In one of its daring trips beyond the walls of orthodoxy The Economist is indulging in a historic turn, reflecting that
“Strangely, most economic models do not treat the economy as an evolving thing, undergoing constant change. They instead describe it in terms of its equilibrium: a stable state in which prices balance supply and demand, or the path the economy follows back to stability when a shock disturbs its rest. Though such strategies have sometimes proved useful, economics is the poorer for its neglect of the economy’s evolutionary nature.economist.com/2021/06/24/economics-needs-to-evolve
Recognising the changeable nature of the human narrative is excellent. But why evolutionary economics? Not that it doesn’t deserve as much attention as any other hetero paradigm. But given we got a climate crisis The Economist might have introduced ecological economics? Why escape to the time frame of evolutionary change? How about just human history or the contemporary medium term, the one with booms and busts? Would it be because evolutionary economics advertises itself as “an extension of the biological sciences”? And history (short, medium or long term) is a social science? Which economics is not? The Economist informs us:
Indeed, social-science thinking informed the views of naturalists such as Charles Darwin. The Reverend Thomas Malthus, who explained how population growth must lead to a life-and-death competition for resources, influenced Darwin as he sketched out how natural selection might lead to the emergence of new species.economist.com/2021/06/24/economics-needs-to-evolve
Social science thinking? More likely it was the contemporary socio-cultural context that influenced Darwin to interpret natural phenomena as he did. Also the Economist should know better than to regurgitate the alleged Malthusian necessity of “life-and-death competition for natural resources”.
And while Alfred Marshall – among the figures most responsible for setting economics on its modern, mathematised course—analysed economic behaviour using systems of equations which could be solved for an “equilibrium”, he did so as a necessary expedient. “Mechanical analogies” were useful, he reckoned, but, “[t]he Mecca of the economist lies in economic biology.”economist.com/2021/06/24/economics-needs-to-evolve
There seems to be a historic pattern of emerging genius academics introducing expedient maths models as analogies, repeatedly emphasising their reductionist assumptions but being ignored by the equilibriating orthodoxy desperate to canonize the next elegant napkin sketch into the latest DSGE exhibit?
Economists still working with equilibrium models out of habit should consider the disruptive potential of a new, yet old, approacheconomist.com/2021/06/24/economics-needs-to-evolve
Excellent advice, especially if The Economist follows it up with further expeditions beyond the pale to disrupt the orthodox parochialism. I look forward to The Economist reporting on other hetero heirs of Veblen and Schumpeter. Like CasP.
Beyond the near monopoly of DSGE orthodoxy the world is not just colourful. A lot of it is also a lot more relevant to real existing economies.
Irrelevance is the name of Ortho-Macro’s crisis. As pointed out in irrefutable sharpness by Austrians, among others, long ago.
As if all the equilibrium maths had enabled economists to say anything relevant about the real existing economy, DSGE mainstreamers like to complain that all the hetero alternatives are “just” narrative economics.
Hence superior hetero mathiness is a threat too lethal to acknowledge? Pre-eminent equilibrium de-bunker and Minsky-Modeller Steve Keen has been academically cancelled.
The Economist has only mentioned him once in 2013 when he appeared to be in the business of “improving DSGE” models.
In Australia Steve Keen, an economist, and Russell Standish, a computational scientist, are developing a software package that would allow anyone to create and play with models of the economy that incorporate some of these new ideas. Called “Minsky”—after Hyman Minsky, an American economist celebrated for his work on boom-and-bust financial cycles—it places the banking system at the centre of the economy.economist.com/2013/new-model-army- Efforts are under way to improve macroeconomic models
2013 was bevor the Krugman versus Keen debate about “endogenous money vs loanable funds”. Looks as if Keen won the argument but lost the battle? A Solow versus Robinson remix? Same farce all over? As Robinson said to Samuelson: “They’ll just ignore it.” Like the marginal absurdity of marginal preference? Nearly a decade ago the Economist saw a long road ahead for the reformation of economics but …
A long road lies ahead, however. “Nobody has got something so convincing that the mainstream has to put up its hands and surrender,” says Paul Ormerod, a British economist. No model yet produces the frequent small recessions, punctuated by rare depressions, seen in reality. But “ultimately,” Mr Shin says, “macro is an empirical subject.” It cannot forever remain “impervious to the facts”.economist.com/2013/new-model-army- Efforts are under way to improve macroeconomic models
Ortho-Macro cannot forever remain impervious to the facts. Really?
Mainstream economics may not be much of a a social science but it’s definitely not much of an empirical science, either. Only a couple of years ago you could get a Nobel price for rediscovering 101 social research and do some “experiments”? There are no conceivable facts that could falsify DSGE Dogma. Stagnant growth, near-zero-Inflation and negative interest rates have nudged the monetary establishment into a rethink. Bankers had to adapt to economic realities. But not the dominant equilibriating economists. Since 2009 one has preferred to shake one’s heads in disbelief at impossible events. This cannot be true. Meanwhile hetero MMT managed to slip through the opinionated silence of the Academy to get the media’s ear.
And anyway, textbook economics is not really about macro. Occasionally outraged by the ignorant criticism “even from social scientists”, economists remind us that most of the critique misses the point. Academic Economics isn’t about Macro at all. It’s all about Micro. That’s their big thing. Practically no Macro in the textbooks ,says Krugman .
As a micro-entrepreneur, I for once totally agree with mega-business billionaire Bill Gates: “Economists don’t understand macroeconomics”. This may have to do with leaving out all the stuff heteros keep going on about. Like the credit/debt dynamic of money, especially “endogenous” credit-money.
Loanable Funds vs. Endogenous Money: Krugman is Wrong, Keen is Right by Egmont Kakarot-Handtke
Abstract : In his recent article, Keen resumes the debate with Krugman about the effects of debt upon the economy. It is hard to see how the question can be settled as long as all participants apply their idiosyncratic models. Hence the issue boils down, as Krugman rightly put it, to the deeper question: “how should one do economics.” Sketched with a broad brush, the consensus is that Orthodoxy has failed and that Heterodoxy has no convincing alternative to offer. The conceptual consequence of the present paper is to restart from a firm common formal ground. This relocation makes the debate solvable.papers.ssrn/Egmont Kakarot/Loanable Funds vs Endogenous Money: Krugman is Wrong, Keen is Right
The zombie skeleton of Classical Macro Theory is just as embarrassing as the third synthesis. Not that the edifices to be synthesised are worth the effort in the first place. But as any clergy might say: this is the only liturgy we know. There is no alternative. As VV Chari said to Paul Romer :
“Burning down the edifice, and saying we’ll figure out what we’ll build on its foundations later, just does not seem like a constructive way to proceed”economictimes.indiatimes.com – world-banks-chief-economist-romer-says-macroeconomics-in-trouble
With a little help from The Economist the heteros’ moment should be coming. But are the Ur- and Post Keynesians ready for disaggregated diversity? Or will quantum credit modellers and ecological economists out-maths them in a doughnut shaped turn to narrative value ?
Just follow the money…
see also gm pages
- Economics – DSGE – mainstream delusions, denials and disagreements
- Economics – other sciences – history of
- Economics – next paradigm, hetero + pluralist