The truth is that economics is so hard for mainstream economists because they are trying to do the impossible — to describe the economic aggregates of entire states and nations with tools learned in calculus class. FULL ARTICLE by Sterling T. Terrell
Source link: http://archive.mises.org/13259/economics-is-easy/
Economics Is…Easy
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Once you realize that economics doesn’t require mathematics, it becomes very easy to understand. Just because commerce is performed using numbers (currency, prices, etc) and involves calculations (profit, loss), doesn’t necessarily translate into making economics a numeric discipline. Unlike calculating the trajectory of a particle in the LHC, which uses physical properties of the physical world, economics is a human behavioral study, which is not quantifiable. It isn’t a formula where all we have to do is adjust one variable on one side and have it cleanly spit out a predictable result on the other.
Treat a man like a math problem and you’ll never get anywhere.
I’m to the point where I laugh at any MBA or ‘modern’ economist that does not understand the relationship between what people choose to use as money and property rights over that money as an important concept to be discussed.
It is disheartening to learn that event he top business schools in the US don’t adequately inform their students about the real origin of the Federal Reserve or why those old dead white guys implicitly stated gold and silver as legitimate money.
Nice little article. I was turned off economics at university by the maths, which I found incomprehensible (my fault, to be clear, not that of the maths!). Austrian economics has allowed me back in, and while at times I wonder whether I’m only so attracted to it because I can understand it and not because it is in fact a robust perspective, I’m yet to come across any approach to society and economics that is so simple and powerful. Another marvelous aspect of the Austrian perspective is that it provides enormously interesting insights beyond “strict” economics, into sociology, history, jurisprudence and political philosophy. Marvelous stuff.
I find the insistence that non-economists or non-quants are not qualified to comment on economics a little like the argument leveled by theologians against atheists – unless you’ve spend your lifetime studying the concepts of God, you’re not qualified to comment on His existence. It’s an odd one.
So true. I used to explain to my econ students that Economics is “math without numbers.” We eventually examined the calculus required to fuel some tyrant’s “Fatal Conceit,” and realized that, even if econometrics were possible mathematically (not to mention conceptually — where does one get all the relevant variables and weights?), the inputs would have too much swag to be meaningful — and even if the inputs’ veracity were ensured by the threat of a death penalty, by the time the rulers got their “answers,” the data would be out of date.
The best we can hope for, as Terrell seems to imply, is enough inspection of what is known and observed that we can plan a step or two ahead for ourselves: that’s not something I want my rulers to use, to bet MY farm on!
Once one understands that real world facts can not be supported by imaginary concepts all things become simplified.
Money does not grow on trees
Printing money devaluates worth already gained.
Misdirected value by mandate assures failure, rather than just chancing it.
Falsifying reports to hide investment implications sets up larger failures.
Restricting human invention and rewards stifles investments.
Politicizing reality rather than facing it demonstrates a type of insanity that breeds further fabrication of truths.
Dung is the fertilizer of liars and grows more weeds of deception than real fruits resulting in starvation of true principles.
Statistics can be shaped to mean anything.
Reality is usual obvious, yet not many really want to see it or believe in it as it would take sacrifice and commitment to apply it.
Truths can be made simple or complex depending on who you are trying to alienate or embrace.
Deception is a ploy as much as knowledge is a worth.
Value is insured by a commitment to it.
Natural market pressures are good.
The only thing I would add – a true scientist would never reshape his data using statistics. Unaltered numbers don’t lie. Of course, there are too many devious scientists out there.
Mises started in the simplicities of common human experience, eg, scarcity, unlimited human wants, action in time, ends, preferring, and setting aside. He related the complexities he discovered to those simplicities. Conventional economics is an evasion of the scientific need to reduce complexity to simplicity, as if Newton did not reduce a universe of gravity to three laws of motion. These conventionalists worship counterfeiting and out-of-context coincidences without relating them to any laws of economics. The Stimulus will provide! Bow your heads, recite the proper equations with humility in your heart and await its beneficence! All hail The Power and The Glory of The Stimulus!
I totally agree. When I took macro, I was turned off by the ridiculousness of the math that was used. As I am a math an physics man, it bothered me quite a bit by the logical loopholes of the “math”.
I read the original Athreya’s article. Personally, I don’t like to comment on other people’s ability to perform certain actions. That’s why I didn’t like his article either. I am confident that everyone for themselves is capable of judging other people’s work and that people don’t need me to tell them what standards (i.e., publication record, PhD courses taken, etc.) to use when making their judgement.
“We are the Priests, of the Temples of Syrinx”
F.A. Hayek’s Noble prize acceptance speech is also an excellent refutation of economics as an exact science.
A “quick reread of Human Action”?
Oh yes, a casual glance or two should do it!
I think he meant the “Classics Illustrated” comic book version. Hey, it worked for The Road to Serfdom.
Even if Athreya were right, he doesn’t realize that these types of blogs are meant to satisfy a certain demand. People don’t want to read obscure economic theory. They are interested in concise and clear conclusions.
When the gods are questioned, they get uncomfortable…
Physics envy! Ha. I think this is it. Sounds Freudian! I began my studies in the math dept. I did pretty well until I got to Analysis – the logical study of calculus, you know, all theorem proof stuff. Just the definition of a real number was mind blowing. I just couldn’t regurgitate all the proofs in the books on the tests and so had to move on. A year in physics, with half of it studying one equation (Schrodinger’s) and I was having lots of physics envy. Eventually I settled on the new science of computers. Why not let the machine do the work for me I thought.
But I did learn one thing: In order to use calculus you need to have smooth continuous functions if you are going to use the tools of derivatives.
I once dared to ask my professor what continuity really was since I found the math definition with limits and all kinda non-intuitive. He said, can you draw the curve without lifting up your pencil? If not, it’s not continuous.
Now we get to economics, the study of actions in a market of exchanges. Does anyone really believe that humans act smoothly and continuously? Yet they derive functions using calculus all the time. Isaac Newton would be rolling over in his grave.
While I’m not convinced that Austrian Economics has done a completely correct job of theorem proof, which is the method used to draw conclusions, it certainly seems that if one stays within the postulates and doesn’t try to prove too much (such as exact timing etc.) that it does indeed make much more sense.
However, if one need not understand all the maths of mainstream economics, there might be a whole lot more economists. Just as the AMA keeps the numbers of doctors limited, so too a degree in economics has to remain beyond the reach of most people or, surprise, salaries for economists could be, (the horror!) lower.
“Just as the AMA keeps the numbers of doctors limited”
OMFG, where do people come up with these crackpot theories? The AMA has NO control over how many doctors are produced in this country. AMA membership is less than 20% of doctors and shrinking all the time. The rest are pretty much anti-AMA, often virulently so.
Anyone who thinks that doctors can conspire together to do anything on the scale required to limit our numbers knows nothing about the behavior of doctors. Organizing doctors is like herding cats. The only group I know of that has been successful is the neurosurgeons, who have been able to keep the number of neurosurgeons produced to a minimum. Maybe the dermatologists too, judging by the fact that none of them seem to accept insurance. Or maybe nobody wants to go into derm, creating a shortage. I don’t know. Usually if there is a shortage in a specialty it’s because it’s unattractive. Right now it’s hard to get medical students to opt for general surgery because the work is hard and the reimbursement is low.
Doctors are also so busy with internecine political warfare among specialties (and within specialties) that they are easily picked off by just about anybody, and just about anybody has done so. That’s why the medical profession has been a train wreck in slow motion for the past 30-40 years.
Furthermore, since fees are set by monopolies (Medicare, health insurance industry) there isn’t much supply/demand action going on. Negotiating with Medicare is not legally possible, and the private health insurers – with their anti-trust exemption – can control markets and set prices as they please. In any negotiation I’ve ever tried it has always been a Hobson’s choice.
Do you mean that the AMA wasn’t involved in lobbying for licensure back in the day? Honest question, not rhetorical.
Also, the reason Derms don’t accept insurance is that their most lucrative procedures are cosmetic and not usually covered by insurance.
http://mises.org/daily/4276
if you have the time
Well no, at the moment, but it is BOOKMARKED as of now.
Thanks!
The AMA membership is irrelevant. What IS relevant however, is that the AMA has a significant influence on state licensing requirements, which is just a scam for limiting supply under the pretense of “public safety”.
When briefly describing a crude, vulgar agenda (like, say, central banking) it sometimes becomes necessary to articulate it as such in order to achieve clarity while maximizing impact. Simply put: macroeconomics is mathematical masturbation. Fed economists want to keep their big circle jerk private for obvious reasons.
Buchanan makes a similar point as this author–namely, that when it comes down to it the tools of economics are *elementary*. Of course, “elementary” shouldn’t be equated with “simplistic” or “easy”. The econ profession has conflated the two.
The recent macroeconomic events are easy to understand with the aid of Austrian economic theory. That itself was extremely hard to develop and took hundreds of years, if you take the Salamanca school as the start of it. Indeed, of course, it is still developing, too.
Great article and spot-on remarks. Thank you.
Agreed. KISS: Keep It Simple Stupid. Nice piece.
Great article. I’m an engineer, so math comes easy for me, but I was always troubled by the equations used in Macro, though I couldn’t quite put my finger on why. When I first heard Hayek describe the inherent flaws in aggregating subjective desire, it finally did made sense why.
Calculus is based upon infinite summations of equally divisible parts measuring instantaneous rates of change. This can in no way describe populations of idiosyncratic individuals.Each person has a completely unique valuation of everything, be it material item, experience, or idea, based upon their own distinctive personal circumstance. Transactional agreements can only be equitably made between individuals, because it is implicitly impossible to precisely quantify the concept of relative worth for someone else.
As a trained meteorologist and computer scientist (lots of math), the notion of simulating anything with multi-variant parameters and an expectation of certainty within the simulation is foolishness. Aren’t we now bottoming on a financial bust attributable to failure of simulations in debt obligations. The econometrics guys are so enamored of the complexity in the system (unknowable by the way…think Navier-Stokes) they lose sight of pure reason…I remember a Kipling poem celebrating the six interrogatives; who, what, why, when, where and how are all you need to understand the basic tenets of macro economics. Certainly first order answers to these questions go a long way to understanding macro relationships and interdenpendence. PhD (piled higher and deeper).
Education is not the problem – using the state to force education requirements for jobs (or the state “creating” jobs and running education) is.
Dave, I think you’ve missed my point which was that most attempts to calculate the incalculable are destined to frustration and untimately fall short. Econometricians, if such a thing exists, are tilting at windmills trying to divine knowledge where none exists. My reference to the Navier-Stokes is a tip-off. Although relevant to fluid flows, the number of parameters and variability within a “system” make even these equations dubious for ascertaining much beyond macro effects. The same applies for the mathematics of “econometrics”. No disrepect to PhDs; merely a reminder to say there are things which, believe it or not, remain unknowable. BTW PhD does not necessarily infer education, rather lots of training. For a tutorial on that subject try Nock’s “Theory of Education in the United States”. Free copy in literature here: http://mises.org/literature.aspx?action=author&Id=731
they cannot even predict the positions of the balls on the pool table after a decent number of collisions, if the balls are more than a few… educated people know it and it’s quite accepted since Newton’s times. Go figure how can “those in charge” pay somebody to make predictions on macroeconomic level nowadays…
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