John E. King’s new book The Microfoundations Delusion: Metaphor and Dogma in the History of Macroeconomics (Cheltenham, 2012) charges neoclassical economics with the delusion that macroeconomic processes must just be explained in terms of microeconomics, and indeed that microeconomics is the proper foundation for all macroeconomic phenomena.Social Democracy for the 21st Century
Greedy Reductionism, Science and Economics
Lord Keynes
4 comments:
I dont think I believe in "macroeconomic phenomenon" other than perhaps in real terms...
rsp,
"economic phenomenon": It's like an oxymoron.
"oikonimia": of house law
"phainomenon": thing appearing to view
Taken together: "house law appearing to view"
"Law" does not just "appear".
It just continues to look more and more that so-called "macroeconomics" is just all false from beginning to end...
rsp,
There are micro phenomena due to individuals, there are meso and macro phenomena due to institutions and the power that this puts in the hands of a very few individuals to control societies. The meso and macro phenomena are more determinative than the micro due to power and control relationships. Sociologists get this, most economist don't or at least don't use in their modeling. Why?
For one thing it is Marxist.
Michael Perelman, "The Power of Economics and the Economics of Power". C. Wright Mills also analyzed the role of power in The Power Elite (1956)
For another it would spoil their neat assumptions that are methodologically convenient and also conveniently support the status quo.
One doen't need to be a Marxist or Marxian to understand this. It is also treated in institutional economics, which traces its roots to Veblen. John Kenneth Galbraith is one of the more prominent economists using the institutionalist approach. Douglass C. North, also an institutionalist, received a "Nobel" for his work in.
Ignoring or minimizing the role of institutions in society, including economics, is just dumb.
See also Ronald Coase's Nobel lecture, The Institutional Structure of Productionl
What this comes down to is that, in Robbins' view, an economist does not interest himself in the internal arrangements within organisations but only in what happens on the market, the purchase of factors of production and the sale of the goods that these factors produce. What happens in between the purchase of the factors of production and the sale of the goods that are produced by these factors is largely ignored. I do not know how far economists today share Robbins' attitude but it is undeniable that microeconomics is largely a study of the determination of prices and output, indeed this part of economics is often called price theory.
This neglect of other aspects of the system has been made easier by another feature of modern economic theory - the growing abstraction of the analysis, which does not seem to call for a detailed knowledge of the actual economic system or, at any rate, has managed to proceed without it. Holmstrom and Tirole, writing on The Theory of the Firm in the recently published Handbook of Industrial Organization, conclude at the end of their article of 63 pages that "the evidence/theory ratio... is currently very low in this field"3. Peltzman has written a scathing review of the Handbook in which he points out how much of the discussion in it is theory without any empirical basis4. What is studied is a system which lives in the minds of economists but not on earth. I have called the result "blackboard economics". The firm and the market appear by name but they lack any substance. The firm in mainstream economic theory has often been described as a "black box". And so it is. This is very extraordinary given that most resources in a modern economic system are employed within firms, with how these resources are used dependent on administrative decisions and not directly on the operation of a market. Consequently, the efficiency of the economic system depends to a very considerable extent on how these organisations conduct their affairs, particularly, of course, the modern corporation. Even more surprising, given their interest in the pricing system, is the neglect of the market or more specifically the institutional arrangements which govern the process of exchange. As these institutional arrangements determine to a large extent what is produced, what we have is a very incomplete theory. All this is beginning to change and in this process I am glad to have played my part. The value of including such institutional factors in the corpus of mainstream economics is made clear by recent events in Eastern Europe. These ex-communist countries are advised to move to a market economy, and their leaders wish to do so, but without the appropriate institutions no market economy of any significance is possible. If we knew more about our own economy we would be in a better position to advise them.
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