Monday, December 14, 2015

How economists work

The model was amazing. It was neat and slick and smooth all around, had no edges. It looked just perfect.

"Does it float?" I asked excitedly.

"Of course!" The boat maker said. "Look!"

He went to the whiteboard and drew sketches, scribbled formulas and explained his theory of boat making in all details. It looked awesome.

"That's awesome," I said. "Now, does it float?" I asked even more excitedly.

"Yes", the boat maker said, "I just showed you". Then he summarized the most salient points of his theory while pointing here and there on his whiteboard.

"Great", I said slightly but back. "Can I put it in water and see it floating?"

"Ah.. it's not really necessary. We had this philosophical debate since the nineteen seventies. People will never agree about the facts, but it's logical: If you build boats according to the theory they'll float".

He turned to the door, where his secretary appeared. "I'll be right there", he called, then turned to me again. "You'll excuse me", he said. Then he left.

I stood there for a while, then I couldn't resist. I gently grabbed the model of the boat, walked to the tank in the laboratory and very gently put the model into the water. It sank like a stone.

I was shocked. How can that be? The theory said it would float. I walked to the whiteboard and checked the theory. It seemed flawless, but then I noticed something strange: In the boat maker's theory of boat making, there was no concept of water. Water was mentioned, but only in the most cursory manner: Because there cannot be any water inside the hull (otherwise the boat would be too heavy and would not float), water does not play any significant role to the details of the inner construction of boats, which after all is a container of sorts. Only what's inside a container matters. If there can't be any water inside the boat, water can be ignored, obviously. This is a valid simplification of theory. Because it is. You're not a boat maker, so how would you know. Perhaps you read a first year's boat making text book, before you discuss boat making theory.

I was shivering. Could it be that during the last 30 years since supply-side boat making came into fashion, we designed boats according to a theory where water was absent? Could it be that the boat sinking crisis of 2008 was due this flawed theory? After all, those boats were sinking in water.

How could we ever know. No boat maker has ever been called to account for the miserable failure in recognizing the boat sinking crisis of 2008. Indeed, the same flawed theory of boat making is still taught to this very day.

It doesn't matter how beautiful your theory is, it doesn't matter how smart you are. If it doesn't agree with experiment, it's wrong. Richard P. Feynman

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