Good and bad critiques of economics

Rationally Speaking | Official Podcast of New York City Skeptics - Current Episodes - RS 218 - Chris Auld on "Good and bad critiques of economics"

"Most people think, and survey evidence shows this, is that what economists mostly do is make macroeconomic forecasts. And that is really, really, wrong. Probably less than 1% of academic economists do anything related to macroeconomic forecasting, so it's kind of frustrating to see the same criticism over and over and over again...

'When I studied economics, the two things that I got from people were A, "Oh, so you can forecast the economy?" And B, "Oh, so you can tell me where I should invest my money."...

I think the major thing that people would be surprised about if they actually spent time in an economics department is how shockingly apolitical it is. There's really not much political talk going on at all. It's not political philosophy... You could read Debunking Economics and have absolutely no idea at all that economists actually mostly do empirical work. Something like 65 or 70% of economic research is statistical. Going out and getting data, what's going on in the real world and trying to explain what we see in those data. There's not one mention of any empirical work in Debunking Economics...

He's one of the people who thinks that all that's in mainstream economics is 1950s neo-classical theory...

The rational addiction model. And it makes further predictions about how future prices will affect today's behavior. I think this is one of the few areas where economists have actually made a theoretical prediction, which is counterintuitive, and then later went out and found that that prediction is actually true in data.

So the model predicts that if I increase the future price of the addictive good, addicts will respond by immediately reducing their consumption of that good... So the model says, if the government says on January 1st, we're going to greatly increase the tax on tobacco, people will respond by immediately smoking less. They might go and hoard cigarettes, but they're going to smoke less of them, the model says. I think most people ...

So I teach this every year in health economics classes and I ask people before I give the reveal, "What do you think the model says?" And most people actually predict the opposite. They think something like, "Oh, well if alcohol is going to become more expensive tomorrow, what I should do is get blind drunk today while I still have the chance." The model says, "Nope, you should do the other thing."...

So later, about six or seven years after the theory was published, people showed it was true. About five years after that, people showed in very careful analysis that future price changes on tobacco immediately affect behavior only if they're announced, which is exactly what we would expect. So if the government surprises people by increasing the tax, well, nobody responds to that prior. But if they say six months from now we're going to increase the tax on tobacco, they immediately reduce their consumption."