Home > Uncategorized > Why critique in economics is so important

Why critique in economics is so important

Lars Syll

Some of the economists who agree about the state of macro in private conversations will not say so in public. This is consistent with the explanation based on different prices. Yet some of them also discourage me from disagreeing openly, which calls for some other explanation.

un7gnnaThey may feel that they will pay a price too if they have to witness the unpleasant reaction that criticism of a revered leader provokes. There is no question that the emotions are intense. After I criticized a paper by Lucas, I had a chance encounter with someone who was so angry that at first he could not speak. Eventually, he told me, “You are killing Bob.”

But my sense is that the problem goes even deeper that avoidance. Several economists I know seem to have assimilated a norm that the post-real macroeconomists actively promote – that it is an extremely serious violation of some honor code for anyone to criticize openly a revered authority figure – and that neither facts that are false, nor predictions that are wrong, nor models that make no sense matter enough to worry about …

Science, and all the other research fields spawned by the enlightenment, survive by “turning the dial to zero” on these innate moral senses. Members cultivate the conviction that nothing is sacred and that authority should always be challenged … By rejecting any reliance on central authority, the members of a research field can coordinate their independent efforts only by maintaining an unwavering commitment to the pursuit of truth, established imperfectly, via the rough consensus that emerges from many independent assessments of publicly disclosed facts and logic; assessments that are made by people who honor clearly stated disagreement, who accept their own fallibility, and relish the chance to subvert any claim of authority, not to mention any claim of infallibility.

Paul Romer

This is part of why yours truly appreciate Romer’s article, and even find it ‘brave.’ Everyone knows what he says is true, but few have the courage to openly speak and write about it. The ‘honour code’ in academia certainly needs revision. 

The excessive formalization and mathematization of economics since WW II has made mainstream — neoclassical — economists more or less obsessed with formal, deductive-axiomatic models. Confronted with the critique that they do not solve real problems, they  often react as Saint-Exupéry’s Great Geographer, who, in response to the questions posed by The Little Prince, says that he is too occupied with his scientific work to be be able to say anything about reality. Confronting economic theory’s lack of relevance and ability to tackle real probems, one retreats into the wonderful world of economic models.  While the economic problems in the world around us steadily increase, one is rather happily playing along with the latest toys in the mathematical toolbox.

Modern mainstream economics is sure very rigorous — but if it’s rigorously wrong, who cares?

Instead of making formal logical argumentation based on deductive-axiomatic models the message, I think we are better served by economists who more  than anything else try to contribute to solving real problems. And then the motto of John Maynard Keynes is more valid than ever:

It is better to be vaguely right than precisely wrong

  1. originalsandwichman
    September 21, 2016 at 11:56 pm

    “Modern mainstream economics is sure very rigorous…”

    Not really. It is a grab bag of slogans with jargon-laden models to decorate them. I’m not a mathematician but I can see through the pretense to math.

    • originalsandwichman
      September 21, 2016 at 11:57 pm

      As for Romer, he just wants to clear away the more conspicuous offenders so that the more subtle can continue to get away with their sophism.

  2. September 21, 2016 at 11:57 pm

    See my letter to Paul Krugman Blog # 12 at http://www.InquiryAbraham.com

  3. rjw
    September 22, 2016 at 12:01 am

    I think the real problem is not so much models …. you can use models as a basis for arguments about real mechanisms … the problem is the insistence that only one type of approach to modelling is “valid”, on methodological grounds. The big beef I have with people like Lucas is not so much the hyper formalization …. it is a way of approaching the issues …. arguably totally fruitless, but then that is a debate. My problem is with the almost messianic insistence, which has held sway for so long, that only equilibrium, individual agent based optimizing models can be “scientific” in some sense. This is a gross misunderstanding of what social science is, and how it differs from natural sciences. It is ironic that very smart people like Lucas are not capable of seeing that. My basic conclusion is that economists need to read more history, should be taught more about basic economic statistics, and what they do and do not mean, and should be taught comparative economic development. ALl three of those pursuits tend to instil a sense of how unlike hard sciences economics really is.

  4. September 22, 2016 at 9:12 am

    Do you agree with Romer when he says : “”It is sad to recognize that economists who made such important scientific contributions in the early stages of their careers followed a trajectory that took them away from science” ?
    “Such important contributions” from Lucas, Prescott and tutti quanti ?

  5. September 22, 2016 at 10:37 am

    Romer’s a smart fellow, but he still misses more than he catches. In his “Structure of Scientific Revolutions,” Kuhn, another smart guy also misses more than he catches. But he does a few things right. He contends, correctly I think that, “Work under the paradigm can be conducted in no other way, and to desert the paradigm is to cease practicing the science it defines.” What Kuhn and most economists miss or mistake is that economics is not separate from the rest of collective life (generally referred to as society) and is created and performed via the same processes. And this goes for science as well, so whether or not economics is a science is really irrelevant. Humans interact with one another and things in the world and then seek to explain these interactions and then seek to use these explanations for lots of different kind of work. This did not begin with science. The inventors of science gave this process a set of rules different from those in religion, art, literature, etc. The knowledge thus created looks different but is not ontologically different from all other knowledge. In the same actions that create society economies and economic actions and actors are created. This process is uncertain, unpredictable, and generally does not comply with many of the special rules for science. So not surprising that economists will not readily give up their lucrative and prestigious positions as economists in universities and government to chase the “truths” of science and purity. To get to this end a community chasing such goals needs to evolve. That’s what makes it possible for one structure for science to replace another. Such as the heliocentric solar system replacing the geocentric solar system. In this it is no different than one religion replacing another or one form of government replacing another. Like the Reformation and Protestantism a new economic discipline (science or otherwise) can evolve only in the evolution of a community to support it.

  6. September 22, 2016 at 12:03 pm

    See my comment today on Insider Critiques of Macro Models. It is entirely relevant to this. The one point not emphasised there is that a paradigm change does not supersede empirical theories but simply reinterprets them as approximations valuable in particular contexts. Whether purely mathematical models are empirical theories is of course another question.

    Ken, thanks for this response. You actually bring out another issue on paradigm change: that if one already has an all-embracing (catholic) paradigm one is only likely to change it by making it less all-embracing, which is more or less what (I’ve been arguing) happened at the religious Reformation. Not that I’m decrying the value of scientific measurements in establishing rules of thumb, but sometimes these can be established simply by geometric symmetry.

  7. September 22, 2016 at 12:30 pm

    See my comment today on Insider Critiques of Macro Models. It is entirely relevant to this. The one point not emphasised there is that a paradigm change does not supersede empirical theories but simply reinterprets them as approximations valuable in particular contexts. Whether purely mathematical models are empirical theories is of course another question.

    I had sent Roger Ames the following response on his Chinese Puzzle model:

    Dear Roger, Thanks for these kind words. The nesting concept is proving most fruitful. This morning I’m seeing the John Locke political balance of forces model of President, Parliament, Judiciary and Jury/Electorate as another layer outside the economy, whereas in the current flat-world understanding they are more like Siamese twins sharing the same monetary blood supply, which is feeding a cancerous communications media. That is why the “honest money” aspect is so important. If we used only credit cards, in which system a bank loan is honestly interpreted as a credit limit and we create our own credit money as we need it, there is no point in saving money and no point in the present spate of electronically stealing it, for at best all you can do is pay off what you owe.

    Ken, thanks for your response here. You actually bring out another issue on paradigm change: that if one already has an all-embracing (catholic) paradigm one is only likely to change it by making it less all-embracing, which is more or less what (I’ve been arguing) happened at the religious Reformation. Not that I’m decrying the value of scientific measurements in establishing rules of thumb, but sometimes these (like the concept of justice) can be established simply by geometric symmetry, supported by the likes of the Maximum Power Transfer Theorem to establish mathematically that, in parallel flow circuit applications like the real and shadow economy, their not being symmetrical will (as Keynes argued empirically) lessen the power being transferred.

    • September 22, 2016 at 12:36 pm

      Oops! It seems I had accidentally sent this comment half-composed. My apologies!

  8. Enquiring Mind
    September 22, 2016 at 3:53 pm

    One addition to economic models, papers and columns that would be helpful:

    List the assumptions (e.g., a can opener, etc) and exclusions right up front.

    That would provide more context for all readers and not just the few deemed worthy of entering the sanctum sanctorum of all that is economical. It also might reveal some material deficits in the rest of the model, paper or column.

    • originalsandwichman
      September 22, 2016 at 4:14 pm

      Often the assumptions are so deeply buried in the literature that the economist doesn’t even know they are there.

  9. louisperetzperetz
    September 22, 2016 at 8:03 pm

    “Instead of making formal logical argumentation based on deductive-axiomatic models the message…” You are right to say that it is the main mistake of macroeconomics orthodox models. That is why my models are “inductive ones”. I don’t say they are quite the truth, but that they are nearer it, more than the statistic’s issues.

  10. September 23, 2016 at 7:05 am

    The point is in my view that models are quite common in the way humans live. They’re part of human life. Science, art, religion, etc. are all models; constructions of how things fit and work together, or not. The models are not, however theoretic or formal constructions (though both may evolve from the models). And the models emerge in and through communities (collectives that include humans and non-humans). In simple terms they evolve. And what some consider the great deity of mathematics is not excluded from any of this. Most of this inventing and building process is as originalsand points hard to notice and thus difficult to uncover and study. As Harold Garfinkel showed in practice one way to make this process and its results more visible is to stop treating them as normal. Treat them as strange. Another way used by Bruno Latour is making every aspect of life as public as possible, over and over again. Everything is investigated publicly.

  11. Paul Davidson
    September 23, 2016 at 8:17 pm

    I have criticized in print: Milton Friedman, Paul Samuelson, James Tobin, J. R. Hicks, and Franco Modigliani in one or more of the following journals: JPE, AER, RE&S, EJ, ECONOMETRICA, JPKE– and only Tobin and Hicks admitted I was correct — and Tobin admitted it grudgingly. Hicks agreed and even was convinced to write an article entitled ISLM: AN EPLANATION in the JPKE in which Hicks admitted that his ISLM model was not an appropriate representation of Keynes’ General Theory.

    The Friedman criticism was first published in the JPKE and then published as part of a book entitled MILTON FRIEDMAN’S MONETARY FRAMEWORK: A DEBAT WITH HIS CRITICS edited by Robert Gordon.

    Paul Davidson

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