Congratulations. This is one of the most thoughtful op-ed pieces that I’ve had the pleasure of reading over the past few years.

Years ago I earned a Bachelor of Science in Economics. I was fortunate to have had some astute instructors. A concept that was drummed into us was that Economics is a social science, not engineering. Psychology and sociology are central to economy theory just as physics and mathematics are central to the engineering disciplines.

Sure, we learned our share of math and grappled with those differential equations, but that was necessary in the attempt to build a mathematical model that quantified human behavior. You see, we’re back to the social science again!

What is fascinating about our current debate is that we seem to have two schools of rather simplistic thought.

A. Stimulus bad.
b. Stimulus good.

The author is correct about there being no “laws”, therefore there is no right or wrong. It would serve the reader well to consider that what is right today (what ever that means) could be considered wrong tomorrow as conditions change.

I believe what frightens people and frames the debate is the perceived loss of control of the worlds finances. Central Bankers, for better or worse, call all the shots. Politicians are mainly on the sidelines as are the citizens.

Right now the Fed and the BOJ seem successful, the ECB less so. Uncertainty reigns supreme. Will the ECB look better next year? No one knows. The uncertainty is what’s driving those people who pay attention crazy.

Want my opinion? I’m not saying. Why should I? I don’t know any more than anyone else. That’s the problem. We all want some answers, certainty.

There is none.

Your apparent lack of education is truly astounding.

In a very real sense, which you allude to in this statement “The laws of gravity may be set, until the laws of quantum mechanics throw a wrench. Our ability to measure the world increases, and our understanding of laws evolves” there are indeed no LAWS for ANYTHING.

Taken as a whole, your article is both disingenuous and worthless because it falsely claims a general lack of sufficient knowledge to apply appropriate mathematical methods to anything but “hard science”. Not only that, but we DO, in fact, have more than enough information to mathematically measure economics, AND to draw reasonable conclusions from those measurements.

For example (from Wikipedia, solely for ease of access), we KNOW the US “free market” economy is HIGHLY UNSTABLE, having crashed at least 47 times since 1790. I would argue that 223 years of the severe failure of our economic system, mostly due to wealthy greed and excess, is statistically valid to use.

http://en.wikipedia.org/wiki/Us_recessio ns

For example, we KNOW that Adam Smith (whose picture you display prominently above) said this about a free market economy his book the Wealth of Nations (1776). HOWEVER, what the wealthy class NEVER reveals beyond their (neocon) version of free trade is what Adam Smith said about people like those who are running this nation right now (including you, apparently).

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In The Wealth of Nations[77] (1776) … the statement about “an invisible hand” has been interpreted in numerous ways. It is therefore important to read the original:

As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other eases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.

Those who regard that statement as Smith’s central message also quote frequently Smith’s dictum:[78]

It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.

Smith’s statement about the benefits of “an invisible hand” … shows Smith’s belief that when an individual pursues his self-interest, he indirectly promotes the good of society. Self-interested competition in the free market, he argued, would tend to benefit society as a whole by keeping prices low, while still building in an incentive for a wide variety of goods and services.

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Nevertheless, he was wary of businessmen and warned of their “conspiracy against the public or in some other contrivance to raise prices”.[80]

Again and again, Smith warned of the collusive nature of business interests, which may form cabals or monopolies, fixing the highest price “which can be squeezed out of the buyers”.[81]

Smith also warned that a business-dominated political system would allow a conspiracy of businesses and industry against consumers, with the former scheming to influence politics and legislation.

Smith states that the interest of manufacturers and merchants “…in any particular branch of trade or manufactures, is always in some respects different from, and even opposite to, that of the public…

The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention.”[82]

http://en.wikipedia.org/wiki/Adam_Smith

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Notice the comments between the double lines above, which the wealthy class NEVER include in any of their quotations of the free market philosophy.

Notice also this comment in preceding paragraph “As every individual, therefore, endeavours as much as he can TO EMPLOY HIS CAPITAL IN SUPPORT OF THE DOMESTIC INDUSTRY, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can.

Basically, what we have today is a neocon wealthy class that has in effect overthrown this nation’s government, are busily dismantling it and selling it overseas for their own profits, and who care nothing about what happens to this country as a result.

THAT is the problem.

In terms of economics, I think have sufficient data to measure HUMAN GREED and its negative effects on society.

At best, you are nothing but a shill for the wealthy class.

At worst you are a liar who is complicit in destroying this country for your own benefit.

@ Missinginaction –

You prove my point.

You state, “The author is correct about there being no “laws”, therefore there is no right or wrong … We all want some answers, certainty. There is none.”, which is EXACTLY the impression the author wants to create.

Arguing there is no right or wrong — a Hayakian argument, the substance of which is contained in the author’s article — will lead the US economy and our society to a place we don’t want to go if we want it to survive.

Prior to the 1929 Crash and the Great Depression, this nation’s “economics” were based on one simple premise — Social Darwinism (survival of the fittest) — and THAT is where the wealthy class is taking us again.

Underneath the glib argument of the author that there are no laws of economics, THAT is the “reasoning” which carefully hides.

As I said, I agree there are no laws of economics — anymore than there are real laws in science (merely mankind’s interpretation of reality) — BUT that certainly does NOT mean we cannot learn from our past economic mistakes. And part of that learning process is to use the appropriate mathematics to quantify what is happening. Only then will we have a basis for taking rational action.

@ brotherkenny4 –

You state, “It is a tendency of most people to reference as proof some historical document regarding a particular issue. It is much easier to fall back on what we accepted as real in the past than to think originally about an issue in real time.

All ideology and philosophy is a simplification of reality and they are convenient for those that struggle with complexity. Followers are also more easily cowed by simple constructs rather than being convince with complex and difficult information. Indeed, those with a propensity to follow are looking for leaders with easy answers, whether they be right or wrong.”

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I am not sure what the point is that you are trying to make. “Historical documents”, as you put it, are useful to measure the effects of things over the passage of time, a repository of information from those who have experienced the same or similar issues — the alternative being to “recreate the wheel” every day, which is stupid beyond belief, and the practical effects of that would be mankind still living in caves — but what you do not seem to understand is the value of that knowledge applied to current events.

Too often people ignore history, which is a main reason why the rest of what you say makes sense. Reality is indeed complex, yet most people would prefer not to deal with that reality.

That, in fact, is actually what is happening now, and the whole point of my comment above.

Simply put, “opinions” are worth nothing, unless they can be backed up with fact. The trouble with today’s media is that it allows people to express “opinions” as “facts”, when in reality they are not the same at all.

THIS is what the author is doing, and doing quite a good job of it in terms of misdirection. He actually does not have a valid point, but is merely presenting an emotional argument based on whatever his hidden motives are.

He is attempting (as I said quite successfully) to reach the inner prejudices of the masses against education and history. His effort is but a small part of the great “dumbing-down” of this nation to make them more pliable. The ugly reality is that, if you repeat a lie often enough, most people will come to regard it as the truth.

I think you have fallen into this common error that you ascribe to most other people. You apparently believe in your own deeply held opinions that he is correct, but without any real basis in fact.

What is worse is that you add the weight of your opinion to that of his, thus reinforcing the trend, instead of questioning what he is saying.

Funny thing about laws … they can be broken. Just because laws can be broken doesn’t mean they don’t exist, but rather that I choose to ignore (break) them. I can substitute the words “rules”, “precepts” and “guidelines” for the word “laws” in this article, and it still reads the same to me. Mr. Karabell does a fine job positing we should discount basic mathematical economic theory because he does not believe the theories accurately calculate what is actually happening financially in the world around us. However, Mr. Karabell can’t say to the economic mathematicians, “You’re completely wrong because your theoretically-calculated result isn’t what happened” any more than the economic mathematicians can say to Mr. Karabell, “Years of statistically-correlated data proves that our mathematical models will correctly predict the economic future.” Economic theory is a great place to start to develop a prediction of future financial conditions (and thus shouldn’t be summarily dismissed as worthless or inaccurate) as long as the mathematicians remember that statistical correlation is not the same as causation (so temper your use of historical data accordingly when proclaiming, “This causes that”).

Pseudo, don’t take this criticism the wrong way, as I think we are in complete agreement about the avarice of the business owners of the world. BUT you are wrong about science. The world is not relative, and we can call the “Laws” of science what they are: scientific Laws, as distinct from so-called economic laws. The thing about this technical term is that it is self-referential. THey are called Laws because they work. This is something that economics cannot do, despite your roundabout argument that we “have enough data to predict.” we have enough data from pyschology and history to predict that people will attempt to exploit one another, but economics cannot make any accurate predictions at all. Only within closed models that shift with the fashions of politics can economics make predictions.

This is exactly the reverse of science, which uses laws for predictions that uniformly (by now, after centuries of effort) DO produce accurate predictions in the real world. Until economics can make some useful predictions they are rightly NOT called a science. Because they are not.

@ Benny27 –

If we are “in complete agreement about the avarice of the business owners of the world”, why are we arguing whether economics is science or not, instead of doing something about the reality of the economic damage they are doing?

That is their game, to distract people from the truth of what they are doing.

That is a zero sum game, and we are losing badly.

@ Benny27 –

You prove my point that someone who has a strongly held opinion, and who is not ready or willing to understand the truth, cannot be convinced otherwise.

As to the definition of economics as a science, it is as I quoted. There is no point in arguing about something which has been long-settled and moot for our purposes.

As you your statement, “Quantum mechanics are an interesting example, primarily because they do not invalidate Newton’s critique of the prevailing theory of his day: mechanistic materialism. He proved action at a distance. Einstein does not invalidate, but rather enriches this view. The reality that you refer to is on such a micro level that it may as well not exist for everyday purposes. None of this invalidates classical physics.”

I doubt you will find many physicists today who would be willing to agree with you that Newtonian Mechanics is still valid theory, since Einstein (much to the chagrin of the British) proved his Theory of Relativity about 100 years ago.

Action at a distance has been displaced by field theory and quantum entanglement.

“Electricity and magnetism

Efforts to account for action at a distance in the theory of electromagnetism led to the development of the concept of a field which mediated interactions between currents and charges across empty space. According to field theory we account for the Coulomb (electrostatic) interaction between charged particles through the fact that charges produce around themselves an electric field, which can be felt by other charges as a force. The concept of the field was elevated to fundamental importance in Maxwell’s equations, which used the field to elegantly account for all electromagnetic interactions, as well as light (which, until then, had been a completely unrelated phenomenon). In Maxwell’s theory, the field is its own physical entity, carrying momenta and energy across space, and action at a distance is only the apparent effect of local interactions of charges with their surrounding field.”

Action at a distance is the nonlocal interaction of objects that are separated in space.

Action at a distance was used most often in the context of early theories of gravity and electromagnetism to describe how an object responds to the influence of distant objects. More generally “action at a distance” describes the failure of early atomistic and mechanistic theories which sought to reduce all physical interaction to collision. The exploration and resolution of this problematic phenomenon led to significant developments in physics, from the concept of a field, to descriptions of quantum entanglement and the mediator particles of the standard model.

Einstein

According to Albert Einstein’s theory of special relativity, instantaneous action at a distance was seen to violate the relativistic upper limit on speed of propagation of information. If one of the interacting objects were to suddenly be displaced from its position, the other object would feel its influence instantaneously, meaning information had been transmitted faster than the speed of light.

One of the conditions that a relativistic theory of gravitation must meet is to be mediated with a speed that does not exceed c, the speed of light in a vacuum. It could be seen from the previous success of electrodynamics that the relativistic theory of gravitation would have to use the concept of a field or something similar.

This problem has been resolved by Einstein’s theory of general relativity in which gravitational interaction is mediated by deformation of space-time geometry. Matter warps the geometry of space-time and these effects are, as with electric and magnetic fields, propagated at the speed of light. Thus, in the presence of matter, space-time becomes non-Euclidean, resolving the apparent conflict between Newton’s proof of the conservation of angular momentum and Einstein’s theory of special relativity.

Pseudo, Interesting take, I am not sure why you feel the need to be hostile, I am essentially agreeing with you. I say that Adam Smith is wrongly used to justify the neo-liberal (you say neo-con) positions of commenters and pundits today. Adam smith predicted that they would attempt to distort the market etc. And we see that they do. What does this have to do with the Efficient market hypothesis and other modern tropes of economics?

I am not aware of the details of Quantum Physics, so correct me if I am wrong. Newton first exploded the notion that things needed to touch to interact (as you also mention), but modern quantum theory refers to events that occur at the subatomic level, not the macro world of aeroplanes and humans. So in what way does the recent discoveries in physics invalidate the utility of Naturalistic Science? Otherwise stated, who cares about field theories, when we are trying to solve human problems such as economic policy changes?

So what exactly are you trying to teach me? My thesis is that economics is a field of political science, and the only truth to be found anywhere in human understanding will come from modern science, not from economics or speculative philosophy, for instance. Your condescension about Adam Smith is unnecessary, because you are telling me what I already know: businesses act in self interest, and tend to work toward conspiracies against the public. I just add the fact that his “toward the betterment of all” notion refers to his own nation, at the expense of others. That is why he spends long tracts of his work. explaining policies that England should adopt. He also said that division of labour would prove efficient, but it would also turn man into a low beast-like machine, robbing him of his human characteristics (a low fidelity paraphrase, of course).

So is he recommending division of labour or not?

You tell me I am wrong while agreeing about the practice of economics. I admit to ignorance of physics, and I am still learning. You seem attached to classical economics, as if that is what is practiced today. perhaps you really do just prefer to shout about things, rather than deal with details. I don’t expect you to teach me anything in particular, but I am mystified as to what your problem is regarding economics. You say my view is wrong when I agree with you word for word….

Right now, we have no laws of economics. There are laws of accounting, and we mock them at our peril, but they are generally ignored by economists whose arguments often make no accounting sense.

Also, do economists actually argue that economic laws have moral weight? You’ll notice that physicists, biologists, chemists and accountants don’t. The laws may be right or wrong, but not good or evil. If economists are talking about morality and not money, goods and services, then they are promulgating religion, not science.

Mr. Karabell is concurrently right and wrong. The “laws of economics” are the intersection of the laws of physics, nature, and human behavior. They are not mathematically perfect or rigid, neither are they meer suguestions.
Nor do they depend on perfect rationality. They depend on the interaction of real immutable physical facts, as well as patterns of human behavior that whether rational or not, whether variable or not still remain within narrow ranges for the overwhelming majority of people.

It is theoretically possible that governments can act in ways that “violate the laws of economics” without experiencing the consequences those “laws” predict – but the probability is minuscule.

It is wrong – immoral even evil for government to act contrary to those laws while expecting, predicting and trying to persuade people that they will not apply.
It is possible that tomorow every single human could wake up and behave in the specific irrational manner required for the “laws of economics” not to work. But just as we can expect the sun to rise tomorow, it is likely that all of humanity will not suddenly behave entirely differently tomorow.

The “laws of economics” are not invariable and immutable. Nor do they presume perfect rationality. But they are based on human behavior and have an extremely high probability of proving true. They do not require rational or perfectly predictable human behavior, just not universally unpredictable irrational human behavior.

When proclaiming the Emperor has no clothes it helps if you know what clothes actually are.

“Because the “laws of economics” say the supply of money will cause inflation if overall output stays the same. In the developed world, clearly, there has been an increase in money supply via the Federal Reserve, the Japanese Central Bank and to a lesser extent the European Central Bank, yet growth is minimal everywhere. While there is no statistically discernible inflation as of yet, the “laws” strongly indicate that there soon will be.”

Said “laws” state that the velocity of money falls in recessions. And it is the combination of the amount of money and its velocity of circulation which determines inflation.

US money supply has recovered to trend but velocit has not. Eurozone velocity has recovered but money supply has not.

The “laws” of economics tell us that either situation will lead to no or negligible inflation, indeed, to the deflation we see in some eurozone periphery countries.

The inflation will come if and when both money supply and velocity return to past trend.