It is time for economists to pay attention to the real world?

Marcus Haller (Markus Haller) is a rare publisher. He works in Geneva and is engaged in the publication of translated essays from English. His catalog has, to date, about two dozen books, most of which are of great interest. He recently produced “the Secret sins of Economics” is little known in France, the historian of economic science Deirdre McCloskey (Deirdre McCloskey) in the reader can discover the first face of an incredibly rich creativity of this unusual economist.


Published in the original in 2002 the work contains sharp criticism of the errors of the economy and resonates with the spores, which recently called in France “the Economic negationism” Skiff Pierre (Pierre Cahuc) and Andre Zilberberg (André Zylberberg). In addition, it can clarify what should constitute economic science, if it wants to truly pursue reality.


The sins of Economics (and economists) do not lie where we think the course says the author. Contrary to popular belief, quantification is not a “sin” (the author calls himself a “Christian libertarian”, which probably explains her somewhat unusual idea in this work), because it accompanies social Sciences from the beginning. Moreover, it is recorded in the category of virtues. Math is also not a sin because of its ability to reach a conclusion on the basis of available data actually extremely useful. Even if she is unable (make no mistake) to answer the question “How much?”


Similarly, the cult of free trade is not a sin in itself. This benefactor. Anyway, so considering the situation in a liberal economist, which refers to the Chicago school and was failing to condemn a series of errors, including French (bingo!).


“Economists in fact care about the common interest”


Not critical is the systematic use of models of the human calculator in which, she claims, people are regarded as “the adding machine with the following parameters: caution, price, profit, property and power”. While missed such motives as “love and courage, justice and temperance, faith and hope”, which the author combines the word “solidarity”. All these parameters like, should be considered at the same time, however, McCloskey writes that he refused this demand.

Other flaws harder to forgive, even if they are characteristic not only of economic science. First of all, this lack of understanding of the world, which is manifested by economists in the absence of any research on the business environment. To make this extremely difficult. The same applies to the inability of most of them historical culture or even culture in principle (here the author is very harsh). This is reflected in the children from the epistemological point of view the ideas and in particular in attachment to the school version of positivism, which involves the problem of experimental control (this point will be covered a little further on).


Confidence in the ability of the Department of scientific and ethical issues are also becoming a serious disadvantage. It breeds arrogance in social engineering, while economists have blatant selfishness and, often, personal arrogance, which, by the way, repents itself McCloskey. At the same time, “economists in fact care about common interest and they may be the only one with conviction and clarity protect it from private interests”.


The blank theory


Anyway, the two main sin of economic science relate to other things. In the study of reality requires observation and theory. At the same time. Neither pure theory nor pure and not supported by observation theories is not enough. Science must find the means for their enterprises. Unfortunately, this is not to say the two main areas of activity, which devotes itself to the most prestigious scientific Economics: quantitative theorem and statistical significance. According to the author, neither one nor the other do not meet the requirements of this study of the validity, even (apparently) involve the same complex math and statistics as a real theory and real observation.


“The theorists of the economy focus on what in mathematics is called the theorems of existence”. This activity is based on a purely quantitative assumptions, which may vary indefinitely and provide the basis for theoretical conclusions. It exists quite apart from the question of “How much?” caring only about “Why?” and “If”.


“If you skillfully built a series of plausible assumptions based on the study of reality, the situation may be considered by the science and serve for other studies of the real world (…). Otherwise, ( … ), this is pure speculation, games of the mind.”


Physics as a model


To contribute to the study of the real world can only be a theory into which you can plug real numbers. It does not apply to quantitative theorems that they are in full bloom in economic journals since the emergence of the “Foundations of economic analysis” by Paul Samuelson (Paul Samuelson) in 1947. McCloskey said the job is the main culprit of the current situation in which the real numbers no longer have enough space.


Note that anything like this even is out of the question in physics, where the authors try hard to answer the question “How many?” in scientific publications. “Even specializing in theory of physics spending time to think about counting orders of magnitude”.


Important point: the possible division of labor between economists-theorists and experts in empirical research is hampered by the fact that quantitative theorems first did not raise questions about “How much?” finding the answers to which could do the second.


The empirical study focused on the statistical values


“However, the situation would not be so catastrophic (…), if the empirical (more modest) Economics all was well. These professionals (…) could create a real scientific hypothesis, and to ignore the “work” of quantitative theorists (…). The “theory” that push these “theorists” are not subject to the test of facts. Instead, apply linear models that seek, somehow, to control one or the other effect.”


In addition, surprisingly, has devoted himself to empirical research economists have also moved away from the question “How much?”


“Confusion and nonsense are the result of special techniques of statistical research called “statistical significance.” On the background of reducing the cost of computer calculations since the 1970’s, she covered the whole of economic science, psychology and, more disturbing, medicine”.

Empirical arguments are based on studies of huge proportions, but the data contains a lot of spurious information “noise.” Consequently, it becomes extremely difficult to achieve (if not to attract an even broader group) of the accepted thresholds of statistical significance at 5%, 1% and 0.1% that the result is due to some “noise”. According to McCloskey, the problem lies in the denial of the real impact under the pretext that it cannot be installed with the “confidence”, once the work fails to achieve the above-mentioned thresholds.


Most of the published empirical articles peculiar to the confusion between statistical and substantive significance. “Statistical significance is not a necessary and sufficient condition for obtaining meaningful from a scientific point of view result. In most cases it is completely inappropriate.”


“The decision whether has something value or not is made by the person (…). The numbers may not be relevant by themselves.”


“Physics and chemistry rarely resort to statistical significance (…). At the same time, economists and other scientists use the above mentioned it compulsive, mechanical and incorrect way.”


In both cases, the visible commonalities: “we are Talking about the formation of the binary system results that do not require consideration of complex questions like, “How much?” “To what extent?” “What variables are important?” Theoretical and empirical studies seek here to automatic production of publishable articles. And they get it” to the detriment of real scientific exploration of the world. Anyway, this opens up opportunities to those who would like to solve this problem.