by Wren-Lewis on macroeconomic eclecticism Oxford macroeconomist Simon Wren-Lewis has a post up today on his blog discussing whether mainstream macroeconomics is eclectic or not. His answer is — both yes and no: Does this mean academic macroeconomics is fragmented into lots of cliques, some big and some small? Not really … This is because these models (unlike those of 40+ years ago) use a common language … It means that the range of assumptions that models (DSGE models if you like) can make is huge. There is nothing formally that says every model must contain perfectly competitive labour markets where the simple marginal product theory of distribution holds, or even where there is no involuntary unemployment, as some heterodox economists sometimes assert. Most of the time individuals in these models are optimising, but I know of papers in the top journals that incorporate some non-optimising agents into DSGE models. So there is no reason in principle why behavioural economics could not be incorporated … It also means that the range of issues that models (DSGE models) can address is also huge … Mainstream academic macro is very eclectic in the range of policy questions it can address, and conclusions it can arrive at, but in terms of methodology it is quite the opposite. Wren-Lewis tries to give a picture of modern macroeconomics as a pluralist enterprise.
Topics:
Lars Pålsson Syll considers the following as important: Economics
This could be interesting, too:
Lars Pålsson Syll writes Andreas Cervenka och den svenska bostadsbubblan
Lars Pålsson Syll writes Debunking the balanced budget superstition
Lars Pålsson Syll writes How inequality causes financial crises
Lars Pålsson Syll writes Income inequality and the saving glut of the rich
Wren-Lewis on macroeconomic eclecticism
Oxford macroeconomist Simon Wren-Lewis has a post up today on his blog discussing whether mainstream macroeconomics is eclectic or not. His answer is — both yes and no:
Does this mean academic macroeconomics is fragmented into lots of cliques, some big and some small? Not really … This is because these models (unlike those of 40+ years ago) use a common language …
It means that the range of assumptions that models (DSGE models if you like) can make is huge. There is nothing formally that says every model must contain perfectly competitive labour markets where the simple marginal product theory of distribution holds, or even where there is no involuntary unemployment, as some heterodox economists sometimes assert. Most of the time individuals in these models are optimising, but I know of papers in the top journals that incorporate some non-optimising agents into DSGE models. So there is no reason in principle why behavioural economics could not be incorporated …
It also means that the range of issues that models (DSGE models) can address is also huge …
Mainstream academic macro is very eclectic in the range of policy questions it can address, and conclusions it can arrive at, but in terms of methodology it is quite the opposite.
Wren-Lewis tries to give a picture of modern macroeconomics as a pluralist enterprise. But the change and diversity that gets Wren-Lewis approval only takes place within the analytic-formalistic modeling strategy that makes up the core of mainstream economics. You’re free to take your analytical formalist models and apply it to whatever you want — as long as you do it with a modeling methodology that is acceptable to the mainstream. If you do not follow this particular mathematical-deductive analytical formalism you’re not even considered doing economics. If you haven’t modeled your thoughts, you’re not in the economics business. But this isn’t pluralism. It’s a methodological reductionist straightjacket.
So, yes, there is a proliferation of macromodels nowadays — but it almost exclusively takes place as a kind of axiomatic variation within the standard DSGE modeling framework. And — no matter how many thousands of models mainstream economists come up with, as long as they are just axiomatic variations of the same old mathematical-deductive ilk, they will not take us one single inch closer to giving us relevant and usable means to further our understanding and explanation of real economies.
Wren-Lewis seems to have no problem with the lack of fundamantal diversity — not just path-dependent elaborations of the mainstream canon — and vanishingly little real world relevance that characterize modern mainstream macroeconomics.
Wren-Lewis obviously shares the view of his mainstream colleagues Paul Krugman and Greg Mankiw that there is nothing basically wrong with ‘standard theory.’ As long as policy makers and economists stick to ‘standard economic analysis’ — DSGE — everything is fine. Economics is just a common language and method that makes us think straight and reach correct answers.
And just as his colleagues, when it really counts, Wren-Lewis shows what he is — a mainstream neoclassical economist fanatically defending the insistence of using an axiomatic-deductive economic modeling strategy.