Lars P. Syll — Dani Rodrik a heterodox economist? You must be joking!

Lars writes:

Economics students today are complaining more and more about the way economics is taught. The lack of fundamantal diversity — not just path-dependent elaborations of the mainstream canon — and narrowing of the curriculum, dissatisfy econ students all over the world. The frustrating lack of real world relevance has led many of them to demand the discipline to start develop a more open and pluralistic theoretical and methodological attitude.
Dani Rodrik has little understanding for these views, finding it hard to ‘understand these complaints in the light of the patent multiplicity of models within economics.’ Rodrik shares the view of his colleauges Paul Krugman, Greg Mankiw and Simon Wren-Lewis — all of whom he approvingly cites in his book Economics Rules — that there is nothing basically wrong with ‘standard theory’ and ‘economics textbooks.’ As long as policy makers and economists stick to ‘standard economic analysis’ everything is fine. Economics is just a method that makes us ‘think straight’ and ‘reach correct answers.’

There are several major problems with conventional economics.

The first is that results are gained from very narrow scope conditions. The scope of the model is limited to areas where there is regularity accounted for by the model. Where irregularities occur, which is most most needs to be explained, is put outside the scope of the model and dismissed as unforeseeable exogenous shocks. That's just a cop out.

A second problem is assuming static conditions when conditions are dynamic and change significantly over time. Societies are historical phenomena and when conditions change significantly, then the time frame needs to be set to zero to capture the new conditions. For example, in finance and economics, the global monetary system changed when Bretton Woods was adopted and again when Nixon ended the convertibility of the dollar into gold at a fixed rate for international settlement. Reinhart and Rogoff made this error in their historical study of debt that became the foundation for the "expansionary fiscal austerity" that was supposed to lead to recover after the Global Financial Crisis. NOT!

The third problem is even more serious in that they it undercuts the whole enterprise of pseudo-science that tends to affect social science including economics, especially when the natural sciences are taken as a standard to be emulated in social science. The subject matter is deeply different. The operation of the laws of nature in natural science is necessary logically, whereas human behavior is contingent and regularity is based on habit structure, custom, cultural tradition and institutional arrangements, none of which are necessary and change historically. This making this mistake by conflating natural and social science substitutes ideology for science and constitutes pseudoscience.

Philosopher of social science Daniel Little explains this in his post, Ideologies, policies, and social complexity, at  his blog Understanding Society.

According to the premises of this approach, we are not well served by imagining that there are simple, largescale forces that drive the outcomes in history. Examples of efforts at overly simplified explanations like these include:

• Onerous conditions of the Treaty of Versailles caused the collapse of the Weimar Republic. 
• The Chinese Revolution succeeded because of post-Qing exploitation of the peasants.
• The Industrial Revolution occurred in England because of the vitality of English science. 

Instead, each of these large outcomes is the result of a large number of underlying processes, motivations, social movements, and contingencies that defy simple summary. To understand the Mediterranean world over the sweep of time, we need the detailed and granular research of a Fernand Braudel rather than the simplified ideas of Johann Heinrich von Thunen in the economic geography of central place theory.

In situations of this degree of underlying complexity, it is pointless to ask for a simple answer to the question, "what caused outcome X?" So the Great Depression wasn't the outcome of capital's search for profits; it was instead the complex product of interacting forms of private business activity, financial institutions, government action, legislation, war, and multiple other forces that conjoined to create a massive and persistent economic depression.

This approach has solid intellectual and ontological foundations. This is pretty much how the social world works. But this ontological vision about the nature of the social world is hard to reconcile with the large intellectual frameworks on the left and on the right that are used to diagnose our times and sometimes to prescribe solutions to the problems identified.

An ideologue is a thinker who seeks to subsume the sweep of history or current events under an overarching narrative with simple explanatory premises and interpretive schemes. The ideologue wants to portray history as the unfolding of a simple set of forces or drivers — whether markets, classes, divine purposes, or philosophies. And the ideologue is eager to force the facts into the terms of the narrative, and to erase inconvenient facts that appear to conflict with the narrative....

This approach only works empirically restrictions are introduced, e.g., by choosing scope conditions are so limited that that the assumptions are confirmed in a narrow range, or by making ad hoc adjustments after the fact, or by selecting data to fit the model, or by handwaving.

Lars P. Syll’s Blog

Dani Rodrik a heterodox economist? You must be joking!

Lars P. Syll | Professor, Malmo University