Paul Romer explains what went wrong with economics
from Lars Syll
Economists cannot simply dismiss as “absurd” or “impossible” the possibility that our profession has imposed total costs that exceed total benefits. And no, building a model which shows that it is logically possible for economists to make a positive net contribution is not going to make questions about our actual effect go away. Why don’t we just stipulate that economists are now so clever at building models that they can use a model to show that almost anything is logically possible. Then we could move on to making estimates and doing the math.
In the 19th century, when it became clear that the net effect of having a doctor assist a woman in child-birth was to increase the probability that she would die, western society faced a choice:
– Get rid of doctors; or
– Insist that they wash their hands.I do not want western society to get rid of economists. But to remain viable, our profession needs to be open to the possibility that in a few cases, a few of its members are doing enormous harm; then it must take on a collective responsibility for making sure that everyone keeps their hands clean.
Mainstream economic theory today is still in the story-telling business whereby economic theorists create mathematical make-believe analogue models of the target system – usually conceived as the real economic system. This mathematical modelling activity is considered useful and essential. To understand and explain relations between different entities in the real economy the predominant strategy is to build mathematical models and make things happen in these ‘analogue-economy models’ rather than engineering things happening in real economies.
Without strong evidence, all kinds of absurd claims and nonsense may pretend to be science. Let us not forget what Romer said in his masterful attack on ‘post-real’ economics a couple of years ago:
Math cannot establish the truth value of a fact. Never has. Never will.
We have to demand more of a justification than rather watered-down versions of ‘anything goes’ when it comes to the main postulates on which mainstream economics is founded. If one proposes ‘efficient markets’ or ‘rational expectations’ one also has to support their underlying assumptions. As a rule, none is given, which makes it rather puzzling how things like ‘efficient markets’ and ‘rational expectations’ have become the standard modelling assumption made in much of modern macroeconomics. The reason for this sad state of ‘modern’ economics is that economists often mistake mathematical beauty for truth. It would be far better if they instead made sure they keep their hands clean!
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Monetary Gifting is the hand washing of economics, and math coupled with the new insight/new tool that has always accompanied genuine historical paradigm changes affirms and enlightens that change rather than obscures or confuses it.
To wit: agriculture, the telescope, the ellipse, movable print, the experience of god is personal and the obvious increased abundance, freedom and survivability that such new insights/new tools affected in the area of human endeavor that the new paradigm applied to.
Furthermore, when the new paradigm occurs in a body of knowledge/area of human endeavor that directly, immediately and continuously effects the individual like the change from nomadic hunting and gathering to homesteading, agriculture and urbanization or in economics it becomes a mega paradigm change that has “knock on” unitary and synergistic effects in other areas of human endeavor.
In other words “Try it, you’ll like it.”
Economists and the financial authorities are the horse shite picker uppers before the invention of the internal combustion engine. They’ll need to go back to school and learn coding or something. Another signature of accomplished paradigm changes is egg on one’s face poetic justice.
Mathematics is a logically connected system. It can produce a valid deduction, but does not produce (factual) truth. Each mathematical proposition may have a truth value, i.e. true or false, but it means the proposition logically follows or not when the all (often implicit) assumptions are true. This said, Paul Romer’s aphorism is not exact. It should be corrected as follows:
Although this is evident, Lars Syll is forgetting another side of mathematics. Math can help to see simple relations behind diverse knowledge of a complex world. It helps to discover connecting principles that lie behind the seemingly chaotic world. This discovery is not an automatic process. This is the reason why mathematical research requires often many years (even decades) of sinuous trials and errors. What most of mainstream (and even heterodox) economists are doing is to follow an example which was provided by a paper before them. In this sense, they are not doing real mathematics. However, without math, people often fall in wrong generalization and believe a half-truth as a necessary truth. Simply refuting math is almost equivalent to fall in obscurantism. Before accusing math, Lars Syll has to learn more about math, or how math can be a good tool of thinking.
Math as in calculus may need collateral verification in a complex system like economics, but when it is applied at a pivotal and terminating point like retail sale its effects are immediate, direct and unmistakably clear. Such are the temporal universe effects of a genuine paradigm change. With paradigm changes the impossible has always been possible.
I am in total agreement with you on what you have said. One example in growth theory is the author of a paper repeatedly making the same algebraic mistake. This paper has been cited more than twenty thousand times with many of the citing papers confirming the validity of the thinking in the cited paper. Clearly the citing authors and the methodology of conventional economics is so poor that an obvious error is able to be repeated without being detected over many decades.
I would add one further significant requirement to finding appropriate mathematics. It must conform to the quantity calculus.
To whomever curates these replies: I am curious as to why about half my comments don’t get posted. Is it because I am not a professional economist and don’t use the accepted buzzwords often enough? Is it because I frequently say that we should give up criticizing mainstream economics and all work on developing a new approach, one based on true premises and on reasoning people can understand? I wrote what I thought was a pretty good response to this post about what went wrong with economics and you decided not to post it. I would be very grateful if you would tell me what your criteria are.
I don’t know if there is such censorship in this blog post. If you put more than tree links in your paper, you have to wait for some time until someone confirm that the new post is not commercialism.
I have a similar opinion as you. I am proposing that we should pay more efforts in finding or constructing a new economics and less efforts in criticizing flaws of mainstream economics. Criticism is welcome if it is a creative one, but I am tired of hearing already hundred-time repeated criticism.
Lars Syll talks often about uncertainty. I admit this is an important topic, but emphasizing uncertainty alone does not lead us to understand how economy works. We live in a truly uncertain world and we are obliged to make decisions at all times. How can we understand the economy which still works almost all times except rare occasions? How are we making decisions and behaving in this world? I am disappointed with Lars, because he has or show no intention to answer this kind of positive questions.
I DO not understand why it is so important to “create” a science of economics, why? Historians can affirm that we have not been able in the past 200 years to do so, whereas natural sciences have progressed enormously in this timeframe.. Historical evidence shows that for the guild of economists who are trying to achieve this goal, it is impossible.
Robert, if you are a historian, it is not a good parallelism to compare 200 year history of economics and that of natural sciences. Modern science (physics) gave birth in the time of Galileo Galilei and Johanness Kepler (around the turn from the 16th to 17th century). Before them, there was a long history from the time of the Alexandrian age. Economics may have succeeded in part Plato and Arostotle’s political science but the true history of economics is quite short. If you say that we have not succeeded to create a science of economics in two hundred years time, why should we not continue trying to do so one hundred years more? How many years have passed from Ptolemy to Copernicus or Newton? You only see the past but we have also a future.
To create scientific knowledge requires the application of genuine scientific methods. It also requires economists to accept this. The analysis of production theory contained in my paper, Transient Development, RWER-81, is not invalidated by empirical evidence and it explains many paradoxes, so-called by economists, to not be paradoxical at all, which makes it a Laktosian progressive research programme. I would like to understand why economists appear to be incapable of understanding what abstract production theory means and its enormous significance. Even when a major break through is shown to you all. apparently no-one on these blogs is capable of understanding what it indicates. I stand by to answer any and all questions anyone may have.
Yoshinori, you truely are not an historian or you would know a lot about the history of sciences and technology and show much progress was made in the period of the high middle ages. Read Lynn White, Jr. . I learned about from and under him; he was on my Ph.D committee.
there isn’t some big gap betwwen the Ancient or even the Islamic world and the 18th century in our knowledge of the worldd, a lot was going on during the renaissance of the 12th century. Medievalists could enlightwd you about that, and so could peopee who studied the so=caslled “dark ages.”
Bibliography, Lynn White, Jr.
Hall, Bert S. (1989). “Lynn Townsend White Jr. (1907–1987)”. Technology and Culture. 30 (1): 194–213. JSTOR 3105471.
White, Lynn (1940). “Technology and invention in the Middle Ages”. Speculum. 15 (2): 141–159. doi:10.2307/2849046. JSTOR 2849046.
White, Lynn (1942). “Christian myth and Christian history”. Journal of the History of Ideas. 3 (2): 145–158. doi:10.2307/2707174. JSTOR 2707174.
White, Lynn (1962). Medieval Technology and Social Change. Oxford University Press. ISBN 978-0-19-500266-9.
White, Lynn (1967). The historical roots of our ecological crisis. Science. 155. pp. 1203–1207. Bibcode:1967Sci…155.1203W. doi:10.1126/science.155.3767.1203. PMID 17847526.
White, Lynn (1970). “History and horseshoe nails”. In L. P. Curtis Jr. (ed.). The Historian’s Workshop. New York, NY: Alfred A. Knopf.
Robert, you are confusing technology and science. Technology develops without science. See the history of Chinese civilization. Josef Needham named his book (really a series of books) Science and Civilization in China, but what he observed was mainly technology. (Of course, it all depends on the definition of concepts).
Have you read Steven Weinberg’s To Explain the World: The discovery of modern science? He is complaining about historians who do not make distinction between modern science and other scholarships.
Yoshinori, it may be you that is confusing technology and science. Science tends to advance in trying to resolve problems and develop possibilities thrown up by technology. In the period Robert is talking about (i.e. prior to printing and the wider availability of books), scientific knowledge was passed down verbally in the form of expert traditions such as today might be patented. The Romans learned that loads could be transmitted via circular arches, and in our local Norman church can be seen empirical progression from round to slightly pointed to sharply pointed Gothic arches full of delicate tracery, also ceilings supported by lovely fan vaulting.
Dave, you are only talking about technology. Romans were great engineers but poor scientists. Science can have the meaning of accumulated knowledge. You may be thinking about science in this meaning. But modern science is qualitatively different from that diverse accumulated knowledge of the world.
n 1859, William Whewell set the tone for this modern account Yoshinori, the wedding of science and technology is the modern era. In the high middle ages the pioneer was Roger Bacon;
The discussion is an old one, beginning with “Roger Bacon and the Sciences” (Whewell, 1858, p. 245). He viewed Bacon as an advocate of experimentation ahead of his time. In the late nineteenth century, Robert Adamson and many others interpreted Bacon as a philosopher of science in the modern sense of the term. This understanding of Roger Bacon did not begin in the nineteenth century. Already in the late Renaissance, Francis Bacon had characterized Roger Bacon as an exceptional figure among the schoolmen.[1] Francis held that Roger Bacon had set aside the scholastic disputations of his age and engaged in the mechanical understanding of the secrets of nature.
In the 1900s, Thorndike [LT1; LT2] and Duhem [LSDM, III, 442] asserted that the role of observation in Bacon’s science was minimal and added nothing to his idea of a science. In recent studies (2006, 2011a), Jeremiah Hackett has made explicit the manner in which Roger Bacon served as a foil for Martin Heidegger’s discussions on the originality of modern science. For Heidegger, Bacon did not achieve the post-Galilean and Post-Cartesian discovery of a mathematical projection of nature and the consequent modern experiment. He claimed that it was false to argue, as many had done between 1880 and 1940, that Roger Bacon was the source for the post-Cartesian concept of science. In the post-World War II years, A.C. Crombie (1953) argued that the “qualitative” aspects of modern science originated at Oxford in the early thirteenth century, specifically in the work of Grosseteste and Roger Bacon. This interpretation received a critical response from Alexander Koyré (1957) and others. Despite their significantly different philosophical committments, Heidegger and Koyré both shared Husserl’s views on the distinctiveness of the modern mathematical projection of nature as a condition for controlled experimentation. This was seen as a distinctive new phenomenon, a marker of modernity and something quite distinct from ancient and medieval science. It was argued that Crombie read back some aspects of modern scientific method into the works of Grosseteste and Bacon.
Thomas S. Kuhn (1976), however, maintained that Crombie did identify a real methodological connection between medieval and early modern science. More recently, M. Schramm (1998) has argued that Bacon plays a significant role in framing the context for the beginnings of medieval, Renaissance and early modern notions of laws of nature. This discusion has now been taken up for research by Giora Hon and Yael Raizman-Kedar. The studies and editorial work of David C. Lindberg on Bacon’s natural philosophy, for example, the De multiplicatione specierum [DMS] and Perspectiva [PRSP] (1983–1996) have emphasized the need to read Roger Bacon as a medieval scientist and not as an early modern or modern scientist. Thus, it is as a medieval philosopher, scientist, and theologian that he must be properly understood. Despite the polarity generated by two separate modern traditions of interpretation, it should be noted that there is great continuity between the interests of Bacon the Aristotelian commentator and Bacon the writer on science.
Robert, you are switching or displacing the question from that of distinction between technology and modern science to the wedding of the two in modern era. If you admit that technology and modern science are different things, your story that “much progress was made in the period of the high middle ages” should be modified a bit. For example, “much progress was made in technology but no major progress was made in sciences”.
You have concisely explained a long sinuous history of interpretation of Roger Bacon’s role in the history of science. I have learned much. Steven Weinberg, in his Chapter 13, is expressing his opinion which is in part near to Thorndike, Duhem, Heidegger and Koyré:
If you conclude that Roger Bacon is “a medieval philosopher, scientist, and theologian”, how can you claim that Roger Bacon is a precursor of modern science. You claim there is continuity. It is a possible mode of interpretation. Weinberg believes there is discontinuity and for him this discontinuity is important. Then, what I have written in my post in February 24, 2020 at 11:56 am was not so ahistorical as you first thought.
Yoshinori, Weinburg was discussing Francis Bacon, not Roger, and not seeing Francis (England’s Lord Chancellor) making the case for science “for the glory of God and the relief of Man’s estate” (in the post-Reformation equivalent of the 1930’s slump) in his 1604 book “The Advancement of Learning”. This against medieval science seen as Biblical exegesis. Roger may have become famous for Occam’s Razor but he seems to have become infamous for promoting nominalism over realism, hence the whole being no more than the sum of its parts.
Truly Yoshinori Shiozawa is not a historian.
It is interesting to learn that, as an economist and social scientist, I must be in a “pre-Copernican” stage. Although what this means is not totally clear to me, I take it as revealing that our presuppositions about scientific practice differ. You claim to know what is the most appropriate way of investigating the subject I address, and that this way is the methods and tools of natural science. I claim to have devised a way which works, without knowing if it is the most appropriate, a thing whose decidability would seem to be quite problematic. And the way I have devised meets the conditions of a reflective epistemology of scientific practice, in natural science as well as in social science. Your presupposition is that the application of the methods of natural science is the yardstick for social science. This is scientism. (Robert Delorme, A Cognitive Behavioral Modelling for Coping with Intractable Complex Phenomena in Economics and Social Science. In Economic Philosophy: Complexity in Economics (WEA Conference), 12/1/2017, italics added.)
Dave, thank you for the correction. I am totally confused. When I read his post on February 25, 2020 at 10:34 am again, Robert was talking about Roger and Francis but I have missed it. Weinberg’s comment on Francis Bacon was so impressive.
Weinberg talks about Roger Bacon only two places (first in several lines about his optimism about engineering possibility and second about magnifying glass) but I cannot understand that Roger Bacon was a great scientist (in modern science sense) and why Robert posted his piece on Roger Bacon.
I have read quickly Wikipedia article “Roger Bacon”. The impression I get is that Roger Bacon was a great “savant” who knew many things. He may be described as one of early encyclopedist. He was astronomer and alchemist. But is it very different from Aristotle? Roger Bacon could read Arabic and Greece but It is quite doubtful if he has to be counted as someone who contributed to the emergence of modern science.
My contention that Robert is confusing technological development with scientific development is not changed at all.
Yoshinori, as I see it Roger Bacon’s nominalism contributed to what has gone wrong in modern science, mistaking the name for the reality.
Dave, you are just joking.
Yoshinori, I wasn’t. I had in mind Bertrand Russell’s argument for descriptive theories amounting to names, e.g. in “Mysticism and Logic”, 1953 (1918), Penguin (Pelican), p.166.
“Thus such pairs of words [like real and unreal] can be applied to descriptions, but not to proper names: in other words, they have no application whatever to data, but only to entities or non-entities described in terms of data”.
The issue is whether theories are to be descriptive or explanatory.
Dave, Yoshinori, what I mean by saying that Yoshinori is not an historian is that he does not see as historians do that science is a discussion, and so is knowledge. Francis Bacon or Roger are just part of that discussion, and that is what I like about the German concept of knowledge that I encountered in my studies, that knowledge is always a becoming, in which the students as much as the professors participate. Germans build this idea of knowledge, as a becoming, right into their educational system, with research seminars, doctoral dissertations, and Habilitationsschriften, that everybody has copied in the thought world. Don’t take you stance against Roger Bacon in the thought world in which you currently believe, but consider him and others as part of a developing process that is always a becoming. That is what historians do.
Robert, thank you for this. Rereading “Sophie’s World” again after twenty years, it has been a delight to find Jostein Gaarder expressing (under Hegel) the Continental view you are expressing in opposition to Anglophile empiricism. I’ve been vaguely aware of of the differences, going back to rejection of Descartes’ thesis by Locke. My synthesis involves recognition that historical descriptions of processes may be right, but relative to humans the processes themselves can go wrong (as when mediated by language and dominated by psychopaths). So I’m not taking “my stance against Roger Bacon”, I’m seeing moderns going wrong by taking for granted a half-baked thesis from the past.
Robert, thank you for your post on February 27, 2020 at 10:52 am.
I agree with you that “science is a discussion” and “knowledge is always a becoming”. Medieval Europe has a good tradition of discussion. That is great! I also believe that economics is also a becoming and it develops or evolves by discussion.
However, in my post on February 24, 2020 at 11:56 am I have only noted that
I said nothing on the progress of knowledge or science between the Alexandrian age and the Galileo and Kepler’s time. Why have you guessed that no progress was made in between? I know that geocentric system evolved itself. Ptolemy’s Almagest was a compilation of accumulated knowledge before him, just like Euclid’s Elements was. Geocentric system progressed after Ptolemy and became finer and finer until the time of Copernicus. The system became too complicated. Copernicus believed that the celestial system must be simpler and proposed a hypothesis that celestial bodies except moon move around the sun. But Tycho Brahe’s geocentric system was more accurate than Copernican system.
At the time of Galileo and Kepler, a modern science was “created”. (Do you contest this fact?) We can also say it emerged. There is no big difference. If a modern science was created after more than one thousand years of physics and astronomy before Galileo and Kepler, there is no strangeness that a true economics did not emerge after only two hundred years of accumulation of economic knowledge. The fact that we have no good economics yet does not imply that it is impossible. If no one pursues that, a true science of economics would not emerge. This is the simple reason why I try myself and ask other economists to build a new economics. Do you want to say that it would be a minor progress? All right, it may be. But, if you are frustrated with the present economics, it is necessary to create a new. Why do you object it? It is also a historical process.
Robert,
The growth of economic knowledge over the past 200 years compares quite favourably with the growth of physical science in any arbitrary 200 year stretch of the dark ages or medieval period. But one is reminded of Mark Twain: “it ain’t what people don’t know that’s the problem; it’s what they know that just ain’t so.” Along with the accumulation of knowledge there has been a proliferation of abstract theorizing that is only too easy to misapply or apply to situations where it is inappropriate. The low power of empirical tests and indifference of too many people to empirical testing has allowed useless models to persist too. Ideology also plays a bigger part than it does in most sciences, especially in macroeconomics. So it is easy to point to cases where economists offered terrible advice. No reason to despair. Smith, Marx, Keynes, Kalecki, Simon and Minsky all advanced understanding somewhat while Marshall, Hicks and others clarified and formalized concepts. Macroeconomics took a wrong path and a sharp turn for the worse in the1970s and we are barely emerging now. Still, what is 50 years in the eye of history?
I’m glad to see you didn’t include Ricardo in your list of valuable economists, Gerald. Fifty years is a long time in the eye of those who have to live through it.
“The growth of economic knowledge over the past 200 years compares quite favourably with the growth of physical science in any arbitrary 200 year stretch of the dark ages or medieval period..”
The “growth” of economic knowledge over the past 200 years has been a great disappointment to most of us who live in the real world.
this blog gives testmony to it every day, as has 50 years of research that I have devoted to the subject during my career. In other words, economics has always been in the dark ages, because it has been a contested field from the first until the last. I don’t mean by this that economists have not made a lot of progress in creating ltheir discipline, but this discipline is not a prescriptive science.
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For those chasing chimeras and holy grails there is a methodological necessity to ignore real human behavior both individual and social. Anything not quantifiable is in some mathematical formalism is just “anecdote and literature.” Moral and ethical thinking and its impact upon our social institutions of law, politics, and education are mere “anecdote and literature.” Yet, the crisis we are in is directly related to the moral and ethical fiber and quality of individuals and hence institutions and how they behave.
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If this is true it should not be to hard to point out those important discoveries that are exemplars of the growth in actual knowledge that have taken place in physics, biology, astronomy, yet I note you do not even list one.
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After reading more than a few works on the history of economics I find this claim ludicrous, especially given the current ongoing collapse of mainstream economics as a so-called “science”. I have studied deeply in the history of the earth sciences and biology and other areas as well and one thing stands out clearly; economics is not a science and has certainly not provided scientific knowledge on par with the other sciences.
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So perhaps Gerald you could provide a few of those exemplars of progress in knowledge within the field of economics so we might better be able to compare them with the other branches of _real_ science (i.e., physics, biology, earth sciences, medicine, etc.).
Gerald have you read The Cult of Statistical Significance: How the Standard Error Costs Us Jobs, Justice, and Lives (Economics, Cognition, And Society) by Deirdre Nansen McCloskey, Steve Ziliak?
I am curious what you would think if it.
Dave, touche’. A long time indeed.
Yoshinori on Feb 25, 2:33 and 2:20 deserves an answer.
“Dave, you are only talking about technology. Romans were great engineers but poor scientists. …
“Robert, you are switching or displacing the question from that of distinction between technology and modern science to the wedding of the two in modern era. If you admit that technology and modern science are different things, your story that “much progress was made in the period of the high middle ages” should be modified a bit. For example, “much progress was made in technology but no major progress was made in sciences”.
I don’t admit that technology and modern science are two different things. They are the same thing done with different motives. The technologist builds instruments, pure materials and experimental models, from which the scientist seeks lessons for passing on via education. What has been different in modern times has been the development of instrumentation, starting with the telescope, microscope, mechanical clock and later the galvanometer, spectrum analyser and geiger counter. But big trees from little acorns grow. Surveying instruments and weights and measures have been around for a long time, and so have recipes for what experiment shows works, both as food and as medicine. Long before the telescope, boats and navigation by stars and lodestones had enabled explorers to encounter the previously unknown and thus add to the store of knowledge: if not what hippopotamuses were like exactly, at least that weird things like that existed and were worth looking out for.
Aha! Dave, have you such such a classification of knowledge? It is natural that you cannot distinguish astronomy and astrology, heliocentric system and geocentric system, chemistry and alchemy, and medical doctor and medicine man or woman. They were all confused before modern science emerges.
I admit that science and technology are mutually or closely complementary but that does not signify that they are the same. It is better to say that science and technology are two sides of a sheet of paper.
Looking back through all this discussion, perhaps only Craig’s first paragraph when opening it has stuck to Romer’s theme, responding constructively with Monetary Gifting (as against Capitalism’s demanding) and Maths Changes enlightening (as against the maths of Capitalist Economics obscuring or confusing). I agree also with his conclusion there: economists and financiers “need to go back to school and learn coding or something” (the ‘something’ being how time sharing and error correction work in steering, digital communication and computers).
Thanks Dave. You and I are the only ones who dare to offer up actual and specifically monetary policies to remedy our economic ills. Virtually everyone else here is still in the iconoclastic, name dropping or authority citing stage of analysis and are thus thwarted by problems they can’t see remedies for. I’ve several times suggested everyone here state their specific policies and the problems they resolve. No takers.
A question for you. Your credit card idea….is the balance debt or monetary gifting? And wouldn’t an account for everyone at the central bank serve the same purpose?
Finally, the “something” we all need to learn is the self reflective and integrative understanding AKA wisdom. If we cognite on the power and goodness of the concept of grace applied to economics a Wisdomics-Gracenomics will emerge from the present rigged and smothered financial chaos.
Meta,
I have not read it. Do you recommend it?
You ask for examples of progress in knowledge. 200 years ago there were no national accounts, people did know whether the economy was growing or shrinking; they did not distinguish value added from gross output and the distinction between consumption and investment was hazy. Trade cycles were acts of God. Now, we cannot eliminate minor oscillations in output (attempts to do so are counterproductive) but we know, via the notion of effective demand, how to avoid prolonged recessions. 200 years ago people did not understand the full significance of technological and technical progress. Malthus thought agricultural production would not keep up with population growth which would be constrained by famine. Marx thought the profit rate was bound to fall with immiserization and revolution. We know why they were wrong and though we do not know how to generate technical progress we know how to encourage it: freedom to criticize, provision of finance for new ventures and protection of intellectual property. Obvious? All these were missing in the Soviet Union and the failure to innovate (outside the military sphere) was the biggest single cause of the failure of that system.
There is an extensive empirically-based literature on corporations. From Penrose’s Theory of the Growth of the Firm through to John Kay’s Foundations of Corporate Success, it has helped both policy-makers and executives.
Many notions that have entered the language though not intuitively obvious started in economics: comparative advantage, opportunity cost…..
Even the reviled microeconomic theorising, which I concur is a lousy description of the real world, has produced theorems useful in asset allocation and the design of tax policy Principal agent theorising and game theory both have useful applications. One, discussed on this blog, was in auction design.
I could go on. I accept that economics has failed to produce general laws and attempts to do so have led to abstractions that have then been misapplied, often with very bad results. (Remember Mark Twain). We are dealing with complex emergent phenomena. Knowledge has been gained and successful generalizations made – though knowing their qualifications and limits is hard.
I find it odd to find myself defending economics Professionally I am more often critical, To be constructive, though, criticism has to be reasonably well informed. The scalpel is useful, the blunderbuss rarely.
Well, I am reading it right now, so I’ll let you know when I finish. Two great resources that cover the <> are Michael A. Bernstein’s Perilous Progress: Economics and Public Purpose in Twentieth-Century America and Walter A. Friedman’s Fortune Tellers: The Story of America’s First Economic Forecasters which I just finished. You would like the chapter Wesley Mitchel.
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Thanks for the detailed reply. Appreciated. Will give it some thought.
Whoops, double angle-brackets don’t work. between them was supposed to be “200 years ago there were no national accounts” …
“The scalpel is useful, the blunderbuss rarely.”
Quite right so far as mere theoretics are concerned. However, with pattern changes, the inverse, aided by a new tool and/or insight, is always the case. And of course, because the world is not an entirely rational or ethical place, the scalpel is still useful in regulating and stabilizing the new pattern.
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Why do you feel the need to defend economics Gerald? I admit sometimes when I see the utter silliness of some of the claims made by some economists I think the entire field is BS. But that is not true and we both know it.
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I have over these last few years been reading a lot of books on economics. Some are history and all contain some history to one degree or another. And they are all written by economists critiquing the field in light of the 2007-2008 GFC. A number of them point out similar problems and offer paths forward. Many are examples of what I might call good economics and sound reasonable science that uses the entire toolbox open to researchers. Perhaps there are not enough of those kinds of economists and their positive works being discussed on this blog. Or perhaps, Gerald, you have some need to defend a very narrow area of economics–econometrics–because you feel it is under attack when the limitations of econometrics and quantitative analysis is pointed out.
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From what I can tell econometrics is only one part of economics. When David Weil in his book Fissured Workplace documents the real nature of the modern workplace and trends in how leading companies are treating employees and the social and economic impacts these are having on working families. No doubt he used standard methods of econometrics when needed, but those hardly provide the full knowledge required to grasp the truly significant vs. the merely statistically significant.
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The companies doing this “shedding of employees” are making vast sums of money that are contributing the econometric GDP. But that does not tell the real story of what is happening to living wage earners and family wage earners in the real world economy. To document that fact, to expose that truth, to reveal that real world reality, requires more methods than just econometrics. That is not to say econometrics are not useful, but merely to point out reasonable limitations.
I am reading at this time another book I think you would find interesting. Philip Pilkington’s The Reformation in Economics: A Deconstruction and Reconstruction of Economic Theory. He is a research analyst working in investment management focusing on macroeconomic research. I have not finished it but what I have read has brought you to mind several times.
Following Meta’s link, the David Weil book on the fissured (outsourcing) economy explains the issues very well. I doubt his line of thought even figures in the models Paul Romer objected to. I’ve read this after Dominic Cummings on the ineptitude of governments which have outsourced their job to an inappropriately trained civil service elite: a problem I have been immersed in since c.1964, when C P Snow and Lord Fulton’s report were already saying as much. (The result was that the elite passed the buck until Thatcher privatised the professional part of our civil service/local government and began privatising massive redevelopment projects in hospital and communication infrastructure which have ended up late, ill-done and massively overpriced). https://dominiccummings.com/2014/10/30/the-hollow-men-ii-some-reflections-on-westminster-and-whitehall-dysfunction/
Following Weir, I’ve been looking again at my own diagnosis and finding all this affecting only its chrematism phase, which (in practice if not in today’s theory) can be dispensed with and replaced by free credit cards with limits set by Fullbrook’s method of value accounting for the environmentally necessary work which credit card paid Governments ought to be advising us about. They already have plenty of gongs, whistles and Nobels to use as prizes for actual achievement.
Gerald Holtham: Thank you for your contribution of Feb, 28, 11:01 AM.. Most of it sounds familiar & rationally presented. I doubt that it will penetrate the “confirmation-bias” of those who need it most. In the interests of applied epistemology, let’s hope that that it may inspire a few of them to at least try to acquire some authentic “knowledge” instead of just their own “information”. Coded or not. When I was an undergraduate at Queen’s University, away back then, the history of economic theory in combination with Economic history was taught to us by one Frank Knox. One thing that sticks in my long term memory is his admonition that “The concept of ‘the price of corn’ & the complementary notion of “agricultural surplus’ are, in their ramifications down the ages, almost the most important in economic thought. I recall that Prof.. Knox made heavy use of a reference book by one Eric Roll: The title of which escapes this old boy’s long term memory. If it can be dredged up from the dust covered stacks closest to you {plural}, I heartily recommend it to quite a few of you out there. M. Holtham most definitely doesn’t need it. If nothing else, reading it, may inspire you{plural} to cultivate a modicum of humility. It may even remind you of the old time German didactic concept of ” erklarung” {not the literal dictionary definition}.With all due respect for your patience, I thank you for hearing me out. Please GOOGLE: {1} Norman L. Roth {2} Norman L. Roth, Economics
Craig, there is an active school of thought – the positive money school – that, like you, wants to abolish money creation by commercial banks and confine it to a central monetary authority. Martin Wolf, the famous FT commentator is a supporter, I believe. They think the monetary authority would inject money by several routes, one of which could be paying money into the transactions account of private citizens. You may well be familiar with their material but if not a good introduction to the basic ideas can be found here: https://positivemoney.org/our-proposals/sovereign-money-introduction/.
They make a good case, though they do not expect that their plan would solve all economic problems as you appear to maintain. They also do try to address the issue, which you declined to address, of how to decide exactly how much money should be created. Anyway, you might find it interesting to compare and contrast with your own ideas.