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Let the debate begin

Yi-Cheng Zhang

posted on 01 December 2000

Le Monde published an unusual article ["premier appel"] , ["contre appel"], an appeal of over two hundreds economists of elite French
hautes ecoles publicly aired their rebelion against what is called Neo-classical economics, especially
the formal math models without pratical relevance. And there
is also a pitiful defense of about fifteen economists calling for mercy and reason. I thank Erico
Scalas for suggesting to us this piece of news.

Discontent of outsiders and praticiens towards the mainstream economics is not new. Physicists still
remember the Santa Fe conferences organised by Anderson and Arrow over ten years ago, trying to help
the dismal status of economics as a Science. What is less known for physicists is that economists
constantly debate whether their profession is a science, on par with other bretherns like biology,
chemistry, physics etc. Over a century ago the great Norvegian-American economist Venblen titled
his book "why economics is not yet an evolutionary science". In the 20th century, much has been done
to make economics look more scientific, notorious with Paul Samuelson's "Foundation", formalizing all
concepts into math models, making economics look like mechanics, indeed very science-looking, journals
with full of math symbols, once Herbert Simon (Nobel laureate) remarked that economics journals looked
more rigorous than Physical Reviews. In mimicking sciences, the neo-classical economists more rely
on the rigor on their axioms, than the reality.

Physics deals with particles and an electron on the earth or from another galaxy is the exact the same.
However economic agents are human beings and much harder to model. In mechanics paradigm that neo-classical
economics cling to is showing cracks everywhere and massive defection is seen. And the le Monde appeal
is an desperate act of conscience, insiders knowing that practicing irrelevant math is not only a futile
excercise, but also misleading with real bad consequences. In the US this lead to the so-called "idiot-savants"
with full math tools yet not able to address real economy.

Interested readers shouldn't draw quick conclusions. There are other revealing, inspiring pieces in English,
I'd recommend: 1)R. Parker "Can economists save economics?" , 2) John Cassidy on New Yorker Dec 12-1996, 3) "Why economics is not
yet a science?" by Alfred Eichner, 4) "disturbing current" by Mark Blaug,

My friend Enrico has somewhat different opinion than mine, readers are urged to read his piece as well.
A few remarks about math-over-use in finance: the Black-Scholes was a great thing to finance world, its
essential point is use the diffusion mechanism to value uncertainty and put a price on it. To a physicist
standard this is not terribly deep. Then comes Merton's work "Continous Time Finance", polishing the BS
work with such amendities as Ito calculus, fancy stuff mathematical physicists use as daily bread. But
since in a profession greater emphasis is on the formalilty, Merton's work was hailed as tremendous
contribution and Paul Samuelson touted him as their Newton, Einstein...
In physics we love substance, also formality. But formality with little substance is not in the style of
a serious scientist, not to mention that of Newton or Einstein.

It's enlightening to see finally European economists are less bound to the dying paradigm and calling for
public opinion for help. We working in econophysics should pay more attention to real problems of economy,
not just limited to help technically to do better calculations using fancy math, but first we need to have
some understanding of the real economy before use math with abondon.