Do over?

Published on Real-World Economics Review Blog, by Peter Radford, Feb 11, 2014.

You would have thought that, after all this time, economics would change. Or be changing. Or even be hinting at the possibility of changing. However, while there are a few encouraging signs, there is precious little sign of said motion inside the citadels that dominate the discipline. We still have a profession stuck in a most unprofessional rut, pursuing thinking that reflects not the world around it, but itself.  

So, let me say it again: economists are, by and large, more interested in economics than in economies. They spend much more time on trying to display mathematical virtuosity than in trying to get to grips with the world around them. Even those who give the real world space to intrude into their thinking wrap it up in strange and unrepresentative ways.

Let me make this plain to those of you who follow the sport from a distance: most economists make their reputations nowadays by being steeped in the latest mathematics and by being capable of producing supremely logical, tightly wound models that conform to the discipline’s rules and to what the discipline thinks of as important. The relevance of an actual economy – for example the US between 2007 and now – is not considered if it does not allow the wizardry to be displayed.

Rigor is decidedly more important the relevance: … //

… So much for the nobility of self-government:

I think this odd sentiment is itself an artifact of the past. Much of contemporary economics has it roots deep in 19th century struggles, and some owes its existence to the life experiences of theorists who came of age in early 20th century autocracies on the brink of elimination. They saw government as an arbitrary obstacle to freedom precisely because it was. The problem is that they never adjusted their thoughts to the existence of democracy where what appears, perhaps, as arbitrary government policy is actually as expression of ‘we the people’. Yes, the same people who inhabit those magical markets.

The result of all these peculiarities is that economics has a multitude of blind spots and inbuilt prejudices that prevent it from progressing and, in many cases, even from engaging with reality.

Such an engagement would require a wholesale do over of much of the foundation upon which the discipline now stands. It would have to accept that it is currently a caricature rather than a simplification. A caricature badly drawn too. Its rigor is actually not rigor at all but an avoidance of deep issues. It is a rigor that tries to hide rather than reveal the nuances of modernity. It is a rigor applied unevenly to various social phenomena. And it is a rigor that forces economists to open an ever increasing gulf between what they study and what they purport to study. In short it is s rigor designed to encourage disengagement from reality and to be applied selectively within a narrow range of phenomena.

Economics is thus largely irrelevant, but that is by design not by accident. It is by design because the actual economy is littered with artifacts and has a multitude of properties that sit outside the purview of a discipline based, still, on a 19th century worldview. Quite a bit has changed in the past two hundred years. Economics never kept up. It needs a do over.

Oh. And one last thing: if you are going to persist in enforcing that ‘macro from micro’ rule you had better make sure the micro makes sense and that it is a good representation of actual human behavior. Right now the gap between how micro models the way people make decisions and how they actually make decisions is embarrassingly large. As in an unbridgeable chasm. The foundation is rotten. We ought not trust any macro built in such sand.

The do over needs to include the base too. We need new micro. New macro. And, even more so, a whole new meso.

(full text).


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