Sylvia Mercler — Did Economics Fail?

Most still clueless?

Bruegel

Did Economics Fail?

Sylvia Mercler

See also

I haven't read Phil's book yet but it looks interesting. He explored a lot of the issues at his blog, Fixing the Economists, which has been inactive for some time.

The Reformation in Economics is a book written by the Irish economist Philip Pilkington. It is a book that aims to deconstruct contemporary neoclassical economic theory in order to determine to what extent it is scientific and to what extent it is ideological. The book is divided into three sections: Ideology and Methodology, Stripped-Down Macroeconomics and Approaching the Real World. The first section of the book engages in a deconstruction of economic theory that seeks to weed out the ideological elements of economic theory while introducing a coherent methodology that allows for the reconstruction that follows. The second section lays out a theory of the macroeconomy that builds on the methodology described in the first section and tackles: money, prices, profits, income distribution, income determination, investment and finance. The final section sketches out how such a theory should be applied to real-world empirical data, with a particular emphasis on the fact that working economists are faced with fundamental uncertainty and so applying their theories is not as simple or straightforward as applying theories in the hard sciences, like physics.…

Pilkington argues that economics and any disciplines that deal with historical data rather than repeatable controlled experiments deal with material that is fundamentally uncertain. Such material can never be assumed to adhere to fixed laws in the way that, say, chemistry and physics can be thought to adhere to fixed laws. Neoclassical economists and econometricians evade this by claiming that economic and historical processes are characterised by known probability distributions. But Pilkington shows that this is impossible because economic and historical processes are open, not closed systems and so rather than dealing with a series of bounded probabilities we in fact deal with a series of unbounded possibilities.

The author lays out some guidelines for how such material should and should not be dealt with in both theory and in practice. He highlights the British economist Wynne Godley's approach which he refers to as the "unsustainable processes" approach as a novel and robust way to deal with uncertain, open systems material. This methodology seeks to locate economic processes that are unsustainable so that the economist can make a prediction that they will come to an end. Such an approach is not forecasting, as no exact date is given and no attempt at predicting specific variables is undertaken. Pilkington argues that this is the best approach to such open systems material.

In addition to these broad themes, a good deal of the book is concerned with laying out an alternative, "stripped-down" theory of the macroeconomy. This theory rests of the kaleidostatics approach of the British economist G.L.S. Shackle. Pilkington formulates much of this theory in mathematical terms but does so in such a way that it remains an open systems approach. The theory that results is closely linked to the Post-Keynesian school of economic thought.

Economics should be approached in the same vein as military strategy and business planning, taking contingency as foundational and distinguishing among known knowns, unknown knowns (implicit knowledge), known unknowns and unknown unknowns. This requires learning and adjusting based on feedback — reflexivity, adaptability and agility in response to emergence.

Conventional economic theory largely presumes the first but not on the basis of data but rather intuition and introspection. Policy makers proceed on the basis of ideology rather than knowledge, which is a recipe for defeat in military strategy and failure in business planning.

Wikipedia

The Reformation in Economics