by From Lars Syll Let’s be honest: no one knows what is happening in the world economy today … Policymakers don’t know what to do. They press the usual (and unusual) levers and nothing happens. Quantitative easing was supposed to bring inflation “back to target.” It didn’t. Fiscal contraction was supposed to restore confidence. It didn’t … Most economics students are not required to study psychology, philosophy, history, or politics. They are spoon-fed models of the economy, based on unreal assumptions, and tested on their competence in solving mathematical equations. They are never given the mental tools to grasp the whole picture … Good economists have always understood that this method has severe limitations. They use their discipline as a kind of mental hygiene to protect against the
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from Lars Syll
Let’s be honest: no one knows what is happening in the world economy today …
Policymakers don’t know what to do. They press the usual (and unusual) levers and nothing happens. Quantitative easing was supposed to bring inflation “back to target.” It didn’t. Fiscal contraction was supposed to restore confidence. It didn’t …
Most economics students are not required to study psychology, philosophy, history, or politics. They are spoon-fed models of the economy, based on unreal assumptions, and tested on their competence in solving mathematical equations. They are never given the mental tools to grasp the whole picture …
Good economists have always understood that this method has severe limitations. They use their discipline as a kind of mental hygiene to protect against the grossest errors in thinking …
Today’s professional economists have studied almost nothing but economics. They don’t even read the classics of their own discipline. Economic history comes, if at all, from data sets. Philosophy, which could teach them about the limits of the economic method, is a closed book. Mathematics, demanding and seductive, has monopolized their mental horizons. The economists are the idiots savants of our time.
Yes indeed — modern economics has become increasingly irrelevant to the understanding of the real world. In his seminal book Economics and Reality (1997) Tony Lawson traced this irrelevance to the failure of economists to match their deductive-axiomatic methods with their subject. As shown by Skidelsky, it is as relevant today as it was twenty years ago.
It is still a fact that within mainstream economics internal validity is everything and external validity nothing. Why anyone should be interested in that kind of theories and models is beyond my imagination. 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, they really should not be surprised if people say that this is not science, but autism!
Studying mathematics and logics is interesting and fun. It sharpens the mind. In pure mathematics and logics we do not have to worry about external validity. But economics is not pure mathematics or logics. It’s about society. The real world. Forgetting that, economics is really in dire straits.
Already back in 1991, JEL published a study by a commission — chaired by Anne Krueger and including people like Kenneth Arrow, Edward Leamer, and Joseph Stiglitz — focusing on “the extent to which graduate education in economics may have become too removed from real economic problems.” The commission members reported from own experience “that it is an underemphasis on the ‘linkages’ between tools, both theory and econometrics, and ‘real world problems’ that is the weakness of graduate education in economics,” and that both students and faculty sensed “the absence of facts, institutional information, data, real-world issues, applications, and policy problems.” And in conclusion they wrote:
The commission’s fear is that graduate programs may be turning out a generation with too many idiot savants skilled in technique but innocent of real economic issues.
Not much is different today. Economics education is still in dire need of a remake. How about bringing economics back into some contact with reality?
And, of course, Paul Krugman and fellow ‘New Keynesians’ have been fast to tell us that although Skidelsky is absolutely right, ‘basic macro’ (read: IS-LM ‘New Keynesianism’) has done just fine, and that it is only RBC and New Classical DSGE macroeconomics that has faltered. But that is, sad to say, but still, nothing but pure nonsense!