The Economist Has No Clothes

[The Sushi Bandit]

http://www.sciam.com/article.cfm?id=the-economist-has-no-clothes

Unscientific assumptions in economic theory are undermining efforts to solve environmental problems.

The 19th-century creators of neoclassical economics—the theory that now serves as the basis for coordinating activities in the global market system—are credited with transforming their field into a scientific discipline. But what is not widely known is that these now legendary economists—William Stanley Jevons, Léon Walras, Maria Edgeworth and Vilfredo Pareto—developed their theories by adapting equations from 19th-century physics that eventually became obsolete. Unfortunately, it is clear that neoclassical economics has also become outdated. The theory is based on unscientific assumptions that are hindering the implementation of viable economic solutions for global warming and other menacing environmental problems.

The physical theory that the creators of neoclassical economics used as a template was conceived in response to the inability of Newtonian physics to account for the phenomena of heat, light and electricity. In 1847 German physicist Hermann von Helmholtz formulated the conservation of energy principle and postulated the existence of a field of conserved energy that fills all space and unifies these phenomena. Later in the century James Maxwell, Ludwig Boltzmann and other physicists devised better explanations for electromagnetism and thermodynamics, but in the meantime, the economists had borrowed and altered Helmholtz’s equations.

The strategy the economists used was as simple as it was absurd—they substituted economic variables for physical ones. Utility (a measure of economic well-being) took the place of energy; the sum of utility and expenditure replaced potential and kinetic energy. A number of well-known mathematicians and physicists told the economists that there was absolutely no basis for making these substitutions. But the economists ignored such criticisms and proceeded to claim that they had transformed their field of study into a rigorously mathematical scientific discipline.

[izquierdista]

1. Economists are "cargo cult" scientists

They attempt to use definitions, axioms, equations, variables, and mathematics like real scientists, but they fall woefully short. While every scientist understands the word "derivative", economists think they have discovered something magical that they call "marginal". They have not even correctly identified all their variables before they go off trying to linearize one against another, keeping all others constant. Even when they do attempt a mathematical type proof, they reduce themselves to drawing a monotonically increasing curve intersecting a monotonically decreasing curve and waving their hands to produce a result.




The Chicago School on a tropical retreat.