Home > Uncategorized > The dangers of neglecting methodology

The dangers of neglecting methodology

from Lars Syll

rosenbergAlex Rosenberg — chair of the philosophy department at Duke University, renowned economic methodologist and author of Economics — Mathematical Politics or Science of Diminshing Returns? — had an interesting article up on What’s Wrong with Paul Krugman’s Philosophy of Economics some time ago. Writes Rosenberg:

Krugman writes: ‘So how do you do useful economics? In general, what we really do is combine maximization-and-equilibrium as a first cut with a variety of ad hoc modifications reflecting what seem to be empirical regularities about how both individual behavior and markets depart from this idealized case’ …

When he accepts maximizing and equilibrium as the (only?) way useful economics is done Krugman makes a concession so great it threatens to undercut the rest of his arguments against New Classical economics …

One thing that’s missing from Krugman’s treatment of economics is the explicit recognition of what Keynes and before him Frank Knight, emphasized: the persistent presence of enormous uncertainty in the economy … Why is uncertainty so important? Because the more of it there is in the economy the less scope for successful maximizing and the more unstable are the equilibria the economy exhibits, if it exhibits any at all …

There is a second feature of the economy that Krugman’s useful economics needs to reckon with, one that Keynes and after him George Soros, emphasized. Along with uncertainty, the economy exhibits pervasive reflexivity: expectations about the economic future tend to actually shift that future …

I think Rosenberg is on to something important here regarding Krugman’s — and other mainstream economists’ — neglect of methodological reflection. 

As Rosenberg notes, Krugman works with a very simple modelling dichotomy — either models are complex or they are simple. For years now, self-proclaimed “proud neoclassicist” Paul Krugman has in endless harpings on the same old IS-LM string told us about the splendour of the Hicksian invention — so, of course, to Krugman simpler models are always preferred.

Krugman has repeatedly told us that ‘Keynesian’ macroeconomics has substantially contributed to making economics a science where the model is the message.

Sure, ‘New Keynesian’ economists like Krugman — and their forerunners, ‘Keynesian’ economists like Paul Samuelson and (young) John Hicks — certainly have contributed to making economics more mathematical and model-oriented.

wrong-tool-by-jerome-awBut if these math-is-the-message-modelers aren’t able to show that the mechanisms or causes that they isolate and handle in their mathematically formalized macromodels are stable in the sense that they do not change when we ‘export’ them to the real world, these mathematical models do only hold under ceteris paribus conditions and are consequently of limited value to our understandings, explanations or predictions of real economic systems.

When it comes to modeling philosophy, Paul Krugman has in an earlier piece defended his position in the following words (my italics):

I don’t mean that setting up and working out microfounded models is a waste of time. On the contrary, trying to embed your ideas in a microfounded model can be a very useful exercise — not because the microfounded model is right, or even better than an ad hoc model, but because it forces you to think harder about your assumptions, and sometimes leads to clearer thinking. In fact, I’ve had that experience several times.

The argument is hardly convincing. If people put that enormous amount of time and energy that they do into constructing macroeconomic models, then they really have to be substantially contributing to our understanding and ability to explain and grasp real macroeconomic processes. They don’t, and so why waste time on them?

Krugman’s explications on this issue is interesting also because they shed light on a kind of inconsistency in his art of argumentation. For years now  Krugman has in more than one article criticized mainstream economics for using too much (bad) mathematics and axiomatics in their model-building endeavours. But when it comes to defending his own position on various issues he usually himself ultimately falls back on the same kind of models. In his End This Depression Now — just to take one example — Paul Krugman maintains that although he doesn’t buy “the assumptions about rationality and markets that are embodied in many modern theoretical models, my own included,” he still find them useful “as a way of thinking through some issues carefully.”

When it comes to methodology and assumptions, Krugman obviously has a lot in common with the kind of model-building he otherwise criticizes.

A gadget is just a gadget — and brilliantly silly simple models — IS-LM included — do not help us working with the fundamental issues of modern economies any more than brilliantly silly complicated models — calibrated DSGE and RBC models included. And as Rosenberg rightly notices:

When he accepts maximizing and equilibrium as the (only?) way useful economics is done Krugman makes a concession so great it threatens to undercut the rest of his arguments against New Classical economics.

  1. Paul Davidson
    May 6, 2017 at 12:19 am

    over a decade ago, I convinced John Hicks to write an article to explaining why he no longer believes ISLM modeling has anything to do with Keynes. I published this article by Hicks in the JOURNAL OF POST KEYNESIAN ECONOMICS under the title : ISLM: An Explanation.

    Obviously Paul Hrugman has never learned anything since he graduated with his Ph D.a

    • May 8, 2017 at 5:22 am

      Read it some time ago. Hicks thought so little of it. Why are mainstream macro theorists and texts so packed with it still? Why does anyone consider it useful?

  2. May 6, 2017 at 2:33 am

    The entire effort to capture economic reality in mathematical models is misguided. Modeling requires simplifications and assumptions that result in such a distortion of economic reality that the outcomes are near useless. Economics is about human behavior; the entire concept that there is an economic reality beyond determined by its own universal laws is faith, not science. Human behavior is too complex to be caught in models. Economics should be rebuilt from the bottom up, using the empirical methodology of the (real) social sciences – sociology, psychology, history. For more take a look at this book: Crisis, Economics and the Emperor’s Clothes – a free download from http://www.new-economics.info.

    • robert locke
      May 6, 2017 at 6:12 am

      you’ll never come to terms with the maldistribution of emoluments unless you deal with the institutionalization of firm governance.

  3. May 8, 2017 at 12:42 pm

    Why do economists believe in (and it is a belief) macroeconomics and microeconomics? These are conveniences for economists. Simplifications at the very heart of professional economics. They mean little or nothing to actual humans who are living their lives and doing things. Seems to me it’s silly and pointless to question the models economists create based on these two categories, when no economists question the categories. If economists are going to follow the actors, in whatever they do and say, they can’t begin that work by following something that does not exist for these actors. An historical and anthropological exposition of the basic foundations of how and why economists work as they do would, in my view be a good place to begin reforming economics into a useful social science.

    • robert locke
      May 8, 2017 at 5:01 pm

      “An historical and anthropological exposition of the basic foundations of how and why economists work as they do would, in my view be a good place to begin reforming economics into a useful social science”

      If this is true, Ken, then real world economics should be engaged in the quest given in your quote. Are we on this real world economics blog engaged on this quest. If so how are we doing? I get the impression that people on the blog can do the negative part, show the limitatiions of the toolkit of mainline economics, but cannot do the expositon of the basic foundations of how and why economists work….” in real world contexts.

      • May 8, 2017 at 6:25 pm

        Some of us are actually quite able to reconstruct the ‘foundations’. Asad, for instance, is doing some of this.

        And if anyone has actually understood my comments to this blog, it is clear to them that I could. I feel, however, that I am speaking to dead air, save for Asad who is very much on the same track. He, unlike myself, is also incorporating Polanyi’s largely anthropological and historical views. Like myself, he is trying to take into account benefits from use/consumption and the reality that life forms have needs that are not subject to price changes.

  4. Norman L. Roth
    May 8, 2017 at 4:19 pm

    May 08, 2017

    Mr. Zimmerman,

    What on earth do your incoherent sanctimonious polemics have to do with the subject at hand ? Sweeping generalizations followed by vaporous accusations of being anti-human, are hardly a recommendation for being taken seriously at YOUR self appointed task of “reforming economics into a useful science”. It is your kind of simplistic polemics that make you guilty of the same acting-out that you childishly accuse ALL economists in the known universe of.
    Economics, regardless of all its problems and self-inflicted dilemmas, just isn’t your cup of tea.
    Neither is LOGIC 101. Why don’t you just give it a rest ?

    Sincerely meant,

    GOOGLE: {1}Norman L. Roth {2} Norman L. Roth, Economist {3} Norman L. Roth, Origins of Markets {4} Norman L. Roth, Technological Time {5} Norman L. Roth, Economics of Work

    • May 8, 2017 at 8:56 pm

      Ken Zimmerman’s comments are hardly ‘incoherent’. Even Daniel Kahneman talks about the Econs as basically anti-human, and, given the implicit neoclassical assumption that economics is NOT about our providing for our needs and wants, his views that mainstream economics needs to be made scientifically useful is proper. That is because there are no scientific foundations to micro-economics, and the current mainstream belief that macro-economics can be constructed upon something with no scientific foundations amounts to putting lipstick on a pig.

      I have not read your book nor do I find its blurb review particularly useful.

    • robert locke
      May 9, 2017 at 8:49 am

      Norman, sometimes I find your comments interesting, but this rant against Zimmerman on a blog that is devoted to real world economics shows more than one screw has gotten loose. As an historian, I never found economic analysis helpful in understanding real world events. As a fact, I find the use of economic theory destructive to historical understanding, and have said so since the late 1970s, when the NEH, under the influence of neo-classical economics and econometrics, tried to reinterpret economic history. Time on the Cross, the refutation of the French stagnation retardation thesis, etc. all mistakes engendered by ahistorical methodologies that ignore the concerns found in the sources. See R. Locke, End of the Practical Man, Introduction, 1984, Management and Higher Education Since 1940, Cambridge UP, 1989. Haven’t read them? Not surprising. Economists don’t read history. But these two books are considered to be pioneering in the history of management education.. When I pushed the envelop farther in The Collapse of the American Management Mystique, OUP 1996, I stepped on the toes of the business education establishment and good grief….

    • May 10, 2017 at 10:51 am

      Norman, sorry for the late reply. Had to read your book first. Interesting. I think it misses the point a bit. Your book seems an unabated attack on mainstream economics and economists. But I could be wrong on that. I like that part of the book.

      Your claim that the “Promethean imperative” or the “Instinct of Workmanship” are the most elemental motivations of economic activity is, in my view incorrect. Before technique, tool, building, etc. is imagination. First, humans invented stories to explain themselves, the world, the universe. Then they invented ways to interact with these stories, using other stories. In terms of what today is “economics” they invented hunting and gathering, along with tight-knit and self-contained groups, family and village life, and values of trust, duty, obligation. Humans lived this way for 90% of their time on the planet. But human imagination doesn’t stop inventing stories. So, government was invented, monarchy, war, technology, and other forms of economic life (mercantilism, capitalism, etc.). None of these are “natural” or innate on the planet or in human life. So, the greatest danger to humans has always been their own imagination. First, it could fail to give humans what they need to survive, culturally speaking. But more important it could produce ways of life that reduce the chances of human survival, or in some cases actively attack the species. To fix any problems or even successes thus created humans need to understand to the extent they can how those were created. That is, their anthropology and history. I’ve never minced words here or on any other occasion that in my view economics (about 90% of it anyway) is anti-human since it reduces the likelihood that humans will survive, both in terms of biological evolution and cultural adaptation. Neoliberalism hurts not just poor people, disadvantaged people, or non-white/ non-Anglo people. It endangers the species. This needs to be recognized, understood, and if possible stopped. So, we need to destroy such things as neoliberalism, the DSGE, “free” markets, and control of the world by multinational corporations. But we also need to imagine new options and arrangements to replace these. So far, regarding economic affairs rebelling economists have not lived up to the second objective. Now is the time. Keynes clearly recognized our choices. Humans evolve/adapt or die. Right now, dying (as a species) is winning. In 2010, microbiologist Frank Fenner, one of the scientists who helped eradicate smallpox, made the claim that the human species, along with other species, will be extinct within 100 years due to overpopulation, unbridled consumption, and climate change. Many agree with Dr. Fenner, but keep it quiet for fear of panic. And, of course humans’ economic ways of life are involved in all three.

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