Home > Uncategorized > Paul Krugman — mistaking the map for the territory

Paul Krugman — mistaking the map for the territory

from Lars Syll

Paul Krugman has — together with Robin Wells — written an economics textbook that is used all over the world. As all the rest of mainstream economics textbooks, it stresses from the first pages the importance of supplying the student with a systematic way of thinking through economic problems with the help of simple models.

Modeling is all about simplification …

A model is a simplified representation of reality that is used to better understand real-life situations …

The importance of models is that they allow economists to focus on the effects of only one change at a time …

For many purposes, the most effective form of economic modeling is the construction of ‘thought experiments’: simplified, hypothetical versions of real-life situations …

And these kind of rather vacuous ‘simplicity’ and ‘understanding’ statements get repeated — almost ad nauseam — over and over again in the book.

For someone genuinely interested in economic methodology and science theory it is definitely difficult to swallow Krugman’s methodological stance, and especially his non-problematized acceptance of the need for simple models.

To Krugman modeling is a logical way to analytically isolate different variables/causes/mechanisms operating in an economic system. Simplifying a complex world makes it possible for him to ‘tell a story’ about the economy.  

Is not the use of abstractions a legitimate tool of economics? No doubt — it is only that all abstractions are not equally correct. An abstraction consists of isolating a part of reality, not in making it disappear.

Emile Durkheim

What is missing in Krugman’s model picture is an explanation of how and in what way his simplifications increase our understanding — and of what. If a model is good or bad is mostly not a question of simplicity, but rather if the assumptions on which it builds are valid and sound, or just something we choose, to make the model (mathematically) tractable.

Assumptions may make the model rigorous and consistent from a logical point of view, but that is of little avail if the consistency is bought at the price of not giving a truthful representation of the real economic system.

The model may not only be simple but oversimplified, making it quite unuseful for explanations and predictions.

The theories economists typically put forth about how the whole economy works are too simplistic.

George Akerlof & Robert Shiller

Throughout his discussion of models, Krugman assumes that they ‘allow economists to focus on the effects of only one change at a time.’ This assumption is of paramount importance and really ought to be much more argued for — on both epistemological and ontological grounds — if at all being used.

Limiting model assumptions in economic science always have to be closely examined since if we are going to be able to show that the mechanisms or causes that we isolate and handle in our models are stable in the sense that they do not change when we ‘export’ them to our ‘target systems,’ we have to be able to show that they do not only hold under ceteris paribus conditions and a fortiori only are of limited value to our understanding, explanations or predictions of real economic systems.

The rather one-sided emphasis on usefulness and its concomitant instrumentalist justification cannot hide that neither Krugman, nor the legions of other mainstream economics textbooks authors,  give supportive evidence for their considering it fruitful to believe in the possibility of analyzing complex and interrelated economic system ‘one part at a time.’ For although this atomistic hypothesis may have been useful in the natural sciences, it usually breaks down completely when applied to the social sciences. Dubious simplifying approximations do not take us one single iota closer to understanding or explaining open social and economic systems.

The kind of relations that Krugman and other mainstream economists establish with their ‘thought experimental’ modeling strategy are only relations about entities in models that presuppose causal mechanisms being atomistic and additive. When causal mechanisms operate in real world social target systems they only do it in ever-changing and unstable combinations where the whole is more than a mechanical sum of parts. If economic regularities obtain they do it (as a rule) only because we engineered them for that purpose. Outside man-made ‘nomological machines’ they are rare, or even non-existant. Unfortunately that also makes most of the mainstream modeling achievements rather useless.

All empirical sciences use simplifying or ‘unrealistic’ assumptions in their modeling activities. That is not the issue – as long as the assumptions made are not unrealistic in the wrong way or for the wrong reasons.

Theories are difficult to directly confront with reality. Economists therefore build models of their theories. Those models are representations that are directly examined and manipulated to indirectly say something about the target systems. But models do not only face theory. They also have to look to the world. Being able to model a ‘credible world’ — Krugman’s ‘thought experiment’– a world that somehow could be considered real or similar to the real world, is not the same as investigating the real world. Even though all theories are false, since they simplify, they may still possibly serve our pursuit of truth. But then they cannot be unrealistic or false in any way. The falsehood or unrealisticness has to be qualified.

Some of the standard assumptions made in mainstream economic theory – on rationality, information handling and types of uncertainty – are not possible to make more realistic by ‘de-idealization’ or ‘successive approximations’ without altering the theory and its models fundamentally. And still there is not a single mentioning of this limitation in Krugman’s textbook!

From a methodological perspective, Krugman’s economic textbook — as are those of Mankiw et consortes — is a rather unimpressive attempt at legitimizing using fictitious idealizations for reasons more to do with model tractability than with a genuine interest of understanding and explaining features of real economies.

Krugman’s textbook and its simplicity preaching shows that mainstream economics has become increasingly irrelevant to the understanding of the real world. The main reason for this irrelevance is the failure of mainstream economists to match their deductive-axiomatic methods with their subject.

It is — sad to say — a fact that within mainstream economics internal validity is everything and external validity nothing. Why anyone should be interested in that kind of theories and models — as long as mainstream economists do not come up with any export licenses for their theories and models to the real world in which we live — is beyond my imagination. Sure, the simplicity that axiomatics and analytical arguments bring to economics is attractive to most economists, but simplicity obviously has its perils. Although simplicity is great when solving models, it’s quite another thing to assume that reality conforms to that tractability prerequisite.

Krugman’s and other mainstream economists’ textbooks are sad readings. Both theoretically and methodologically they are exponents of an ideology that seems to say that as long as theories and hypotheses are possible to transform into simple mathematical models, everything is just fine. As yours truly has tried to argue, there is actually no reason — other than pure hope — for believing this. The lack of methodological reflection in these books not only makes things wrong, but even worse, makes economics absolutely irrelevant when it comes to explaining and understanding real economies.

  1. graccibros
    June 17, 2016 at 1:56 pm

    Lars:

    Thank you very much. This is excellent. It made me think about my undergraduate experience with a year long economics course; I did very well in the macro part, which was built out of the Keynesian paradigm dominant in the late 1960’s, which was of course constructed upon the stark realizations of the failures of capitalism, to hold together unregulated, without major “interventions,” the stark realities of what happened 1929-1932 and throughout the 1930’s. In other words, as much as any human theoretical construction can be , built on the grim ruins of immediate human experience. I didn’t do as well in the micro part of the course, feeling I was being led down an Alice in Wonderland pathway of remote, abstract constructions based upon dubious simplifications and premises, much as you describe.

    Part of this stems from the historical origins of classical economics, their time and place 1770-1840, before many of the other branches of human knowledge had formally emerged; Adam Smith paid great attention to the implications of a finely tuned “division of labor;” ironically, the defenders of mainstream economics who cite him almost religiously forget that psychology, anthropology and intellectual history were hardly in a position to contest the terrain that the profession was staking out. And they’re still being bullied out of the way by the mainstreamers today, despite the efforts of Karl Polanyi and Robert Schiller, Hyman Minsky…and so on through a list too long to put forth here.

    One of the most dramatic instances of the gap between the mainstreamers and reality took place not so long ago in the pages of the NY Review of Books when Alan Blinder went after Jeff Madrick’s latest book on how centrist economists had misled us in recent decades. Blinder kept insisting that the “median” of the profession is still “liberal,” or progressive if you prefer, but if that’s true we haven’t witnessed the great displacement of Neoliberalism in the governing circles of what’s left of public power after being squeezed by the mountains of profit wealth and influence. A huge incongruity between the importance given to economic advice in the higher realms of state governance (the Council and the Fed in the US and the ministries in Germany and the Euro institutions) and where the public policy comes out. I can’t square the two by following Blinder’s assertion because if it were true the Dems in the US would be further to the left than Mrs. Clinton wants to go, and the Republican Party would have a liberal wing just as it did in the 1960’s and 1970’s under the influence of Keynesianism.

  2. June 17, 2016 at 7:53 pm

    “This is, essentially, why we cannot any longer believe in the scholastic maxim ‘Simplex sigillum veri,’ because we know that all our constructions are defective, hence corrigible, since, deliberately or not, they involve the neglect of an unknown number of factors. Factual theories apply exactly to schematic, impoverished models or images, and only inexactly to the real referents of these pictures. The simpler the theoretical model the coarser or more unrealistic it will be. We need not wait for empirical tests to make sure that all our factual theories are, strictly speaking, false — or put in an optimistic way, only partially true. We know this beforehand, if only because we have introduced falsities into them, in the form of simplifications, as shown by historical experience and by an analysis of the way factual theories are built. Conceptual economy is therefore a sign and a test of transitoriness, i.e. of partial falsity — to be superseded by a lesser falsity: Simplex sigillum falsi.” Bunge (1963, the Myth of Simplicity) – http://pinicola.ca/kitchen.htm#four

  3. June 18, 2016 at 4:14 am

    Perhaps, as my 5th grade teacher pointed out Professor Krugman just needs some help with his words. My rewording of Krugman’s basics:

    Modeling is all about simplification …
    A model is a simplified representation of situations and actors used to test and reassess our understanding of these situations and actors.
    The major disadvantage of models is that they allow economists to focus on the effects of only one change at a time, which is of little practical value since events and actors are always interrelated and interactive.
    The simplest form of economic modeling is the construction of ‘thought experiments’: simplified, hypothetical versions of situations and actors. The major weakness of “thought experiments” is their lack of sufficient observational data to prevent sometimes slipping into fantasy.

  4. June 19, 2016 at 1:59 pm

    Don’t tell me that Krugman’s economics is false, tell me instead what is true
    Comment on Lars Syll on ‘Paul Krugman — mistaking the map for the territory’

    Science is about true/false. The first error/mistake of the representative economist is to mess up things by tacitly replacing the scientific distinction true/false by the political distinction right/left (see graccibros’s post above). With this methodological shell game theoretical economics degenerates to political economics. Political economics is scientifically worthless since Adam Smith and Karl Marx.

    The fundamental problem of economics is that it claims to be a science but is not. In fact, economics violates the standards of material and formal consistency on a daily basis, that is, it is PROVABLY false. This holds for Walrasianism, Keynesianism, Marxianism, and Austrianism.

    By implication, ALL textbooks since Samuelson’s prototype of 1947 are false. This includes Krugman, Mankiw, Rodrick and so on.*

    Krugman’s blunder does NOT consist of simplification or abstraction or thought experiments but of taking the wrong axiomatic starting point. Boiled down to the essentials: “most of what I and many others do is sorta-kinda neoclassical because it takes the maximization-and-equilibrium world as a starting point” (Krugman’s blog). Maximization-and-equilibrium are nonentities and this neatly explains why standard economics has never found a counterpart in the real world. The neoclassical map is for all practical purposes as good as the Map of Middle-earth.

    The fact that Krugman’s map is worthless does NOT prove that maps are worthless, it only proves that Krugman is an unskilled map maker: “My opinion continues to be that axiomatics, like every other tool of science, is no better than its user, and not all users are skilled.” (Clower, 1995, p. 308)

    As a result of elementary methodological blunder ALL of Econ 101 (except plain descriptions or historical facts/data, of course) is as false as the Geo-centric theory ever was.**

    Economics is still at the proto-scientific level of ‘Babylonian incoherent babble’ (Davidson) because of a manifest ‘failure of reason’: “… we may say that the … omnipresence of a certain point of view is not a sign of excellence or an indication that the truth or part of the truth has at last been found. It is, rather, the indication of a failure of reason to find suitable alternatives …” (Feyerabend, 2004, p. 72)

    This failure, though, is due to the scientific incompetence of Orthodoxy AND Heterodoxy. The tragedy of traditional Heterodoxy is that it is well aware of all orthodox blunders but has no idea of how to rise above incoherent proto-scientific babble.***

    The original task of Heterodoxy is ― NOT to waste time criticizing scientific write-offs like Krugman ― but to fully REPLACE all this Econ 101 maximization-and-equilibrium garbage by a superior paradigm.

    Egmont Kakarot-Handtke

    References
    Clower, R. W. (1995). Axiomatics in Economics. Southern Economic Journal, 62(2): 307–319. URL http://www.jstor.org/stable/1060684.
    Feyerabend, P. K. (2004). Problems of Empiricism. Cambridge: Cambridge University Press.

    * See post ‘Coming soon: the canonical economics textbook’
    http://axecorg.blogspot.de/2016/02/coming-soon-canonical-economics-textbook.
    html
    ** See post ‘What’s wrong with Econ 101? Economists, of course!’
    http://axecorg.blogspot.de/2016/06/whats-wrong-with-econ-101-economists-of.
    html
    *** Se post ‘The scientific self-elimination of Heterodoxy’
    http://axecorg.blogspot.de/2016/06/the-scientific-self-elimination-of.html

  5. June 22, 2016 at 6:06 pm

    the problems I have had with Krugman (though I’ve only read some of his research papers) is that 1) i thinik they dont attiribute many of the ideas in them to people who have had similar ones 2) his more popular articles (eg in the NYTs and some on his web site) contIain idea that are in direct contradiction with ones in his research papers so it appears he’s telling ‘noble lies’ (and sometiemes this is because the non-lies are quite technical so he’s telling babies that children come from storks) and more importantly (though is an almost an impossible problem) is 3) he basically works alone or with a few people and cannot write a comprehensive theory nor do all the work required to make it tractable.

    he like most people believe the world operates via an insible hand governed by the division of labor. It does work thatr way in many ways—-biological species do their own thing yet jojn in an ecology, workers make pencils, computers, junk food, poisons, and it all sort of goes together. Familes create dynasties, etc. foir better or worse.

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