Monthly Archives: August 2015

“Mathiness” vs. the Logic of Action

Mathematical economics is fraying at both ends. Critics of the over-mathematization of economics keep chipping away at the spurious correlations and the theoretical equations that are either too simple or too complicated. At the other end, notable mainstream economists like Paul Romer see fundamental problems in the way economics is done today.

His paper on “Mathiness” was picked up by the Wall Street Journal. “Mathiness” is “the use of mathematics to persuade or mislead rather than to clarify,” and is ubiquitous in the economics profession these days.

Unfortunately, Romer’s conclusion in his paper offers a non-solution:

[back in the good ol’ days] Not universally, but much more so than today, when economic theorists used math to explore abstractions, it was a point of pride to do so with clarity, precision, and rigor. Then too, a faction like Robinson’s [politically motivated] that risked losing a battle might resort to mathiness as a last-ditch defense, but doing so carried a risk. Reputations suffered.

So all the profession needs to do to get over this destructive love affair with mathiness is a fresh injection of “clarity, precision, and rigor.” This is like telling a group of criminal graffiti artists to use stencils when they’re defacing buildings.

The real problem is much deeper than Romer realizes. Economics is the science of human action. It deals with motivated human choice. As such, there are no strict quantitative relationships like the ones in the hard sciences. Objects don’t choose to fall at a certain speed, or choose to react to other objects in certain ways. Humans choose. Our choices are based on preferences which change unpredictably in an infinite number of ways over equally unpredictable and infinite varieties of circumstances.

The details of human action are unpredictable and not conducive to strict quantitative rules, but the logic of action provides a rich framework for doing economics.


1 Comment

Filed under economics

Wednesday Doom Parade

Today’s Mises Daily suggests we’re at a tipping point. 

David Stockman predicts and “epochal deflation” in a recent interview at CNBC.

The WSJ also points to China and commodity markets as cause for concern.

Leave a comment

Filed under links

The N.S.P.H.H.B.O.P., the market, and the “Beepocalypse”

The number of honey-producing bee colonies is higher than it has been in 20 years, according to the newest USDA data. After consistent decline from the late 1980s to the early 2000s, there has been a recent rise in the number of colonies due to federal regulations promoting bee health—scratch that—beekeepers responding to changing prices of honey, bees, and beekeeping equipment.

The first-of-its-kind “National Strategy to Promote the Health of Honey Bees and Other Pollinators” was only introduced by the Executive Branch this year, after the recent bee population increase, and will probably try to steal credit from the market naturally working toward an increased bee population in the years to come.

The Washington Post article reports that the price of honey has just about doubled over the course of 2006-2014, and so have the fees beekeepers charge to farmers for bringing their colonies to pollinate fruit, nut, and veggie crops.

These increasing prices for beekeeping outputs make the purchase of beekeeping inputs a more profitable investment. Beekeeping inputs include bees, which mean more colonies are created and maintained by beekeepers.

Consumer demand drives the price of honey, which makes honey production profitable, which increases the demand for the factors of production specific to honey production. Voilà, more bees.

Also, consumer demand drives the price of food, including fruits, nuts, and veggies, which makes farming profitable, which increases the demand for pollinating services, which increases the profitability of beekeeping, which increases the demand for the factors of production specific to beekeeping, like bees.

Contrast these natural, fine-tuned, and self-regulating market mechanisms (profit/loss, imputation, supply and demand) to a few of the proposed actions from the N.S.P.H.H.B.O.P., below:

Screen Shot 2015-08-07 at 3.25.30 PM

Leave a comment

Filed under economics