by From Asad Zaman The problem at the heart of modern economics is buried in the logical positivist methodological foundations created in the early twentieth century by Lionel Robbins. Substantive debates over the content actually strengthen the illusion of validity of these methods, and hence are counterproductive. As Solow said about Sargent and Lucas, you do not debate cavalry tactics at Austerlitz with a madman who thinks he is Napoleon Bonaparte, feeding his lunacy. Modern Macro Models are based assumptions representing flights of fancy so far beyond the pale of reason that Romer calls them “post-real”. But the problem does not lie in the assumptions – it lies deeper, in the methodology that allows us to nonchalantly make and discuss crazy assumptions. The license for this folly
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from Asad Zaman
The problem at the heart of modern economics is buried in the logical positivist methodological foundations created in the early twentieth century by Lionel Robbins. Substantive debates over the content actually strengthen the illusion of validity of these methods, and hence are counterproductive. As Solow said about Sargent and Lucas, you do not debate cavalry tactics at Austerlitz with a madman who thinks he is Napoleon Bonaparte, feeding his lunacy. Modern Macro Models are based assumptions representing flights of fancy so far beyond the pale of reason that Romer calls them “post-real”. But the problem does not lie in the assumptions – it lies deeper, in the methodology that allows us to nonchalantly make and discuss crazy assumptions. The license for this folly was given by Friedman: “Truly important and significant hypotheses will be found to have “assumptions” that are wildly inaccurate descriptive representations of reality”; see Friedman’s Methodology: A Stake through the Heart of Reason. In this sequence of posts, I will explain how economic methodology went astray in the 20th Century, abandoning empirical evidence in favor of mathematical elegance and ideological purity. Many authors have noted this problem — for instance, Krugman writes that the profession (of economists) as a whole went astray because they mistook the beauty of mathematics for truth (see Quotes Critical of Economics). To explain the flaws of economic methodology, we need to discuss the relationship between economic models and reality. read more