Economics without aspirations

10 Dec, 2014 at 08:48 | Posted in Economics | 2 Comments

The problem is that the new theories, the theories embedded in general equilibrium dynamics of the sort that we know how to use pretty well now—there’s a residue of things they don’t let us think about.lucas They don’t let us think about the U.S. experience in the 1930s or about financial crises and their real consequences inAsia and LatinAmerica. They don’t let us think, I don’t think, very well about Japan in the 1990s. We mayn be disillusioned with the Keynesian apparatus for thinking about these things, but it doesn’t mean that this replacement apparatus can do it either. It can’t. In terms of the theory that researchers are developing as a cumulative body of knowledge—no one has figured out how to take that theory to successful answers to the real effects of monetary instability. Some people just deny that there are real effects of monetary instability, but I think that is just a mistake. I don’t think that argument can be sustained.

Robert Lucas

Hmm … isn’t that like having seismological and meteorological sciences that can’t help us explain or predict earthquakes or hurricanes? Maybe we should have just a little higher aspiration level as scientists? After all, if uncertainty is all around in the economy and — as Lucas has said — “in cases of uncertainty, economics reasoning will be of no value,” then why should we bother with economics at all? Just wondering …


  1. What is the core problem of economics?
    Comment on ‘Economics without aspirations’
    The profit theory is false since Adam Smith. Neither orthodox nor heterodox economists understand the two most important phenomena in the economic universe: profit and income. This is like pre-Newtonian physics before the elementary concepts force and mass were clearly defined and thoroughly understood. For a proof see the post:
    What is the core problem of economics? Economics is a science without scientists. Just stand up and look into the mirror.
    Egmont Kakarot-Handtke

  2. Here’s an issue that is extremely important and one that many heterodox economists fail to see.

    It’s not just the inability to incorporate earthquakes into a model of plate tectonics. It’s a matter of starting in the exact wrong place. Geologists don’t start with a model of a steady state planet and then modify it in order to incorporate earthquakes. Some (the ones that moved the science forward) looked at earthquakes and said, “these dramatic events are a chance to learn what is really going on!”

    The same has been true in understanding the human mind. Psychologists don’t start with a notion that all minds function the same healthy way and then try to incorporate the realities of brain trauma and mental illness. Instead, “abnormal psychology” is where all of the learning happens.

    Too many of the would be saviors of economics strive to make it *less wrong*–insisting that our understanding include crises. But no amount of less wrong will get you to *correct*. To get there, economists must look at crises as the times when the forces at work reveal themselves. Just like plate tectonics, the apparent stability of small time scales is easy enough to explain coming from the other direction.

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