Comments on: The limits of the scientific method in economics and the world Thu, 21 Jul 2016 07:57:19 +0000 hourly 1 By: PabloB Mon, 14 Nov 2011 23:08:41 +0000 Yes, but…aren’t you just saying Science is a progression by which human knowledge is built up over time ?

Blaise Pascal in 1635 noted that Man is full of hubris : the world is not what it is. It’s what we know it to be. As our knowledge grows, it changes.

Thomas Kuhn said the logic of scientific revolutions is always a paradigm shift – rejecting the previous paradigm to move forward.

Nicholas Talleb said : until we know differently, the future will always be seen as an incrementally larger version of past trends. But this is wrong. Change happens through big non-incremental shocks to the system.

If Pascal, Kuhn and Talleb are correct, your economist is simply following in very good well-worn footsteps ?

On the other hand, when in 2004-05 we saw housing prices across the USA rising at 15-20% p.a., but disposable incomes only rising at 3% p.a., surely we should have suspected a bubble ?

By: Rotkapchen Mon, 14 Nov 2011 18:17:46 +0000 An odd familiar ring? “He just loaded up the funnel and dumped in the latest problem and started crunching away. I asked him whether the funnel actually improved the solving of problems; stunningly, the hadn’t thought of the question.”

Shouldn’t there be a consistency in what one professes and what one practices?

By: vinlander Fri, 11 Nov 2011 15:49:17 +0000 ” the striking thing about the evening was that nothing changed about his models after they were shown to be hopelessly wide of the mark.”

That is the very definition of unscientific. When the observations don’t match the model, the model is wrong, not reality.

By: Bert2 Fri, 11 Nov 2011 15:21:27 +0000 In my professional opinion (and I work in science and engineering), it is not the method that is flawed, but mostly the assumptions made (oversimplified) and boundary/system conditions (too narrow) which leads to results that get then generalized beyond where they were intended too. I love the ones that assume “rational decision maker”. Newton and his reductionist approach has caused a lot of problems for fields that need to be encompassing rather than narrow.

By: matthewslyman Fri, 11 Nov 2011 06:56:54 +0000 Personally I’m looking forward to Part 2, and to reading some more of the classics e.g. Aristotle that I’ve barely touched directly so far… In the meantime:

By: matthewslyman Fri, 11 Nov 2011 06:28:19 +0000 THE SCIENTIFIC METHOD IS GROWING INTO AN ATHEISTIC RELIGIOUS CULT among modern armchair scientists, and the scientific propaganda needs to be trimmed down to its true size (science is truly wonderful, but it’s NOT a panacea)… It’s refreshing to read this now from a mainstream writer… Here’s my own philosophical article on a similar subject:

> “Hayek’s followers…were the ones accurately forecasting the back end of 2008.”
Are you suggesting that because Hayek’s followers were right this time around, we should listen to them next time (to the exclusion of other economists)?

> “it is the total lack of scientific understanding of many of the fundamental causes and effects.”
There are plenty of theories about causal relationships in economics. It’s just that we don’t know which ones are right, or, to what degree they are right overall and what circumstances they tend to be most right in… (If we knew that, we’d have another [perhaps grander] economic theory, wouldn’t we?)

> “So the underpinning of most models needs to be thrown away and replaced with, what exactly? It’s easy to state that humans are irrational. Yet it is very hard or perhaps impossible to chart our irrationality and feed it to a computer.”
This is why economics is based on statistics. Like the physical science of gases, individual human beings can behave “randomly”, but they all share certain fundamental properties, and taken as a whole they are likely to follow certain laws.
Some of these laws are obvious, in the same way that we can predict that compressing a gas will increase its temperature, or, increase demand substantially within a market without substantially increasing supply => commodity becomes more expensive.
Other laws are less obvious and some; e.g. the science of economic downturns, which to extend my analogy is somewhat similar to the science of explosions in gas mixtures; are partly a random or statistical affair. It’s very hard to predict the precise moment at which an explosive mixture of gases will actually explode, and similarly hard to predict the precise moment at which a major economic downturn will commence.
If my analogy holds true however, we ought to be able to detect an explosive mixture of economic policies & circumstances – and we ought to have the courage to deal with the danger in a mature manner rather than pretending that the latest asset bubble is another manifestation of the inherent superiority of our own ideology (whether it be capitalism, communism or whatever else)… 1/11/10/chinas-cutting-edge-authoritaria nism/

By: MohamedMalleck Fri, 11 Nov 2011 00:51:32 +0000 I don’t have to wait for the second half of this article to say that the author has got his facts wrong. He writes “This was not unusual; no credible economist predicted anything less rosy for the back half of 2008, although many now claim that they did.” Among the economists who predicted exactly what he says they did not predict are : Joseph Stiglitz, Paul Krugman, Mohammad El-Erian, Nouriel Robini and several others. Yes, Economics is not an exact science; but it has analytical rigour that may sometimes outperform Physics. At the microeconomics level, Kenneth Arrow’s Impossibility Theorem is an example of the kind of rigorous analysis whose power surpasses that of Physics. Joseph Stglitz pioneered disequilibrium economics in a 1964 article that became the basis, from the early-1970’s on, for all post-graduate courses in “The Microfoundations of Economics”. As for the disparaging of Econometrics models, we have to admit the limits of econometric modeling: Economics Nobel prize winner, an excellent econometrician and mathematical economics expert, said so very explicitly in the mid-1970’s when he developed the “rational expectations” models. Already then, “systems analysis”, or what later became known as “complexity theory” had started finding its way in economic analysis and policy-formulation. But, economic policy-making is deeply influenced by politics. And it is not often that good economists who have the courage of their intellectual riopur get to enjoy the highest esteem of populist politicians.

By: larrymotuz Fri, 11 Nov 2011 00:48:37 +0000 The fundamental problem with modern, i.e. Marshallian and after, economics is its assumption that subjective preferences may be maximized in the absence of objective benefits. The current theory is based on indifference analysis on the presumption that satisfying a subjective preference satisfies also objective needs. That is not the case.

By: OneOfTheSheep Thu, 10 Nov 2011 23:45:08 +0000 Over all of history written, I agree that the “world of people” can change. But such change is relatively minor…being limited to individuals and their values and goals.

Those individuals at the helm of human affairs, however, rarely change. Those who become like Alexander the Great, Gengis Khan, Caesar, powerful Kings, the Kaiser, Hitler, Stalin, and our Presidents like Washington, Lincoln, Teddy Roosevelt, Franklin D. Roosevelt, Reagan are men whose values and goals are forged progressively over many years. Indeed it is the sheer mass of such accumulation as it accelerates the roll down the hill of destiny that draws more and more into it’s orbit and ultimate influence on humanity exploding.

We are battling within ourselves as we meet life’s challenges whether it will be our emotional self or our logical self that has the wheel as each curve must be negotiated. Similarly is the ever-present battle between our “selfless” self and our “selfish” self and it’s context. No wonder so much of life, in retrospect, looks more like a crap shoot with history written always by the winners.

I, too, read and posted here on “The Physics of an Economic Crisis”, by Emanual Derman. My “take” was quite the opposite of BajaArizona’s, as were my comments.

I concluded that “Mr. Derman shares with us some specifics as to what economists CAN’T do and admitting that this is pretty much everything they have attempted to do. They KNOW they don’t know what they’re doing. Duh? No one will pay for what another can’t do. Money is made by knowing with some certainty what another will or must do. The challenge is for economists to become capable of doing the function they have yet to fulfill.”

It is satisfying to read BajaArizona’s admission above that “We should expect even less of economists”.

By: DrJJJJ Thu, 10 Nov 2011 22:21:08 +0000 We’re too optimistic, that’s why casino business has been growing! We’ll grow/spend/tax/gamble our way out?