Mainstream Economics and Flying Unicorns: part 1

It is a well known phrase popularized by Carl Sagan: Extraordinary Claims Require Extraordinary Evidence. As puts it, if Alice tries to convince Bob she went to a movie last night, a ticket stub will perfectly do. If however, she claims she flew on a unicorn, an officially-looking receipt will hardly be sufficient. (We might add here that if her being at a movie last night were her alibi in a murder case, a ticket stub may not have been sufficient either, but we digress).

This approach certainly holds true in modern science. A great example is Quantum physics: the claims it makes are extraordinary to the point that Albert Einstein refused to believe them initially. However, extraordinary evidence was indeed provided: ability to predict results of experiments with amazing precision, plus a theorem to show that no other explanation is possible.

Mainstream economics puts forth a number of claims, backed by evidence. However, some of these claims could be considered quite extraordinary, while some of the evidence on par with a movie ticket stub.

Let’s list some of the claims that are made, and then try to show how extraordinary they are, and what they are substantiated with:

  • Declining spending is harmful to the economy. If a recession hits, government must step up spending to keep the economy going.
  • Accommodative monetary policy (a.k.a. money printing) can be used to create economic growth.
  • People should be prevented from coming to our country to work, because they will take our jobs for themselves. Only if the job cannot be locally filled, should we agree to bring in a foreign worker or an immigrant.
  • We should try to export as much goods as possible, and import as little goods as possible. This will let us have more jobs and prosperity.

There are more claims of this kind, but let’s limit ourselves to these four.

First let’s see if these claims are extraordinary.

To do that, we must agree on the goal of economics. Terms such as “economic growth” are not well defined for our purposes. Since we are looking for a common sense evaluation, mathematical definitions within the bounds of the current economic theory will not only be unhelpful, but in some cases amount to circular logic.

I propose that we adopt the notion of “prosperity” as the ultimate goal of all economics and all policy. This is because “prosperity” is immediately evident to everyone and does not require extra definitions or discussion. We all know that “prosperity” means “having more stuff”, or something along these lines. Of course, that prosperity can be distributed in different ways, and we need an additional concept of “fairness” to accompany it. But let’s first see the claims pass the initial test of prosperity: would it make sense for these policies to increase overall prosperity, or are we talking about flying unicorns?

Having agreed on the goal, we must agree on what constitutes “extraordinariness”, or disagreement with common sense. The proponents of these claims take the easy route: they present to us a logical explanation, saying, for example: “my spending is your income, therefore the more I spend, the more you earn, and this is why increasing spending makes sense”. This is a very logical-sounding claim, however it does not qualify as a measure of common sense. Consider a different claim: “Newton’s third law states that any force applied to a body results in an equal force applied back. Therefore, if I punch you in the face, I’d be just as hurt as you are”. Both statements make a logical-sounding claim; however it is evident that the second statement’s conclusion is highly counter-intuitive. Therefore, there must be something else that results in common sense agreement, something beyond a mere scholastic argument.

For our purposes, a very simple measure will suffice. We will need to find an everyday experience that is very similar to what we are describing in the claim, and ask ourselves: is this what you would normally do or expect to happen?

An immediate objection is proof of equivalence. Whatever experience we find that disagrees with the claim, it can immediately be claimed that it is totally different, and the same rules do not apply. However, we should keep in mind that we are not looking for a mathematical proof here. We are looking for common sense, no more.

Therefore, if we find that (a) it makes sense that the experiences are equivalent, and (b) it makes sense that you would act in a certain way in that situation, than whoever claims otherwise should bring some extra evidence that either (a) or (b) do not hold.

In the following post, we will use these criteria to evaluate the extent to which the claims above are extraordinary or not.

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One comment on “Mainstream Economics and Flying Unicorns: part 1
  1. […] Mainstream Economics and Flying Unicorns: part 1 […]

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