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Rodolfo Hernandez -RG Question_understanding of Economics Easier

Rodolfo Hernandez -RG Question_understanding of Economics Easier

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Published by josepo143
DEBATE ABOUT REAL ECONOMICS AND REAL MATHS TO BE FALSE FRIENDS !!!
DEBATE ABOUT REAL ECONOMICS AND REAL MATHS TO BE FALSE FRIENDS !!!

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Published by: josepo143 on May 03, 2013
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05/14/2014

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Rodolfo Hernandez
University of Valencia
Question
To make the understanding of Economics easier, we do not needMathematics at all. Does anybody agree?
Economics has been transformed in applied logic and pure mathematics. This does not help tounderstand how the world really works. We should differentiate between Mathematical Economicsand Economic Science or Political Economy. That´s my thinking!!!
Mar 28, 2013
 
 
 
 
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I know this is an old quote, but ...[I had] a growing feeling in the later years of my work at the subject that a good mathematicaltheorem dealing with economic hypotheses was very unlikely to be good economics: and I wentmore and more on the rules - (1) Use mathematics as a shorthand language, rather than an engineof inquiry. (2) Keep to them till you have done. (3) Translate into English. (4) Then illustrate byexamples that are important in real life. (5) Burn the mathematics. (6) If you can't succeed in (4),burn (3). This last I did often (A. Marshall, 1906)
 
 I think the reason the general public either distrusts or outright ignores economists is our use ofmaths - we often hide behind it claiming it is the only way to remain a rigorous science. However, weforget that we are still (and always have been) a social science, dealing with issues of society,whether it be markets, individual behavior or macro economies. The vast majority of the public cannot understand our publications because of the math. If we want the public to understand our resultsand our policy implications we need to talk to the public in a language they understand, not justourselves. Too often we pat each other on the back for a fantastic piece of econometric skill oranalysis and forget that our audience is the public and society. If we are not communicating to themwe have lost the point of our science, then it just becomes egotistical posturing for our peers! Wehave broken point (1) and forgotten the rest of Marshall's advice...
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The trouble with mathematics in economics is that the mathematical tractability gives a sharporientation to the solvable problem formulation. Many of marginal analysis were proved to beunrealistic but the lack of suitable mathematical formulation forces people to continue to consider inmarginal analytic framework.Some people claim that this is done as a first order approximation. But I doubt if it is not a simpleapology, for it is very rare that those people go further than the so-claimed marginal analysis.Indeed, it is quite hard to escape from marginal analysis once one is accustomed to think in thisframework.General Equilibrium theory (GE theory hereafter) and many of modern development are but variantsof marginal analysis. If GE is really a good characterization of economies, then there is no problemin this. But, it is not the case.Marica Dumitrasco mentioned self organization systems. Is an economy a self organization systemor an equilibrium system? Of course, this depends on the definition of self organization systems.Marica may include equilibrium system among variants of self organization systems. More standardunderstanding is different, for the notion of self organization came to be discussed on the recognitionthat self organizing systems are very different from equilibrium systems.
 
Take an example of dissipative structure (See for example my presentation on Economy as aDissipative Structure, in my profile page). This is one of the most famous self organizing systems. AsPrigogine, the founder of this concept, put it, a dissipative structure is possible only in a state whichis far from equilibrium. Implication to economics is tremendous. Keynes started to analyzeinvoluntary unemployment. In the GE theory framework, this is impossible. Keynes himself andmany followers tried to formulate their ideas in the GE framework and failed. In my understandingthis is inevitable. Economies are far from equilibrium and we should construct a theory, somethingsimilar to dissipative structure. If not, unemployment (and many other important topics) cannot betreated appropriately. Of course, this requires a high leveled mathematical formulation. Prigogine'sdissipative structure is rather a simple system. Even though, he barely succeeded in formulating itmathematically. A modern economy is much more complicated, by the level of mutual interactionsand by the dimension and the variety of intervening agents.We must say that we have not succeeded in formulating economy as a dissipative structure or asany other self organizing systems. In this situation, it is understandable that many researchers tendto use GE framework in their studies. But it is time to pursue a different direction. When we stick tomathematical rigor, we may not leave GE framework. For a breakthrough of economics, the vision
(in Schumpeter’s
sense) is important. Logic comes later. Those people who believe in mathematicsare thinking that mathematics is the on... [more] 
 
You give a very interesting continued of discussion. CGE suffer from data availability. I am trying towork with partial equilibrium model of SMART in scope to estimate the effect of creation of FTAbetween my small country of RM and EU. Model of SMART has e few advantages: it can giveinformation at a highly desegregate level that can be useful for decision makers, it makes directestimations, supply elasticities are assumed to be infinite (=99). This assumption takes place thenimporter is small country, but exporter is a rest world. What do you think about it?
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