Mainstream economics — sacrificing realism at the altar of mathematical purity

from Lars Syll

This critique goes beyond the narrowly technical — that the workhorse neoclassical model of the economy was found to be lame when it came to running a real crisis race. The deeper critique is that these models, and the technical language that accompanies them, have played a role in policy and in society that has been disproportionate in two senses. First, disproportionate relative to our state of knowledge. Existing economic frameworks have shouldered a policy weight that is simply too great for them to bear, given the degree of uncertainty and fragility that surrounds them. Second, disproportionate because these frameworks placed an excessive degree of policy power in the hands of the technocrats wielding them …

Mainstream economic models have sacrificed too much realism at the altar of mathematical purity. Their various simplifying assumptions have served aesthetic rather than practical ends. As a profession, economics has become too much of a methodological monoculture. And that lack of intellectual diversity cost the profession dear when the single crop failed spectacularly during the crisis. This monoculture, it is argued, has also narrowed the economics curriculum in universities. This has generated an ever greater focus on the mathematical gymnastics of optimising models and too little focus on the everyday aerobics of how the economy functions. Accompanying this has been a neglect of disciplines that abut and illuminate economics: economic history, moral philosophy, money and banking, radical uncertainty, non-rational expectations. In short, neglect of the very things that make economics interesting and economies important.

Andrew Haldane (former chief economist at BoE)