'MATHINESS' IN ECONOMICS IS A DEAD END
From Mark Thoma’s Economists Review ‘Links” (20 May): Blomberg Review HERE
Justin Fox HERE writes:
“What’s Wrong With 'Mathiness' in Economics?”
Once upon a time economists made their arguments in long, discursive, often contradictory books about pin factories and newspaper beauty contests. Verbally oriented people like me tend to extol those days, but to most modern economists they were the dark ages.
In the 1940s Paul Samuelson of the Massachusetts Institute of Technology brought enlightenment, in the form of elegant mathematical treatments of the major concepts in economics. Most of these ideas were inherently mathematical anyway, he argued in the introduction to his “Foundations of Economic Analysis,” first published in 1947, which meant that trying to express them in narrative form involved “mental gymnastics of a peculiarly depraved type.”
Samuelson’s approach gave the discipline a, well, discipline that it had previously lacked, and enabled economics to make great leaps in coherence and rigor. It also made the field incomprehensible to laypeople, but that turned out to be more a feature than a bug. Economists were seen as possessing unique scientific knowledge, and came to play increasingly prominent roles in public life in the U.S. and elsewhere.
There are some obvious limits to this approach. In his entertaining and enlightening new book, “Misbehaving,” University of Chicago behavioral economist Richard Thaler documents case after case of “theory-induced blindness” in which economists ignored interesting and important real-world phenomena because they didn’t accord with the dominant mathematical models. Since the financial crisis, the conviction that macroeconomics in particular has reached a sort of theoretical dead-end has gained ground even among mainstream economists."
This extract is from a longer piece critiquing an area of economics methodology with which I have been critical of for some time. Follow the link to read the longer piece by Justin Fox which comes from a Blomberg Review by an economist staffer and also follow the links in the piece to other relevant articles.
I am pleased to note two aspects. First, it discusses Paul Romer’s work in context, something I noted late in my Business School career on growth theory, by his shifting the emphasis away from post-war, Harrod-Domar type growth theory, as derived from a naked mathematical ratio, with little connection to reality. Romer concluded that instead of its tapering off in diminishing returns, growth could produce increasing returns from the extensive promotion of exogenous improvements all along its extensve production chains that make up modern economies. Even in Smith’s day, his account of the manufacture of the common labourer’s woolen coat showed just how extensive were the production links bith locally and across the national eocnomy, and also the international economy in the 1760s (WN I.ii.). This last seemed to me to be an obvious characteristic of the far more extensive and more complex actual productive processes in the real world today.
The second welcome aspect of the articleis that also discusses the role of Paul Samuelson in diverting economics into the myth of the “selfish invisible hand” that somehow (always?) produces “public benefits” in his post-war mathematical work in his “Foundations of Economic Analysis” (1947) and then in his popular best seller, Economics: an analytical introduction (1948) that misled most of the economics-teaching profession on what Adam Smith actually wrote in Wealth Of Nations (myself included, until I smelt something not quite right in Samuelson’s coffee).
I also wrote a paper: “Paul Samuelson and the Invention of the Modern Economics of the Invisible Hand” , History of Economic Ideas, vol. xviii, no. 3. pp. 105-19.
It seems to me that Justin Fox is well informed on what economists actually do. Thanks to Mark Thoma for linking to the Blomberg article - I suggest Bookmarking Mark’s regular daily services to keep up to date.