# Is economics ?

Is economics ********?

So my friend was telling me about economics and he told me it was alot of BS. I remembered taking a economics course in highschool and to be honest, the teacher didn't really seem sure as well. He said that economics can go either way. There's no right answer but all people can do is predict. He said economists predict alot but they all have different predictions. I don't have much say on this topic because i don't have the qualifications to say anything. Can anybody tell me if it is BS?

Related General Discussion News on Phys.org
talk2glenn

So my friend was telling me about economics and he told me it was alot of BS. I remembered taking a economics course in highschool and to be honest, the teacher didn't really seem sure as well. He said that economics can go either way. There's no right answer but all people can do is predict. He said economists predict alot but they all have different predictions. I don't have much say on this topic because i don't have the qualifications to say anything. Can anybody tell me if it is BS?
As far as your friend is concerned, Economics is less BS than it is irrelevant, probably like most things technical and academic.

Your friend needn't worry; the world does not depend on his understanding how it works to work. To him, things just do (there's always enough milk at the grocery store to keep him satiated enough to spout nonsense about things he clearly knows little about, for example).

Let the big kids handle the details.

Your friend needn't worry; the world does not depend on his understanding how it works to work. To him, things just do (there's always enough milk at the grocery store to keep him satiated enough to spout nonsense about things he clearly knows little about, for example).

Let the big kids handle the details.
Wow, patronising much..

Isn't the OP right, that competing schools of economics (are the current ones new classical and new Keynesian?) are contradictory on significant issues (e.g., was it the government stimulus that successfully saved Australia from recession, or would the effects of the GFC on Australia have been even milder without such action)?

As a science, economics seems to have the failing that it isn't possible to do control experiments on the real economy (too many dependent variables). But then you could say much the same for evolution theory, so I suppose that isn't necessarily a barrier to progress. I think I've heard economics criticised because the current models make assumptions such as that people are rational, which is known to be false. But that's probably no different from complaining about the idealisations employed in physics.

The single most frequent criticism of economics is growth (specifically, the ideal of optimising for growth perpetually). As far as I can tell (I have searched, does someone else know?), this argument is only repeated by those who haven't understood economics (for example, population increases and crime both enhance a common proxy measurement for growth, but most wouldn't actually prefer to have progress frozen at yesteryear's level of technology).

Ivan Seeking
Staff Emeritus
Gold Member

So my friend was telling me about economics and he told me it was alot of BS. I remembered taking a economics course in highschool and to be honest, the teacher didn't really seem sure as well. He said that economics can go either way. There's no right answer but all people can do is predict. He said economists predict alot but they all have different predictions. I don't have much say on this topic because i don't have the qualifications to say anything. Can anybody tell me if it is BS?
This is a bit like saying [or asking if] weather models are all BS. While it may be possible to understand the basic mechanisms that drive the weather, it is quite another thing to predict that it will start raining at 102 Main St., at 1:12 PM, on Thursday, in two weeks. Given that we can't make such accurate weather predictions, and given that even major weather systems can fool the computer models and modelers, does this mean that all of weather science is BS?

That being said, there used to be a wall street monkey that would pick stocks every year by throwing darts at a list of stock options. His picks were later compared to those of the leading investment firms. The monkey often won. It is one thing to understand basic mechanisms, but another to predict exactly when and where it will rain in a month, or a year.

Wow, patronising much..

As a science, economics seems to have the failing that it isn't possible to do control experiments on the real economy (too many dependent variables). But then you could say much the same for evolution theory, so I suppose that isn't necessarily a barrier to progress. I think I've heard economics criticised because the current models make assumptions such as that people are rational, which is known to be false. But that's probably no different from complaining about the idealisations employed in physics.

.
In the Austrian school, this is one of the fundamental starting tenets. Namely, that economics has to rely on rationalism, because the empiricism that most sciences are dependent on simply can't be employed in the same way to economic questions. I'm over-simplifying a bit.

http://en.wikipedia.org/wiki/Praxeology

"Like other members of the Austrian School, von Mises rejected the use of empirical observation in the study of economics, and instead, favored the use of logical analysis. He wrote that the empirical methods used in the natural sciences cannot be applied to the social sciences because the principle of induction does not apply. In essence, von Mises believed that a theory constructed to predict how humans will act (what ends they will seek) in a "complex" situation could not arise from studying how they acted in "simple" situations. Furthermore, there are limits to how much can be learned from even a "simple situation". As a criticism to empirical studies seeking to find justification in the economic action of individuals, von Mises proposed that only the human actor knows the ends toward which he acts. Observers may try to "understand" why an actor behaved in a particular way, but this reason must be inferred from a complex set of data which can only be gathered once. Reproducible experiments are not possible because both the actor and the observer have been altered by the experiment.
To counter the subjective nature of the results of historical and statistical analysis (see Methodenstreit), Mises looked at the logical structure of human action (he entitled his magnum opus Human Action).
From praxeology, Mises derived the idea that every conscious action is intended to improve a person's satisfaction. He noted that praxeology is not concerned with the individual's definition of end satisfaction, just the way he sought that satisfaction and that individual's increase of their satisfaction by removing sources of dissatisfaction or "uneasiness".
In his theory, an acting man is defined as one capable of logical thought—to be otherwise would be to make one a mere creature who simply reacts to stimuli by instinct. Similarly, an acting man must have a source of dissatisfaction which he believes can be changed, otherwise he cannot act.
Another conclusion that Mises reached was that decisions are made on an ordinal basis. That is, it is impossible to carry out more than one action at once, the conscious mind being capable of only one decision at a time—even if those decisions can be made in rapid order. Thus man will act to remove the most pressing source of dissatisfaction first and then move to the next most pressing source of dissatisfaction. Additionally, Mises dismissed the notion that subjective values could be calculated mathematically; man can not treat his values with cardinal numbers, e.g., "I prefer owning a television 2.5 times as much as owning a DVD player."
As a person satisfies his first most important goal and after that his second most important goal, then his second most important goal is always less important than his first most important goal. Thus, the satisfaction, or utility, that he derives from every further goal attained is less than that from the preceding goal. This assumes, of course, that the goals are independent, which is not always the case—for example, acquiring the television may enable one to pursue the goal of watching a documentary on biology, which may make one decide to study biology, which opens the goal of writing a research paper, and so on.
In human society, many actions will be trading activities where one person regards a possession of another person as more desirable than one of his own possessions, and the other person has a similar higher regard for his colleague's possession than he does for his own. This assertion modifies the classical economic view about exchange, which posits that individuals exchange goods and services that they both appraise as being equal in value. This subject of praxeology is known as catallactics."

Action-axiom
The action-axiom is the basis of all praxeology, and it is the basic proposition that all specimens of the species homo sapiens, the homo agens, purposefully utilize means over a period of time in order to achieved desired ends.[9] In Human Action, Mises defined “action” in the sense of the action axiom by elucidating:
Human action is purposeful behavior. Or we may say: Action is will put into operation and transformed into an agency, is aiming at ends and goals, is the ego's meaningful response to stimuli and to the conditions of its environment, is a person's conscious adjustment to the state of the universe that determines his life. Such paraphrases may clarify the definition given and prevent possible misinterpretations. But the definition itself is adequate and does not need complement of commentary.

The action axiom, as an a priori fact, is true by definition, and any attempts to disprove it are actions that result it its validation.

Ivan Seeking
Staff Emeritus
Gold Member

I think I've heard economics criticised because the current models make assumptions such as that people are rational, which is known to be false. But that's probably no different from complaining about the idealisations employed in physics.
That is a bit like saying that Energy Conservation is just an idealization. People acting rationally is fundamental to existing economic models. At least, it is my understanding that this is a basic assumption common to most economic theories.

We have also seen that:

!). Companies do not always act in their own best interest - e.g. the OTC derivatives market, exotic financing for home loans.

2). Free markets are not sufficiently self regulating; that is, we cannot allow the system to suffer the catastrophic failures needed for market corrections. Financial markets must be regulated. "Too big to fail" cannot be allowed.

3). Greater economic incentives do not always produce better results
.

Last edited:

That being said, there used to be a wall street monkey that would pick stocks every year by throwing darts at a list of stock options. His picks were later compared to those of the leading investment firms. The monkey often won. It is one thing to understand basic mechanisms, but another to predict exactly when and where it will rain in a month, or a year.
Actually, such a monkey, if it did exist, and it did do what you're saying and was more profitable, is not in violation of economic theory. Efficient market hypothesis. Still, you would've needed a human to get the monkey's picks an create an idealized portfolio (minimized expected variance for given expected return).

Not all economic models are based on ideal behaviors. Imperfections are well considered. All economists are well aware of those imperfections, and that is reason for having Keynesian. Classical economics was developed before Keynesian and is based on more ideal behavior of people than Keynesian. Different models are not contradicting each other but developed considering different behaviors.

No model is perfect but they are better than having nothing.

Ivan Seeking
Staff Emeritus
Gold Member

Actually, such a monkey, if it did exist, and it did do what you're saying and was more profitable, is not in violation of economic theory. Efficient market hypothesis. Still, you would've needed a human to get the monkey's picks an create an idealized portfolio (minimized expected variance for given expected return).
What I was referring to was in the news each year when I was a kid, but we now have a professional monkey.

Monkey Trumps Wall Street With 200 Percent Gain
Dart-Throwing Monkey Returns to Wall Street With New Picks For Year 2000
01/12/00, 9:41p

LOS ANGELES--(BUSINESS WIRE)--Jan. 12, 2000--Raven, the dart-throwing monkey with her own Web site, showed up many of Wall Street's finest with her 213 percent gain for the year.

"It's all in the wrist action," stated Raven, age six. A Web site and index have been created to monitor her performance. The Web site and the index can both be found at www.monkeydex.com.

MonkeyDex is the Internet's first index of Internet stocks picked by an actual monkey. MonkeyDex was created in January of 1999 when Raven, a six-year-old female monkey, tossed darts at a dartboard of 133 Internet-related stocks. Raven returned to Wall Street this year with a dart toss at a dartboard of 281 Internet-related stocks...
http://www.krannert.purdue.edu/faculty/rau/funny/DartThrowing.html

LOS ANGELES (CBS.MW) -- The chimpanzee won. And big. He didn't just beat all Internet and technology funds. He beat all 10,000 mutual funds. Raven the chimp is now Raven the Champ!

That's right. In the 1999 race for top performance honors, the Monkeydex -- an index of tech stocks picked with a random dart-throwing technique -- beat the best-of-the-best of all mutual funds run by America's top managers. The chimp made a monkey out of every darn "professional" money manager on Wall Street and everywhere in America...
http://www.marketwatch.com/story/paul-farrells-commentary-chimp-99-champ-makes-monkey-of-wall-street

Rationalize it away all that you wish, but I wouldn't even monkey around with an investment firm!

...that is, unless the monkey can pick one for me.

Last edited:
Ivan Seeking
Staff Emeritus
Gold Member

Not all economic models are based on ideal behaviors. Imperfections are well considered. All economists are well aware of those imperfections, and that is reason for having Keynesian. Classical economics was developed before Keynesian and is based on more ideal behavior of people than Keynesian. Different models are not contradicting each other but developed considering different behaviors.

No model is perfect but they are better than having nothing.
Herd mentality?

So my friend was telling me about economics and he told me it was alot of BS. I remembered taking a economics course in highschool and to be honest, the teacher didn't really seem sure as well. He said that economics can go either way. There's no right answer but all people can do is predict. He said economists predict alot but they all have different predictions. I don't have much say on this topic because i don't have the qualifications to say anything. Can anybody tell me if it is BS?
Simple answer, no it's not bs. But ....

Before I go on, in the interest of full disclosure I major in economics so take my response in context. Personally I don’t think economics is bs on the balance of things. As a discipline it is subject to much criticism for making bs assumptions in models, accuracy of predicts, coming up with contradictory predictions, for the use of mathematics etc. etc. Those are the main criticisms.

In this post I will try to address the criticism of the economic disciplines ability to make predictions.

Economics as a discipline has been copping a lot of flak since the GFC largely because people don't understand why economists couldn't predict it. I think this is a perfectly reasonable query to have but is invalid in any case.

Firstly, As Ivan Seeking said the fact that economists fails to make accurate predictions doesn’t invalidate the discipline.

In any case you could argue the advent of the GFC shows the discipline has been better at predicting and preventing economic catastrophes. If economists could accurately obverse the symptoms of an oncoming economic crisis then either one of two things could happen. Either action can be taken that effectively prevents the occurrence of the economic catastrophe or the economic catastrophe occurs because no action is taken/action taken is ineffective/too late to anything about it. Furthermore, if economists couldn’t observe or predict an oncoming economic crisis then the crisis occurs.

Now, the GFC has been the greatest world economic crisis since the Great Depression (GD) which occurred during the 1930’s. The US economy has suffered many economic setbacks since the GD but never of the same magnitude (including the GFC). What has occurred in the US since the GD from 1987-2007 is there has been a period of sustained economic growth punctuated periodically by short recessions (known as the Great Moderation). Give this, you could argue that the knowledge gained from the economics discipline has helped prolong this period between massive economic disruptions and when they do occur the response to alleviate the damage has been more effective (since the GFC is an order of magnitude smaller than the GD).

I admit this is a cute argument not one I necessarily think is persuasive which brings me to my third point that the social phenomena that economists study is more difficult to predict than the ones in the natural world.

I’ve only recently started my education in physics but one thing that has stood out to me that is distinctly differently my studies in economics is that physics is simpler. I don’t mean this in a derisive manner, rather an observation of a property of the subject matter each discipline deals with. In physics you have basically four forces that govern the interactions in the natural world. From those four forces physicists can derive all the theorems and relations that largely explain a lot of the natural phenomena we observe.

There is no such equivalent in the social science arena. This makes the job of explaining phenomena arising from human interaction infinitely harder to model.

So going back to the GFC, the fact is the GFC isn’t something unknown to economists. Financial crises as a subset of economic crisis have been a occurrence for centuries and there are plenty of literature on the causes/process/response to financial crises. But to actually predict and prevent one from happening? The state of knowledge of economics isn’t up to that yet. Put another way if we had that knowledge we would not have any economic crisis ever anywhere in the world.

Final point on prediction, there was in fact many people who predicted the oncoming economic crisis including prominent mainstream economists. Alas, they were a very small minority.

I'll just add that what caused the GFC has absolutely ZERO to do with economic models such as IS-LM, Exogenous growth model, simple AD-AS model, etc. That's an important point. Although, it does have to do with continued financial deregulation, which many economists support. Many believed that the market was self-regulating and the various instruments available diversified the risk amongst themselves until it posed no threat. Those who thought this were wrong. They underestimated the systemic (non-diversifyable) risk.

Ivan Seeking
Staff Emeritus
Gold Member

Firstly, As Ivan Seeking said the fact that economists fails to make accurate predictions doesn’t invalidate the discipline.
I never said that it did. The point was that economics is not an exact science, so it shouldn't be treated as such.

It is true that the free market, and much of the Republican's economic platform, such as supply-side economics, have failed.

Ivan Seeking
Staff Emeritus
Gold Member

Note that Greenspan himself admitted that he's been wrong for 40 years - this, after the economy of the world was nearly taken down by his flawed philosophy.

turbo
Gold Member

Note that Greenspan himself admitted that he's been wrong for 40 years - this, after the economy of the world was nearly taken down by his flawed philosophy.
Greenspan and Bernanke have done their best to serve Wall Street, while screwing Main Street. They put their fingers in the wind deciding when to decrease the Fed rate another .25%, knowing all the while that they would do it to satisfy speculators, no matter what. Wall Street pundits sagely declared the the markets would decline if the Fed did not keep lowering interest rates, and the Fed chairmen polished their over-blown egos by knowing that those same pundits (and the powers-that-be in the big investment firms) were hanging on their every word. Guess what? Cheap access to taxpayer money was pure heroin to the investment firms, and they pulled out all the stops to cash in on risky investments made with that money. Just as long as quarterly profits were up and their bonuses kept ballooning, they were happy as hogs in slop.

We need some actual economists running the Fed, for a change. People who can see the value in having interest rates high enough that the banks and investment firms have to pay people fair interest rates to use their savings. Right now, aside from the FDIC insurance on my various accounts, I'd be just as well off with my money under the mattress. The Fed is stealing the ability of average people to earn fair interest, to benefit the speculators that drove our economy into the ditch.

I never said that it did. The point was that economics is not an exact science, so it shouldn't be treated as such.
Ivan I think we are making the same point or this is another example that language can give to rise to ambiguity. I was referring to the following post:

This is a bit like saying [or asking if] weather models are all BS. While it may be possible to understand the basic mechanisms that drive the weather, it is quite another thing to predict that it will start raining at 102 Main St., at 1:12 PM, on Thursday, in two weeks. Given that we can't make such accurate weather predictions, and given that even major weather systems can fool the computer models and modelers, does this mean that all of weather science is BS?
In any case I would use this analogy to say that the fact that economists fail to accurately predict economic crises doesn't mean it's all bs.

Last edited:

Hey thanks for replying. So if i were to minor in economics, what should i be expecting?

loseyourname
Staff Emeritus
Gold Member

No, it's not, not at all. The problem with the public perception of economics as an academic discipline is that all people ever see of it are political debates about the use of fiscal and monetary policy and the use of leading indicators to predict turns in the business cycle. Most of economics has absolutely nothing to do with these things. The study of economics simply tells us what will happen in a vacuum when you tweak one variable in a system, which is the same thing any other science does. As you make the system more complex, this information becomes less and less useful. Economic analysis can teach us that demand inelasticity leads to price discrimination when the conditions of market segmentation and imperfect competition obtain. It can teach us that efficient pricing is impossible for goods that are nonrival and nonexcludable. It gets into trouble when we try to model an entire nation as a system of econometric trend lines.

By the same token, fluid dynamics would get into some trouble trying to tell us where a bottle we throw into the ocean will end up in five months. That isn't considered a failure of physics.

That's a really good analogy sir. Thank you.

Many of the most basic assumptions in economics are very logical. If people are rational, they are more likely to forego buying something at a higher price than a lower one. That is the basic logic behind the demand curve. Same goes for producers/investors with the supply curve; i.e. if the price is higher they will want to produce/sell more of it. Where economics starts to break down is when the supply and demand sides start getting strategic. This is why things like market control, monopoly/oligopoly, consumer/investor subjectivity, etc. interfere with economic predictability. Of course in reality humans are always rational to some extent and irrational/subjective/emotional as well. This is what makes complex economic predictions more of an art than a science. You can look for patterns in the subjective/emotional decision making while paying attention to rationality as well, and predict with a certain amount of accuracy what kind of market events will occur. Still, ultimately you have to recognize that there are always unseen factors that you haven't considered that could throw off your predictions to any degree. If you are the kind of person who discards anything that isn't very accurate and reliable, you would throw away economics, I think. But if you are a person who wants some insights into how human-decision making results in market prices, investment/production/consumption patterns, etc. then economics has a lot to offer you even if you'll never be able to win at stock-trading as a result.

Many of the most basic assumptions in economics are very logical. If people are rational, they are more likely to forego buying something at a higher price than a lower one. That is the basic logic[..]
Say you need to buy replacement windscreen wipers for your first time. The store has three options: $8,$13 or $33. None of the brand names are familiar to you. The packets are approximately equally rife with buzzwords and devoid of relevent quantitative measures. There are additional complexities (such as the options of three brands of replacement blades instead or in the future). Because of the opportunity cost of the time it would take you to properly study the ramifications of each option (on how well they improve the all-weather driving experience, and on how long they last), a fully informed decision is unfeasible (if it was even possible), so you're going to choose solely based on price. Are you really going to risk taking the cheapest option? Last edited: Say you need to buy replacement windscreen wipers for your first time. The store has three options:$8, $13 or$33. None of the brand names are familiar to you. The packets are approximately equally rife with buzzwords and devoid of relevent quantitative measures. There are additional complexities (such as the options of three brands of replacement blades instead or in the future). Because of the opportunity cost of the time it would take you to properly study the ramifications of each option (on how well they improve the all-weather driving experience, and on how long they last), a fully informed decision is unfeasible (if it was even possible), so you're going to choose solely based on price.

Are you really going to risk taking the cheapest option?
First, you would expect that in a rational free market with open access to information, consumers would create an easily accessible database, preferably accessible via cell-phone, that reports which brands of goods are of inferior quality. Those goods, then, would quickly go out of business.

Also, if producers acted purely according to free market rationalism, there would be multiple supply-firms with the same quality product and those firms would compete to lower their costs to undercut their competitor and gain market-share in that way. If part of cost-cutting involved seeking new, less expensive materials, the firm would test the materials before utilizing them because it would not want to lose sales by getting the reputation of having an inferior-quality product.

Usually I buy the least expensive brand and I rarely have quality problems. There are exceptions, however, and in those cases I shop for the least expensive (most competitive) brand of the product with satisfactory quality. Still, how many people are irrational enough to buy the more expensive product as a prayer that the quality will be good? I have certainly been guilty of this in the past but it is basically a response to fear that the market is filled with inferior quality products. In a rational free market with free information exchange (good information - not misinformation), that shouldn't happen.

BTW, what's your point? That economics should start modeling rationality as consumers purchasing the highest priced products to avoid low quality? Wouldn't the demand and supply curves then slope in the same direction?