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:
Is 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.