Economics as physics

So the US economy is expanding at a 4.1% annual rate and is experiencing a tightening labour market and possibly even rising real wages. That the American economy under PDT would shed the shackles left by eight years of Obama mismanagement and the inept oversight of GWB was as straightforward as anything I could have imagined although never a certainty given all the unknowns that surround every economy all the time. A supply-side approach, in which the government removes regulations and does not try to spend its way to recovery, is the formula that has worked time and again: see, for example, the spectacular Costello recovery of 1996-98 which was driven by massive cuts to public spending and an entrepreneurial-focused policy framework. No Keynesian at the time had expected it – Treasury begged Costello to reverse his policies! – nor have I ever heard a Keynesian who could explain it. In the midst of the Asian Financial Crisis as well, just to show how difficult it is to find an explanation within modern economic theory for what everyone witnessed but no modern macroeconomist could explain. Which brings me to this.

Steve Hayward, who I usually agree with, has written on Universities: Euthanasia or Suicide in which he discusses how economics is turning itself into a STEM field rather than an area of the humanities, which he thinks of as a good thing. It is already a near useless field of study the way it is presently taught, but economics as physics is its absolute end as a useful empirical science if the aim is to understand how we can best provision ourselves. Nothing will leave economics with less penetration and use than to ship it off to the mathematical side of academic studies. Nothing is more likely to help us find a way to a Venezuelan future. There are numbers in economics, of course, and statistics, but to turn economic theory into nothing but a series of highly abstract mathematical models will ensure that virtually nothing found in an economics journal will provide practical solutions to actual problems related to the world. Once economics dealt with problems, and thought through to solutions, but economics-as-physics is the Death Star for the subject.

Here are a few of the commenters who seem to get it:

Don’ t economics departments want to do this to attract more federal dollars for STEM? Not a good sign. About 30 or so years ago, UVA’s economics department kicked out Buchanan and Coase to go more in the econometrics route. (Paul Craig Roberts wrote about this.) The economics department at my undergraduate university came to be dominated by Marxists. In short, the revolution is corrupting econ departments too.

STEM disciplines are evidence-based. Evidence overwhelmingly shows that Marxism does not work. If an econ department has not ejected all of its Marxists, it should not be allowed to work this dodge.

If Econ is a STEM field, does that mean that Econ Profs can’t point to Venezuela as an example of the success of socialism? Unless they can prove it?

I got a BA in History with a minor in Economics. Although I have had a life long love of history, some of my more enjoyable undergraduate classes were economics. My conversations with recent History and Economic graduates make me wonder if they really got degrees in those fields at all. Their ignorance of even the basics is truly astounding.

Economists almost killed off the history of economic thought and may still do it. For an account of this disastrous venture into academic suicide, see my Defending the History of Economic Thought. Marxists and socialists generally can do maths as well as anyone. But it is a rare temperament who can do economics, and understanding Adam Smith and John Stuart Mill does not require maths and stats. The more mathematical and models-oriented economics becomes the more it will prevent anyone from understanding how an economy actually works.

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18 Responses to Economics as physics

  1. RobK

    The maths of chaotic and non linear systems gets complex and relies on the probabilty of various out-comes. Some of the brightest minds develop methods to engage in the trade of derivatives where overall average results determine the bottom line. Sometimes things go well, sometimes they dont. It is nonetheless a dangerous field and once removed from actual production. To me, economics is a mix of psychology, politics and the STEM subjects but there needs to be a balance. To apply only one field an neglect the others wont work. There are parallels in other multi-disiplinary fields including climate change science. Galloping off in one direction, say modelling, but using the math from a previous generation then jazzing it up with cutting edge data doesn’t make it real. Common sense is wisdom. Limitations are the norm to be mindful of.

  2. Pyrmonter

    I rarely agree with the Cat’s Trumpkin-in-chief, but on this I wholeheartedly do. Economic History and Historybof Thought should be pre-requisites for advanced study.

    (Now Kate’s, go and look clowlwly at the Us Labor stats – things aren’t as good as you want to think)

  3. mh

    for example, the spectacular Costello recovery of 1996-98 which was driven by massive cuts to public spending and an entrepreneurial-focused policy framework. No Keynesian at the time had expected it – Treasury begged Costello to reverse his policies! – nor have I ever heard a Keynesian who could explain it. In the midst of the Asian Financial Crisis as well, just to show how difficult it is to find an explanation within modern economic theory for what everyone witnessed but no modern macroeconomist could explain.

    And the IMF was strongly critical of Australia, also. The IMF was pushing Keynesian solutions.

  4. Tel

    The objective of the IMF is to get countries into as much debt as possible, preferably indebted to the IMF.

  5. mem

    The maths of chaotic and non linear systems gets complex and relies on the probabilty of various out-come
    There are parallels in other multi-disiplinary fields including climate change science.

    The term “ceteris paribus” is applied in economics to attempt to gauge the impact of changes in one of the many inputs to modelling the outcome of changes to various imputs. Ceterus parabus means keeping one of the inputs or sometimes several inputs equal to the present i.e. not variable. In climate science the boffins adopted this approach to dealing with the sun’s impact on climate as from my reading they had no way of measuring its variance. Hence one of the biggest factors influencing climate has been kept as a constant in the models. Yet astrophysicists who were excluded from the IPCC processes will tell you that the sun is a star, comprised of gas with numerous random explosions that affect solar radiance to earth. Dr Willie Soon has written on this but the warmists have attempted to ostracize him as his his truths are not welcome.

  6. Bruce of Newcastle

    Nothing will leave economics with less penetration and use than to ship it off to the mathematical side of academic studies. Nothing is more likely to help us find a way to a Venezuelan future.

    Hehe, the ferals of ZH put this post up today:

    Which College Degrees Get The Highest Salaries?

    Economics does very well indeed, coming in at #5.

    But the first four are:

    1. Chemical Engineering
    2. Computer Engineering
    3. Electrical Engineering
    4. Aerospace Engineering

    Making stuff is king!

  7. sdfc

    for example, the spectacular Costello recovery of 1996-98 which was driven by massive cuts to public spending and an entrepreneurial-focused policy framework.

    The economy already had momentum.

    And the IMF was strongly critical of Australia, also. The IMF was pushing Keynesian solutions.

    That sounds made up.

  8. JohnA

    sdfc, no, the IMF was always Keynesian.

    Keynesianism is the economic version of totalitarianism in politics – central control.

  9. Malcolm Thomas

    Even if Kates had the right US labour market stats, his lazy view that PDT caused them is simply convenient assertion from someone who has demonstrated time and again an incapacity to deal objectively with Trump-elated matters.

  10. Mark A

    Malcolm Thomas
    #2775122, posted on July 29, 2018 at 1:53 am

    You must be keeping a tab on Steve’s posting, the way you jump in and denigrate him at every opportunity.

    What did he ever do to you?

  11. Mark A

    Tel
    #2774717, posted on July 28, 2018 at 6:58 pm

    The objective of the IMF is to get countries into as much debt as possible, preferably indebted to the IMF.

    True, that’s one of the reasons the IMF and prolly Soros is peed off with Hungary, the first thing the new gov. did after ousting the commies, was to pay out the IMF loan.

  12. Louis Hissink

    The problem the left has is they don’t understand why humans think, and thus act. Their belief is that human consciousness is a Tabulam Rasa that can be inculcated with correct behaviour and will therefore behave as theory predicts when subject to policy.

    Cutting to the chase, the Left simply doesn’t understand why humans think, mainly because they have lost themselves in the wish-world of utopianism and its physical display of narcissism, the worship of the ego that is created by the action of thinking.

    They are simply addicted to utopianism.

    At the moment the US is in cold-turkey mode, shown by the screeching and screaming of the Left, but whether a replacement drug dealer appears to put them back into their brain-cage remains moot.

  13. Tel

    Their belief is that human consciousness is a Tabulam Rasa that can be inculcated with correct behaviour and will therefore behave as theory predicts when subject to policy.

    And if that doesn’t work they shout and bully, try to knock people back into line.

    And if that doesn’t work they escalate to real violence.

    Then finally just kill of anyone who disagrees with them.

    It’s a simple strategy, but you can see the method in it.

  14. Tel

    They are simply addicted to utopianism.

    Addiction to power is very basic human tendency but it’s easier to exert your will over others if you first convince yourself there’s some greater good that you are serving. People seem somehow adverse to admitting, “Hey I just want to subjugate these people, take their stuff and force them to work for me.”

  15. Iampeter

    Steve, I couldn’t agree more that economics needs to be treated like a hard science, but then I think EVERYTHING should be by those who are taking a particular field of endeavor seriously.

    Now if we could just get you to apply the same correct thinking to politics as you do to economics, so that you can see that Trump is no better (maybe even worse) than Obama, then you’d really be on the right track.

  16. .

    I’d be interested what other economists and financial analysts would think about my take about this:

    Economics is the link between the sciences and social sciences.

    It is its own field in its own right and the partial basis for the finance (and marketing) discipline(s), as well as having overlap or use in other fields, such as marketing, history, the international business literature and policy analysis and legal reasoning.

    There is nothing wrong with multivariable calculus (ceteris paribus or not), the use of chaotic and dynamic modelling or econometrics if it is properly considered and you know why you are doing it. I’ve become interested in agent-based modelling and neural networks lately. I am not sure they are as useful in the economics discipline as non-economists, however, believe they are. For example, the biggest flaw in the modelling of economics outside of high-frequency capital markets as a physical model (usually something like a thermodynamic model) is that it ignores the role of the entrepreneur.

    We cannot predict something like J K Rowling, Thomas Edison or Steve Jobs.

    The other main error is deviating from principles and relying on models over common sense.

    Some communists believe that an economy can be centrally managed with success from an input-output model.

    They are clearly wrong, on the evidence of every communist country that has existed.

    I’ve seen a lot of econometric evidence that suggests the Austrian business cycle theory is correct and the best explanation of business cycles. When you understand it, econometrics and the modern models (post 1960, rational expectations onwards) you can see that they are slowly moving towards ABCT – even the post-Keynesians (hysteresis) but especially Prescott and Kydland (real business cycle theory).

    Analysis of linear algebra also shows that the Marxist assumptions about market economies are dead wrong – see Okishio’s theorem. Communists are wrong again.

    Mathematics and statistics help us analyse errant economic theories and collect evidence of the best theories. It also is useful for modelling real-world things, like option prices, consumer demand and labour demand (a “derived” demand).

    Economic analysis is quite a skill because it requires mathematical reasoning and long chains of literary reasoning regarding issues that clearly exist but are not directly comparable.

  17. Lutz

    There is really only one rule: Keep the government out of economics, except to prevent fraud.

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