The Recent Critique of Theoretical Economics: A Methodologically Informed Investigation

Abstract

My purpose is to appraise the recent critique of theoretical economics by applying the methodological perspective. Therefore, I start by identifying the main lines of criticism raised against theoretical economics in the aftermath of the post-2008 global economic crisis: namely, the voices criticizing economics for its unrealistic models, excessive mathematization, and overconfidence in its theoretical claims. First, I show that these issues are interconnected and should be jointly analyzed. Next, I investigate these lines of critique from the perspective provided by the latest achievements in the philosophy of economics (e.g., studies on the epistemic role of economic models). Taking this perspective reinforces some allegations against economics (e.g., these voices accusing economists of treating economic laws as universal laws of nature) and makes some criticisms more nuanced (e.g., the issue of unrealistic assumptions). I conclude by stating that such a methodological perspective is necessary in critically apprising the recent critique of economics.

Keywords:

• critique of economics
• economic crisis
• mathematization of economics
• methodology of economics
• models and laws in economics

JEL Classification Codes:

• A11
• A12
• B40

Notes

¹ An insightful survey of papers dealing with the limited credibility of empirical economics is offered by John Ioannidis and Chris Doucouliagos (2013).

² Such views are not new among historians and methodologists of economics (cf. Mirowski 1991). Even those who strongly influenced early neoclassical economists (here, I have in mind nineteenth-century physicists) were conscious that too much mathematics may lead to empirical emptiness of theoretical claims. For example, James C. Maxwell ([1855] 1965, 155, cited in Boumans 2004, 262) clearly stated that purely mathematical models may “entirely lose sight of the phenomena to be explained.”

³ At least, this is what he claims, while stating the following: “[T]his romanticized and sanitized vision of the economy led most economists to ignore all the things that can go wrong. They turned a blind eye to the limitations of human rationality that often lead to bubbles and busts; to the problems of institutions that run amok; to the imperfections of markets — especially financial markets — that can cause the economy’s operating system to undergo sudden, unpredictable crashes; and to the dangers created when regulators don’t believe in regulation” (Krugman 2009, 37.

⁴ The distinction between greater and minor causes of economic phenomena is due to John Stuart Mill (1843, ch. 3). In a similar vein, Fritz Machlup (1955) distinguishes between fundamental and specific assumptions.

⁵ In what follows I make use of my conceptualization of economic models as believable worlds (e.g., Hardt 2015).

⁶ The very category of belief is present in contemporary epistemology, where the quality of understanding that models offer is taken as a measure of their goodness (cf. Suarez 2010). So, understanding is defined in terms of belief and not in terms of universal knowledge.

⁷ Nomological machine is defined as “a fixed (enough) arrangement of components, or factors, with stable (enough) capacities that in the right sort of stable (enough) environment will, with repeated operation, give rise to the kind of regular behavior that we represent in our scientific laws” (Cartwright 1999, 50).

⁸ Although, in philosophical literature, the notion of essesimilitude usually refers to theories, one can use it (at least analogically) in reference to models if models are understood as entities producing theoretical claims (Mäki 2012). Here, I assume that models, capturing the “essence” of the target, give rise to theoretical claims about this very “essence” (Niiniluoto 2002, 218). However, an in-depth study on this issue is beyond the scope of this paper.

⁹ Here, Uskali Mäki refers to the concept of truth in an essentialist sense.

Additional information

Notes on contributors

Lukasz Hardt

Lukasz Hardt is a professor in the Department of Economics at the University of Warsaw (Poland). He gratefully acknowledges the grant from the National Science Center of Poland (grant no. 2011/01/D/HS4/03829) that financed this research.