Lars P. Syll — Where modern macroeconomics went wrong

Experience has shown that assuming a framework based on methodological individualism, microfoundations, and rationality based on utility leading to general equilibrium through the so-called "invisible hand" of market competition generating spontaneous natural order is not fruitful for explaining the macro scale of economic behavior and its results in terms of a general theory.

Assuming that scaled up micro analysis explains macro effects risks the fallacy of composition, at the very least. The whole is more than the sum of its parts owing to the relationships being a key component of the system. Methodological individualism abstracts from relationships.

The fundamental problem arises from liberalism assuming methodological individualism based on ontological individualism. Since this contradicts the conception of human beings as social animals, it leads to paradoxes of liberalism and models that do not correspond to reality either in their construction or output.

This is likely owing to the origin of liberalism in the 18th century, a time when the mechanistic view of science was in vogue owing to the successes of physics in explaining natural phenomena.

Biology began to dominate in the 19th century but economics never caught up by replacing mechanistic model with organic ones.

Lars P. Syll's Blog
Where modern macroeconomics went wrong
Lars P. Syll | Professor, Malmo University