But not as wrong as Paul Krugman …

11 Sep, 2016 at 16:42 | Posted in Economics | 7 Comments

In his review of Mervyn King’s The End of Alchemy: Money, Banking, and the Future of the Global Economy Krugman writes:

Economist KrugmanIs this argument right, analytically? I’d like to see King lay out a specific model for his claims, because I suspect that this is exactly the kind of situation in which words alone can create an illusion of logical coherence that dissipates when you try to do the math. Also, it’s unclear what this has to do with radical uncertainty. But this is a topic that really should be hashed out in technical working papers.

This passage really says it all.

Despite all his radical rhetoric, Krugman is — where it really counts — nothing but a die-hard mainstream neoclassical economist. Just like Milton Friedman, Robert Lucas or Greg Mankiw.

The only economic analysis that Krugman and other mainstream economists accept is the one that takes place within the analytic-formalistic modeling strategy that makes up the core of mainstream economics. All models and theories that do not live up to the precepts of the mainstream methodological canon are pruned. You’re free to take your models — not using (mathematical) models at all is, as made clear by Krugman’s comment on King, totally unthinkable —  and apply them to whatever you want – as long as you do it within the mainstream approach and its modeling strategy. If you do not follow this particular mathematical-deductive analytical formalism you’re not even considered doing economics. ‘If it isn’t modeled, it isn’t economics.’

That isn’t pluralism.

That’s a methodological reductionist straightjacket.

So, even though we have seen a proliferation of models, it has almost exclusively taken place as a kind of axiomatic variation within the standard ‘urmodel,’ which is always used as a self-evident bench-mark.

Just as Dani Rodrik, in his Economics Rules, Krugman wants to purvey the view that the proliferation of economic models during the last twenty-thirty years is a sign of great diversity and abundance of new ideas.

But, again, it’s not, really, that simple.

Although mainstream economists like Rodrik and Krugman want to portray mainstream economics as an open and pluralistic ‘let a hundred flowers blossom,’ in reality it is rather “plus ça change, plus c’est la même chose.”

Applying closed analytical-formalist-mathematical-deductivist-axiomatic models, built on atomistic-reductionist assumptions to a world assumed to consist of atomistic-isolated entities, is a sure recipe for failure when the real world is known to be an open system where complex and relational structures and agents interact. Validly deducing things in models of that kind doesn’t much help us understanding or explaining what is taking place in the real world we happen to live in. Validly deducing things from patently unreal assumptions — that we all know are purely fictional — makes most of the modeling exercises pursued by mainstream economists rather pointless. It’s simply not the stuff that real understanding and explanation in science is made of. Just telling us that the plethora of mathematical models that make up modern economics  ‘expand the range of the discipline’s insights’ is nothing short of hand waving.

No matter how many thousands of ‘technical working papers’ or models mainstream economists come up with, as long as they are just ‘wildly inconsistent’ axiomatic variations of the same old mathematical-deductive ilk, they will not take us one single inch closer to giving us relevant and usable means to further our understanding and explanation of real economies.

King knows that. Krugman obviously not.


  1. Krugman spends much of his review plugging the adequacy of conventional analysis, a thesis I personally judge dubious in the extreme. But, he does so with an admirable clarity and ends with this very gracious acknowledgment: “Whatever the problems in connecting King’s worldview to specific policy proposals, he does all of us a service by reminding us how fragile our understanding of the world always is, and how dangerous it can be to act as if we know more than we do.”

    • Yes. Paul Krugman is an extraordinarily talented writer and he is very smart and he has many admirable qualities. Not least is his ability, and willingness, to serve as a lightning rod for criticism from the right wing. That is something I try to keep in mind when I get critical of him from the left, so to speak. All things considered, I think he is a national treasure. Even though I disagree sometimes. But that’s just my opinion.

  2. Krugman ruthlessly points out that Mervyn King’s book merely ends up with “the recommendations of every IMF program for the past sixty years: structural reform and free trade.”
    Please reference some better examples of “relevant and usable means to further our understanding and explanation of real economies.”

    Examples would be far more effective than repeated theoretical complaints against “mainstream” economics, even if these complaints are valid.

    “Men trust their ears less than their eyes.”
    Herodotus: The Histories (440 BC), Book 1, Chapter 8.

    “Example is always more efficacious than precept.”
    Samuel Johnson: Rasselas (1759), Chapter 29.

    “Example is the school of mankind, and they will learn at no other.”
    Edmund Burke: On a Regicide Peace (1796), Letter 1.

    “This noble ensample to his sheepe he gaf,—
    That firste he wroughte and afterward he taughte.”
    [He gave this fine example to his followers – he worked first and afterwards he taught]
    Geoffrey Chaucer (c.1345-1400): Canterbury Tales, Prologue, line 496.

  3. […] the market doesn’t clear, i.e. that there remain people unemployed. Others have written about how unrealistic and unhelpful these models are, which I will thus not repeat […]

  4. I am grateful for what Krugman has done for the left’s cause. But he has also contributed to the huge problem that is contemporary economics. He confuses mathematics and formalisation with science. He played a big role in the damage done to development economics. He will not admit that formalised economic theory cannot explain why some countries industrialised and others didn’t. He cannot appreciate that if we are to make progress in economics we are going to start asking serious ontological questions which will ultimately mean we will have to basically scrap everything since Samuelson 1948. It won’t happen. The formalisation of economics on the foundations of what is essentially Victorian political economy and philosophy is too closely associated with his own identity. Before the NYT in particular, he spent a whole career rubbishing and undermining historical approaches. In the future we will have to relearn, at great cost, forgotten but hard won knowledge.

    • How do we get from here to there when no one is allowed into the discussion until they have proven–thru the GRE or other means–that they are a math savant.

      You don’t have to pay people to overvalue what they themselves are exceptionally good at.

  5. Soap box economics
    Comment on Lars Syll on ‘But not as wrong as Paul Krugman …’
    Lars Syll correctly summarizes: “Dani Rodrik — just like Paul Krugman — does often take a ‘radical’ stance on different policy issues. But when it comes to core theoretical and methodological issues, he — just like Paul Krugman — is a self-proclaimed and proud die-hard mainstream neoclassical economist.”
    The curious thing about economics is that there is a TOTAL DISCONNECT between an economic policy proposal and the underlying theory. Just as there has been a total disconnect between poultry entrails and the utterances of the haruspex which guided ancient Roman policy. In other words, economic policy guidance has NO sound scientific foundation at all. This holds for Neoclassicals, Keynesians, Marxians and Austrians in equal measure. All these approaches are provable inconsistent.*
    Economics consists of political and theoretical economics and both are disconnected. Political economics is scientifically worthless since more than 200 years. There is nothing to chose between Rodrik, Krugman, or King.
    As Lars Syll says: “People who really want to develop alternatives … have to look elsewhere.”**
    Egmont Kakarot-Handtke
    * See for example ‘Keynesianism: The triumph of blathering over thinking’ http://axecorg.blogspot.de/2016/09/keynesianism-triumph-of-blathering-over.html
    ** See cross-references Paradigm shift http://axecorg.blogspot.de/2015/02/essentials-cross-references.html

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