There are occasions when academic blogging does something no academic journal article can; engage in real thinking, with real insight, without the pettifogging concerns and appalling language that render so much journal content pointless.
This has been the case in economics over the past five years, and Â also in statistics and the broader social sciences (Understanding Society, for example).
While there isn’t much in this post that is utterly original, Paul Frijters has put a central economic problem very, very clearly:
Mathematical models are hence in many areas a problem because they fit poorly but nevertheless live a life of their own, taking up valuable mental time of smart people, leading individuals to think about the wrong problems, leading people to think in terms of the wrong assumptions, motivating statisticians to measure the wrong things, and divorcing their discipline from reality.
It’s another version of the age-old problem of mistaking the map for the territory, but in economic modelling there are substantially more incentives – as Frijters points out – to do so.
Frijters does a great job of lining up serious and understandable examples of exactly how this problem emerges, in the particular case of modelling the use/basis of money. The embrace of an inadequate model, for the purposes of modelling, leads to serious difficulties:
Hence it is singularly unsuitable to use as a mental laboratory for the policy problems of today, or even as a descriptive model of the actual roles of money in our economy.
The problem of poor fit carries over to unhelpful advise: despite the fact that it is such a poor fit to reality, it is the only â€˜game in townâ€™ when it comes to micro-models of money. A most unfortunate and destructive phenomenon then appears, which is that the only game in town becomes the truth to a whole set of people making their careers on the back of it.
OK, so this could start to sound a little like Kuhnian or Lakatos-ian philosophy of science, but that isn’t where Frijters is going. Rather, the key problems besides an assumption of model reality are:
- new generations use the models as the “shoulders” to stand on in their discipline, and don’t engage with the foundational problems beneath them. They become model experts, not reality experts.
- a pretence of reality for key assumptions, because it is just way too challenging to strip things back to their foundations
- it undermines the basis for weeding out verbal wafflers because when you have a
model that fits poorly because you will see a great proliferation of consistent statements that are based on poor abstractions of real phenomena. You might term this the proliferation of â€˜precisely wrongâ€™ statements.
Frijters does a good job of defending mathematical models where they are appropriate – generally, in well defined microeconomic situations.
There are thus good models out there and the groups of disconnected geeks working on extending them are, often to their own surprise, doing something useful with their lives. We wouldnâ€™t want to go back to waffling in those areas. The problem is thus not the existence of mathematical models per se, but rather that there are aspects of economic reality where the best we can do is a bad model.
To this writer, a key area here is the impact of cultural variables on macroeconomic outcomes.
But Frijters’ real payoff for people who think about the philosophy of economics, questions of reductionism and supervenience, the quality and falsifiabilityÂ of models, and the blatant use of modelling and conflicting economic theory to reinforce political prejudice?
The list goes on and on: if one insists on consistent mathematical theorising from â€˜micro-foundationsâ€™, nearly all of the big drivers of economic growth and economic institutions are beyond our ability to model even remotely realistically.
And this is fertile ground for what Frijters calls the ‘wafflers’. In this writer’s view there is a very close correlation between ‘the wafflers’ and those macroeconomists who reject the need for meaningful explanations of mechanism in macroeconomic relations, and who rely on vehemence bordering on abuse to reach unconvinced readers.
That doesn’t mean I embrace the microfoundations argument whole. There is meaningful macro economic talk without micro modelling underpinning it.Â It is perfectly legitimate to have registers of explanation and causal relations that supervene (rely on each other hierarchically) on each other. These questions have been around metaphysics, neuroscience and biology forever.
But too often macroeconomic wafflers gloss over meaningful explanation of how things work (other than correlation) at the macro level, or worse: use explanations and just-so stories that refer to elements at the micro level (representative agents, entrepreneurs, etc) in the mostÂ Â half-arsed and inconsistent way.
This failure of macroeconomic theory suggests a greater need for humility in the discipline and from policy makers – closer to Hayek in fact, which is a topic for another time.
Frijters promises an answer (sort of). I’m really looking forward to the follow-up post. Yay for serious blogging.