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Graduate education in economics

from Lars Syll

Modern economics has become increasingly irrelevant to the understanding of the real world. In his seminal book Economics and Reality (1997) Tony Lawson traced this irrelevance to the failure of economists to match their deductive-axiomatic methods with their subject.

It is — sad to say — as relevant today as it was twenty-three years ago.


It is still a fact that within mainstream economics internal validity is everything and external validity nothing. Why anyone should be interested in that kind of theories and models is beyond my imagination. As long as mainstream economists do not come up with any export-licenses for their theories and models to the real world in which we live, they really should not be surprised if people say that this is not science, but autism!

Studying mathematics and logics is interesting and fun. It sharpens the mind. In pure mathematics and logics we do not have to worry about external validity. But economics is not pure mathematics or logics. It’s about society. The real world.

Already back in 1991, Journal of Economic Literature published a study by the Commission on Graduate Education in Economics (COGEE) of the American Economic Association (AEA) — chaired by Anne Krueger and including people like Kenneth Arrow, Edward Leamer, Joseph Stiglitz, and Lawrence Summers — focusing on “the extent to which graduate education in economics may have become too removed from real economic problems.” The COGEE members reported from own experience “that it is an underemphasis on the ‘linkages’ between tools, both theory and econometrics, and ‘real world problems’ that is the weakness of graduate education in economics,”  and that both students and faculty sensed “the absence of facts, institutional information, data, real-world issues, applications, and policy problems.” And in conclusion they wrote (emphasis added):

The commission’s fear is that graduate programs may be turning out a generation with too many idiot savants skilled in technique but innocent of real economic issues.

Sorry to say, not much is different today. Economics education is still in dire need of a remake.

  1. Patrick J Fowler
    November 17, 2020 at 3:07 am

    One major economic issue in the United States, one that is of fairly recent origin, is the role of elite universities in creating a caste system based on the both the student selection process and the disparity in funding between elite universities and universities available to working class and poor students.

  2. ghholtham
    November 17, 2020 at 1:33 pm

    “Sorry to say, not much is different today. Economics education is still in dire need of a remake.”
    Quite true. Because the idiot savants are now in charge and protecting their “intellectual capital”. Perhaps the answer lies in composite degrees. If you learn economics with history, with social psychology or with sociology it can relieve the autism. It also helps to get one’s hands dirty with data. Nowadays you can do a course in macroeconomics, never learn about national accounts and never look at any time series. Having to deal with recalcitrant reality teaches humility about any current theory.

  3. Bernard Guerrien
    November 17, 2020 at 2:09 pm

    The situation will never change until “heterodoxy” publish a textbook (“principles”) for the beginners completely disconnected from neoclassical theory (mehtodological individualisml) …

    • November 17, 2020 at 5:39 pm

      I agree

      • November 18, 2020 at 12:08 pm

        But it won’t happen unless its production is organised and editorial selection, encouragement and criticism is provided. Consistency with Fullbrook’s fractional way of denoting market values might be a good starting point.

    • Geoff Davies
      November 18, 2020 at 12:31 am

      May I immodestly suggest you look at ‘Economy, Society, Nature’, in the right-hand column, intended to be just what you call for.

      I wondered, as I wrote it, would heterodox economists be able to recognise an alternative ‘completely disconnected from neoclassical theory’ as being economics? There seems still to be a lot of channelled thinking here.

  4. ghholtham
    November 17, 2020 at 6:52 pm

    I must share a quote:
    “You regard men as infinitely selfish and infinitely farsighted. The first hypothesis may perhaps be admitted in a first approximation; the second may call for some reservations”
    Henri Poincare’ to Leon Walras in a letter 1st October 1901.
    Cited by J-M Grandmont in Econometrica vol 66, July 1998.
    119 years later ……

  5. Mr. T
    November 17, 2020 at 10:17 pm

    I agree. Tony Lawson’s criticism of the mainstream is justified and well argued. But we also find the deductivism he criticises in the mathematical-formalist approaches of economic heterodoxy, i.e. post-Keynesianism, complexity economics, etc. In 2018, Lawson had once again clearly and resignedly expressed this in “Beyond Deductivism”: Apparently there is no serious discussion of this problem (deductivism) in heterodox economics either, because this confronts the mathematical-formalistic approaches, which are also dominant there, with fundamental difficulties. In addition, we have far too few approaches in the heterodox scene in terms of the humanities that are also being practised. The latter is far too little supported.

  6. Amdissa Teshome
    November 18, 2020 at 5:04 am

    Economics is increasingly under fire nowadays! I enjoy reading all the critics on this platform. I studied Economics for my first degree but diversified into other fields later on. Whatever model we use, Economics is about choice which is about making decisions given the current situation and a little bit into the future. Economics can actually tell us if it is worth studying A, B, or C. Take the most recent debate between Economists and Epidemiologists – lockdown or no lockdown. Who do you think won the argument?

    By the way, it is Economics that allowed me to diversity in other fields not by going back to school but by using the many tools that Economics has taught me – it opened my eyes! If I have to do it all over again, I will study Economics first.

  7. ghholtham
    November 18, 2020 at 12:46 pm

    Objecting to “deductivism” is all right if it is a complaint against over-emphasis and to the allocation of resources in economics. If it is complete rejection of a particular method, it is dangerous. Wherever you start, deduction is just the application of logic. What’s the alternative, illogic? Much economic theory starts from places absurdly detached from reality. But we must hope to do something different from historical narrative, taxonomy or free-wheeling speculation. They all have their place but so does formal modelling of situations thought to recur generally. Then you have to test the models against reality – a step too often neglected. If you stay vague you can never be wrong. Let us encourage methodological pluralism but not succumb to a phobia of mathematical or quantitative methods.

    • November 18, 2020 at 3:31 pm

      “Wherever you start, deduction is just the application of logic. What’s the alternative, illogic?”

      No. Deduction starts from selecting the right premises, and the alternative needed to reach those is a different type of logic: retroduction (abstracting not just from specific types of detail but whole dimensions at a time). In other words, the two logics are inversely related like differentiation and integration in the calculus.

    • Meta Capitalism
      November 19, 2020 at 4:16 am

      Styles of reasoning
      At the end of the nineteenth century, Charles Sanders Pierce, a founder of the American school of pragmatist philosophy, distinguished three broad styles of reasoning.
      Deductive reasoning reaches logical conclusions from stated premises. For example, ‘Evangelical Christians are Republican. Republicans voted for Donald Trump. Evangelical Christians voted for Donald Trump.’ This syllogism is descriptive of a small world. As soon as one adds the word ‘most’ before either evangelical Christians or Republicans, the introduction of the inevitable vagueness of the larger world modifies the conclusion.
      Inductive reasoning is of the form ‘analysis of election results shows that they normally favour incumbent parties in favourable economic circumstances and opposition parties in adverse economic circumstances’. Since economic conditions in the United States in 2016 were neither particularly favourable nor unfavourable, we might reasonably have anticipated a close result. Inductive reasoning seeks to generalise from observations, and may be supported or refuted by subsequent experience.
      Abductive reasoning seeks to provide the best explanation of a unique event. For example, an abductive approach might assert that Donald Trump won the 2016 presidential election because of concerns in particular swing states over economic conditions and identity, and because his opponent was widely disliked.
      Deductive, inductive and abductive reasoning each have a role to play in understanding the world, and as we move to larger worlds the role of the inductive and abductive increases relative to the deductive. And when events are essentially one-of-a-kind, which is often the case in the world of radical uncertainty, abductive reasoning is indispensable. Although the term ‘abductive reasoning’ may be unfamiliar, we constantly reason in this way, searching for the best explanation of what we see: ‘I think the bus is late because of congestion in Oxford Street’. But the methods of decision analysis we have described in earlier chapters are derived almost entirely from the deductive reasoning which is relevant only in small worlds. (Kay, John. Radical Uncertainty: Decision-Making Beyond the Numbers (pp. 137-138). W. W. Norton & Company. Kindle Edition.)
      (….) Most problems we confront in life are typically not well defined and do not have single analytic solutions.
      (….) But logic derived from reasonably maintained premises can only ever take us so far. Under radical uncertainty, the premises from which we reason will never represent a complete description of the world. There will be different actions which might properly be described as ‘rational’ given any particular set of beliefs about the world. As soon as any element of subjectivity is attached either to the probabilities or to the valuation of the outcomes, problems cease to have any objectively correct solution. (Kay, John. Radical Uncertainty: Decision-Making Beyond the Numbers (pp. 137-139). W. W. Norton & Company. Kindle Edition.)

      (Kay, John and King Mervyn. Radical Uncertainty [Decision-Making Beyond the Numbers]. New York: W.W. Norton & Company; 2020; pp. 137-139. )

      • November 19, 2020 at 9:27 am

        Thanks for this, Meta. I will just add that from what I have read, Pierce was ambivalent between the terms ‘abduction’ and ‘retroduction’. I accept this reading of ‘abduction’, but that leaves ‘retroduction’ of dimensions rather than details, with my comparison here being between differentiation and subtraction.

  8. Herb Wiseman
    November 18, 2020 at 2:06 pm

    The late William Krehm wrote a book “Towards a Non-Autistic Economy — A Place at the Table for Society” which was published in 2002 when he was 89 years old. He emphasized systems theory and re-embedding the economy in society. He also cited Jan Tinbergen on the importance of having “n” equations in a solution if there were “n” variables in the creation of the problem to be solved. Sadly he died last year just prior to his 106th birthday. He would have applauded this column I am sure. He was also one of the last surviving members of a committee formed by economists and accountants called COMER — The Committee On Monetary and Economic Reform.

  9. ghholtham
    November 19, 2020 at 8:48 pm

    I don’t detect any real disagreement here. Everyone is emphasising their own way of putting things but there is no real point of dispute. There is a difference between deduction and induction or abduction. Deduction has rules that establish the truth value of a statement incontrovertibly. That is not true of induction or abduction, as Popper noted. The rules of induction and abduction, if such there be, are statements of good practice, which, if followed, confer no more than a probabilistic warrant of truth. That is not to deny for a moment that deduction plays only a small part in the logic of scientific discovery.

  10. pfeffertag
    November 21, 2020 at 12:05 pm

    Shucks, gh, I’ll give you some (minor) disagreement.

    A scientific theory is an explicit relationship between idealised concepts from which some testable prediction may be deduced. Deduced.

    I wouldn’t call that “only a small part” for it is the crucial part, the sine qua non. I should think that everything else which plays a part (inference, abduction, drug induced enlightenment, wishful thinking…) in the logic of scientific discovery, could be called sociology. Whatever it’s called, it is not demonstrably necessary and not reflected in the theory.

    Good word, discovery. It reminds us that the scientist assumes reality is out there, independent of the scientist, waiting to be investigated and hopefully discovered. As most people probably know it was originally “logic of research” but “scientific discovery” is better.

    • November 21, 2020 at 12:55 pm

      I agree with you on ‘discovery’ being a good word, pfeffertag, but IMHO the “crucial part” is having a problem to be solved: as others put it, “asking the right question”.

      The founder of modern science was Queen Elizabeth I’s Lord Chancellor, Sir Francis Bacon, who was plagued with a million workers left unemployed by powerful Reformers ejecting them from their homes. Today he is almost forgotten, but a hundred years ago he was still well known in literary circles as a wonderful essayist, so one can still find his books. In a glorious phrase he put the case for a science based on observation rather than theology to Elizabeth’s successor, James I, in “The Advancement of Learning” (1604). This was still to be “for the glory of God, and the relief of Man’s estate”. His ambition was to compile an encyclopedia of scientific discoveries so that they could be passed down to future generations. Of course his political opponents accused him of corruption for seeking sponsorship for this project, but its “idealised concepts” were not to be your ‘ideas’ but descriptions of empirical ‘discoveries’.

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