Paul Krugman — a case of dangerous neglect of methodological reflection

10 Jul, 2020 at 11:36 | Posted in Economics | 23 Comments

rosenbergAlex Rosenberg — chair of the philosophy department at Duke University, renowned economic methodologist and author of Economics — Mathematical Politics or Science of Diminishing Returns? — had an interesting article on What’s Wrong with Paul Krugman’s Philosophy of Economics in 3:AM Magazine a couple of years ago. Writes Rosenberg:

When he accepts maximizing and equilibrium as the (only?) way useful economics is done Krugman makes a concession so great it threatens to undercut the rest of his arguments against New Classical economics:

‘Specifically: we have a body of economic theory built around the assumptions of perfectly rational behavior and perfectly functioning markets. Any economist with a grain of sense — which is to say, maybe half the profession? — knows that this is very much an abstraction, to be modified whenever the evidence suggests that it’s going wrong. But nobody has come up with general rules for making such modifications.’

The trouble is that the macroeconomic evidence can’t tell us when and where maximization-and-equilibrium goes wrong, and there seems no immediate prospect for improving the assumptions of perfect rationality and perfect markets from behavioral economics, neuroeconomics, experimental economics, evolutionary economics, game theory, etc.

But these concessions are all the New Classical economists need to defend themselves against Krugman. After all, he seems to admit there is no alternative to maximization and equilibrium.

I think Rosenberg is on to something important here regarding Krugman’s neglect of methodological reflection.

When Krugman responded to my critique of IS-LM this hardly came as a surprise.  As Rosenberg notes, Krugman works with a very simple modeling dichotomy — either models are complex or they are simple. For years now, self-proclaimed “proud neoclassicist” Paul Krugman has in endless harping on the same old IS-LM string told us about the splendor of the Hicksian invention — so, of course, to Krugman simpler models are always preferred.

In an earlier post on his blog, Krugman argues that ‘Keynesian’ macroeconomics more than anything else “made economics the model-oriented field it has become.” In Krugman’s eyes, Keynes was a “pretty klutzy modeler,” and it was only thanks to Samuelson’s famous 45-degree diagram and Hicks’s IS-LM that things got into place. Although admitting that economists have a tendency to use ”excessive math” and “equate hard math with quality” he still vehemently defends — and always have — the mathematization of economics:

I’ve seen quite a lot of what economics without math and models looks like — and it’s not good.

Sure, ‘New Keynesian’ economists like Krugman — and their forerunners, ‘Keynesian’ economists like Paul Samuelson and (young) John Hicks — certainly have contributed to making economics more mathematical and “model-oriented.”

wrong-tool-by-jerome-awBut if these math-is-the-message-modelers aren’t able to show that the mechanisms or causes that they isolate and handle in their mathematically formalized macro models are stable in the sense that they do not change when we ‘export’ them to our ‘target systems,’ these mathematical models do only hold under ceteris paribus conditions and are consequently of limited value to our understandings, explanations or predictions of real economic systems.

Science should help us disclose the causal forces at work behind the apparent facts. But models — mathematical, econometric, or what have you — can never be more than a starting point in that endeavor. There is always the possibility that there are other (non-quantifiable) variables – of vital importance, and although perhaps unobservable and non-additive, not necessarily epistemologically inaccessible – that were not considered for the formalized mathematical model.

The kinds of laws and relations that ‘modern’ economics has established, are laws and relations about mathematically formalized entities in models that presuppose causal mechanisms being atomistic and additive. When causal mechanisms operate in real-world social target systems they only do it in ever-changing and unstable combinations where the whole is more than a mechanical sum of parts. If economic regularities obtain they do it (as a rule) only because we engineered them for that purpose. Outside man-made mathematical-statistical “nomological machines” they are rare, or even non-existent. Unfortunately, that also makes most of contemporary mainstream neoclassical endeavors of mathematical economic modeling rather useless. And that also goes for Krugman and the rest of the ‘New Keynesian’ family.

When it comes to modeling philosophy, Paul Krugman has in an earlier piece defended his position in the following words (my italics):

I don’t mean that setting up and working out microfounded models is a waste of time. On the contrary, trying to embed your ideas in a microfounded model can be a very useful exercise — not because the microfounded model is right, or even better than an ad hoc model, but because it forces you to think harder about your assumptions, and sometimes leads to clearer thinking. In fact, I’ve had that experience several times.

The argument is hardly convincing. If people put that enormous amount of time and energy that they do into constructing macroeconomic models, then they really have to be substantially contributing to our understanding and ability to explain and grasp real macroeconomic processes. If not, they should – after somehow perhaps being able to sharpen our thoughts – be thrown into the waste-paper-basket (something the father of macroeconomics, Keynes, used to do), and not as today, being allowed to overrun our economics journals and giving their authors celestial academic prestige.

Krugman’s explications on this issue are really interesting also because they shed light on a kind of inconsistency in his art of argumentation. During a couple of years, Krugman has in more than one article criticized mainstream economics for using too much (bad) mathematics and axiomatics in their model-building endeavors. But when it comes to defending his own position on various issues he usually himself ultimately falls back on the same kind of models. In his End This Depression Now — just to take one example — Paul Krugman maintains that although he doesn’t buy “the assumptions about rationality and markets that are embodied in many modern theoretical models, my own included,” he still find them useful “as a way of thinking through some issues carefully.”

When it comes to methodology and assumptions, Krugman obviously has a lot in common with the kind of model-building he otherwise criticizes.

The same critique – that when it comes to defending his own position on various issues he usually himself ultimately falls back on the same kind of models that he otherwise criticizes – can be directed against his new post. Krugman has said these things before, but I am still waiting for him to really explain HOW the silly assumptions behind IS-LM help him work with the fundamental issues. If one can only use those assumptions with — as Krugman says, “tongue in cheek” – well, why then use them at all? Wouldn’t it be better to use more adequately realistic assumptions and be able to talk clear without any tongue in cheek?

The final court of appeal for macroeconomic models is the real world, and as long as no convincing justification is put forward for how the inferential bridging de facto is made, macroeconomic model building is little more than “hand waving” that give us rather a little warrant for making inductive inferences from models to real-world target systems. If substantive questions about the real world are being posed, it is the formalistic-mathematical representations utilized to analyze them that have to match reality, not the other way around. As Keynes has it:

Economics is a science of thinking in terms of models joined to the art of choosing models which are relevant to the contemporary world. It is compelled to be this, because, unlike the natural science, the material to which it is applied is, in too many respects, not homogeneous through time.

If macroeconomic models – no matter what ilk – make assumptions, and we know that real people and markets cannot be expected to obey these assumptions, the warrants for supposing that conclusions or hypotheses of causally relevant mechanisms or regularities can be bridged, are obviously non-justifiable. Macroeconomic theorists – regardless of being New Monetarist, New Classical or ‘New Keynesian’ – ought to do some ontological reflection and heed Keynes’ warnings on using thought-models in economics:

The object of our analysis is, not to provide a machine, or method of blind manipulation, which will furnish an infallible answer, but to provide ourselves with an organized and orderly method of thinking out particular problems; and, after we have reached a provisional conclusion by isolating the complicating factors one by one, we then have to go back on ourselves and allow, as well as we can, for the probable interactions of the factors amongst themselves. This is the nature of economic thinking. Any other way of applying our formal principles of thought (without which, however, we shall be lost in the wood) will lead us into error.

So let me — respectfully — summarize: A gadget is just a gadget — and brilliantly silly simple models — IS-LM included — do not help us working with the fundamental issues of modern economies any more than brilliantly silly complicated models — calibrated DSGE and RBC models included. And as Rosenberg rightly notices:

When he accepts maximizing and equilibrium as the (only?) way useful economics is done Krugman makes a concession so great it threatens to undercut the rest of his arguments against New Classical economics.

 

23 Comments

  1. Excatly! A mediocer economist, one book on trade,and thats it.

    • Jan,
      .
      I am not an apologist for Paul Krugman, but please get your facts right.
      .
      Check out his Wiki page and see what he has actually has authored.

  2. Lars,
    .
    I do think you overly indulge yourself when using Krugman as a strawman.
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    I am not sure you have faithfully represented Rosenberg’s view on Krugman.
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    The final sentence in Rosenberg’s essay is this:
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    “Unlike the New Classical economists, Krugman can make room for both uncertainty and reflexiveness in his philosophy of economics. For he recognizes that economics is at best, and at its best, a historical science, one which offers lessons, but not predictions.”
    .
    This is much the same as you write about Keynes.
    .
    And take the quote from Keynes you provide:
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    “The object of our analysis is, not to provide a machine, or method of blind manipulation, which will furnish an infallible answer, but to provide ourselves with an organized and orderly method of thinking out particular problems…..”
    .
    It seems to me to be not a lot different to what Krugman says.
    .
    The last sentence in your Keynes quote (from page 297 of the GT) is:
    .
    “Any other way of applying our formal principles of thought (without which, however, we shall be lost in the wood) will lead us into error.”
    .
    So Keynes has his own “formal principles of thought”, “without which, however, we shall be lost in the wood”. While saying these principle have to be applied in a particular manner, he does recognize that they are a necessary starting point,much the same way as does Krugman.
    .
    If you are wont to say what you have said about Krugman, you have to say the same about Keynes.
    .

    • Henry, I think the point Rosenberg is making is that Krugman (not being a die hard New-Classicist and therefore not believing in perfectly efficient markets) supposedly CAN make room, but DOESN’T. But he still insists on equilibrium and maximisation.

      Krugman has done an awful lot of damage. He has been part of the destruction and wholesale eradication of truly historical and multidisciplinary approaches in economics, particularly in the field of trade and development. He has no regrets. In fact he thinks the formalisation and Samuelsonisation of the entire field and the marginalisation of historical, non quantitative and institutional approaches was been a price worth paying – and has written explicitly (and I think very pompously) as much. The costs of this are only going to go on escalating. He has no respect for anthropology. Go to the rice field and really see how things actually work. Or stare into a model to understand successful development? What do you think he chooses? Fine, but he should also have respect for people who work another way and make an honest effort to understand why many people say that in some cases formal models are not appropriate.

      The only reason the likes of Krugman and others have succeeded in imposing this methodological hegemony is because they, and their institutions, are close to the political and elite establishment of the world’s most powerful country – and their views naturally take force. It has nothing to do with merit and making the world a better place.

    • Nanikore,
      .
      “I think the point Rosenberg is making is that Krugman…….supposedly CAN make room, but DOESN’T.”
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      I can’t see that at all. Again, I refer you to Rosenberg’s last sentence. It entirely contradicts your point.
      .
      “But he still insists on equilibrium and maximisation. ”
      .
      Maybe, but as a starting point.
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      ” and has written explicitly (and I think very pompously) as much”
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      Do you have any examples of this?
      .
      Rosenberg also contradicts himself: He says:
      .
      “One thing that’s missing from Krugman’s treatment of economics is the explicit recognition of what Keynes and before him Frank Knight, emphasized: the persistent presence of enormous uncertainty in the economy.”
      .
      Later he says:
      .
      “Unlike the New Classical economists, Krugman can make room for both uncertainty and reflexiveness in his philosophy of economics.”
      .
      Lars’ and your criticism of Krugman seem to me to be over the top. I don’t see a great deal of difference between what Keynes said on model making and what Rosenberg reports Krugman as saying.
      .

      • Henry – about the value of the work of people who don’t use models, and the necessary cost of formalisation? – it is all over the place.

        This is one I found in a few seconds:

        “And for those, like me, who basically try to understand the world through the metaphors provided by models, the advice is not to let important ideas slip by just because they haven’t been formulated your way. Look for the folk wisdom on clouds — ideas that come from people who do not write formal models but may have rich insights. There may be some very interesting things out there. Strangely, though, I can’t think of any.

        The truth is, I fear, that there’s not much that can be done about the kind of apparent intellectual waste that took place during the fall and rise of development economics. A temporary evolution of ignorance may be the price of progress, an inevitable part of what happens when we try to make sense of the world’s complexity.”

        https://web.mit.edu/krugman/www/dishpan.html

        When de Long said that perhaps we need fewer models, his reply was “Oh, you need a model.” He dismisses heterodox economics a la Galbraith ( implying he was not a real economist – although perhaps he didn’t really mind that).” His criticism of Ferguson was not his history, which is what it should be, but that “he does not have a model”.

        If you a little time you you will also find where he dismisses non-formal model studies of capitalism as “stories”. Funnily, I find his models more like stories. And worse than that, they are fiction.

        Looking at real world phenomenon like the practices of rice cultivation in countries that would later become highly successful industrially is not staring into clouds. We are not even necessarily looking for insights. In the first instance we are simply trying to build up as much factual information as we can. We are trying to let the object determine the answer. Historians will spend years building up historical inventories (including that of non-quantifiable information) before they put (all) of the pieces together. And they certainly don’t do that with a model.

        The important thing for me is, as someone who moved increasingly into historical approaches, you never START with a model. LIke a judicial investigation you start with the facts. A model should never be a starting point. Why not? Because the subject will determine the object: ie by doing so you have already determined your answer.

        As someone who found historical approaches the more helpful, I might also be disagreeing with Keynes on this, although it is not entirely clear, as Keynes took an increasingly radical view, and towards the end was greatly dismissing classical economics and its properties of equilibrium, of which at its foundations, Neo-classical economics collapses into.

        https://radicalsubjectivist.wordpress.com/tag/uncertainty/

        But having said all this, I do not object to models being used. There is a role for people who work that way. But I object to the lack of pluralism which I associate with a lack of real intellectual curiosity. By doing this you are closing off possible avenues of investigation.

        And I disagree with Krugman: it wasn’t , and isn’t, a price worth paying.

        • I think it comes down to whether you agree with this – (in the link I posted above):

          “In fact, we are all builders and purveyors of unrealistic simplifications. Some of us are self-aware: we use our models as metaphors. Others, including people who are indisputably brilliant and seemingly sophisticated, are sleepwalkers: they unconsciously use metaphors as models.”

          “Mainstream economics was moving in the direction of increasingly formal and careful modeling. While this trend was clearly overdone in many instances, it was an unstoppable and ultimately an appropriate direction of change. But it was difficult to model high development theory more formally, because of the problem of dealing with market structure.”

          “And yet in the end it turned out that mainstream economics eventually did find a place for high development theory. ….modeling techniques became more sophisticated some neglected insights could be brought back in.”

          He is saying that the standard model is the way you look at economic phenomenon. That suggests economics is defined by a specific methodology. So you can adjust models to bring in new information.

          But so what? What irrelevant information are you bringing in to do that. What relevant information are you missing out?

          “In other words, economists were locked in their traditional models, non-economists were lost in the fog that results when you have no explicit models at all.”

          This is something he often repeats. He assumes (pun not intended) that people without a model are not making their assumptions explicit. Well we have had a discussion on here recently about the role of geopolitics in understanding a country’s choice of exchange rate and its scope for fiscal/monetary expansion. Where is that made explicit in an open economy ISLM, optimum currency area or exchange rate model that he loves?

          It is a dangerous delusion to think that the crucial assumptions are being made explicit in a formal model.

          Another word on causation. Models are not there to establish causation. Causation again must be found through documentary evidence. (A did not lend to B because… in a letter from a bank manager explaining why). So, models should not only not be used as starting points. They should not be used for the purposes of tying phenomenon together either – at least not at least to you are have established what is driving what. In fact theory should never be used like that.

          To just “dust off a model on the shelf” to use Krugman’s models to explain things (such as Diamond or Hicks) is not the way it should be done, even if the model’s conclusions appear to be correct.

          So no, the historian must do everything he can to make sure he is not captive to a model, and not relying on metaphors, consciously or not. And I do not believe they are sleepwalking any more than people who use sticky price rational expectations optimisation models.

      • Nanikore,
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        Nothing that you have written is convincing.
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        It seems to me Krugman understands the limitations of models and how to use them.
        .
        Take the reference you provided. Krugman has a section on model building from which you selectively quoted leaving out the following:
        .
        “The problem is that there is no alternative to models. We all think in simplified models, all the time. The sophisticated thing to do is not to pretend to stop, but to be self-conscious — to be aware that your models are maps rather than reality.

        There are many intelligent writers on economics who are able to convince themselves — and sometimes large numbers of other people as well — that they have found a way to transcend the narrowing effect of model-building. Invariably they are fooling themselves. If you look at the writing of anyone who claims to be able to write about social issues without stooping to restrictive modeling, you will find that his insights are based essentially on the use of metaphor. And metaphor is, of course, a kind of heuristic modeling technique. ”
        .
        He clearly understand the limitations of models and the alternative.
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        I don’t see any difference between Keynes’ and Krugman’s approach.
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        You say:
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        “A model should never be a starting point. Why not? Because the subject will determine the object: ie by doing so you have already determined your answer.”
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        A reasonable sounding proposition.
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        But you also said:
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        “LIke a judicial investigation you start with the facts.”
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        So how do you decide what are the relevant facts. When studying the cause of poverty in a particular setting is the temperature on the surface of the Moon a relevant fact? How do you know if it is or isn’t.
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        These are shark infested waters and I don’t see that you have discovered a sufficiently powerful shark repellent.
        .

        • I think we have to agree to disagree Henry. And personally I don’t have a problem with that.

          Take the first two sentences of the quote you have.

          “The problem is that there is no alternative to models. We all think in simplified models, all the time. The sophisticated thing to do is not to pretend to stop, but to be self-conscious — to be aware that your models are maps rather than reality.”

          I completely disagree with the first sentence. I disagree with the second. I believe that subjects that don’t use models are valid. And in view of the latter, he third sentence is a red herring.

          Yes the subject has to make a decision on what is a relevant fact. But why would a model help? Why is a model a better arbitrator of deciding what are the relevant facts for an investigation?

          I would agree an investigator needs to be conscious of what facts are relevant and why he is choosing what facts he does. (That is why ontology and epistemology are important and methodological discussion is important. But this is completely marginalised in economics education. I know, because I went through it.) I do not think the words were even mentioned once.

          A subjective judgement is made when choosing the facts, and how to go about researching the facts. But if your means of investigation is by ‘choosing models’ an economist, or if an historian, judge or Hercule Poirot did this (of course he didn’t), is also making a judgement about relevant facts. There are many dangers to doing this besides perhaps missing the most crucial things which are not in a model, or can’t be formally modelled, including one that you are perpetuating a hierarchy of knowledge. That is why it is particularly important you do not start with a model.

          The best way to avoid this danger, I believe is not to have a standardised model, and be open to pluralism, including approaches that do not use models/formal models – and knowing about them. Much of what Neo-Marxism is about is trying to avoid exactly such dangers. Deductive reasoning, and practices adopted from linguistic philosophy, is a good example.

          It is a matter of opinion. In my view the formalisation of.economics has produced very little knowledge or anything of real value or good new policy. But it has come at a huge cost, particularly through the marginalisation of the alternative(s).

          Krugman disagrees, as Lars notes:

          “I’ve seen quite a lot of what economics without math and models looks like — and it’s not good.”

          I’m sorry. But its arrogance and putting so much resources and the education of young people through such, to the exclusion of so much, is immensely wasteful.

          “He clearly understand the limitations of models and the alternative.”

          Really, what does he say is the alternative to formal modelling? I think he has very little respect for the alternative.
          .
          “I don’t see any difference between Keynes’ and Krugman’s approach.”

          I have stated my view on this, and I do not want to bring up the Keynes vs Classics debate or the Two Cambridges debate which is what this is really about.

          I do agree with Hicks’ statement on Lar’s last post. And I am sure Krugman doesn’t.

          “When studying the cause of poverty in a particular setting is the temperature on the surface of the Moon a relevant fact? How do you know if it is or isn’t.”

          By reading widely, and not restricting yourself to a particular methodology, particularly if it is obviously questionable.

          Back to the Krugman quote you have:

          “If you look at the writing of anyone who claims to be able to write about social issues without stooping to restrictive modeling, you will find that his insights are based essentially on the use of metaphor.`’

          For me this is an extraordinary trivialisation of how many people work, Do you agree with it?

        • Nanikore,
          .
          Back to the Krugman quote you have:…….Do you agree with it?
          .
          I’m sure it applies in some cases, perhaps not all. This is a trivial point. It’s not the heart of the matter. The heart of the matter is that Krugman fully accepts the limitations of models.
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          “By reading widely, and not restricting yourself to a particular methodology, particularly if it is obviously questionable.”
          .
          This is so fragile a proposition. Who decides whether a “fact” is obviously questionable?
          .
          Prove to me that that the surface temperature of the Moon is irrelevant to the degree of poverty in the Bronx NY.

          • “The heart of the matter is that Krugman fully accepts the limitations of models.”

            No he doesn’t. Or he does in your opinion. In my opinion formal models are not justified in many if not most instances when studying society. Krugman very clearly does not accept this, so I can’t say he fully accepts the limitations of models.

            As I say, agree to disagree.

            “Who decides whether a “fact” is obviously questionable?”

            You do (after a lot of wide reading) and not Dear Model. And you must recognise you are doing so. And you must justify why you chose those particular facts and discounted others.

            “Prove to me that that the surface temperature of the Moon is irrelevant to the degree of poverty in the Bronx NY.”

            Well I guess there could conceivably be some sort of climatic connection. But perhaps it would not be the first avenue of enquiry to be discounted later. But as long as that justification is made.

            What I like is that the question is at least being asked.

          • Nanikore,
            .
            “…so I can’t say he fully accepts the limitations of models.”
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            He doesn’t accept the limitations you put on model making and using.
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            “You do (after a lot of wide reading) and not Dear Model. And you must recognise you are doing so. And you must justify why you chose those particular facts and discounted others. ”
            .
            Exactly, just as Krugman does with models. The fact finder has to be careful his prejudices do not intrude in the process and demonstrate that they don’t. To me this is just as fraught as is dealing with models. I think your methodology is as tenuous as Krugman’s.
            .
            “Well I guess there could conceivably be some sort of climatic connection. ”
            .
            I am glad you recognize this now, obviously, having been challenged and having reconsidered this. At first flush, you were prepared to put it in the “questionable” category as most people probably would.

            • I think the best way of preparation for deciding on which facts is to have a wide education, exposure to different disciplines, schools of thought and methodological approaches. Economists, I believe, need some learningfrom the humanities.

              Let’s revisit some of those quotes.

              “There are many intelligent writers on economics who are able to convince themselves — and sometimes large numbers of other people as well — that they have found a way to transcend the narrowing effect of model-building. Invariably they are fooling themselves. If you look at the writing of anyone who claims to be able to write about social issues without stooping to restrictive modeling, you will find that his insights are based essentially on the use of metaphor. And metaphor is, of course, a kind of heuristic modeling technique. ”

              No, I do not believe writers on social issues fooling themselves if they are not using a restrictive model, especially a restrictive formal model.

              No, I do not believe they are using metaphors, and nor do I think this is a trivial accusation.

              “And yet in the end it turned out that mainstream economics eventually did find a place for high development theory. ….modeling techniques became more sophisticated some neglected insights could be brought back in.”

              Well, I disagree. Perhaps he is referring to Myrdal and Lewis. But I do not think that forcing this into classical frameworks has been helpful. In my view you will miss the richness of this theory and almost certainly the forest for the trees in the process of imposing a lot of irrelevant material. This would also apply to much of the Marxian influence in (what is now called heterodox) development theory.

              And now, for what I really think is the heart of the matter:

              “Mainstream economics was moving in the direction of increasingly formal …modeling….. it was an unstoppable and ultimately an appropriate direction of change.

              No, I do not believe the complete formalisation of economics was either inevitable (on scientific grounds) or appropriate,. And particularly, I do not believe that the complete formalisation of the discipline according to a standard “Neo-Classical” model and the creation of a mainstream around it was helpful or particularly progressive. In fact, the almost complete marginalisation of alternatives, was particularly costly. Compared to what we have lost, or what neo-classical economists have ignored, I do not believe it has contributed anything new of substantial value in really understanding or alleviating poverty. I do not believe it has contributed to significantly new and better policy making in macro. This includes, for example, unconventional monetary policy; the latter, of which there is a long, centuries old tradition in Japan, for example, was not devised from formalistic modelling.

              • Sorry Henry, I missed an important end of quotation mark that ends before the last paragraph:

                “Mainstream economics was moving in the direction of increasingly formal …modeling….. it was an unstoppable and ultimately an appropriate direction of change.”

          • Nanikore,
            .
            One further matter.
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            In assessing the acceptability of facts cognizance has to taken of the possible functional relationships between facts. Functional relationships are nothing more than a model. In other words, models are never far from impinging on the methodology you promote.

            • You are calling a causal relation a model. Personally I do not use that semantic – and that probably all it is. Perhaps its English English vs American English, or economist English vs everyone else’s (not that my own is particularly good!). Call it a model or not, but someone might find from the investigation that JKF was shot, and shot by Oswald, with video footage as evidence. They also determined from a wide-ranging investigation, the wider the better, that no others were behind it. They did not consider the climate on the moon a valid for explanation for stated reasons.

              The point is their education was sufficiently multidisciplinary to make that judgement. It did not just consist of general (or partial) equilibrium analysis and applied mathematics. They did not say this is explained by this formal neo-classical model, with a few very casual observations and leave it at that. This has been my experience reading Krugman and what I see in even the very top journals.

              My point is that I believe there has been an overuse of formalisation. And this has marginalised other forms of knowledge and methodology or made them largely meaningless by their forced juxtaposition into a neo-classical framework.

            • Nanikore,
              .
              Your Dallas analogy is not applicable or comparable in nature to an economic model.
              .
              Please, let’s stick to the knitting.

              • “Functional relationships are nothing more than a model” …. in economics?. I am making the point you have to follow a historical trail of evidence. From what I understand you are saying, this is a ‘model’. Personally I would not use that terminology. If you prefer, if I was to say what was the spark of a large fall in an exchange rate, or a large stock market fall on a certain day, after an investigation, I may be able to cite what it was, But I may also find that there were other things behind it. That is the point. This would apply if I am researching the cause of an economic event or something that is ‘non-economic”. In fact an assassination could be the spark of an ‘economic’ event. I may find that was the primary cause – or there was much more behind it.

                And a formal ‘economic’ model for this purpose? I don’t see why that should be unnecessarily called for, let alone something like a constrained optimisation model.

                We’ve got to get away from this idea we need an “economic ‘model’, as I understand the meaning of the word, together with some proper etymology (re words like model and economics) and a hard historical look at why studies of capitalism (in Anglo Saxon countries this means economics – although, with an American hegemony and the international dominance of English the word is now becoming universally used) has come to be done the way the way it has. I fear that you may find the reasons are not always driven by science.

  3. And there’s a nice line on Keynes from a book by Floyd McFarland (Economic Philosophy and American Problems):
    .
    “The model is a creature of his thought, but his thought never becomes a creature of his model.”

  4. And there’s a neat line on Keynes from a book by Floyd McFarland (Economic Philosophy and American Problems):
    .
    “The model is a creature of his thought, but his thought never becomes a creature of his model.”

  5. Prof. Syll alleges, without mentioning any evidence, that “when causal mechanisms operate in real-world social target systems they only do it in ever-changing and unstable combinations where the whole is more than a mechanical sum of parts”.
    .
    If this were true, the world would be a terrifyingly uncertain and dangerous place.
    However, there is clear evidence that Prof. Syll does not believe this.
    If he really believed it, he would take precautions by living in a deep bunker on his private island. Instead, as far as I know, he calmly lives a typical academic life.
    .
    Contrary to Prof. Syll, Keynes argued that it is false to regard real-world social target systems as ever-changing and unstable:
    (a) There are “psychological characteristics of human nature and those social practices and institutions which, though not unalterable, are unlikely to undergo a material change over a short period of time except in abnormal or revolutionary circumstances”
    (General Theory, Chapter 3)
    (b) There are “fundamental psychological laws, upon which we are entitled to depend with great confidence both a priori from our knowledge of human nature and from the detailed facts of experience, that men are disposed, as a rule and on the average”
    (General Theory, Chapter 8, Part III).
    (c) “Experience shows that some such psychological law must actually hold…[otherwise] … there would be a violent instability”
    (General Theory, Chapter 18, Part III (i) ).
    (d) Relying on the stability real-world social target systems, using a very simple mathematical macro-economic model, Keynes made probabilistic estimates of the investment-income multiplier in the USA during 1929-early 1930s:
    “the multiplier seems to have been less than 3 and probably fairly stable in the neighbourhood of 2·5.”
    (General Theory, Chapter 10 part IV)
    (e) Keynes later revised his estimate:
    “the changes in money-incomes were from three to five times the changes in net investment … within a reasonable margin of error.”
    (General Theory, Appendix 2,last paragraph, from Economic Journal 1936)

  6. What gets Krugman into trouble is not his “model” but his worldview. For academic economists, models are toys, intellectual playthings with which to explore ideas, and I do not object in principle. They are tools of the trade.
    .
    What is wrong with Krugman’s thinking — what Lars Syll in the OP refers to as, “Krugman’s neglect of methodological reflection” — is that he has apparently not sought to develop and test critically a general view of the (ontological) nature of the economic system that he studies one part at a time.
    .
    I find it surprising in a way that big-name economists do not often do this and take it seriously as a professional activity. Such a general view of the “whole” becomes the common context for studying the parts with models. Such a general view can be informed by models, but it is more a collection of facts, heuristics, intuitions, careful observation, critical reflection and personal outlook. The actual economy is too complex to ever be encompassed by a formal model. But, interpreting a formal model requires some understanding of what is going on just out of reach of the formalities. Without such a context, the significance and meaning of the model of some isolated part of a larger system of systems, is likely to be completely lost.
    .
    For Krugman, beyond the pure abstraction of the formal model, where the larger truths dictated by context lie, he can only wave his hands, appealing to vague “frictions” and common “sense” regarding what “the evidence suggests”.
    .
    I suspect that Krugman finds the rich complexity of the actual economy very difficult to interpret and sort out. It is not surprising in a way, that he prefers to keep company with other economists lost in abstraction, and without “sense”, even if it comes at the expense of prevailing in persuading the discipline of some advance in thinking or the value an insight.
    .
    My own view — admittedly uninformed by Krugman’s genius-level intellect — is that the actual political economy is deeply problematic. Rather than a series of maximization problems neatly solved in equilibria with properties of social optimality, I tend to think the economy consists of a series of imperfect heuristics and kludges and hedged bets. In general, uncertainty renders “maximization” per se inconceivable in all practical cases. I look around and I see very few actual “markets” and instead a lot of bureaucracy and administrative pricing. I don’t know what Krugman sees or if he ever looks around with his eyes open or the lights on.


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