[OPE] Mistaking Mathematical Beauty for Economic Truth

The mood of hostility to mathematics among the bourgeois and pettybourgeois
intellectuals was a direct effect of the financial crisis, when mathematical
modelling failed spectacularly to provide accurate forecasts of economic
fluctuations, and failed to ensure adequate "risk-pricing", causing
capitalists to lose up to a third of their personal asset wealth.

You have to imagine, these people entrust their personal wealth to asset
managers who invest it to reach a certain return at a certain risk, using
various calculations. But if you lose 35% of your wealth per year, instead
of gaining 20% per year, then what use are all the complicated portfolio
calculations by fund managers?

In reply to Alejandro, almost any categorization of a phenomenon can be
modelled mathematically to reveal its quantitative implications. The problem
is not with mathematics per se, but as Ian Wright notes, the problem is with
poor conceptualizations of economic reality. Thus, economists end up
counting the wrong things. You can model uncertainty, if you can define the
dimensions of certainty and uncertainty.

For example we could set up an experiment in Florida to study the pattern of
a raindrop when it falls to the ground, but if our whole experiment is wiped
out by a tropical hurricane, then we ought to be rethinking our theoretical
assumptions.

We do have an alternative, but that alternative goes beyond classical
political economy and beyond neoclassical economics. Our point of departure
is to understand the economy not via a mystical bourgeois or Marxist theory,
but understand it as it really works, how it really works in reality. That
means a scientific economics without nonsense, based on the observable
reality of economic life, rather than an ideological economics.

Jurriaan

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Received on Sun Sep 13 02:37:27 2009