1. What Economists Really Know, and What They Don’t

2. Richard Adelstein Wesleyan University radelstein@wesleyan.edu

3. Briefly, they know a lot about

4. Economic theory, especially the general equilibrium (GE) theory

5. Briefly, they know a lot about Economic theory, especially the general equilibrium (GE) theory The statistical analysis of numerical information, or econometrics

6. They know much less about

7. How real economies work, and what they will do next...

8. They know much less about How real economies work, and what they will do next... in large part because of their infatuation with statistical data

9. Adam Smith (1723-1790)

10. Professor of Moral Philosophy University of Glasgow

11. Order Without Design

12. Complex, beneficial social structures

13. Order Without Design Complex, beneficial social structures arise spontaneously, without conscious purpose or design,

14. Order Without Design Complex, beneficial social structures arise spontaneously, without conscious purpose or design, from the self-interested behavior of individuals following rules of general application.

15. In nature

16. Markets

17. Languages

18. Craft knowledge

19. Moral codes

20. Common law

21. And on the roads...

22. Not always benignly

23. The division of labor

24. Who does what, how, and with what tools?

25. The division of labor Who does what, how, and with what tools? How is their activity coordinated?

26. How is this order achieved?

27. By plan

28. How is this order achieved? By planBy contract

29. Knowledge made manifest

31. ‘The division of labor is limited by the extent of the market’

32. The qualitative details of the spontaneous division of labor are determined in part by a complex, changing environment...

33. Natural

35. Technological

37. Social

39. ‘The division of labor is limited by the extent of the market’ The qualitative details of the spontaneous division of labor are determined in part by a complex, changing environment...

40. ‘The division of labor is limited by the extent of the market’ The qualitative details of the spontaneous division of labor are determined in part by a complex, changing environment, and in part by novel responses to it by people pursuing their own ends.

41. Rose Rush, Belfast, 1919

42. ‘The division of labor is limited by the extent of the market’ The qualitative details of the spontaneous division of labor are determined in part by a complex, changing environment, and in part by novel responses to it by people pursuing their own ends. And they adapt quickly and nimbly to change.

43. An evolutionary process

44. much like the theory of natural selection Charles Darwin (1809-1882)

45. An evolutionary process Continuous dialogue between the system and its environment

46. An evolutionary process Continuous dialogue between the system and its environment Strongly indeterminate and unpredictable

47. An evolutionary process Continuous dialogue between the system and its environment Strongly indeterminate and unpredictable Adapts to change by generating novelty through human imagination and action

49. Political economists

50. Political economists, scientists rather than philosophers

51. When you cannot measure what you are speaking about, when you cannot express it in numbers, your knowledge is of a meager and unsatisfactory kind. William Thomson First Baron Kelvin (1824-1907)

52. ‘Social physicists’

53. To ‘model’ the economy mathematically,

54. ‘Social physicists’ To ‘model’ the economy mathematically, just as Newton had modeled the physical universe Sir Isaac Newton (1643-1727)

55. Theory from the ground up

56. Theory of the consumer

57. Theory from the ground up Theory of the consumer Theory of the firm

58. Theory from the ground up Theory of the consumer Theory of the firm Supply and demand

59. Theory from the ground up Theory of the consumer Theory of the firm Supply and demand General equilibrium

60. Two kinds of theories

61. General EquilibriumEvolutionary

62. Two kinds of theories General EquilibriumEvolutionary Theory of process Theory of outcomes

63. Two kinds of theories General EquilibriumEvolutionary Theory of process Search for qualitative patterns Theory of outcomes Search for mathematical laws

64. Two kinds of theories General EquilibriumEvolutionary Theory of process Search for qualitative patterns Tested by interpreting shapes and forms Theory of outcomes Search for mathematical laws Tested by measuring quantitative data

65. Two kinds of theories General EquilibriumEvolutionary Theory of process Search for qualitative patterns Tested by interpreting shapes and forms Aspires to use science to explain the past Theory of outcomes Search for mathematical laws Tested by measuring quantitative data Aspires to use science to predict the future

66. The GE theory has prevailed...

67. ... and made econometrics its queen...

68. The GE theory has prevailed...... and made econometrics its queen...... despite the regime’s repeated empirical failures

69. When you can measure what you are speaking about, when you can express it in numbers, your knowledge is still of a meager and unsatisfactory kind. Frank Knight (1885-1972)

71. Welfare Economics

72. A hundred year search for an objective moral science...

73. Welfare Economics A hundred year search for an objective moral science... ends in failure...

74. Welfare Economics A hundred year search for an objective moral science... ends in failure... but produces the theory of efficiency

75. Efficiency

77. Yerevan, Armenia c. 2004

78. Efficiency Yerevan, Armenia c. 2004 Moscow 2008

79. Aesthetics

85. The prestige of science

86. The prestige of science springs from the success of engineering

87. Wesley Mitchell (1874-1948) In economics as in other sciences, we desire knowledge mainly as an instrument of control. Control means the alluring possibility of shaping the evolution of

88. economic life to fit the developing purposes of our race. It is this possibility, of which we catch fleeting glimpses in our sanguine moments, that grips us.

89. If economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid. John Maynard Keynes (1883-1946)

90. Economists as powerful technocrats

93. Control has proven elusive

96. ‘End on a happy note!’

97. Four evolutionary thinkers

98. Friedrich Hayek (1899-1992)

99. Four evolutionary thinkers Friedrich Hayek (1899-1992) Herbert Simon (1916-2001)

100. Four evolutionary thinkers Friedrich Hayek (1899-1992) Herbert Simon (1916-2001) Ronald Coase (1910- )

101. Four evolutionary thinkers Friedrich Hayek (1899-1992) Herbert Simon (1916-2001) Ronald Coase (1910- ) Edith Penrose (1914-1996)