Economic modeling — a realist perspective

28 May, 2017 at 13:37 | Posted in Theory of Science & Methodology | Comments Off on Economic modeling — a realist perspective

411WDSW5BRL._SX331_BO1,204,203,200_To his credit Keynes was not, in contrast to Samuelson, a formalist who was committed to mathematical economics. Keynes wanted models, but for him, building them required ‘ a vigilant observation of the actual working of our system.’ Indeed, ‘to convert a model into a quantitative formula is to destroy its usefulness as an instrument of thought.’ That conclusion can be strongly endorsed!

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.

In mainstream neoclassical economics internal validity is almost everything and external validity next to nothing. Why anyone should be interested in that kind of theories and models is beyond yours truly’s imagination. As long as mainstream economists do not come up with 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.”

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