On ‘good’ and ‘bad’ economics

30 Oct, 2013 at 16:22 | Posted in Economics, Theory of Science & Methodology | 3 Comments

Chris Dillow — of Stumbling and Mumbling — isn’t too happy about Aditya Chakrabortty’s attack on mainstream economics.

EconomicForecast2012_logo-630x314In defence of mainstream economics, Dillow maintains that “forecasting isn’t part of proper economics at all, so a forecasting error tells us nothing about the merits or not of economics,” and approvingly quotes a fellow economist who says that “the fact that most economists failed to predict the crash is actually a vindication of mainstream economics, which says that such things should be unpredictable.” Above all, he maintains that “Aditya is missing a bigger point. The division that matters is not so much between heterodox and mainstream economics, but between good economics and bad.”

Good economics in the eyes of Dillow isn’t about “bigthink and meta-theorizing,” but about “careful consideration of the facts” and asking itself  “which model (or better, which mechanism or which theory) fits the problem at hand?”

Well, wouldn’t that be great if mainstream neoclassical economics was like that! The problem, of course, is that it’s far, far away from it.

Let me elaborate a little on why that is.

One obvious shortcoming of Dillow’s argumentation is a lacking problematization of the mediation between economic models/experiments and the real world.

Mary Morgan — in her The World in the Model — characterizes the modelling tradition of economics as one concerned with “thin men acting in small worlds”‘ and writes:

Strangely perhaps, the most obvious element in the inference gap for models … lies in the validity of any inference between two such different media – forward from the real world to the artificial world of the mathematical model and back again from the model experiment to the real material of the economic world. The model is at most a parallel world. The parallel quality does not seem to bother economists. But materials do matter: it matters that economic models are only representations of things in the economy, not the things themselves.

Most models in science are representations of something else. And all empirical sciences use simplifying or unrealistic assumptions in their modeling activities. That is not the issue – as long as the assumptions made are not unrealistic in the wrong way or for the wrong reasons.

Theories are difficult to directly confront with reality. Economists therefore experiment or build models of their theories. Those models are representations that are directly examined and manipulated to indirectly say something about the target systems.

Being able to model a “credible world,” a world that somehow could be considered real or similar to the real world, is not the same as investigating the real world. Even though all theories are false, since they simplify, they may still possibly serve our pursuit of truth. But then they cannot be unrealistic or false in any way. The falsehood or unrealisticness has to be qualified.

Some of the standard assumptions made in neoclassical economic theory – on rationality, information handling and types of uncertainty – are not possible to make more realistic by “de-idealization” or “successive approximations” without altering the theory and its models fundamentally.

If we cannot show that the mechanisms or causes we isolate and handle in our models (or experiments) are stable, in the sense that what when we export them from are models to our target systems they do not change from one situation to another, then they only hold under ceteris paribus conditions and a fortiori are of limited value for our understanding, explanation and prediction (which contrary to Dillow, I think neoclassical economists usually consider being of prime importance) of our real world target system.

The obvious ontological shortcoming of the basically epistemic approach of mainstream neoclassical  economics is tout court that it does not guarantee that the (eventual) correspondence between model and target is interesting, relevant, revealing or somehow adequate in terms of mechanisms, causal powers, capacities or tendencies. No matter how many convoluted refinements of concepts made in the model, if the “successive approximations” do not result in models similar to reality in the appropriate respects (such as structure, isomorphism etc), it doesn’t succeed in bridging to the world.

Constructing mainstream neoclassical economic models – such as microfounded macroeconomic models —  is a rather unimpressive attempt at legitimizing using fictitious idealizations for reasons more to do with model tractability than with a genuine interest of understanding and explaining features of real economies.

Many of the model assumptions standardly made by neoclassical economics are restrictive rather than harmless and could a fortiori anyway not in any sensible meaning be considered approximations at all. Or as May Brodbeck had it:

Model ships appear frequently in bottles; model boys in heaven only.

Now, where does this leave us? Can mainstream neoclassical economics still be ‘good’ in a Dillowian sense? I guess so. But it will for sure be much more difficult than starting out with a realist and relevant heterodox economics.


  1. Weird post… Very internally inconsistent.

    Chris Dillow writes: “The division that matters is not so much between heterodox and mainstream economics, but between good economics and bad. I’ll give just two examples of what I mean.

    First, good economics tests itself against the facts.”

    Okay great.

    Mainstream economics didn’t think there would be a crisis. There was a crisis. It failed the test. Therefore it is, by your own criteria, ‘bad’ economics.

    That’s the end of that debate. Unless you want to change the terms that you laid out. But that would be cheating, wouldn’t it?

    • I think one has to read the critique as an answer not only to this particular post, but in fact read it in conjunction with Dillow’s earlier post this week where he tries to defend mainstream economics from an empiricist/experimentalist point of view. What I’m trying to argue is A) that empiricist/experimental approaches (like e. g. RCTs) are no — at least not without extensive qualifications — “gold standards” for conducting economic research, and B) that the dichotomy good/bad is to simplistic when we try too evaluate/criticize modern mainstream/neoclassical economics — especially when it comes to its ontological underpinnings (or rather lack of it). Attempts at evaluating theories/models with an unmediated experimental or falsificationist approach just won’t do as I — and I guess, many Marxists (which, since – if I’m not misinformed – Dillow considers himself a Marxist, makes his view on this issue somewhat difficult to comprehend) and critical realists — see it.

      • Marxists are easy to understand: when they’re coherent they’re upside down classicals and fall in line mostly with mainstreamers. When they’re incoherent they’re an assorted grab-bag of contradictory stuff with no real centre-point (Kaleckian income dynamics, game theory etc.). It’s not really a coherent eonomic or philosophical doctrine. Instead it is an ethical doctrine,.

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