What is wrong with economists’ modelling?

2 Oct, 2015 at 09:59 | Posted in Economics | 1 Comment

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 contexts, and not others.

(iii) The nature and conditions of social reality are such that the forms of mathematical deductivist reasoning favoured by modern economists are almost entirely inadequate as tools of insightful social analysis.

I doubt that many would suggest that we seek to use pencils to cut hedges, telephones to dig garden, forks to fly us to other countries. Yet pencils, telephones and forks can be very useful to us in certain contexts, with respect to very specific tasks and phenomena.

Tony Lawson

Modern economics has become increasingly irrelevant to the understanding of the real world. The main reason for this irrelevance is the failure of economists to match their deductive-axiomatic methods with their subject.

It is — sad to say — a fact that within mainstream economics internal validity is everything and external validity nothing. Why anyone should be interested in that kind of theories and models is beyond my imagination. As long as mainstream economists do not come up with any export licenses for their theories and models to the real world in which we live, they really should not be surprised if people say that this is not science, but autism.

Studying mathematics and logics is interesting and fun. It sharpens the mind. In pure mathematics and logics we do not have to worry about external validity. But economics is not pure mathematics or logics. It’s about society. The real world. Forgetting that, economics is really in danger of becoming — as John Maynard Keynes put it in a letter to Ragnar Frisch in 1935 — “nothing better than a contraption proceeding from premises which are not stated with precision to conclusions which have no clear application.”