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Economic theories and their limitations
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Expertise, in the academic world, is based on ideas. They are the basis of hypotheses and theories that try to provide explanations of how particular phenomena work . But hypothesis and theories in economics cannot be definitively established as in sciences such as physics. For one thing, economists cannot put forward a hypothesis, and then do controlled experiments to determine whether the hypothesis is right or not. They are forced, instead, to rely on models, or historical information or cross-country evidence to suggest, not ascertain, a possible outcome or result. In addition, ideological and political viewpoints of economists make their theories imprecise and biased. As a result, expertise in economics is marked by significant explanatory failures, and the models are useful under some set of conditions and not others.
Unfortunately, in economics bad models keep coming back even when evidence do not support the theory or prove them wrong. Though they are undead , as Paul Krugman called them, they still influence policies, despite being wrong.
The history of economics is full of “undead “or “zombie” ideas proclaimed by experts. Let´s look at one.
At the time of the Great Depression in the 1930s, the Classical Economists argued, despite sustained bouts of unemployment, that market economies would automatically approach full employment, as businesses would hire any worker who wanted a job, as long as his contribution to the output of the firm was greater than his wage payment. For them, there was always adequate demand for the output of these additional workers because supply created its own demand. The self-correcting mechanism of market economies, led them to recommend that governments should refrain from intervening in the e...
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...what you expect to happen in your study”, while a theory is a well established principle that explain some aspect of the world. Cherry, Kendra, Introduction to Research Methods”. http://psychology.about.com/od/researchmethods/ss/expdesintro_2.htm
http://www.nytimes.com/2014/03/31/opinion/krugman-jobs-and-skills-and-zombies.html. Paul Krugman, the Nobel Prize Economist, called them “zombie ideas”, that is ideas that should have been killed by evidence, but refuse to die.
Cassidy, John (April, 2013),” THE REINHART AND ROGOFF CONTROVERSY: A SUMMING UP”, http://www.newyorker.com/online/blogs/johncassidy/2013/04/the-rogoff-and-reinhart-controversy-a-summing-up.html
Herndon, Thomas, (April, 2013), “The Grad Student Who Took Down Reinhart and Rogoff Explains Why They´re Fundamentally Wrong”, http://www.businessinsider.com/herndon-responds-to-reinhart-rogoff-2013-4.
I believe that it's’ important to use our constitution as a guiding tool to help appoint the correct people for the job.John Maynard Keynes was a British economist where he fundamentally changed the theory and practices of macroeconomics and economic policies of government. Although he was revolutionary most of his policies were controversial and used Keynesianism economic to get people to stay away from them . His approach to macroeconomic management was different since the previous traditional laissez-faire economists believed that an economy would automatically correct its imbalances and move toward a state of equilibrium, They expected the dynamics of supply and demand to help the economy adjust to recession and inflation without government action. Laissez-faire economics thus regarded layoffs, bankruptcies and downturns in the economy not as something to be avoided but as elements of a natural process that would eventually improve. However that was not the case for the great depression. Keynes also believed that a given level of demand in an economy would produce employment however he insisted that low employment during the depression resulted from inadequate
According to Reich, an economy’s stability is dependent on the prosperity of its middle class. The cause of the depression was the growing wages and money not being returned to the middle class. The Virtuous Cycle of a healthy economy occurs in 6 steps: productivity growth, wage increases, more jobs, tax revenues increase, government investments, and educated workers. A healthy economy is possible, but it is not our reality today. The two factors that led to flattening wages in the 1970s are globalization and technology.
In science, a theory will refer to an explanation of an important feature of the world supported by testing and facts that have been gathered over time. It’s there scientific theories that allow scientists to make predictions about untested and unobserved concurrences in the world. The American Association for the Advancement of Science has this explanation of what a theory means to those in the science field, and it is as follows, “A scientific theory is a well substantiated explanation of some aspect of the natural world, based on a body of facts......Such fact supported theories are not guesses but reliable accounts of the real
The Great Depression was the worst period in the history of America’s economy. There is no way to overstate how tough this time was for the average worker and there was a feeling of desperation that hung over the entire country. Current political wisdom leading up to the Great Depression had been that the federal government does not get involved in business or the economy under any circumstances. Three Presidents in a row; Warren G. Harding, Calvin Coolidge, and Herbert Hoover, all were cut from the same cloth of enacting pro-business policies to generate a powerful economy. Because the economy was doing so well during the “Roaring 20s”, there wasn’t much of a dispute
...that even with the science of economics it also has its limits. They systematically do, and note this so that they leave nothing unexplored which may destroy their credibility, in turn making their claims loose.
Jobs, Charles. "Peakonomics: toward a case typology for increasing undergraduate economics literacy and concept retention." Journal of Economics and Economic Education Research 9.1 (2008): 19+.General OneFile. Web. 17 Feb. 2014.
During the Great Depression, many economic institutions failed. President FDR opted to forego economic ideas such as the market’s self-regulation. The national government was traditionally limited in it...
There are many definitions to theory. According to Akers (2009) “theories are tentative answers to the commonly asked questions about events and behavior” (Akers, (2009, p. 1). Theory is a set of interconnect statements that explain how two or more things are related in two casual fashions, based upon a confirmed hypotheses and established multiple times by disconnected groups of researchers.
New Ideas from Dead Economists Lukas Fricke In this class we constantly talked about the free market place and how it truly made a government different. How it made a country different. How it made a people different. Today, we are going to explore the ideas of economics and how the economic greats, Adam Smith, Thomas Malthus, David Ricardo, John Stuart Mill, Karl Marx, John Maynard Keyes, and Milton Friedman changed the ways we would forever do business.
Gaynor Ellis, Elisabeth, and Anthony Esler. ""New Economic Thinking"" World History: The Modern Era. Prentice Hall. 186. Print.
middle of paper ... ... In summation, I am more of a Keynesian thinker than a classical thinker. Although it might be true that having a free market is the right way of having a stable economy, unemployment will still be high and might be increasing which is still one of the problems that governments face today. Plus, what happens if recession hits or even worse we go back to 1930’s where there was the great depression, it was proved then and will be proved again if it happens that the only way to solve a sort of crisis is by government intervention (basically spending).
Many people view economics as a dry and uninteresting subject. In the book Freakonomics: A Rogue Economist Explores the Hidden Side of Everything, co-authors Steven Levitt and Stephen Dubner shows that the tools of economic research can be put to use in the study of almost anything. Levitt explains, “ since the science of economics is primarily a set of tools, as opposed to a subject matter, then no subject, however offbeat, need be beyond its reach.” (Levitt & Dubner 14) In Freakonomics, Levitt and co-author, Stephen Dubner, show how “Freakonomics” can be applied to some of the most interesting research topics that Levitt has tackled during his career. The authors
Theory: A general statement about some parts of the world that fit together and how they work; an explanation of how two or more facts are related
The theory of economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique for thinking, which helps the possessor to draw correct conclusions. The ideas of economists and politicians, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist." (John Maynard Keynes, the General Theory of Employment, Interest and Money p 383)
The crucial importance and relevance of economics related disciplines to the modern world have led me to want to pursue the study of these social sciences at a higher level. My study of Economics has shown me the fundamental part it plays in our lives and I would like to approach it with an open mind - interested but not yet fully informed.