unknowns.
Two things demonstrate the fallacy of economics, the science: 1) the expectation of a rational actor, 2) the complete lack of predictive power.
A better basis would be this: TANSTAAFL
I’ve become more and more interested in economics over time, too. The reason Truman unreasonably wanted an one-armed economist is that economics is all about trade-offs. I think the biggest misconception most people have is that economics tells you what it good or best. When really it gives you insights into the costs and benefits.
I once read someone trying to deprecate economics by writing something to the effect, “Economics has the same relationship to the economy as physics does to baseball.” I don’t think that’s a put-down, I think it is very accurate. We don’t despise the scientific nature, engineering value, or predictive power of physics because it can’t tell us the outcome of the upcoming World Series, nor should we. However, it would be very foolish indeed to maintain that baseball operates independent of the laws of physics.
In the hands of the wise, economics–by which I mean the core reasoning in economics– can generate extraordinary insights about behavior and incentives. In the hands of a charlatan, it is worse than useless. The trick is to tell one from the other. Oh, and avoid academic economists: it is their stock in trade to avoid committing to something that might prove to be embarrassing, at least until they have tenure, after which they ride their hobby horses without the least self-consciousness.
John,
I think your baseball/physics analogy is excellent.
Thanks.
Neo,
I can tell you exactly why most undergraduates hate hate economics. It’s because almost all econ courses at U.S. colleges use books written by Paul Samuelson. First and foremost, these books are the most boring, uninteresting books I have ever read! Second, and not nearly so important, P. Samuelson was a complete commie, and it showed in his works.
Truly, I took an econ course in college, and it was the ONLY course in which I got a grade below a B. And, that occurred because the course and the text were incredibly boring.
I’m sure there are other Econ books out there. In the meantime, take up what Mark Sundstrom [above] suggests, and listen to econtalk.org.
“.. it would be very foolish indeed to maintain that baseball operates independent of the laws of physics.”
As a social science, economics is the step child of the agendas of those who engage in modeling the dynamics of a given economy. It is indeed complex in our global economy; nonetheless, there are basic truths that accurately predict how a given economy functions.
“The government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”
– Ronald Reagan
Reagan was not an exceptionally bright person, but he possessed abundant common sense. For more common sense on the topic check in with Thomas Sowell.
One of the best threads I have ever seen on the web! The comments here have gotten to the nub of the problem – complexity. A little history:
Before the advent of the digital computers mathematicians recognized that some types of calculations, requiring iterative solutions, were too tedious to solve with pencil and paper and they were kicked into the attic of interesting but unresolvable problems. Along came Alan Turin and Univac and IBM and new worlds opened. Some of the problems were easy. Some took more computer speed but were ultimately solvable given enough machinery. A surprising number of these problems are beyond the capabilities of any any conceivable computer. They are legion – people, economy, weather ad infinitum. In mathematics they they are called “np-complete”. Or, as Roger Penrose terms them, “non-computable”.
Note that all the traditional “hard” fields of study – the “oligies” and the “ics” – were established well before there was an understanding of complex chaotic systems. They thought they were wrestling elephants. Turns out those elephants were a clever deception by Superman.
Hubris is the ultimate failing – even if it seems reasonable.
“”Hubris is the ultimate failing — even if it seems reasonable.””
Roy
Progressive democrat carries no description more fitting and succinct as being one possessing the affliction of a control freak personality. These are people who know better than gravity which way a river should flow and they are certain the economy can’t function properly without their input. And that same view toward the unbelievably complex climate of the planet itself should leave no doubt that this affliction is at the core of the turmoil in early 21st century life and politics.
The problem with economics arose when it joined the social “sciences”. It is not science; it is moral philosophy. It provides insights into human behavior. It provides tools and techniques useful for decision-making on the individual, or micro, level. On a macro level, economics should teach us humility: we lack the information to make wise decisions at that level. Alas, it was trendy 100 years or so ago to be a “science”.
To Henry Bowman: I doubt that “almost all” Econ courses are taught using Samuelson. The current best-selling texts are by Greg Mankiw. They are easy and enjoyable to read, and offer fair representations of different moral viewpoints (e.g., does one lean more towards efficiency or equality as a normative goal?).
To Parker: on what do you base your judgment that Reagan was “not especially bright”? Especially when you point people towards Sowell, who is especially bright, for insights similar to Reagan’s?
I join in the opinion that this thread has interesting insights. Of course that can be said of most posted here.
I think John’s input captured the essence of the dilemma presented by economic analysis very well. To paraphrase; economics analysis is not about absolutes, it is about cost-benefit and trade-offs.
Under the best of circumstances economic principles provide a tool to construct a rational frame-work for decisions. Sometimes the results are too murky for comfort. Since trade-offs are often involved, whenever economic analysis and politics intersect some on one side or the other will deliberately muddy the analysis.
Besides, most folks simply do not want to do trade-offs.
I’ve always compared economic analysis to differential equations: multiple variables changing at varying rates. As such, economic analysis is a better tool for analyzing the past and assuming long term future trends than short/intermediate term events.
The old saw that “you can lay all the economists end to end and they still wouldn’t reach . . . a conclusion,” is true. Each economist is looking at muliple variables with differing outlooks. If one happens to get all the variables correct, that is known as luck.
That is also why the best and most damning argument for Keynsian economics is empirical. We have tried it and it doesn’t work. That is also why economists like Krugman are ideologue charlatans. It’s not because they see the variables differently than others, ‘s because they deny the evidence at hand.
There was a study by UCLA that showed that the Depression ended in 1943. It lasted so long because of FDR’s policies, particularly his wage controls. Put simply, he over priced labor.
The war ended the Depression by distracting FDR away from the economy.
To Parker: on what do you base your judgment that Reagan was “not especially bright”?
Everyone who thinks that bases it on the media’s lies. They didn’t start with Palin . . .
Newton’s Laws actually model the statistical behaviour of a huge number of particals. They don’t model the behaviour of the individual particals themselves, which is why we need quantum mechanics.
I hold economists in low regard, but not because much of what they say is counter-intuitive. Counter-intuitive propositions abound in science (I mean real science here). All of quantum mechanics is counter-intuitive (life is granular?), as is relativity theory (no such thing as simultaneity? Time depends on speed?). More mundanely, it is counter-intuitive that the weight of an object does not determine how fast it falls.
So counter-intuitive propositions are not the problem. The problem is the lack of falsifiability, which is why economics (much like climatology) is not a science. It is apparently impossible to discredit any proposition once and for all. Nobel Prizes in economics are awarded to those propounding mutually exclusive propositions. (Hey, at least one of ’em has got to be wrong.) This does not happen in real science. (In a dispute someone ends up hanging his head, having been proven wrong, and his erroneous view is subsequently deprecated by all in the field.)
Instead, it appears that economics provides an intellectually plausible pseudo-scientific veneer for advancing one’s philosophical tenets. That’s why I hold economics in low regard.
Having said that, I’ve become interested in the subject, and begun studying it.
Occam, I agree. This does not mean there are no firmly established laws and principles, there are. But they simply are not enough for robust modeling and prediction. So a “big picture” is always a matter of pure speculation, not of calculation. Economics is a philosophy: inherently subjective, sometimes sound, sometimes not.
Don,
IMO Reagan was not an intellectual. Rather, he was the pinnacle of my ideal of the greatness of the common man. He possessed the wisdom that comes from common sense. His thought process was guided by real, tangible experience. He had the insight to cut through all the babble of the intellectual elites and find the nugget of truth inside so much intellectual sand and gravel. That is what made him great. I miss Reagan. His equivalent today is Palin.
Foxmark, that phrase about the best way to allocate scarce resources that have multiple uses, echos throughout Thomas Sowells book, Basic Economics, now in its fourth edition. I highly recommend it, its well written, but parts of it are not an easy read.
Jimmy O. I’m half way through Sowell’s Basic Economics myself. Should be a required course starting in kindergarten.
Over at AoS, the point was made that the dems have a simple economic program and the repubs’ is difficult.
The latter have to explain the result of taxing various investment vehicles which reduces investment activity, which reduces employment. Tough to do when your opponent won’t allow you to finish a sentence, especially.
The dems, says Ace, have the simpler point. “We’ll give you free s–t and make corporate fatcats pay for it.”