by Post-real macroeconomics — science as fraud There are many kinds of useless economics held in high regard within mainstream economics establishment today . Few — as Paul Romer recently has been arguing — are less deserved than the post-real macroeconomic theory – mostly connected with Nobel laureates Finn Kydland, Robert Lucas, Edward Prescott and Thomas Sargent – called calibration. In an interview by Seppo Honkapohja and Lee Evans (Macroeconomic Dynamics 2005, vol. 9) Thomas Sargent says: Calibration is less optimistic about what your theory can accomplish because you would only use it if you din’t fully trust your entire model, meaning that you think your model is partly misspecified or incompetely specified, or if you trusted someone else’s model and data set more than your own. My recollection is that Bob Lucas and Ed Prescott were initially very enthusiastic about rational expetations econometrics. After all, it simply involved imposing on ourselves the same high standards we had criticized the Keynesians for failing to live up to. But after about five years of doing likelihood ratio tests on rational expectations models, I recall Bob Lucas and Ed Prescott both telling me that those tests were rejecting too many good models. The idea of calibration is to ignore some of the probabilistic implications of your model but to retain others.
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Post-real macroeconomics — science as fraud
There are many kinds of useless economics held in high regard within mainstream economics establishment today . Few — as Paul Romer recently has been arguing — are less deserved than the post-real macroeconomic theory – mostly connected with Nobel laureates Finn Kydland, Robert Lucas, Edward Prescott and Thomas Sargent – called calibration.
In an interview by Seppo Honkapohja and Lee Evans (Macroeconomic Dynamics 2005, vol. 9) Thomas Sargent says:
Calibration is less optimistic about what your theory can accomplish because you would only use it if you din’t fully trust your entire model, meaning that you think your model is partly misspecified or incompetely specified, or if you trusted someone else’s model and data set more than your own. My recollection is that Bob Lucas and Ed Prescott were initially very enthusiastic about rational expetations econometrics. After all, it simply involved imposing on ourselves the same high standards we had criticized the Keynesians for failing to live up to. But after about five years of doing likelihood ratio tests on rational expectations models, I recall Bob Lucas and Ed Prescott both telling me that those tests were rejecting too many good models. The idea of calibration is to ignore some of the probabilistic implications of your model but to retain others. Somehow, calibration was intended as a balanced response to professing that your model, although not correct, is still worthy as a vehicle for quantitative policy analysis….
It is — sad to say — a fact that within mainstream economics internal validity is everything and external validity and truth nothing. Why anyone should be interested in that kind of theories and models — 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 — is beyond comprehension. Stupid models are of no or little help in understanding the real world.
In Chicago economics one is cultivating the view that scientific theories has nothing to do with truth. Constructing theories and building models is not even considered an activity wth the intent of approximating truth. For Chicago economists like Lucas and Sargent it is only an endeavour to organize their thoughts in a ‘useful’ manner.
What a handy view of science!
What Sargent and other defenders of scientific storytelling ‘forgets’ is that potential explanatory power achieved in thought experimental models is not enough for attaining real explanations. Model explanations are at best conjectures, and whether they do or do not explain things in the real world is something we have to test. To just believe that you understand or explain things better with thought experiments is not enough. Without a warranted export certificate to the real world, model explanations are pretty worthless. Proving things in models is not enough. Truth is an important concept in real science.