The mathematician and thermonuclear bomb designer Stanislaw Ulam famously challenged economist Paul Samuelson to come with up a social science theory that was both true and nontrivial. After a few years, Samuelson replied with Ricardo's 1817 theory of comparative advantage in foreign trade: if Portugal is worse than Britain at making both steam engines and corks for wine bottles, Portugal should still concentrate on making corks because it's comparatively less bad at corks than at steam engines. (These may not be the precise examples Ricardo used in 1817, but they get his point across.)
Of course, Portugal's corkocentrism helps explain why the Portuguese Navy was such a decisive strategic element in the Age of Steam, but the advantages of having a navy that rules the waves are not considered relevant in conventional economics.
Of course, Portugal's corkocentrism helps explain why the Portuguese Navy was such a decisive strategic element in the Age of Steam, but the advantages of having a navy that rules the waves are not considered relevant in conventional economics.
Samuelson wrote to Ulam:
That it is logically true need not be argued before a mathematician; that is not trivial is attested by the thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them.
Whether Ulam, co-inventor with Edward Teller of staged radiation implosion, responded by pointing out the advantage of making nuclear weapons and not trading them is unknown. Compared to the Hussein family of Iraq and the Qaffathy family of Libya, two ruling clans that didn't find the economics of making nuclear weapons rational, the Kim family of North Korea has enjoyed a comparative advantage at avoiding violent death.
I've long thought that Spearman's 1904 g (for general) factor theory of intelligence is reasonably comparable in nontriviality.
I've always had a hard time grasping it myself. Back in 1998, I wrote a review of Arthur Jensen's magnum opus, The g Factor, that considered some of the paradoxical social and political implications:
Stephen Jay Gould's The Mismeasure of Man, a 1981 book that continues to shape the non-scientific intelligentsia's feelings about IQ, demonized g as the "rotten core" of Prof. Jensen's 1969 article documenting the white-black IQ gap. The g Factor's overwhelming vindication of g, drawing on 15 years of new research, might seem likely to end the debate. It won't, of course, for reasons good and bad. The book sheds light on crucial new issues beyond the narrow scope of g (such as racial differences in nerdishness). More depressingly, few will grasp either its strengths or its limitations due to fundamental confusions rampant among American intellectuals about how to think about humanity.
For example, nobody noticed that Gould's assertion that human equality is a factual (rather than a moral, legal, or spiritual) reality centered on denouncing g; yet, g is the only concept that could conceivably make sense of his claim.
Ironically, the g-ocentrists are among the last students of human nature making important discoveries within the egalitarian world-view. The one technique capable of uncovering mental equality is Jensen's: minimize the number of data points by measuring only the single most important factor (g) across only a few vast groups. Thus, Jensen, the Great Satan to egalitarian fundamentalists, delivers in Chapter 13 the most important pro-equality finding in recent decades: Men and women really do possess the same average g. Their equal average IQ's scores aren't just an artifact of IQ tests being rigged to produce this result. Jensen's finding is hugely important in itself: it's the best explanation of the splendid performance of women in many white-collar jobs.
Still, this example also shows that g, like any successful reductionist theory, has its limits. Males and females, while similar on mean g (but not on the standard deviation of g: guys predominate among both eggheads and knuckleheads), differ on several specific cognitive talents. Men, Jensen reports in passing, tend to be better at visual-spatial skills (especially at mentally rotating 3-d objects) and at mathematical reasoning. Women are generally superior at short-term memory, perceptual speed, and verbal fluency. Since the male sex is stronger at logically manipulating objects, while the female sex prevails at social awareness, that explains why most nerds are male, while most "berms" (anti-nerds adept at interpersonal skills and fashion) are female. Beyond cognition, there are other profound sex dissimilarities in personality, motivation, and physiology. All this helps explain the sexes' different patterns in career choices.
Because Jensen's simple, single-factor model can detect intellectual equality between men and women, it can also detect intellectual inequality between whites and blacks, if that's what the facts are. Although most responses to Jensen's equality/inequality model haven't risen above name-calling, obfuscation, guilt-by-association, and professional cowardice, there is a logical, fruitful alternative: develop a complex, multi-factor "diversity" model that rather than concentrating upon one difference among a very few groups, focuses on the many differences visible among many groups. Emphasizing the trade-offs necessary for achieving different goals, it makes toting up an overall winner look a little pointless.
The diversity perspective has much to offer, but only when it's thoroughly understood that it's inherently less empirically egalitarian than Jensenism. The diversity model's current popularity, however, stems from the wishful thinking that it discredits racial differences, on the assumption that since Diversity and Equality are both Good Things, they must be synonyms rather than antonyms. One particularly fashionable defense of empirical equality is to combine the doctrine that there "are no such things as races" (just swarms of little ethnic groups) with Harvard professor Howard Gardner's speculations about seven "multiple intelligences." Ergo, all groups must be equal, QED.
Let's do the math: assume, say, 100 ethnic groups and seven "intelligences." That's 700 data points. No way, no how could they all be equal -- our universe doesn't work like that. The more complex your model, the less equality and the more diversity you'll perceive in the world.
Interestingly, when I pointed this out to Gardner, he agreed with me.
"...if Portugal is worse than Britain at making both steam engines and corks for wine bottles, Portugal should still concentrate on making corks because it's comparatively less bad at corks than at steam engines."
ReplyDeleteThat is monumentally trivial. First grade stuff. Even if Steve's point about national defense didn't apply, even if the example was chosen in a way that avoided national defense entirely, Samuelson's response would still have been pathetic. The concept is trivial. It's obvious to laymen. You don't have to be an economist to see it. I'm sure that lots of 80 IQ individuals have come with this "insight" by themselves, unprompted, just by going about their lives.
The triviality of economics is absolute. Real sciences (chemistry and astronomy) once arose out of alchemy and astrology. There is no possibility at all of that ever happening to economics.
It's worth noticing that in addition to international comparative advantage, there's also absolute advantage. With technology easing the flow of knowledge and reducing the cost of transport today, in many areas (say writing software or engineering chips), it's absolute advantage that often matters. Winner-take-all markets, only room for two players at the top, first mover advantage, and all that.
ReplyDeleteThere's probably some truth to the theory that a lot of modern economics got started as physics envy.
Things have gotten to the point that even econ students often don't believe the exercise, see for instance the memorably named post-autistic economics movement. Though I see they've now changed the name to the more prosaic real-world economics. Sounds kind of like the problem of naming race-realists, given the modern dispensation.
The Paradox of Thrift would have been a much better example of a non-trivial insight from economics. There are even credentialed economists who have trouble grasping it.
ReplyDeleteRisto
When it is said that Portugal is worse than Britain at making something, it's probably meant that it gets a lower profit per unit out of it than Britain. Its cost per unit is higher than Britain's, but the selling price is the same. Assuming the world is a gazillion times simpler than it actually is and Portugal's profits per unit never go negative, of course Portugal should make whatever brings it the most profits. It should do it even if Britain gets a higher profit per unit for making the same exact things.
ReplyDeleteIf that's all there is to this "insight", it's truly pathetic.
Speaking of Paul Samuelson, here's an article to the point:
ReplyDelete"Is economics a science? Should economics be rigorous?"
Paul Davidson, Journal of Post Keynesian Economics, March 2012:
"Paul Samuelson has added the claim that economists must accept the ergodic axiom in their models in their pursuit of economics as a science on par with physics, astronomy, and chemistry. Efficient market theory possesses all these characteristics. So how is it possible that efficient market theorists did not foresee the financial crisis that started in 2008? ...
Samuelson... and others adopted the ergodic axiom because they want economics to be in the same class as the “hard sciences” such as physics or astronomy. ...
What Samuelson... and others have done is impose axioms, such as the ergodic axiom, that have no relationship to the world we live in."
This from those "post-autistics" at the Real-World Economics Review.
Ricardo was wrong. He didn't envision the movement of capital, if you read his words he says the capital used to make engines will be used in Portugal. In reality, the cork factory moves to Britain too.
ReplyDeleteIf there is any truth there it is simply "do what you are best at." But for free trade, Ricardo is wrong, at least if you're allowing the free movement of labor or capital.
Steve, in that vein, you sure have seen the review (big write up) in the Financial Times this weekend (if you're not reading folks you should be, much better overall though still often clueless elite/liberal than the WSJ) of Joe Studwell's "How Asia Works: Success and Failure in the World's Most Dynamic Region."
ReplyDeleteSimply put, Studwell argues that land reform, intense small farmer agriculture, banks recycling farmer earnings, avoiding spending cash on imported foods, and elites that ruthlessly develop (killing failures) national champions in protected markets that then dominate in export markets or are at least highly competitive, is the path to wealth. And it starts with land reform.
Studwell says Japan during the Meiji Restoration, and even more so during MacArthur's regency, pushed land ownership to small farmers, who while less efficient economically per farmer than big farms, overall produced more food because of more intense farming. Thus building up national surpluses amongst farmers, recycled through banks, and saving on imported food. China only took off when it abandoned Mao's collectivism and huge farms. Russia never did. Nor did the Philippines, Indonesia, Vietnam, North Korea, etc.
"The triviality of economics is absolute. Real sciences (chemistry and astronomy) once arose out of alchemy and astrology. There is no possibility at all of that ever happening to economics."
ReplyDelete"Things have gotten to the point that even econ students often don't believe the exercise, see for instance the memorably named post-autistic economics movement. Though I see they've now changed the name to the more prosaic real-world economics. Sounds kind of like the problem of naming race-realists, given the modern dispensation."
No. Virtually all online auctions & internet allocations work using neoclassical "mathy" economic theory. This stupid claim that economics has no predictive power gets bandied about by people who know nothing about economics. So-called post-autistic economics and all heterodox econ tend to be outlets for the crankiest crackpottiest claims. Comment 9:50 PM provides a helpful example, citing a crank as though it had authority:
"Efficient market theory possesses all these characteristics. So how is it possible that efficient market theorists did not foresee the financial crisis that started in 2008?"
First, the premise is wrong. Raghuram Rajan is an efficient market theorist and did call the crisis. Second, if you understand EMH, the question makes no sense. It gets even dumber.
"Samuelson... and others adopted the ergodic axiom because they want economics to be in the same class as the “hard sciences” such as physics or astronomy. ..."
Ignore the self-parodying psychologizing of one of economics' leading lights and focus on the dumb content instead.
Do the authors even understand what the ergodic theorem is (despite the pretensions of mathematical sophistication, no mathematician would recognize an "ergodic axiom")?
"Ricardo was wrong. He didn't envision the movement of capital, if you read his words he says the capital used to make engines will be used in Portugal. In reality, the cork factory moves to Britain too.
ReplyDeleteIf there is any truth there it is simply "do what you are best at." But for free trade, Ricardo is wrong, at least if you're allowing the free movement of labor or capital."
False. Trade models where capital is allowed to move freely also demonstrated comparative advantage, sometimes larger than fixed-capital models. However, those models are typically not taught at the undergraduate level because they are difficult and so many students who reason by themselves, looking at simple logic of comp adv., intuit something similar to what I've quoted above. There are literally books based upon this fallacy (see Krugman, "The Accidental Theorist").
http://www.washingtonpost.com/blogs/tv-column/post/comedy-central-boasts-about-daily-show-colbert-report-ratings-in-18-to-49-year-olds/2013/04/04/4602109a-9d77-11e2-9a79-eb5280c81c63_blog.html
ReplyDeleteTalk TV beat Talk Radio.
Adam Smith and David Ricardo basically formulated their theories (late 18th century, early 19th century) at time when there really was very little large scal manufacturing industry in existence (apart from the British prowess in working power driven looms).
ReplyDeleteThe example Smith gave in 'The Wealth of Nations' was that it was perfectly possible to grow vines in hot-houses in the British climate, but obviously it's a waste of resources and the British were better off selling wool to the French and buying wine in exchange. That's the whole point behind trade, individuals or nations exchange between each other what has optimum utility for each party. Ancient man traded metals and flints between tribes that had those commodities and those which didn't.
- But things have moved on since then. We live in an age of mass population nations, wage dependent non-agricultural populations, mass production and mass capital transfer. For any nation state wishing to maintain a high living standrd for its people (which believe it or not,) is supposed to be the name of the game, the only solution is the creation of high value added product (unless the nation is blessed by sitting on high value natural resources). High value added product relies crucially on one factor - a high value adding workforce. Every thing else is just baloney.
The Chinese have managed to telscope centuris of economic development into decades precisely because of their workforce, not just the (no longer) 'low paid' grunt labor that the ignorant instantly jump on (even so their grunt laborers are a sight better than grunt laborers from other nations), but the 'crucial class' of entrepeneurs, technicians, engineers, officials those 'inspired people' who can sort out problems, roll up their sleeves and actually do things - and make no excuses.
economics is to mathematics/logic what psychoanalysis is to neurology.
ReplyDeleteHowever, those models are typically not taught at the undergraduate level because they are difficult and so many students who reason by themselves, looking at simple logic of comp adv., intuit something similar to what I've quoted above. There are literally books based upon this fallacy (see Krugman, "The Accidental Theorist").
ReplyDeleteMost students don't intuit the above, go to any undergrad course and you will find plenty of true believers in free trade (I was one once). It is actually economists such as Keen who have become fierce critics of free trade.
In theory there is no difference between theory and practice. In practice there is.
Economic theory is mostly propaganda for the ruling class. Ricardo was British. So, stick to making corks in the same old way, quaint little Portuguese people, and we'll get on with developing better steam engines and all the spin-off technologies that go with that. In the early 19th century Britain was better at making steam engines than the United States was. So did the Americans stick to importing British steam engines and exporting raw cotton? Of course not; they imposed heavy tariffs on British steam engines until American steam-engine makers were competitive.
ReplyDelete"Their equal average IQ's scores aren't just an artifact of IQ tests being rigged to produce this result. "
ReplyDeleteTerman made efforts to correct item bias in the Stanford Binet so that as many girls as boys would be identified, and he went so far as to obscure the drop in girls' IQ scores between 11 and 17 by collapsing their means scores with the boys, yielding a nonsignificant decline in IQ for the entire group.
http://www.davidsongifted.org/db/Articles_id_10165.aspx
If the South can more efficiently produce cotton than Britain, and Britain can more efficiently produce cannons than the South, then the South can have more cannons if it trades cotton for cannons with Britain then if it manufactures them locally. Free trade FTW.
ReplyDeleteNo, I guess we're not quite finished kissing his ass, are we?
ReplyDeleteWake me up when it's safe again for honest discourse at iSteve - I got better things to do with my time than to have Komment Kontrol send all these posts of mine straight to the circular file.
Economists - and their pet lackeys and acolytes the politicians - have got their heads so firmly stuck up their own asses that they are simply unable to see an absurdity for an absurdity. The ringleaders are the ass-clowns at the WSJ and 'The Economist' who exert a quasi priest-like pontifical awe amongst yer typical vain and shallow politico.
ReplyDeleteFor example, currently the USA borrows vast sums of money from the Chinese in order to buy Chinese goods, which the Chinses then lend back to the Americans (with interest of course) in order that the americans buy even more Chinese goods and the cycle is repeated in an exponential feed-back loop (if you've ever put an electric guitar near an amp. you'll know what I'm talking about by hearing, if nothing else).
Of course the above scenario is beyond nutty insane to any right thinking person (and it was the force, but not the actor behind the recent MMM that Steve has done so well to chronicle). But try telling that to an economist. Pah. To them you're the stupid one who just doesn't understand.
They remind a lot, a great deal with 1960s and 70s 'sociologists' and 'criminologists' you know that shower who unleashed the biggest murder wave in history before common sense found them out.
A good example of true but nontrivial knowledge from economics is that expanding the money supply won't lead to inflation in a liquidity trap when the economy is depressed. This prediction has held up extremely well in the Great Recession. I find it nontrivial because a few years ago when the Fed started quantitative easing, a lot of libertarians with above average IQs predicted that there would be hyperinflation.
ReplyDelete"...if Portugal is worse than Britain at making both steam engines and corks for wine bottles, Portugal should still concentrate on making corks because it's comparatively less bad at corks than at steam engines."
ReplyDeleteThis is neither trivial nor correct. It's not trivial because it is a dangerous misconception. It is wrong because it completely disregards risk (or as Nassim would say - fragility). If Portugal concentrated on 1 thing (or only a few things - be they corks or anything else) it will be massively exposed to even small changes in the worldwide demand for corks (and supply via better newcomers - think China).
This is somewhat similar to the idea behind "the resource curse" whereby investment in one thing crowds out every other endeavor and makes the whole economy fragile, not to mention ripe for political capture - after all, how many people will ultimately control the "cork industry" if it is very efficient (thus specialized and biased towards monopolism).
Bottom line is - countries need to diversify their "portfolio" for the same reason investors do.
Two multi-dimensional quantities can be equal to one another or unequal, and a measure of difference is possible so that it is possible to say that A is closer to B than to C. What is lost with multi-dimensional spaces however is any way to say that one quantity is "greater than" or "lesser than" another; any attempt to do so is self-contradictory. Only for one-dimensional sets can it be said that for all A and B in the set, exactly one of three possibilities is true: A=B, A>B, or AB or A<B are nonsense statements.
ReplyDeleteHow did a post that was predominately about Arthur Jensen and the g factor turn into a bunch of silly diatribes against free trade? We have Paleoconservatives quoting wacky Marxist journals critiquing Paul Samuelson. Comparative advantage is real and it works, just because economics isn't as scientific as physics or chemistry doesn't mean the economists have found nothing in over two hundred years. By the admittedly low standards of social science, economics has a pretty decent track record. Plenty of economists were warning that the real estate bubble was unsustainable and before that the stock market bubble as well.
ReplyDeleteThe diversity recession was mostly the result of politicians getting into a bidding war for minority voters where there was no check on the foolishness until the collapse. Fannie Mae and Freddie Mac were creations of Congress and lowered lending standards were being pushed hard both by a GOP administration and Democratic Congressman and Senators like Frank and Dodd. There was a reason that Dodd and Frank blamed unregulated markets for the housing market collapse, it was the classical blame shifting that everyone in politics masters very early or they never stay in office. They spent most of the decade criticizing the already lax Bush II administration for being not being lax enough in their gutting of credit standards. Once it blew up they blamed deregulation of Wall Street from the 1980's for the debacle. Plus the whole ball of lowered lending standards was set into motion very early in the Clinton Administration by some lefty economists at the Boston Fed. Lots of economists of the free trade variety were amongst the strongest critics of the Boston Fed study, the establishment choose to ignore the critics, they certainly didn't follow them like some of the posters have suggested.
I got better things to do with my time than to have Komment Kontrol send all these posts of mine straight to the circular file.
ReplyDeleteI'm continually amazed by the way Komment Kontrol lets through so many comments complaining about Komment Kontrol.
"Comparative advantage" turns to mush when you start with the premise that "free trade" is, in most cases, a bad idea for a nation.
ReplyDeleteIs the U.S. better off now that so much crap is made in China? Would we not be far, far better off if -- to take one example -- all our cheap clothing were made here? We'd have jobs. We'd have a larger tax base. And that $5 t-shirt in Walmart would cost maybe $10 instead. So friggin' what. Every American has more t-shirts then they need anyway. The value of keeping that manufacturing chain entirely in America would be much greater than the value of saving a few bucks per t-shirt.
There will always be a market for high-end imported goods. But for run-of-the-mill stuff, the sensible nationalistic approach is to make it ALL within your borders, even if that's not quite as "efficient" as having slaves in China do it.
"Free trade" is the opiate of the people. It helps only the wealthy. "Free trade makes everyone wealthier" is as big a lie as "immigration is good for the economy."
Let's do the math: assume, say, 100 ethnic groups and seven "intelligences." That's 700 data points. No way, no how could they all be equal -- our universe doesn't work like that. The more complex your model, the less equality and the more diversity you'll perceive in the world.
ReplyDeleteInterestingly, when I pointed this out to Gardner, he agreed with me.
If the intelligences were truly different, its hard to know if Gardner would care - if they can't be compared against one another usefully in terms of value, how would you perform any calculus to determine whether one group's summed "intelligence" from these seven separate variables is greater than another's?
Actually though, my first impulse would be different from yours and Gardner's - I would have guess "If there is one variable, it's quite probable that they could be different in sum by chance, but with seven variables, the Law of Large Numbers would indicate that they should equilibrate."
"Comparative advantage" turns to mush when you start with the premise that "free trade" is, in most cases, a bad idea for a nation.
ReplyDeleteHas this been demonstrated? Is it accepted by any economist or sociologist or psychologist?
Please substantiate.
"... no mathematician would recognize an "ergodic axiom")?"
ReplyDeleteIt appears to be a term of art amoung a group of economists, the type of thing that endears economists to so many. Here it is in the wikiedia article, "History of macroeconomic thought":
"The core of Post Keynesian belief is the rejection of three axioms that are central to classical and mainstream Keynesian views: the neutrality of money, gross substitution, and the ergodic axiom."
Yes, economics has a few nontrivial insights, but most of the time an economist states a "theorem" the axioms used are not all explicitly given, let alone checked for empirical validity, and economists also like to prove different "theorems" under incompatible axioms and then apply them both at the same time. Not only does the theoretical work show a pathetic amount of "math envy", the practical algorithms used in Washington and on Wall Street involve "math abuse", where tools are used whose power and sophistication are worse than useless because of the bad data and oversimplified assumptions they are given.
ReplyDeleteI think it's clear that Glossy has not grasped the concept of comparative advantage.
ReplyDeleteOTOH 'g' has always seemed trivial to me. I think this is so because unlike many, I finally freed my mind early from belief in the homunculus.
I went in psychology as an undergraduate to meet girls. No girls in economics. But I did get interested in what caused human behavior.
I was, I suppose, a reductionist. I looked into the human brain and imagined a little man in there pulling the levers. Rather like that scene in the morgue in the first "Men in Black".
I realized that this was a loony notion but it was my default image of human behavior through most of my twenties.
There used to be a TV commercial in which a black football player is beaten by his hand held game device and loudly asks,"Who's in there?". The homunculus began to die in the popular imagination with the advent of computers.
Quite soon iPads and Android tablets will be smarter than many of their owners. Then we will probably have a popular view of people's behavior as following the little computer in their heads.
Albertosaurus
I seem to be reading three economics books at once. "Socialism" by Mies, "The Great Deformation" by Stockman, and "Intellectuals and Race" by Sowell. If I were serious I suppose I would be reading less pop oriented stuff and read weighty tomes full of econometric models. But I'm just an econ dilettante.
ReplyDeleteI suppose it's the bad economy. When times were better I read more history.
At one time I (foolishly) read a number of books on poker - a game I almost never played. Econ books remind me of poker books. You can't really ever learn a formula to invariably win at poker, because you play against an opponent who shifts his strategy. Just when you are convinced that monetary policy, for example, is the way to go, the rules of the game change. Others read the same books.
That's why all the hagiographic books about Reagan are so silly. Reagan had many ideas that were correct then, but he possessed no timeless insights that would save us today. We're on our own.
Economics is interesting because it shifts so much. Statistics for example is almost totally static. Learn the theory and the tools and you are good for life.
Albertosaurus
Anonymous said...
ReplyDeleteNo, I guess we're not quite finished kissing his ass, are we?
Wake me up when it's safe again for honest discourse at iSteve - I got better things to do with my time than to have Komment Kontrol send all these posts of mine straight to the circular file.
If you think Komment Kontrol is rough on you now, just try suggesting the many upsides of arson!
My comment left yesterday became mangled due to the blog processing of the "greater than" and "less than" math symbols. I'll repeat using words instead of symbols.
ReplyDeleteOnly for one-dimensional sets can it be said that for all A and B in the set, exactly one of three possibilities is true: "A is equal to B," "A is greater than B," or "A is less than B." For multi-dimensional sets, "A is greater than B" or "A is less than B" are nonsense statements.
"Virtually all online auctions & internet allocations work using neoclassical "mathy" economic theory."
ReplyDeleteI'm a computer guy who has been involved in such auction efforts and have seen a work on various types of real-time wi-fi pay-as-you go and quality of service spectrum allocation. It's the reason I no longer trust modern economics in aggregate.
Neither of these two techniques are core. Auctions have been around for a long time and don't really need theory to be applied. Dutch guys selling flowers managed to apply them, etc.. It would be nice to optimize auctions by economic design, but often we don't know enough. Sometimes it seems anytime anyone uses agents that vote in a cycle it's called an auction, no matter how ad-hoc it is. (The good thing about an auction is that programmers can always make it work, no matter if it adheres to economic theory or not. Some agent will always win.).
There have been efforts almost as old as computing to apply economic theory to multi-dimensional optimization. Accurately optimizing across multiple "dimensions" is one of those hard problems that can rapidly grow to take more time than a human lifetime, for instance. Since human economic transactions "optimize" in multiple dimensions all the time, the hope is that economic algorithms can provide multi-dimensional schedulers. This is an interesting area that might be fruitful. In practice today people often resort to simple rule-based systems.
One reason economic algorithms don't seem to work in computing is that market design seems to be an inexact science, to say the least.
What I don't understand about economics is how it deals with large-scale non-linear complexity, the sort of thing that dominates operating systems. It's very easy to find situations in which any OS model that simplifies non-trivially doesn't apply because it simply doesn't have a fine-enough degree of affinity. Every ad-hoc line of code can matter. The only real "model" of the system that is truly useful (say for predicting future behavior) is the system itself. (One reason for the popularity of virtualization.)
The real world of human economics seems much more complex than an OS. So even though the math models are right, they just often don't seem to pertain to anything real. It's not the "mathyness" that worries me. It's that economists aren't good enough mathematicians, as good as they are, because they are doomed to never be good enough. That's not to say that people shouldn't continue to work in economics, just that they should exhibit some humility about the expected strength of the application of the subject.
Perhaps an example comes from queueing theory. In the late 60s to early 70s queueing theory was widely taught in grad OS classes. Queueing theory is a fine mathematical field. Networks are full of queues, OSes are full of queues, so shouldn't queuing theory models be a core part of the subject? Well, while there are some limited problems where queueing theory is exactly what you need--some bus design and network problems--in general the answer is alas, the models are simply too approximate to be that useful for a real OS in all its complexity. The real world just doesn't let itself get modeled by simple models for many problems you have to deal with.
Although maybe it was financial quant types, not economists that got investment bankers risk calculations so messed up, that "coupla" approximation business to assign risk to CDOs sounds like it might have similar problems.
I haven't been able to see world-class people engineering system software reliably with economics theory. Why should I assume they can engineer/manage a government's financial operations or similar things?