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Krugman’s modelling flimflam

from Lars Syll

Paul Krugman has a piece up on his blog arguing that the ‘discipline of modeling’ is a sine qua non for tackling politically and emotionally charged economic issues:

You might say that the way to go about research is to approach issues with a pure heart and mind: seek the truth, and derive any policy conclusions afterwards. But that, I suspect, is rarely how things work. After all, the reason you study an issue at all is usually that you care about it, that there’s something you want to achieve or see happen. Motivation is always there; the trick is to do all you can to avoid motivated reasoning that validates what you want to hear.

economist-nakedIn my experience, modeling is a helpful tool (among others) in avoiding that trap, in being self-aware when you’re starting to let your desired conclusions dictate your analysis. Why? Because when you try to write down a model, it often seems to lead some place you weren’t expecting or wanting to go. And if you catch yourself fiddling with the model to get something else out of it, that should set off a little alarm in your brain.

Hmm … 

So when Krugman and other ‘modern’ mainstream economists use their models — standardly assuming rational expectations, Walrasian market clearing, unique equilibria, time invariance, linear separability and homogeneity of both inputs/outputs and technology, infinitely lived intertemporally optimizing representative agents with homothetic and identical preferences, etc. — and standardly ignoring complexity, diversity, uncertainty, coordination problems, non-market clearing prices, real aggregation problems, emergence, expectations formation, etc. — we are supposed to believe that this somehow helps them ‘to avoid motivated reasoning that validates what you want to hear.’

Yours truly is, to say the least,straight jacket far from convinced. The alarm that sets off in mybrain is that this, rather than being helpful for understanding real-world economic issues, sounds more like an ill-advised plaidoyer for voluntarily taking on a methodological straight-jacket of unsubstantiated and known to be false assumptions.

Some people have trouble with the fact that from allowing false assumptions mainstream economists can generate whatever conclusions they want in their models.

But that’s really nothing very deep or controversial. What I’m referring to is the well-known ‘principle of explosion,’ according to which if both a statement and its negation are considered true, any statement whatsoever can be inferred.

Using false assumptions, mainstream modellers​ can derive whatever conclusions they want. Wanting to show that ‘all economists consider austerity to be the right policy,’ just e.g. assume ‘all economists are from Chicago’ and ‘all economists from Chicago consider austerity to be the right policy.’  The conclusions follow​​ by deduction — but is of course factually totally wrong. Models and theories building on that kind of reasoning is nothing but a pointless waste of time.

  1. Off The Street
    June 6, 2018 at 3:28 pm

    Modeling 101: If you torture the numbers, they’re bound to confess what you want to hear.

  2. June 6, 2018 at 5:31 pm

    And when the debate going gets rough, as it did between Krugman and Keen, you just say: That’s not like any economics I understand Steve.
    Then it’s game over, end of discussion, thank you for playing, don’t let the door hit you on the way out. Until this stops working for guys like PK we aren’t going to get very far, intellectually, politically, or strategically. I call for more debate with the ground rules being you can’t just take your ball and go home as Krugman did to Keen if the going gets rough.

  3. Craig
    June 6, 2018 at 6:21 pm

    I would suggest we look everywhere for insights as to how to resolve the problems of scarcity of individual income, erosive inflation and the lack of likely fruitful investment opportunities. I’d also suggest we stop the entirely sterile and fruitless strategy of trying to convince academics that they should drop their ego involvement in their models, and begin taking the new monetary and economic paradigm to the individual and the small to medium sized business community whose interests dovetail with that new paradigm. Hugo’s dictum regarding an idea whose time has come holds true.

  4. rjw
    June 6, 2018 at 7:03 pm

    I really do not have any problem with thinking about the world in terms of simple models. A keynesian cross diagram is quite instructive, to take a simple example. And so is a simple demand and supply diagram. One could come up with many quite instructive “models”. So I find it hard to accept criticism of modelling per se. The issue is how one interprets and uses them.

    The problem then is the extra methodological bits that get tagged on in the mainstream. The notion that more complex models must be better, or the assertion that maths equals rigour (amazing how many people believe that). And this in turn is linked to the scientism rife in economics. But I do not see the merits of rejecting modelling out of hand.

  5. Edward K Ross
    June 7, 2018 at 12:11 am

    Response to Lars Syll June 6 2018
    As a non academic in the real world my comments are based on my real experience and observation in the real world. From that experience and observation seriously respect C.T.Kurrien emphasis on experience , Tony Lawson’s insistence on the need for a new ontology and Bernard Gurriens ability to clearly identify the subject being discussed, without a lot of obfuscation. Of course I acknowledge that there are many others making worthwhile contributions to the important conversation’s to make economic conversation’s relevant to the real world of real people, who are being exploited by the elite.

    Fom this basis I find Lars Syll’s blog Krugman’s modelling flimflam resonates with my understanding and attitude towards an over emphasis on modelling that tends to loose sight of the whole picture, For example the paragraph

    “Hmm…So when Krugman and other’ modern’ mainstream economists use their models -standardly assuming rational expectations, Walrasian market clearing, unequilibria, time invariance, linear separability and homogeneity of both inputs/outputs and technology, infinitely lived intertemptoroally optimizing representative agents with homopathetic and identical preferences, etc-and standardly ignoring complexity, diversity, uncertainty, coordination problems, non market clearing prices, real aggregation problems, emergence expectations formations, etc- we are supposed to believe that this somehow helps to avoid motivated reasoning that validates what you want to hear”

    Further down Lars Syll warns of the danger of false assumptions on this subject observation in the real world of real people, who are feeling the effect of the mainstream neoliberal economic theories and policies of free trade privatisation of public utilities to thieving international corporations that are able to freely move their plunder around the world and avoid tax. under the B. S. of globalisation. Therefore is it any wonder that many non academic citizens can see that from their point of view many of the ruling economic theories and policies are based on false assumptions. Again as I have constantly argued their is an urgent need to involve and listen to the struggling masses and restore some credibility to economic theory and policy by eliminating obvious false assumptions from the conversation.
    Ted

  6. David Harold Chester
    June 7, 2018 at 9:08 am

    When we exchange ideas using words, each of us has to envisage the situation in his/her mind’s eye. This is modeling, it is unavoidable! However models in the mind tend to mutate with time and that’s why we need to draw them of express them in some other written way such as equations or a matrix or (in my case all 3 plus a mechanical one). Macroeconomics is a bit too complicated to simply continue it in one’s head!

  7. Helen Sakho
    June 7, 2018 at 11:22 pm

    And if you torture humans enough they, too, will confess to whatever you want them to, or die honourably. ‘Luckily’, there are ample examples of both cases worldwide, as academics, activists, artists, writers, as well as uneducated peasants.

  8. David Harold Chester
    June 8, 2018 at 9:01 am

    Craig wrote: I would suggest we look everywhere for insights as to how to resolve the problems of scarcity of individual income, erosive inflation and the lack of likely fruitful investment opportunities.

    The answers are available if you would but look in the right place. It is by the better sharing of natural resources, particularly the right of access to land. If the rent (or potential rent on bare sites) were taken as a tax, land would be much more efficiently used and this problem would cease. Our right to the opportunities that land offers as well as the benefit it can give as population concentrates in cities, must be better shared to meet Craig’s complaint.

    National income would not need to tax earnings, purchases, capital gains, etc. Landlords and their bankers are helping to slow progress by holding unused land for speculation in its rising value through its increase with social developments and use of our taxes in infrastructure improvements. TAX LAND NOT LABOR; TAX TAKINGS NOT MAKINGS!

    • Craig
      June 8, 2018 at 4:45 pm

      I have always admired the contribution of Henry George who looked closely at one of the three classical economic factors, namely land….and thought about it…economically. As one of the few legitimate reasons for taxation is to punish economic vice and rentiering is a monetary vice its discouragement is a virtue. Even after we realize that the fourth economic factor is Man’s cultural heritage of innovation and productive potential and should be shared by all rent will still require watching.

  9. Craig
    June 8, 2018 at 5:04 pm

    If Trump and his populists would think for a second and realize that the force and problematic situation behind globalization and the unequal trade deals that it has spawned was Finance and its paradigm of Debt Only…he’d do far more than merely effecting international disintegration as we see him fomenting at this moment.

    Of course Trump being both someone who has problems with self awareness and the likely poster child for the worst financial sin of real estate money laundering…there’s probably not much likelihood he’ll recognize the real problem.

  10. Helen Sakho
    June 8, 2018 at 6:58 pm

    Please see, if you so wish, my comments just posted on monetary systems.

  11. Craig
    June 8, 2018 at 8:09 pm

    What was that I just heard Angela Merkel say to Trump: “Gott verdammt!”

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