The Major Economic Ideas We Live By Are Shockingly Flimsy

[xchrom]

http://www.alternet.org/economy/major-economic-ideas-we-live-are-shockingly-flimsy



n his well-known textbook Economics, Paul Samuelson depicts our economic world as being like the universe of Newtonian physics. Though he concedes that deciding on policies may involve value judgments—eliminating rent control may hurt individuals, even though it benefits the economy—he promises to focus on the economic science of cause-and-effect. “Positive economics describes the facts and behavior in the economy,” he insists. The emphasis is his. Questions in this realm may
be “easy or tough,” but they “can be resolved only by reference to facts.” In another popular text, Walter Nicholson similarly tells students: “‘Positive’ economists believe that one reason for the success of economics as a discipline is that it has been able to emulate successfully the positive approach taken by the physical sciences rather than becoming involved in the value-laden normative approach taken by some of the other social sciences.”

Economists’ insistence that their discipline is like physics sounds a little nervous. Did you ever hear a physicist boast to the world that that physics is like economics? More important, when they talk about economics this way, Samuelson, Nicholson, and other economists are misrepresenting what they do and what economics is. From Adam Smith to Karl Marx, from John Maynard Keynes to Milton Friedman, economists have sought to gain insight into economies by building models of them. They make simplified assumptions about the economic world we inhabit and construct imaginary economies—in other words, models—based on those assumptions. They use these imaginary economies to draw practical conclusions about the actual economies we inhabit.

Nearly everything economists do is based on some model. For example, the famous story that prices are determined by supply and demand is a model. Consider the price of oil. On the one hand, there is supposed to be an upward-sloping “supply curve”: the higher the price of oil rises, the more oil producers want to pump. This curve is an imaginary construct intended to describe the different amounts of oil that producers would pump at any given time, if oil prices were at different levels. On the other
hand, there is supposed to be a downward-sloping “demand curve”: the lower the price of oil falls, the more businesses and consumers want to buy. This curve is likewise an imaginary construct intended to describe the different amounts of oil that consumers and businesses would buy at any given time prices were at different levels. The point where the imaginary curves intersect—where the price is such that the amount of oil producers would pump just equals the amount of oil businesses and
consumers would buy—is supposed to determine the actual price of crude oil and the amount of oil that is pumped.

[The Magistrate]

1. Nothing Involving Human Decisions Is or Can Be A Science, Sir

Economics bears the same relationship to physics as a small boy trotting along, pumping his arms and making choo-choo sounds, bears to a locomotive.

[xchrom]

3. leave it to you!

you're right -- but i've come to a point where i expect reason and rationality and evidence from people in charge of things.

rather than ineptness and incompetence -- both of which seem such a hallmark of our age.


and one more thing -- should people in charge of these particular institutions be Conservative -- in the classical sense?

[KG]

2. most of economic theory is fairy tales for the working class to believe.