21 October 2013

Politically Incorrect

More bloviating on the Nobel choice of economics winners. Today it's one Raj Chetty who argues that "Yes, Economics Is a Science". He's wrong, of course, despite living in a saltwater economics environment with Krugman, et al.
I'm troubled by the sense among skeptics that disagreements about the answers to certain questions suggest that economics is a confused discipline, a fake science whose findings cannot be a useful basis for making policy decisions.

No, what's troubling is that the likes of Fama live in a bubble, often parodied by Maher. And the likes of Chetty don't call bullshit.

And the reason: the data is used to support the a priori policy decisions. Each side hires quant guns to defend it. I don't think Chetty even read his piece before submitting it, because he tells the tale of dueling data over the question whether extending unemployment insurance duration leads to a welfare society of entitlement junkies.
These studies have uniformly found that a 10-week extension in unemployment benefits raises the average amount of time people spend out of work by at most one week. This simple, unassailable finding implies that policy makers can extend unemployment benefits to provide assistance to those out of work without substantially increasing unemployment rates.

Economics isn't a science, it's political economics, as it was called in Adam Smith's (the real one) day, and with good reason. Economics of the sort of Fama, which serves only to defend social Darwinism from protest, was what motivated Smith and those a generation or two on both sides of his life to coin the term Political Economics. They were well aware that the commonweal is different from the benefit to the very upper class, and set about devising an explanation for why the 99% ought to reap more of the benefits of an economy. And they understood that the key was the political process. With autocracy one had monopoly. Which the chicken and which the egg? Flip a coin, because it doesn't matter. Once one abides the other comes along for the ride. Left alone, the monopolist/autocrat would grind the rest into subsistence poverty. The only way to combat this devolution was a set of law which protected the majority from the minority.

If autocracy is the form of "government", then the autocrats, by definition control that which is of value. If monopoly, such as oil fields in third world countries, then the monopolist has to be "protected" from protest by autocracy. Or, who is the NSA protecting?

These days the likes of Fama continue to garner great gelt from the deepest pockets, just as F. Lee Bailey once did. The other issue is data itself: micro data is readily available to corporations/lobbyist/etc. since they have dominion over the process under study. Macro problems, on the other hand, are supplicants to governments (and a few NGOs) for orts of data. Most often this is sample data of shaky provenance. Just read the entirety of a monthly BLS employment report; you'll be in tears.

One of the quite recent indictments of the Fama myth of perfect information, and such, is the cost/price/margin situation with the iPhone 5C/S. If there were rational consumers and perfect information, as the Fama acolytes insist is the way the real world works, then the price difference would reflect the marginal cost difference. According to iSuppli there's a $26 difference, which ends up being a $100 difference in price. In Fama's world, that can't happen. But it does.

Economics will remain not-a-science so long as the mass of economists engage in advocacy to the highest bidder, irregardless.

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