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Making sense of economics

from Lars Syll

The Assumptions Economists Make eBook : Schlefer, Jonathan: Kindle Store -  Amazon.comRobert Lucas, one of the most creative model-builders, tells a story about his undergraduate encounter with Gregor Mendel’s model of genetic inheritance. He liked the Mendelian model—“you could work out predictions that would surprise you”—though not the lab work breeding fruit flies to test it. (Economists are not big on mucking around in the real world.) Over the weekend, he enjoyed writing a paper comparing the model’s predictions with the class’s experimental results. When a friend returned from a weekend away without having written the required paper, Lucas agreed to let the friend borrow from his. The friend remarked that Lucas had forgotten to discuss how “crossing-over” could explain the substantial discrepancies between the model and experimental results. “Crossing-over is b—s—,” Lucas told his friend, a “label for our ignorance.” He kept his paper’s focus on the unadorned Mendelian model, and added a section arguing that experimental errors could explain the discrepancies. His friend instead appended a section on crossing-over. His friend got an A. Lucas got a C-minus, with a comment: “This is a good report, but you forgot about crossing-over.” Crossing-over is actually a fact; it occurs when a portion of one parent gene is incorporated in the other parent gene. But Lucas’s anecdote brilliantly illustrates the powerful temptation to model-builders—across the ideological spectrum—of ignoring inconvenient facts that don’t fit their models.

Economics may be an informative tool for research. But if its practitioners do not investigate and make an effort of providing a justification for the credibility of the assumptions on which they erect their building, it will not fulfil its task. There is a gap between its aspirations and its accomplishments, and without more supportive evidence to substantiate its claims, critics will continue to consider its ultimate arguments as a mixture of rather unhelpful metaphors and metaphysics.

The marginal return on its ever higher technical sophistication in no way makes up for the lack of serious under-labouring of its deeper philosophical and methodological foundations.

A rigorous application of economic methods really presupposes that the phenomena of our real-world economies are ruled by stable causal relations. Unfortunately, real-world social systems are usually not governed by stable causal relations and mechanisms. The kinds of ‘laws’ and relations that economics has established, are laws and relations about entities in models that usually presuppose causal mechanisms being invariant, atomistic and additive. But — when causal mechanisms operate in the real world they only do it in ever-changing and unstable combinations where the whole is more than a mechanical sum of parts. If economic regularities obtain they do it as a rule only because we engineered them for that purpose. Outside man-made ‘nomological machines’ they are rare, or even non-existent.

  1. Econoclast
    November 9, 2021 at 8:36 pm

    I recommend Schlefer’s book to anyone who cares. In my grad school, every professor bought into Milton Friedman’s famous statement that it doesn’t matter what assumptions you use; what only matters are your predictions. Look how that worked out.

  2. November 11, 2021 at 4:17 am

    The sense of economics is agenda-pushing for the Oligarchy
    Comment on Lars Syll on ‘Making sense of economics’

    We know that economics has a science problem. The history of economic thought is the history of scientific failure. The major approaches — Walrasianism, Keynesianism, Marxianism, Austrianism, MMT — are mutually contradictory, axiomatically false, materially/formally inconsistent and all got the foundational economic concept of profit wrong. To this day, economists are NOT scientists but clowns/useful idiots in the political Circus Maximus.

    Economics: failure, fake, fraud

    Egmont Kakarot-Handtke

  3. November 11, 2021 at 4:24 am

    Reblogged this on muunyayo .

  4. Ken Zimmerman
    November 20, 2021 at 12:58 pm

    When I was 12 and my sister 5 she was convinced that pixies lived in our backyard and protected our house from the coyotes, raccoons, and bobcats that were a problem for city neighborhoods all over Texas due to the drought.  I tried to convince her otherwise but couldn’t.  I agreed to go with her every night before her bedtime to search for the pixies. Never found them and by the time my sister began the new school year she had forgotten about pixies. This is my way of saying human life and knowledge begins and moves on through experience. Despite her detailed description of the pixies she  and I could not experience them. Pixies, like economic theories can be beautiful and fascinating when those who believe in the tell us about them. But we can’t know a pixie till we can see, touch, and judge a pixie. So it is with economic theories. Till we can see and measure a theory operating in events and actions we can observe directly or indirectly, we can’t know it’s value or usefulness. Can people become so enamored of a theory or strongly want to believe it is right that they blindly accept it? Yes. Should they? No. This is a warning economists should particularly take to heart.

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