The purist streak in economics
from Lars Syll
So in what sense is this “dynamic stochastic general equilibrium” model firmly grounded in the principles of economic theory? I do not want to be misunderstood. Friends have reminded me that much of the effort of “modern macro” goes into the incorporation of important deviations from the Panglossian assumptions that underlie the simplistic application of the Ramsey model to positive macroeconomics. Research focuses on the implications of wage and price stickiness, gaps and asymmetries of information, long-term contracts, imperfect competition, search, bargaining and other forms of strategic behavior, and so on. That is indeed so, and it is how progress is made …
There has always been a purist streak in economics that wants everything to follow neatly from greed, rationality, and equilibrium, with no ifs, ands, or buts. Most of us have felt that tug. Here is a theory that gives you just that, and this time “everything” means everything: macro, not micro. The theory is neat, learnable, not terribly difficult, but just technical enough to feel like “science.”
Yes, indeed, there is a “purist streak in economics that wants everything to follow neatly from greed, rationality, and equilibrium, with no ifs, ands, or buts.” That purist streak has given birth to a kind of ‘deductivist blindness’ of mainstream economics, something that also to a larger extent explains why it contributes to causing economic crises rather than to solving them. But where does this ‘deductivist blindness’ of mainstream economics come from? To answer that question we have to examine the methodology of mainstream economics.
The insistence on constructing models showing the certainty of logical entailment has been central in the development of mainstream economics. Insisting on formalistic (mathematical) modelling has more or less forced the economist to give up on realism and substitute axiomatics for real-world relevance. The price paid for the illusory rigour and precision has been monumentally high
This deductivist orientation is the main reason behind the difficulty that mainstream economics has in terms of understanding, explaining and predicting what takes place in our societies. But it has also given mainstream economics much of its discursive power – at least as long as no one starts asking tough questions on the veracity of – and justification for – the assumptions on which the deductivist foundation is erected. Asking these questions is an important ingredient in a sustained critical effort to show how nonsensical the embellishing of a smorgasbord of models founded on wanting (often hidden) methodological foundations is.
The mathematical-deductivist straitjacket used in mainstream economics presupposes atomistic closed systems — i.e., something that we find very little of in the real world, a world significantly at odds with an (implicitly) assumed logic world where deductive entailment rules the roost. Ultimately then, the failings of modern mainstream economics have their roots in a deficient ontology. The kind of formal-analytical and axiomatic-deductive mathematical modelling that makes up the core of mainstream economics is hard to make compatible with a real-world ontology. It is also the reason why so many critics find mainstream economic analysis patently and utterly unrealistic and irrelevant. The empty formalism that Solow points out in his critique of ‘modern’ macroeconomics is still one of the main reasons behind the monumental failure of ‘modern’ macroeconomics.
Leave a comment
—– look inside —– $5.94 / $20.00
—– look inside —– $4.90 / $8.00
—– look inside —– $15.99
—– look inside —– $5.99 / 12.99
—– look inside —– $5.93 / $12.99
—– look inside —– $4.97 / $9.90
—— Ugarteche, Puyana and Madi ——
Gerson Lima / Maria Alejandra Madi
Edward Fullbrook and Jamie Morgan
————— Michael Hudson ————–
Maria Alejandra Madi / Jack Reardon
————- Edward Fullbrook ————-
—————— Steve Keen —————–
————— Richard Smith —————
————– Gustavo Marques————
– Victor Beker and Beniamino Moro –
————– Lars Pålsson Syll ————-
—————– Stuart Birks —————-
Edward Fullbrook and Jamie Morgan
———— Armando Ochangco ———-
Shimshon Bichler / Jonathan Nitzan
————— Mauro Gallegati ————–
————— Herman Daly —————-
————— Asad Zaman —————
—————– C. T. Kurien —————
————— Robert Locke —————-
Real-World Economics Review Blog 
Here is a silly comment I make in my classes, at list for a smile. Enjoy
Comedians and Economic Theory by Nestor M Ruiz
As long as people are laughing comedians can use the same joke with no changes in the delivery for many years. When the laughs stop its time to seek a new joke or continue with the same one through a process of trial and error to see which version work the best. After certain amount of time they can revive the old joke and discover that it works, people are laughing and accepting the joke. A good joke never dies.
As long as an economic theory works, economist can use it to explain many events without changes in the theory and its use. When the theory confronts acceptability-no one is laughing- it is time to seek for ways to modify the theory and/or comes with a new one. After a period of time someone like in a soap opera the presume death theory comes alive; proving that economic theories never die.
Nestor’s short story (an “anecdote” for Russians) can have a double meaning:
A naive interpretation> As long as readers of this blog are satisfied by attacking mainstream economics, an old accusation of mainstream economics seems both amusing and comfortable. Because mainstream economics does not change a bit (despite of continued efforts of denouncing it), Lars Syll can repeat the same comment again and again. Readers will enjoy it just like a soap opera never dies.
A bit malicious interpretation> Readers are now tired of Lars Syll’s never changing denouncement of mainstream economics. It is time for Syll to seek a new mode by changing his economic methodology so that he can contribute in a more positive way in building a new alternative economics.
I wonder which is closer to Nestor’s intention of posting his anecdote.
Lars Syll posted almost the same article on June 14, 2017 with the title Solow being uncomfortable with ‘modern’ macroeconomics. The only difference seems to be that the citation from Solow is shorter. Syll’s comment seems to be exactly the same as the post of June 14, 2017.
There were 23 comments by five people (the last comment on June 20, 2017). The second comment on 14, 2017 at 2:15 am is posted by me. After five years of time and continued arguments on the same theme, my comment seems no need of change. Let me cite it here as a whole:
We agree on the problem but differ on the diagnosis of what is causing it. Lars thinks it is something called deductivism and blames the instinct to construct a model of the reality which you are trying to understand. This diagnosis leads him into the nihilism of which yoshinorishiozawa complains. He can’t point to a different way to proceed because abstraction, considering its implications and comparing those with events is at the heart of most efforts at scientific generalisation.
To me it is not the instinct for abstraction and modelling that is at fault. It is a twofold error: one, the initial abstraction unfortunately usually abstracts from something essential, two, that in economics the model then takes precedence over the reality. It is not allowed to fail and be abandoned when reality protests. Solow gives the game away when he says: “much of the effort of “modern macro” goes into the incorporation of important deviations from the Panglossian assumptions that underlie…etc”
The first problem is that economics begins by assuming away uncertainty. The existence of uncertainty does not make behaviour incomprehensible but it does deeply affect all behaviour. People know that they don’t know and the strategies they adopt are different from what they would do if they knew and understood everything. Instead of studying people’s coping strategies and bounded rationality empirically, economic theory makes flagrantly counterfactual assumptions and too often sets off in the wrong direction.
The second problem in economics is that it always wants to start from the same idealization “homus economicus”, whatever the problem being tackled. Any other starting point is dismissed as “ad hoc”, however well-founded empirically. This leads to defiance of Occam’s razor and of common observation when a simpler and more accurate model could be obtained in many circumstances by starting from a different point rather than building epicycles into ” the Ramsey model”. The origins of this vice are complicated but an important one is a search for an impossible degree of “generality”. There are no unconditional laws in economics since economies, as we all agree, are open systems whose behaviour is conditioned on a web of contingent factors. Ad hoc idealizations that successfully reflect the realities of a place and time are to be applauded not dismissed. The desire for generality also feeds the fixation on equilibrium theorising. For every way that there is to be ‘right’ there is a limitless number of ways to be ‘wrong’ – like Tolstoy’s families. So let’s assume everything is all right rather than do the dreary work of collecting and looking at the evidence.
We should recognise the limitations on human cognition and focus on realities and concrete questions rather than acquire publications and status by constructing variations on canonical models. Economists could generate a range of models or latent theories with some application. By starting with an orthodox model that doesn’t apply anywhere and battering it to give some kind of fit to a particular data set, we can obstruct ourselves from learning more. Generality, to the extent it exists, should emerge from observing commonalities in specific, empirically useful models. Instead, we produce models that perform very poorly and we become inured to that fact. Indeed most economists seem unaware of quite how preposterous their macroeconomic theorising is.
November 18, 2023 at 4:13 pmReply
I am convinced that mainstream economists are trolls – at least those who do active work on theorizing, others just hang on and become fooled by the trolls.
Their mission is not to understand economy, but to mislead.
It is quite useless to try to argue with trolls, we should call them out.
Hepion, I agree with you. Your “troll” theory of mainstream economics is excellent. Indeed, mainstream economists are trolls. What I am repeatedly claiming is that we should build and present alternative economics. If not, imaginary trolls will control human imagination and policies. You cannot be an exception.
I have a question. When you say
are you claiming that “to understand balance-sheets” is a sufficient condition or a necessary condition? It sound that you are saying it is a sufficient condition. If you say it is a necessary condition, few people will be disagreed.
Do you remember yoshi, when you first commented on my method for explaining the arrangement and modelling of the social system, you called it an accounting method? Then Hepion’s suggestion for a balance-sheets approach being necessary, would seem to support my proposal and lead to its better understanding.
Dear David,
what I consider excellent is Hepion’s “trall” theory of mainstream economists. Not his opinion about understanding balance-sheets. We can say it is necessary but it is far from sufficient. It is necessary to fill this gap. I wonder if Hepion is well aware of this fact.