Neoclassical economics — purchasing validity at the cost of empirical content

19 October, 2015 at 15:12 | Posted in Economics | 3 Comments

The fact that the economics profession was caught unawares in the long build- up to the 2007 worldwide financial crisis and substantially underestimated its dimensions once it started to unfold can be attributed to two factors … first, the lack of an empirical motivation in the essential modelling assumptions, combined with questionable ceteris paribus assumptions; and second, a blatant disregard for the complete absence of the empirical fit of macroeconomic research. ct10Indeed, the deeper roots for this are found in what has been termed the ‘systemic failure of the economics profession’ to design models that take into account key elements that drive economic outcomes in real-world markets. Half a century of research that conveniently disregarded essential institutional and behavioural characteristics of the markets that it supposedly modelled has left its (hardly surprising) imprint on financial market regulation and ultimately on the world economy. Instead of letting theories die,  economists preferred experimentation on a worldwide scale.

D. Arnold & F. P. Maier-Rigaud

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  1. But we’re all rational actors acting on perfect information… 😴

  2. I’ve given the historian’s view before. Now, a political scientist’s view on the relevance of neo-classical theory for explaining economic growth

    “Surprisingly, neoclassical economists have not had much luck explaining economic growth. Nobel-laureate Robert Solow, who is the most important growth theoretician, calculated in the 1950s that neoclassical economics could only explain about 20% of economic growth; the rest was “technological change,” which has been impervious to neoclassical analysis ever since. And yet, according to the economic historian Angus Maddison, between 1913 and 1989 income per person in most developed countries increased almost five times (see chapter 7 of my book, “Manufacturing Green Prosperity,” and also here). So how can neoclassical economics call itself a science if it can’t explain its single most important phenomenon in the economic universe? What if physics couldn’t explain why planets revolve around the sun?”

    http://www.rooseveltinstitute.org/new-roosevelt/wanted-manufacturing-centered-economics-part-2

    • Neuroscience can’t explain the single most important phenomenon in the neuroscientific jurisdiction, “where does consciousness come from?” does that make it any less a science?


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