Physics Envy and the History of Economics

Looking at the study of economics in comparison to some of the more “hard” sciences it is easy to find points of difference. As economics has moved from a more narrative description of both normative and positive aspect of the political economy to a more math-heavy, quantative discipline, there has been talk of an economist’s physics envy. The problem here is that no matter how much data you have and how strong your model is, the experiments you will be able to run will be limited. And even then they are small scale and depending on your subject group, you might not be able to generalize the results to a whole population. The behavioral revolution led to some interesting insights such as how people are risk averse or have non-transitive preferences, but how does that scale to theories about the macro economy? I’m not aware of a widely used macro model that has a behavioral microfoundation. And that’s the other piece – we’re still debating about what macro model to use. Dynamic, static, multiple equilibria: what are we pulling off the shelf and why? And then even if you design an experiment, you can’t re-run the economy. Time’s arrow is a harsh mistress to the scientist of the economy. There’s much less debate on this in the physics book.

But we also have to think about the physics book we’re opening up. For a couple hundred years, what we knew of physics was purely Newtonian. But as technology advanced in the late 1800s physicist were able to start looking at what the world looked like at micro scales through different kinds of experimentation. This lead to quantum dynamics and then unleashing the power of the atom for good and bad. On the vast scales, Einstein was able to break some Newtonian assumptions and make equations that better described the universe at the vast scale of stars and galaxies. 

What the physics book will do is have that basic Newtonian physics as a model of how everything acts, and for most purposes it will work. You want to figure out how much gunpowder you need and what angle to aim your gun to hit the enemy in the camp three miles away you don’t need to take into the account the quantum effects of the iron atoms in your shell nor the relativistic effects of the moon’s gravity well. It works. And even in a more basic textbook you’ll have simpler models that will hand-wave things like friction to make the math easier and it will mostly work. I think what is missed in criticism of economics is how useful a lot of the models we use can be especially in this small scale Newtonians of the economy – You get something like Al Roth’s market design and it works because it is smaller scale and testable. 

I think learning the history of a science is important because it doesn’t just come across as received wisdom and instead shows that the science was a point of contention. I used to be a chemistry teacher, and the elementary text books show the progression of thought about what the world looked like at an atomic scale. At first it was seen as a small mass of undifferentiated matter, then experiments were run and we found that there were places of greater density creating the “plum pudding” model. Next Rutherford ran the gold foil experiment and saw that the atom as we know it was mostly empty space. He literally aimed a particle beam at gold foil and most of the particles ended up right on the other side of the gold foil.  These experiments were led by theory, of course. At the same time of these scientists others were ordering the existing known elements into groups based on their properties. Carbon acted like silicon so they go together and so on. This led to the development of the periodic table and to me the most impressive thing – they were able to postulate that elements were missing and their properties which lined up once they were discovered. From there you get to the Bohr model of the solar system atom that we’re most familiar with and then the quantum hybridized orbitals which show electrons not as points but as probabilistic clouds. I like this because it also helps reinforce the scientific method – you go to hypothesize and test theories to discover all you can know.

But what wasn’t appealing for me was the sense that Chemistry was at its end point. To go further you had to get into particle physics and even there the standard model is almost complete. The theories about the further constituents of the physical world get into the place where it borders on philosophy borrowing from math. Sure, you can imagine the quarks as made up of nine or eleven dimensional strings and all change from the universe comes from these strings vibrating, but it was at the point where those theories are as of now untestable. That’s why economics is appealing to me. There has been centuries of discovery and description and research roughly paralleling the growth of the other sciences since the enlightenment – but especially at a macro level things are still in contention. One of the things that sticks with me is Greenspan in testimony after the financial crisis hit where he said he had an operating model of the economy that worked pretty well for him for fifty years but he was wrong. If your maestro is wrong, who can be right?

Ultimately though, I do hold out hope that the economy can be better described and the economic problem can be largely solved. I know there’s been a lot of reflection in the discipline in the last decade because the voices who were calling for care in the run up to the bubble were marginalized and not listened to but given derisive nicknames like “Doctor Doom”. Will we get to the point where IT won’t happen again, or will the discipline remain in contention with regards to the dominate models based on fads and influence?

Two Questions on Utilitarianism

I was thinking on utilitarianism last  night about how ultimately we want to maximize the good in the world – and not diminish any individual’s good at the expense of the others (pareto optimality) –  it made me wonder a couple of things.

First, do the units we use to measure utility in a move from abstract to something quantifiable all have the same value to all users? Does an Util face the law of diminishing returns so that if we have one unit of good to pass around, it would do best to give it to the one who has the lowest absolute utility?

Secondly, one of my favorite thought experiments that might hit on moral philosophy is that of the trolley problem, defined in Wikipedia as:

“There is a runaway trolley barreling down the railway tracks. Ahead, on the tracks, there are five people tied up and unable to move. The trolley is headed straight for them. You are standing some distance off in the train yard, next to a lever. If you pull this lever, the trolley will switch to a different set of tracks. However, you notice that there is one person on the side track. You have two options:

Do nothing, and the trolley kills the five people on the main track.

Pull the lever, diverting the trolley onto the side track where it will kill one person.

Which is the most ethical choice?”

How does a utilitarian answer that question and does it differ from other answers in different philosophical frames?

Back to School: Econ Autodidactic No More

When I was a kid, I would always steal my parent’s newspapers.

And I mean a kid. I have memories of stealing the Chicago Tribune from my parents and we moved away from the Chicago area right after I left first grade. My dad liked to have fresh paper, and I always put it back a little worse for wear. I did this with all the reading material that came into the house.

One constant as I grew up was the USA Today. What I like to do even to this day to take the paper and sort the sections by how excited I was to read the sections. With the USA Today, it still pops in my memory because of color coding. I’d take it split it up and put the colors together. Green then blue then maybe purple or red. It depended on the season – I would savor the sports section during football season. This was especially true because we moved around a lot, and the national reach meant that it covered the teams I liked. It was hard to root for KC and Chicago in the Pittsburgh area before the internet. I would buy the USA Today on my way into the family restaurant. I saved my quarters. But that green section, money and business, I always read first and got through to the things I wanted to read more.

Growing up, even though I was widely read, I was still fairly apolitical. I joked about wanting to take over the world as an adult goal but there was no ideology behind that other than desire for absolute power. You know, kids are sociopaths and I was no different. I think part of this is because for me everything was working. When I was younger and my dad was in the military, I remember wanting the most up to date shoe, but I never really wanted for anything. I went to school and got good grades and had good friends and relationships. I voted for Gore and stayed up all night waiting for the results to roll in. As it played out over the next few months I was disappointed but not mad.

My sophomore year of 2001-2 is what really made me look at the wider world. First, I was working in a way that I needed the money to help support me. My parents helped out through college so I can’t pretend I was on my own, but it is really eye-opening to know your price and the menu price you put your labor on and figure out how much of a fraction you get of the total.  And then you figure out what bills you can afford when you make the minimum wage at $5.15 an hour. It was slow, but facing economic realities for the first time make you think of your place in the power structure and optimal ways to order it. The second piece was the day of 9/11. It’s hard to forget the unity of that day, but for me there was a sense of questioning my path. I was a declared chemistry major at that time, and that morning I had a calculus class and then organic lab that we literally went about normal business with. I had to catch up around noon and watch the replays of the towers falling and then I went to an English class where the teacher, Mark Brazitis, sat on his desk and said I can’t teach on a day like today and we sat and spoke about our feelings. That had much more impact than if I found the right unknown in lab that day. Then watching the run up over the next 18 months or so as that was used to justify a war in a place against a foe that had no hand in the attack made me realize how tied I was to the wider world and how tied the economic is to the political. I didn’t want to get drafted to help provide cheap Iraqi oil and help Bush overcome his daddy issues.

Even then, things still worked. I changed my major and graduated with honors and went on to grad school in English. Where I didn’t finish my degree but I did ok in class and met some really good people. I then got a job and moved to Chicago and got engaged and things were working.

But then things stopped working. 

Here it is 2017 and the financial journalists are starting to cover the tenth anniversary of the financial crisis. I don’t think I realized what was happening at the time. In 2007 I was reading two or three different newspapers a day and didn’t have a good sense of the potential problems. Some banks were freezing redemptions to some funds, and in hindsight we collectively know a lot more about the housing market peaking and the slow-motion effect that had on different financial institutions from 2005 to 2008, but nothing really struck me at the time that I should be looking out for. I had that job teaching for one year and then when it didn’t work out I was looking for sales jobs that summer I was interviewing at an auto dealership and I remember asking about the dip in auto sales – It was labor day and August numbers had just been released showing that it was the worst summer for a while. But I was confident enough that things were working that I took the job. I took the job because things were working and I figured though I didn’t want to be a car salesman, I could make some quick money and figure out how to get back into teaching.

I still remember the day that everyone finally knew that things weren’t working. While the who’s who of the financial world were in New York at the Fed trying to stop a crash, I was in training at the dealership. I was keyed in to what was going on, but I wasn’t aware of its magnitude. I knew it was getting worse and worse because the trainer would look at his little net book at every break and he was getting more and more agitated, This was a guy who was a salesman in his blood and all the enthuse was gone from him. It was the middle of September, and we had only been in training a couple of weeks. As the initial stages of the crisis played out, people were scared. The most important part to me was that you could see it in the foot traffic. As my training was over and I was on the floor, there just weren’t the customers to talk to. We tried more and more different things to try to get the traffic, but they weren’t working. Managers were let go first, then sales staff. I sold three cars in October. I sold none in November. I was let go in early December. It would have been a day earlier but the first snow of the year fell, and they wanted all hands to shovel out the cars.

Here’s where I’m glad there was a somewhat robust policy response to the crisis. I was unemployed from that December of 2008 to fall of 2010. I had done, at that point, what I thought was right. With all the advantages I was born with and then I went to school and got good grades, I didn’t think I’d ever have a problem staying employed. It had stopped working for me – in a way I know that even in good times it is stacked against so many others. I collected unemployment and tried to figure out how to unbreak it. I applied for teach for America like programs, got certified as a substitute teacher. I applied for and was waitlisted for a master’s program for elementary education. I was trying to get back into teaching at a time there was austerity, and even people with teaching degrees and certifications were having problems finding substitute positions. 

What I also did was try to look and figure out what was broken and how it was broken and what would need to happen to fix it. It’s a deep dive, and included reading books on the economy both in what was being put out in public by people trying to figure the same thing out, but also by people looking at the problems of the past in the past. I took my lifelong curiosity and tried to approach and learn about macro problems and learned about micro and behavioral economics along the way as they feed into macro behavior. I joined twitter and read and commented on the blogs to part of the community unwinding the economic problem. In a world of abundant but finite resources, how do we best distribute these resources? I stated my own blog.

But it wasn’t enough for me. I eventually got a job I like working for a population that I feel I help, but I wanted to formalize my learning. But things came in the way. Seven years ago, I met with the Director of Graduate Studies at the University of Illinois – Chicago to look into grad school. I was unemployed at the time and I found out that I might need some classes to catch up and clear some prerequisites but you can’t really borrow for undergrad classes if you already have a degree and you lose your unemployment if you go back to school. I took a turn and got my MBA which helped me instrumentally at work but it didn’t challenge me in the ways I wanted to be challenged nor really teach me what I wanted to learn. It was a good experience, but I need and wanted more.

It came about earlier in this year there was some turmoil at work. The woman who had been my mentor for years was removed from her job and the guy brought in to replace her had some chemistry problems with me and he demoted me. I wasn’t happy and looking for other jobs. But none of the jobs really excited me and what I really wanted to do was to go back to school. Specifically, I have wanted to go to Roosevelt for econ for several years since I learned that they are one of the handful of schools in the country that are explicitly welcoming to non-orthodox schools of thought in economics. And for me, that is the road that we will find on the macro-level the right answers to the economic problem. Those who thought they had it fixed for a generation found out they were wrong. Even Greenspan was surprised that his model failed. What happened was I found myself working on the application to that and none of the jobs I found. And they took me.

I start today. I’m excited. I’m nervous. I don’t fully know what to expect. I’m really not sure how I will use this in my career, but after the last year I decided to focus less on concrete career plans and more on general directions. I like this direction. Maybe someday instead of skimming the green section, I’ll be quoted in it.