Home > The Economics Profession > The scientific illusion of ‘modern’ macroeconomics

The scientific illusion of ‘modern’ macroeconomics

from Lars Syll

reality-header2

Deductivist modeling endeavours and an overly simplistic use of statistical and econometric tools are sure signs of the explanatory hubris that still haunts neoclassical mainstream economics.

In a recent interview Robert Lucas says he now believes that

the evidence on postwar recessions … overwhelmingly supports the dominant importance of real shocks.

So, according to Lucas, changes in tastes and technologies should be able to explain the main fluctuations in e.g. the unemployment that we have seen during the last six or seven decades. But really — not even a Nobel laureate could in his wildest imagination come up with any warranted and justified explanation solely based on changes in tastes and technologies.

The Chicago übereconomist is simply wrong. But how do we protect ourselves from this kind of scientific nonsense? In The Scientific Illusion in Empirical Macroeconomics Larry Summers has a suggestion well worth considering — not the least since it makes it easier to understand how mainstream neoclassical economics actively has contributed to causing today’s economic crisis rather than to solving it:

Modern scientific macroeconomics sees a (the?) crucial role of theory as the development of pseudo worlds or in Lucas’s (1980b) phrase the “provision of fully articulated, artificial economic systems that can serve as laboratories in which policies that would be prohibitively expensive to experiment with in actual economies can be tested out at much lower cost” and explicitly rejects the view that “theory is a collection of assertions about the actual economy” …miracle-at-blackboard

A great deal of the theoretical macroeconomics done by those professing to strive for rigor and generality, neither starts from empirical observation nor concludes with empirically verifiable prediction …

The typical approach is to write down a set of assumptions that seem in some sense reasonable, but are not subject to empirical test … and then derive their implications and report them as a conclusion. Since it is usually admitted that many considerations are omitted, the conclusion is rarely treated as a prediction …

However, an infinity of models can be created to justify any particular set of empirical predictions … What then do these exercises teach us about the world? … If empirical testing is ruled out, and persuasion is not attempted, in the end I am not sure these theoretical exercises teach us anything at all about the world we live in …

Reliance on deductive reasoning rather than theory based on empirical evidence is particularly pernicious when economists insist that the only meaningful questions are the ones their most recent models are designed to address. Serious economists who respond to questions about how today’s policies will affect tomorrow’s economy by taking refuge in technobabble about how the question is meaningless in a dynamic games context abdicate the field to those who are less timid. No small part of our current economic difficulties can be traced to ignorant zealots who gained influence by providing answers to questions that others labeled as meaningless or difficult. Sound theory based on evidence is surely our best protection against such quackery.

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  1. Lyonwiss
    November 9, 2013 at 10:45 am

    We have done enough about Robert Lucas and neoclassical economics. Why waste time on them when they are not directly driving the economic policies which are affecting our lives? Whatever brand of neoclassical or neo-Keynesian economics Bernanke is labelled under, the ‘modern’ macroeconomics underpinning the most recent speech needs to be discredited:

    http://www.federalreserve.gov/newsevents/speech/bernanke20131108a.htm

    It would not be a serious challenge to spot all the unscientific assertions, self contradictions and factual errors in a single speech. This is the man who has been having enormous influence in destroying economics.

  2. Norman L. Roth
    November 10, 2013 at 1:00 am

    November 09, 2013
    For a reminder of a similar critique, readers should refer back to Lars Syll’s “REAL BUSINESS CYCLES, TRANSMOGRIFYING OBFUSCATION of August 10, 2013. The answer to both of them, in order to understand what follows, is still embodied in thread #5 by Norman L. Roth on August 11, 2013. Also, please refer to “THE KEYNES SOLUTION, of 2009. Scroll down to #12 of that one, Especially my citation of the the M.I.T. Technology Review article of August 2013. M. Syll’s critique is still 100% correct in principle, about Robert Lucas’s recent retreat to the land of “real shocks”. Real Business cycle theory, a la Lucas, depends on the cult of shocks [in which changes in "technology" and "tastes are somehow included]: So he can flee from the necessity of offering an empirically falsifiable paradigm, to explain changes in such fundamentals as unemployment, labor participation rates, and by inference the Natural participation rate as defined in TELOS & TECHNOS in Chapter four. As we recall, Keynes held both “tastes” and “technique” constant [i.e. exogenous] just as Walras did. See the beginning of Chapter 18 of the GENERAL THEORY.[1936] Of course, changes in “taste” and technology” are dynamic processes which are taxonomically classifiable, just like “CAPITAL”. Not quasi-physical substances which are “measurable” or can be “accumulated”. A comically gross secular superstition shared by both marxoid and neoclassical “quackery”. The reader should also review the history of the “Cambridge Capital controversy” of the late 1960s and early ’70s. Especially the “LEETS” concoction of the Cambridge Mass. ‘explainers':Which should have scuttled their claims, then and there, to even the lowest level of “scientific” respectability.
    It should be emphasized again that what reduces the reigning academic paradigms to “scientistic” [Hayek's word] ‘babble’ is their zipped-up denial that Economics, by its very nature, cannot partake of the three basic traditions of the physical sciences: [1] Reproduction of results by a global scientific community.
    [2] A proven capability for quantifiable prediction.And [3] Satisfactory proof theorems, that build on the first two.
    Nor can tedious, repetitive scapegoating of certain chosen horned and hoofed personalities, contribute to an understanding of what is still wrong about the reigning academic paradigms and the simplistic policies based on them. Such “ad -hominem” stuff reveals more about the condemners than the condemned. Thanks for your patience.
    Norman L. Roth, Toronto, Canada. Please GOOGLE [1] Economics of Technology, Norman Roth, [2] Origins of Markets, Norman Roth [3] TELOS & TECHNOS, Roth

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