Economics and physics-envy

2 Aug, 2012 at 19:53 | Posted in Economics | 6 Comments

Robert Shiller explains in a recent interview why economics is not a “hard-science”:

Robert Shiller: This goes back to whether economics is a science or not. Alfred Marshall the great British economist of the turn of the last century said that economics can never be a science because it deals humans. For example predicting that crisis that started in 2007 most economists didn’t see it coming at all. And it seems to me that the fault was that they didn’t want to use their intuitive perceptions of how people are thinking; it seemed to me that something crazy was going on: we were in a housing bubble. But that term was proscribed in professional discussions, as that’s what the taxi driver says, that’s not professional, prove it! And I can’t prove it. I mean I can refer to survey data, but that’s not solid enough. Economists just sometimes don’t see the obvious, they don’t rely on mental faculties of human judgment that they have as well as not relying on a broader view of people that’s informed by psychological or sociological research.

Nigel Warburton: Is that because economists tend to see themselves as ‘hard-scientists’, as appose to the wishy-washy soft end of social science.

Robert Shiller: I think that the economics profession suffers from physics-envy. I really do. We all wish we could be Einstein. It’s too strong a model, we can’t all develop the theory of relativity. The world of people isn’t like that. When you look at what happens for example in a financial crisis, you’ve got to get immersed in a lot of detail. It doesn’t become understandable by abstract economic reasoning. This means you have to look at an impression of what’s driving people, what’s on their minds, what they don’t know, what the lawyers did with the contracts, what the people are assuming the government might do if such and such happens. It involves a lot of real world thinking which doesn’t fit with the Einstein model.

6 Comments

  1. […] Standardökonomie stützt sich auf Konzepte, die Ende des 19. Jahrhunderts entwickelt wurden. Methodisch bedient sie sich hauptsächlich der sogenannten komparativen Statik, […]

  2. Out of curiosity Lars P. Syll, what is youir opinion of the econophysics project? I believe your fellow Post Keynesian economist, Steve Keen, has given qualified praise for the econophysicists.

    • haha.

  3. How’s that song go – “We’re lost in models, caught in a trap..” 🙂

  4. While I have enjoyed much of Shiller’s writing, and agree with many of his positions, I couldn’t disagree with him more about his claim of the Einstein model not fitting with “real world thinking”. ( I even agree with him about the quip about economists and physics envy) I cite Einstein and Infeld’s 1938 classic,’The Evolution of Physics: From Early Concept to Relativity and Quanta’. It is firmly grounded in real world examples and analogy, as is wonderfully demonstrated by the chapter on quanta, which takes us from flopping rubber tubes to violin strings to probability waves. This quote on p287 puts it very well. “It is easy to find a superficial analogy which really expresses nothing. But to discover some essential common features, hidden beneath a surface of external differences, to form, on this basis, a new successful theory, is important creative work. The development of the so-called wave mechanics, begun by de Broglie and Schrodinger, less than fifteen years ago, is a typical example of the achievement of a successful theory by means of deep and fortunate analogy”.

    I’m obviously a big fan of analog simulations, as I have expressed on this blog previously (see http://oecdinsights.org/2012/06/27/going-with-the-flow-can-analog-simulations-make-economics-an-experimental-science/ ) In my work, I can find no basis for external technological shocks as a determinative cause of cyclic economic behavior. Rather, economic equilibria do not exist per se, but rather a ‘trimmed condition’ defined by economic structure with market and regulatory forces that can be disturbed by either exogenous and endogenous events, plus a long term largely undamped phugoidal cycle dependent on the structure of the economy, its trim state, and its static and dynamic stability margins. (Imagine cyclic behavior caused by the continued adjustment of production, inventories and sales, which obviously never match for any length of time.)

    As long as DSGE and RBC models continue to define the imaginative boundaries of so much of economics, I don’t think we’re going to get anywhere.

    JRHulls

    Evolution of Physics is available free on-line at: http://www.scribd.com/doc/8984605/The-Evolution-of-Physics-Einstein-and-Infeld


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