Protecting Economists From Competition

Although it has been sitting on my to-do list for over a year, I finally got around to reading Bryan Caplan's Why I Am Not an Austrian Economist. Here are a few observations.

Besides its alleged[1] political implications, my primary attraction to Austrian economics is its rejection of complex mathematics. This is not a methodological attraction; I do not share the Austrian objection to the assumption of continuity nor am I enticed by their reliance on a priorism[2]. Rather, it is an argument from laziness: I simply hate dealing with complicated formulas and my calculus skills leave much to be desired. If good economics can be done without heavily relying on advanced calculus and econometrics, I am much more likely to become a good economist.

While reading Caplan's piece, I remembered an idea I had for a future journal publication. Caplan writes,

The simple fact is that M&E [mathematics and econometrics] are the language of modern economics, much as Latin was the language of medieval philosophy. These professional languages waste a lot of time and make it difficult for laymen and academics to communicate.

Economists love to talk about how licensing for doctors and lawyers is a form of monopoly power: doctors and lawyers don't need to be licensed to protect consumers as much as they need to be licensed to protect their own wages. By making it more difficult for people to become and remain doctors and lawyers, these two groups shield themselves from further competition, and by reducing the supply of labor, they increase their own wages.

But then I started thinking: if this is true for doctors and lawyers, shouldn't it be true for other highly educated fields as well? Why should economists be immune from their own criticism? Perhaps the continued use of complex mathematics and econometrics even in the face of mediocre results is the method by which economists make it more difficult for the marginal student to enter the field, thereby protecting themselves from further competition. Further, this protects economists from competition with other social scientists, like sociologists, psychologists, political scientists, and philosophers, who do not need and do not have the mathematical background necessary to decipher and challenge the work done by economists.

To be prudent, if I ever decide publish this argument in a mainstream journal, I should probably wait until I have tenure. I don't think it will be very popular among the hiring committees.

fn1. I say alleged because I am not convinced that Austrian economics does it what its proponents claim it can do: convincingly demonstrate that a move towards voluntary exchange in a free market increases social utility while a move towards government intervention decreases it. (See section 2.4. Welfare Economics) Regardless of whether this criticism is valid, one shouldn't choose a methodology based on one's preferred results. Even if Austrian economics recommends against government intervention more so than neoclassical economics, choosing Austrian economics over neoclassical economics on these grounds is putting the cart before the horse. A methodology should be chosen based on criteria such as its predictability, accuracy, and likelihood to result in true propositions - and not based on its likelihood to recommend policy conclusions one already agrees with.

fn2. My aversion to a priori knowledge comes mainly from my readings in philosophy. See W. V. Quine's rejection of the analytic-synthetic distinction in ?Two Dogmas of Empiricism.? More on this in future posts. For the layman's version, Julian Sanchez put it nicely: "As the failure of Euclidian geometry to describe our spatially curved universe proves, the internal consistency of a formal system is no guarantee that it models reality accurately. An extreme anti-empiricism can easily become a lazy way of ensuring that being an Austrian economist means never having to say you're sorry."

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This may be one factor

This may be one factor contributing to the use of math in economics. However, consider that since math is a specialized skill, it is likely that questions in economics (as in everything else) have been pondered much more by people without the skill than with it. Hence it seems likely to me that new discoveries in economics are more likely to be made with the aid of complicated mathematics. After all, for an important non-mathematical discovery to exist, many more people must have overlooked it.

By a similar argument, new forms of mathematics and increased computing power are likely to contribute to new discoveries. (in economics, and other fields).

Micha, "...I am not

Micha,

"...I am not convinced that Austrian economics does it what its proponents claim it can do: convincingly demonstrate that a move towards voluntary exchange in a free market increases social utility..."

This seems like a strange claim to make, although all possible claims are likely made by someone.

Social utility can't be measured, if it even exists, and there is no apparent way to produce even indirect evidence that the social utility of one state of the universe is larger than another, or even that a larger one is desirable. Comparisons require a comparing agency.

"A methodology should be chosen based on criteria such as its predictability, accuracy, and likelihood to result in propositions - and not based on its likelihood to recommend policy conclusions one already agrees with."

What if the conclusions are that predictability and accuracy are inherently and fundamentally limited at best? Even idealized classical mechanics is severely limited in its ability to predict, if more than two bodies are involved.

It may be just as important to refrain from predictions where none can be made.

Regards, Don

Patri, "...math is a

Patri,

"...math is a specialized skill..."

This may well be true, but it doesn't necessarily mean that it is more scarce than logic and common sense.

"...it seems likely to me that new discoveries in economics are more likely to be made with the aid of complicated mathematics...."

As are new economic fallacies.

Regards, Don

When economists lobby to

When economists lobby to have all new economists licensed in advaned calculus and econometrics, the universe will cease to exist.

"I say alleged because I am

"I say alleged because I am not convinced that Austrian economics does it what its proponents claim it can do: convincingly demonstrate that a move towards voluntary exchange in a free market increases social utility while a move towards government intervention decreases it."

That's Hoppe. My guess is that most austrians do no accept his formulation of social utility.

Don, ocial utility can?t be

Don,

ocial utility can?t be measured, if it even exists, and there is no apparent way to produce even indirect evidence that the social utility of one state of the universe is larger than another, or even that a larger one is desirable. Comparisons require a comparing agency.

From the Caplan piece,

"If we allow ourselves to use the term 'society' to depict the pattern of all individual exchanges, then we may say that the free market 'maximizes' social utility, since everyone gains in utility."
- Murray Rothbard, Power and Market (Sheed Andrews and McMeel, Inc.: Kansas City, 1977), p.13.

The point Caplan is making is that if we take Austrians at their word and accept the impossibility of making interpersonal welfare comparisons, then one cannot use Austrian economics to show why free market capitalism is more efficient or results in greater societal welfare than socialism.

What if the conclusions are that predictability and accuracy are inherently and fundamentally limited at best?

That's fine; my point was that whatever your criteria for judging between different methodologies may be, they should be criteria of usefulness or truthfulness, and not of desired results.

Evidently, considering the

Evidently, considering the use of mathematics as a means to restrict supply has been around for a very long time.

"There are very few things which we know, which are not capable of being reduced to mathematical reasoning, and when they cannot, it's a sign our knowledge of them is very small and confused, and where a mathematical reasoning can be had, it's as great a folly to make use of any other, as to grope for a thing in the dark, when you have a candle standing by you."
--John Arbuthnot
Of the Laws of Chance, 1692

Micha, I say alleged because

Micha,

I say alleged because I am not convinced that Austrian economics does it what its proponents claim it can do: convincingly demonstrate that a move towards voluntary exchange in a free market increases social utility while a move towards government intervention decreases it.

This claim probably comes from this paper by Rothbard in which he states that "the free market benefits all its participants" because voluntary exchanges come with the expectation of mutual benefit.

However, in a different article (working paper), Jacob Halbrooks critiques Rothard in part by focusing on the "expectation" part, and that only after the exchange can each individual conclude whether or not he benefitted from the exchage. He denies any sort of welfare analysis altogether.

Either way, I think it is a very strong claim to make that Austrians claim that the free market increases social utility. "Social utility" itself is a troublesome term for most Austrians because they define utility very subjectively and individually.

Jonathan, "...This claim

Jonathan,

"...This claim probably comes from this paper by Rothbard in which he states that ?the free market benefits all its participants? because voluntary exchanges come with the expectation of mutual benefit...."

The free market doesn't benefit anyone who expects to be a beneficiary of state intervention on his behalf, either intentionally or incidently.

Regards, Don

I suspect the math fetish is

I suspect the math fetish is just an attempt by some economists to deliberatly make their theories non-understandable to the public (for job security, power over the unwashed masses, etc.)

I remember Hawking talking about his ideal "Theory of Everything" which would be easily explainable to ANYONE, including those without advanced math degrees. But Hawking is a real scientist, the math-nerds are witch doctors...

But the austrian school is

But the austrian school is not homogenous. Some of the austrians, and it seems to be the followers of Rothbard, deny the very possibility of an austrian strand of welfare economics. And those are the people who follows the "aprioristic" line of thought (or with Rothbards words, they use "extreme apriorism").

But there are other austrians who don't deny the possibility, even though the reasoning sometimes are somewhat problematic. Israel Kirzner are on of them, Marko Vihanto another.

Pat Gunning have written some articles regarding this issue:

http://www.constitution.org/pd/gunning/subjecti/workpape/auswelf.pdf

http://www.constitution.org/pd/gunning/subjecti/workpape/aucrsocs.htm

"I remember Hawking talking

"I remember Hawking talking about his ideal “Theory of Everything” which would be easily explainable to ANYONE, including those without advanced math degrees."

Being able to _explain_ a theory without math is different from being able to _discover_ a theory without math.

As an engineer, I always translate problems into mathematics, solve the mathematics, then try my best to translate back into answers to the real problem. Without the first step, I can't make headway on the problem; without the last step, I can't present my solutions to the decision-makers.

Micha: Every corner of the

Micha:

Every corner of the academic world, as well as every other micro-specialization in the business world, and every bureaucracy, has its own exclusionary proprietary jargon. It's designed to make it easy to recognize "insiders" and "outsiders". It also helps maintain the status quo, because going through the process of learning the jargon, and thus becoming an insider, usually inculcates an inherent acceptance of the received truths of the specialization in question.

I think it's just another manifestation of the remnants of tribalism that are hard wired deep, deep down in our psyches.

(1) Use mathematics as a

(1) Use mathematics as a shorthand lauguage, rather than 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.
Alfred Marshall

I see the real problem with mainstream economics in #1. Equations and formulas frequently cease to be abstractions and are elevated to the status of universal law. The subtleties of a relationship like MV=PQ get lost when you treat it like a mathematical certainty rather than a compact expression of a detailed theory.

Theorizing about any area of

Theorizing about any area of inquiry is rarely dependent on method alone, and breakthroughs seldom come from staring congenially at a mix of equations. However, stating a conjecture is one thing, proving it for a particular universe of discourse is another. Mathematics is a handy (and precise) tool for the latter, and its absence is likely to make attempts at proof less convincing.