Money Multiplier Mudslinging — Brian Romanchuk

Oliver Blanchard's revised textbook revisits "the money multiplier." Brian explains that he does not dismiss it but adds an "epicycle."

To clarify terminology, this is treated in the philosophy of science, for example, by Thomas Kuhn in his influential book on revolutions in science. According to Kuhn, science exhibits paradigms in terms of which hypotheses are advanced and theories developed. 

This is the process of "normal science." But as dominant theories are developed and hypotheses tested, anomalies crop up. However, the scientific community is resistant to dropping its normal paradigm in addressing anomalies unless there is a compelling alternative to replace it. 

So "ad hoc adjustments" are made and "ad hoc hypotheses are formulated to extend the life of the normal paradigm. These ad hoc measures are also called resorting to epicycles as a criticism of the practice, referring to the adjustment made to the Ptolemaic system of astronomy prior to the adoption of the Copernican. However, the Copernican system was not adopted exactly when Copernicus proposed it, but rather it met resistance. 

There is always resistance to change owing to investment in the status quo, but in this case, there were also cultural reasons. While these reasons may not be relevant today since the world has moved on, other cultural reasons may be.

This presents a particular issue in contemporary economics in that the majority of influencers in the economics profession are committed to the presumption that "the methodological debate is now settled," hence further discussion is precluded from the mainstream and is relegated to "heterodox" thinkers and schools. Since the influencers control academia, this makes it very difficult for a revolution to occur in economics. 

So the alternative is resorting to ad hoc adjustments, derogatorily called "epicycles," along with the development of heterodox approaches. So far, none of the heterodox approaches has been compelling enough to force a revolution in economic thinking and praxis in general, which would involve adopting a new paradigm to replace the normal paradigm.

Bond Economics
Money Multiplier Mudslinging
Brian Romanchuk

Also

Economics famously suffers from a “which way is up?” problem. The issue is whether an economy is suffering from too much demand or too little demand. On its face, that seems like it should be a very simple question, but in fact it can be complicated and people often get it wrong, with very serious consequences.

Real-World Economics Review Blog

The “Which way is up?” problem in economics

Dean Baker | Co-director of the Center for Economic and Policy Research in Washington, D.C