Discussion 4: Is Economics a Science?

(“Promenade- No.1 The Gnome”) – Think the few discussion points I’ll just suggest a few but you know, there are others obviously. How valid are such constructs as the laws supply and demand? Do they actually, is that how you’d expect a market to behave? Is equilibrium anything more than a plutonic ideal? And if so, what value does it have? What about positive and
normative economics? Is equilibrium meant to
be a positive concept? Or it is a normative one? Is it something that exists naturally, unless it’s interfered with? Or is it something that
should be striven for and created by policy
of one kind or another? – I was going to say that in some ways it seems like actually economics is almost
like the opposite of science because science starts with observations and it sees in real world events correlations and things
happening at the same time, or happening regularly. And then on that basis it infers laws and it says there’s a law
of gravity for example. Because we always see things
dropping to the ground. But it seems like economics goes the other way around. And it starts with the laws and the assumptions about how things are and how people behave and the basic facts of what determines what happens. And then on that basis it says, “So we can expect
to find for example, “an equilibrium in the market.” But it actually starts with the facts rather than starting
with the observations. So it kind of takes it from the opposite point
of view that science does. – But I’m not sure that is, now a lot of people would agree with you that that’s the way science works. I mean that’s sort of kind
of inductive of you, Styles. – I think if it were
considered a scientific law or a scientific conclusion that’s shared by the scientific community I think they would only
accept that as a law. – If it was–
– If it had been inductively proved over many tries.
– Yeah it has to be inductively proved. But it’s not inductively, it’s imagined. – Yeah, just to say one
more thing about that is I mean that doesn’t seem
an unreasonable approach that you imagine what the law might be and then you trial it and you test it out. And Then if the trials
confirm it over many trials then you say “Okay, maybe that is a law.” But it seems that economics comes up with the imagination part. But it doesn’t trial it. I mean when someone came up with, or when the equilibrium
theory was developed people weren’t looking
at markets to test it regularly to see if it makes sense. They came up with that model and then they said, “So this is how “we can expect markets to behave.” And the same with homo economicus. They came up with the model of the person and then inferred things
about how he would behave. He or she would behave on that basis without trialing it after. So it seems all together
less rigorous than science. – Well I don’t know, how do you think they
first got the idea, people? And it obviously, the equilibrium idea in particular markets far antedates so to speak
scientific economics. I mean, how to you think you get the idea? This sort of notion here. I mean, it obviously you know, there were lots of markets at all times. In history there have been markets. And you find that probably that things get so you don’t at the end of the day you don’t have lots of
unsold apples around. Lying around, that’s so you know you get rid of them by
lowering their price. I mean that must of
have been an observation which everyone, every merchant, every trader must’ve known that that’s the way to behave. You get what price you can and then you know, the market equalizes
the supplies and demand. And the price is moved. I mean that must have been known ever since people started trading with
each other, wasn’t it? So you get that idea of
equilibrium out of that. But then the interesting question, that’s descriptive and that may be
descriptively quite accurate. Not about how the market
system as a whole behaves which of course is an
intellectual construct, general equilibrium. But how a local market works and how, but then what’s the explanation for that? Why shouldn’t things be left
unsold at the end of the day? Why don’t they just take them away and try to
sell them the next day? Well, the answer is that they rot. So you have to sell them that day. But what’s wrong with them rotting? Because you want to make a profit on it. Is that it? You want to, so you have to relate it in other words this behavior can’t be just you have to have
a principle just like Newton had to have something to explain why apples fell to the ground. And didn’t just go off at a tangent and perch on the nearest tree
because they felt like it. So you had to introduces
some principle like gravity that sort of forces them down, right? So, economists when they started thinking about this peculiar behavior of the surplus apples always being disposed of by the end of the day had to appeal to some principle of human nature that enabled this to happen. And it seems so obvious to us. – I just kind of wanted to apply it more to our every day life. – Yeah, yeah.
– And how it actually is relevant to the way we live our economies now. I kind of wanted to see
how the current world of financialization and the
current globalized economy, how can we still use this very simplified model of equilibrium where we no
longer have this simple two way kind of economy? And at what cost it is to the population? – Okay, well right. Well what about one important potential modification, which is the information requirement? I mean how would that
apply to financial market? – First of all, as an individual I might not have all the
information that Google has about stock markets for example. – Yeah. – And that’s straight away where it, there’s an inequality in
terms of potential benefit. – [Robert] Yeah okay,
but you on the other hand you trust someone to have that information maybe.
– But that again involves transaction fees and the information. – So that’s a bit of a friction, you have to pay a
transaction fee to someone to provide you with the information to equalize your– – But that still doesn’t guarantee me that pair of information because there’s different people who can provide the information perhaps. And depending on much money I pay em I get different set of–
– But someone of course has that to them. I mean, you’re assuming
again are you here? I mean, extrapolating
from the simple house wife who has perfect information in the local market. You’re assuming that someone has a perfect information about how financial
markets work as a whole. And therefore you buy that. And therefore your
behavior is consistent with that perfect model. I mean those, that’s the
very, very strong assumption. That efficient market
hypothesis likes to use, isn’t it? We say “Ah, emperically “we obviously had a bit
of a shock in 2008, 2009.” (student laughs) Right, but why did we have that shock? What did they get wrong? That’s I think the interesting point isn’t it? Because we can’t improve our ability to cope with the next shock unless we have some understanding of why
the last shock occurred. And as far as I know this kind of model with
these kind of assumptions that are needed to make it work don’t give us that. Am I saying something
– yeah I agree with. – you disagree with that? – No I just want to add a
little bit more to that. So again, it doesn’t give us any answers because of the assumptions it’s based on. And one of them is that we are all rational beings and we
all know that we are not. I mean if you ask anybody what they would do if they win the lottery they would do the most
silly thing possible. Not the most rational thing possible. So kind of that just shows us that the psychology of
humans is not rational. – Shackle who is one of the great disequilibrium theorists together with the others I mentioned, he says that in some periods expectations are such that you do get into equilibrium situations. He talked about ages of uncertainty as against ages of certainty. Ages of certainty, ages of uncertainty. And what causes things to be more certain and less certain is not entirely clear. But never the less the fact is clear we’re more certain in some periods of things are going to
go right than at others. Do you think equilibrium’s important? – Probably the notion of equilibrium was born because the
mathematics being used in the let’s say at the beginning of the economics discipline as being
recognized as a science. So, but then economics itself developed and it began to utilize even more complex models but still, given also what you said is to say we as economists
we tend to express lows or behaviors as equations where equations means also that we need identities or equalities and that is also the mathematical
translation of equilibrium. And it’s also interesting to acknowledge the fact that one of the critiques about the notion of equilibrium itself came form the mainstream itself or
what we call standard theory which is by the way in my opinion not so monolithic way of thinking because it has it’s own diversities. And if we think about results that were developed in the 70s, microeconomics especially. Or thinking about a famous example is the so called
Sonnenschein-Mantel-Dedreu theorem where which it was more
linked to micro foundations, but it adds also these notion, one of the
assumption was that we need to prove the existence of the equilibrium not only the existence but also the fact that we can
attain an equilibrium. While actually that theorem shows or presumes to show that we need
specific assumptions also to derive economic results
at the micro level. And then this links back to the diagram. A very simple supply and
demand interaction diagrams that we can build only if
we have some assumptions and only if we are looking
at specifics markets or specific commodities. For instance, we were talking about
finance and financialization if you look at stock prices or the behavior of agents engaging in financial transactions demand for shares is actually increasing when the prices increase. So we can no longer
find out an equilibrium. So probably I think it
would be also useful to ask ourself “Why is
this notion of equilibrium “so persistent – Yeah
– “in the way in “which we think,
– well yeah, – “not because they think–”
– well why do you think that? Why do you think it’s so persistent? – Well, partly because it’s useful to have again, economic modeling but then it’s being readapted
in different context because we have difference notions like stochastic equilibriums, random equilibriums and even unemployment equilibriums. And I guess–
– But you see, does it mean anything? Once you start having so many of them are you just sort of
clinging to an empty shell? In to which you’re pouring
more and more things cause you can’t actually say, “Well let’s get rid of
this shell completely”. And start doing something else with the materials. Start trying to organize
it in a different way. – Yes, that’s also my feeling about it.
– But we haven’t got there. We haven’t got there. I think Schumpeter is a very, very good case of someone who knows that equilibrium isn’t the right framework but clings to it all the same. Because it’s the only thing he’s got. If you abandon it you just have chaos. – I mean, I think also it has an appealing sense of cause and effect to the average person who is just trying to understand economics. And so you know, something happens then you get an equal
and opposite reaction and I think it’s just it’s very appealing to the basic way that we’re taught about the way our world works. Scientifically and in society. And so I think that’s a big
reason why it’s so persistent is like it may not always be the
best label to put on something but it’s the one that makes
the most sense to people and appeals the most. And I think that’s a big part of it. – Well, I think that’s right. And I’m sure there’s, it’s a very commonsensical idea. It’s an observation, that people worry about. And it applies in all areas of life. That reaction produces a counter reaction. Intervention sets the pendulum swinging. In natural sciences you have a reliable hypothesis to explain this. Which seems to be, it’s a force of some kind which seems to be there. You can’t see it. In fact some of the earlier people who were speculating about what this force was they did sort of try and locate it and see if had a tangible existence somewhere in the universe. And then eventually it became a hypothesis because they couldn’t find it. And therefore it was the
hypothesis to explain things. But I was just interested in what the similar hypothesis is for human beings. That we, as you rightly say, we notice that there are irregularities. We also notice that we can very often find quite reliable laws of
cause and effect out of them. But we don’t quite know why they’re there. Why they exist. So we have a hypothesis to explain it. And the hypothesis is, the basic hypothesis is I think boils down to two things which aren’t that difficult to accept. One is some self-interest. Some desire for something. And the other is some calculating ability. I think those are the two things. They don’t have to be
anything much more than that to explain quite a lot of events
which we take for granted. – An economic system is going
to be a very complex beast and this is so simple. I mean the simplicity
makes it super compelling but I mean how do you
effectively communicate all of the different individuals
involved on each side and there self-interest and how that effects supply and demand. And whether or not there’s
going to be a point of meeting that is in equilibrium in this system. I mean it just it takes into account essentially the point of sale. Who’s buying and who’s selling. And that doesn’t, I mean especially our supply chains stretch around the world and products are sent all
over to meet demands all over. And there’s so many elements that go into what is demanded where and
what is supplied where. – But the market coordinates it all. – [Female Student With Braid] Does it? – Well yeah, that’s what it’s meant to. – It’s meant to per se. But I mean, you don’t
necessarily have all of, again this comes back to also information. I mean you don’t always know as a market participant how to really regulate
everything appropriately cause you don’t always
know what’s out there. – Yes, well that’s an information problem. You see they always get, you can always get to the assumption. But do you really need to know that much as an economists let’s say? A lot of sociological, people more sociologically minded say, “Well I mean you know, “all preferences are socially constructed. “So, you “actually want this “because you’ve been
brought up to want this. “Or because of advertising. “Or whatever it might be.” But then an economist might say, “Well that may be so, “but that’s of no interest to me. “All I want to explain is the price “at which something “fetches in the market. “I don’t need to know the
sources of preferences. “Or whether they’re manipulated or not.” “Provided the exchange is voluntary “and provided there’s
efficient competition, “I don’t, that’s all I need to know “to explain what I need to explain.” If you want to say, “Well look, “these preferences are undesirable. “That people should
have those preferences.” Then you’d say, “Well that’s something an
ethicist ought to consider. “Or a moralist. “It’s not an economic problem.” And that tends to be a straight forward typical reaction. And I don’t agree with it. But I do think that’s a get out. And as for the house wife who’s always very alert
in her super market, you don’t need to know whether she comes from Romania or Scotland or has a deprived childhood, or any other things that
might have gone into her preference set or
her utility function. All you need to see is how it’s exercised at the
moment of sale as you said. The point of sale. And economics beyond that
has no responsibility. No explanatory responsibility. But of course I don’t think that’s right. And even economists
don’t entirely accept it. They accept the idea. Or does this model allow the idea of harm, self harm to come into the picture? In other words, is it right to intervene in the market to prevent people harming themselves? That is really accepted, isn’t it? Because I don’t think even a near classical economist might well say, “That some people are not
able to choose rationally “because of some defect of some kind. “Either they’re not old enough.” I mean so there’s an
exception for children. Or– – [Male Student] But doesn’t
the market just correct that? – What?
– [Male Student] Isn’t that just a market correction? So they just disciplined by the market. It’s the same argument as with
the stock markets isn’t it? – Yeah, but it is a market. It is an argument for which someone like Friedman has used for legalizing drugs. So you do self harm but you learn. Yeah you learn. You might not learn. So this then brings into the extraordinary, it brings into the center of attention the idea of the short run and the long run. In the long run you learn. In the short run you die. But of course, the population learns in the long run. And the Hayek is this
very, very important. It’s a very important element
in high eqiuam economics. This learning process which is the market enables you to learn. So you have a great slump. And this was actually the
argument he was using it by the way in the early 1930s. You have a great slump. You don’t try and rescue
people from the slump. They’ve got to learn that if they borrow too much money they’re going to go bust. And the banks have to learn that if they lend too much money
they’re going to go bust. So you have a situation in which the slump is produced by excessive
credit and debt in the economy. And, that means that the economy crashes. But you don’t try and overcome that by pumping more credit and debt into the economy
to enable it to keep going because that simply
produces a bigger crash the next time round. You let the whole economy collapse. So what’s wrong with that? I mean it won’t be long. I mean learning is quite fast. You need to start up again quite soon. – I mean as Cain said, “In the long run we’ll all be dead.” The next generation might learn, but we’ll still be worse
off ourselves and so. – Yes. – [Female Student With
Braid] No one likes that. – I think this is absolutely a key point. How short is the short run? I think it’s another one of these, you get a textbook and
you can never find out. They always say the short run,
the long run, the short run. You never know how long the short run is. Or how short the long run is. These terms I think have
lost all real meaning. I mean the short run should be simply the time it takes to
correct the deviation. But that’s doesn’t tell you how long it is in chronological time. So what do you do then if you have no idea of
what the short run is? Do you say, “Okay, well we’re only “interested in the long run. “The short run is of no interest to us. “It’s a deviation.” Economic theory should not be concerned with deviations from principle, but with elucidating the
principles themselves. And then whether you allow
a deviation to persist or whether you try, that may be a problem of policy but it’s not to do with economics. It may be that you can’t
afford as a government to allow citizens to take to the streets. That’s a political issue. It’s nothing to do with economics. – [Female Student With
Braid] Well if they’re in the streets they’re not
producing economically. – No, but that’s a deviation and you’ll soon get a new government. And they’ll start doing it.
(student laughs) But the interesting thing is when Hayek was asked to give advice
to Margaret Thatcher in the early 1980s he, I remember this very, very clearly. He wrote an article in the Times and that article said, “I don’t agree with this policy
of gradual disinflation.” They had a disinflationary policy that was going to last for five years. At the end of which the rate
of growth of the money supply would not be inflationary any longer. So I don’t agree with it. What you need, it’s not credible. What you need is an immediate cessation of money creation immediately. Now from tomorrow, there will be unemployment
of 60% for about a year, but after that you’ll be fine. – I mean, a lot can happen in a year. A lot of very bad things. – It’s very interesting that Hayek was advancing this kind of argument just as Hitler was coming
to power in Germany on the back of a quarter of the population being out of work. But should an economist mind about that? He’d say, “Well, look
that’s a political issue. “I mean, what you do about it, “I’m telling you what. “I’m giving you laws of cause and effect. “And I’m explaining why
thing might be such and such. “But what you do about it, “that’s not my concern.” – Yeah, one thing I would say is that that kind of example shows
that they’re not ultimately giving explanations of laws. Because if this were a law then there wouldn’t have
to be these corrections, as you explained it frictions, and so it proves that
they’re not laws as such. They’re tendencies. And what I was going to say
is that actually I think the equilibrium concept is useful but useful not in terms of explaining how things actually are because clearly it’s not how things are. But explaining how things would be if all the economic
assumptions were to hold. So it’s not so much a question of these things hold. Everyone’s self-interested. Everyone’s perfectly rational. Perfectly informed and therefore we have equilibrium. But more to the extent that people are perfectly informed. And to the extent that
they’re rational and so forth. Then we’ll move towards an equilibrium. So I think it is still a useful concept for explaining general
tendencies in the market. And why the price sometimes goes up and why it sometimes
goes down when there’s over or under supply. And to that extent I think it is useful and is worth keeping. But I think that the correct
status of equilibrium theory is not as an explanation
of how things are, but how things will be to the extent that the assumptions that lead to equilibrium hold in society.

  1. Capitalism is a contrivance

  2. Hasn't always been markets
    Remains/Bones go back 3.8 millions years

    It was a progression in a continuum that evolved
    MGTOWN 馃暤锔忊嶁檧锔廋ybernetics

  3. True cost is evonomics
    Efficiency is economics
    Capitalism is waste

    a side effect or consequence of an industrial or commercial activity that affects other parties without this being reflected in the cost of the goods or services involved, such as the pollination of surrounding crops by bees kept for honey.
    consequence 路 result 路 upshot 路 outcome 路 outturn 路 effect 路 repercussion 路 [more]
    the fact of existing outside the perceiving subject.
    More definitions, origin and translationsFeedback
    Externality – Wikipedia
    https://en.wikipedia.org/wiki/ExternalityIn economics, an externality is the cost or benefit that affects a party who did not choose to incur that cost or benefit. Externalities often occur when a product or service's price equilibrium cannot reflect the true costs and benefits of that product or service. This causes the externality competitive equilibrium to not be a Pareto optimality. …
    Externality Definition – Investopedia
    https://www.investopedia.com/terms/e/externality.aspMay 26, 2019 路 Externality: An externality is a consequence of an economic activity experienced by unrelated third parties ; it can be either positive or negative. Pollution 鈥
    External Economies of Scale 路 Production Externality 路 Pigovian Tax
    Videos of externality
    Micro 6.3 Negative Externalities: Econ Concepts in 60 Seconds-Externality
    455K views 路 Jan 15, 2010
    YouTube 鈥 Jacob Clifford
    Micro Unit 6, Question 7- Negative Externality
    7.6K views 路 Mar 24, 2013
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    2.7K views 路 Jan 2, 2014
    YouTube 鈥 Chris Thomas
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    What Is an Externality? – ThoughtCo
    https://www.thoughtco.com/definition-of-externality-1146092An externality is the effect of a purchase or decision on a person group who did not have a choice in the event and whose interests were not taken into account.
    Externality – definition of … – TheFreeDictionary.com
    https://www.thefreedictionary.com/externalityNoun: 1. externality – the quality or state of being outside or directed toward or relating to the outside or exterior; "the outwardness of the world"
    What are externalities? … – BusinessDictionary.com
    www.businessdictionary.com/definition/externalities.htmlexternalities: Factors whose benefits (called external economies) and costs (called external diseconomies) are not reflected in the market price of goods and services. Externalities are a loss or gain in the welfare of one party resulting from an activity of another party, without there being any compensation for the losing party. …
    Externality | Definition of Externality at Dictionary.com
    https://www.dictionary.com/browse/externalityExternality definition, the state or quality of being external. See more.
    Externalities 鈥 Definition | Economics Help
    https://www.economicshelp.org/blog/glossary/externalitiesThe social benefit is less than the private benefit. Pigou on Externalities. In 1920, Arthur C. Pigou wrote The Economics of Welfare which is an early exposition of this concept. Pigou noted that private business pursued their own marginal private interests.Positive Externality in Production
    A farmer grows apple trees. An external benefit is that he provides nectar for a nearby beekeeper who gains increased honey as a result of the farm…
    Negative Externality in Production
    Making furniture by cutting down rainforests in the Amazon leads to negative externalities to other people. Firstly it harms the indigenous people…
    Positive Externality in Consumption
    Education. If you take a three-year training course in information technology, you gain personal skills, but also other people in the economy can b…
    Negative Externality in Consumption
    If you smoke in a crowded room, other people have to breathe in your smoke. This is unpleasant for them and can leave them exposed to health proble…
    Externalities – Econlib
    https://www.econlib.org/library/Enc/Externalities.htmlEconomists measure externalities the same way they measure everything else: according to human beings鈥 willingness to pay. If one thousand people would pay ten dollars each for cleaner air, there is a ten-thousand-dollar externality of pollution.
    Economic Externalities: Meaning, Types and Effects | Economics
    www.economicsdiscussion.net/…/economic-externalities-meaning-types-and-effects…/27067ADVERTISEMENTS: Economic Externalities: Meaning, Types and Effects! Meaning and Definition: Externalities occur because economic agents have effects on third parties that are not parts of market transactions. Examples are: factories emitting smoke and did, jet plains waking up people, or loudspeakers generating noise. These activities are all having a direct effect on the well-being of [鈥
    Negative Externalities | Economics Help
    https://www.economicshelp.org/micro-economic-essays/marketfailure/negative-externalityExamples and explanation of negative externalities (where there is cost to the third party). Diagrams of production and consumption negative externalities.
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  4. Neolithic 馃憣馃檮 capital(ism)
    Over worked land
    Many factors
    Private property
    Before that people moved around

  5. regulation 馃憣馃檮 engineer proper goods
    Non toxic
    More with less

    Regulation 馃scarcity + scams or cons
    Private property + scarcity

  6. Edward M. Banes, Propaganda
    Narcissism 馃 Egyptian
    Vanity = mating selection = genes
    Forms of mathematics

  7. ephemeralization
    Richard Buckminster Fuller was an American architect, systems theorist,
    Zero cost margin
    Circular economy
    Artificial intelligence馃憣馃檮 also biological data (personal health)
    Post scarcity = goal

  8. I learn 馃 never use it to make money….
    But i like learning
    Humans are to complex….
    Millions of years of evolution
    Crazy pale blue dot…

  9. Competitive 馃暤锔忊嶁檧锔弒carcity

    At the same time humans can cooperate for survival too
    What is artificial competition like artificial scarcity = not a necessity

  10. Its just a principle. A tendency…. Smoking causes cancer. Actually it doesn鈥檛 in many many contexts. So what, does that make it a bad principle?

  11. Everyone wants stuff oh, why don't these people wear potato sacks for clothing? Know they would rather have a good quality materials so their skin doesn't itch that takes more labour. Takes more resources the costs are higher, but the more competition you introduced the better the quality in the lower the prices oh, and you also remove the inherent violence of forcing everyone to wear potato sacks orta labour for expensive materials under the threat of violence. She wants to remove the parasitic violent element you would introduce the ancient free markets oh, if you want to remove misery from the plan of the you would remove the Monopoly over the economy in the money supply, which are the very two elements used to determine the actual misery index around the planet as a matter of fact. Hunting regulations have produced in the thousands of years of economy is a monopoly over the economy LOL the benefit the few at the expense of the majority we have monopolies since the Sumerians going back four thousand years, more specifically Monopoly over the entire economy as well as the money supply oh, that tradition continues today, and as some of us understand it is the very formula from which we take these two components to derive the misery index, so plainly if you want to deal with the misery you want to dismantle the monopolies and bring back the ancient free markets to the people, this way you remove the inherent violence from the system so many are beginning to believe that is a necessity. Return to ancient free markets will give us true price discovery oh, and it will be the ancient pre market of them punish those that are trying to take advantage and have an advantage that comes in the form of Regulation. Regulations LOL this is very regulations that the cause of all this boarding up of commercial properties, of course they're going to say that it's online shopping that is killing the brick and mortar business that's just a load of crap, ever-growing taxation on small businesses and regulations prices them out of the market and produces monopolies

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