Crawl Across the Ocean

Monday, May 28, 2007

Irrational Behavior

I've been meaning to write about the sickness in the Economics profession for a long time now but, as they say, good things come to those who procrastinate, so here's a lengthy article by Christopher Hayes in The Nation which makes all the points I wanted to make and more.

In passing, I'm sure I took courses across at least a dozen departments while I was an undergrad, and Economics was a clear outlier in the resemblance of its courses to propaganda rather than education - and I say that as someone who was sympathetic to the mental straightjacket of classical economics at the time (hey, I was still a teenager).

Here's a passage from the Hayes article for those with an irrational fear of following hyperlinks (you know who you are),
"Mafia is probably a tad hyperbolic, but there is undoubtedly something of a code of omertà within the discipline. Just ask ... David Card.


Card, a highly esteemed economist at the University of California, Berkeley, caught flak for his heresy ... on the minimum wage. In 1994 he conducted a study to see whether an increase in the minimum wage in New Jersey had the negative effect on employment that basic neoclassical theory would predict. He found it didn't. In fact, his regression analysis showed that, controlling for other factors, New Jersey gained fast-food jobs after increasing its minimum wage, compared with Pennsylvania, which hadn't raised wages. The paper attracted a tremendous amount of attention and criticism, and Card himself largely abandoned working on the minimum wage. In a 2006 interview, he explained his decision to leave the topic behind this way: "I've subsequently stayed away from the minimum wage literature for a number of reasons. First, it cost me a lot of friends. People that I had known for many years, for instance, some of the ones I met at my first job at the University of Chicago, became very angry or disappointed. They thought that in publishing our work we were being traitors to the cause of economics as a whole."


  • Economics has a limiting flaw: It can only measure economic activity in dollars. This would be fine if so many economists would accept this limitation instead of trying to explain everything with dollars and advance "the cause of economics as a whole."

    By Anonymous famousringo, at 12:44 AM  

  • Good point. Overreach, and an unwilling to face those things unamenable to numerical analysis (so everything translated into dollars) really is one of the core problems, I agree.

    By Blogger Declan, at 8:30 PM  

  • Basically, economists are priests. They belong to one sect or another and are impervious to any datasets that might falsify the beliefs associated with that sect. I think econ schools should be merged with divinity schools; they can take the MBA 'schools' along with them.

    By Anonymous richard, at 3:10 PM  

  • Well, speaking from the experience of getting an MBA, business doesn't really have any sort of grand philosophy/theology or mission to convert the masses the way economics and religion do.

    It would be easy to lay down the fundamental points of the economics canon, but what does the typical business prof believe? Beats me, and I did an MBA as well as taking lots of business-y courses in undergrad.

    Business does share economics' failure to acknowledge the severe limitations of numerical analysis when dealing with human phenomena, but the real problem with business schools (in my opinion) is that there just isn't that much to teach/learn on the topic.

    I mean, a little accounting is useful for almost anyone, and a grasp of finance, the time value of money, asset pricing models and the like can be handy. And there are some more useful adhoc bits of information here and there in marketing and strategy and so on, but for the most part, I'm pretty skeptical that a person would see any kind of significant improvement in their ability to understand or conduct business as a result of taking an MBA.

    By Blogger Declan, at 8:20 PM  

  • I find a lot of this going on in economics where classical theory would predict some outcome in favor of barebone laissez-faire economics, but actually results lean more toward common sense solutions, be they right or left.

    By Blogger Tony, at 4:54 AM  

  • The typical business prof believes that organizations are gradually progressing towards an ultimate final goal, and that organization science will become an actual science of truths and laws. Part of those truths and laws will involve the definitive way to achieve maximum productivity, efficiency, and profits through an organization's prime resources - people.

    By Anonymous Trish, at 5:31 PM  

  • Hmm, sounds like those profs have been reading too much Isaac Asimov, the Foundation series in particular.

    It always makes me laugh the way they attach the word 'science' on the end of words like 'organization', as if one has or could have anything to do with the other.

    On a mildly related note, I recall way back when I took an 'organizational science' course we had a group project where the objective was to produce a report on how the group dynamics worked as the group worked to achieve it's objective.

    As a computer science student (at the time) I appreciated the recursive nature of the assignment, while at the same time avoiding thinking too deeply on the matter lest I lose my mind or end up as an extra in some Escher painting.

    By Blogger Declan, at 6:22 PM  

  • In our program we also laugh at the idea of organization becoming anything like a science. But it's scary how many business/management academics are striving towards that very goal.

    By Anonymous Trish, at 9:57 AM  

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