What is Economics? BS? or Queen of Social Science?

[Econabcd]

My question is what kind of knowledge can Economics provide us who are into economics. Are the iron rule of economic assumptions that people are rational, more is better, absolute selfish telling us anything about our real life? This financial crisis is a byproduct of neoclassical theories we learn in undergrad. I am beginning to think about what economics as a academic really is. Is it a just BS with some mathematics that makes it only look cool and objective? what do you guys think?

[diesel]

Is it a just BS with some mathematics that makes it only look cool and objective?

Erm. Yes. Which is why we love it.

[OneMoreEcon]

I have a BS in economics with some mathematics (a major, to be more specific). But I didn't realize it made me look cool or objective. In fact, I'm neither.

[GymShorts]

No one is saying that the assumption are 100% true. Nor are they saying that the consequence of a model are 100% true. However, they are helpful towards understanding reality.

For example, take the Capital Asset Pricing Model. It does not perfectly predict the price of stocks. There are other factors at play, and they assumptions are always true. However, it does do a good job at explaining why stocks with higher beta values have higher expected returns, and stocks with lower beta values have lower expected returns. The model isn't perfect; but it is useful.

Economic models are useful tools for analyzing the real world; they are not supposed to be perfect models of the real world. Humans simply are not smart enough to do that (yet).

[breakz]

Economic models are useful tools for analyzing the real world; they are not supposed to be perfect models of the real world. Humans simply are not smart enough to do that (yet).

Varian and David Romer both say the same thing. Models are tools for analytical thought, not evaluation of reality.

Anyway, economics deals with scarcity and how to maximize the benefits of limited resources given peoples' preferences. In summary: economics is not BS as much as the constant struggle to evaluate qualitative subjects with quantitative methods.

Hey, we're further ahead than sociology...we can unquestionably prove things from time to time.

[YoungEconomist]

What is Economics? BS? or Queen of Social Science?

If you want an honest answer to that question, why would you ask a group of aspiring economists? If you ask me, it's the queen of social science and I bet most on here will agree. It'd be like asking your mom who the coolest kid in school is.

absolute selfish telling us anything about our real life?

I would say the "absolute selfishness" part is an unfair criticism of economics. Where in economics does it say people are completely selfish? Even neoclassical economic theory can deal with this by having one individual's well-being show up in anothers utility function.

Economic models are useful tools for analyzing the real world; they are not supposed to be perfect models of the real world. Humans simply are not smart enough to do that (yet).

I agree. It boils down to topics relating to philosophy of science. The reason people come up with models is for an unrealistic and simple view of the world. The key of a good model is not whether or not it has unrealistic components, but whether or not it can do a fairly good job of capturing some of the important variables, and whether or not it can explain and predict with reasonable accuracy. As scientists have said before, a model that took into account all the complexities of the real world would be useless because it would be just as complicated as the real world. You will find the same thing in physics or any other science for that matter. Anyway, I urge you to read this article, as many of these topics are discussed.

[Demisel]

I'm not even in economics, and I still think that economics is the queen of the social sciences (although my view is biased because I was in mathematics and I believe mathematics should be the language of every science, natural or social). Many social sciences are adopting the language of mathematics, but economics is still very far ahead in this race. Also, many if not all of the building blocks of modern theoretical social sciences (e.g. utility theory, decision theory, game theory) came from economics (well, technically, some of these constructs originally came from philosophy, but economists were the the first people who used them in a rigorous way). Anyway, if you're an economist, you should be very proud of your profession.

[unitroot]

It is incorrect to blame the current financial crises on the neoclassical economic theory, which is indeed the theory at the foundations of most of modern mainstream economics. All it says is decentralized free market outcomes will match optimal theoretic equilibria as long as some important assumptions are satisfied (perfect competition, perfect information, and no externalities). If those assumptions are not satisfied then the outcomes are not necessarily Pareto efficient. Moreover, the contention that Pareto efficient equilibria should be always preferred to non-Pareto efficient allocations is a very important question, yet economists rarely address it. In fact, one could argue that the answer is not even within the realm of economics. However, lots of people like to twist the ideas of classical economics (like some libertarians or self-style "conservatives") to assert that free, unregulated markets are always best for all parties involved, because, well that's what Adam Smith and Alfred Marshall or something like that, conveniently ignoring the fact that many real-world markets have externalities, agents with asymmetric market power, information, and other imperfections.

The funny thing is that while economists are being consulted a lot on the current financial crisis and asked for comments, most of them know very little about what's going on. The thing about neoclassical economics (and modern macroeconomics) is that to this day the economists are struggling to provide a satisfying theory of money. The new-Keynesian model is generating lots of attention, but it still said to be in a primitive stage. Little is understood about aggregate labor markets. Likewise, very little is understood about asset markets. There is no model of equity premium to this day that most economists would agree upon. 99% of macroeconomists rule out any possibility of price bubbles and such with mathematical assumptions before solving the model. We're basically learning by doing right now.

In my view, the primary blame for the crisis should be placed on irresponsible borrowers, the government, and the lack of regulation in the housing markets. The Wall Street was only a secondary enabler. People with so-so credit history who were betting on prices to continue rising were allowed to buy houses at the prices and interest rates they clearly could not afford. Many paid 0 down payment, which ironically made it easier for them to walk away. If people were required to put something like 20% or even 10% of the house value down, much craziness wouldn't happen. The local banks repackaged loans into non-transparent securities and sold to the Wall Street establishments (much of whom were clueless about what they're getting because of inept rating agencies).

American politicians who for years pursued populist legislation to increase home ownership among more and more people, including low income families, helping to create this price bubble. And therefore, much blame should be up on them as well. To this day many insist that any "bailout" package should allow the homeowners to keep their homes, conveniently not mentioning that their policies is what enabled many of those now insolvent households to buy houses they could not afford in the first place.

[buckykatt]

This financial crisis is a byproduct of neoclassical theories we learn in undergrad.

Erm... No.

But thanks for playing.

[Akwabaa]

Economics is not only descriptive, it is not only evaluative, it is at the same time constructive. Economists seek to fashion a world in the image of economic theory. how would you describe the Amish people in terms of current economic theory..........I am just asking.