Chicago style response to critique

29 Jun, 2019 at 18:44 | Posted in Economics | 5 Comments


In a post up here earlier this week yours truly questioned the scientific value of Chicago economics. I took as an example the SMD theorem, that has unequivocally showed that there does not exist any condition by which assumptions on individuals would guarantee neither stability nor uniqueness of a general equilibrium solution — and that it, therefore, is intellectually dishonest to just go on pretending that it is still acceptable to model real-world economies building on the assumption that an entire economy can be modelled as a representative actor and that this is a valid procedure.

And as usual, when those Chicago economists respond to the critique, they
immediately want to divert the attention into focusing on mathematical technicalities.

As if that was the problem! It is not.

The basic problem is that Chicago style models crucially build on unrealistic assumptions known to be false. And since genuine explanations require truth, those models capture nothing of significance and so end up being explanatorily totally irrelevant since they fundamentally misrepresent acting causal factors known to be relevant — they simply lack the necessary representational relationship with the real world.

But reacting the way they do those Chicago economists, should come as no surprise to us since this is the typical Chicago procedure when facing critique. How should one react? Robert Solow knows:

4703325Suppose someone sits down where you are sitting right now and announces to me that he is Napoleon Bonaparte. The last thing I want to do with him is to get involved in a technical discussion of cavalry tactics at the battle of Austerlitz. If I do that, I’m getting tacitly drawn into the game that he is Napoleon. Now, Bob Lucas and Tom Sargent like nothing better than to get drawn into technical discussions, because then you have tacitly gone along with their fundamental assumptions; your attention is attracted away from the basic weakness of the whole story. Since I find that fundamental framework ludicrous, I respond by treating it as ludicrous – that is, by laughing at it – so as not to fall into the trap of taking it seriously and passing on to matters of technique.

Robert Solow


  1. “And as usual, when those Chicago economists respond to the critique, they
    immediately want to divert the attention into focusing on mathematical technicalities.”
    I assume you are referring to @dandolfatto’s reply that heterogenous agents make your criticism invalid. But heterogenous agents that include intransitive preference relations result in arbitrary prices.

    • Yes, it was David Andalfatto and his fellow commentators that participated in our ‘discussion’ that I was referring to. Putting new lipstick on a pig doesn’t do much change. It is still a pig …

      • “Putting new lipstick on a pig doesn’t do much change.”
        Dunno about that.
        Andolfatto seems to have moved away from hardline New Classicalism to something more eclectic. To the point that he has been admonished publicly by his close partner in crime, Stephen Williamson.

        • Both of those have blocked me, so they are just irrational emotional religious fanatics afraid of anything that might burst their fragile bubble …

          • I think we need to be wary of the blanket term “Chicago economists”. If we were to use a blanket term Neo-classical would be more correct. Axiomatic Deductivism is more a MIT creation a la Samuelson than a Chicago one. It is just that the likes of Sargent at Chicago took Microfoundational Fundamentalism to new levels of extremes. I don’t agree with this politics or his conclusions, but Friedman was actually an empiricist.

            Neo-classical economics is a derivative of classical economics which is at its core a derivative of questionable Victorian philosophy. To understand why. where and when classical economics arose you need to understand something about the British empire, its form of capitalism, and the industrial revolution. Keynes was the first to say that classical economics had to go, and, as Skidelsky said, he almost succeeded. Unfortunately, after WWII, with the US and the new and overwhelming and dominant power, the GT somehow got hijacked by the classicists. Despite both Ronald Coase and Noam Chomsky describing modern economics as ‘irrelevant’ or sheer ‘idiocy’, I do not see much real evidence of real introspection in the profession.

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