Tuesday, December 15, 2009

Paul Samuelson, RIP

The recent death of Paul Samuelson, the 1970 Nobel Prize winner in Economics, is ironic, for it was Samuelson who popularized Keynesian economics in this country, and the Obama administration has jumped fully onto the Keynesian bandwagon. Thus, Samuelson dies even as his influence grows, at least among the political classes.

I never was a fan of Samuelson, and while I will try not to speak too much ill of the recently departed, nonetheless I think the guy was bad for economics and he leaves a legacy of economic wreckage and bad theory. However, I will concentrate today on one of his legacies: the transformation of economics from something that an educated layperson could understand to a branch of inferior mathematics.

Samuelson published his doctoral dissertation in 1948 with the title of Foundations of Economics. In that book, he argued that economics had to adopt the analysis of the physical sciences if it was to be accepted as a science at all. While his famous textbook was the standard of college economics classes for many decades, it was Foundations that ultimately helped to create the intellectual morass that is academic economics today.

Before Samuelson hit the scene, the top economic journals published essays that could be read by any educated individual. For example, F.A. Hayek's 1945 essay "The Use of Knowledge in Society" in American Economic Review is a real classic which is timeless in its relevance and has been read by thousands of people, including many who have had no training in higher math. Ronald Coase's "The Problem of Social Cost," published in 1960 in the Journal of Law and Economics, is not written in the usual mathematical style that dominates the journals today, yet it is one of the most cited papers in academic economics.

I can think of no advantage that using high-level math brings to economic analysis. None. There are numerous people who can write mundane and irrelevant papers but use lots and lots of "squiggles," and they can be published. Write a cogent essay, however, and one is relegated to the lower-tier journals because of its "lack of rigor."

Unfortunately, academic economists today confuse difficulty in reading with "rigorous" application. If one can write "Mary had a little lamb" in multi-variable calculus to a point where few people can understand what is written, then according to academic economists, one has engaged in writing "rigorous" analysis. What nonsense.

My sense is that even had Samuelson not lived, academic economics would have fallen into its current state of irrelevance. However, it was Samuelson who really got the ball rolling and it was Samuelson who ultimately was the main influence in destroying many of the real foundations of economic analysis. It is doubly ironic that the book that began this destruction of the economic foundations was entitled Foundations of Economics.


Mike Mussman said...

I am a public policy grad student at University of MD, Baltimore County. I'm coming from a relatively math-free experience as a sociology undergrad. That said, I am getting very interested in the ideas economics talks about, but the math does seem to be a bit of a hurdle. Can you recommend an accessible but math-lite textbook for introductory microeconomics?

MMA Fanatic said...

As someone with a Bachelor's degree in Economics, and a masters degree in Economic Development, I agree with you completely. The whole premise of general equilibrium, and the mathematization of Economics is flawed. Yet Samuelson charged on with unwavering zeal and confidence that his way was the only way. Laughing at the Austrian school and dropping jewels such as these:

"There are," Samuelson insists, "no separate methodological problems that face the social scientist different in kind from those that face any other scientist"


Even Samuelson's idol Keynes recognized the unquantifiable, non-economically rational actions with his "Animal Spirits" concept:

"Even apart from the instability due to speculation, there is the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than mathematical expectations, whether moral or hedonistic or economic. Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits - a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities."

Samuelson's disciples have taken his work even further into complex mathematics, while decreasing the ability of decision makers to weigh the actual impacts of policy decisions. Instead, because of the complexity of the economic models and the mesmerizing multivariable derivatives and matrix algebra, the models are treated with an almost religious like reverence. As Buchanan summarizes:

"the most sophisticated fallacy in economic theory, the notion that because certain relationships hold in equilibrium [in the model] the forced interferences designed to implement these relationships [in the real world] will, in fact, be desirable" (What Should Economists Do? [1979]

What happened to good old fashioned common sense in Economic thought?: Paul Samuelson.

William L. Anderson said...

I have been using Mark Skousen's Economic Logic, which has its strong points, but still is a work in progress. Also, the Ekelund-Tollison text is pretty free market and generally pretty informative.