Yves Smith adds some excellent commentary in her piece, Why So Little Self-Recrimination Among Economists?, which brings to our attention Jeff Madrick's report on The Daily Beast on the just-concluded annual conference of the American Economics Association, How the Entire Economics Profession Failed. Madrick writes,
At the annual meeting of American Economists, most everyone refused to admit their failures to prepare or warn about the second worst crisis of the century.
I could find no shame in the halls of the San Francisco Hilton, the location at the annual meeting of American economists that just finished. . . .
There was no session on the schedule about how the vast majority of economists should deal with their failure to anticipate or even seriously warn about the possibility that the second worst economic crisis of the last hundred years was imminent.
I heard no calls to reform educational curricula because of a crisis so threatening and surprising that it undermines, at least if the academicians were honest, the key assumptions of the economic theory currently being taught.
There were no sessions about why the profession was not up in arms about the deregulation of so sensitive a sector as finance. They are quick to oppose anything that undermines free trade, by contrast, and have had substantial influence doing just that.
Smith adds a insightful quote from Thomas Palley, in April 2008:
One reason for the changed business cycle is retreat from policy commitment to full employment. The great Polish economist Michal Kalecki observed that full employment would likely cause inflation because job security would prompt workers to demand higher wages. That is what happened in the 1960s and 1970s. However, rather than solving this political problem, economic policy retreated from full employment and assisted in the evisceration of unions. That lowered inflation, but it came at the high cost of two decades of wage stagnation and a rupturing of the link between wage and productivity growth.
Smith also rips into the recent paper by Daron Acemoglu, The Crisis of 2008: Structural Lessons for and from Economics, which, Smith observes, "fell so far short of asking tough questions that it proves Madrik's point. The analysis is shallow and profession serving." Noting that Acemoglu argues that "greed is neither good nor bad in the abstract," Smith writes:
Put more bluntly, greed is the id without restraint. Psychiatrists, social workers, policemen, and parents all know that unchecked, conscienceless desire is not a good thing. Acemoglu calls for external checks ('the right incentive and reward structures"), when the record of the last 20 years is that a neutral to positive view of greed allows for ambitious actors to increasingly bend the rules and amass power. The benefits are concentrated, and the costs often sufficiently diffuse as to provide for insufficient incentives (or even means) for checking such behavior. Like it or not, there is a role for social values, as nineteenth century that may sound. The costs of providing a sufficiently elaborate superstructure of rules and restrictions is far more costly than having a solid baseline of social norms. But our collective standards have fallen so far I am not sure we can reach a better equilibrium there.
I clearly remember how dumbstruck I was about back in May 2006 when someone asserted in a comment to one of my DailyKos diaries that
Economics is not about morals. Nuf said
And four other people agreed with them! I hope they're singing a different tune now.
uprated
Folks if you see an Instapopulist you think would be good on the front page, just hit the little arrow up and it will move it to the front page. (hit it down to remove posts from EP).
This is a very good question and one of the reasons EP exists. So many theories as well as policies are divorced from reality.
The entire field of mathematics, statistics, probability and yes, economics exists and one needs to at least analyze policy results from history!
Right now I see policy recommendations that do not even have in depth analysis on their efforts (sorry Bernstein, I don't see it) and studies, research papers with serious fundamental flaws buried within, yet because the recommendations are popular, desired, few bother to point these out. Objectivity and ethics, scientific method seemingly is going out the window.
As far as the person saying there is no morality on economics, I think they were trying to imply the mathematical aspects of the theory.
But of course, to achieve desired effects, such as increasing social equality and a strong middle class, there are some moral assumptions underneath the math.
I can think of two reasons for the lack of shame....
...
First, current 'economists' are using a broken and outmoded set of tools to to their 'work'. Current economic theory being a mass of conservative bs crafted exclusively to make the rich richer and the rest of us broke.
Second, the Bush administration has, as per usual, destroyed the government reporting mechanisms to the point where the information stream is mostly garbage.
And third...heh, went over my limit here, when the crooks who run and manage our financial 'institutions' are spewing lies as fast as they can move their lips...well.
Not to excuse these self satisfied fellows the least they might have done is express some concern over the poor government information and the lack of transparency in the 'markets' but then that might have ruffled some feathers, eh?
And Robert I do believe that all the great economists of the past starting with Adam Smith built their theories with a strong measure of ethics.
'When you see a rattlesnake poised to strike, you do not wait until he has struck to crush him.'
Baumol & Gomory
In the reads link is one of my favorite books and it's because they analyzed, from the mathematics, from the theory, free trade theory and proved that it is not a "win-win" and depending upon how one implements it, it can be a huge "lose" for some nations, especially 1st world nations.
So, the problem is the real work with the real math gets ignored! These guys should be winning a Noble Prize for that book frankly and its by the mathematics, the entire second section of the text is math and one must have at least advanced Calculus to read it.
I am a Math head. But the biggest thing is one can easily lie with math, have bad math, bad assumptions, bad models.
When you say math has ethics, it does but it's by the rules of mathematics and accurately modeling is wherein the ethics lie. It's like E=mc2. That is one of the most famous equations in history but one can use that equation for both good and evil. But within the mathematics itself is the ethics of is it verifiable, is the model accurate, is it complete.
The problem isn't the use of mathematics or even absolutes, the problem is inaccurate or incomplete models.
Kind of a don't throw the baby out with the bathwater approach. Many believe the mathematics of classical economics is wrong, well, it is not, the real problem is the lack of good mathematical skill and ability. Well, Baumol and Gomory just proved that wrong and why this text is so important.
Another economist who uses quite a bit of good math is George Borjas whereas let's pick on Catherine Mann who wrote some paper to push offshore outsourcing. Well, if one reads the basic assumptions of her paper, they are just plain incorrect and therefore one cannot conclude that offshore outsourcing is good. Didn't hurt her employer is the think tank arm of a McKinsey who sell and peddle offshore outsourcing services. People took that paper as verbatim and it was not a solid research paper.
There are many examples like this but for people who do not know the mathematical details going into subject areas like Economics one believes things are "moral" but they are not, they are science and thus in the sphere of scientific method, objectivity, accuracy, thoroughness, which is a moral code but not the same as what lay people believe morality is.
Respectfully...no...
I cannot agree with your assertion that the mathematics of 'classical economics' is not wrong. The use of linear equations and other tools Pareto borrowed from my field, physics, over 400 years ago would be laughable if it had not resulted in such disasters as the Great Depression and the current mess.
Further, the lack of interest in recent advances in our knowledge of how people actually behave as opposed to how The Maestro and others of the Chicago School assert they do is nothing short of criminal.
To see what I am talking about read:
Experimental Economics: How We Can Build Better Financial Markets a book already old which foreshadows the current meltdown.
Or my favorite:
The Origin of Wealth thanks to Stoller for this.
As to 'ethics' and where that comes from start with:
The Moral Animal
Respectfully, no amount of hard work or diligence is going to produce good results as long as policy makers are listening to the Chicago School, The Maestro or any other 'classical' economist. They have no clue as to what is really going on with the economy and never will as long as they cling to their flawed theory ignoring what the latest research shows about markets and how people act in them.
Not to say that the 'complexity' guys know it all but they are a lot closer to doing that by about 400 years of math and research.
And math does not lie. People use it to tell lies but those who understand it, a dwindling minority, can refute same with it without much trouble. Ha, as if....
The average American will never 'get it' but they do know when they are being scammed...
Eventually.
'When you see a rattlesnake poised to strike, you do not wait until he has struck to crush him.'
since when is the Chicago School
Classical economics? Paul Samuelson is the current Godfather of classical economics and well, frankly he's not wrong and he's also not a member of the Chicago school.
Point taken...
....the Chicago School does base it's tailored for the rich 'theories' on classical economics however.
Without arguing the absolute position of Mr. Samuelson as Godfather his magnum opus Foundations of Economic Analysis is based on classical thermodynamic theory, at least so sez Wikipedia, so 'classical economists' are still working with math from the 1800s. Math that physicists and mathematicians abandoned around 1910 when Einstein and others realized that the universe is non-linear and not continuous. This makes quite a difference in your modeling of what could happen.
I still submit that our policy makers are listening to folks who have no idea what they are talking about. Always been plenty of folks around like that but it would be helpful if such as Summers and Rubin gave some indication that they understand something of modern economic theory.
Too busy grooming themselves that high-paying slot with Goldmand Sachs I suppose.
'When you see a rattlesnake poised to strike, you do not wait until he has struck to crush him.'
This is kind of fun
I'm guess I'm the official naysayer on behavioral economics. But then, I started out as a psychology major....
and dropped out due to the doo doo of it.
Use of statiticial models, probability models, I mean we just had I think a $65 trillion dollar derivatives market build on stupid models and unfortunately the people overviewing it don't know enough about systems to test all abhorrent boundary conditions in all possible multivariate scenarios. I think some group of PhDs from Stanford lost billions on something similar in the 80's. The thing they always forget is guaranteeing a stable system in abhorrent conditions. But today's computational power is capable of testing all models in simulators to see if they "blow up" and so well, who knows what went on, they are not transparent even to people who can track on their math.
So, I still vote for bad math vs. bad brains.
But on your point there is a host of people advising the President who have no idea of what they are talking about, on this point, I believe it's true!
I feel the people who do know what they are talking about, they get to testify in hearings before Congress and all of their recommendations, their data, their research is then promptly ignored!
I think they should take mandatory attendance for all of Congress at some of these hearings AND rap them with a ruler if they are not paying attention.
Kind of like Kindergarten.
John Meriwether has struck out three times
and lost billions of dollars and yet he's still a fracking multi-millionaire. Dude, where's my justice?
I'll bet 100 years from now, economists will look back at Black-Scholes and chuckle in derision - "What were they thinking?!"
But seriously, what strikes me is that a lot of the derivatives that have blown up in the last two years have been traced back to a lot of people who were at Drexel Burnham Lambert when Michael Milkin was refining the LBOs looting of industrial companies. Just think - if we had actually held everyone at the firm responsible, not just Milkin, and put their asses in jail, and firmly established the principle that the financial system should be subservient to the real economy, we probably would not have had a financial collapse and economic crisis to deal with.
Well, OK, I guess it would make a good novel, at least.
Morality
The basis of morality is the unique worth of human life. That which supports and improves human life is good.
Economics is very simply how a society organizes itself to gather, process, produce, and distribute the material and immaterial goods and services required to sustain and reproduce human life. That is the basis for all economic systems. Whatever flavor of mathematics you choose to try and understand the economy with, must, in the final analysis, always be judged by whether it helps or hinders the the basic task of sustaining and reproducing human life.
That's why, though I was not a mathematician or trained economist - in fact had never heard of Pareto until a few years ago - I was arguing 25 years ago that the United States was committing economic suicide by allowing the use of financial derivatives.
The biggest problem with professional economists is that they have forgotten this simple truth about what an economy is all about.
I agree
And that's why I'm more of a distributionist- Thanks to the way human beings evolved, in small tribes for the grand majority of our history, economics simply works better in small communities- where the producer, retailer, and consumer all have to deal with each other in external-to-business social situations. This increases the risk of cheating and excessive hoarding, and thus reduces those behaviors.
Piling up control over production into centralized anonymous markets simply doesn't work- no better than piling up control over production into centralized anonymous governments. Instead we need DECENTRALIZATION to bring the human element back into focus- goods produced as close to the end consumer as possible. Globalization should be for the internet- communicating plans and blueprints to faraway plants.
I've gotten busy at work over the next week- so I'll be posting a lot less. But I had to put this in. Any other Chesterton/Dorthy Day fans out there in EP land?
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Maximum jobs, not maximum profits.
U.S. Government statistics
Actually, the problems go back to Reagan, Bush, and Clinton. I wrote this back in November 2007 and posted it in a comment on DailyKos:
Back in the late 1980s early 1990s, when I was a (poorly) paid economics correspondent (one of the first to write about the dangers of derivatives, by the way), I was a constant and regular user of government statistics, and also statistics from the various industry trade associations in the U.S. This is a brief summary of what I learned about government statistics and statistics keeping back then.
The U.S. Department of Commerce and its Bureau of the Census used to do a fair job tracking the real economy back in the 1950s through 1980s, until Reagan took office and the first wave of privatization was begun. Economic statistics, at that time, were much more than just the Gross Domestic Product. You used to be able to get what were called Current Industrial Reports for such things as Inventories of Steel Producing Mills, Iron and Steel Castings, Knit Fabric Production, and so on. All these Current Industrial Reports were quarterly, and many of the important indicators of basic economic activity, such as cement production, or iron and steel production, were monthly. Most of these Current Industrial Reports have been discontinued, including the first three I mentioned. . Just go through this list and see how many Current Industrial Reports have been discontinued – and for which industries.
http://www.census.gov/cir/www/alpha.html
Why is this important? Because the best econometric models of the time used hundreds of inputs such as these to track the economy. These econometric models are probably the best that have ever been developed, but now they probably don’t function very well, because the raw statistics are simply no longer available. So now the Bush administration can claim that GDP grew by 3.8 percent, and that inflation was a feeble three percent or so, and who can gainsay the numbers? The numbers are no longer available – unless you’re willing to pay the private firms and the trade associations that have taken over. Today -- and I’ve been looking the past few months, since it seems I’m about the only moron on the planet who has some ideas about these things AND is willing to share it on the blogosphere without any remuneration whatsoever -- you can still get most of the trade association reports, but they are all several hundred dollars.
The Commerce Dept. used to put out an annual tome called The U.S. Industrial Outlook. The contents were pretty much broken down along the lines of the list of Current Industrial Reports I linked to above. Each separate chapter pulled together all the statistics for that particular industry, provided a summary of the past years’ developments in that industry, and listed the sources of information for that industry, including the address and phone number of the Commerce Dept. specialist that wrote that chapter. I used to call those specialists for my economics news articles, and they were founts of information. They were national treasures. And they were all being slowly removed through attrition. The first time I really became aware of the insidiousness of the Reagan assault was when I called the specialist on power generating equipment – the turbines and boilers and pressure vessels that go into electric power generating plants. After getting the industry information I needed for an article, he mentioned he would be retiring at the end of the year. Assuming that he had been given an assistant that he was training to replace him, I asked for the name. There was no name. There was no assistant. There would be no replacement. When this specialist retired, the U.S. government – our government, your and my government – would no longer be following what happened in the power generating equipment industry.
Think about that for a minute. Have you experienced brown-outs or black outs the past few years? Well, our government has not kept tabs on the one industry vital to rebuilding the electric power generating industry for the past twenty plus years. How can intelligent policy be made if the government is not keeping track of such a vital industry? Well, duhhhh… And this is just ONE example of dozens. You really need to go through that list of Current Industrial Reports and see what is no longer being tracked.
http://www.census.gov/cir/www/alpha.html
This dearth of real economic statistics helped facilitate the transformation of the U.S. economy from industrial capitalism to financial capitalism. How could anyone protest the wrecking of the manufacturing economy, if essential facts and statistics were no longer freely available to the public?
These trends were not reversed nor even slowed down by the Clinton administration.
At the time I was writing, there was a very careful, deliberate debate going on within the U.S. Labor Department about the labor statistics. There are two sets, one based on surveys of work places, and the other based on surveys of households. I dimly recall that the latter has a sample universe of around 60,000. It was recognized that there were serious shortcomings with the surveys, and with the models used to transform the survey results into accurate and trust worthy snapshots of the entire national labor force. My assessment is that at the time, the people involved were very concerned and dedicated to getting the best data, models, and analysis possible. But, they were slowly but surely leaving, and without being replaced. And that was 15 years ago and more.
By the way, there is something out there that appears to be the successor to the U.S. Industrial Outlook. I think it’s called the U.S. Trade Outlook. It is compiled, published, and distributed by a private company, and costs, if I recall (I was looking at it – or the ads, actually – online about six months ago) $285 or some other amount that scares me off.
About the only thing left in the U.S. now that I think is worth looking at (unless you have a few thousand dollars to buy all the private reports) is the annual industry assessments done by the U.S. Industrial College of the Armed Forces. These are online available one year after publication here: http://www.ndu.edu/icaf/industry/reports.htm
One other thing I would like to note. The U.S. government used to have all sorts of documents and studies on various manufacturing industries. I remember getting one on gear cutting and making. They were excellent. A lot of these came from the Office of Technology Assessment, which was abolished during Clinton’s tenure. There also used to be lots of private studies and assessments of various manufacturing industries available from trade associations, and a host of companies. From what I’ve seen that past year or so looking for them, they no longer exist. But the really interesting thing to note is that there are now a lot of them available for various manufacturing industries in India. For example, check out this link.
http://www.bharatbook.com/general/aboutus.asp
It isn't called the "Dismal Science" for nothing
It's Dismal because its no longer a science - it's politics. There is no longer any search for the truth in the field of economics, just for promotion and profit.
As you can tell, I no longer have any respect for any economist alive today. I no longer have any respect for the schools of economics. They've deteriorated to a sad joke.
sad joke, U.S. higher education
Here's one that never makes the press. One of the best assets the United States has is it's university system. Globally, the U.S. completely dominates the best schools in the world.
Yet, they are pushing some globalization agenda and accepting undergraduate degrees that just do not compare in the level of depth and time that a U.S. degree does. So, while the U.S. BS/BA must have a very high GPA, in walks someone with a BSc which can be trade school to say 90 credit hours and not nearly in depth, yet enter our best universities. The reject rates for both undergraduate and graduate school are sky high, yet this is going on.
Then, graduate school, due to wanting below poverty level graduate teaching assistants and especially Post Docs, who perform research, it turning into a political cess pool.
In other words, higher education is projected to be a larger profit market than financial services and seemingly our universities, instead of primarily focusing in on the United States and enhancing the United States seem to be moving into the business of peddling paper called degrees....to increase their coffers.
this is a horrific trend.
The reason why.....
...is because most people in the field of economics don't thinkn they did anything wrong, it was the government, or the people, or a "few bad apples" that failed, NOT their theories. Hell, looking at the WSJ editorial pages in Sept./Oct./Nov. they were saying that the crisis was the result of OVERREGUALTION.
The field of economics is atrophied. Most economists are peddlers of right-wing, pseudo-libertarian ideology passing itself off as social science. They are so enamored with their highly mathematical models that show the world THEY WANT, that they FAIL to reflect the world as it REALLY is. Most economists today are baffled as to what is happening with our economy today, after all, tax cuts and deregulation should have been the panacea for us all. And most economists have absolutley no clue as to how to handle the current situation, they are ideologically ill-equipped to even understand the problems.
Of course, I am biased. I am an economics grad school dropout ;-).
"....under Capitalism, man oppresses man. Under Communism it's just the opposite..."
---John Kenneth Galbraith
"....under Capitalism, man exploits man. Under Communism it's just the opposite..."
---John Kenneth Galbraith
amusing post
But these people, their math has to be bad because deregulation and unfettered markets will, by the theory, create social injustice, bubbles, more extreme cycles. It's also from historical data.
Welcome to EP, I love your last line.
Gotta say....
...you knocked it out of the park with this one.
'When you see a rattlesnake poised to strike, you do not wait until he has struck to crush him.'
Who'd believe these guys?
If they knew their collective ass from a hole in the ground, they'd have met at the St. Francis.
Economic theory is non-falsifiable
There can never be any set of data that can "disprove" neoclassical economic theory. The data is merely shoved into the black hole of hindsight called "revealed preferences."
Since all data, no matter what it shows, is "consistent" with neoclassical economic theory, economists with a vested ideological interest in the correctness of the theory, will not admit that their precious theoretical Emperor has no clothes.
where do you get this?
and maybe some definitions and assumptions are off.
I'll take Paul Samuelson's paper on offshore outsourcing. He proves, with mathetmatics that indeed offshore outsourcing can be very much not a win-win and instead a case of global labor arbitrage. It's pure mathematics and with mathematics, he proves how Bhagwati is simply incorrect. If one reads Bhagwati, he does set a series of assumptions that are inaccurate.
Buamol & Gomory, from free trade models, also proves that trade is not a "win-win" and can be a huge "lose" especially for an advanced economy depending upon how it is implemented. There again, it's pure mathematics on how they proved this.
Labor Economist Borjas proves that (surprise, surprise), massive influxes of workers from Post Docs to unskilled, will lower wages in a Domestic Economy.
Andrew Card's paper is a joke, he tries to take one anomaly and extrapolate that as somehow defying the laws of supply and demand. He misses the Miami situation completely, ignores the reality that 80% of all new real estate (which generated a lot of jobs) during the 80's was funded by drug money. He ignored a multibillion dollar local economy completely as if somehow underground economies are not real, which very obviously from S. Florida in the 1980's, they are damn real.
So, let's see some concrete examples at this point on what the rub is.
Most of the papers I've seen, using mathematics to claim some effect one knows is not visible I always find gaping assumptions that are incorrect as well as incorrect mathematics.
Give me a paper that is online that is saying neoclassical economics itself is full of it vs. the author or economist is full of it and proving it with some data.
About non-falsiability:
From http://www.answers.com/topic/falsifiability , for example:
Under this criteria, neoclassical economic theory is a pseudo-science.
What data would make the assumptions..
... of, e.g., rational behavior, false?
As in, "if the data shows the following:
1.
2.
3.
then the assumption of rational behavior is untrue."
Unless you can fill in the lines, 1-3, then neoclassical economics is non-falsifiable and therefore is not a scientific theory.
who are you talking to and what are you talking about?
There is no "rational behavior" input as far as I am aware in data models, it's historical data, statistics, aggregate indicators. Where is the neoclassical model specifically mentioning "rational behavior" in it's modeling as a set of assumptions or "inputs" into their system models?
Not trying to be a bee, just need specifics here.
Where? How about ...
Here, for example: http://www.answers.com/topic/neoclassical-economics
or here: http://www.econlib.org/library/Enc1/NeoclassicalEconomics.html
and?
firstly that is absurdly broad, but secondly, the assumptions are rationale behavior which is clearly undefined, so to define rational behavior one must go to the historical data to verify a model.
Also, rational behavior is yet another aspect of behavioral psychology, they too try to predict behavior, successfully and not so successfully.
So, what is the problem here? When a model has historical precedence, has been proven over time then it is probably accurate. Changes in models, say for example, technological advances which enable services to be done over the Internet, thus creating some pretty fuzzy lines on domestic labor supplies or global supply chains which still use antiquated GDP models and attribute domestic growth incorrectly....well, they need to be changed.
But none of these vague definitions to me imply in the least that classical economic theory is wrong and it doesn't imply that one should throw out mathematical modeling with some sort of behavioral anything, more one is zeroing in on one input data stream, i.e. what is rational?
and there again, behavioral psychology is also full of holes with their models.
Let's take Karl Marx. Hey all sounds great in theory except the model assumptions that man is somehow this social beast creature like a bee, who would sacrifice the individual for the good of the collective. Oops, how altruistic and how dead wrong can one be. But that model does not prove solid throughout time and the history of mankind either.
Do you have a contrary definition?
You've asked for support for my position. I've given it to you, and it wouldn't be difficult to call up lots more where that came from.
Where is the support for your position that neoclassical economics does not make the assumption of rationality? Where is the support for your (apparent) position that economics does not have non-falsifiable assumptions about behavior?
The difference between psychology and economics, aside from reliance upon hypotheses and experimentation, is that (with the exception of BF Skinner) no psychologist has ever attempted to run - and ruin - soiciety. THAT particular accomplishment belongs to neoclassical economic theory.
rationality
that's missing my point. Defining what is rational is an addendum to neoclassical theory, not a replacement. That is my argument. My argument is saying that these are systems, so the model is the system, whereas the assumptions are the "inputs". Garbage in equals garbage out. But the fact the "inputs" or "assumptions of what is rational" are garbage does not mean the system itself, the model itself is garbage, it means the assumptions are garbage.
I'm also saying that behavior psychology also has serious problems with it's theories. For example, in a time varying, multivariate, nonlinear system, one cannot assume limited inputs or assume a direct correlation of a set of limited inputs due to the unknowns and interactions in "real world" settings where those variables and derivations cannot be reproduced in a controlled setting.
i.e. salivating dog + bell. In the real world there are additional factors which can cause the dog to salivate and do not necessarily equate to reinforcement behavior for it is not a controlled limited environment.
I would also claim that over time, with statical aggregate modeling of what is rational plus accommodating within these statistical norms for time variance, cultural variance, that there is a convergence point of boundary conditions which again will validate a time-invariant mathematical model. I'd have to go read on this to validate, but there are certain truths which probably will validate neoclassical economic models across cultures, conditions and time, taking into account an accurate modeling of the assumptions.
So, basically the models, if proven over time, with statistical data are reasonably accurate but if one starts with bad assumptions, i.e. defining their inputs on rationality and builds a model from those assumptions and that model doesn't correlate to historical data, deviates, then the model itself is bad.
If one has a model and the inputs have changed then if correctly analyzed in depth, that model can be proved to be reasonably correct.
Case in point is supply/demand curves. One can get anomalies but if one looks at the inputs one might be able to therefore adjust the curves, by the model that incorporate those input or rational behavior assumptions which give the anomaly results when those assumptions or data isn't taken as inputs into the model.
i.e. the supply/demand curve theory is fundamentally correct.
For limited supply and limited demand, yes
The supply/demand curve even has assumptions- an assumption of scarcity on both sides, that neither side is infinite.
Or rather, that neither side is essentially infinite in comparison to the other side.
A good example of the supply/demand curve breaking down right now is in shipping rates. Demand has fallen off a cliff, supply is essentially infinite in comparison to demand, so some rates are going to zero- or even negative.
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Maximum jobs, not maximum profits.
shipping rates prove supply/demand curves
they are still valid, one can have a delta function in a supply/demand "curve". If anything it proves the model of supply/demand curves.
Ok we're getting closer to agreement
As Brad DeLong says, "equilibrium plus maximization is a pretty cool way to look at things." I agree with that. It is a very useful tool.
I also agree that, w/r/t using that tool, "garbage in, garbage out" applies.
Where I still part company is that (1) in certain ways people systemically behave in "irrational" ways (and stock and real estate bubbles are economic behaviors in which that has been thoroughly manifested), and (2) just because the data may aggregate towards an average, doesn't mean we shouldn't pay close attention to the variances. As the old saying goes, the average of too hot and too cold is, just right. That in the aggregate in many circumstances millions of people may behave "rationally" does not mean that we shouldn't play close attention to the spread. In fact, the spread may have everything to do with the pre-existing wealth of the actors.
And both of those points are extremely important in framing public policy, as opposed to the "public choice theory" so beloved of Chicago School types.
variance
oh hell yeah. Case in point is trade theory. It's just unbelievable that so many of these corporate religious pundits called economists completely ignore the assumptions in Ricardo's model. Stuff like the work force is domestic, static, completely immobile.
So, they do not look at even this basic variance which then blows up the model and why it doesn't equal a win-win.
The whole Monetarists, Chicago School, etc. I need to go read some of the main papers but let's go rip their math apart because obviously their theories cannot hold mustard even over a 5 year time line, multiple systems. ;)
I find these people scary sometimes and wonder what the hell is being rewarded these days for a PhD. I mean this is basic undergraduate mathematics man.
My real issue is that one gets "baby with bathwater" syndrome, esp. on a layman's Populist blog. So, if one says all neoclassical economics is caca, well, a bunch of people believe it is caca, when my attitude is one needs much more accurate data, objectivity, modeling..
but that is assuredly not suggesting one goes with these bad math heads or bad models!
And those trying to spin their new religion under the guise of economics, simply to justify the latest greed, money and power grab by a precious few....
I think all of their seats in various universities need to be moved to the religious studies department.
My God, I think most of Congress cannot even add 3 digit numbers together in their heads....
;)
(just a side note, I mentioned nonlinear time variant systems, but in all honesty, in terms of economics, I don't think too many variables of of this nature, but to put in nonlinear time variant data into a linear system, which I believe most economic models are....is garbage analysis)
I'd just point out
That the models get a whole lot better with under 1000 actors than over 6 billion.
That is to say- we're pretty darn good at modeling what happens with small, isolated towns and tribes. We're downright awful at modeling entire industries, countries, and international trade.
To me, that's a darn good indicator of where rationality truly lies: in black-box programming with well defined interfaces. Or to put it in economic instead of Object Oriented terms- in small communities with well defined borders and equal, fair trade laws. Same idea, different discipline.
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Maximum jobs, not maximum profits.