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Why Stupid Ideas Happen to Smart People

May 29, 2010

Grad school, that’s why. I should know, having spent four years of my life studying postcolonial, feminist, and new historicist literary criticism. Certainly, I wouldn’t simply dismiss a Slavoj Zizek or Homi Bhabha as incoherent or untenable (as do many outsiders). But all those discussions of power relations, fetish objects, and constructions of the Other did strain my credulity to the breaking point — which is why I eventually dropped out.

I used to envy other disciplines. Surely, they weren’t as impervious to outside influence as we were; weren’t so immune to empirical evidence. Now, I’m not so sure. For one thing, reviewing Justin Fox’s The Myth of the Rational Market caused me to realize that the central premise of contemporary economics — that stock prices reflect all available information — has about as much basis in reality as a Jacques Lacan seminar.

And then there is the quote I came across this afternoon, cited in Robert Skidelsky’s Keynes: The Return of the Master, (which I hope to review in the coming weeks). Here is Robert Waldman on why freshwater school economists cling to silly ideas like the rational markets hypothesis:

I have a view of how people can devote so much effort to working out the implications of assumptions which almost no ordinary people would find other than nonsensical if they understood them. Freshwater economics uses difficult mathematical tools. Students in freshwater graduate programs have to learn a huge amount of math very fast. It is not possible to do so if one doesn’t set aside all doubts as to the validity of the approach. Once the huge investment has been made it is psychologically difficult to decide that it was wasted. Hence the school gets new disciples by forcing students to follow extremely difficult courses.

For humanities grad students, literary theory — a.k.a. critical theory and cultural theory — serves the same purpose that “difficult mathematical tools” serves economics students. It wasn’t until my final year in grad school that I realized what, exactly, that purpose is.

The point of all those difficult theoretical texts and heavy workloads isn’t to prepare graduate students for the rigors of academic life (though it presumably has that effect). It’s to socialize you.

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7 Comments leave one →
  1. May 30, 2010 12:41 am

    In all fairness, economists are not all idiots (even if, possibly, many individual economists could be). The reason why their models are based on certain over-simplifying assumptions (including the infamous homo oeconomicus) is to a large part that any even semi-realistic model would be too complex for the current state of the science, available computational power, whatnot.

    Having a background in math and physics, I belong to those who tend to consider economics a bit of a wanna-be science; however, in the end, we must acknowledge that economics is still a comparatively young and developing field, and that it deals with a very complicated matter. Rome was not built in a day; neither was math; neither was economics.

    BTW, could you expand on “It’s to socialize you.”? I am extremely uncertain of what you mean with that phrase in this context.

  2. innocentsmithjournal permalink*
    May 30, 2010 12:37 pm

    I certainly didn’t mean to suggest that economists are stupid. What I meant was that the rational markets hypothesis becomes a stupid idea when understood as descriptively accurate and complete.

    Milton Friedman understood this. Responding to a critic in 1953, Friedman wrote:

    The relevant question to ask about the ‘assumptions’ of a theory is not whether they are descriptively ‘realistic,’ for they never are, but whether they are sufficiently good approximations for the purpose in hand. And this question can be answered only by seeing whether the theory works, which means whether it yields sufficiently accurate predictions.

    What happened, of course, is that the rational markets hypothesis hardened into dogma. My conjecture is that Friedman’s subtle, nuanced understanding of RMH got flattened out once the idea entered the social world. Reagan-Thatcher era, right-wing ideology clearly had something to do with that process. But so evidently did the transmission of RMH to the next generation of economists (for the reasons Waldman suggests).

    Perhaps in math or the hard sciences, academic work is indeed a continual refining of ideas — unhampered by habit and prejudice. If so, I can see why you would be “extremely uncertain” as to what I meant by socialization. My experience in the humanities was, however, that academic work is not always the impartial quest for knowledge it purports to be. There was a strong element of tribalism in literary studies — a strong sense that, if you want to be “one of us,” you must learn to accept certain foundational beliefs, mental habits, and social norms.

    • June 28, 2010 2:50 pm

      I definitely agree that there is a strong element of tribalism in all of Academia. It’s typical of all departments, although some are less prone to it than other (physics, chemistry and math). My hypothesis is because those fields are politically neutral, for the most part. The departments that are most prone to tribalism are those that political, economics being the biggest one.

      RMH was a dumb idea. The only reason that is gained any traction is because economist have this quest to be regarded as a mathematical science as opposed to a social science. It important to remember that the people most fooled by RMH were Keynisians, Neo-Keynesians and of course the Monetarists. Friedman was aware of the problem as you demonstrated but his MV=QP is even more dangerous as QP=I+C+G+NetExports.

      I’m always recommending things, but if you get a chance listen to some Econtalk.org podcasts. The host, Russ Roberts, has done a lot of podcasts on the crash, particularly listen to some from Taleb (read his book Black Swan if you already haven’t),Stern, and John Taylor. Justin Fox has been on there as well. Of course Russ is a libertarian so have an open mind.

      • innocentsmithjournal permalink*
        June 28, 2010 9:37 pm

        I will check out Russ Roberts. Thanks for the recommendation!

Trackbacks

  1. Even More Indoctrination in Economics than the Humanities « The Innocent Smith Journal
  2. Economics vs. the Humanities « The Innocent Smith Journal
  3. Economics vs. the Humanities « The Innocent Smith Journal

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