Wren-Lewis on macroeconomic eclecticism
from Lars Syll
Oxford macroeconomist Simon Wren-Lewis has a post up on his blog discussing whether mainstream macroeconomics is eclectic or not. His answer is — both yes and no:
Does this mean academic macroeconomics is fragmented into lots of cliques, some big and some small? Not really … This is because these models (unlike those of 40+ years ago) use a common language …
It means that the range of assumptions that models (DSGE models if you like) can make is huge. There is nothing formally that says every model must contain perfectly competitive labour markets where the simple marginal product theory of distribution holds, or even where there is no involuntary unemployment, as some heterodox economists sometimes assert. Most of the time individuals in these models are optimising, but I know of papers in the top journals that incorporate some non-optimising agents into DSGE models. So there is no reason in principle why behavioural economics could not be incorporated …
It also means that the range of issues that models (DSGE models) can address is also huge …
Mainstream academic macro is very eclectic in the range of policy questions it can address, and conclusions it can arrive at, but in terms of methodology it is quite the opposite.
Wren-Lewis tries to give a picture of modern macroeconomics as a pluralist enterprise. But the change and diversity that gets Wren-Lewis approval only takes place within the analytic-formalistic modeling strategy that makes up the core of mainstream economics. You’re free to take your analytical formalist models and apply it to whatever you want — as long as you do it with a modeling methodology that is acceptable to the mainstream. If you do not follow this particular mathematical-deductive analytical formalism you’re not even considered doing economics. If you haven’t modeled your thoughts, you’re not in the economics business. But this isn’t pluralism. It’s a methodological reductionist straightjacket.
To most mainstream economists you only have knowledge of something when you can prove it, and so ‘proving’ theories with their models via deductions is considered the only certain way to acquire new knowledge. This is, however, a view for which there is no warranted epistemological foundation. Outside mathematics and logics, all human knowledge is conjectural and fallible.
Validly deducing things in closed analytical-formalist-mathematical models — built on atomistic-reductionist assumptions — doesn’t much help us understand or explain what is taking place in the real world we happen to live in. Validly deducing things from patently unreal assumptions — that we all know are purely fictional — makes most of the modeling exercises pursued by mainstream macroeconomists rather pointless. It’s simply not the stuff that real understanding and explanation in science is made of. Had mainstream economists like Wren-Lewis not been so in love with their smorgasbord of models, they would have perceived this too. Telling us that the plethora of models that make up modern macroeconomics ‘are not right or wrong,’ but ‘just more or less applicable to different situations,’ is nothing short of hand waving.
So, yes, there is a proliferation of macromodels nowadays — but it almost exclusively takes place as a kind of axiomatic variation within the standard DSGE modeling framework. And — no matter how many thousands of models mainstream economists come up with, as long as they are just axiomatic variations of the same old mathematical-deductive ilk, they will not take us one single inch closer to giving us relevant and usable means to further our understanding and explanation of real economies.
Wren-Lewis seems to have no problem with the lack of fundamantal diversity — not just path-dependent elaborations of the mainstream canon — and vanishingly little real world relevance that characterize modern mainstream macroeconomics.
Wren-Lewis obviously shares the view of his mainstream colleagues Paul Krugman and Greg Mankiw that there is nothing basically wrong with ‘standard theory.’ As long as policy makers and economists stick to ‘standard economic analysis’ — DSGE — everything is fine. Economics is just a common language and method that makes us think straight and reach correct answers.
And just as his colleagues, when it really counts, Wren-Lewis shows what he is — a mainstream neoclassical economist fanatically defending the insistence of using an axiomatic-deductive economic modeling strategy. To yours truly, this attitude is nothing but a late confirmation of Alfred North Whitehead’s complaint that ‘the self-confidence of learned people is the comic tragedy of civilization.’
Added January 15: Wren-Lewis has a post up today commenting on some of the critique put forward here. Writes Wren-Lewis:
My post ended with the following sentence:
‘Mainstream academic macro is very eclectic in the range of policy questions it can address, and conclusions it can arrive at, but in terms of methodology it is quite the opposite.’
I argue in the post that “this non-eclecticism in terms of excluding non-microfounded work is deeply problematic.” I then link to my many earlier posts where I have expanded on this theme. So how I can be a fanatic defender of insisting that this modelling strategy be used escapes me. Unless I have misunderstood what an ‘axiomatic-deductive’ strategy is.
Yes indeed, that is a total misunderstanding!
I have two PhDs. I am a professor. I can read.
So, of course, the issue is not about microfoundations or not (on which I have written plenty elsewhere, e.g. here). What I criticize Wren-Lewis and other mainstream economists for, is the insistence of using axiomatic-deductive modeling (with or without microfoundations). And I am — in case anyone thought otherwise — not alone in that critique:
The fundamental problem of modern economics is that methods are repeatedly applied in conditions for which they are not appropriate … Specifically, modern academic economics is dominated by a mainstream tradition whose defining characteristic is an insistence that certain methods of mathematical modelling be more or less always employed in the analysis of economic phenomena, and are so in conditions for which they are not suitable.
Fundamental to my argument is an assessment that the application of mathematics involves more than merely the introduction of a formal language. Of relevance here is recognition that mathematical methods and techniques are essentially tools. And as with any other tools (pencils, hammers, drills, scissors), so the sorts of mathematical methods which economists wield (functional relations, forms of calculus, etc.) are useful under some sets of conditions and not others …
Clearly if social phenomena are highly internally related they do not each exist in isolation. And if they are processual in nature, being continually transformed through practice, they are not atomistic. So the emphasis on the sorts of mathematical modelling methods that economists employ necessarily entails the construction of economic narratives – including the sorts of axioms and assumptions made and hypotheses entertained – that, at best, are always but highly distorted accounts of the complex phenomena of the real open social system … It is thus not at all surprising that mainstream contributions are found continually to be so unrealistic and explanatorily limited.
Employing the term deductivism to denote the thesis that closed systems are essential to social scientific explanation (whether the event regularities, correlations, uniformities, laws, etc., are either a prior constructions or a posterior observations), I conclude that the fundamental source of the discipline’s numerous, widespread and long lived problems and failings is precisely the emphasis placed upon forms of mathematical deductivist reasoning.