Monday, May 22, 2006

Economically Speaking: Why do Economists Disagree?

Why do economists continually disagree when economics is an empirical science where disputes should be easily resolvable through careful analysis? The possible reasons are discussed by Nobel laureate Milton Friedman and Professor Walter Heller in this video available for sale from Idea Channel (an excellent site for those looking to delve deeper into liberal thought)1.

Briefly covering the semantics of inflation, unemployment and other measures, this discussion between two economists of broadly Keynesian and Monetarist schools of thought provides insight into the laissez faire approach versus the more “activist” approach. Like others who follow the scientific method, economists do not have all the answers. Friedman explains how differences can arise in the time frame in which economists view economic issues and also in the emphasis that they place on certain indicators.

In other words, the philosophical value judgements of individual economists direct their priorities. Friedman argues that while results can be interpreted in different ways, the questions are essentially scientific and should be treated as such. Areas of agreement are also explored. As an example, minimum wage laws are discussed. Both agree that arbitrarily increasing minimum wages through government regulations act to crowd out unskilled workers from the job market by pricing them above the market clearing level.

The overwhelming conclusion from both economists is that economists are limited in their ability to solve “real world” problems. Their theories may be wrong, admits Friedman, and there is no “utopia” world without cyclical fluctuations. But it is argued that economists analyse problems in a way that clearly sets out the options.

1 This post is my abstract first published at www.ideachannel.com

3 Comments:

At May 27, 2006 8:01 am, Anonymous Anonymous said...

Economists can solve real world problems.

Economists disagree for the same reason Fyodor/Nabakov disagree with me (ie GMB) on Catallaxy. What happens is leftists go into economics.

If you look at people like Quiggin or Gruen they didn't become left-wing from their experience of conditions in the trenches dealing with the poor in the worlds of University and Banking.

What happens is a young idealistic socialist firebrand decides to go into economics. And then the lying, the evasiveness and the sucking up to leftists in other fields, the constant rabbit punches put into rightists who aren't brought to their knees begging the whole time...... well this all begins in earnest.

You look at whenever Rafe posts something favourable about Windschuttle. Up jumps Farrell, Gruen and Quiggin and they start putting rabbit punches into Windschuttle for no good reason. Then they would try to get concessions of one sort or another out of Rafe.

Well this sort of thing goes on in academe the whole time. These leftists getting about ignoring some folks as long as they can then putting the boot in. If you want to learn some economics that could actually make people some money you'd go and study George Reisman's system. But he is in the ignored phase. He is yet to be in the general abuse phase.

Friedman used to be in the general abuse and ridicule phase but has come through it. But Rothbard and the Austrians are folks that you are supposed to be embarrassed about.

The left are liars and their ideas are ridiculous. So they of course have to do everything they can to undermine good economics wherever they can.

Its because the good economics is being so undermined that the problems can't be solved. Not because economists cannot inherently solve problems.

 
At May 30, 2006 11:12 am, Anonymous Chappelli said...

Ignoring the rooster's comments for now, I see two reasons for economisr's disagreements. There are two causes of economist’s disagreements. First, in contrast to “hard” sciences, economic measures are not especially well specified. This particularly applies to aggregates e.g. what does the inflation rate represent? How much information do you get from looking at the relationship between employment and growth? What do the rates of employment and growth represent? Imprecise specification of the model into which information is poured can lead to disagreement over what should be empirical facts (and macroeconomic sucks for a multitude of other reasons as well).

Second, are problems associated with the use of pseudoreplication in economic science (I think the term was coined in ecology). The problem is basically that we cannot repeat experiments or effectively isolate factors contributing to some outcome in an economic system. I remember reading a reputable economist (I think it was Al Roth) argue that, because of the historically dependent nature of economic activity, all history only really represents data point for the economist - a bit of an exaggeration, but I hope you get the point.

 
At May 30, 2006 11:14 am, Anonymous Chappelli said...

Ahh, I left out the all important "1" in:

...all history only really represents 1 data point for the economist...

 

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