Thursday, January 08, 2009

The Curiosity Seekers: Modern Economics Is Irrelevant to Life

When I was an economics undergraduate in the 1980s, I learned an astonishing “joke” among economists: “Torture the data and nature will repent.” My professor, a Chicago School economist who studied under Milton Friedman, used the joke to illustrate how a clever economist armed with the tools of statistics can “torture” the data to reach any conclusion he wished. My professor was an “empiricist” economist.

The other type of economists I encountered taught my classes in Keynesian macroeconomic theory. They spun intricate, mathematical theories divorced from the real world. They were the “theorists.”

Both approaches resulted in “conclusions” that, if they had anything to do with reality, it was only by smuggling in a better approach. Otherwise, the questions asked and answered by these economists were as relevant to human life as the questions debated by a group of peasants standing around a well in the Middle Ages or by a group of scholastic monks peering down at them from their monastery up the hill.

Now we have an article entitled “International bright young things” (The Economist, 12/30/08), which highlights the best and brightest new economists, as selected by their mentors.

One who calls herself a “randomista” uses randomized trials to answer economic questions. She recently demonstrated that “mothers in the Indian state of Rajasthan are three times as likely to have their children vaccinated if they are rewarded with a kilogram of [lentil beans].” The article wonderingly asks, “[who knew] such a modest incentive (worth less than 50 cents) [would] make such a big difference?”

Another has “proven” that regressive inheritance subsidies [that means subsidies for those who receive inheritances] would “take the edge off…the uncertainty” that results from the “biggest roll of the dice in life [which is] the family you are born into.”

Yet another “shows” that government must provide enough unemployment benefits so that “[t]he unemployed decide that an unhurried job search is worth the extra cost of depleting [their additional funds].”

Armed with rigorous tools of statistics and mathematics, and powerful computers, these economists are spinning their wheels answering questions about… nothing.

But they are missing the most powerful tool, the one that will give them the proper method and purpose for their efforts. Without that tool, these practitioners of a vital science have become seekers of unimportant curiosities at best and diminutive statist nostrums at worst.

That tool is a rational philosophy. Every scientist is guided by a philosophy that tells him what is the proper subject of study and how that knowledge can be gained. Today's economists are sorely in need of a rational philosophy, one that will point them to subjects that are more than a handful of lentil beans in importance, and to research methods that are more effective at discovering enduring principles than the randomista's spin of the wheel.

A philosophy like that exists. See Ayn Rand and her philosophy of reason called Objectivism.

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I originally posted a version of this piece on the Harry Binswanger List forum.

5 comments:

Philosophical Mortician said...

Long time no post.

softwareNerd said...

The "Freakonomics" book first got me wondering what economists were up to. While it was interesting, it tackled small themese, and the author was almost proud in annoucing that he would not try to tie anything together.

At that level of lack of integration and commentary, I don;t see these people as being economists at all. They're statisticians pretending to be economists (at best).

Galileo Blogs said...

I agree with you, SN. Such work can have value if it is directed to a worthy goal, but I would not call it economics. Much of it appears to be market research. It can be useful in marketing products, hiring and retaining employees, investing in securities, etc.

Government aid agencies such as the United Nations employ these economists as mini central planners who use statistics to try to make central planning work.

Philosophy would tell them that central planning cannot work. Bereft of that insight, they spin their wheels on endless trivial projects.

Jeff said...

What would a rational system of economics look like?

Galileo Blogs said...

It would explain how men (businessmen) produce the goods we need for our survival and enjoyment; in other words, it would explain the structure and functioning of laissez-faire capitalism.

For a discussion of capitalism from a philosophical perspective, see Ayn Rand's book, "Capitalism: The Unknown Ideal." Also see her novel, "Atlas Shrugged," for elucidation of the principles of capitalism, often by explaining what happens when they are violated.