Mainstream economics unmasked
This webpage econphd.net provides an inside look at mainstream economics. It includes information on rankings, admission standards, graduate textbooks, lecture notes ect. It would seem that the mathemization of economics is complete and there is no longer any actual economics in economics, at least in graduate training at the major universities. Disturbing, but not necessarily surprising.
Comments (22)
Surprise, surprise:
"Work experience (except at a central bank) is wholly irrelevant for graduate admissions. No degree of accomplishment or seniority in the private sector means anything to the professors. If you try to turn such a background to advantage in the statement, it will hurt you."
From: http://www.econphd.net/guide.htm
Published: December 20, 2005 7:12 PM
"Work experience (except at a central bank) is wholly irrelevant for graduate admissions. No degree of accomplishment or seniority in the private sector means anything to the professors. If you try to turn such a background to advantage in the statement, it will hurt you."
To quote Boiler Room:
"We don't hire brokers here; we train new ones."
Published: December 20, 2005 7:57 PM
I graduated from Cornell not very long ago and this comment is entirely accurate. It is terribly sad. Did you know that the graduate program no longer exposes students to a History of Thought course? Did you know that I never heard the names of Hayek, Mises, Rothbard or even Milton Friedman for that matter the entire time that I was there? Did you realize that a friend of mine failed out of the program because she couldn't simplify the second derivative of the following function in order to figure out if the Hessian was negative semi-definite (x1x2 / (x1 + x2)? I could go on, but I might cry. Had it not been for me becoming a teacher of intro and intermediate, I am not so sure I would have learned any economics by now - and I am not sure that I know much anyway.
I guess it's sad when you are not as smart as some of the legends, which I certainly am not. But I didn't think you needed to be AER caliber to be able to learn economics. Had I known about this before entering graduate school, I would have gone to an engineering program and read economics as a hobby.
Published: December 20, 2005 10:45 PM
Donald Cox's article correctly explains that economics is NOT a zero sum game; therefore, he conlcudes that studying economics has no real drama in it for people to get excited about. That is, people are interested in drama and tension (a zero sum game); whereas, economics benefits everyone when people engage in voluntary trade.
These are good points but they fail to call attention to the fact that mainstream economics (neo-classical economics) is taught from a mathematical standpoint. Thus, the profession of economics has become "applied mathematics." This is ultimately why economics is boring to the student. (Think: cost curves, elastcities, tax wedges, consumer/producer surplus, gini coeeficients, price indexes, tax multipliers, spending multipliers, balance budget multipliers, game theory, production functions, indifference curves, phillips curve, etc. -- there's more to add to the list but these are all taught in most introductory economics courses and for the most part in high school economics -- this list doesn't even come close to the mathematical models of graduate schools.)
In the end, the field of economics has been hijacked by mathematics and this is what is wrong with the mainstream economist of our day. They feel that their math models can somehow pattern human action and believe that these models can guide government policy.
In the words of C.J. Maloney in his review of Dr. Sargent’s The Conquest of American Inflation:
Until the Mathletes leave the mainstream economics profession, students will be subjected to boredom in the economics classroom.
Mainstream economists are divorcing reality by marrying their models.
Published: December 21, 2005 12:28 AM
'They believe their mathematical models can somehow pattern human action....& guide policy." -- No they don't. Which scientist studies human action? What sort of object is that? These models prove that neoclassical economics is a _scientific_ theory -- & _that's_ what it's all about. Hence too no HET: which scientific discipline studies its own history? Do physicists bother with past, forgotten, refuted theories? Why then should economics -- which is equally scientific?
Published: December 21, 2005 2:03 AM
"These models prove that neoclassical economics is a _scientific_ theory..."
"A scientific theory" about what?
Published: December 21, 2005 5:55 AM
About "the data", "the economy" -- it doesn't matter. What matters is being 'scientific': that neoclassical economics is a collection of _scientific_ theories.
Published: December 21, 2005 7:48 AM
With scientific theories, there is at some point a burden of proof - a good scientist will conduct an experiment, weigh the evidence, and reach a verifiable conclusion. Mathematical economics does nothing of the sort; rather it attempts to capture the rational behavior of individuals through arcane calculations that frequently run counter to human behavior.
I can empathize with Mike - my MBA level microeconomics course likewise made not a single mention of Hayek, Mises, Rothbard, or Austrian theory, and macroeconomics was nothing more than a primer on how the Fed manipulates the economy (as taught by a former Fed official). Thank goodness I was exposed to Mises 25 years ago through an undergrad instructor who used Human Action as his course text - it was the one and only economics course that bore any relationship to the real world.
Published: December 21, 2005 8:57 AM
Sudha,
Hmm...well here is what one physicist wrote over on my blog:
“We model, therefore we understand!� I have found that there are MANY physics types that sincerely BELIEVE that their mathematical constructs ARE THE REALITY of NATURE!!!
This is an immensely sad situation, as it puts many “anomalous� or “out of the mainstream� OBSERVATIONS in jeopardy because “it does not fit known…(fill in the blank, Quantum Mechanics, Statistical Mechanics, Probability THEORY, electrodynamic theory..or even classical dynamics..)�
I’m SOoooooooo…happy to find an ECONOMIST who is willing to say, “Damn it Jim, I’m a MODELER not a PROPHET!!� (Apologies to “Bones� from the Original Star Trek.)
Now more on point. What do mainstream economists hope to observe from "the data"? Is it not human behavior? Why are indifference curves, supply and demand graphs, tax wedges, spending multipliers, game theory, budget constraints, and the like studied and modeled?
Just read what Dr. Laurence J. Kotlikoff (Professor of Economics, Boston University) has to say about the FairTax. "We want to retain some flexibility to tax goods, like cigarettes, the consumption of which can impose significant costs on society at-large, at higher rates. These taxes serve a different purpose than general revenues." So if taxes are not to just generate revenue for the government then what else are they used for? According to Dr. Laurence J. Kotlikoff, they are their for social engineering.
Published: December 21, 2005 9:07 AM
I think that most people in the social science have no idea what the method would be exactly be in economics if not for differential calculus. That is the barrier in my opinion. We all knew the Emperor Wore No Clothes, but unless you have another emperor around then...........
Published: December 21, 2005 11:36 AM
I am a senior Honours undergraduate in economics and I have not seriously considered doing grad in economics for a few months now. I can swim through econometrics and do very well with the envelope theorem, but it's all utterly, completely pointless.
Sometimes for fun I ask my peers what capital is, or where interest rates come from. They don't have a clue. We've never heard of even Adam Smith in my program. Economics has become that corrupt.
Published: December 21, 2005 4:46 PM
Economist:
That's a good one. Do you ever get a chance to ask a professor such questions? I guess that could be hazardous to your grades. :)
Published: December 21, 2005 6:23 PM
keith: Being 'scientific' is the alpha & omega of neoclassical economics. 'Empirical' work, using 'data', is undertaken because that is part of being 'scientific'. What matters is that the 'data' are 'empirical' & so an 'empirical' exercise is undertaken, exactly as in any science.
Published: December 21, 2005 8:38 PM
Sudha,
And this is exactly what is wrong with mainstream economics. In their zeal to by like the other sciences, mainstream economists have lost their way. It's sort of ironic that economists wanted to be more like the sciences and now people in the sciences are also complaining about math models.
As I noted above, here is what one physicist said on my blog:
Now back to my original question from my previous post: What do mainstream economists hope to observe from "the data" and "empirical exercises"? I'm assuming the answer isn't to apply their mathematical skills. Are they just analyzing data to analyze data?
Don't some economists manipulate the data and the models they construct to fit what they already know? Like...minimum wage causes unemployment among low-skilled workers. Do we really need to create a model for this?
An example of this approach can be found over at Marginal Revolution. The main question they pose at this blog is: Why is there a shortage of the Xbox? And since there is a shortage, why doesn't Microsoft just raise the price of its Xbox to eliminate the shortage? Now this question appears difficult for them to answer because they are only looking at their models. Is it that difficult of a question to answer? Do we really need a model to answer this question?
Published: December 21, 2005 9:21 PM
Sudha,
This is going to be a long post so I apologize in advance, but I would like to show how a simplified mathematical formula in economics can lead to huge mistakes.
You said:
Hopefully after this example you can see how math models can guide government policy in the wrong direction.
In high schools and introductory macroeconomics courses in college the spending multipliers are taught.
It is taught that $1 million in private investment or government spending can create $5 million dollars in RGDP. How? If Microsoft spends $1 million to upgrade its facilities, that $1 million expenditure becomes $1 million in income to the receivers of the money (construction workers, owners of the construction company, etc.). But the process doesn't stop here. The construction workers and owners will spend some of this new income and save some of it. If their marginal propensity to consume is 4/5 and their marginal propensity to save is 1/5, then $800,000 (80% of $1 million) will be spent and this expenditure will become income to someone else, who will in turn spend 80% of the $800,000. This process will continue until the process runs out. To simplify the process a formula is used which is:
spending multiplier = 1/MPS
So a $1 million increase in investment or government spending will increase RGDP by $5 million (1/.2 * $1 million).
OK, so its a simple math problem. But what's wrong with the analysis. Well to start this model ASSUMES that the money people are saving is not being loaned out by the banks. In other words, the loanable funds market doesn't work (a Keynesian assumption). But don't banks loan out their loanable funds? Isn't this one of the main arguments for the FairTax. That is, people will save more with a consumption tax; thereby, lowering the interest rate because of the increase in savings. This increase in savings will then be invested which will lead to long-run growth.
So if mainstream economists say the loanable funds market works for the FairTax, why wouldn't it work when discussing the spending multiplier?
In reality, maybe the spending multiplier is infinite. Why? Because if savings are converted into investment spending than there is no "leakage" of money out of the economy (of course this isn't completely true because of time lags, etc.). So in the end, the simple mathematical formula is flawed because it makes an assumption that savings are not loaned out or that the loanable funds market doesn't work.
OK...so who cares. Well...this analysis is extended further. There is also a tax multiplier which is one less than the spending multiplier. Why? Because if the government cuts taxes by $1 million people will save part of their tax cut and thus only spend $800,000 of the initial $1 million in tax cuts. (They are saving the other $200,000 - and remember savings aren't converted into investment). So the economy will only expand by $4 million (1/.2 * $800,000).
Now the implications should become clear. According to this model, government spending has a bigger impact on RGDP than tax cuts ($5 million compared to $4 million). Thus, a simple model is used to influence fiscal policy and skew that policy toward government spending.
So where does this leave us. To start, most high school students and first year college students are being taught this mathematical model (which is in most neo-classical intro books). A model that is flawed by the basic assumptions it makes. This flawed model is teaching students that government spending is better than tax cuts. Clearly a flawed analysis, and an analysis that stacks the deck against liberty and places the state as the driver of the economy.
And all this comes from one simple formula. Now take this simple example and multiply it many times over when math really starts to take over economics at the intermediate and graduate levels and you'll find economists that believe they can solve any economic crisis by just dumping in some "data" into a formula and prescribing a policy prescription.
Published: December 22, 2005 1:50 AM
Keith: you don't seem to realize that Sudha is being sarcastic :)
Published: December 22, 2005 2:36 AM
Sudha,
Why does being 'scientific' matter?
Why does neoclassical economics matter?
Published: December 22, 2005 5:21 AM
Austrians imply that the goal of economics is to efficiently satisfy the needs of human freedom.
Modern mathematics I’ve been told, is supposed to be the study of theoretical efficiency only, which means they could be applied to Martian or “Toon-Town� economics. While these environments may bear some similarities with ours, still many economists clearly seem to forget they are dealing with humans…
Published: December 22, 2005 5:17 PM
I am reminded of a seminar I, as a graduate student, attended years ago. Harry Johnson, the monetary economist was present (yes, I know Johnson was very mainstream but that's not the point here). The person presenting the content of the paper (and, as an aside, I noticed that papers were very seldom handed out in advance of seminars)scribbled madly away, talking out loud to the blackboard. It was one of those rolling portable blackboards, and he didn't face the audience until, after about 20 minutes, he had filled the rolled board and then some, having to erase one or two panes along the way to complete his mission.
I had absolutely no clue what he was talking about, or, for that matter, what he was attempting to demonstrate. Finally, the author faced us and asked if there were any questions. Harry Johnson, who was in the front row, immediately said, "You've done a good job at the board. Now, can you tell us the story in English." It was then that I found out the author, as well, had no clue what he was talking about.
Published: December 22, 2005 5:29 PM
Peter Matias,
Being 'scientific' is what neoclassical economics is about. Neoclassical economics is _the_ dominant school: in command of (virtually) all econ depts, economic advice, commentary, etc. Know your enemy.
Published: December 22, 2005 9:15 PM
The curious thing about this subject (the general failure of public education and economics in the USA) is that when I hear economics-related news coming out of China, I get the impression there are some influential people in China that know more about economics than most of the university economics professors in the USA.
Granted, it does not take a genius to understand the Federal Reserve is on shaky ground, but the Chinese (if I have understood correctly) have actually threatened on more than one occasion to detach their banking system from reliance on the US dollar. They so far have been threatened with trade sanctions to prevent them from doing so, and it seems these threats keep them cooperating with the Fed. But I wonder for how long..
It is apparent that correct economic theory will not be embraced by those are paid well to devise obstructions to it; however, should not those who are not profiting from Keynesianism (such as Asians and those in other developing economies) naturally embrace the benefits from correct economic theory??
Like English has become a more international language, perhaps AE will become the "international" standard of economics. Who cares what they teach at Cornell!
Published: December 23, 2005 12:06 AM
Sudha Shenoy,
Is 'scientific" economics a truth-discovering institution?
If it is fundamentally flawed, why waste time learning about it? To become a foot-soldier persuading others to make different/ better political choices, or to get yourself a better job after graduation?
Does a truth-filled economics matter at all beyond that?
Published: December 23, 2005 5:47 AM