Uncommon Sense

November 10, 2017

Economist’s Grasp of Reality (or Lack Thereof)

Many economic theories focus on the tendency of markets to create states of equilibrium. They say these states occur “naturally.”

Economists are also keen on making their studies seem scientific and they can and do point to many physical systems that naturally come to equilibrium. If you drop a ball, it falls, bounces a few times and then stops. The force on the ball at that point is the force of gravity (the attractions things have for one another because they have mass) and the counterforce (keeping the ball from moving downward by opposing the force of gravity) is the floor pushing up because its shape has been changed by the weight of the ball as it is made of resilient materials (materials that return to their original shapes when distorted .. a little). Voila, an equilibrium state created naturally. The downward force of gravity is exactly balanced by the upward force exerted by the floor and an equilibrium of forces exists.

Physics literally abounds with such examples: bathroom scales, child’s swings (pendulums), heat transfers, etc. But these are simple systems and economic systems are not simple (although they can be passed off as such, they are not). A better source of examples of scientific equilibria would be biology, which has more complex systems. In biology, if an organism achieves something like a state of equilibrium there is one thing you can know about it: it is dead. (Hey, this does happen … naturally!)

In complex organisms, these organisms are near states of equilibrium but never get too close to being in one. If, for example, we lose enough heat from our bodies to affect our skin temperature, we are moved to action: our hair stands up (goose bumps) to trap air to insulate us, our metabolism kicks in to generate more heat internally, and if those don’t work, we get up and put on a sweater, or turn on the heater in our house/apartment. Our temperature stays pretty much the same because we are always correcting it.

If we get too far from equilibrium, we usually are quite ill, but actually being at equilibrium means we are room temperature, aka dead.

Economist are full of shit if they espouse natural equilibrium creation by economic markets. It is one of those signs that you know they are spouting bullshit, like when their lips are moving. The reason they allow themselves such delusions is they do not check their theories against reality. They aren’t even expected to! Unfortunately for those folks, their end is coming soon. While they were not looking, behavioral economics has sprung up with a behavioral economist having won a Nobel Prize recently. These folks apply economic reasoning to actual experiments and actual people’s behaviors! That is, they check their theories against reality. (Gasp, wow!) It will not be long before the movers and shakers start noticing the progress being made by the behavioral economists is not being matched by ordinary economists and then, the jig will be up.

Imagine, if “trickle down economics” had ever been required to be validated against reality, it would have been exposed as a bullshit argument used to mask increased benefits for the elites long before it was. Think of all of the political bullshit that could have been prevented.

If this were to become SOP, we might actually find out what the last refuge of scoundrels really is.

13 Comments »

  1. Mr. President. I agree with you, economists ARE full of shit. That’s why they became economists. Well, it was either that or become a politician. Yeah, I am feeling very sarcastic today.

    Like

    Comment by Walter Kronkat — November 10, 2017 @ 2:46 pm | Reply

    • The saying is the “economists are good at math but they don’t have enough personality to be an accountant.”

      On Fri, Nov 10, 2017 at 2:46 PM, Class Warfare Blog wrote:

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      Like

      Comment by Steve Ruis — November 10, 2017 @ 9:17 pm | Reply

    • I think that’s an unnecessarily wide genralization. We still need economists to tell you that trickle-down doesn’t work, or that the recent GOP giveaway to the rich (a.k.a., the tax reform) is going to increase the deficit by 1.5 trillion in 10 years.

      Like

      Comment by List of X — November 12, 2017 @ 12:16 pm | Reply

      • If economists didn’t promote bullshit theories like trickle down, they wouldn’t need other economists to debunk them.

        And a descent accountant could analyze a tax plan. Doesn’t need an economist. (Remember Murray in the Movie “Dave?”)

        On Sun, Nov 12, 2017 at 12:16 PM, Class Warfare Blog wrote:

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        Comment by Steve Ruis — November 12, 2017 @ 9:00 pm | Reply

        • The accountant can analyze a tax plan but won’t know how, for example, it would affect the employment or inflation.
          I had to google Dave. Turns out I actually watched it, but I barely remember it. Anyway, I wouldn’t take it as a firm evidence that an accountant can replace an economist 🙂 (not that an economist can replace an accountant)

          Like

          Comment by List of X — November 13, 2017 @ 11:01 pm | Reply

          • Trump just hired a lawyer to be Chair of the Fed.

            On Mon, Nov 13, 2017 at 11:01 PM, Class Warfare Blog wrote:

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            Like

            Comment by Steve Ruis — November 14, 2017 @ 11:04 am | Reply

  2. Economics as a biological type science, like ecology or habitat science would be a much better analogy. Good point. Ecosystems are much more intertwined and nuanced that its nearly impossible to single out just a few features and call them primary. Case in point that’s fascinating to watch and is relatively recent is the Wolves of Yellowstone.

    If we were to think that the elk and deer there were the fat-cats of the economy, gorging on the willows and birch trees, the Republican largess, generally fucking up the whole valley, with nothing to really prey on them, then the wolves reintroduced would be the Neo-Libs set on changing the laws of the land to reflect a more equitable economic ecosystem for everyone. We need to bring back the wolves of government.

    I’m sure you’ve read Daniel Kahneman and his Thinking Fast and Slow – which must have been one of the first behavioral economist treatises written. More of that applied would help. Although I generally tend toward simple rules for complex systems, economists have, in my opinion never gotten it right.

    Like

    Comment by Anony Mole — November 10, 2017 @ 4:31 pm | Reply

    • I think Freakonomics was the first book that made me see what was possible there.

      On Fri, Nov 10, 2017 at 4:31 PM, Class Warfare Blog wrote:

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      Liked by 1 person

      Comment by Steve Ruis — November 10, 2017 @ 9:16 pm | Reply

  3. A natural equilibrium IS possible in economics, Steve. It occurs when a large company buys up of bankrupts all its competitors and monopolizes the market, and eventually a handful of huge companies divide the entire economy with a full monopoly power in multiple sectors. In a true “free market” with no government regulation, that is the only stable equilibrium.

    Like

    Comment by List of X — November 12, 2017 @ 12:24 pm | Reply

    • Yep, no equilibrium at all, a captured market, with no market forces in sight.

      The whole theory of markets is pretty much bankrupt as the assumptions behind the market theories have been shown to be bogus.

      On Sun, Nov 12, 2017 at 12:25 PM, Class Warfare Blog wrote:

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      Like

      Comment by Steve Ruis — November 12, 2017 @ 9:02 pm | Reply

      • I think market theories could work – meaning, more or less predict reality – if paired with behavioral science. The classical market theories that assume that all people are rational and all have access to all relevant information are about as practical as trying to build a space rocket with the simplified assumptions that there is no gravity or air resistance.

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        Comment by List of X — November 13, 2017 @ 11:08 pm | Reply

        • I have argued that creating simplified frameworks like the ones they started with is a valid approach. Physicists do this when they disallow the affects of, say, friction, in a mechanical system, and then go on to see what they could see. But then they would go back and add the variable taken out (called controlling the variables) and see how that changes the system already realized. The “idealized” system is always known to be fictitious. Economists on the other hand, once picked up as a handy tool of politicians, simply backed up their patron’s views and stopped where they were (or went and fiddled elsewhere). There was no protestation that their theories couldn’t be applied to the real world because they hadn’t been tested against the real world, there was a just sign my check, please, attitude.

          Whether market theories can work at all is debatable. Look at how difficult it is to understand physical theories when they involve physical principles acting in complex manners. Economics studies a system of interactions between human beings who are nowhere near as consistent that atomic particles or any other physical component of a system, So, yeah, they could work … and I am not placing any bets until I see some evidence that they might work.

          On Mon, Nov 13, 2017 at 11:08 PM, Class Warfare Blog wrote:

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          Like

          Comment by Steve Ruis — November 14, 2017 @ 11:13 am | Reply


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