by From Lars Syll This is an important and fundamentally correct critique of the core methodology of economics: individualistic; analytical; ahistorical; asocial; and apolitical. What economics understands is important. What it ignores is, alas, equally important. As Skidelsky, famous as the biographer of Keynes, notes, “to maintain that market competition is a self-sufficient ordering principle is wrong. Markets are embedded in political institutions and moral beliefs.” Economists need to be humbler about what they know and do not know. Martin Wolf / FT Mainstream economic theory today is still in the story-telling business whereby economic theorists create mathematical make-believe analogue models of the target system – usually conceived as the real economic system. This mathematical
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from Lars Syll
This is an important and fundamentally correct critique of the core methodology of economics: individualistic; analytical; ahistorical; asocial; and apolitical. What economics understands is important. What it ignores is, alas, equally important. As Skidelsky, famous as the biographer of Keynes, notes, “to maintain that market competition is a self-sufficient ordering principle is wrong. Markets are embedded in political institutions and moral beliefs.” Economists need to be humbler about what they know and do not know.
Mainstream economic theory today is still in the story-telling business whereby economic theorists create mathematical make-believe analogue models of the target system – usually conceived as the real economic system. This mathematical modelling activity is considered useful and essential. To understand and explain relations between different entities in the real economy the predominant strategy is to build mathematical models and make things happen in these ‘analogue-economy models’ rather than engineering things happening in real economies.
Without strong evidence, all kinds of absurd claims and nonsense may pretend to be science. As Paul Romer had it in his reckoning with ‘post-real’ economics a couple of years ago:
Math cannot establish the truth value of a fact. Never has. Never will.
We have to demand more of a justification than rather watered-down versions of ‘anything goes’ when it comes to the main postulates on which mainstream economics is founded. If one proposes ‘efficient markets’ or ‘rational expectations’ one also has to support their underlying assumptions. As a rule, none is given, which makes it rather puzzling how things like ‘efficient markets’ and ‘rational expectations’ have become standard modelling assumptions made in much of modern macroeconomics. The reason for this sad state of ‘modern’ economics is that economists often mistake mathematical beauty for truth. It would be far better if they instead made sure they keep their hands clean!