Tuesday, September 15, 2009

Regulation and attempts to discredit economics

From John Cochrane's How did Paul Krugman get it so wrong. From Von Mises.org, with thanks to Chris Izenour.

Question: Should the government increase regulation?

"the behavioral view gives us a new and stronger argument against regulation and control. Regulators are just as human and irrational as market participants. If bankers are, in Krugman’s words, “idiots,” then so must be the typical treasury secretary, fed chairman, and regulatory staff. They act alone or in committees, where behavioral biases are much better documented than in market settings. They are still easily captured by industries, and face politically distorted incentives."

Question: Should we discredit all economic theory because as a social science we can never be absolute in our answers and analysis?

"All economic models are simplified to exhibit one point; we all understand the real world is more complicated"
To say an economist is wrong simply by saying he is not 100% correct is to ignore empirically accepted and historically relevant economic theory. To do so is an evasion of the obvious in an attempt for non-empirical rhetorical wins. This is shallow and unreasoned behavior at best, disingenuous and obnoxious at worse.

Economists simplify to explain, teach and explain efficiency. Just because there are exceptions to the laws of a discipline does not mean the discipline can be causally dismissed as wrong. Do we throw out the English language because there are exceptions to the rules- I before e except after c?

No comments:

Post a Comment