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Not-so-super models

April 18, 2012

Jonathan Schlefer’s The Assumptions Economists Make looks interesting:

This book is about what economists do in their secret lives as economists, when they aren’t dashing off op-eds to tell everybody else what to believe, pulling the wool over undergraduates’ eyes in textbooks, or otherwise engaging in public relations.

Schlefer trained in politics not economics. As Aditya Chakrabortty said in Monday’s Guardian, at a time when the dismal discipline has so failed us, non-economists should be stepping in. Schlefer says all the right things, like “political science is not a science like physics.” He slags off  neoclassical economics, talking of “the realism of crucial assumptions: assumptions that crucially affect the picture of the economy you are trying to understand.”

I haven’t read the book but I agree with David Ruccio, whose work I admire and who highlights the following passage from the interview. Schlefer says that:

There is a kind of progress in economics. Critics point out flaws in models; supporters revise the models to respond; and the models do become sharper. For example, John Maynard Keynes’s “General Theory” was a brilliant book, but his model was somewhat muddy, if you even grant that he had a model per se.  If his model had been clearer, there wouldn’t have arisen so many disputing schools of “Keynesians” (with various prefixes and suffixes to distinguish themselves). But whichever side you’re on in these disputes, the models favored by different sides have become sharper and the bases of disputes clearer.

Keynes was perfectly well aware of the problems with narrowing down his approach in terms of a model, and there’s a copious literature on the purposeful openness of his economics. Ruccio rightly draws attention to:

the modernist conceit in economics: that economic knowledge progresses (Samuelson would add, “funeral by funeral,”) and that modelling is the way to guarantee the continued “march of progress.”

Models aren’t the only way of doing economics, and I have strong doubts that economists are gradually improving their understanding of how the economy works. The global economic crisis certainly doesn’t suggest so, and neither do the wars between various camps: freshwater versus saltwater; neoclassical versus post-Keynesian. The boundaries are muddier, not sharper.

Well-grounded methodological reasons exist for believing that narrow, highly mechanistic models with unrealistic critical assumptions are inappropriate for the social world. I think economics should be much more empiricist and narrative-driven, rooted firmly in the precise circumstances of the country or situation being examined, with theory subject to periodic revision as new evidence arises. There’s also lots to be learnt from disciplines like sociology, anthropology and politics, which have less robot-like ways of doing things.

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