Sunday, September 20, 2009

The State of Macro Economics 4

In rereading David Levine's complaint about Paul Krugman's complaint, I couldn't help feel this is the sort of things you hear in a bitter divorce. How? It is just petty.

Krugman was not of course totally correct. What ailed macroeconomics is more than fresh vs saltwater. That too. The idea that mathematical models can describe an entire economy and then predict what it may become is rather ambitious to be polite.

By contrast, in particle physics, the Standard Model is based firmly in probabilistic statements.

Worse, the arrogance of economists is usually unbearable. It is in no small part helped by this equally arrogant Nobel Prizes of Economic Science handed every year to certify the "scientific" accomplishment of economic theories.

What is wrong with economics?

Nothing -- until you take it too seriously.

Human behavior is intrinsically difficult to "model" by mathematics. Do we understand how we behave in a couple situation? Parents and children? Can we "model" their behavior by mathematics?

Yet economic models are passed out as if they really meant something "scientific".

A cursory look of professional articles, like the one I posted, should be a warning sign to anyone making an honest living that these academic economists are living in a different world pretending they could "model" what we do.

The Levine article is fundamentally flawed. He didn't really answer Krugman's complaint. True you can always find this or that economist talking about bubbles, depressions and unexpected disasters.

Yet, pick any serious textbooks on macro, look at any top 10 PhD programs in economics, those cases are never, ever at the center of studies

99% of all models PhD students MUST study at freshwater universities describe a world where little of what we have witnessed happened. As Krugman correctly pointed out at those places if Keynes was mentioned at all, it would be presented as a case for dismissal.

Krugman is correct in pointing out the principal way economics is taught is terribly wrong, especially at freshwater universities. He was somewhat too generous with saltwater universities that have placed too much importance on modeling using mathematics increasingly irrelevant to realities, even when these saltwater types are not free market ideologues like the Chicago guys.

1 comment:

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