Rodolfo Hernandez

University of Valencia

Question
To make the understanding of Economics easier, we do not need Mathematics at all. Does anybody agree?
Economics has been transformed in applied logic and pure mathematics. This does not help to understand how the world really works. We should differentiate between Mathematical Economics and Economic Science or Political Economy. Thats my thinking!!!
Mar 28, 2013

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History of Economic Thought Political Economy Economics Political Economics

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David Savage 14.52 19.44 Queensland University of Technology I know this is an old quote, but ... [I had] a growing feeling in the later years of my work at the subject that a good mathematical theorem dealing with economic hypotheses was very unlikely to be good economics: and I went more and more on the rules - (1) Use mathematics as a shorthand language, rather than an engine of inquiry. (2) Keep to them till you have done. (3) Translate into English. (4) Then illustrate by examples that are important in real life. (5) Burn the mathematics. (6) If you can't succeed in (4), burn (3). This last I did often (A. Marshall, 1906)

I think the reason the general public either distrusts or outright ignores economists is our use of maths - we often hide behind it claiming it is the only way to remain a rigorous science. However, we forget that we are still (and always have been) a social science, dealing with issues of society, whether it be markets, individual behavior or macro economies. The vast majority of the public can not understand our publications because of the math. If we want the public to understand our results and our policy implications we need to talk to the public in a language they understand, not just ourselves. Too often we pat each other on the back for a fantastic piece of econometric skill or analysis and forget that our audience is the public and society. If we are not communicating to them we have lost the point of our science, then it just becomes egotistical posturing for our peers! We have broken point (1) and forgotten the rest of Marshall's advice...
3 / 0 17 days ago Flag

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Yoshinori Shiozawa 8.09 Chuo University The trouble with mathematics in economics is that the mathematical tractability gives a sharp orientation to the solvable problem formulation. Many of marginal analysis were proved to be unrealistic but the lack of suitable mathematical formulation forces people to continue to consider in marginal analytic framework. Some people claim that this is done as a first order approximation. But I doubt if it is not a simple apology, for it is very rare that those people go further than the so-claimed marginal analysis. Indeed, it is quite hard to escape from marginal analysis once one is accustomed to think in this framework. General Equilibrium theory (GE theory hereafter) and many of modern development are but variants of marginal analysis. If GE is really a good characterization of economies, then there is no problem in this. But, it is not the case. Marica Dumitrasco mentioned self organization systems. Is an economy a self organization system or an equilibrium system? Of course, this depends on the definition of self organization systems. Marica may include equilibrium system among variants of self organization systems. More standard understanding is different, for the notion of self organization came to be discussed on the recognition that self organizing systems are very different from equilibrium systems.

Take an example of dissipative structure (See for example my presentation on Economy as a Dissipative Structure, in my profile page). This is one of the most famous self organizing systems. As Prigogine, the founder of this concept, put it, a dissipative structure is possible only in a state which is far from equilibrium. Implication to economics is tremendous. Keynes started to analyze involuntary unemployment. In the GE theory framework, this is impossible. Keynes himself and many followers tried to formulate their ideas in the GE framework and failed. In my understanding this is inevitable. Economies are far from equilibrium and we should construct a theory, something similar to dissipative structure. If not, unemployment (and many other important topics) cannot be treated appropriately. Of course, this requires a high leveled mathematical formulation. Prigogine's dissipative structure is rather a simple system. Even though, he barely succeeded in formulating it mathematically. A modern economy is much more complicated, by the level of mutual interactions and by the dimension and the variety of intervening agents. We must say that we have not succeeded in formulating economy as a dissipative structure or as any other self organizing systems. In this situation, it is understandable that many researchers tend to use GE framework in their studies. But it is time to pursue a different direction. When we stick to mathematical rigor, we may not leave GE framework. For a breakthrough of economics, the vision (in Schumpeters sense) is important. Logic comes later. Those people who believe in mathematics are thinking that mathematics is the on... [more]
20 days ago

Marica Dumitrasco 4.11 1.15 Academy of Sciences of Moldova You give a very interesting continued of discussion. CGE suffer from data availability. I am trying to work with partial equilibrium model of SMART in scope to estimate the effect of creation of FTA between my small country of RM and EU. Model of SMART has e few advantages: it can give information at a highly desegregate level that can be useful for decision makers, it makes direct estimations, supply elasticities are assumed to be infinite (=99). This assumption takes place then importer is small country, but exporter is a rest world. What do you think about it?
Modified 8 hours ago by the author 20 days ago

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Rodolfo Hernandez 1.05 University of Valencia

To learn to think logically help policymakers to understand what should be the priorities and the big choices. The real risk is when we advice or propose based in our models that can not reflect the real world. Economic science should be differentiated of Economic Theory which is pure mathematics or microeconomics...
19 days ago

Yoshinori Shiozawa 8.09 Chuo University Marica, I have read two of your papers: (1) Economics crisis: it is time for a deep modernization of macroeconomic science and (2) Problems of elaboration of economic policy of the Republic of Moldova in the process of European integration. I know very little about Moldova, but it seems you policy recommendation is well organized. It is sane, wise and has a wide view. I hope the Republic of Moldova will organize a good and prosperous economy along the line you recommended in your paper. Your observation on contrast between comparative advantage following policy and comparative advantage defying policy was also very interesting. As a researcher in the international trade theory, I am interested in the reasons why Japan and Korea succeeded in import substitution and Latin American countries failed. Your economic crisis paper is important and deserves to be read widely. Yes, it is time to change macroeconomics from the very foundation. I have opened a question page "Return to Keynes, is it sufficient?" Up to now, there are more than 50 answers and in this sense this question page has attracted interest of many people. However, majority of the respondents are only interested in policy making. As you have put it in your economic crisis paper, there are many contradictory views on what we should do now and here (or there). Policy debates are often motivated by the respondents theoretical understanding how economy works or does not work. Therefore, in my observation, policy debate without theory is always confused and unproductive. Today's macroeconomics (for example, one that presupposes rational expectations) is based on unrealistic hypothesis and is more ideological than scientific. If I were you, I would not use the terminology like "modernize macroeconomics." The question is not to modernize it. We should reconstruct a more sane economics than the present macroeconomics. The question of using mathematics in economics should be considered in this perspective. If not, mathematics often becomes a dangerous tool which orients researchers to ready made and easily

tractable formulations. In my observation, this mechanism of implicit orientation has spread a tremendous quantity of poison among economists and many researchers became slaves of their mathematical tools without being aware of it. To repeat my opinion, mathematics can be a useful tool if it is used adequately. It sometimes makes us possible to obtain a clear insight over sometimes complicated relations of various variables. But we should also know the limits of mathematics (I am expecting a lot for new tools like agent-based simulations for this reason). We must be cautious if we are directed by the mathematics rather than using it. For these two point are to be fulfilled, we need very high potency in mathematics. Present teaching of mathematics in economics department cannot achieve this purpose and there is a high probability that it produces shallow researchers who believe that u... [more]
1 / 0 19 days ago

David Savage 14.52 19.44 Queensland University of Technology I know this is an old quote, but ... [I had] a growing feeling in the later years of my work at the subject that a good mathematical theorem dealing with economic hypotheses was very unlikely to be good economics: and I went more and more on the rules - (1) Use mathematics as a shorthand language, rather than an engine of inquiry. (2) Keep to them till you have done. (3) Translate into English. (4) Then illustrate by examples that are important in real life. (5) Burn the mathematics. (6) If you can't succeed in (4), burn (3). This last I did often (A. Marshall, 1906) I think the reason the general public either distrusts or outright ignores economists is our use of maths - we often hide behind it claiming it is the only way to remain a rigorous science. However, we forget that we are still (and always have been) a social science, dealing with issues of society, whether it be markets, individual behavior or macro economies. The vast majority of the public can not understand our publications because of the math. If we want the public to understand our results and our policy implications we need to talk to the public in a language they understand, not just ourselves. Too often we pat each other on the back for a fantastic piece of econometric skill or analysis and forget that our audience is the public and society. If we are not communicating to them we have lost the point of our science, then it just becomes egotistical posturing for our peers! We have broken point (1) and forgotten the rest of Marshall's advice...
4 / 0 17 days ago

George Halkos 29.32 74.67 University of Thessaly It depends on the level. Mathematics (as well as Statistics) is a useful scientific tool that helps Economics in many aspects. A number of examples both In Micro and Macro levels exist. All the marginals come from first derivatives of total functions and their estimation helps the understanding of unit changes. Consumer and producer equilibrium come from optimization of functions with the help of lagrangean etc. Optimal control theory may be used for the optimal extraction of a nonrenewable resources. Growth models are build and developed with the help of Maths. The interpretation of the langangean coefficient is interesting and avoids the repetition of the optimization if the constant of the constraint changes once the problem has been solved. These are examples that show that Maths are used in explaining the concepts of Economics. Obviously if someone has a full understanding of Economics then he/she can teach and explain Economics by heart and successfully. The question starts when we want to extend Economics and test (or even propose something new in Economics) the various existing theories (rational and adaptive expectations, dynamic models, cobweb model, Growth models, volatility, etc) in advanced levels. A basic tool in Economics is Econometrics where the use both of Mathematics and Statistics is essential. We have just to be careful that Economics use Mathematics appropriately and are not absorbed by Mathematics. That is, economic policy implication are extracted and they are clear and prominent.
Modified an hour ago by the author 1 / 0 8 days ago

Yoshinori Shiozawa 8.09 Chuo University I totally agree with David Savage. Economics is one of social sciences and as such we have two kinds of audience. One is researchers in economics and experts in economic policies. The other is much wider group of people who are interested in the state of economics and economies. Graduate students are classified as potential researchers or experts. Undergraduate students are difficult to classify either of the two. Major part of undergraduate students may be classified as the second group.

For the second group of people, we should talk to them as David said: >The vast majority of the public can not understand our publications because of the math. If we want the public to understand our results and our policy implications we need to talk to the public in a language they understand, not just ourselves. The second sentence is most important. We economics specialist have the tendency to forget this. The understanding of the public is the very base of democracy. Therefore, to talk to the second group of people and let them understand what the issue is one of major task of economists. We may say it is an obligation. Economists often forget this obligation and start to think that it is the obligation of the public to understand economics. We may sometimes think that the public should learn as economists have learned. But, of course, this is wrong. We should try to communicate the essence of economics issues in such a way that majority of those people who are interested in economic problems can understand. A late Japanese scholar, Yoshihiko Uchida coined a phrase "social sciences as a piece of work" (Sakuhin to shite no Shakaikagaku). Here "a piece of work" (Sakuhin) means a piece of arts, including novels and movies and others. However the work contains high philosophy or thought or scientific truth, if it is no understood by them and cannot give a deep impression, it is a bad piece of work. In the same way, it is necessary to convey the essence of our findings without using mathematics.
1 / 0 8 days ago

Raj Sampath Techsoup I agree for the most part. But one area most fail to follow economics principle is distinguishing micro and macro economics. Many apply a macro phenomenon to their personal experience and make wrong conclusions. Politicians exploit this gap in understanding and make policies to keep them in power.
1 / 0 6 days ago

Konstantinos Biginas 1.02 I agree on that. Sometimes mathematics make economics more difficult to understand and even more to explain. Take European economic crisis as an example. Economists and politicians base their policies on numerical values and mathematics. As it is obvious tight economic policies are not working. It would be much more efficient to apply economic theories not only to decide on economic policies but also to predict their impact.
5 days ago

Yoshinori Shiozawa 8.09 Chuo University Raji and Konstantinos, there is one difficult point. Macro economics is normally constructed as relations between macrovariables, such as GDP, aggregate consumption and aggregate investment and so on. Some variables are rates and prices, which is supposed to be uniform through whole economy. Thus, interest rate and price indexes are considered to be macroeconomic variable. Theories and laws are examined only through times series of these variables or at times cross sectional comparisons. In these examination, researchers use regressions, filterings, and calibrations. Those people looks economy as an object whose characteristics are only revealed as macroscopic variables. They see economy just like late 19th century physicists saw gazes. But physicists came to know that gaze is a giant collection of molecules moving around with high velocity and for random directions. Investigations made clear that the pressures and temperatures are only averages of certain type of effects of those molecules. This is the origin of kinetic theory of gazes (KTG). KTG became in turn the basis of new theory, i.e. Quantum Statistical Dynamics. If we reflect on this short history of physics, we have to admit that macroeconomics is still in the stage of KTG. Macroeconomics assumes that by combining macroeconomic variables, we can get a closed dynamical system and we can use it to predict the future. But what KTG teaches us is that macroscopic variables are not sufficient to determine the dynamical movements of the gaze even at the macroscopic level. Macroeconomics can not be independent of it alone. Usually this theme is questioned as problems of micro foundations. In that time we assume that macroeconomics is a complete closed system. However, we should consider if the macro data we use are sufficient to determine future development of the economy. Standard macroeconomics assumes that it is closed and independent, but there are no firm foundations on it.

With this deep skepticism, I cannot simply agree with Raji. You condemn that "many apply a macro phenomenon to their personal experience and make wrong conclusions". Often thy may be wrong. But it is very dangerous that we cut off the contacts between personal experience and the macroeconomic phenomenon. Econometrics is often deceptive. We can enumerate many examples of them. Most conspicuous example is that of RBC (Real Business Cycle) theory. Depression makes measured labor productivity decrease. RBC people interpreted this that productivity shock caused production decrease. Personal and healthy thought experience is much more important than relying on too complex measurements.
2 / 0 1 day ago