Oh, good, economics is finally gettin straightened out.
I think all this behavioral stuff is just one more shuck, like rational
expectations and experimental economics and, ..., and, ... and, ...
I don't see much "soul searching" or "fundamental reevaluation" going on. Just
CYA and serve your master.
Gene Coyle
On Mar 26, 2010, at 1:29 PM, Jim Devine wrote:
> talking about orthodox economics [a.k.a., Ekonomics], David Brooks writes:
>
> New York TIMES / March 26, 2010
> Op-Ed Columnist
> The Return of History
> By DAVID BROOKS
>
> Some brilliant scholar has to write a comprehensive history of modern
> economics because the evolution of this field is clearly one of the
> most consequential [!!!] things happening in the world today.
>
> Act I in this history would be set in the era of economic scientism:
> the period when economists based their work on a crude vision of human
> nature (the perfectly rational, utility-maximizing autonomous
> individual) and then built elaborate models based on that creature.
>
> [this business of "human nature" is Brooks' focus. He doesn't talk
> about anything substantial like Keynes vs. the Classics.]
>
> Act II would occur over the past few decades, as a few brave
> economists tried to move beyond this stick-figure view of humanity.
> Herbert Simon pointed out that people aren’t perfectly rational. Gary
> Becker analyzed behaviors that don’t seem to be the product of narrow
> self-interest, like having children and behaving altruistically. Amos
> Tversky and Daniel Kahneman pointed out that people seem to have
> common biases when they try to make objective decisions.
>
> [Becker doesn't really get beyond narrow self-interest, as I
> understand his work. Rather, his point is that even if we act
> "irrationally," the Ekonomist's model of rational self-interested
> decision-making works. Becker doesn't belong here, since he fights
> hard for the Ekonomics cause.
>
> [and of course, Tversky and Kahneman are (were) not economists, but
> psychologists.]
>
> This part of the history would be the story of gradually growing
> sophistication and of splintering.
>
> Then the story would come to Act III, the economic crisis of 2008 and
> 2009. This act is a climax of sorts because it exposed the
> shortcomings of the whole field. Economists and financiers spent
> decades building ever more sophisticated models to anticipate market
> behavior, yet these models did not predict the financial crisis as it
> approached. In fact, cutting-edge financial models contributed to it
> by getting behavior so wrong — helping to wipe out $50 trillion in
> global wealth and causing untold human suffering.
>
> [note that it's not the problem of non-normal randomness (uncertainty)
> or poorly-designed institutions or deregulation or the normal
> irrationality of capitalism that was to blame for the financial
> crisis. Brooks gives us no idea that the financial crunch was and is
> much like a poisonous parasite living on the top of a sick economy and
> that the Ekonomists' models of finance are mere efforts to white-wash
> the poisonous content of that parasite.]
>
> This would bring the historian to Act IV, the period of soul-searching
> that we are living through now. More than a year after the event,
> there is no consensus on what caused the crisis. Economists are
> fundamentally re-evaluating their field.
>
> [a lack of consensus should be seen as a good thing, compared to the
> enforced unanimity of most Ekonomics on major issues.]
>
> “Where were the intellectual agenda-setters when this crisis was
> building?” asked Barry Eichengreen of the University of California,
> Berkeley, in The National Interest. “Why did they fail to see the
> train wreck coming?”
>
> In The Wall Street Journal, Russ Roberts of [free-market
> fundamentalist] George Mason University wondered why economics is even
> considered a science. Real sciences make progress. But in economics,
> old thinkers cycle in and out of fashion. In real sciences, evidence
> solves problems. Roberts asked his colleagues if they could think of
> any econometric study so well done that it had definitively settled a
> dispute. Nobody could think of one [perhaps because they are
> dogmatists?].
>
> “The bottom line is that we should expect less of economists,” Roberts
> wrote. [in general? or should we just expect less from those at George
> Mason?]
>
> In a column called “A Crisis of Understanding,” Robert J. Shiller of
> Yale pointed out that the best explanation of the crisis isn’t even a
> work of economic analysis. It’s a history book — “This Time is
> Different” by Carmen M. Reinhart and Kenneth S. Rogoff — that is
> almost entirely devoid of theory.
>
> [huh?!? I think that Shiller's own analysis, in "Irrational
> Exuberance" has a lot to say, as does his book with Akerlof (cited
> below). Maybe they don't say _enough_, but that's another issue.]
>
> One gets the sense, at least from the outside, that the intellectual
> energy is no longer with the economists who construct abstract and
> elaborate models. Instead, the field seems to be moving in a humanist
> direction. Many economists are now trying to absorb lessons learned by
> psychologists, neuroscientists and sociologists. They’re producing
> books with titles like “Animal Spirits,” “The Irrational Economist,”
> and “Identity Economics,” about subjects such as how social identities
> shape economic choices.
>
> [who are the authors of these books? not George Masonites. The first
> is by George Akerlof and Robert Shiller. The second is by Erwann
> Michel-Kerjan and Paul Slovik, one a finance guy and the other a
> psychology. The third is by George Akerlof and Rachel Kranton. The
> economists are more liberal and more imaginative than the Masonites.
> Why is it that Brooks doesn't give some sort of credit to these
> folks?]
>
> This amounts to rediscovering the humility of an earlier time. After
> all, Adam Smith was a moral philosopher, Friedrich von Hayek built his
> philosophy on an awareness of our own ignorance, and John Maynard
> Keynes “was not prepared to sacrifice realism to mathematics,” as the
> biographer Robert Skidelsky put it. Economics is a “moral science,”
> Keynes wrote. It deals with “motives, expectations, psychological
> uncertainties. One has to be constantly on guard against treating the
> material as constant and homogenous.”
>
> In Act IV, in other words, economists are taking baby steps into the
> world of emotion, social relationships, imagination, love and virtue.
> In Act V, I predict, they will blow up their whole field.
>
> Economics achieved coherence as a science by amputating most of human
> nature. [nice phrase!] Now economists are starting with those parts of
> emotional life that they can count and model (the activities that make
> them economists). But once they’re in this terrain, they’ll surely
> find that the processes that make up the inner life are not amenable
> to the methodologies of social science. The moral and social yearnings
> of fully realized human beings are not reducible to universal laws and
> cannot be studied like physics.
>
> Once this is accepted, economics would again become a subsection of
> history and moral philosophy. It will be a powerful language for
> analyzing certain sorts of activity. Economists will be able to
> describe how some people acted in some specific contexts. They will be
> able to draw out some suggestive lessons to keep in mind while
> thinking about other people and other contexts — just as historians,
> psychologists and novelists do.
>
> At the end of Act V, economics will be realistic, but it will be an
> art, not a science.
>
> [Economics has always been an art, not a science. It's only Ekonomics
> that falsely pretends to be a science -- and often does so in the most
> unscientific ways.]
> --
> Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own
> way and let people talk.) -- Karl, paraphrasing Dante.
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