Dismal SciencePosted on LiveJournal 13st June 2009 "...a dreary, desolate and, indeed, quite abject and distressing one; what we might call, by way of eminence, the dismal science." -Thomas Carlyle, 1849 The point of learning economics is to better understand the processes that underlie the distribution of goods and services - markets, interest rates, inflation, exchange rates, supply and demand - all that good stuff. Sadly, in my opinion, the entire discipline is flawed for a number of reasons. Like in mathematics, many of their theories are built on assumptions which may or may not be true. For example, "consumers will act in a rational manner" is taken as axiomatic by every economic theory I've ever seen, but leads me to the belief that those economists haven't hung around many of them for very long. People frequently act irrationally. For another example, there exists certain magical items the demand for which increases as the price goes up. They are called Giffen goods by economists. If you read the Wiki article, you will notice a distinct air of mystery around them, as they violate another axiom (the ostensibly unidirectional relationship between supply, demand and prices). You might also pick up a certain hint of condescension, for the same reason. Anything to avoid the horrible, ugly truth that they might have it all wrong. Tangential to the point of learning economics is the being able to predict the future. Now, of course, no one can predict the future. All you can do is look at the past and try to explain what happened. But policy-makers frequently expect economists to be able to predict the future, and (presumably because they like their jobs) economists never seem too eager to disabuse the policy-makers of those notions. So we are regularly treated to humiliating failures when it comes to all sorts of economic predictions. For example, when the banking and insurance industries crashed into the ground in the US, the king of free market ideology, Alan Greenspan, admitted he made a "mistake". The mistake was obvious to those of us who had been paying attention. Greenspan is not alone however. The prevailing theories of economics were all on his side. For another example, read my post on Peak Oil. Actually, don't bother. The Cliff's Notes on it is that there is no Peak Oil problem. The whole thing is a house of cards put together on the basis of fundamentally flawed understanding of economics. If you want to know why, now you can read my post. There follows some more evidence for the prosecution of the case that economics is not nearly as useful as it thinks it is:
It has been suggested that the reason for this counter-intuitive conclusion is "pricing undermines people’s sense of community and cohesion because people are deprived of the opportunity to express altruism and no longer face the moral conflict and challenge to answer the question about their obligations to strangers", but your guess is as good as mine. The point is that there is no theory of standard economics which could possibly explain this.
It has been suggested that the reason for this counter-intuitive conclusion is "that penalties are usually introduced into an incomplete contract, social or private", and "the deterrence hypothesis loses its predictive strength, since the clause “everything else is left unchanged” might be hard to satisfy." In other words, there is no system of economics which could possibly explain this.
It has been suggested- well, read the explanations that Wiki offers in your own time. It's always entertaining to see well-qualified men in the field of economics scrabble around in the dirt, desperately searching for some sort of explanation for the madness that is the human brain, and trying to convince us all that the basic model of economic theory is still sound. Quod erat etc. |