Covered in Bees dot Org - economists

Platonomics

dan — Thu, 05 Jul 2007 05:55:26 +0100

Economics is spectacularly Platonic, I've realised. Kind of obvious, but never really grasped it fully before. There's a perfect, Platonic economy out there that the theory describes in pristine mathematical perfection - and its the job of the world to strive to touch it.

The production possibility frontier is a prime example. Imagine a simple economy that can make only cars or jam sandwiches. Picture a perfectly Platonic production possibility frontier between 'everyone makes jam sandwiches as much as possible' and 'everyone makes cars'. The Platonic economy can lie anywhere along that line (with e.g. a 50/50 car and sandwich economy) and can't get past it without some change in car or jam-sandwich technology (or maybe genetically engineering better car / jam-sandwich workers). But if it falls into the vast space behind the line, it's inefficient and should be ashamed of itself for letting everyone down.

Bloody defeatist...

dan — Wed, 20 Jun 2007 20:38:26 +0100

...
From David Friedman, Hidden Order, p. 147 & 166

So far in this book, I have almost entirely ignored an important feature of human interaction and many markets â€“ bargaining, threats, bluffs, the whole gamut of strategic behaviour. That is one of the reasons why much of economic theory is such a bloodless abstraction. We are used to seeing human society as a clash of wills, whether in the boardroom, on the battlefield, or in our favourite soap opera. Economics presents it instead in terms of solitary individuals or small teams of producers, each calmly maximising against an essentially non-human environment, an opportunity set rather than a population of self-willed human beings.

There is a reason for doing economics this way. The analysis of strategic behaviour is an extraordinarily difficult problem. John von Neumann, arguably one of the smartest men of this century, created a whole new branch of mathematics in the process of failing to solve it. The work of his successors, while often ingenious and mathematically sophisticated, has not brought us much closer to being able to say what people will or should do in such situations. Seen from one side, what is striking about price theory is the unrealistic picture it presents of the world around us. Seen from the other, one of its most impressive accomplishments is to explain a considerable part of what is going on in real markets while avoiding, with considerable ingenuity, any situation involving strategic behaviour.

â€¦

I hope I have convinced you that game theory is a fascinating maze. It is also, in my judgement, one that sensible people avoid when possible. There are too many ways to go, too many problems that have either no solution or an infinite number of them. Game theory is a great deal of funâ€¦ but as a way of doing economics it is a desperation measure, to be employed only when all easier alternatives fail.

Many mathematical economists would disagree with that conclusion. If one of them were writing this book, he would assure you that only game theory holds any real hope of introducing adequate mathematical rigour to economics, that everything else is a tangle of approximations and hand waving. He might concede that game theory has not produced much useful economics yet, but he will assure you that if you give him enough time wonderful things will happen.

He may be right. As you have probably gathered by now, I have a high opinion of John von Neumann. When picking problems to work on, ones that defeated him go at the bottom of my list.

art = money // sex = pornography // friendship = advantage // liberty = shopping

dan — Thu, 22 Feb 2007 14:15:01 +0000

Economists should take credit for the deteriorating quality of existence. For it is their philistine notions of personal and national welfare that have helped to ruin the natural world; confused technology with culture; reduced art to money, time to interest, sexual relations to pornography, friendship to advantage, and liberty to shopping, and wasted whole generations who, because they have only been taught to think in categories of money, have, in Schopenhauer's phrase, 'missed the purpose of existence'."

From Diane Coyle's article at Opendemocracy, where she argues why Buchan is wrong.