The Math Challenge: Pundits deny reality by ignoring the math, economists by deploying it.

from Peter Radford

One of the more interesting aspects of the recent election was the exposure of the political medias as being decidedly math challenged. How else do we explain the breathless daily headlines about how Obama and Romney were neck and neck and that the vote was so close no one could possibly call it?

Wrong.

It was crystal clear for a while that Obama was cruising to a significant win.

Yes the margins were close in many states, but the volume of information was such that any errors, and thus the likelihood of the polls being wrong, were capable of identification. Romney could have won, but the probabilities were small and getting smaller.

You would not have known this, though, by reading most newspapers. Right up until the end political pundits were making total fools of themselves by ignoring the hard evidence and clinging faithfully to their softer sources. They cherry-picked data; they quoted ‘informed sources’; they reported based upon their ‘experience’; they adjusted numbers to fit their own biases; they threw darts – or seemed to; they did anything, in other words, to avoid telling the truth. They wanted a close election. Such elections are great fun for pundits. They are exciting to report and generate revenues for the media. The bias against hard facts was therefore overwhelming and understandable.

This is a lot like economics. 

Only within the whacky world of economics math is used to get rid of ugly facts rather than to elucidate them.

You would think that after decades of ever increasing math wizardry economics would have produced something of social value. Like an ability to predict the economy so that policy makers can steer the ship without a surrounding fog of confusing and contradictory theories. Or at least a sensible explanation of what’s going on roughly at the same time that it is actually going on rather than a decade or two later.

Nope.

In economics math is used to hide behind. It is used to dig more deeply into irrelevant issues and to sideline the more intriguing, but less tractable issues. You get kudos nowadays in economics for being a clever math whiz, not for understanding the economy. Math virtuosity has become a substitute for thought.

I am indulging in hyperbole of course.

Indeed one of the great triumphs of economics – in my humble opinion – is due entirely to the accumulation of ever more sophisticated and arcane math. This triumph is the total demolition of the Walrasian enterprise and its various offshoots. As embodied in the amazing labyrinth of the Arrow-Debreu general equilibrium machinations, and its even more complicated heirs such as the extraordinary Ptolemaic structures of the thing called Dynamic Stochastic General Equilibrium – DSGE to its friends – math has emerged as crucial.

Crucial that is in proving the utter folly of the entire enterprise.

The elegance of it all is astonishing. The usefulness is zero – despite the protestations of its high priests. For the upshot is resoundingly obvious: such are the contortions of the math needed; the absurdity of the assumptions necessary; and such is the suspension of human faculty required that we can conclude a general equilibrium will never occur, cannot occur, and is akin to a unicorn in its likely appearance here on planet earth. This is a staggeringly important finding. Economics ought to be proud.

Unfortunately unicorns and DSGE still appeal to the imagination. So they linger on in the literature.

The problem is that having trained all these mathematicians, and having run all the other sorts of economists out of town, economics is stuck with its unicorns. It still acts as if they are real.

This is a different kind of math challenge from that faced by the political pundits. But there is a common thread: the denial of reality. Pundits deny reality by ignoring the math. Economists deny reality by deploying the math.

I am all for reality based math. The important word being reality, not math.