It it just me, or is Economics a scam?

[Odin2005]

Economists assume a people are self-intrested rational calculators, an idea that anyone with a brain knows to be BS. I also read that economics majors are more selfish and greedy than other college students because the BS they are taught changes thier behavior.

[benburch]

1. Some of it is a scam

But certain things they do work out fine.

[jobycom]

2. Just Republican economics, which

is to real economics what Intelligent Design is to science.

[unblock]

16. ZING! i'm gonna steal THAT one!

:rofl:

[applegrove]

25. I agree. Neocon economics doesn't mash.

[umass1993]

30. Yes. You have spoken.

And it is the truth.

[jobycom]

31. Just call me Chuck Norris! nt

[European Socialist]

3. Yes, for the last 30 years, economists have been trying to convince...

us that our jobs are better off in other countries.

[Odin2005]

4. BTW, What happened to the Keynesians?

It's like economists started treating Milton Friedman like a god all of a sudden. :puke:

[unblock]

15. only the politicians

keynes still explains much.

[leyton]

5. It's a model.

Every model has assumptions which introduce error, but a good model also corrects for that error as much as possible. If I'm not mistaken, economic theory includes methods to simulate irrationality or ignorance on the part of any one economic agent.

[foo_bar]

8. it's still "work in progress"

Unfortunately, as Mandelbrot points out in The (Mis)behavior of Markets, the foundation of this new era of economics was rotten. As anyone who has repeatedly put money at risk in a market over a long period of time knows, market behavior does not reflect the well behaved Gaussian models proposed by economists in the 1970s and 1980s. There are far more market bubbles and market crashes than these models suggest.

The change in market prices does not follow a Gaussian distribution in a reliable fashion. Like income distribution, market statistics frequently follow a power law. When a graph is made of market returns (e.g., profit and loss), the curve will not fall toward zero as sharply as a Gaussian curve. The distribution of market returns has "fat tails". The "fat tails" of the return curve reflect risk, where large losses and profits can be realized.

The behavior of markets reflects a complex system and fractal mathematics. Mandelbrot has been publishing papers on this topic for several decades. His earlier book, Fractals and Scaling in Finance (Springer-Verlag 1997) collects a number of these papers. The (Mis)behavior of Markets provides a readable summary of Mandelbrot's work in finance. This includes work on long range dependence and the Hurst exponent, fractal scaling in market statistics and the distribution of risk.

http://www.bearcave.com/bookrev/misbehavior_of_markets.html

[unblock]

14. the real problem is this: a little learning is a dang'rous thing.

far too many people take econ 101 and think they know economics, especially because know they can follow the simplistic crap that politicians spew out.

real academic economics is vastly more complex and take much into account. and as you might expect, many of the problems -- limited information access, false and misleading advertising, conflicting interests, momentary lapses of reason, compulsive and/or addictive behavior, etc., all throw a spanner in the works of the nice, neat theory that is taught in econ 101.

[Bushwick Bill]

6. Economics Ignores Physical Limits

Those of us in the peak oil and limited resources camp just don't appreciate how economists ignore physical limits. They think infinite growth is possible in a finite world. They also think technology is energy.

This is a lecture on the consequences of exponential growth with regard to hydrocarbon use and population. It can put even the most rational human being in the dieoff camp.
http://edison.ncssm.edu/programs/colloquia/bartlett.ram

The dieoff website is also good for some perspective if you bump around it a little.
http://www.dieoff.com/
http://www.dieoff.com/synopsis.htm

And here are some more primers:
http://www.globalresearch.ca/articles/PFE307A.html
http://www.lifeaftertheoilcrash.net/
http://www.peakoil.com/sample/
http://www.rollingstone.com/news/story/_/id/7203633?rnd=1113439994015&has-player=true

[unblock]

13. that's just not true

i will agree that SOME economist ignore this reality or that reality, peak oil being just one of many physical limits.

however, i even remember, in undergraduate economic, studying husbanding of scarce, common resources and, in particular, why this is one thing where monopolies can be superior.

if there is competition and a common resource, then each seller has an incentive to sell as much as possible and the common resource is quickly used up.

however, the monopolist has an incentive to limit sales and drive the price up, not only to make more profit, but to preserve his long-term viability. a monopolist is in a position to do this, competitors are not.

economics as a field does not ignore physical limits.

[depakid]

41. It sure IS true!

Neoclassical economics depends on unlimited growth. Among other things- that's the only way to pay down debt!

It doesn't recognize physical laws like thermodynamics and relies on absurdities like perfect or near perfect substitution for limited natural resources. Look at the Cobb-Douglas production functions- when they include natural resouces at all, the equations assume that if you increase labor sufficiently, you can bring resource flow down close to zero! Georgescu-Rogen calls this a conjuring trick- and in fact, that's what a lot of macroeconomics is. A bunch of self-reinforcing conjuring tricks.

Take a look a the circular flow of the general equilibrium. Even when externalities are identified and costs applied (which is compaartively rare- almost always incomplete), it still acts like a perpetual motion machine in terms of continued growth, because it doesn't take into account energy subsidies- flows of low entropy energy into the sytem. That's what ultimately drives growth. And they are limited.

It also uses really flawed accounting- in that it treats depletion of natural capital as income! Don't try that at home or in your business. Liquidating your endowment or your savings account (as opposed to the interest it earns) isn't income.

The entire neoclassical scheme is based on "the flaw in the house that Jack built." And we're going to see the consequence of that in our lifetime.

[Odin2005]

42. "A bunch of self-reinforcing conjuring tricks"

Exactly.

It's psudoscience used to legitimize the capitalist system and make it free from criticism; it's become like a religion.

[Grover_Cleveland]

44. On the contrary. The fact that the price is more than zero......

.... is proof that there are limits.

If someone says to you, "There's an infinite amount," then you can respond to them by asking, "Then why is the price more than zero?"

Economics is defined as being the study of the allocation of scarce resources that have alternative uses.

There are definitely limits.

[bbinacan]

7. I have a degree in Economics and

there is an old and bad joke I might add, that if you put ten economists in a room to decide a question, you'll get 20 answers.

[Bushwick Bill]

9. Similarly, they think

that if you have enough investors and engineers locked in a bank vault, that they will be able to turn the cash into hot dogs.

[unblock]

12. hey, i thought that was a joke about rabbis!

:rofl:

[FloridaPat]

10. I took econ101 in college. Didn't understand a word of it. Decided

then it's wordy people getting paid big bucks to make you think someone is in control of a countries destiny.

[bbinacan]

19. Econ 101 was the

deciding factor for me to major in Econ. At UNC Econ 10 was the introductory course and I made an A. 101 was micro. This was an 8 AM class (I'm not a morning person) on M-W-F. I was a fraternity pledge at the time and had to be at Thursday night mixers and had to clean up afterwards. Each Friday we had a 101 quiz. I would get back to my dorm around 1-2 AM and buzzed, or drunk. I'd study for the test by reading the graphs. I'm not sure I read many chapters in the textbook. I made a B+ in the class and thought: THIS MAJOR IS FOR ME.

[unblock]

21. lol, well, we all have our reasons!

:rofl:

[bbinacan]

23. Yes we do and

I was astute enough (or is it) laziness to know I could get a good degree from a great University.:evilgrin:

[Grover_Cleveland]

45. Then you had a bad teacher.

Just remember that people respond to incentives.

That's the key to understanding economics.

[unblock]

11. the greed thing is probably more self-selection

greedy people might be more attracted to economics in preparation for a financial career, as opposed to, say, psychology or sociology or english or art history, where there's not much in it for the greedy.

on the other hand, there are plenty of non-greedy people in economics. POP-culture economic is considerably more greedy-appealing (objectivism, supply-side, etc.) than true, academic economics.


as for the assumption that people are rational self-interested actors, there's a bit more to it than that. it's actually not that they ARE rational self-interested actors, it's that they ACT, on aggregate, AS IF they were rational self-interested actors. the idea is that some of them will behave rationally, others will behave randomly, but by and large, rational self-interest is a fair assumption for how people behave.

there are entire branches of economics that study how people arrive at such decisions and how businesses act to make people NOT act in their own rational self-interest. the basic observation is that on the whole, people tend to do what's rational and in their own self-interest, BASED ON WHAT THEY KNOW and BASED ON WHAT THEY PERCEIVE TO BE THEIR OWN SELF-INTEREST. so you can influence that by distorting their perception of danger and safety or of quality difference between product, etc.

but the real key, i think, to this assumption is EVENTUALLY. people can and will make stupid decisions in the SHORT TERM. they will try bad product, e.g. EVENTUALLY, they tend to figure it out and go for the better product, but not before the bad product maker has made a fortune. this explains why fly-by-night companies are persistent. any one fly-by-night company has a short shelf life, but there's always another one around the corner. they are a constant feature of unregulated capitalism, even if the names change.

it's the moral and ethical conclusions that politicians draw that are suspect. economics mostly just explain what happens. it's not a moral formula. politicians somehow leap from, "economic theory says x will happen in the long run" to "x is morally justified". ridiculous.

in particular, note that "in the long run, we're all dead", as keynes famously said.
the long-term observations are great, but fortunes are made and lost, and resources are allocated in the short-term, not the long-term. as above, in the long run, any fly-by-night business will fail. but in the short run, they thrive. and the short run always exists, although circumstances change. so some other fly-by-night company rips you off another way. so, in the long run, fly-by-night companies always exist, just never for long. but how does that help you?

[bbinacan]

17. I'm in financial services And I'M NOT greedy

my econ degree has been very helpful. You do make a good point about the rationale of the public. Let's consider tax cut refunds we got a few years ago and today's gas prices. If we got the checks now, when gas is high, the money would have been spent buying some unnecessary item instead of using the money to pay for gas. But, oddly enough, this "rational" consumer who blew the tax cut check will cut back on other things. It boggles the mind.

[Jayhawk Lib]

18. What would be a good economical system?

I have thought and thought about this. Capitalism does not seem to be fair. Is socialism a fair, equitable, and efficient system? Is communism a fair, equitable, and efficient system?

It seems like a good economy would have to have rewards for taking risks, rewarding inventiveness, and hard work.

As unfair as it is we are not all equal. Some of us are smarter than average. Some of us are more talented than others and some of us are more ambitious and willing to work longer-harder than others.

If there are not incentives built into the system why would anyone try to go the extra mile to accomplish things. I know there would be some that do just for the love of accomplishment but most will not unless pushed by some sort of incentive.

These are some of my thoughts and would be interested in what others think.

[unblock]

20. REGULATED capitalism is fine, i think

take capitalism, then impose regulatory bodies to internalize externalities. i.e., make people pay for their actual costs. if your economic activity affects someone other than the buyer or the seller, e.g., via pollution, then you somehow have to either clean it up or compensate the people who are injured by your pollution.

if the true costs and benefits of economic activity are only borne by the actual, informed participants in the economic activity, i think the incentives would probably work pretty well.

unregulated capitalism tends to fail precisely in the areas where someone is exploiting some externality and/or committing fraud to some degree.

regulation is not perfect, but some form of oversight or judicial remedy would go a LONG way toward making capitalism live up to its rhetorical promise.

[Grover_Cleveland]

46. I really like that idea.

Your system is based on human nature and reality, not some uptopian fantasy that can never be achieved.

Any economic system that ignores inncetives will be doomed to failure.

[bbinacan]

22. Interesting question.

Socialism doesn't seem to work well. Look at some European countries with double digit unemployment. I read somewhere that Germany had the largest exodus of people since WWII b/c of the job situation. I took a course in Economics of the Soviet Union (ca. 1985) at UNC. They had a thriving black market. IMO, capitalism is part of human nature.

What we do with this largess is another matter. Helping those who can't help themselves and providing an adequate safety net for the less fortunate.

[Jayhawk Lib]

24. Also thrown in the mix

is how much is a product worth. The big issue now is oil. How much is oil really worth? If it is priced too cheap there is absolutely no incentive to limit how much we use or come up with more efficient ways to use it. There is also no incentives to find an alternative.

On the other hand it is tough on poor people to afford it. Maybe you could put a excess profits tax on oil companies but I am not sure that would be all that effective either. It sure sounds good though.

[Odin2005]

26. "capitalism is part of human nature."

I think you are confusing "capitalism" with "market economy", they are not the same thing, a system in which businesses are co-ops would be a socialist market economy. "Capitalism" and "socialism" refers to who controls the means of production; "command economy" and "market economy" refers to how goods and services are distributed.

[AllieB]

35. The U.S. has double-digit unemployment also

Our statistics do not count the long term unemployed-only those who are collecting unemployment insurance. The unemployment rate has fallen to 8% in France, and it hovers at similar levels throughout the European Union.

The exodus of people from Germany happened in the years following WWII, obviously due to the extreme hardship of post-war existence. Now they're dealing with an influx of immigrants, rather than an exodus.

[Grover_Cleveland]

48. Germany

http://www.workpermit.com/news/2006_01_02/germans_leave_germany_record_numbers.htm

02 January 2006

Germans are leaving their country in record numbers, but unlike previous waves of migrants who fled 19th century poverty or 1930s Nazi terror, these modern day refugees are trying to escape a new scourge -- unemployment.

Going as far away as the United States, Canada and Australia as well as Norway, the Netherlands and Austria more than 150,000 Germans packed their bags and left in 2004 -- the greatest exodus in any single year since the late 1940s.

High unemployment that lingers at levels of more than 20 percent in some parts of Germany and dim prospects for any improvement are the key factors behind the migration. In the 15 years since German unification more than 1.8 million Germans have left.

[progressive_realist]

39. The pursuit of money is actually a very poor incentive.

Anyone who feels like s/he is only doing a job out of need for money will, in my experience, work slowly and without enthusiasm and will do as little as possible without getting fired. On the other hand, those of us who are personally interested in our work put forth maximum effort and will constantly come up with projects to improve our work processes and results.

Love of accomplishment is, in fact, a very powerful incentive. Problem is, lack of money prevents many of us from doing what we enjoy and would be best at.

[Grover_Cleveland]

47. Do you work for free?

Or do you get paid for it?

[sendero]

27. I think economics...

... is a pseudo-science, much like anything pertaining to the human body/mind. Medicine isn't a "real" science IMHO because at this point we understand only a small percentage of what is going on in the human body.

Similarly in economics, we only understand a small percentage of what is going on, and there are factors we are unaware of exerting influence. Plus, we have to constantly weigh factors all pulling in different directions and try to decide which will win the tug of war and by how much.

I have a basic understanding of how the economy works, and feel like I have a pretty good handle on the likely shape of the near term future. I think anyone who thinks they can know what things will look like in 10 years is nuts. And practical economics is trying to prepare for not only what you think will happen, but what reasonably COULD happen.

[Jim__]

28. I don't know about economics ...

but I disagree that medicine is a pseudo-science. You don't have to understand everything that is going on in a field in order to have a science about that field. You just have to be able to formulate testable hypotheses based on observations.

I think economics has a problem with testing hypotheses. It's extremely difficult to build an economic model that will represent reality and still be able to controll all but a very small subset of the variables.

I am curious, do economists consider economics to be a science? I know its usually labelled a social science; I'm not sure exactly how that relates to, say, physical science.

[sendero]

29. Well...

... when you look at how drugs are developed, and you find that the only way they can test them is go give them to a bunch of folks and see what happens, you lose the "science" feel about medicine.

When you introduce a chemical compound (a drug) into a complex chemical system (the human body) and you basically have no idea how that compound may have unintended, unknown and unforeseen actions, that is not science IMHO.

And I do think that this is very similar to economics as practiced by governments and businesses - changes are made that are supposed to have a specific effect, but often there are other unintended effects that might undermine the effort. Calling it a social science might be fair enough :)

[AngryAmish]

32. Economics is the science of decision making

It is a social science and thus is not really rigorous and prone to abuse.

That said, the main argument that I have heard against "economics" is that humans have other motivations other than money. Well, duh.
Why do folks buy t-shirts that look good for a premium rather than just t-shirts that fit well and keep one covered? Because there is a social/intrinsic benefit in have a stylish shirt.

Why do people do acts of charity? Primarily because it makes people feel good. It makes our brain chemicals go "Yay!". Religious people do acts of charity mandated by their church because it makes them think they are going to heaven and that makes their brains go Yay! Atheists may do acts of charity because they think it improves society, because they get praise from others or because it just makes them feel good - all of things that make their brains go "Yay"!

Economics is widely used in the economic field because it is easy to measure the metrics ($ and cents). But economic theory exists to study why folks make certain decisions.

BTW, why do you think that people are not self-interested calculators? Because they are.

[applegrove]

33. Like in any field - there are right wing, Liberals & radical ecnomists.

A magazine like the economist is good for point out truths. They point out that the freeper argument about Germany having high un-employment due to liberal policies is hogwash - german unemployment due solely to demographics and loosing control over monetary policy when they went with the Euro.

Also too - economist magazine did the article on how MBA schools had been teaching since 1990 that your competition in big business is not other firms selling the same goods, your competition is government that regulates, owners, workers (as always) and consumers. And that a good MBA runs all these groups into the ground to make money.

Sorry. We need economics. Like anything - it depends how you interprest.

Can anyone say that Paul Khrugman doesn't know what is going on? He sees through most of the Bush bullshit. We need that.

[nick303]

34. I don't think I've ever seen any serious theory

that states money is the only motivation.

[depakid]

40. That's because it's not

Utility maximization is-

I should also add that even Simon's bounded rationality or Kahneman's work on behavioral finance doen't do a very good job of explaining the basis for people's decions or how markets work. Neither does game theory. These may be the best we've got- but they're still far from being predictive or explanatory for the wierd things that go on.

People don't behave rationally- and neither do markets. That's why you get situations like tulipomania that defy all logic and press into the realm of pathological emotions.

[mojavegreen]

38. Decision theory and Economics

But economic theory exists to study why folks make certain decisions

And that's what it's unable to do, and where it verges on psychology and "ethics" if not biology. Economists might chart the ups and downs of say the cattle market, but what about the environmental consequences of all these people deciding to eat beef every day? Not only is there the impact of the beef cattle grazing, but the tons of feed, silage that must be grown, and all the transportation and logistics. And the ethics of the slaughterhouse: if you grant that beef eating is acceptable would you be willing to work in the slaughterhouse? I wager most people wouldn't. Economics is decision theory to some degree, but the econ. texts don't really deal with the empirical results of all of those decisions--and some decisions (say buying a fairly economic vehicle, or riding a train) are better than others (buying a Hummer).

[mojavegreen]

36. Economic deception

Business-major types who throw around some economic "indicators", inflation, GDP, interest rates, standard of living generalizations, etc. are missing a great deal of the economic picture. The dream of some completely quantifiable economic system ala Keynes is only a dream: even Galbraith said that econometrics was often a type of manipulation. The traditional economists are typically apologists for capitalism, tho' Adam Smith himself thought there was some idea of social good which supply-demand and that old myth of "equilibrium" was supposed to contribute to.

And however unpleasant it is to the econ. types there, is an ethical aspect to economics: an aristocratic model of a few billionaires and then millions of poor lower class might be efficient econ. for those on top; it sure isn't to the average wage earner. The "Ricardean" problem of the rentiers---heirs who simply make millons by inheriting property and wealth, while the great numbers of peolpe are wage slaves--is as problematic as it was 200 years ago; now the sons of the wealthy inherit corporations. All of that doesn't mean we have to pick up Marx, but there are sort of equity and ethics issues which the number crunching often obscures.

[stevebreeze]

37. Capitalism is a great tool and a lousy religion

Money can and does motivate people.
Money in not all that motivates people, they have other concerns too.
Capitalism needs regulation to limit externalities, the cost of production born by the public. i.e. pollution produced in a process that harms the health of others.
Capitalism needs a tax system that limits it's "winner take all" aspects. This is Why we got progressive taxation after the guilded age.
Progressives saved capitalism after the great depression with social programs. If we had continued Hoovers brand of economics (that not too surprisingly look like Bush's) we may well have turned to communism.

[Grover_Cleveland]

43. Economics is not a scam. But some people do lie about it.

Economics is defined as being the study of scarce resources that have alternative uses.

Resources exist. That's a fact.

These resources have uses. That's a fact.

These resources also have alternative uses. That's a fact.

Resources include, but are not limited to, land, labor, capital, time, natural resources, ideas, inventions, technology, and intellectual property.

You have 24 hours in day.

Every time you make a decision about how to spend that time, you are weighing it against all other possible uses of that time.

Economics involves tradeoffs. For example, do you buy that new TV now for $300? Or, you you wait until it goes on sale for $250, and go for a while without being able to watch any TV at all?