So as things stand, macro is mostly a "science" without falsification. In other words, it is barely a science at all. Microeconomists know this. The educated public knows this. And that is why the prestige of the macro field is falling. The solution is for macroeconomists to A) admit their ignorance more often (see this Mankiw article and this Cochrane article for good examples of how to do this), and B) search for better ways to falsify macro theories in a convincing way.Of course, if people also read heterodox macroeconomists, then they would know that some macroeconomists actually did get it right, and they also explain why mainstream economists get it wrong.
See James K. Galbraith, Who Are These Economists, Anyway? And it is not like Prof. Galbraith is an unknown upstart, either. Don't these people go outside, once and awhile at least.
Read it at Noahpinion
"Science" without falsification is no science
by Noah Smith | PhD candidate in economics at the University of Michigan. (In the fall he will start as an assistant professor of finance at Stony Brook.)
Noah Smith is an economist with a background in physics.
I left this comment there:
Tom Hickey 11:48 PM
Actually, some macroeconomists did get it right and explained why the mainstream was getting it wrong. Notably, the late Wynne Godley. For his approach to macro using stock-flow consistent modeling and sectoral balances, see Godley and Lavoie, Monetary Economics (Elgar, 2007, 2nd ed. 2012). See James K. Galbraith for some economists who did get it right — "Who are these economists anyway?"
UPDATE:
Simon Wren-Lewis has an equally uniformed post at mainly macro
What microeconomists think about macroeconomics
I left this comment there:
Tom Hickey 11:48 PM
Actually, some macroeconomists did get it right and explained why the mainstream was getting it wrong. Notably, the late Wynne Godley. For his approach to macro using stock-flow consistent modeling and sectoral balances, see Godley and Lavoie, Monetary Economics (Elgar, 2007, 2nd ed. 2012). See James K. Galbraith for some economists who did get it right — "Who are these economists anyway?"
UPDATE:
Simon Wren-Lewis has an equally uniformed post at mainly macro
What microeconomists think about macroeconomics
I left this comment there:
Simon, have you read much Wynne Godley, especially Godley and Cripps, Macroeconomics (182) and Godley and Lavoie (2007, 2nd ed. 2012)? Or did you see James K. Galbraith, "Who are these economists anyway?" I am afraid your comments reflect the ignorance of the profession about Post Keynesianism. OK, you are an Oxford prof, and Cambridge was the citadel of PKE, and Godley there. But to miss or dismiss major economists since Keynes, really now.
21 comments:
The link to Noahpinion goes to the Galbraith pdf, by mistake apparently...
This guy (educated in the US) posts a lot of interesting stuff on his blog:
http://larspsyll.wordpress.com/2012/06/30/knut-wicksell-and-the-origins-of-modern-monetary-theory/
He gets into a lot of math stuff too, mainly probability and statistics.
Thanks, DD. Fixed now.
Thanks, paul. Promoted to a post.
These posts remind me of Richard Feynman's famous quote about theories: "It does not make any difference how beautiful your guess is, it does not make any difference how smart you are, who made the guess, or what his name is — if it disagrees with experiment, it is wrong."
is microeconomics (the version that intermediate students are indoctrinated with) on any more of a sound science basis than macro ?
 Anonymous said... is microeconomics (the version that intermediate students are indoctrinated with) on any more of a sound science basis than macro ?
Well, that depends on whose theoretical methodology is is being considered, e.g., what the assumptions are, both stated and hidden.
New Classical micro models of general equilibrium are models of fantasyland due to the simplistic assumptions, generally overlooking complexity, the role of money (and accounting) and institutions, and presupposing norms like methodological individualism, ergodicity, and natural forces operating in perfect conditions, none of which hold.
Unless all the principal components of a system are considered, relevant operations understood, and controls and constraints recognized, systems analysis will be wrong, and economics is basically systems analysis.
Here is a nice short intro.
Neoclassical Micro And Macro Economics--Science Or Silliness? By Michael Albert
New Classical economics is a macroeconomic theory, associated with Lucas and friends. It is not a school of thought in microeconomics.
It does your critique no favours if you can't distinguish between the two--especially if you are proposing to say something useful about them both.
vimothy: "New Classical economics is a macroeconomic theory, associated with Lucas and friends. It is not a school of thought in microeconomics."
Yes, thanks for reminding me again. I'll get this distinction straight eventually.
I think you mean get it "right," not write.
And in either event, getting it right is not falsificationism. To start with, you'll need more quantitative measurement.
Thanks, marris. fixed.
Generally speaking, scientific hypotheses can be falsified but not confirmed. Theories cannot be either confirmed or falsified. Theories are amended when hypotheses are disconfirmed, and if it is serious enough the theory gets replaced by a more reliable theory as a framework for explanation and prediction. The theory describes a model, and if events don't bear out what is described then the theory is not considered very useful, and more useful approach is sought. Problem at the boundary of classical mechanics did not disconfirm classical mechanics. These problems just indicated that the classical approach was insufficient.
But natural and social sciences are inherently different due to differences in the subject matter. So testing claims is also different. Actual outcomes are more the issue than theoretical reasoning in economics, since economics is not only a social science but also a policy science.
Bill Mitchell has done several posts of late arguing why the mainstream macro approach should be replaced by MMT due to its abysmal record wrt recent events, which can be measured, whereas MMT got it right and accounts for why.
> Actual outcomes are more the issue than theoretical reasoning in economics, since economics is not only a social science but also a policy science.
Come on dude, you don't really believe this do you? Chemists are far more willing to dump "not working" theories than economists, even though chemistry is not a "policy science." Seems that chemists are far more outcome oriented than any social scientist. Social science is very often not falsifiable at all. Take for example the Philips curve. If the relation between employment and inflation breaks down, we just call that a "shift," rather than "we didn't know what we were talking about... we just drew a curve..." Everything is up for grabs.
marris, "Come on dude, you don't really believe this do you? Chemists are far more willing to dump "not working" theories than economists,"
That's the point that heterodox economists are making. The mainstream models failed big and the mainstream economists are in denial about it
And they haven't been able to fix their model.
And there is an alternative theory on the table that got it right.
Bill Mitchell today in his post on mainstream revisionism. This goes even beyond denial. Do many natural scientists do this kind of thing when events don't conform to theoretical expectations?
Sometimes I read things and consider either I live in a parallel universe or the writers do. I always conclude the latter. There is an increasing number of articles and commentaries coming out which aim to re-write history in favour of the writer’s reputation or that of his/her mates. Revisionism, which includes the practice of personal reincarnation is rife at present. Everybody seemed to predict the crisis. Even those that clearly in their own writing didn’t have a clue that the trouble was coming predicted it. As part of this process, key organisations that should be learning from the crisis such as the BIS are demonstrating that they are in an educational void. They have become just another propaganda machine. And so the crisis continues as ignorance is elevated to higher levels.
> That's the point that heterodox economists are making. The mainstream models failed big and the mainstream economists are in denial about it
Well, why the the heterdox guys exempt from the criticism? I've also yet to see a heterdox economist say, "You know what guys? I had no idea what I was talking about... oops."
All of the concept frameworks can be stretched to fit the observed facts.
marris, the mainstream has not yet stretched their framework to account for observable facts. That's called ad hoc adjustment of a paradigm by Kuhn. Instead, they are digging in and blaming the usual suspects (govt) for why the theory didn't predict the crisis.
Nor did the mainstream foresee the problems inherent in the EMU with Maastricht that Godley warned about in 1992, and MMT'ers have been harping on since. And so far they have not been able to correctly diagnose and treat a disease that threatens the existence of the euro, in spite of explanations for a fix coming from heterodox economists including MMT economists and finance types.
When a paradigm becomes weighted down with ad hoc adjustments, like Ptolemaic astronomy with epicycles, then it gets replaced with a simpler and more elegant explanation. Kuhn calls that paradigm shift.
Here's what Milton Friedman had to say about the matter:
"I think the euro is in its honeymoon phase. I hope it succeeds, but I have very low expectations for it. I think that differences are going to accumulate among the various countries and that non-synchronous shocks are going to affect them. Right now, Ireland is a very different state; it needs a very different monetary policy from that of Spain or Italy. On purely theoretical grounds, it’s hard to believe that it’s going to be a stable system for a long time. …
"If we look back at recent history, they’ve tried in the past to have rigid exchange rates, and each time it has broken down. 1992, 1993, you had the crises. Before that, Europe had the snake, and then it broke down into something else. So the verdict isn’t in on the euro. It’s only a year old. Give it time to develop its troubles."
http://www.bankofcanada.ca/wp-content/uploads/2010/08/keynote.pdf
Give Friedman credit for that.
But now it is being recognized that the problem is not monetary but fiscal, just as Godley et al said it would be without an EZ fiscal authority. An EZ cb (ECB) alone doesn't cut it, since there is nothing further that can be done to patch up the monetary aspect without running into fiscal — which is now realized by the major players.
Germany won't agree so far to be the fiscal back up, which it needs to be as the net exporter in a system in which the participants are effectively using a foreign currency and taxes are needed for funding.
In other words the countries of the EMY face a solvency problem rather than it being only a problem of liquidity that an EZ cb could handle.
Marris' instincts are good:
And in either event, getting it right is not falsificationism. To start with, you'll need more quantitative measurement.
Say I agree that the theoretical framework used to predict the financial crisis should be adopted by the mainstream.
There is a problem, however. We can identify several groups of people who quote-unquote "predicted" the financial crisis, all drawing on different frameworks (e.g., see Bezemer's paper).
It's obvious that something more is needed because otherwise how do we select between Peter Schiff, Godley, Bill White at the BIS and Nouriel Roubini?
"There is a problem, however. We can identify several groups of people who quote-unquote "predicted" the financial crisis, all drawing on different frameworks (e.g., see Bezemer's paper).
It's obvious that something more is needed because otherwise how do we select between Peter Schiff, Godley, Bill White at the BIS and Nouriel Roubini?"
Testing. Look at the assumptions, methods and models and look to history. A lot can be done with simulations based on the different approaches. Might show that some combo is more reliable.
Some people were correct about the crisis, but the approach is not really useful in other contexts. We are looking for a macro theory that can be used as policy science.
I left this 3 part comment on his blog:
http://noahpinionblog.blogspot.ca/2012/06/science-without-falsification-is-no.html?showComment=1341414627974#c3476440868429627827
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