May 20, 2015

Mathiness and the Ur-blunder

Comment on Lars Syll on ‘Paul Romer on math masquerading as science’

Blog-Reference

What did the great heterodox economist Georgescu-Roegen say about mathiness?

“Knight lamented that there are many members of the economic profession who are "mathematicians first and economists afterwards." The situation since Knights time has become much worse. There are endeavors that now pass for the most desirable kind of economic contributions although they are just plain mathematical exercises, not only without any economic substance but also without mathematical value. Their authors are not something first and something else afterwards; they are neither mathematicians nor economists.” (1979, p. 317)

The definition of mathiness is that somebody gets both wrong: economics and mathematics. This applies without doubt to growth theory from Solow via Romer to Lucas. What is lacking is economic substance, the models are vacuous.

What did the great heterodox economist Georgescu-Roegen say about the correct application of mathematics?

“Lest this position is misinterpreted again by some casual reader, let me repeat that my point is not that arithmetization of science is undesirable. Whenever arithmetization can be worked out, its merits are above all words of praise. My point is that wholesale arithmetization is impossible, that there is valid knowledge even without arithmetization, and that mock arithmetization is dangerous if peddled as genuine.” (1971, p. 15)

Nobody can argue with the great heterodox economist Georgescu-Roegen: formalization is desirable wherever possible but mathiness is not desirable.

Orthodoxy, of course, is guilty of mathiness but this is only the minor point. The main point is the vacuousness of fundamental concepts like optimization, utility, equilibrium, production function, capital, perfect competition, demand function, etcetera. All these concepts are nonentities like Batman or the Easter Bunny.

As a rule, it is not formalization that has to be criticized, it is the all pervasive green-cheese assumptionism which is the hallmark of Orthodoxy.

“When very sound and proper mathematics is misused and misapplied to fairyland problems without any basis in the real world, that fact that the mathematics itself is impeccable makes the whole obnoxious game just that more offensive.” (Blatt, 1983, p. 173)

The Ur-blunder of Orthodoxy is that that the whole theoretical edifice is based on a specific behavioral assumption.

“There is in economics, or at least among the overwhelming majority of its disciples, broad agreement as to what represents the corpus of their subject. This corpus revolves around the concept of maximizing behaviour, whether it be by the individual, firm or institution.” (Blaug, 1990, p. 209) see also (2014)

The assumption of profit maximization, for one, necessitates a couple of further assumptions. And here the the trouble starts. The firm or the economy must be formally endowed with a production function. This function must have very specific properties. One of them is decreasing returns. Thus, we start with a behavioral assumption and end with an assertion about the physical reality of production. And here is where the Ur-blunder comes in: Reality cannot be molded to make a behavioral assumption applicable. Production functions are nonentities. And this is why growth theories since Solow are vacuous. All of them.

Orthodoxy can give up all except constrained optimization. Because constrained optimization is a nonentity Orthodoxy has to be given up.

Egmont Kakarot-Handtke


References
Blatt, J. (1983). How Economists Misuse Mathematics. In A. S. Eichner (Ed.), Why Economics is Not Yet a Science, pages 166–186. Armonk, NY: M.E. Sharpe.
Blaug, M. (1990). Economic Theories, True or False? Aldershot, Brookfield, VT: Edward Elgar.
Georgescu-Roegen, N. (1971). The Entropy Law and the Economic Process. Cambridge, MA: Cambridge University Press.
Georgescu-Roegen, N. (1979). Methods in Economic Science. Journal of Economic Issues, 13(2): 317–328. URL
Kakarot-Handtke, E. (2014). Objective Principles of Economics. SSRN Working Paper Series, 2418851: 1–19. URL

Related see cross-references  Incompetence and Proto-science and Political economics