A while ago I blogged on the topic of why I had become disillusioned with the discipline of 'economics'.
http://charltonteaching.blogspot.com/2010/09/why-i-turned-against-economics.html
But as I now (again) regard economics as a bogus pseudoscience, this raises the question of how we should instead look at the phenomena which are currently dealt with by economists using economic concepts.
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The simple answer is to reduce them to the level of something that we do understand - the economics of a small village. Using this analogy, we then try to anticipate (maybe even roughly calculate) what effect things would have.
In other words, instead of using ludicrously over-simplified and also unintuitive and not-understood mathematical models, we should use ludicrously over-simplified by intuitive and well-understood real world models like the family, the small village, a market etc.
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The difference between 'economics' and real world models is between something we know to be inadequate and pretty much how and why it is inadequate, and something we don't really understand, don't know whether it has any applicability whatsoever, but which is clever and cool and high status; and which we are therefore childishly over-impressed by.
In a nutshell, economics is just as selective and biased as commone sense thinking on the same issues; but economics is in addition blinded by snobbery and arrogance.
And real world analogies have another great advantage which is that they actually do apply somewhere and do work in some context - whereas economic models and abstract principles are typically completely made-up or based on arbitrary assumptions (often ridiculous), have zero evidence of their applicability, zero evidence of their validity, and zero evidence of their predictive power.
If we cannot understand something using this kind of common sense real world analogy, then we probably should not be doing it - since it is more likely to be doing harm than good (e.g. weird aspects of the moeny markets).
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The main tool of 'sophisticated' analysis is to try and look two steps ahead, rather than the usual one step, using Thomas Sowell's maxim of 'and what will happen then?' e.g. if you do raise the price/ wages, first step is that the seller/ worker will get more money - but what will happen then...
That is about the best that humans can do w.r.t. 'economics'. And it would be a heck of a lot better than we are doing at present.
4 comments:
"something that we do understand - the economics of a small village": really?
Anyway, a reasonable target for Economics would be to achieve reliability in playing a role rather like classical thermodynamics - in telling you what can't happen. The ambition to predict what will happen is probably intellectually footling, and therefore attractive to holy innocents and to knaves.
That would be exactly the wrong approach. The village, the tribe, and the horizon is indeed what we understand instinctively; literally instinctively. All civilization is the renunciation of instinct through learned experience.
Socialism is a return to the primitive order--that which we can understand. The extended orders of civilization, especially through capitalism, are far beyond what a single man or a group of men can understand (Milton Friedman's lecture on the pencil). We let this extended order of civilization continue because it is so successful, yet after a time we become so unnerved by our lack of understanding that the village order returns in force.
The profession of economics is an academic pursuit, so it will of course reach the stage of intellectual capture you have been at war with. It took Hayek fifty years to best Keynes, and still Keynes came back. Keynes is instinctive.
But as for math and economics, it is as Aristotle described: you cannot solve a mathematical problem with geometry. Economics is human behavior; we may describe it with math after the fact, but to predict something with it is to design our own failure.
Hayek--
The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.The astonishing fact revealed by economics and biology is that order generated without design can far outstrip plans men consciously contrive.
@Xlbrl - Hmmm... Keynes always seems to me like a classic example of 'clever silly' theorizing: apparently nonsensical stuff that - on closer examination - really *is* nonsense...
All true economics is common-sense, and based on an understanding of socio-psychology.
The modern profession of economics is made up of the hired shills of the wealthy elite, sent to confuse, distract, and obfuscate, so as better to fleece the commoners.
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