Home > Uncategorized > But not as wrong as Paul Krugman …

But not as wrong as Paul Krugman …

from Lars Syll

In his review of Mervyn King’s The End of Alchemy: Money, Banking, and the Future of the Global Economy Krugman writes:

Economist KrugmanIs this argument right, analytically? I’d like to see King lay out a specific model for his claims, because I suspect that this is exactly the kind of situation in which words alone can create an illusion of logical coherence that dissipates when you try to do the math. Also, it’s unclear what this has to do with radical uncertainty. But this is a topic that really should be hashed out in technical working papers.

This passage really says it all.

Despite all his radical rhetoric, Krugman is — where it really counts — nothing but a die-hard mainstream neoclassical economist. Just like Milton Friedman, Robert Lucas or Greg Mankiw.

The only economic analysis that Krugman and other mainstream economists accept is the one that takes place within the analytic-formalistic modeling strategy that makes up the core of mainstream economics. All models and theories that do not live up to the precepts of the mainstream methodological canon are pruned. You’re free to take your models — not using (mathematical) models at all is, as made clear by Krugman’s comment on King, totally unthinkable —  and apply them to whatever you want – as long as you do it within the mainstream approach and its modeling strategy. If you do not follow this particular mathematical-deductive analytical formalism you’re not even considered doing economics. ‘If it isn’t modeled, it isn’t economics.’

That isn’t pluralism.

That’s a methodological reductionist straightjacket. 

So, even though we have seen a proliferation of models, it has almost exclusively taken place as a kind of axiomatic variation within the standard ‘urmodel,’ which is always used as a self-evident bench-mark.

Just as Dani Rodrik, in his Economics Rules, Krugman wants to purvey the view that the proliferation of economic models during the last twenty-thirty years is a sign of great diversity and abundance of new ideas.

But, again, it’s not, really, that simple.

Although mainstream economists like Rodrik and Krugman want to portray mainstream economics is an open and pluralistic ‘let a hundred flowers blossom,’ in reality it is rather “plus ça change, plus c’est la même chose.”

Applying closed analytical-formalist-mathematical-deductivist-axiomatic models, built on atomistic-reductionist assumptions to a world assumed to consist of atomistic-isolated entities, is a sure recipe for failure when the real world is known to be an open system where complex and relational structures and agents interact. Validly deducing things in models of that kind doesn’t much help us understanding or explaining 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 economists rather pointless. It’s simply not the stuff that real understanding and explanation in science is made of. Just telling us that the plethora of mathematical models that make up modern economics  ‘expand the range of the discipline’s insights’ is nothing short of hand waving.

No matter how many thousands of ‘technical working papers’ or models mainstream economists come up with, as long as they are just ‘wildly inconsistent’ 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.

King knows that. Krugman obviously not.

  1. September 12, 2016 at 2:46 pm

    Paul Krugman does not want people to know that they are going extinct by destroying Earth for money. Paul is employed to divert people from understanding they are making Earth into a dry barren planet just like Mars.

  2. September 12, 2016 at 3:26 pm

    Someone refresh my memory: how does Krugman follow this line of his model based reasoning from 2004-2008-2009…?

    I wrote my “warning,” “Ingredients for an Economic Katrina,” in Feb. of 2007, after reading about derivatives online at the Wharton School (U. of Pennsylvania papers), and taking note of the metaphors being used by those who were writing about them, as well as more than a few Wall Street analysts openly expressing their worries: they were using metaphors taken from natural and man-made catastrophes: hurricanes, tornadoes, volcanoes, run-away nuclear events…avalanches…you get the idea. (And avalanches are a favorite used to descripe the unknowable tipping point of complex, highly networked systems: see Mark C. Taylor’s “Confidence Games: Money and Markets in a World Without Redemption” which I read 2005-2006…at the time, he was the Depart. Chair in Religion at Columbia. His book was published in 2004, and the chart on page 178 of the “Mortgage Market” in the chapter headed “Specters of Capital” is about as close as you can get to calling it head-on. Krugman would love that…)

    The models may not have been sirening a warning, but the human language used to describe the world of derivatives and investing was already shreiking at a very high pitch…so I offer my “literary” approach to analytical economics…

    And why was I interested in derivatives in the first place, looking there for my clues? Because I remembered a quote from Johh Kenneth Galbraith that the most dangerous currents in markets would be found hidden in the latest tools…which only the users, and perhaps not even them, understood very well…going back to his writing about the 1929 crash, where it was the no-low margin buying and interlocking trusts which had pyramided to precarious heights in the late 1920’s…surplus capital having no better place to go…

  3. September 12, 2016 at 5:16 pm

    Where and when was the Krugman’s review?

  4. September 12, 2016 at 5:43 pm

    I’m curious, Lars, about your comments on Dani Rodrik of Harvard. He, according to you, would seem to have a foot in two very different camps, what you talk about, close to Krugman, and he is also cited by Martin Wolf in Wolf’s increasingly noted warning to the West (Aug. 30th, “Capitalism and democracy: the strain is showing” in the Financial Times…the “Voice of the Vatican” for capitalism…), but Dani is also a founding member of the World Economics Association, the challenger to the American Economic Association, the “establishment.” That is not initialially terribly troubling to me, but perhaps you could clarify your placement a bit more.

    • September 14, 2016 at 6:14 pm

      Dani Rodrik — just like Paul Krugman — does often take a ‘radical’ stance on different policy issues. But when it comes to core theoretical and methodological issues, he — just like Paul Krugman — is a self-proclaimed and proud die-hard mainstream neoclassical economist. People who really want to develop alternatives to the ruling economic orthodoxy have to look elsewhere.

  5. September 12, 2016 at 7:51 pm

    As Commandment 4 (?) of that book, Dani says, Unrealistic assumptions are OK; unrealistic critical assumptions are not OK. He is not for every model.

  6. louisperetzperetz
    September 14, 2016 at 2:28 pm

    There is only one model of economics. It is the one I wrote in my book, showing targets and values of monetarism. That means vectors. But if you want to use it in reality, you need to choose three kinds of values, low, middle, and high on treated by the four actors which are, firms, State, finances, and people. So you can use them as informatics systems for very short future. Then this model has to be used as an explanation and a tool, but very slightly because it doesn’t include psychologic choices, as Keynes said.(If an editor wants to republish my book, it will be easy, because it is free, and already translated in English by an English linguist man)

  7. louisperetzperetz
    September 14, 2016 at 2:29 pm

    my adress, is “louisperetz(arob)gmail.com

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