Tag Archives: Economics

What is wrong with economists’ modelling? Why do I suppose that mathematical deductivist modelling of the sort pursued by economists is a problem in itself? … My answer, simply put, can be expressed in the following three propositions: (i) The sorts of mathematical deductivist methods that economists use are, like all research methods, types of tools. (ii) All tools are appropriate to dealing with but a limited set of tasks, involving a limited set of phenomena, in a limited set of...

While visiting Germany in the summer, I was struck by the prevalence of adverts saying something on the lines of "Sie sparen können". I've never seen a society so obsessed with saving, not in the sense of putting money away (though they do that too) but in the sense of reducing costs. Never mind the quality, look  at the price. "You can save". Always.Penny-pinching is by no means limited to German households. Ever since we collectively decided, on September 16th 2008, that the money had run...

Deductivism — the original sin of ‘modern’ economics For many people, deductive reasoning is the mark of science: induction – in which the argument is derived from the subject matter – is the characteristic method of history or literary criticism. But this is an artificial, exaggerated distinction. Scientific progress … is frequently the result of observation that something does work, which runs far ahead of any understanding of why it works. Not within the economics profession. There,...

Ten years ago (September 2005) I launched my website. To mark this anniversary, here are ten postings that I think got it right. Many of them are included in my book, The Economic Crisis: Notes From The Underground (2012). 1. Keynesianism: what it is and why it still matters (September 18, 2005). My first post. [...]

Modern economics — an assumption-making Nintendo game In advanced economics the question would be: ‘What besides mathematics should be in an economics lecture?’ In physics the familiar spirit is Archimedes the experimenter. But in economics, as in mathematics itself, it is theorem-proving Euclid who paces the halls … Economics … has become a mathematical game. The science has been drained out of economics, replaced by a Nintendo game of assumption-making … Most thoughtful economists think...

Relevance is not irrelevant What is science? One brief definition runs: “A systematic knowledge of the physical or material world.” Most definitions emphasize the two elements in this definition: (1) “systematic knowledge” about (2) the real world. Without pushing this definitional question to its metaphysical limits, I merely want to suggest that if economics is to be a science, it must not only develop analytical tools but must also apply them to a world that is now observable or that...

What went wrong with economics? Internal coherence is one way of adjudicating among theories, but so is correspondence to everyday life. Too much realism may kill analysis, but too little realism is unscientific. If theoretical coherence alone were all that mattered, then the only constraint on theoretical exercises would be the human imagination. Interesting puzzles would replace pragmatic solutions to problems encountered in the world — arguably, an accurate characterization of most...

No realism please. We’re Chicago economists! Samuelson’s reconciliation of the micro-economic ideal type with involuntary unemployment was repudiated, along with Keynesian prescriptions, in favor of a view that there could be no involuntary unemployment , hence that government action was unnecessary. The result was a doctrinaire derivation of the laissez-faire conclusions that had been overturned by the formalist revolution; economics was now cleansed of Keynesian impurities that had been...

Efficient Market Hypothesis — an intellectually lazy ideology Both Brad DeLong and Noah Smith have posts up on their blogs commenting on the status of the Efficient Market Hypothesis. As so often the really interesting questions however drown in the usual mumbo jumbo “the model is the message” pseudo science of four-factor models with two mispricing factors being better-performing than three-factor models … Diane Coyle has a much more accurate view of what it’s all about: I would defend...

Economist Brian Arthur has made important contributions to our understanding of inductive versus deductive approaches to problem solving. Arthur notes that you can solve only the easiest problems deductively … But humans are superb at recognizing and matching patterns. We’re inductive machines. Arthur offers a model of inductive reasoning, effectively picking up where Lord Keynes left off. The model is based on the El Farol bar in Santa Fe, New Mexico … Attending the El Farol when it...