Week 7: Can't We All Just Get Along?

This week, since it was Spring Break at the U of A and so my adviser Dr. Manne was out of the lab, I didn't get very much done with regards to my experimental work.  I did, however, still meet with Dr. Frieden; our discussions have started to branch out to other applications of statistics and statistical physics, which I find incredibly interesting.  Of the (many) things I've gotten out of this project so far, one of them is a new curiosity about statistics-- it's definitely on my list of things to try in college.  (Along with yoga, water polo, and Portuguese.  Go figure.)

This week, I thought I would bring some perspective into the project.  After all, my goal was to analyze the effectiveness and applicability of Econophysics' claims.  So it's about time, after 6 weeks of praising it, that I try to argue from the other perspective.

The thing is, though, that I genuinely think the claims of econophysics are correct.  They fit with experimental data, they find interesting correlations between our natural world and the markets, and they provide a similar or even more accurate view of economics models.  There are two main problems that I can see with econophysics so far, though.
For one, econophysicists, while they have shown myriad applications of physics and tools from physics in the economy, have yet to present a unified theory of macroeconomics that can trump our current ideas.  It's one thing to claim that macroeconomics is flawed; it's another thing to present a solution.
The second problem, though, I think is a lot more serious, and it has to do with the people advocating these ideas.

Physicists and other "hard" scientists have, traditionally, held a lot of animosity towards economics.  They mock it as an expression of "science" while ignoring its intellectual and mathematical roots.  They feel that their work is more important and applicable, conveniently ignoring the fact that markets impact our day-to-day lives much more than cosmology.

When physicists decide to get involved in economics, many of them don't familiarize themselves with the field beyond what is absolutely necessary.  This means that an physicist criticizing current macroeconomic theory might not even understand a simple supply-and-demand curve.  It means that a physicist may triumphantly show that income distribution follows a power law; he just may not know that economists have been aware of that for years.  Then he'll turn around and mock those same economists for not using his methods.

This isn't to say that economists don't suffer from institutional biases as well!  Many economists refuse to consider that the markets are anything less than perfectly efficient, or that equilibrium based on rational expectations doesn't always occur in real life.  Refusal to consider these claims has made trouble for them during the last few economic meltdowns, and econophysicists are quick to trumpet their methods as a fix for a corrupt, inept field.  These econophysicists are forgetting three essential things, though.
1) Just because an assumption of equilibrium economics or the Efficient Market Hypothesis is wrong, doesn't invalidate the whole field of economics or all the methods of economists
2) Econophysicists, while they have demonstrated impressive correlations and applications of their methods in the markets, have yet to come up with an alternative, all-encompassing macroeconomic theory of their own, and
3) Physicists criticizing institutional biases are hilarious examples of the pot calling the kettle black. 

Meanwhile, the quality of discussion is rapidly deteriorating as both sides resort to name-calling and patronizing epithets.  Just for fun, let's take a look at some of the rhetoric used by both econophysicists and economists.  Here are some quotes from different blogs dedicated to arguing about, criticizing, and defending economic theory:

• "If you want to know how the average Freshwater-y DSGE-slinging macroeconomist thinks about his place in the cosmos, read Yates' post."
• "So the only people qualified to judge the value of an activity are those being paid by the government to do it?  How convenient.  Snark snark."
• "Noah is extremely sceptical of microfoundations.  So much so that he requests a post to explain why they might have any merit at all.  So, he should be saying:  NO NO GET RID OF ALL THE MOTHER&&&&&&G MICROFOUNDATIONS WHILE YOU ARE AT IT."
• "The discussion about how to do macro often neglects that there are serious people trying to work out the details of how to do policy when you don’t understand how the world works."
• "What on earth is he saying?  And marvel at the confidence with which it is said."
• "Wonderful. Economists are no longer stuck with their RE straitjacket, but can readily begin exploring the kinds of things we should expect to see in economies where people act like real people."
• "Kind of obvious when you say it like that, but this is economics.... people have tried very hard to deny the obvious...."

This is just a few select blog posts.  The snippets of the books I've been reading really aren't too much better.

Now, don't get me wrong, I'm all about sarcastic rhetoric.  (Look at these blog posts!)  But the constant mud-slinging has to stop at some point.  If econophysicists ever want economists to take them seriously, they should invite them to their conferences.  Show respect for the ideas that economists have built their careers on.  Recognize that there's more than one way to skin a cat.  Present alternative solutions, rather than just claiming that the current methods don't work.  There has to be a real, intelligent exchange of ideas at some point, or the status quo will remain unchanged.  (Cue High School Musical "status quo" music in my head...)

I have no idea how to cite blog posts properly, but the links to the posts I quoted above can be found here, here, here, here, and here.  Hope you all had a great quasi-Spring Break.  I can't believe how quickly these projects are progressing... let me know in the comments if you have any questions!

P.S. In case all that negativity up there made you depressed, and as an apology for another lengthy blog post that's all words, here's a shot of a hedgehog cuddling a raspberry: