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CHAPTER 2 Limitations of Economics We must not look for the same degree of accuracy in all subjects: we must be content in each class of subjects with accuracy of such a kind as the subject matters allows, and to such an extent as is proper to the inquiry. —aristotle, Nicomachean Ethics The conscious or unconscious view that many economists have of economics as a science comparable to physics tempts them to expect that it can aspire to explaining economic reality with the same precision and predictability that they believe physics has been able to achieve in explaining and predicting phenomena in the universe. This idealization of physics overlooks the fact that in modern physics Heisenberg’s uncertainty principle is now accepted as describing a fundamental property of the world. We cannot measure the present state of the universe precisely. Quantum physics teaches that an electron can be a particle or a wave and an electron may suddenly appear unexpectedly. There is an absolute line beyond which it is impossible to ascertain precisely both the exact position and the momentum of a simple elementary particle. As Hawking points out, this means that we cannot have a scienti‹c theory or model of the world that is completely deterministic (1988). Richard Feynman, one of the most brilliant physicists of our generation, commented that physics “has given up on the problem of trying to predict exactly what will happen in a de‹nite circumstance . Yes! Physics has given up. We do not know how to predict what would happen in a given circumstance, and we believe now that it is impossible , that the only thing that can be predicted is the probability of different events” (1995, 135, italics in original). In mathematics, Goedel proved that no axiomatic system could be complete. Economics must also realize that it too is subject to limited results. The limits to precise knowledge of an economic situation or problem are approached rapidly. The nature of an economy is such that the mesh of the net that economists can weave to catch reality is much coarser than that of the natural scientists in their realms. 7 It is central to the argument to make clear the distinction between the terms accuracy and precision. These are often confused in common usage, with a precise statement often being taken as evidence of its accuracy. The distinction between the two can probably best be seen in my favorite example: On Cape Cod, where the pace of life is relaxed, you may ask a craftsman when he can come to build a fence for you. If he answers, “sometime in the autumn,” he is being accurate but not precise. If instead he promises “Eight A.M., October 2,” he is being precise but not accurate. On October 2, it is highly likely that the ‹sh will be running and he will be out in his boat or it will be a beautiful autumn day, far too nice to spoil by working. Accuracy conveys the meaning of “correctness,” of “true value.” Precision means the “degree of sharpness” by which a thing or concept is speci‹ed, and it may or may not be accurate. Alfred Marshall and John Maynard Keynes did not believe that it was possible to apply exact mathematical methods to economics because a pervasive part of economic life cannot be precisely measured. As Keynes stated in the footnote to his memorial for Alfred Marshall: “economic interpretation in its highest form requires an . . . amalgam of logic and intuition and the wide knowledge of facts, most of which are not precise” (1925, 25). The virtue, and the fault, of mathematics is that the meaning of a mathematical symbol, once de‹ned, does not change. Words, on the other hand, can ›irt with meanings and coquet with relationships. Words can be deliberately ambiguous when relationships are ambiguous and it is desired to leave them so. Natural language can be more ›exible in conveying meaning : it is in‹nitely richer in vocabulary and consequently can be more accurate , although less precise. The ‹rst part of this chapter will present a summary analysis of why precision is unattainable in grasping the economy. Perhaps the greatest problem some economists will face in this discussion is the dif‹culty of shifting from the mind-set of precise numbers and well-behaved models of pure theory to the rough, inaccurate data, recalcitrant behavior, and shifting complexities of the real economy. Although economics has prided itself on its comparability...

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