One man

One man and the truth is a majority.

Milton Friedman

The end of economics, and the end of physics

Fabio Rojas, a top sociologist, believes economics is finished:

Economics, as understood for hundreds of years, has played out. The major problems of econ 101 have been solved. We know about supply and demand, marginal utility, choice under uncertainty, and budget constraints. We have a wide variety of tools, ranging from game theory to econometrics, that help us identify these processes in situations ranging from war, to car sales, to dating. We are also seeing how these processes plug into classic macroeconomic issues, such as growth and international trade.

However, the market system itself, as indicated by Tim’s concluding chapter, depends on population, innovation, and liberal economic institutions. These, in turn, depend on psychology, group culture, and networks, the domain of sociologists, psychologists, historians, and anthropologists. Economists have shown how the market system processes the inputs, but there’s still much, much more to be said about where the inputs come from. That’s what’s going to be exciting in the decades to come, and I can’t wait to see it.

Datacharmer, an occasionally tactless economist, says no way. Exhibit A is this quote by Albert Abraham Michelson, circa 1903:

The most important fundamental laws and facts of physical science have all been discovered, and these are now so firmly established that the possibility of their ever being supplemented in consequence of new discoveries is exceedingly remote.

Exhibit B is less sensationalist, and more to the point. Stay tuned, it will appear here tomorrow.

Credible commitment

This landed on my inbox today. I doubt the incident ever took place, but does it really matter?

The following is the transcript of an actual radio conversation in October 1995, between a US Navy ship and the British authorities off the north coast of Scotland. The transcript was released by the MoD on the 10/10/95.

BRITISH: Please divert your course 15 degrees to the South. To avoid collision.

US Navy: Recommend you divert YOUR course 15 degrees to the North to avoid collision

BRITISH: Negative. You will have to divert your course 15 degrees to the South to avoid collision.

US Navy: This is the Captain of US Navy ship. I say again, divert YOUR course.

BRITISH: Negative I say again divert your course.

US Navy: THIS IS THE AIRCRAFT CARRIER 'USS LINCOLN' THE SECOND LARGEST SHIP IN THE UNITED STATES' ATLANTIC FLEET. WE ARE ACCOMPANIED BY THREE DESTROYERS, THREE CRUISERS AND NUMEROUS SUPPORT VESSELS. DEMAND THAT YOU CHANGE YOUR COURSE 15 DEGREES NORTH, THAT'S 15 DEGREES NORTH, OR COUNTER MEASURES WILL BE UNDERTAKEN TO ENSURE THE SAFETY OF THIS SHIP.

BRITISH: We are a lighthouse. F*** off.

The History of Economic Thought, cont.

If you enjoyed the previous post and would like to further extend your knowledge, here is an excellent resource. And if you suffer from attention deficit disorder and want people to get to the point without waffling about, try this excellent paper:

This paper tells you everything you need to know in order to impress your friends with your knowledge of the most famous people and the useful past of the subject of economics. It collects all the useful past possessed by the subject into one convenient, and therefore easy to plagiarise, source.

With thanks to Netsmith and Gabriel.

The History of Economic Thought in 10 easy steps

I recently tasked myself to produce a brief history of economic thought in 10 points and in 4 minutes (writing time). Here it is:

1. The ancient Greeks: Didn’t really do much, but they did try to think systematically about things, so we do have some microeconomic insights
2. St. Thomas Aquinas: Well, there wasn’t much thinking on anything in the Middle Ages, and this guy at least did some – making sure he framed it in Church-friendly terms too. Didn’t really say much either, but he did have a crack at the ‘fair price’ as well as why usury is bad, so we include him in books on history of economic thought
3. The Mercantilists: They said that exports are good, imports are bad. What idiots!
4. Adam Smith: What a nice bloke. Economics as we know it starts here. Hume was a good buddy of his, include him too for good measure.
5. Ricardo: Even nicer bloke. Did actual analysis. Comparative advantage, what a fantastic insight. He was also the first person to hold a chair of ‘political economy’ at university, at UCL. (Smith etc held chairs in ‘moral philosophy’ and other stupid sounding subjects)
6. Marx: Yes, he was an economist too. Not a particularly good one though. His theories generally have little basis to reality. His equations look funny too (but he had some equations, so he needs to get credit for that).
7. The Austrians: Government is bad, long live the market! These guys are still going today. I particularly like Boehm-Bawerk (can’t do the uemlauts, sorry), not least because his name sounds so cool
8. Modern economics: they pretty much start with Marshall. Pigou, Walras and several other guys also get honourable mentions. At the same time, important advances in statistics, but nothing to do with economics yet, so they are not covered. Knight, a very objectionable individual (he was fascist, racist etc) does some amazing work on statistics, and brings a lot of it to economics. Hypothesis testing and econometrics is born.
9. Keynes: Economists are allowed to give economic advice! The ‘profession’ is born. Macroeconomics too.
10. Post-war period. Rise of monetarism, rise of empirical economics (econometrics).. Economics turns mathematical and it becomes more than ‘political economy’ where moral philosophy plays a major role. Too many thinkers (Milton Friedman has to be mentioned), but this is the subject of a 'current economic thought' module.

Also: A lot of the old texts (Adam Smith, whatever we have from Ricardo etc etc) are available at Project Gutenberg. My favourite piece of 'old' economics, preceding Adam Smith by some 50 years, is this.

I know the list has ommissions (comments are open). A loyal reader has already mentioned Von Neumann and co., and another points to RBC theory.

There were also some contributions as to the future of economics. Forrest predicts that 'it will be the full systemisation of bounded rationality, with general theories of modelling cognitive biases' (an excellent suggestion if you ask me). And this prediction by another past contributor to Bluematter. is worthy of consideration too:

11. And in the future we have everyone caring about happiness. Hurrah! GDP maximisation gets killed by happiness maximisation, which means shorter working hours, learning to like family life, a reduction in ASBO-worthy behaviour, the rebirth of morality and being polite, plus better television.
11b. And if 11 doesn’t work, economics will advise the medical profession to develop soma-like drugs and we can all live in Aldous Huxley’s brave new world.

Alfred Marshall

In a letter to his protégée, A.C. Pigou, he laid out the following system: "(1) Use mathematics as shorthand language, rather than as an engine of inquiry. (2) Keep to them till you have done. (3) Translate into English. (4) Then illustrate by examples that are important in real life (5) Burn the mathematics. (6) If you can’t succeed in 4, burn 3. This I do often."

Here is more. While I can think of cases where the old master's advice applies, I disagree with everything other than 3 (and 4 in some cases).

You can't get more politically incorrect if you try

Israel's deputy defence minister has said Israel will have "no choice" but to invade Gaza if Palestinian militants step up rocket attacks.

Matan Vilnai said Palestinians risked a "shoah", the Hebrew word for a big disaster - and for the Nazi Holocaust.

"We're getting close to using our full strength. Until now, we've used a small percentage of the army's power because of the nature of the territory," he added.

From BBC News. And the follow-up:

[...] many of Mr Vilnai's colleagues have quickly distanced themselves from his comments and also tried to downplay, them saying he did not mean genocide.