Futuristic Economics

In this lecture, we will mainly explore the question of how economists know what it is they know.

First, for reference, we have the following dictionary definitions:

Science: Knowledge gained through experience; Observation, identification, description, experimental investigation, and theoretical explanation of phenomena. (Root: Latin, scientia, knowledge.)
Phenomenon: A fact perceptible by the senses.
Experiment: A test made to demonstrate a known truth.
Empirical: Based on observation or experiment.

Philosophy: The study of the fundamental nature of knowledge, reality, and existence, especially when considered as an academic discipline.
Metaphysics: The branch of philosophy that treats of first principles.
Ontology: The branch of metaphysics dealing with the nature of being. It addresses the question of what kinds of things exist.
Epistemology: The theory of knowledge, especially with regard to its methods, validity, and scope. Epistemology is the investigation of what distinguishes justified belief from opinion.

Religion: A cause or activity pursued with zeal or devotion.
Logic: The study of the principles of reasoning.
Art: Discipline that does not rely on the scientific method; creative or imaginative activity.

Second, some “tickler” questions, for which we will not necessarily have an answer:

What is thought or thinking? If it is defined as “mental activity,” where does this activity take place? If it takes place in the brain, can animals with brains think? What about plants? Can they think?
Can a machine think? Can it learn? For example, Facebook and Google collect data about how their users behave. Do the algorithms inside the servers of Facebook “think”?

Okay. Let’s get down to some business for today.

It is well settled that economics is a science. Because economics is a science, we might get excited over how economists gain their knowledge. We ask: What is the scientific method of economics? Is it the same as the scientific method used by physicists? Chemists? Biologists? Sociologists? Psychologists?

Mainstream economics today has taken the physics approach for the purpose of deciding the scientific method of economics. We try to reduce what we study in economics to what we might call its “atoms” – the individual consumer, the firm, government – and theorize about how these atomistic units behave. Is this correct? I do not know the answer, but I can tell you that this approach has not produced much progress, intellectually speaking, from the time of Adam Smith to today. It is a record of a lot of common sense, and a few great insights once in a while (and I suspect we can count these insights with our fingers). Still, this is what we have for the most part, and we will study this record in this class on the history of economic thought. In short, we will focus, as Backhouse does to some extent, on how we got to where we are today, from where the earlier economists had started.

One school of thought [McCloskey, reference?] considers that economics cannot be treated the same as the “hard” sciences, such as physics or chemistry The reasoning seems to be based on at least two ideas. One is that humans are more difficult to predict than atoms. The other idea is that the essence of economics as an academic discipline involves human conversation. You have to talk to someone before you can trade a pen for a cell phone, for example. And the act of communication involves costs, and if we are being “economic,” we would want to minimize such transaction costs. The discovery of cost is itself a form of knowledge acquisition, which of course has its cost! So, on the cost or supply side of economics, there is always this thing called cost. On the demand side, we have value or utility or welfare concepts, which ultimately involve the concept of “opportunity cost.” In the end, we can also say that economics is about the question: “What does it cost?” And the answer to that question is not arrived at by the methods of laboratory experiments, precise measurements (as used in astronomy, for example), and disinterested observation (when we observe ourselves and others, we use introspection, and I suggest that introspection can never be disinterested). The answer comes from what humans tell each other, or through their revealed preference in markets.

But where does the idea that “economics is conversation” lead? McCloskey seems to say that we should embrace more fully the practice of careful historical observation, which mainstream economics ignores by simply working with “data” that can be fed into econometric models. (The mainstream economist behaves like some kind of Wizard of Scientific Oz, manipulating data from experiments to arrive at some kind of “findings” worth publishing in the academic literature.) Another suggestion from McCloskey is that we should read human writings that stand the test of time (“literature”) as evidence of economics.

There is furthermore a hint in this line of thinking that the models of mainstream economics are “too simple” to produce good science (whatever that is), but in my view, the problem here is that we still don’t know how to make the models less simple and also better, especially along the guideline derived from Occam’s Razor [reference or footnote to explain Occam’s Razor]. Perhaps if we continue to talk to each other, instead of using statistics and econometrics to torture the data to yield some kind of economic story, something really new might arise, and through conversation and empirical testing, we might for the most part agree that this something new is a breakthrough in economics. In short, McCloskey believes that careful historical observation combined with an “out of the box” approach to theory would yield a more fruitful economics.

I have my own theory, based on Darwin’s theory of evolution. I imagine that in the far future, humans will evolve into super-humans. Such evolution involves new thinking, including about economics, that deals with what we call “the economic problem” better than the solutions we have today. But we don’t know what this new thinking is, and we have no idea what super-humans are like. Maybe they look like the aliens we imagine to inhabit outer space. Or, maybe they look more like ghosts in the wind! It is also hard to imagine what “society” would be like in the far future. Would the super-humans dominate humans the way humans dominate the planet today? What will happen to human rights? Will there be animal and plant rights? Will the earth self-destruct because of global warming? And if such an explosion became foreseeable, can the super-humans create a “just right” planet using methods still to be discovered?

But there is a progression in recorded human history that we can already observe. If we construct GDP per capita estimates going back to ancient history, we can conclude that man has become wealthier. The usual story is that the middle class lifestyle today is what only the royalty had in the ancient times. In other words, the scarcity question with respect to “basic” survival goods – food, clothing, shelter – could be a non-question relatively soon. This makes a lot of technology-bashers (known as Luddites) worry that economic progress will cause people to lose their jobs to robots and machines. We will all starve, except for those who own the robots, and there would be no limit to economic inequality. Their solution: Stop the invention of robots and machines. Stop thinking. Stay where we are, but take from the rich and give to the poor. No to climate change. No to environmental degradation, etc. If you disagree, can you suggest how this question might be settled using today’s economics?

Here’s a link to a pdf version of this lecture.

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