by Heretics and mainstream defenders Larry Elliott wrote a Guardian article the other day criticizing mainstream economics arguing that we should stop treating economics as a science because it is nothing of the sort. A proper science involves testing a hypothesis against the available evidence. If the evidence doesn’t support the theory, a physicist or a biologist will discard the theory and try to come up one that does work empirically. Economics doesn’t work like that. Theories can be shown to work only by making a series of highly questionable assumptions – such as that humans always behave predictably and rationally. When there is hard evidence that disputes the validity of the theory, there is no question of ditching the theory. Mainstreamers, of
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Heretics and mainstream defenders
Larry Elliott wrote a Guardian article the other day criticizing mainstream economics arguing that
we should stop treating economics as a science because it is nothing of the sort. A proper science involves testing a hypothesis against the available evidence. If the evidence doesn’t support the theory, a physicist or a biologist will discard the theory and try to come up one that does work empirically.
Economics doesn’t work like that. Theories can be shown to work only by making a series of highly questionable assumptions – such as that humans always behave predictably and rationally. When there is hard evidence that disputes the validity of the theory, there is no question of ditching the theory.
Mainstreamers, of course, were not too happy about this critique, and a bunch of them published a response:
Why do Elliott and many others have such a distorted view of economics?
The first answer to this question, we think, lies in a misunderstanding of the purpose of mathematical models. Critics complain that economists’ models are not realistic and make absurd assumptions. The London Tube map is not realistic and makes absurd assumptions. If it did not it would be illegible. And useless. The map is useful precisely because it abstracts from unnecessary details to show you the way. This is what economic models are for, they help us to find our way through complex data in a complex world.
When economists write a mathematical model they do so to highlight particular aspects of reality without confusing details. Take the infamous “homo economicus” theory, which says that humans are both selfish and rational. We think that this explains the behaviour of many corporations well. We also think that it does poorly at explaining how we treat our children—but it is useful precisely because it serves as a benchmark. Economists spend most of their time studying departures from this benchmark—altruism towards our children, irrational behaviour when drinking.
I’ve been doing economics for almost forty years now, and I don’t know how many times I’ve heard this silly nonsense map-and-benchmark defence of mainstream neoclassical modelling.
A map with a scale 1:1 is of course totally useless. No one — absolutely no one — is contesting that. But building models of economies that abstract from important facts of reality — such as people being ‘boundedly’ rational in a world permeated by genuine uncertainty — or distorting beyond recognition how real-world actors are supposed to act or decide in real-world contexts — is a completely different thing. On that, these mainstream defenders have absolutely nothing to say. And for good reasons. That kind of modelling is nothing but nonsense on stilts! And we ought to thank Elliott for telling that to Guardian readers .
Most mainstream economists seem to have no problem with the lack of fundamental diversity — not just path-dependent elaborations of the mainstream canon — and the vanishingly little real-world relevance that characterize modern macroeconomics. To these economists, there is nothing basically wrong with ‘standard theory.’ As long as policymakers 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.
Mainstream economists today seem to maintain that new imaginative empirical methods — such as natural experiments, field experiments, lab experiments, RCTs — help us to answer questions concerning the validity of economic theories and models. Yours truly beg to differ. There are few real reasons to share this optimism on the alleged pluralist and empirical revolution in economics.
Heterodox critics are not ill-informed about the development of mainstream economics. Its methodology is still the same basic neoclassical one. It’s still non-pluralist. And although more and more economists work within the field of ’empirical’ economics, the foundation and ‘self-evident’ benchmark is still of the neoclassical deductive-axiomatic ilk.
Sad to say, but we still have to wait for the revolution that will make economics an empirical and truly pluralist and relevant science. But one thing we do know –mainstream economics belongs to the past.