Monday, August 27, 2012

I Am Mad At Economists (Part 1 of 2)

I am really mad at economists.  I guess it's not news that someone's mad at economists.  But maybe it will be interesting to sort out what, exactly, the issues are, and that's what this two part series is about.  Let me start by saying the obvious:  I'm not mad at all economists.  The targets will be evident.  It's worth saying, too, that I'm not mad at the study of economics.  I'm mad at economists. 

There's a whole bunch of things I'm not mad at economists about.  Let's start there.

Sometimes people get mad over the whole "economics, it isn't a science" thing, but I'm not mad about that.  Against economics being a real science it's sometimes said 1) that economists are bad at making predictions and 2) that you can't study people with scientific methods because their behavior is non-deterministic and unpredictable. 

But with respect to 1), it's not obvious to me whether lame prediction-making means not-a-science or whether it means a science still in its infancy encountering massively complex phenomena.  It's hard to predict the weather too, but that doesn't mean meteorology isn't a science.  It just studies something super-complicated.

With respect to 2), it's also not obvious what the significance is of people's behavior being "unpredictable," because things can be unpredictable in the literal sense while still being deterministic and describable by rules.  The brilliant eighteenth-century philosopher David Hume said that the world of human behavior was just as deterministic as the natural world, it's just that it was much more complicated.  Yes, it's true that there are exceptions to every rule about human behavior.  But that doesn't necessarily mean that behavior isn't described by rules.  It could just mean the rules are really really complicated. 

So that's not what's bothering me. 

Other times people get upset about the way mathematics and formal methods are used in economics, but even though I think they might be onto something, I'm not mad about that either.  Against the use of mathematics and formal methods, it's sometimes said 1) that we have no reason to think that obscure theorems in infinite mathematics would apply to real world phenomena, and 2) that formal reasoning in economics requires us to make obviously false simplifying assumptions, like that people are "rational" and have "perfect information" when they decide what transactions to engage in.

But with respect to 1), it's easy to say "obscure," but it's worth noting that economics seems to use standard mathematics from the well-established areas of real analysis and differential equations.  These are the same theorems that we use when we design bridges, make airplanes fly, and calculate how to send the Curiosity Rover over to Mars.  Even if there is something wrong with using the same mathematics in economics as one does everywhere else, it's hard for me to get mad about it.  The math is just sitting there.  It worked before.  Why not give it a shot?

And with respect to 2), lots of, maybe almost all of, applied mathematical reasoning requires the use of obviously false simplifying assumptions.  Natural scientists routinely assume things like frictionless planes, infinitely deep oceans and the like.  Some of these idealizations work well and some don't; that's why people talk about the difference between having a good model of a situation and having a crappy one.  In a way, the whole thing about math is that it's abstract and idealized.  To apply it, you almost always have to make obviously false simplifying assumptions.  As in 1), this methodology might be show, in the end, to be mistaken for the given domain, but its use doesn't make me angry.  Again, what could be more natural than trying what worked before?

So this isn't what's bothering me either.

But now we are getting close to the heart of the matter.  Because the first of two things that really makes me mad is the wildly overblown confidence with which the results are applied.

Look, if you know your science isn't so good at making predictions, and studies something very complicated, and if you know that you're using the tools that happened to be lying around the math and physics department and weren't really designed for the job, and if you know that you have to make obviously false simplifying assumptions to use those tools, wouldn't you proceed with caution?

Yet this is the opposite of what happens.  The IMF strong-arms countries into adopting specific policies.  Economists in the US, whatever they are recommending, pronounce their policy recommendations with total confidence.  Graphs are produced alongside massively complex equations to show that certain short- and long-term results will follow from certain ways of doing things. 

This would be like trying to send a manned mission to Mars before the effects of friction and so on were understood.  Sure, you can use Newton's laws to calculate basic stuff like where the planets will be, if you make certain simplifying assumptions -- such as assuming there is no friction.  And you could produce graphs alongside massively complex equations to show how your getting-to-Mars plan is based on the science of gravitation and planetary motion.

But you'd have almost no chance of success and every chance of disaster.  Even if the graphs are good and represent something real, you'll never make it work.  Because you just don't know enough about how your idealizing assumptions affect your outcome.  You don't know enough about whether you have a good model.  It's not enough to have a model.  You have to have reasons for believing your model is a good one, an apt one for the thing you are trying to do, one that takes into account the things that need to be taken into account in the given situation. 

We know roughly what it would be to proceed with caution in this domain, and policy makers don't do it.  If you were going to proceed with caution, you might start by identifying the things you want most to avoid, and by distinguishing those from the things you'd like that aren't totally necessary, and then you might aim directly at protecting the former while you tinker with the latter.  I take it that in modern economics, the things we'd most like to avoid are people's deaths from hunger and preventable diseases, closely followed by people's lives being completely ruined or rendered completely awful because they have to work 16 hours a day to make ends meet.  And then after that would be people having big houses and fun gadgets, doing molecular gastronomy, and sending rovers to Mars. 

I'm not saying these have to be the only considerations.  Just that these are among the things you'd consider if you knew there was a lot you didn't know and you were trying to proceed with caution with economic thinking.  You might also, contra the IMF, grant that other people might have different and equally good ideas about how to proceed, and that they have a prima facie right to put those ideas into practice.

Next week, part 2:  the other thing I am mad about, the ethics bait-and-switch. 

6 comments:

Daniel said...

Patricia,

I loved reading this! It makes me wonder, though, to what extent it is the economists and to what extent it is the governments or other giant international units that make the policies which are to blame. I don't know the answer, but it seems to me that the implementation (by law, by corporate body, or whatever) is an essential part of the problem.

What do you think?

Patricia Marino said...

Hi Daniel, thanks! Sure, the implementation is an essential part of the problem. But economists in the public eye present themselves as experts, on a subject the rest of us do not and cannot understand well, and in which they have insight and answers and not a lot of doubt.

By doing these things they encourage policy makers -- and, indeed, the rest of us, who have to make everyday decisions -- to trust their conclusions, to trust that those conclusions are held with confidence by scholars/scientists, and to distrust our own "uninformed" judgments.

Daniel said...

Patricia,

Thanks for the response!

So I can understand a little bit more the distinction between economists and lawmakers (or rulemakers or governments or other enforcers) in your post, is there anything special about economists versus other groups who might push for specific policy and be very confident of their position? Is it because of the consequences of economic policy in particular (versus, say, abortion rights or something)?

One of the reasons I'm asking is because there can be real arrogant assholes who think they know everything and who are very sort of overconfident and dismissive of the uninformed, yet their policies produce outcomes people might think are good, whether good be measured in terms of social equality or individual liberty, or whatever. In THAT scenario, I think that people who like the policy's consequence ignore the bullishness of its advocates (the economists who push for it, for example). Is that a double standard?


Thanks!

Daniel said...

Oops, I realize you wrote that it was the overconfidence with which the applies are applied that makes you mad. Some of what I wrote above was under the idea that it was the overconfidence with which the policy was promoted. Sorry about that.

Patricia Marino said...

Hi Daniel,
Thanks -- yeah, I might not have been clear. One thing I'm talking about is economists' claims of the form "consequence X will follow from policy A," or "If you do B, then Z will result." These are on all sides of issues. They're empirical claims about what will happen, and I hear economists make them with a great deal confidence. I don't hear them say, "Well, we don't really know what will happen if we change that law/tax policy/regulation." I also don't hear agonizing over failed predictions of the past.

In practice, it's true that in policy recommendations those predictive things get run together with values/ethics/normative matters. I'm going to write about that next week.

I am holding economists to a higher standard than I'd apply to other politicos, advocates, and policy-makers because they're supposed to be scholars -- like other scholars, experts, etc, they're supposed to tell the truth, be honest about what they do and do not know, and be forthcoming about how confident the are about what they claim to know. This is, of course, the same standard I'd apply to any other member of a research community.

Daniel said...

Got it. Excellent. Thanks!

Daniel