Friday, March 28, 2014

Lars P. Syll — Economic models — chameleons and theoretical cherry picking

Lars takes up where Mark Buchanan left off.

For example, neoclassical economics is a just so story of neoliberal capitalism. It assume that neoliberal capitalism is defined by markets free of governmental "intrusion" (without asking where the money comes from) and perfect competition among agents that are essentially equal and act like atoms independently of historical, cultural and institutional context. This is also a model with no friction like transaction costs.

Needless to say, it is simple to derive equilibrium, just deserts, and other neoliberal dogmas from this simple model. However, the model doesn't even remotely represent the actual historical context or any context that is possible in a contemporary society.

Yet, all failures of the model to predict actual outcomes are explained as either owing to governmental intrusion introducing distortion or external shocks that could not be foreseen by the model. The first is used as a policy ploy to promote neoliberal doctrine, and the later to explain away failures of the model that cannot be attributed to government.

That's the basic agenda.

Of course, the reality is far more complex than the model assumes, and the context is historical and institutional rather than natural and atomistic.

Economic models — chameleons and theoretical cherry picking
Lars P. Syll | Professor, Malmo University

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