First Must Come Understanding

I want to recommend an excellent essay by Alan Jay Levinovitz at Aeon on the decline of modern economics into mathematics:

The failure of the field to predict the 2008 crisis has also been well-documented. In 2003, for example, only five years before the Great Recession, the Nobel Laureate Robert E Lucas Jr told the American Economic Association that ‘macroeconomics […] has succeeded: its central problem of depression prevention has been solved’. Short-term predictions fair little better – in April 2014, for instance, a survey of 67 economists yielded 100 per cent consensus: interest rates would rise over the next six months. Instead, they fell. A lot.

Nonetheless, surveys indicate that economists see their discipline as ‘the most scientific of the social sciences’. What is the basis of this collective faith, shared by universities, presidents and billionaires? Shouldn’t successful and powerful people be the first to spot the exaggerated worth of a discipline, and the least likely to pay for it?

In the hypothetical worlds of rational markets, where much of economic theory is set, perhaps. But real-world history tells a different story, of mathematical models masquerading as science and a public eager to buy them, mistaking elegant equations for empirical accuracy.

Extra points for the uncited reference to John Maynard Keynes in the title of the essay: “The new astrology”.

Economics is a science of human behavior or it is nothing. Mathematical models should reflect a keen understanding of the underlying workings of whatever you’re trying to model. They aren’t a substitute for understanding. Mathematical notation does not produce rigor; it arises from rigor. Adam Smith and David Ricardo were great economists because they understood the human behaviors about which they wrote. Mathematical notation would not have made them better.

If you cannot explain your understanding in clear language, you do not have a clear understanding.

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