Peter Dorman reminds us why microfoundations supposedly being necessary for macroeconomics is crap. Basically, neither people nor firms behave like atoms.
Economics is a social science rather than a natural science; therefore, it is culturally, institutionally, and behaviorally based instead of being atomistic where atoms are subject to fundamental forces in accordance with laws of nature that can be modeled mathematically with considerable precision. It's barking up the wrong tree.
See also Peter Dorman, bluntly, on the crappiness of today's microfoundations posted by Mark Buchanan at The Physics of Finance.
Macroeconomics is not about investigating ideas but about investigating the macro economy by Merijn Knibbe at Real-World Economics Review Blog.
Macro is about aggregates and aggregates are micro-founded in that they are, well, aggregates. Aggregates of data derived from all levels of the population in question. The real questions about microfoundations in macro arise over the quality of the data and information processing used to arrive at aggregates. GIGO.
Lars P. Syll
Why microfoundations is simply bad micro
Peter Dorman
Lars P. Syll
Why microfoundations is simply bad micro
Peter Dorman
See also Peter Dorman, bluntly, on the crappiness of today's microfoundations posted by Mark Buchanan at The Physics of Finance.
Macroeconomics is not about investigating ideas but about investigating the macro economy by Merijn Knibbe at Real-World Economics Review Blog.
2 comments:
In other words "the whole is more than the sum of its parts" as the saying goes.
Exactly. This is the fallacy of composition involved. In a complex adaptive system, the relationships and context are as or more significant than the individual elements of the system.
Of course, the elements in human systems are most important, since the system exists for the elements.
But importance should not be confused with significance in analysis, which is what economic liberalism does.
As a result, the importance of the elements actually is degraded, and many individuals damaged.
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