Monday, November 14, 2011

Have They No Shame?

I have argued on multiple occasions that economics, especially macroeconomics, is not a science, and no way an engineering discipline, but it is a cacophony of political thoughts embodied in equations, as if the equations give it a patina of respectability.

The latest flap seems to be in some discussions in Reuters. The first is a discussion which I would concur with which states:

As the power of the scientific method has encroached further than its applicability warrants into fields such as economics and business, its predictions of the future become ever more erroneous. In this list, we can include virtually every economic prognostication from the first half of 2008, and countless market research studies that misjudge consumer interest in the new product concepts that they test. Were he alive today, Charles Sanders Peirce, a turn-of-the-20th-century American pragmatist philosopher, would be unsurprised at the shoddy results of these analyses. A brilliant thinker, Peirce is less famous than his peers William James and John Dewey, mainly because he was an ornery and unpleasant character.  However, Peirce had an almost entirely overlooked yet extremely insightful theory applicable to modern scientific work. He concluded that no new idea was ever derived from the analysis of the past using inductive and deductive logic – the two forms of logic our modern scientific method utilize.

We can even include my favorite misstatements the now infamous predictions of Romer and what the result of the Stimulus would be. I have followed her errors for almost three years now. Their counter arguments are that things would have been worse if the money were not spent. That is not the issue, she said one thing and something else grossly different happened.

Now, in my opinion, one of the left wing economic theory followers responded to the above first posting. He states:

Incorporating rational expectations into macroeconomic models increases the level of complexity by an order of magnitude over what was already a difficult problem in the engineering literature, and much of what Lucas, Sargent, and others did was to find a way to forge forward despite the technical difficulties. That was an important contribution, but for our purposes it is the conceptual contribution — the loud, clear message that simple extrapolation from the past can lead to problems — that was important.

Frankly I resent the reference to the engineering world. We have very complex problems, has the author ever seen a bridge, perhaps a machine, a robot, and yes even a micro chip. It is not the difficulty or complexity of the problem,  it is that the answers are based on what if issues. What if elephants had wings, but they do not have them so why even discuss the issue.

The retort piece ends with:

Presently, there is no shortage of work trying to fix the problems with our models. I don’t know if we will succeed — the next model will work until it doesn’t — but we are certainly trying. And there is also no shortage within economics of “imagining things other than as they are,” a phrase the author uses repeatedly. From recommendations on how to fix markets, address pollution problems, stabilize the economy, put people back to work, to models of comparative economic systems that imagine societies with different institutional structures and societal relationships, economists are constantly imagining how to improve social conditions. In fact, for the most part we are charged with trying to do too much social engineering, not too little. In any case, we don’t think of the economy as an unchangeable “hunks of granite,” we understand that social relationships are at the heart of what we study and that those relationships are not etched in stone.

 This is where they get into trouble, the truth is their social engineering game. They like to get into the fight, use what they see as the way we as humans should live, tell us how we can do what we can with our very existence. They should be able to reach some agreement on monetary policy, but between gold and socialism there is not a bit of agreement.

Once you cross the line to social engineering you cross into belief, it lacks reason. No wonder Krugman is an Asimov fan, for Asimov was the one who articulated the social engineering of galactic civilizations, not just a country.