by Sargent’s ‘Nobel prize’ winning mumbo jumbo The Royal Swedish Academy of Sciences decided back in 2011 to award The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel to Thomas Sargent and Christopher Sims “for their empirical research on cause and effect in the macroeconomy”. In an interview with Thomas Sargent in The Region, the Nobel prize winner tried to defend the kind of “modern macro” he himself has been part of developing: Sargent: I know that I’m the one who is supposed to be answering questions, but perhaps you can tell me what popular criticisms of modern macro you have in mind. Rolnick:OK, here goes. Examples of such criticisms are that modern macroeconomics makes too much use of sophisticated mathematics to model people
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Sargent’s ‘Nobel prize’ winning mumbo jumbo
The Royal Swedish Academy of Sciences decided back in 2011 to award The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel to Thomas Sargent and Christopher Sims “for their empirical research on cause and effect in the macroeconomy”.
In an interview with Thomas Sargent in The Region, the Nobel prize winner tried to defend the kind of “modern macro” he himself has been part of developing:
Sargent: I know that I’m the one who is supposed to be answering questions, but perhaps you can tell me what popular criticisms of modern macro you have in mind.
Rolnick:OK, here goes. Examples of such criticisms are that modern macroeconomics makes too much use of sophisticated mathematics to model people and markets; that it incorrectly relies on the assumption that asset markets are efficient in the sense that asset prices aggregate information of all individuals; … that the modern macro mainstay “real business cycle model” is deficient because it ignores so many frictions and imperfections and is useless as a guide to policy for dealing with financial crises … Shouldn’t these be taken seriously?
Sargent: Sorry, Art, but aside from the foolish and intellectually lazy remark about mathematics, all of the criticisms that you have listed reflect either woeful ignorance or intentional disregard for what much of modern macroeconomics is about and what it has accomplished … A rule of thumb is that the more dynamic, uncertain and ambiguous is the economic environment that you seek to model, the more you are going to have to roll up your sleeves, and learn and use some math. That’s life.
Are these the words of an empirical macroeconomist? I’ll be dipped! To me, it sounds like the same old axiomatic-deductivist mumbo-jumbo that parades as economic science of today.
Mainstream economic theory today is in the story-telling business whereby economic theorists create make-believe analogue models of the target system – usually conceived as the real economic system. This modelling activity is considered useful and essential. Since fully-fledged experiments on a societal scale, as a rule, are prohibitively expensive, ethically indefensible or unmanageable, economic theorists have to substitute experimenting with something else. To understand and explain relations between different entities in the real economy the predominant strategy is to build models and make things happen in these “analogue-economy models” rather than engineering things happening in real economies.
Mainstream economics has since long given up on the real world and contents itself with proving things about thought up worlds. Empirical evidence only plays a minor role in economic theory, where models largely function as a substitute for empirical evidence. Hopefully humbled by the manifest failure of its theoretical pretences, the one-sided, almost religious, insistence on axiomatic-deductivist modelling as the only scientific activity worthy of pursuing in economics will give way to methodological pluralism based on ontological considerations rather than formalistic tractability.
When that day comes The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel will hopefully be awarded real macroeconomists and not axiomatic-deductivist modellers like Thomas Sargent and economists of that ilk in the efficient-market-rational-expectations camp.