Here’s my take: to begin with, economics is basically bulls**t. I mean, it’s necessary bulls**t, sometimes even useful bulls**t, but I’m extremely skeptical of people who think economics is a science or that it could be a science. We have to make policy decisions (and investment decisions and personal consumption decisions etc.), and we have to have some basis for making them. We could just use intuition, and we often do, but it’s helpful to use logical thought and empirical data also, and systematic study using fields like economics can help us to clarify our intuition, our logical arguments, and our interpretation of the empirical data. The same way that bulls**t discussions that don’t make any pretense at being science can help.
Read it at Economics and...Economics is bulls**t because it relies on the premise that human beings behave in a systematic way, and they don’t. Once you have done enough research to convince yourself that they behave in a certain way, they will change and start behaving in another way. Particularly if they read your research and realize that you’re trying to manipulate them by expecting them to continue behaving the way they have. But even if they don’t read your research, they may change the way they behave just because the zeitgeist changes – cultural sunspots, if you will.
(h/t Mark Thoma)
Interesting read. Nothing much that traders haven't realized. But economists don't seem to get it in their unreasonable quest for the holy grail of economics in models that look like physics and chemistry rather than the life and social sciences. People are not like atoms, and groups are not like molecules either.
George Soros had pointed to something similar in his General Theory of Reflexivity. Human beings are reflexive in that they self-adjust based on feedback. As KNZN observes, even if an economic model could be developed, incorporation of it into collective conscious (of market participants, for example) would alter its behavioral assumptions through reflexivity.