Wednesday, July 15, 2015

Is economics just a collection of names?

Reading Noah Smith's post of a conversation with a finance industry insider, I realized there's another good way to see if you are dealing with a framework or not. In Noah's post there are references to Heath-Jarrow-Morton and Cox-Ingersoll-Ross. In other venues we have Diamond-Dybvig, Woodford-Eggertsson, Solow-Swan, Schmitt-Grohe and Uribe, Ramsey-Cass-Koopmans, etc.

All of these things are based on names -- sometimes even specific papers.

However the use of names (and specific papers) is an indicator that there aren't general principles or ideas that make up frameworks that can be used to generate names for these models.

There are some squishy cases. For example, DSGE is sometimes referred to in terms of an "original" implementation as Kydland-Prescott (or in a specific application in Smets-Wouters), but IS-LM isn't called Keynes-Hicks as far as I know. Maybe it is. Economists frequently call it Arrow-Debreu (or ADM) instead of general equilibrium; maybe that is because the theorem wasn't constructive.

DSGE (dynamic stochastic general equilibrium), general equilibrium and the supply and demand/diagram based (partial equilibrium) models like IS-LM and AD-AS are all pretty close to being frameworks. And because of that, they tend to get called something more techincal.

Physics provides a contrasting case.

Quantum mechanics isn't called Heisenberg-Schrodinger, QED isn't called Feynman-Schwinger-Tomonaga, QCD isn't called Gross-Wilczek, and the standard model isn't called Einstein-Feynman-Schwinger-Tomonaga-Gross-Wilczek-Gell-Mann-Weinberg-Glashow-Salam-Higgs-Cabibbo-Kobayashi-Maskawa (I've left some people off because I'm lazy).

There are a couple of places where a bunch of names get attached to something in physics, however. BRST quantization (Becchi-Rouet-Stora-Tyutin) and DGLAP evolution (Dokshitzer-Gribov-Lipatov-Altarelli-Parisi) come to mind. But these are specific methods or equations needed to do something (quantize a non-Abelian gauge theory and "evolve" a quark or gluon distribution from one energy scale to another, respectively).

Now this isn't a hard and fast rule and there are probably many exceptions out there. Newtonian physics is one that immediately comes to mind (the technical term is [classical] mechanics, though). But that may just reinforce my point. Newton came along in a time when advances in physics were defined by the people describing them, which, as I describe in my link above, is where I see macroeconomics. "Newtonian" may just be a hold-over from a framework-less time as we don't refer to Einsteinian or Heisenbergian physics (for the relativistic and quantum corrections to Newton's theory).

Don't read this as a criticism -- this is not a bad thing, and I hope to have my name in one of those lists some day. It really means economics is in an exciting time, a period of discovery and flux. Some of those names at the top of the post will be in textbooks for hundreds of years.

7 comments:

  1. "Newtonian physics is one that immediately comes to mind (the technical term is [classical] mechanics, though)"

    Wait, I about six months ago I learned that relativity was considered part of "classical" mechanics. So I naturally thought that "Newtonian physics" meant basically classical w/o the relativity (and perhaps a few other things, like Maxwell's equations). Did I get that wrong?

    Just off the top of my head there's Feynman diagrams, Schrodinger's equation, Planck's constant, Boltzman's constant (and brains), Bell's inequality, Maxwell's equations, the "Hamiltonian," and of course all those fun units (Volts, Watts, Amperes, etc). I'm not terribly good at this game, and perhaps those are not really what you're getting at... but this is fun, so let me continue:

    In engineering, I've encountered Riccati equations, Navier Stokes equations, the Bernoulli effect and distribution, Gaussian distributions, Rician, Rayleigh and Maxwell distributions, Swerling's RCS models, Euler angles, Dirac and Kronecker delta functions, Von Neumann machines, Bellman's principle of optimality, Kalman filters, Wiener filters, Kirchhoff's laws, Cauchy–Schwarz inequality, and Cauchy criterion, Pythagoras' theorem, Shannon–Hartley theorem, Laplace and Fourier transforms, "Laplacians," Cholesky factorizations, Lyapunov stability, Lebesgue and Riemann integration, Boolean algebra, L'Hopital's rule, Taylor series, Gauss's Law, Poisson's equation and distribution, Helmholtz decomposition, Faraday's law, Higgs boson, Einsteinium (and these other elements), Kreb's and Carnot cycles, Pasteurization, Keplerian orbits, Galois theory, Hubble's and Moore's law ... (OK, I wandered a bit off the reservation there at times)... ...and by no means do I mean to imply those are counterexamples to your point. I just got carried away. (c:

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    1. Hi Tom,

      Classical is a 'retronym' for "not quantum", so yes relativity is part of classical mechanics.

      My point was about models of a real physical or economic system. Feynman diagrams are a technique, not a model. Schrodinger equation is a piece of quantum mechanics. Maxwell's equations are a particular formulation of electrodynamics (L = tr F ∧ ★F is another way to write it down in terms of a lagrangian, differential geometry and Yang-Mills theory -- which is math not a model of a particular system).

      The Navier-Stokes equations are just another set of equations -- combined with some other things they become e.g. magnetohydrodynamics or fluid mechanics (models of physical systems).

      Shannon-Hartley is a piece of information/communications theory (the model of the physical system).

      I wasn't saying there aren't things that are named for people in physics or mathematics. I was saying there is a lack of modern macro models with technical names. The quantity theory of money is a good technical name. It isn't called Hume-Fisher or Pigou-Keynes. Evolution isn't called Darwin-Wallace.

      Some of the models I listed at the top are "New Keynesian" which implies a collection of assumptions and mechanisms the models have in common.

      Actually -- there is an interesting insight with the constants. There aren't any established constants in economics that could be given names.

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  3. "I hope to have my name in one of those lists some day."

    I can see it now: Smith-Smith-Smith. :)

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  4. You tricked me! I was waiting til August...I think all you are noticing here is that economics is a liberal art and primarily engaged in comparative fiction.

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    1. And here I thought you were checking every day with bated breath!

      :)

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