March 17, 2017

The thinking economist

Comment on Noah Smith on ‘Beware of "thinking like an economist"’


What it means to think like an economist is well-defined: “It is a touchstone of accepted economics that all explanations must run in terms of the actions and reactions of individuals. Our behavior in judging economic research, in peer review of papers and research, and in promotions, includes the criterion that in principle the behavior we explain and the policies we propose are explicable in terms of individuals, not of other social categories.” (Arrow)

The definition of the subject matter translates into the following hardcore propositions, a.k.a. axioms: “HC1 economic agents have preferences over outcomes; HC2 agents individually optimize subject to constraints; HC3 agent choice is manifest in interrelated markets; HC4 agents have full relevant knowledge; HC5 observable outcomes are coordinated, and must be discussed with reference to equilibrium states.” (Weintraub)

So, thinking like an economist boils down to: “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point.” (Krugman)

The problem with the maximum-and-equilibrium world is that it consists of NONENTITIES: constrained optimization, rational expectations, equilibrium. One must be a rather feeble thinker to accept these green cheese assumptions as premises of economic analysis. Economists do this for 150+ years.

Those economists who do not subscribe to HC1/HC5 are called heterodox economists. Unfortunately, Heterodoxy is good at debunking but failed to replace the neoclassical starting point with something better. As a result, the current state of economics is this: the four main approaches ― Walrasianism, Keynesianism, Marxianism, Austrianism ― are mutually contradictory, materially/formally inconsistent, axiomatically false, and ALL got profit, which is the foundational magnitude of economics, wrong.

No economic advice ever had sound scientific foundations. Obviously, “thinking like an economist” does not yield acceptable results. Noah Smith tries to save the situation and to put some lipstick on the dead pig: “So while “thinking like an economist” is in principle a good thing, beware of people who claim to know how to do it.”

The fact of the matter is that “thinking like an economist” amounts to accepting proto-scientific garbage as science. No thinking being will ever do this.#1

Egmont Kakarot-Handtke

#1 Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist

Related 'How Arrow pushed economics over the cliff' and 'In economics, the scientific breakthrough is always just around the next corner' and 'Where economics went wrong' and 'Economics is NOT a misunderstanding but cargo cultic crap' and 'There is no scientific elite in economics' and 'The economist as stand-up comedian' and 'Confounding Is and Ought: the economist as moralist' and 'Economists’ proto-scientific shell games' and 'The inexorable Paradigm Shift in economics'. For details of the big picture see cross-references Paradigm Shift.