Lars P. Syll — Mathematics and economics

Many mainstream economists have the idea that because heterodox people — like yours truly — often criticize the application of mathematics in economics, we are critical of math per se.

This is totally unfounded and ridiculous. I do not know how many times I have been asked to answer this straw-man objection to heterodox economics....

There is another issue in the use of math with respect to economics. That is translating what a model says and implies for policy formulation.

For example, do policy recommendations based on a model exceed the the scope of the model? From a practical and historical perspective, this is a big one.

Conventional economists explain that their models did not foresee the global financial crisis because the event was the result of "exogenous shock," which means "beyond the scope of the model." Yet, they continue to use the conventional approach as if it were a universal truth because it a formal model, and, worse, won't listen to "heterodox" views because "the methodological debate is over."

It's true that heterodox economists did not "predict" the global financial crisis with precision as the outcome of a model — "put a number on it." But they did foresee a crisis as highly likely and warned of it developing for reasons that are not included in the models being used by conventional economists — at central banks, for instance, where the most sophisticated macro models are developed.

Alan Greenspan even blew off a warning from the FBI that mortgage fraud was rampant in the US housing market several years before the crash. The chairperson of the Fed is the chief financial regulator as well as overseer of monetary policy. Greenspan, whose ideology was lax regulation, did nothing because he saw nothing to be concerned over in his model. Isolated "froth" he called it. Many still regard him as a wizard anyway.

Philosophers are often caricatured as "ivory tower intellectual" and abstract mathematicians as stumbling over obstacles in their path that go unnoticed because they are eyes are fixed upward.

What about conventional economists?

Lars P. Syll’s Blog
Mathematics and economics
Lars P. Syll | Professor, Malmo University