Wednesday, October 31, 2007

Which Side Are You On, Bob?

"My impression is that the best and brightest in the profession proceed as if economics is the physics of society. There is a single universally valid model of the world. It only needs to be applied. You could drop a modern economist from a time machine - a helicopter, maybe, like the one that drops the money - at any time, in any place, along with his or her personal computer; he or she could set up in business without even bothering to ask what time and which place. In a little while, the up-to-date economist will have maximized a familiar-looking present-value integral, made a few familiar log-linear approximations, and run the obligatory familiar regression. The familiar coefficients will be poorly determined, but about one-twentieth of them will be significant at the 5 percent level, and the other nineteen do not have to be published. With a little judicious selection here and there, it will turn out that the data are just barely consistent with your thesis advisor's hypothesis that money is neutral (or nonneutral, take your choice) everywhere and always, modulo an information asymmetry, any old information asymmetry, don't worry, you'll think of one." -- Robert M. Solow (1985). "Economic History and Economics", American Economic Review, V. 75, N. 2 (May): 328-331

2 comments:

Gabriel M. said...

You're reading too much into it. There is always going to be careerism and bad research, even if the heirs of Sraffa or Marx or Mises come to power.

That being said, economics is the physics of society.

Anonymous said...

Economics the physics of society?! Hah! It's not even the kindergarten arithmetic of society.

It's not only that mainstream economists typically lack any understanding of cultural or historical or national or any other sociological factors relevant to economic decision-making, they even lack understanding of all the ECONOMIC forces relevant to decision-making.

They persist, for example, in thinking that the abstractions known as commodities actually exist in the real-world. To the extent that any product or service is perceived by potential customers as completely substitutable with another, then some marketing manager, somewhere, is not doing his job. There are no such things as commodities.