Winner of the New Statesman SPERI Prize in Political Economy 2016

Sunday, 17 January 2016

Economics Rules by Dani Rodrik



I didn’t want to talk about this book before I had finished it: I somehow think Noah’s contrary approach has its shortcomings! The first and most important thing to say is this is a great book. Not because it gave me some huge new insight or knowledge, although I did learn quite a bit about other parts of economics, but because it had a way of putting things which was illuminating and eminently sensible. Illuminating is I think the right word: seeing my own subject in a new light, which is something that has not happened to me for a long time. There was nothing I could think of where I disagreed (which given the book’s wide scope is quite something), and plenty where the inner blogger in me said I wish I’d written that.


So who should read it? To be honest I cannot think of anyone who should not, as I think most of the material could be understood by interested non-economists. His writing style is enviable - it seems so effortless! (That’s me as blogger again.) The people who should especially read it are those who interact with economics or economists and are either unclear or distrustful about what economists are about (other social scientists particularly).


The first part of the book sets out a way of thinking about economics, and in particular to the models that economists could not live without. The key idea is that there are many valid models, and the goal is to know when they are applicable to the problem in hand. This idea has already attracted some attention, including Noah Smith’s post I linked to earlier.


I must admit when I first read it I thought well of course, doesn’t everyone understand that? I remember way back when I did my undergraduate degree, hearing a lecture from a young David Newbury I think, who said the days of big models (models of everything) were over in economics, and that today economists focused more on small but focused models, looking at particular problems or issues. But then as I read on I began to realise that I typically did not employ this knowledge into how I discuss the subject, which is exactly what Rodrik does. 


One area of economics that you might think this would not apply is macro, but it does. It is routine, for example, to split issues up by time: the famous short, medium and long run. A New Keynesian model is not going to tell you much about long run growth, but a Solow growth model does not tell you much about involuntary unemployment. The point here is not that an all encompassing model could not be built - it could, and sometimes individuals or institutions try to do that - but if it was it would be unwieldy, and we would want to break it up in our minds to understand how it works. (I used a related idea of ‘theoretical deconstruction’ in an EJ paper some time ago.) An important point that follows from that is that although we work with different models, it is important that we know how they interconnect, or at least how they relate to each other.  


Rodrik spends a good part of the book describing how you ‘navigate among models’. He warns that these methods are as much a craft as a science. Many have picked up on that, presuming that this is something that a proper science would not do. But as I have often said, the best analogies for economics are with medicine rather than physics. When a doctor diagnoses an illness based on symptoms, they could also be said to be using craft rather than science.


Let me give you a simple example from macro. How do we know if most economic cycles are described by Real Business Cycles (RBC) or Keynesian dynamics. One big clue is layoffs: if employment is falling because workers are choosing not to work we could have an RBC mechanism, but if workers are being laid off (and are deeply unhappy about it) this is more characteristic of a Keynesian downturn. This simple test beats any amount of formal econometric comparison. Craft maybe, but not a very difficult craft in this case.    


Lots of people get hung up on the assumptions behind models: are they true or false, etc. An analogy I had not seen before but which I think is very illuminating is with experiments. Models are like experiments. Experiments are designed to abstract from all kinds of features of the real world, to focus on a particular process or mechanism (or set of the same). The assumptions of models are designed to do the same thing.


Although I found that Rodrik’s discussion of how you select the right model familiar and sensible, it remains vague in the philosophical sense, as Emrah Aydinonat points out. But he also finds them instructive, so they are a work in progress that hopefully philosophers and economists can interact on. (It is worth passing on a point which Aydinonat makes, which is that unlike many economists who write about methodology, Rodrik has read the relevant literature!) Thinking about alternative models that differ in their applicability to particular problems is certainly a more insightful approach than the kind of Popperian stuff that most economists remember.


If this makes the book sound like a philosophical tome, that is quite wrong. It is a very readable account of how economists do what they do: the philosophical grounding is there but it is not intrusive, and instead the book focuses on practical examples. What Rodrik then does with this perspective of many models is to think about a lot of the issues outsiders have about economists: how ideological are they, for example. Towards the end he discusses what went wrong in the financial crisis. Once again the perspective is illuminating: there were for sure models that said a crisis should not happen, but also plenty of models around at the time that explained pretty well why it could. The mistake many economists made was to choose the wrong models, and he discusses why that might have happened. This perspective shows why a simple ‘the crisis shows economics must be flawed’ misses the point.


Hopefully that is enough to make you read this book.  

28 comments:

  1. I respect your opinion that you like the book. I do not, however, have any respect for your critique. Why? Because you by now should have seen what some of the critics who are less than glowing about it have said about this book. You decided to ignore them. Perhaps you think they are not worthy of your attention? Is that acceptable? Is that open-minded? First of all you have to tell us why the critics of this book are putting forward nonsensical or arguments that are red-herrings, if that is what you believe. What grade would you give an essay that did not consider counter-arguments? I can tell you in any other social science besides economics that would barely pass.

    Think about what I have said, and perhaps now we are getting closer to the real problems in the economics profession and its current manner of teaching.

    Let's give an example of how other social scientists might tackle this:

    "The key idea is that there are many valid models, and the goal is to know when they are applicable to the problem in hand."

    "Saying there is a model for everything and merely - 'pulling the right one out of the toolkit' is not the way, and most certainly should not be the only way, to pursue the advancement of knowledge."

    Discuss the two above opposing viewpoints clearly stating what is meant by proponents of model-based approaches of what is a 'model'.

    NK.

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    1. Until you are specific about what other reviews you have in mind, I cannot respond.

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  2. Sounds like a very interesting, insightful read.
    Now just wait for the Anonymous's and a few select others to completely misunderstand and misrepresent either you or what the author of the book is saying, for economics in general and most economists (especially you!) must be wrong! (Don't block or censor them, for at least they provide entertainment).

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    1. So, disagreement = misunderstanding? And anonymous = ??? Sounds like mainstream economists defending their turf to me!

      Truth be told, Syll has a powerful critique of Rodrik, one that rings true with critiques from other disciplines. SWL would be wise to take it seriously (as NK above has) and not reject it out of hand.

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    2. Anon: I read Syll's response to my previous post as saying 'I do not like equations'. If you have a better interpretation, please let me know.

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    3. That's not the interpretation I came away with, actually, I thought he was getting more at a lack of methodological plurality - which might I guess include the use of equations when they probably should not be used. To some extent I see echoes of the Habermas vs Popper debates here especially as it relates to positivist approaches in the social sciences. This is a basic dispute, difficult to resolve, but always important to have.

      https://en.wikipedia.org/wiki/Positivism_dispute

      And is great to have real methodological debate going on here. I was actually quite impressed with both Syll 's and Noah Smith's discussions.

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    4. Come on, Simon, there's more to it than that. Seriously. I read his critiques and I don't see dislike for equations. I see a dislike for this willy-nilly (often mindless) desire to apply math everywhere. And even this is an oversimplification. In all seriousness, do you want a disquisition on his critique (or a quick and dirty biblio of critiques)?

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    5. Anon 14.26 Agreed.

      For a guy that does not like "gotcha tactics" and misrepresentation, this is pretty good.

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    6. It's not about equations. It's about abstraction - and its use/overuse/misuse/abuse. If it is Habermas vs Popper Syll is taking, in this post at least, the Habermas position (although I think people would probably also say that formalism has been taken too far in economics even for Popper). It is about engagement with the real world and talking to everyone from bankers to social workers, about ploughing through corporate and industry association reports and getting data and documentation (both qualitative and quantitative) and saying, like a true investigator, "on balance the evidence suggests that..." No models, no silly stories, no assumptions like homogeneity. Models are not to understand the world around us, they are to assist with forecasts.

      This is how investigators in history and the social sciences usually work, it is more how economists should work.

      NK.

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  3. Trying to get into your mindset, I guess you are the conventional doctor prescribing scientifically proven remedies, while the opposition is a schizophrenic rabble prescribing alternative concoctions of paranoid witchcraft. It is a useful and timeless form of typecasting.

    Just don't think about the consequences.

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    1. I do not understand what you are trying to say here.

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    2. In other words, you are suggesting economists (relatively speaking) have well-thought-out and tested models for diagnosing and curing, whereas the heterodox types (and non-economists?) are like uneducated and not entirely rational fools claiming they learned something about the economy from "non-scientific" means.

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  4. "The mistake many economists made was to choose the wrong models, and he discusses why that might have happened. This perspective shows why a simple ‘the crisis shows economics must be flawed’ misses the point."

    Right, now you have lost me. Oh stop it Simon.

    While the economists were arguing about models, the bankers were looting the country, and when that blew up they turned to looting the Treasury.

    What a bunch of fools you conventional economists are.

    Unless of course if you are not.

    "I need to justify why I exist, why I completely missed the recession, and why after 40 years of forcing economies into this shape they still refuse to fit".

    You are playing this game so that you don't have to justify your autocratic central bank dictator beliefs or why the state should have to pay wealthy people interest.

    Economists like yourself have essentially locked out the real world.

    Countries have been promised riches by the snake oil salesmen who try to pass themselves off as scientists and then rammed into a 'one size fits all' ideology, based around the false idea of equilibrium.

    All the world economies have been forced to fit this peculiar bed, and have had their policies tailored to the idealised model, with the actual underlying people rammed into the structure regardless.

    The consequence of this should be obvious. The data collected from such economies SHOULD resemble the data you would expect from the model.

    It really can't do much else - since the policies are there to prevent deviation from the norm. Therefore when you do empirical studies what you are actually using as data is the output from a system rammed into an inappropriate model. The data is tainted and what the taint means has to be understood.

    It becomes part of the Orwellian self-referential structure that reinforces the norm - academic journals where the peers doing the reviewing 'believe in the concept' and therefore reject anything novel out of hand, awards created by people who 'believe in the concept' and awarded to other people based on how hard they also 'believe in the concept', and data used to try and validate policies that are derived from structures that are already moulded into the form of the policies.

    If you observe the movement data from a man in a straitjacket then you will form a particular view of the movement capabilities of a man. The problem is that you are neglecting to notice the straitjacket or the possibility that it could be removed.

    Moreover even if you do notice the straitjacket, it is impossible to find an instance of a man without one, or to get into a position where you could remove it and see what happens.

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  5. The analogy between models and experiments is absolutely incorrect. Experiments do not abstract from features of the world; they attempt to isolate them, in actuality.

    In an experimental context, models would correspond to (and indeed be) complex hypotheses. If adequately confirmed, they might gain the status of general laws.

    If one wants to use models, there are two valid approaches:

    1. Devise a model as an abductive (hypothesis generating) exercise, then test it against actual data (other, of course, than data used to formulate the model in the first place). This is how, for example, a complex hypothesis in the physical sciences might be tested.

    2. Construct a complex model from independently understood components with independently well-understood interactions. This is how a chemical or structural engineer might proceed.

    There are further complexities - the two approaches can be combined and nested in various ways. For example, and perhaps most aptly, an epidemiologist might devise and test a statistical model (1) which attempts to correct for likely confounding factors (2), in trying to determine whether a particular food tends to cause a particular disorder.

    But if someone engaged in a supposedly empirical discipline is not doing either of these things, something is terribly wrong.

    The picture I am getting from this account of Rodrik's book is that in economics, it's considered adequate to devise a load of abstract models based on unrealistic - untrue - assumptions, and determine which one (if any) applies only after the event, according to which one turns out to have 'predicted' what actually happened.

    This does not sound appreciably different from Friedman's justification of a priori models ( http://plato.stanford.edu/entries/economics/#3.2 ) and is a recipe for an entirely unaccountable 'anything goes' approach, ripe for capture by ideological interests.

    In fact economists do a certain amount of 1 & 2, simply because these are pretty commonsense ideas. But if the official doctrine is essentially Freidmanite, it's no surprise that the discipline as a whole is held in low regard, and has made so little clear progress in recent decades.

    As it stands, we have a situation in which the economics profession is unable to police itself, so that a pure, ungrounded abstraction (such as the Laffer curve) can be treated as a respectable theoretical construct with direct implications for empirical reality, and a simple spreadsheet showing a few averages (such as that used by Reinhart & Rogoff - http://cameronmustgo.blogspot.co.uk/2014/12/blog-post.html) can be treated as if it were capable of grounding a lawlike statistical generalisation.

    Neither of those should have been acceptable, even prima facie. Of course the particular 'findings' in each case were, each in their own way, plainly devised without regard for actual evidence, and tailor-made to support a pre-existing political agenda. Corruption is of course a distinguishable problem (http://www.tudou.com/programs/view/Loh4yHeWaGM - may have ads), but neither of these should have got off the ground in the first place.

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    1. I think you misunderstand. The 'models are like experiments' analogy is a response to the 'all economists assumption are untrue' critique. You could equally apply that critique to experiments: how can you test anything in an environment that is so artificial? It is certainly not meant to suggest anything goes - after all anything does not go in experiments.

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    2. I really haven't misunderstood; perhaps not explained very well (it's hard to know where to start). I realise that saying 'anything goes' isn't the intention, but to the extent that everthing is based on contructed a priori models whose assumptons are untested, and the application of these models is left as a matter of inscrutable judgement, or 'craft', then that is the effect.

      It is true that an experiment involves an environment which is contrived - but that is a good thing - the environement is contrived precisely so as to provide an empirical test of a specific hypothesis. That is the whole point of an experiment. The idea that this contrived environment in some way introduces an element of unrealism that's in any way comparable to the untrue, vacuous or ill-formed assumptions used in constructing (some) economic models is just wrong.

      Any actual experiment (or, more realistically, sequence of experiments and replications of experiments) is subject to the causal orderwithin which it takes place. Setting up the experiment is a matter of taking away as many extraneous influences as possible, t oleave only those that are the subject of he experiment. An abstract model with ungrounded assumptions, on the other hand, starts with nothing and constructs a world from scratch.

      It is of course true that if a real experiment (or empirical research programme) succeeds and establishes some lawlike generalisation then maybe there is a problem of deciding when and when it applies, what other countervailing or perturbing factors might apply in real situations. That's one of the many ways in which judgement comes in, but it comes in at the point of designing a prognostic model, and not at the experimental phase. Nothing is certain, everything is a bit gappy; that is not the issue. Uncertainty , imperfection and error-prone-ness come in different orders of magnitude, and in qualitatively different kinds, such as the avoidable v the unavoidable. We are talking about a trivial inequations her: x < perfection, y < perfection. We can't draw useful results at such a facile level of analysis.

      It sounds unnecessarily dismissive, but I think the mention of 'cargo cult' science somewhere in one of these recent threads was actually quite appropriate. Models based on false/unrealistic/ideal assumptions do not perform an analogous function to experiments in say, physics. As adumbrated in previous comment, they could be a hypothesis, or a prognostic tool, but they are never a test of anything, except of how the model itself works. They may bear a superficial resemblance to experiments, but they miss the whole point of experiments, which is to connect to and learn from the actual world.

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    3. (In the analytic tradition of philosophy various rhetorical and discursive techniques are sometimes called 'thought experiments' and they too have the characteristic of involving a contrived set-up. There are some used, to less-than-satisfactory effect, in the following extract.)

      Cartwright, The Vanity of Rigour in Economics ( http://www.lse.ac.uk/CPNSS/pdf/DP_withCoverPages/DP43/DP43F-99-C.pdf ) is suitable as an example, being freely available on the web, and worth reading (the first half or so anyway - I think it loses focus & starts to ramble at the end) to get an idea of how the issues look from a philosophy of science perspective.

      Cartright broadly accepts the 'model as experiment' view, in the course of making various criticisms. In doing so, she does in fact use a 'thought experiment' (constructed illustrative exemplar) that appears quite inapplicable.

      "The view that I have long defended is that such model results teach us about general tendencies (in my own vocabulary, ‘capacities’), tendencies that are nakedly displayed in the analogue economies described in our economic models but that stand ready to operate in most economies. On this view the analogue economy that Lucas describes is like an experiment. We know that an experiment of the right kind, a Galilean experiment that isolates the tendency in question, can teach us lessons that carry outside the experimental situation.

      "If we are lucky, however, we will not need to carry out the experiment. We can find out what would happen were we to conduct it because we can find out by deduction what must happen. But for that to work, the analogue economy must be of just the right kind: were we to construct it in reality, it would meet the conditions of Galilean experiment...From the perspective of establishing tendencies, it becomes crucial then to look carefully into the deductions used in our economic models to see if all of the unrealistic assumptions required for the derivations are ones that characterize an ideal experiment. Let us look at another simple physics example for an analogous case."

      "In classical Newtonian mechanics massive bodies have an inertial tendency...what is the natural behaviour of a body when inertia acts on its own? Say we do some experiments to find out. We know that forces cause motions. So eliminate all forces and watch the bodies move. What will we see?"

      ...

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    4. "Imagine that our experimental mass has been confined for reasons of convenience to move on a particular surface, but that we have been very careful to plane the surface to eliminate almost all friction. Then what we will see will depend on the geometry of that surface. For example, if all our experiments are done on a sphere, we always get motion in great circles, as in Figure 2 (Geodesic on the Simple Sphere Geometry). But that is not the ‘natural’ motion in other geometries. Look for instance at Figure 3 (Geodesic on the Sphere Geometry with Space-time Singularities). There, motion on great circles is available, but it is not the motion that inertia will contribute. The results in our experiment are overconstrained. We thought that by eliminating all the factors we think of as causes of motion - all the forces - we would see the results of inertia by itself. Instead what we see is a result of inertia-plus-geometry."

      Notice how far-fetched the example has to be. I'm not even sure what we are supposed to be imagining here. We first switch from a plane to a spheric surface(!), then suppose that, unbeknownst to the experimenter, the sphere has space-time singularities. This is a fantastically remote possibility, if that. But the key point of principle is that this is an error in the design of the experiment. The false assumptions in the kind of abstract economic model under discussion don't arise as rare errors - they are the norm. Cartright seems to be homing in on the problem in the next paragraph:

      "This can always happen in an experiment: we never know whether some features we have not thought about are influencing the result. But in a good many of our analogue economies we are not even this well off. In a real experiment we are after all in a position to assume with good justification that the fact that there are, for instance, only two markets or only two generations does not matter because the number of markets or of generations is not relevant to the conclusion: it has no causal bearing on the outcome, and what happens in the real experiment is just what is caused to happen. Analogue economies are different. What happens in them is exactly what is implied deductively. The problem is that we often know by looking at them that the specific derivations made in our models depend on details of the situation other than just the mechanism itself operating in accord with our general principles. So we know that in the corresponding experiment there are features other than the mechanism itself determining the outcome. That means that the experiment does not entitle us to draw a conclusion about the general tendency of the mechanism under study."

      (Unfortunately the paper then becomes rather confused, or at any rate confusing...)

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  6. "When a doctor diagnoses an illness based on symptoms, they could also be said to be using craft rather than science."
    Indeed; I think it is: medicine should be understood as part of the arts or as technology (applied science) and thus as craft and not as a science itself.
    Medicine is applied human biology.

    Can economics be understood as applied social science? (and/or psychology and/or political science and/or anthropology; let me call these "social 'sciences'" further)
    Only to the extent that social 'sciences' can themselves be understood as science.
    I doubt so.
    (I wish economics were applied ethics, but evidently it isn't...)

    Social 'reality' is created (continually being created) by both the subjects and the objects of researching it.
    The way we understand social reality creates it (or at least essential parts of, collective habits rooted in biology excepted).
    Social 'sciences' and the art of economics (our reflecting on how we organize that people get what they need/want) are 'performative': they create what they describe.
    So social 'science' are not (or less) 'scientific' than human biology and economics is less (or not at all) an applied science than medicine.

    So what?
    What's wrong with being a good craftsman?

    Dani Rodrik writes that economics is a science after all because it uses models (even though selecting the relevant model and applying it is a craft).
    I don't see why; does human biology use (mathematical) models (comparable with economic models)? Or medicine for that matter?

    From my perspective (as economist who chose to leave mathematics and models behind because of experiencing them as the emperor's proverbial new clothes) mathematical modelling is like a moat around the ivory tower: economics is the emperor of the social sciences, naked, and getting away with it because of the inaccessability of its ivory tower for ordinary mortals.
    I know I am putting it too strongly and given more space I would show a broader perspective, but for clarity's sake I hope those metaphors will do.

    So my bottom line is: are we good craftsmen?
    Not according to Dani; even those of us with a PhD ony start out with an overview of existing models (and probably some strong preferences) without training and experience in selecting the right one for specific situations.
    Only very few (and Rodrik suggests he is one of them) achieve the status of good craftsmen.
    What does that say about the quality of the economic profession as a whole...?

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    1. I do not think that economics can be understood as applied social science. I used the doctor point to suggest that analogies with physics can be very misleading.

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  7. Syll has replied.:
    https://larspsyll.wordpress.com/2016/01/17/wren-lewis-and-the-rodrik-smorgasbord-view-of-economic-models/
    "there is also a very disturbing apologetic tendency in the book to blame all of the shortcomings on the economists and depicting economics itself as a problem-free smorgasbord collection of models. If you just choose the appropriate model from the immense and varied smorgasbord there’s no problem. It is as if all problems in economics were conjured away if only we could make the proper model selection."
    Good comment too:
    "If there are no pre-stated criteria for when to use various models appropriately wrt changing conditions ex ante, then the discipline is just ad hoc, where some model can be put forward ex post in hindsight to explain what was not foreseen. So, “everything is explained.” NOT. It’s pseudoscience.

    This is exactly what happened with the GFC. And if I recall correctly, SWL was one of the people who claimed to be “right” — in hindsight.

    What is rather surprising to me, puzzling actually, is that SWL served at Her Majesty’s Treasury previously and is familiar with the monetary economics of Wynne Godley. Godley predicted the crisis and used a “heterodox” model to do it. Surely SWL has read Galbraith’s “Who Are These Economists, Anyway?”""

    So, Simon have you read Galbraith's book?

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    1. This obsession with who predicted what shows a misunderstanding of the subject, and why physics analogies are so misleading. I have talked before about why you cannot just use prediction to select between models. What you mean about me claiming to be right in hindsight I have no idea.

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    2. "Economics not an applied social science. You cannot just use predictive power ..... "

      Well I guess not, and some are more equal. Really there is no wonder there is so much cynicism going around and this is not going to help you take on pro-austerity camp, if that is ultimately what you are trying to do.

      The emerging financial crisis is something that economists who advise policy makers should have picked up on. That is very much part of their job. They did not. That suggests something was very fundamentally wrong. Yes something fundamentally wrong with the models economists were, and still are, using. Some are right to ask why are these models, even with frictions bolted on, are still being used. It is time to start taking some responsibility and ask yourself is this something to do with the way economists work. Be open to criticism. Don't dismiss critics as quacks. Some of them might even know something - especially those who know something about methodology in the social sciences. Maybe this does have a little bit to do with excessive formalism - perhaps. You are a social scientist, prediction is part of your brief, and so is asking questions about how you can do things better instead of continually justifying the existing present dominating paradigm and tinkering at the edges with it without even considering arguments that alternative methodology should be considered.

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    3. "Emerging financial crisis"- of course refers to the Great Moderation pre-2008.

      For people still following this blog-post, economics in 2016 looks like this:

      http://quant-econ.net/py/kalman.html

      I guess they really do think it is rocket-science. We will just have to believe them.

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  8. Quite possibly economic laws supervene on human psychology, which arguably supervene on physical structures, and which may or may not be governed by fundamental physical laws.

    There are clearer intuitions about modals and truth in physics. There could be some theory in the future which approximates the truth better than any other. But even in physics there are outstanding debates about what are the virtues of a a good theory, what counts as appropriate evidence for that theory, and most problematically how to physically interpret the mathematical formalism of a theory.

    At least physics doesn't have to worry about whether it is scientific.

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  9. Simon, here's a post in response you might find interesting:
    http://ramblingsofanamateureconomist.blogspot.com/2016/01/choosing-best-model-for-each-context.html

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  10. Economists’ last Hurrah
    Comment on ‘Economics Rules by Dani Rodrik’

    [Because of space restriction to 4036 characters the first part is posted here. For the complete post see link.]

    Economists do not understand how the market system works. Every interested non-economist with a modicum of scientific instinct or background in the genuine sciences gets this after reading one of the popular textbooks: “What is now taught as standard economic theory will eventually disappear, no trace of it will remain in the universities or boardrooms because it simply doesn’t work: were it engineering, the bridge would collapse.” (McCauley, 2006, p. 17)*

    According to the scientific criteria of material and formal consistency orthodox economics is not acceptable.** Because of this, every thinking economist finds himself by default in the heterodox camp. But here only one obvious fact is agreed upon, the rest is blank.

    “As will become evident, there is more agreement on the defects of orthodox theory than there is on what theory is to replace it: but all agreed that the point of the criticism is to clear the ground for construction.” (Nell, 1980, p. 1)

    Construction never happened. So, there is nothing to chose. Economics is a failed science. Traditional Heterodoxy offers no hope. For lack of an alternative, Orthodoxy vegetates as a scientific zombie (Quiggin, 2010). There is only one way out of the stalemate: a paradigm shift. This much was already clear after of the grand debacle of general equilibrium theory.

    “There is another alternative: to formulate a completely new research program and conceptual approach. As we have seen, this is often spoken of, but there is still no indication of what it might mean.” (Ingrao et al., 1990, p. 362)

    Until this day, neither Orthodoxy nor Heterodoxy has an idea of what a ‘completely new research program and conceptual approach’ might mean.

    In their intellectual stalemate economists just doctor on the symptoms and continuously repackage the same old garbage. Because the ambition of a general theory admittedly produced merely hot air there is a retreat to partial, small-scale models and theory-less empiricism. Because he cannot explain how the economic universe works the humbled economist now researches the economic goldfish bowl.

    The resulting heap of incoherent models is superficially held together by the joint concepts maximization-and-equilibrium. Unfortunately, these concepts are nonentities and methodologically inadmissible as foundational premises of theoretical economics. Nothing can ever be really explained with maximization-and-equilibrium -- just because seemingly everything can be explained. Explanation, though, is not worth anything if does not satisfy the criteria of material and formal consistency.

    “Everything can be ‘explained’ if we place no restrictions on what we mean by ‘explanation’.” (Blaug, 1994, p. 123)

    Wren-Lewis is methodologically anesthetic and does not feel anything when he shots himself in the foot: “The key idea is that there are many valid models, and the goal is to know when they are applicable to the problem in hand.” This is the very definition of ad hocery.

    http://axecorg.blogspot.de/2016/01/economists-last-hurrah.html

    Egmont Kakarot-Handtke

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  11. Where do you stand on this; with Goodfriend and King, or with Svensson. All are respected "mainstream" macro-economists (Goodfriend and Svensson are for sure at the very top of the profession), but you could not get fundamentally opposing views.

    http://larseosvensson.se/2016/01/22/two-serious-mistakes-in-the-goodfriend-and-king-review-of-riksbank-monetary-policy/

    Well even if there is not methodological diversity, at least there is in terms of policy views.

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