Sunday, September 18, 2011

Convolute this

A essay question from Robin Hanson via Sean Carroll, via Noah Smith:

Explain why people shouldn’t try to form their own physics opinions, but instead accept the judgements of expert physicists, but they should try to form their own opinions on economic policy, and not just accept expert opinion there.

I sort of feel like I should answer this.

Why should people try to form their own opinions on economic policy, and not just accept expert opinion? Because expert opinion has failed. Isn't it obvious?

But to be sure, I do not trust amateur opinion more than the experts. Everybody has a few good insights. Everybody makes mistakes. And everybody jumps to conclusions way too soon. So I don't trust 'em, none of 'em. I trust what I can see for myself.

In remarks following the excerpt, Noah writes

Carroll doesn't go into this, but the microfoundations of a discipline are also a factor in how much its experts should be trusted. Climatology has too long a horizon to make repeated verifiable predictions, but it's microfounded by physics that everyone agrees on.

In other words, climatology is microfounded on physics. Noah is saying physics is to microeconomics as climatology is to macroeconomics. I offer a different analogy, an old-versus-new analogy: Newtonian physics is to micro as Quantum is to macro.

To be truthful, I'm not sure I know what "microfoundations" is. But I know it makes macro more complicated than it has to be.

The economic experts are like I was when I was struggling to solve my problems with C. They overlook the simple things, and delve into complexities. I am saying that the complexities are unnecessary, and that the problems arise from simple things. The problems lie in the basics, the things the experts think they don't have to think about anymore. This is why they can't solve the problems.

Noah continues:

Macroeconomics, on the other hand, is microfounded on the parts of microeconomics that we don't really understand yet - consumption-saving behavior, firm investment decisions, technological change, expectation formation, risk aversion, and the like. Once micro people get these nailed down (and I think they will), we'll get some much more credible macro models.

But you don't need to know all that crap to understand the economy. Macroeconomics is not microfounded any more than quantum is based on Newtonian physics.

Once micro people get things worked out, Noah says, they'll give us better macro. But the micro people had things all worked out. And it didn't work out. How many chances do they get? How many Depressions do they get to not see coming?

In his Nobel prize lecture, Robert "Binsolved" Lucas said the relation of macroeconometric models to microeconomic theory was "unclear" and that this situation was not "healthy".

In Economics in Disarray, Mankiw said the distance "between microeconomic principles and macroeconomic practice that was too great to be intellectually satisfying."

Economists need microeconomic foundations so they can FEEL BETTER about their logic. But macro WORKED BETTER before the foundations were messed with.

Keynes, in The General Theory, said the ideas he expressed so laboriously "are extremely simple and should be obvious". Keynes had to deal with people like Lucas and Mankiw and Noah, people who know a lot and think every bit of it matters. Me? I think the task is to prioritize things. Figure out what's most important. Focus on that.

And then economics becomes so simple a cave man could do it.

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