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What Kind of Answer?

Entry 1213, on 2010-08-12 at 21:27:35 (Rating 4, Comments)

There's an old joke which I find amusing. I can't remember it exactly but the punch line involves an accountant asking "what kind of answer did you have in mind" when he is being asked to produce an answer for an accounting issue he is being paid to work on. I think the same could apply to economists. After all, aren't economists just accountants for the "big picture" and aren't accountants just people who add up columns of numbers in essentially arbitrary ways?

Yes, I know, I'm being a bit unkind here because both accounting and economics are genuine intellectual pursuits (laugh, snigger - oh no, there I go again) but seriously folks I do hold business professionals in high esteem... oh forget it - who am I fooling here? The whole world of commerce is a joke and economists are the biggest clowns, aren't they?

OK, sorry about that. Maybe I am being a bit unfair there, but let's look at practical results. Of all the areas of human knowledge has economics not been the least successful in it's real outcomes? Look at medicine: we have many amazing surgical procedures and very effective drugs. Electronics has given us machines which would be a distant dream 20 years ago. Chemistry, biology, geology, every branch of real science has produced amazing results. Progress seems to happen everywhere... except in economics.

Some people call economics a science but I doubt that. Actually, to be perfectly honest, I know very little about it but that hasn't stopped me from commenting in the past and it won't stop me now either! But let's look at real science: it creates hypotheses with carefully stated consequences, those are tested, re-tested, and a consensus usually arises. Sure, that can be overtaken by better theories when more data becomes available but it's very rare for a significant theory to be simply wrong: generally they are just inaccurate (Newtonian gravitation versus Relativity is the classic example).

Does this happen in economics? It doesn't seem to. I often hear economists discussing issues and debating the effectiveness of different policies. They almost always disagree, which is bad enough, but it is far worse than that: the reason they reach different conclusions is almost always based on theoretical considerations, which themselves often arise from a political or philosophical bias (an unfounded belief in the effectiveness of laissez-faire economic policy for example).

Most scientific conclusions in other areas are based on empirical evidence or at least theory which is backed up with real data. Sure, sometimes economics uses survey results and real data from specific instances, but this too often seems anecdotal, so I'm generally less than convinced that these are credible.

Also economists are often labelled with political stances like "left" and "right". The truth has nothing to do with politics and I have never heard these labels used to describe real scientists. So this is another reason I am deeply distrustful of economics.

Of course business and economics are important to our society but I think we succeed despite them because the underlying driver of modern society isn't really economics, it's science and technology. Technology has a way of improving most people's lives despite the factors ranged against it. But imagine how much better things would be if our society was based on fact driven economic and political principles instead of what we have now.

I can't help but think that I have been unkind to economics because of my essential ignorance of it, so if anyone wants to point out where I am wrong here I will happily read any comments and make corrections. I was going to talk to some contacts in the economics department of the university I work at but I was too worried they would just ask: "what kind of answer did you have in mind"!

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Comment 1 (2813) by SBFL on 2010-08-16 at 00:58:42:

I haven't actually read your post above so this is probably off topic, but on the matter of global warming I note that NIWA are being taken to court due to their fabrication of the facts. Niwa sued over data accuracy

Love him or loathe him, you have to enjoy the final Porsche comment from WhaleOil at the end of this post.

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Comment 2 (2815) by OJB on 2010-08-16 at 11:51:31:

Even a small amount of unbiased investigation shows that this lawsuit is a total publicity stunt. NIWA have acted entirely correctly: all the data is available and the methodology for temperature corrections is explained. This is just more denial politics getting in the way of serious science. And the Porsche thing is amusing but pathetic and trivial. Typical right wing garbage: ignore the real issues and emphasise the lies and trivia.

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Comment 3 (2817) by INRI on 2010-08-16 at 23:05:39:

It's not just economists that try to fit the answer to peoples preconceptions. Take Einstein for example. He introduced a a "cosmological constant" into his equations of general relativity in 1917. And why did he introduce this constant? Because to the best of his knowledge he thought the universe was not expanding or contracting. 12 years later the universe was shown to be expanding and Einstein referred to this as his "biggest blunder". (Astronomica p.20-21, Australia:Millenium House)

It's all very well to adjust theories when new information is to hand but how do we know when the theory is completely correct. Lets introduce inflation to explain why the universe is so large for its apparent age they say. Then, lets introduce dark matter to explain why the large scale structures of the universe appear to show that the universe is too young for these to form. Scientists are worse than economists!

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Comment 4 (2818) by OJB on 2010-08-17 at 08:33:51:

Yes, real scientists sometimes make mistakes (including the famous example you gave) but its rare and the cosmological constant now fits in well with the universal expansion caused by (the hypothetical) dark energy. Maybe he was right after all (but for the wrong reasons).

But that's hardly the point. The vast majority of physics is based on careful response to real observations but it seems to me that economics is mostly based on whatever personal theory the economist in question prefers.

Inflation (in the cosmological sense) is well supported through a number of observations, its hardly an arbitrary invention as you imply. The same goes for dark matter: it has been observed to exist. Dark energy might be a better example of something which is almost totally theoretical.

But these ideas move from theory to fact as new evidence is gathered. Unlike economics where things seem to move form theory to... well... more theory!

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