Tag Archives: Economics

The new astrology

BOOK REVIEW

The Gluten Lie: And Other Myths About What You Eat, Author: lan Jay Levinovitz.
Mathiness in the Theory of Economic Growth, Author: Paul Romer.
The Rhetoric of Economics, Author: Deirdre N McCloskey.
Economics as Religion, Author: Robert H Nelson.
Astral Science in Early Imperial China, Author: Daniel P Morgan.
Book of Documents, Author: king Yao.

By lan Jay Levinovitz – Unlike engineers and chemists, economists cannot point to concrete objects – cell phones, plastic – to justify the high valuation of their discipline. Nor, in the case of financial economics and macroeconomics, can they point to the predictive power of their theories.

In the hypothetical worlds of rational markets, where much of economic theory is set, perhaps. But real-world history tells a different story, of mathematical models masquerading as science and a public eager to buy them, mistaking elegant equations for empirical accuracy.

The notion that an entire culture – not just a few eccentric financiers – could be bewitched by empty, extravagant theories might seem absurd. How could all those people, all that math, be mistaken?

This was my own feeling as I began investigating mathiness and the shaky foundations of modern economic science. Yet, as a scholar of Chinese religion, it struck me that I’d seen this kind of mistake before, in ancient Chinese attitudes towards the astral sciences.

Back then, governments invested incredible amounts of money in mathematical models of the stars. more> https://goo.gl/tYDpbv

The economy is more a messy, fractal living thing than a machine

BOOK REVIEW

In Our Own Image: Savior or Destroyer? The History and Future of Artificial Intelligence, Author: George Zarkadakis.

By George Zarkadakis – Mainstream economics is built on the premise that the economy is a machine-like system operating at equilibrium. According to this idea, individual actors – such as companies, government departments and consumers – behave in a rational way.

Ever since the invention of the assembly line, corporations have been like medieval cities: building walls around themselves and then trading with other ‘cities’ and consumers.

The so-called ‘gig economy’ is only the beginning of a profound economic, social and political transformation. For the moment, these new ways of working are still controlled by old-style businesses models – platforms that essentially sell ‘trust’ via reviews and verification, or by plugging into existing financial and legal systems.

Blockchain technologies promise to replace these trusted third parties with a huge digital record book, spreading out organically across a network of computers that grows and changes but can’t be meddled with.

By getting rid of middlemen, they’re likely to radically reduce transaction costs, and accelerate the mixing of many different actors in the new economy who have been freed from the grip of leaders or institutions. more> https://goo.gl/Gs6f4B

What Economics Models Really Say

BOOK REVIEW

Economics Rules: The Rights and Wrongs of the Dismal Science, Author: Dani Rodrik.

Why is there such an enormous gulf between what economists know and what they say in public?
By Peter Turchin – Rodrik notes early in the book, “economics is by and large the only social science that remains almost entirely impenetrable to those who have not undertaken the requisite apprenticeship in graduate school.”

And economics is “impenetrable” not because of mathematical models, at least not to someone trained in mathematical natural sciences (the math is universal), but because economists have developed an entirely distinct jargon that sets them apart from other disciplines and creates artificial barriers to understanding the many truly worthwhile insights from economics models.

In popular press, comparative advantage is always used as a justification for advocating free trade. Rodrik does an admirable job explaining why, under many conditions, free trade can lead to really negative consequences for economies and populations of countries that open themselves to international competition.

For example, there is strategic behavior. A country may choose to protect its domestic industry with high tariffs and subsidize its exports in order to gain market share.

Perhaps its leaders don’t understand the Principle of Comparative Advantage, not having the benefit of apprenticeship in economics. Or perhaps they care more about their country’s long-term survival in an anarchic international environment than about making immediate profit.

As Rodrik correctly stresses, these cases do not prove that standard economics is wrong. In short, “someone who advocates free trade because it will benefit everyone probably does not understand how comparative advantage really works.” more> https://goo.gl/mQr9tV

Old economics is based on false ‘laws of physics’ – new economics can save us

By Kate Raworth – In the 1870s, a handful of aspiring economists hoped to make economics a science as reputable as physics. Awed by Newton’s insights on the physical laws of motion – laws that so elegantly describe the trajectory of falling apples and orbiting moons – they sought to create an economic theory that matched his legacy. And so pioneering economists such as William Stanley Jevons and Léon Walras drew their diagrams in clear imitation of Newton’s style and, inspired by the way that gravity pulls a falling object to rest, wrote enthusiastically of the role played by market forces and mechanisms in pulling an economy into equilibrium.

Their mechanical metaphor sounds authoritative, but it was ill-chosen from the start – a fact that has been widely acknowledged since the astonishing fragility and contagion of global financial markets was exposed by the 2008 crash.

The most pernicious legacy of this fake physics has been to entice generations of economists into a misguided search for economic laws of motion that dictate the path of development. People and money are not as obedient as gravity, so no such laws exist. Yet their false discoveries have been used to justify growth-first policymaking. more> https://goo.gl/hbL9yx

Economists Get Too Much Credit — and Blame

By Victoria Bateman – Now, with the threat of deglobalization hanging over us, economists stand on the sidelines, feeling ignored.

This recent turn of events might leave us wondering: Do economists have the power and influence required to affect political and policy outcomes, or is it politics that determines which strains of economics are cherry-picked and ultimately championed?

Were John Maynard Keynes alive today, he would no doubt argue that the global financial crisis, Brexit and the election of Donald Trump are all a result of a failed free-market economic agenda, resulting in rising inequality and a slowdown in economic growth, leaving the general public reeling. Economists would be squarely in the dock.

As far as that great rival to Keynesian thinking, Milton Friedman, was concerned, it is the public’s experiences and not the writings of economists that drive economic and policy revolutions. more> https://goo.gl/4J5c2x

Economics is fundamentally flawed

By David Spencer – Economics should be in crisis. But in reality it is not. Rather, economics remains largely the same as it was before the financial crisis – in effect, it remains just as problematic now as in the past. This is an issue not just for economics but for society as a whole, given the enduring power and influence of the discipline on policy and public life.

To think of economics in terms of forecasting is to limit its nature and scope. Economics ought to be about explanation. It should be able to make sense of the world beyond forecasts of the future. It is not clear that as it exists now, economics is able to understand the world in its present form. To this extent, it cannot help understand the frequency and depth of crises.

As things stand, there is little chance that economics will open up to the ideas and methods of other disciplines. Instead, the discipline has embraced a project of “economic imperialism” seeking to colonize other social sciences. Genuine interdisciplinary debate has lost out in this process. more> https://goo.gl/xDk2Mv

Michael Hudson Names the Pathogens in Our Economic Thinking

BOOK REVIEW

J is for Junk Economics, Author: Michael Hudson.

By Alexander Reed Kelly – “I know that’s [a] technical word but to create a way of looking at the economy of making national income statistics that make it appear as if Goldman Sachs is productive. As if Donald Trump is productive. To make it appear that people who take money from the rest of the economy without working, without really providing any service [are] actually contributing to [Gross National Product] and to economic growth.”

“Well under Thatcherism or Clintonism or whatever you want to call it, the idea is to turn the sidewalks over to the monopolists financed by Wall Street, to all of a sudden begin charging and the result is to make America a high cost economy. So, that when people like Donald Trump come in and say we’re going to make America great again, what he means is competitive again. But how can you make it competitive if you make Americans pay so much more in healthcare, as much in healthcare as an Asian would earn in an entire year. If you gave Americans all of their food and clothing and everything they buy and [sell] for nothing, they still couldn’t compete because of all of the costs that other countries pay for through the government; government healthcare, government spending, government roads.” more> https://goo.gl/oLat2t

The Radical Remaking of Economics

BOOK REVIEW

The Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics, Author: Eric Beinhocker.
More Heat Than Light, Author: Phil Mirowski.
Masters of the Universe, Author: Daniel Stedman.
The Social Conquest of Earth, Author: Edward O Wilson.

By David S. Wilson – The rise and dominance of neoclassical theory and its political cousin neoliberalism is a fascinating bit of intellectual history.

My cartoonish summary would be that a group of very clever people in the late 19th century (Marie-Esprit-Léon Walras, William Stanley Jevons FRS, Carl Menger, Vilfredo Federico Damaso Pareto) wanted for very legitimate reasons to introduce mathematics and rigor into economics. But the tools they had at the time – primarily static equilibrium methods – were simply the wrong tools for the job. But they couldn’t have realized that at the time, and wrong tools were better than no tools, so their work set off a multi-decade creative burst of developing mathematical theories of the economy as an equilibrium system and shifting economics out of the philosophy department and into the new domain of social science.

But as the neoclassical models became more elaborate they also became more detached from reality, and unfortunately the profession began to reward mathematical virtuosity more than empirical validity.

The key challenge is whether we can use these new tools and ideas to describe the economy as it really is – a glorious mess of real human behavior, social networks, cultures, institutions, politics, and innovation – rather than the sterile idealized account of neoclassical theory.

We know from economic history that the economy is an incredibly dynamic system, from the explosion of growth unleashed by the industrial revolution, to the booms and busts of financial crises, to the co-evolution of technologies and institutions. This doesn’t look much like an equilibrium system, and traditional economics has struggled to explain these phenomena. more> https://goo.gl/jfwdPb

Economists Should Stop Defending Milton Friedman’s Pseudo-science

By George H. Blackford – It seemed quite clear to me back in 1967, and it still seems quite clear to me today, that it is the purview of engineering, not science, to catalog the circumstances under which a theory works and does not work and to estimates the errors in the predictions of theories along with the cost involved in using one approach or another.  The purview of science, as I saw it then and still see it today, is to understand and explain the subject matter of a scientific discipline.

This cannot be done by simply cataloging when a theory works and the magnitude of errors when it does not, and yet Friedman’s engineering view of science has stood at the very core of mainstream economics for well over sixty years.

The degree to which Friedman’s arguments are totally oblivious to the central role played by assumptions in scientific inquiry is indicated by his delineation of this role as he sees it ..

There is not even a hint of acknowledgement in this passage of the fact that a scientific theory is, in fact, the embodiment of its assumptions. There can be no theory without assumptions since it is the assumptions embodied in a theory that provide, by way of reason and logic, the implications by which the subject matter of a scientific discipline can beunderstood and explained. more> http://goo.gl/dbe0Ac

Economic Theory Is Dead. Here’s What Will Replace It.

BOOK REVIEW

Economics Rules: The Rights and Wrongs of the Dismal Science, Author: Dani Rodrik.
Nudge: Improving Decisions About Health, Wealth, and Happiness, Authors: Richard H. Thaler and Cass R. Sunstein.
Predictably Irrational, Revised and Expanded Edition: The Hidden Forces That Shape Our Decisions, Author: Dan Ariely.
Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism, Authors: George A. Akerlof and Robert J. Shiller.
Phishing for Phools: The Economics of Manipulation and Deception, Authors: George A. Akerlof and Robert J. Shiller.
The Darwin Economy: Liberty, Competition, and the Common Good, Author: Robert H. Frank.

By David S. Wilson – Einstein observed that “It is the theory that decides what we can observe.”

The world is so complex that we cannot possibly attend to everything, so a theory—broadly defined as a way of interpreting the world around us—is required to tell us what to pay attention to and what to ignore. Without a theory, we are literally blind. If we up the amount of information that must be processed, then the need for theory to cure blindness becomes even greater.

Models designed to understand particular topics are good as far as they go, but collectively they are like a jigsaw puzzle with a million pieces still in its box. An overarching theory is required to assemble the puzzle. That’s how evolutionary theory functions in the biological sciences. The economics profession doesn’t need something like that. It needs that. The same theory that unifies the study of all living processes can unify the study of our own species, including our economic systems. more> http://goo.gl/20UO8b