Jo has a thoughtful and constructive response to my post discussing a recent Bank of England paperthat presents a new Stock-Flow Consistent (SFC) model. One of the reasons it is constructive is because it is not tribal: too many followers of heterodox schools seem to just want to rubbish mainstream macro and suggest their particular school represents the new dawn. So I thought I might make a few points on Jo’s post that might be helpful.Mainly Macro
Stock-Flow Consistent models: response to Jo Michell
Simon Wren-Lewis | Professor of Economics, Oxford University
5 comments:
"Vitality shows in not only the ability to persist but the ability to start over." - F. Scott Fitzgerald
Re-set t=0...
Interesting comment over there:
"Rational expectations might be rich theoretically, but so what? If that theory does not conform to historical experience is it worth anything at all? "
this is just a basic argument between rationalist theory vs. empirical theory which goes on all the time...
I think a better approach would be for empiricists to just develop their own theory vs. arguing with rationalists and trying to get rationalists to change their minds on approach or something...
Its like the so-called 'Intelligent Design' people arguing with the Darwin/Evolutionism people...
Matt psychology was in a similar impasse during great part of last century. Eventually empiricism won...
You can make theories all day, but theories are theories. The solution for psychology (and other 'soft' sciences) was, in a nutshell, than whenever you make some theory up you have to operativize the theories and say how they empirically show up. What is the BEHAVIOURAL correlate of such theory.
The second part is that you have always to keep an skeptical mind. Yes you have got this theory, but how do we REALLY know that those behavioural correlates are an expression of what you mean? We don't, hence we CANNOT AFFORD to fall onto dogmatism (beware a lot of this has not yet translated to therapists specially old ones, but as old ones retire better practices will take over).
This means no dogmatic equivalent of 'neoliberalism' in anything mind-related (from psychology, which is top-down to neurosciences, which are bottom-up; both are complementary). Don't get me wrong, there will be always mainstream trends in every discipline, etc. but what is important is the constant state of flux and willingness to move on from failed theories.
Is that simple: just follow the freaking scientific method and don't stick to one thing because "reasons" regardless of the (lack thereof) evidence.
Economists have a backward way of operating: First set up a model (and theory) then seek assumptions to back up the model. This should be the exception to the rule on how you try to gain knowledge over something, because 99.99% of the times you will be WRONG. Whenever you do this theories have to be at least trialled in reality (given you cannot definitively prove anything) ASAP, the longest in time things go without being trialled by facts the higher the chance you will be going off the rails.
You seek behaviour FIRST, then build up a model, 99% if the time and whenever is possible it has to be this way. Is called inductive reasoning, what is used in every science unless it loses sight or TINA (that's why there are problems nowadays in particle physics between phenomenologists and theoretical physicists; that's why things like 'string theory' was able to self-perpetuate itself long enough). There is an inherent problem in science whenever people gets boggled in rationalisation and there is a lack of empiricism because we humans have a lot of imagination and tend to confuse reality with imagination (99.99% of the time = wrong).
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