Do we put too much faith in economics?

Question

As economists (casual and professional), do we put too much faith in our methodology and some of theorems to the point where we can no longer support our intuition with sound theory? Has economic theory become a religion we follow instead of a science we advance?

Kind of philisophical, but would enjoy opinions.

Example: We have the the first welfare theorem (under certain preferences, markets give rise to pareto distributions). This has to some extent morphed into the popular belief that "markets are good" which is pretty much meaningless in economic terms. As economists how often do we cross the line from economic theory to economic "faith".

Another example: "growth is good" myth. Neoclassical growth models basically states that you can indeed grow more than is optimal. Growth is optimal at a certain level depending on other factor in your model.

Methodology: I was discussing a paper on healthcare and I got very different opinions from two big guy in different fields--think AER big. Macro guy was interested in the insurance structure and the environmental economist was interested preference structure. Both had an explanation for healthcare issues derived from their methodology. This can be a good thing in research, but do we take it too far?

Answer 1

Some economist do, especially causal ones, because they model the world using partial equilibrium analysis ignoring feedback effects. Also unless you know the values coefficients, you have no way of knowing the magnitudes of the effects of various factors. Empirical evidence is hard to sort out because their is always multiple events that effect the data. To make matters worse, economics has political implications so there is always noise in the discussion generated by those defending interest groups. When you compare the advances that has been made in physics to those made in economics since the days of Adam Smith, the problems that economics has becomes all too apparent.

Answer 2

I don't think so, no. Theorems, regardless of how off the wall, and/or mathematically difficult must have some basis in economic theory. Otherwise they're meaningless little tricks.

Do we put too much faith in them? Well, it depends on what we're doing with them. The assumptions underlying many theorems are often restrictive, but this hardly means they are worthless, and in many cases, restricting to the assumptions is the best we can hope to do...that is, if we want an provable result.

But do we simply follow it? No. There are thousands of theoretical economists around the globe. Advancements are not as quick and as great as they used to be, but they're still there.

Answer 3

Im not an economist nieter have istudied it but i would think that it would be more interesting than statistics .
Have you heard of a book called Freakanomics ? Youd enjoy hope there is a sequel
It does go into the Pychological andsociological aspects of thr economy
I think your word '' Faith ''''' Is very telling it only takes a few acts of Negative faith or belief that starts a stock market declime
Is this what your getting at .

Answer 4

No, we don't put too much faith in economics.

Economics is the study of how the world really is; it tries to describe how the world is, without giving in to morals or ethics.

We may hold on to our own pet theories too much - as in any research subject. That element of human behaviour is not limited to economics.