Economics as Feynman's onion

PZ Myers rightly commends these words of Richard Feynman. There’s a message in them too for people wanting to understand economics.
Feynman says:

People say to me: “Are you looking for the ultimate laws of physics?” No, I’m not. I’m just looking to find out more about the world, and if it turns out that there is a simple ultimate law that explains everything, so be it. That would be very nice to discover. If it turns out that it’s like an onion with millions of layers and we just get tired of looking at the layers, that’s the way it is.

If this is true for physics, it must be even more true for economics. In economics, the search for simple ultimate laws is impeded by the fact that people’s behaviour is often* context-dependent; sometimes we’re rational, sometimes not; often we’re selfish, occasionally not; and so on.
For this reason, calls for a “new economics” based upon simple principles, such as this bilge, get things arse about face.
Good economics is not about grand theories. Instead, it consists in looking at small problems one at a time - and in paying huge attention to problems of how to draw inferences about competing hypotheses from noisy data. This is what the papers I link to on this blog usually do.
If we’re lucky, some “ultimate laws” might drop out of this detailed, incremental empirical study. More likely, though, we’ll just end up with an onion.
Take, for example, Akerlof and Shiller’s Animal Spirits. The ultimate law proposed here - I simplify - is that people are  irrational.
This appears to be controverted by some evidence - for example, that consumers might, on average, be quite rational and that workers today do seem to accept nominal pay cuts. But it’s consistent with other evidence; you can’t understand fluctuations in aggregate capital spending without  paying heed to sentiment.
It's an onion.
Some on the left might find this “little think” approach conservative. They are wrong. Silly “ultimate law” economics is at least as common on the right as on the left: for every Richard Murphy there’s some vulgar libertarian who thinks Econ 101 a sufficient guide to life, the universe and everything.
And “little think” has served to undermine simplistic neoclassical economics. For example, it highlights how incentives can often backfire, how high incomes aren’t a reward for talent, or how inequalities of power - and not ( just?)  marginal products - can generate income inequalities.
This is not, of course, to claim that economics should serve a particular political function. The point of economics is, like Feynman’s physics, is merely to understand a little more of the world. If ultimate laws, or even policy proposals, drop out of this it would be a mere by-product.
* not always - we can’t generalize so glibly. 

Comments

[kinglear]

The cock-up theory of humanity works best I find... And by the way, what is the difference between Sod's Law and Murphy's? Within that may lie the secret of the universe....

[Leigh Caldwell]

nice insight. This is related to other misunderstandings about economics - for example the climate change objectors who rightly point out that future technologies will help, but wrongly think that means we need do nothing at present. Economics is about both costs and benefits, and an economic solution almost by definition involves a tradeoff which is at neither extreme.

What is your footnote a reference to? The asterisk is missing from the main body of the posting.

[chris]

Ta Leigh, astersisk is inserted now.

[jameshigham]

If this is true for physics, it must be even more true for economics. In economics, the search for simple ultimate laws is impeded by the fact that people’s behaviour is often* context-dependent; sometimes we’re rational, sometimes not; often we’re selfish, occasionally not; and so on.

Therefore all these charts and esoteric language is actually a load of bollocks?

[reason]

None the less having a complete model might help in spotting systemic problems.

[ChrisA]

Since when does "neo-classical" economics claim that incentives don't backfire, or that high incomes are a reward for talent or even that power inequalities can lead to inequalities (a truism maybe?). I think you may in fact be thinking of recent Labour party policy. In fact what neo-classical economics says is that incentives matter very much (so better get them right), that high incomes are not a "reward" for anything, they flow from circumstances (good or bad), and if you let someone have power he will exploit it (incentives again). Another criticism that I see people make (and you refer to in your link) of neo-classical economics is that supposedly it assumes people are motivated only by money. It does not, it says people are motivated to maximise their utility which is not the same thing. Trivial example; I prefer expensive wine to cheap wine even at a higher cost to me, this is perfectly acceptable to neo-classical economics (i.e. it is rational). Preferring to buy the same wine (all other factors being the same) at a higher price when offered the same at a lower price is against neo-classical economics as it irrational. For some reason most critics don't seem to grasp this distinction. There is a valid critique that we don't always know really what makes us happy so maybe our choices are not always utility maximising, but I am not about to turn over that decision over to anyone else thanks, as they know even less.

[ChrisA]

By "expensive" in my example, I mean "good", just to be clearer.

[graeme]

Oh dear, I hope you won't get dragged into debate with Richard Murphy. You will find it futile and irritating and he will never admit error.

[John]

Reminds me of that fun song by Iris Dement: Let the Mystery Be.

[Glenn]

All economics is, is a framework of relationships and laws - some hypothetical, some evidenced, which help us understand the world.

some of these laws and relationships are common sense, some defy common sense yet are still, as far as we know it, true.

I'm a professional economist. I use theory, I use rules of thumb, but I don't place blind trust in the theories or rules. I really analyse the data in depth so I can see what's going on with my own eyes... economics helps me explain this of course...

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None the less having a complete model might help in spotting systemic problems

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Oh dear, I hope you won't get dragged into debate with Richard Murphy. You will find it futile and irritating and he will never admit error.

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All economics is, is a framework of relationships and laws - some hypothetical, some evidenced, which help us understand the world.

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[milton]

In fact what neo-classical economics says is that incentives matter very much (so better get them right), that high incomes are not a "reward" for anything, they flow from circumstances (good or bad), and if you let someone have power he will exploit it (incentives again). Another criticism that I see people make (and you refer to in your link) of neo-classical economics is that supposedly it assumes people are motivated only by money. It does not, it says people are motivated to maximise their utility which is not the same thing. Trivial example; I prefer expensive wine to cheap wine even at a higher cost to me, this is perfectly acceptable to neo-classical economics (i.e. it is rational)....
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