Thread Rating:
  • 0 Vote(s) - 0 Average
  • 1
  • 2
  • 3
  • 4
  • 5

How Effective is Economic Theory?

#1
C C Offline
http://www.nationalaffairs.com/publicati...mic-theory

EXCERPT: In 1980, following a decade of high inflation and unemployment — a combination that economists had previously thought to be impossible over extended periods — The Public Interest ran a special issue titled "The Crisis in Economic Theory." Today, there is little talk of a crisis in economic theory. But in the past decade, we have experienced a financial crisis and subsequent decline in employment that also followed a path economists had previously thought to be impossible. Economists seem more confident than they did in 1980, but are they more deserving of confidence? If anything, some of the questions confronting economics should run deeper now than then.

In fact, the basic question of how economics should understand itself now demands urgent attention. Since the American Economic Association was founded in the 1880s, economists in this country have sought special status as scientifically grounded policy experts. Over the past 50 years, in particular, they have largely attained that status. Whether they deserve it is less clear. And what a scientific economics would really look like is not nearly as clear as some economists now imagine, either.

And it's not just the practice: Even the ideal of economics as a science now demands serious scrutiny. If economic theory is not in crisis, maybe it deserves to be.

[...] Kirzner is a practitioner of "Austrian" economics, which was heterodox then and remains so now. But a number of "Austrian" ideas are likely to gradually penetrate the orthodoxy, particularly the emphasis on the role of non-material factors in affecting economic phenomena.

Social scientists are inclined toward materialistic explanations. They want to explain economic phenomena on the basis of resource endowments and technical capacities. They want to explain voting behavior on the basis of demographic and economic factors. The alternative to this materialistic reductionism is to say that ideas matter. It turns out that one cannot explain the tremendous rise in economic growth in the past two centuries on the basis of capital accumulation alone. The remarkable gains in the standard of living have been mostly due to the development and application of new ideas for products and production methods.

Another non-material factor is cultural norms and social institutions. One cannot explain differences in wealth across countries simply on the basis of resources. It is not that South Korea is resource-rich relative to North Korea, or that Israel is resource-rich relative to its Arab neighbors. South Korea and Israel have political and cultural institutions that are friendlier toward enterprise, and that is what accounts for their relatively strong economic performance.

Economists prefer to examine people as individuals. However, individuals get their ideas mostly from other people. The world of mental phenomena is predominantly a cultural world. And these mental-cultural factors in social behavior make economics less deterministic and less individualistic than many economists would prefer it to be. Like it or not, this reduces the advantage of mathematical modeling relative to verbal reasoning.

Another reason to suppose that mathematical modeling will wane is the shifting media landscape. As of now, academic economists still must publish in journals to be successful, and these require mathematical modeling. However, in the age of the internet, the print journal is a very inefficient forum for disseminating ideas. As economists increasingly make use of other forums, including social media, this may break the lock that print journals currently hold on career prospects. That in turn could facilitate more variety in the means of expression, breaking the monopoly currently held by mathematical modeling.

Second, and very much related to the likely decline in the prominence of modeling, economists are likely also to reluctantly come to recognize that, because cultural factors matter, the simple model of the individual homo economicus has only limited applicability.

The biggest threat to the assumption of homo economicus is not alternative theories of individual psychology, such as those in behavioral economics. In fact, behavioral economics has been caught up in what in psychology is known as the "replication crisis." Rather, the need to go beyond the assumption of homo economicus will mostly arise from a recognition of the importance of culture as a determinant of behavior. Economists will need to see economic decisions as embedded in cultural circumstances. In order to understand economic phenomena, we will have to pay attention to the role of beliefs and social norms....

MORE: http://www.nationalaffairs.com/publicati...mic-theory
Reply
#2
RainbowUnicorn Offline
(Aug 9, 2017 05:43 AM)C C Wrote: http://www.nationalaffairs.com/publicati...mic-theory

EXCERPT: In 1980, following a decade of high inflation and unemployment — a combination that economists had previously thought to be impossible over extended periods — The Public Interest ran a special issue titled "The Crisis in Economic Theory." Today, there is little talk of a crisis in economic theory. But in the past decade, we have experienced a financial crisis and subsequent decline in employment that also followed a path economists had previously thought to be impossible. Economists seem more confident than they did in 1980, but are they more deserving of confidence? If anything, some of the questions confronting economics should run deeper now than then.

In fact, the basic question of how economics should understand itself now demands urgent attention. Since the American Economic Association was founded in the 1880s, economists in this country have sought special status as scientifically grounded policy experts. Over the past 50 years, in particular, they have largely attained that status. Whether they deserve it is less clear. And what a scientific economics would really look like is not nearly as clear as some economists now imagine, either.

And it's not just the practice: Even the ideal of economics as a science now demands serious scrutiny. If economic theory is not in crisis, maybe it deserves to be.

[...] Kirzner is a practitioner of "Austrian" economics, which was heterodox then and remains so now. But a number of "Austrian" ideas are likely to gradually penetrate the orthodoxy, particularly the emphasis on the role of non-material factors in affecting economic phenomena.

Social scientists are inclined toward materialistic explanations. They want to explain economic phenomena on the basis of resource endowments and technical capacities. They want to explain voting behavior on the basis of demographic and economic factors. The alternative to this materialistic reductionism is to say that ideas matter. It turns out that one cannot explain the tremendous rise in economic growth in the past two centuries on the basis of capital accumulation alone. The remarkable gains in the standard of living have been mostly due to the development and application of new ideas for products and production methods.

Another non-material factor is cultural norms and social institutions. One cannot explain differences in wealth across countries simply on the basis of resources. It is not that South Korea is resource-rich relative to North Korea, or that Israel is resource-rich relative to its Arab neighbors. South Korea and Israel have political and cultural institutions that are friendlier toward enterprise, and that is what accounts for their relatively strong economic performance.

Economists prefer to examine people as individuals. However, individuals get their ideas mostly from other people. The world of mental phenomena is predominantly a cultural world. And these mental-cultural factors in social behavior make economics less deterministic and less individualistic than many economists would prefer it to be. Like it or not, this reduces the advantage of mathematical modeling relative to verbal reasoning.

Another reason to suppose that mathematical modeling will wane is the shifting media landscape. As of now, academic economists still must publish in journals to be successful, and these require mathematical modeling. However, in the age of the internet, the print journal is a very inefficient forum for disseminating ideas. As economists increasingly make use of other forums, including social media, this may break the lock that print journals currently hold on career prospects. That in turn could facilitate more variety in the means of expression, breaking the monopoly currently held by mathematical modeling.

Second, and very much related to the likely decline in the prominence of modeling, economists are likely also to reluctantly come to recognize that, because cultural factors matter, the simple model of the individual homo economicus has only limited applicability.

The biggest threat to the assumption of homo economicus is not alternative theories of individual psychology, such as those in behavioral economics. In fact, behavioral economics has been caught up in what in psychology is known as the "replication crisis." Rather, the need to go beyond the assumption of homo economicus will mostly arise from a recognition of the importance of culture as a determinant of behavior. Economists will need to see economic decisions as embedded in cultural circumstances. In order to understand economic phenomena, we will have to pay attention to the role of beliefs and social norms....

MORE: http://www.nationalaffairs.com/publicati...mic-theory

Quote:Another non-material factor is cultural norms and social institutions. One cannot explain differences in wealth across countries simply on the basis of resources. It is not that South Korea is resource-rich relative to North Korea, or that Israel is resource-rich relative to its Arab neighbors. South Korea and Israel have political and cultural institutions that are friendlier toward enterprise, and that is what accounts for their relatively strong economic performance.

huh ?
just to lightly scratch the surface here.
"social institutions"
how exactly are social institutions not financially founded ?
Reply


Possibly Related Threads…
Thread Author Replies Views Last Post
  Machine learning helps rewrites Earth’s history + More effective lie-detection method C C 2 187 Jan 11, 2021 11:28 PM
Last Post: Zinjanthropos
  CPR: Not as effective in real life as on medical dramas C C 0 553 Aug 28, 2015 09:29 PM
Last Post: C C



Users browsing this thread: 1 Guest(s)