Austrian economists have known for a long time that people don't act the way mainstream economists say they do. But mainstream economists and the New York Times are only just finding it out themselves [hat tip Brain Stab].
"Anomalies" is what one Nobel prize winner called behavioural departures from the rationalistic idea that people act as mainstream economists say they should, ie., with both 'perfect' knowledge and 'perfect' self-interest. This wouldn't be important to the rest of us, except that when these 'anomalies' occur in ways that attract the attention of the business pages the more state-worshipping economists start to yell about "market failure" -- whining in other other words that people don't fit their "models," and calling for government agency to make them fit, ie., to"fix" a problem that doesn't actually exist.
But the way people behave is only anomalous to people who think other people should behave the way their equations say they should. The fact is that economics is not a science of human choice, as mainstream economists insist it is; it is instead a science that studies the result of human action, however mistaken the graduates of business schools might think those actions to be.
Rather than devising and formulating abstract, arbitrary models predicting the choices people make, and then throwing up the hands in horror when people over-eat, over-spend and generally act in ways other than those predicted, Austrian economists base their system of thought on one very simple principle: Man acts. Specifically, he acts in ways he think will move him from a less satisfactory to a more satisfactory state of affairs, whatever the hell that might actually be. He might be wrong in the way he acts to achieve his goals, and he might even be mistaken in the goals or choices themselves (and people might even act in ways they explicitly disown) but they act nonetheless, say Austrians, and in their actions they seek to further their own ends (whatever these might be) -- it is with this 'action axiom,' says economist Ludwig von Mises, that the science of economics begins.
A shame that mainstream economists and the New York Times's writers haven't read more Mises or observed more human activity before they burst into print calling what we do every day "anomalous."
UPDATE 1: New Zealand's funniest bloke, John Clarke, has the testimony of an unusually truthful "economics expert" appearing before a Royal Commission on What the Hell's Happening to the Australian Economy. The relevance to this post can be seen almost from the first exchange. Here's a small sample:
BARRISTER: Mr Trouser, you've told us over a 3 month period you collect information and analyse it for trends... So what's going to happen Mr Trouser? In the next few months? What's a likely next development in the economy.
TROUSER: I've no idea. I don't have the current information.
BARRISTER: I thought this [holds up telephone book sized sheaf] was the current information.
TROUSER: They are the current figures, but they're not based on the current information.
BARRISTER: The current figures are not based on current information?
TROUSER: No. The current information is coming in now.
BARRISTER: So what are the current figures based on?
TROUSER: They're based on the information available at the time the current figures were being prepared.
BARRISTER: Which was when?
TROUSER: 3 months ago. The figures take 3 months to assemble.
BARRISTER: Is it possible for you to tell what's happening now?
TROUSER: Yes, of course it is.
BARRISTER: When could you do that?
TROUSER: In 3 months.
Read it all. It's hilarious. And then send the link to your nearest economist.
UPDATE 2: Clifford Thies draws parallels between the predictions of mathematical economics, and the equations and prediction of pro-warmist super computers.
The emerging discipline of climatology is an interesting one. It has no laboratory. Instead, various measurements are put into computer models to see the extent to which they are consistent with the hypothesis that human activity has contributed to the trend of global warming. Unable to conduct experiments, all climatologists can do is examine statistical correlations.
In my field of economics, we have generally dismissed inferences based on mere correlations. Such things as interest rates, inflation, the unemployment rate, and real GDP growth are highly trended. Almost necessarily, they are highly correlated over discrete periods of time. This correlation doesn't prove anything regarding cause and effect, and the still short history of econometrics is littered with theories such as the Phillips Curve that once enjoyed a consensus among economists, that are now understood to be little more than statistical illusions.
Today, the econometric standard for testing theories involves determining if changes in one variable tend to be followed by changes in another variable. Thus, the sequence of fluctuations in variables is seen as a key to discerning cause and effect. This new standard has been humbling in revealing just how complex are macroeconomic phenomena.
Commenters on this thread are recommended to read and digest.