common sense economics

Friedman ends the preface of price theory with the following lines from Keat's Ode to a Grecian Urn

"beauty is truth- truth, beauty," - that is all
ye know on earth, and all ye need to know

if you flip through the first year graduate course text for microeconomics (mas-colell, whinston and green), you'll probably think, what the fuck is this shit? beautiful axioms on continuity and aggregation of preferences, etc, very elegant, and the rigour is important in a few trivial cases (and for arguing), but it in general summarizes a lot of the frustration people have with economics today: where's the application?

I've never had the fortune to study economics at Chicago, but I have a tutor who has, and I decided to take her advice recently and read "price theory", a compilation of Milton Friedman's notes for ec300 at the U of C. what struck me was not only the presence of real policy examples, but also the attention which with it dissected simple concepts such as the demand curve for example, to distinguish between the many different types of demand which we may be confronted with when we see messy real world data. most importantly, he embeds it within a framework of meaning and methodology, so one always knows what is doing with a certain manipulation. while the approach of trying to see markets in everything is grating for some, at least when it comes to markets, they've got it done pretty well.

i think it's possibly very frustrating to go through all the analysis, topology etc needed to prove an old result when the question that result dealt with has long been solved... it only encourages people to use these arcane tools to deal with different problems which do not need such a level of attainment in topology etc... and instead put other stuff into your toolbox which is more unconventional but deals with problems like we would like to solve. at least friedman's books get you thinking about the concepts which lead you to think of new problems to attack.

e.g. for international trade, gravity model, general equilibrium has been done over and over, and you can add so many superficial extensions to make it slightly more complicated... but maybe it's worth investing in learning some theory about nodes and hubs to be less one-dimensional about it, considering that the way the world economy works is clearly not simply symmetrical or due to size

1 comment:

lip said...

Understanding and application in the practical world tends to deviate very far from the academic world. If you studied Econ at UofC, you'll likely end up more likely to be good at Lagrangians and lousy at all other things.

Then again, I had a very practical economic lesson this morning but found it extremely superficial and boring. Perhaps the econ department should make Common Sense 101 the cornerstone of all Econ courses