Lucas’ FORTRAN caricature of economics14 May, 2016 at 19:33 | Posted in Economics | 3 Comments
Lucas … internalized the caricature he extracted from Samuelson’s Foundations: that mathematical analysis is the only legitimate way of doing economic theory, and that, in particular, the essence of macroeconomics consists in a combination of axiomatic formalism and philosophical reductionism (microfoundationalism). For Lucas, the only scientifically legitimate macroeconomic models are those that can be deduced from the axiomatized Arrow-Debreu-McKenzie general equilibrium model, with solutions that can be computed and simulated in such a way that the simulations can be matched up against the available macroeconomics time series on output, investment and consumption.
This was both bad methodology and bad science, restricting the formulation of economic problems to those for which mathematical techniques are available to be deployed in finding solutions.
Lucas hope of being able to mathematically model the economy as “a FORTRAN program” and “gain some confidence that the component parts of the program are in some sense reliable prior to running it” seems totally misdirected. The failure in the attempt to anchor the analysis in pure mathematics shows that if you neglect ontological considerations pertaining to the target system, ultimately reality returns with a vengeance when at last questions of bridging and exportation of mathematical model exercises are laid on the table. No matter how precise and rigorous the analysis is, and no matter how hard one tries to cast the argument in “modern mathematical form” they do not push science forwards one millimeter if they do not stand the acid test of relevance to the target. No matter how rigorous the inferences delivered inside these models are, they do not per se say anything about their external validity.