The Future of Everything

July 20, 2017

Response to critics of criticism of economics critics

Filed under: Economics — David @ 6:34 pm

After my tongue-in-cheek piece on critics of economics critics, the critic critics voiced comments on Twitter, saying that they had enjoyed a good laugh – even if it was partly at their own expense!

Actually, no – that would be misrepresenting their positions. Something which I do throughout, apparently.

Noah Smith tweeted that the piece was “not a great response – it’s mostly just sarcasm and repetition of old saws.” He also said that I ignored the bulk of his points, “For example, all the non-macroeconomics out there, which comprises most of the discipline.” Furthermore, I “criticize econ for doing good things only recently. But that doesn’t strike me as much of a criticism.” (This referred I think to my quip that “economists are literally the last group of researchers on earth to have realised the usefulness of data.”) Coyle similarly – and no doubt correctly – informed me that she and Smith have done more than most to further debate in the area, and that she was writing about “the character of a particular kind of straw man critique.”

Fair points all, a few things though … Firstly, this “straw man” defence – which as discussed in this excerpt from Economyths has been used by economists since at least the 1930s – is very frustrating. Mainstream economists present a portrayal of human behaviour which is frankly ridiculous in its simplicity – and then when people criticise is, economists say they are criticising a straw man! One investigation into a Canadian economics department said this tactic had there reached a stage where it could be described as “gaslighting [i.e. psychologically manipulating someone into doubting their own sanity].” And yes, we know about behavioural economics etc., but one reason it hasn’t had more impact is because its findings are rather inconvenient for core models. In other words, the fact that economists have been deploying the same argument for so long probably says more about mainstream economics than it does about its critics.

For the criticism that I was oversimplifying and not addressing their points, meanwhile, I will leave that up to the reader (my article was addressing the question of what is an appropriate “tone” given that basic issues remain unresolved in the field), but one reason I wrote the piece was because Smith’s article struck me as a “boilerplate” (to use his expression) response to an excerpt from a 140,000 word book, whose author might just feel the same way.

Finally, Smith says I am being too hard on economists for being late to the game in things like data. This is a topic I again address in some detail in the revised version of Economyths. I would invite people who think there has been a real “data revolution” in economics to ponder the following two quotations. The first is economist Steven Levitt (of Freakonomics, and no stranger to data) discussing the problem that he couldn’t find a valid empirical example of a demand curve for his textbook, despite the fact that such curves are basic to neoclassical economics: “What I’d really say is that we completely and totally understand what a demand curve is, but we’ve never seen one. I don’t know if it’s fair to make physics comparisons, but you can imagine something like in the old days when the models had figured out something about protons and electrons, but we hadn’t actually figured out how to literally see an electron.” (My emphasis.)

The basic problem with demand curves comes down to identifiability of parameters, and yes some economists have tried to tackle it, but I’m not sure how economists can “know” what a demand curve looks like (and feature it in textbooks) without seeing one. It seems to me that if supply and demand are dynamic and interdependent then no such curve exists. (And no, it’s not like physics, unless perhaps you count supersymmetric string theory.) I would also argue that this belief in theory over data still permeates much of economics (and not just macroeconomics).

A similar conclusion is drawn in a recent paper by economist Richard Werner, who asks why – after so many decades – the process of money creation is still considered such a mystery. He notes that “the dispute can be settled through empirical evidence on the actual operations and accounting practices of banking.” In other words, by taking a look. “Surprisingly, in the observation period – from the mid-19th century until 2014 – no scientific empirical test had been reported in the peer reviewed journals.” (My emphasis.)

We’ll know economics is experiencing a data revolution when it actually uses data to falsify some of its key findings, including those concerning the most basic questions of all, namely how prices are determined, and how money is created. The reason I believe these have not been satisfactorily addressed by the mainstream is because their theory will fall apart without them. A completely new approach is needed. (And yes, I believe it’s coming – but the mainstream is not the place to look.)

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